UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESANDEXCHANGECOMMISSION ACT OF 1934
Washington,D.C. 20549
FORM 10-Q
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ForthequarterlyperiodendedMarch31, June 30, 2015
or
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☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____to_____.
Forthetransitionperiodfrom_____to_____.
Commission File Number: 000-14801
Mikros Systems Corporation
(Exact name of registrant as specified in its charter)
Delaware | 14-1598200 |
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of incorporation or organization) | (I.R.S. Employer Identification No.) |
707 Alexander Road, Building Two, Suite 208, Princeton, New Jersey 08540 (Address of Principal Executive Offices) (609) 987-1513 (Registrant’s Telephone Number, Including Area Code) 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 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 ☐No Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).☒Yes ☐No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☒ (Do not check if a smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).☐707AlexanderRoad,BuildingTwo,Suite208, Princeton,NewJersey(Address of Principal Executive Offices)“smaller“ smaller reporting company” in Rule 12b-2 of the Exchange Act. ☐ ☒ (Do not check if a smaller reporting company)☒No☒ No
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: There were 32,018,753 issued and outstanding shares of the issuer’s common stock, $.01 par value per share, on May 15,August 14, 2015.
TABLE OF CONTENTS
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PAGE # | ||
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Item 1. | Financial Statements | |
Condensed Balance Sheets as of | 1 | |
Condensed Statements of Operations and Comprehensive Income | 2 | |
Condensed Statements of Cash Flows for the | 3 | |
Notes | 4 | |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 4. | Controls and Procedures |
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PART II. | OTHER INFORMATION | |
Item 6. | Exhibits |
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Signatures | 15 |
PARTI.FINANCIALINFORMATION
Item 1.FinancialStatements
MIKROSSYSTEMSCORPORATION Mikros Systems Corporation
CONDENSEDBALANCESHEET Condensed Balance Sheets
(unaudited)
June 30, 2015 | December 31, 2014 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 1,159,584 | $ | 1,161,634 | ||||
Receivables on government contracts | 1,607,621 | 1,575,954 | ||||||
Prepaid expenses and other current assets | 151,926 | 105,197 | ||||||
Deferred tax asset, current | 28,065 | 28,065 | ||||||
Total current assets | 2,947,196 | 2,870,850 | ||||||
Property and equipment: | ||||||||
Equipment | 64,379 | 61,686 | ||||||
Furniture & fixtures | 14,728 | 14,728 | ||||||
Less: accumulated depreciation | (65,562 | ) | (62,123 | ) | ||||
Property and equipment, net | 13,545 | 14,291 | ||||||
Patents and trademarks | 1,383 | 1,383 | ||||||
Less: accumulated amortization | (1,243 | ) | (1,173 | ) | ||||
Intangible assets, net | 140 | 210 | ||||||
Deferred tax assets | 86,935 | 140,935 | ||||||
Total assets | $ | 3,047,816 | $ | 3,026,286 | ||||
Liabilities and shareholders' equity | ||||||||
Current liabilities: | ||||||||
Accrued payroll and payroll taxes | $ | 420,005 | $ | 493,308 | ||||
Accounts payable and accrued expenses | 517,049 | 688,534 | ||||||
Accrued warranty expense | 40,100 | 33,500 | ||||||
Total current liabilities | 977,154 | 1,215,342 | ||||||
Long-term liabilities | 4,625 | 7,770 | ||||||
Total liabilities | 981,779 | 1,223,112 | ||||||
Redeemable series C preferred stock par value $.01 per share, authorized 150,000 shares, issued and outstanding 5,000 shares (involuntary liquidation value - $80,450) | 80,450 | 80,450 | ||||||
Shareholders' equity: | ||||||||
Preferred stock, series B convertible, par value $.01 per share, authorized 1,200,000 shares, issued and outstanding 1,102,433 shares (involuntary liquidation value - $1,102,433) | 11,024 | 11,024 | ||||||
Preferred stock, convertible, par value $.01 per share, authorized 2,000,000 shares, issued and outstanding 255,000 shares (involuntary liquidation value - $255,000) | 2,550 | 2,550 | ||||||
Preferred stock, series D, par value $.01 per share, 690,000 shares authorized, issued and outstanding (involuntary liquidation value - $1,518,000) | 6,900 | 6,900 | ||||||
Common stock, par value $.01 per share, authorized 60,000,000 shares, issued and outstanding 32,018,753 shares at June 30, 2015 and December 31, 2014 | 320,188 | 320,188 | ||||||
Capital in excess of par value | 11,630,090 | 11,628,728 | ||||||
Accumulated deficit | (9,985,165 | ) | (10,246,666 | ) | ||||
Total shareholders' equity | 1,985,587 | 1,722,724 | ||||||
Total liabilities and shareholders' equity | $ | 3,047,816 | $ | 3,026,286 | ||||
See Notes to Unaudited Condensed Financial Statements
Mikros Systems Corporation
Condensed Statements of Operations and Comprehensive Income
(Unaudited)(unaudited)
March31, | December31, | |||||||
2015 | 2014 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 1,159,075 | $ | 1,161,634 | ||||
Receivables on government contracts | 1,176,498 | 1,575,954 | ||||||
Prepaid expenses and other current assets | 112,621 | 105,197 | ||||||
Deferred tax asset, current | 28,065 | 28,065 | ||||||
Total current assets | 2,476,259 | 2,870,850 | ||||||
Property and equipment: | ||||||||
Equipment | 64,379 | 61,686 | ||||||
Furniture & fixtures | 14,728 | 14,728 | ||||||
Less: accumulated depreciation | (63,873 | ) | (62,123 | ) | ||||
Property and equipment, net | 15,234 | 14,291 | ||||||
Patents and trademarks | 1,383 | 1,383 | ||||||
Less: accumulated amortization | (1,208 | ) | (1,173 | ) | ||||
Intangible assets, net | 175 | 210 | ||||||
Deferred tax assets | 110,935 | 140,935 | ||||||
Total assets | $ | 2,602,603 | $ | 3,026,286 | ||||
Liabilitiesandshareholders'equity | ||||||||
Current liabilities: | ||||||||
Accrued payroll and payroll taxes | $ | 346,433 | $ | 493,308 | ||||
Accounts payable and accrued expenses | 241,929 | 688,534 | ||||||
Accrued warranty expense | 63,400 | 33,500 | ||||||
Total current liabilities | 651,762 | 1,215,342 | ||||||
Long-term liabilities | 6,197 | 7,770 | ||||||
Total liabilities | 657,959 | 1,223,112 | ||||||
Redeemable series C preferred stock par value $.01 per share, authorized 150,000shares, issued and outstanding 5,000 shares (involuntary liquidation value -$80,450) | 80,450 | 80,450 | ||||||
| Shareholders' equity: | ||||||||
Preferred stock, series B convertible, par value $.01 per share, authorized 1,200,000 shares, issued and outstanding 1,102,433 shares (involuntaryliquidation value - $1,102,433) | 11,024 | 11,024 | ||||||
Preferred stock, convertible, par value $.01 per share, authorized 2,000,000 shares, issued and outstanding 255,000 shares (involuntary liquidation value -$255,000) | 2,550 | 2,550 | ||||||
Preferred stock, series D, par value $.01 per share, 690,000 shares authorized,issued and outstanding (involuntary liquidation value - $1,518,000) | 6,900 | 6,900 | ||||||
| Common stock, par value $.01 per share, authorized 60,000,000 shares, issued and outstanding 32,018,753 shares at March 31, 2015 and December 31, 2014 | 320,188 | 320,188 | ||||||
| Capital in excess of par value | 11,629,409 | 11,628,728 | ||||||
| Accumulated deficit | (10,105,877 | ) | (10,246,666 | ) | ||||
| Total shareholders' equity | 1,864,194 | 1,722,724 | ||||||
| Total liabilities and shareholders' equity | $ | 2,602,603 | $ | 3,026,286 | ||||
Three Months Ended, | Six Months Ended, | |||||||||||||||
June 30, 2015 | June 30, 2014 | June 30, 2015 | June 30, 2014 | |||||||||||||
Contract revenues | $ | 1,734,382 | $ | 1,209,802 | $ | 4,210,421 | $ | 2,093,142 | ||||||||
Cost of sales | 877,168 | 439,701 | 2,339,073 | 852,380 | ||||||||||||
Gross margin | 857,214 | 770,101 | 1,871,348 | 1,240,762 | ||||||||||||
Expenses: | ||||||||||||||||
Engineering | 326,521 | 276,751 | 748,936 | 502,653 | ||||||||||||
General and administrative | 300,574 | 308,504 | 622,597 | 592,635 | ||||||||||||
Total expenses | 627,095 | 585,255 | 1,371,533 | 1,095,288 | ||||||||||||
Income from operations | 230,119 | 184,846 | 499,815 | 145,474 | ||||||||||||
Interest income | 93 | 93 | 186 | 221 | ||||||||||||
Net income before income taxes | 230,212 | 184,939 | 500,001 | 145,695 | ||||||||||||
Income tax expense | 109,500 | 54,656 | 238,500 | 23,446 | ||||||||||||
Net income and comprehensive income | $ | 120,712 | $ | 130,283 | $ | 261,501 | $ | 122,249 | ||||||||
Basic income per common share | $ | - | $ | - | $ | 0.01 | $ | - | ||||||||
Basic weighted average number of common shares outstanding | 31,947,753 | 31,888,753 | 32,124,260 | 31,886,549 | ||||||||||||
Diluted income per common share | $ | - | $ | - | $ | 0.01 | $ | - | ||||||||
Diluted weighted average number of common shares outstanding | 35,548,552 | 35,469,052 | 35,722,826 | 35,465,181 | ||||||||||||
SeeNotestoUnauditedCondensedFinancialStatements
MIKROS SYSTEMS CORPORATION
CONDENSED STATEMENT OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
(Unaudited)
| ThreeMonthsEnded, | ||||||||
March31, 2015 | March31, 2014 | |||||||
Contract Revenues | $ | 2,476,039 | $ | 883,340 | ||||
Cost of sales | 1,461,905 | 412,679 | ||||||
Gross profit | 1,014,134 | 470,661 | ||||||
Expenses: | ||||||||
| Engineering | 422,415 | 225,902 | ||||||
General and administrative | 322,023 | 284,131 | ||||||
Total expenses | 744,438 | 510,033 | ||||||
Income (loss) from operations | 269,696 | (39,372 | ) | |||||
Interest income | 93 | 128 | ||||||
Net income (loss) before income taxes | 269,789 | (39,244 | ) | |||||
Income tax expense (benefit) | 129,000 | (31,210 | ) | |||||
Net income (loss) and comprehensive income (loss) | $ | 140,789 | $ | (8,034 | ) | |||
Basic income (loss) per common share | $ | - | $ | - | ||||
Basic weighted average number of common shares outstanding | 31,947,753 | 31,884,320 | ||||||
Diluted income (loss) per common share | $ | - | $ | - | ||||
Diluted weighted average number of common shares outstanding | 35,553,766 | 31,884,320 | ||||||
SeeNotestoUnauditedCondensedFinancialStatements
MIKROS SYSTEMS CORPORATIONMikros Systems Corporation
CONDENSED STATEMENT OF CASH FLOWSCondensed Statements of Cash Flows
(Unaudited)(unaudited)
Six Months Ended | ||||||||||||||||
| ThreeMonthsEnded, | June 30, 2015 | June 30, 2014 | ||||||||||||||
March31, 2015 | March31, 2014 | |||||||||||||||
Cash flows from operating activities | ||||||||||||||||
Net income (loss) | $ | 140,789 | $ | (8,034 | ) | |||||||||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operatingactivities: | ||||||||||||||||
Net income | $ | 261,501 | $ | 122,249 | ||||||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||
Depreciation and amortization | 1,785 | 1,332 | 3,509 | 3,122 | ||||||||||||
Deferred tax benefit (expense) | 30,000 | (29,907 | ) | |||||||||||||
Deferred tax expense | 54,000 | 14,902 | ||||||||||||||
Share-based compensation expense | 681 | 3,848 | 1,362 | 7,716 | ||||||||||||
Changes in assets and liabilities: | ||||||||||||||||
Decrease (increase) in receivables on government contracts | 399,456 | (52,314 | ) | |||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Increase in receivables on government contracts | (31,667 | ) | (157,707 | ) | ||||||||||||
Increase in prepaid expenses and other current assets | (7,424 | ) | (38,225 | ) | (46,729 | ) | (27,305 | ) | ||||||||
Decrease in accrued payroll and payroll taxes | (146,875 | ) | (15,869 | ) | ||||||||||||
(Decrease) increase in accounts payable and accrued expenses | (446,605 | ) | 7,890 | |||||||||||||
Increase (decrease) in accrued payroll and payroll taxes | (73,303 | ) | 127,987 | |||||||||||||
Decrease in accounts payable and accrued expenses | (171,485 | ) | (33,153 | ) | ||||||||||||
Increase in accrued warranty expense | 29,900 | 3,931 | 6,600 | 9,054 | ||||||||||||
Decrease in long-term liabilities | (1,573 | ) | (1,141 | ) | (3,145 | ) | (2,281 | ) | ||||||||
Net cash provided by (used in) operating activities | 134 | (128,489 | ) | |||||||||||||
Net cash provided by operating activities | 643 | 64,584 | ||||||||||||||
Cash flows from investing activities: | ||||||||||||||||
Purchase of property and equipment | (2,693 | ) | (6,430 | ) | (2,693 | ) | (11,890 | ) | ||||||||
Net cash used in investing activities | (2,693 | ) | (6,430 | ) | ||||||||||||
Net cash used in investing activities: | (2,693 | ) | (11,890 | ) | ||||||||||||
Cash flows from financing activities: | ||||||||||||||||
Proceeds received upon the exercise of stock options | - | 350 | - | 350 | ||||||||||||
Net cash provided by financing activities | - | 350 | - | 350 | ||||||||||||
Net decrease in cash and cash equivalents | (2,559 | ) | (134,569 | ) | ||||||||||||
Net (decrease) increase in cash and cash equivalents | (2,050 | ) | 53,044 | |||||||||||||
Cash and cash equivalents, beginning of period | 1,161,634 | 1,028,146 | 1,161,634 | 1,028,146 | ||||||||||||
Cash and cash equivalents, end of period | $ | 1,159,075 | $ | 893,577 | $ | 1,159,584 | $ | 1,081,190 | ||||||||
Supplemental cash flow information | ||||||||||||||||
Supplemental cash flow information: | ||||||||||||||||
Cash paid during the period for income taxes | $ | 7,900 | $ | 558 | $ | 143,900 | $ | 558 | ||||||||
SeeNotestoUnauditedCondensedFinancialStatements
See Notes to Unaudited Condensed Financial Statements
MIKROS SYSTEMS CORPORATIONMikros Systems Corporation
NOTES TOCONDENSEDFINANCIALSTATEMENTSNotes to Condensed Financial Statements
(Unaudited)(unaudited)
NOTENote 1–BasisofPresentation
The financial statements included herein have been prepared by Mikros Systems Corporation (the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). 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 condensed 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, 2014.
In the opinion of the Company’s management, the accompanying unaudited interim condensed 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 March 31,June 30, 2015, and the results of its operations for the three and itssix months ended June 30, 2015 and 2014 and cash flows for the threesix months ended March 31,June 30, 2015 and 2014. Changes in the Company’s stockholders’ equity from December 31, 2014 to June 30, 2015 are a result of share-based compensation expense of $681$1,362 and net income of $140,789 for the three months ended March 31, 2015.$261,501.
Interim results are not necessarily indicative of results for the full fiscal year.
NOTENote 2–RecentAccountingPronouncements
There have been no developments to recently issued accounting standards, including the expected dates of adoption and estimated effects on the Company’s condensed financial statements, from those disclosed in the Company’s 2014 Annual Report on Form 10-K.10-K
NOTENote 3–SignificantAccountingPolicies
RevenueRecognition
The Company is engaged in research and development contracts with the federal government to develop certain technology to be utilized by the U.S. Department of Defense (“DoD”). The contracts are cost plus fixed fee contracts and revenue is recognized on the basis of such measurement of partial performance as will reflect reasonably assured realization or delivery of completed articles. Fees earned under the Company’s contracts may also be accrued as they are billable, under the terms of the agreements, unless such accrual is not reasonably related to the proportionate performance of the total work or services to be performed by the Company from inception to completion. Under the terms of certain contracts, fixed fees are not recognized until the receipt of full payment has become unconditional, that is, when the product has been delivered and accepted by the Federal government. Backlog represents the estimated amount of future revenues to be recognized under negotiated contracts as work is performed. The Company’s backlog includes future ADEPTfutureAdaptive Diagnostic Electronic Portable Testset (“ADEPT”) units to be developed and delivered to the Federal government.
Unbilled revenue reflects work performed, but not yet billed at the time, per contractual requirements. The Company had unbilled revenues of $96,505$87,980 and $34,366 included in receivables on government contractsaccounts receivable as of March 31,June 30, 2015 and December 31, 2014, respectively. Billings to customers in excess of revenue earned are classified as advanced billings, and shown as a liability. As of March 31,June 30, 2015 and December 31, 2014, the Company had no advanced billings.
MIKROS SYSTEMS CORPORATIONMikros Systems Corporation
NOTES TOCONDENSEDFINANCIALSTATEMENTSNotes to Condensed Financial Statements
(Unaudited)(unaudited)
Warranty Expense
The Company provides a limited warranty, as defined by the related warranty agreements, for its production units. The Company’s warranties require the Company to repair or replace defective products during such warranty period. The Company estimates the costs that may be incurred under its warranty and records a liability in the amount of such costs at the time product revenue is recognized. Factors that affect the Company’s warranty liability include the number of units sold, expected and anticipated rates of warranty claims, and cost per claim. The Company periodically assesses the adequacy of its recorded warranty liability and adjusts the amount as necessary. During the three months ended March 31,June 30, 2015 and 2014, the Company recognized warranty (benefit) expense of $(23,300) and $5,600, respectively, and for the six months ended June 30, 2015 and 2014, the Company recognized warranty expense of $29,900$6,600 and $4,600,$10,200, respectively. Since the inception of the ADEPT IDIQ contract in March 2010, the Company has delivered 137 ADEPT units. As of March 31,June 30, 2015, there are 2115 ADEPT units that remain under the limited warranty coverage. As of March 31,June 30, 2015 and December 31, 2014, the Company had an accrued warranty expense of $63,400$40,100 and $33,500, respectively.
The following table reflects the reserve for product warranty activity as of March 31,June 30, 2015 and December 31, 2014:
2015 | 2014 | 2015 | 2014 | |||||||||||||
Reserve for product warranty, beginning of period | $ | 33,500 | $ | 35,190 | $ | 33,500 | $ | 35,190 | ||||||||
Provision for product warranty | 29,900 | 51,210 | 29,900 | 51,210 | ||||||||||||
Product warranty expirations | - | (52,900 | ) | (23,300 | ) | (52,900 | ) | |||||||||
Product warranty costs paid | - | - | ||||||||||||||
Reserve for product warranty, end of period | $ | 63,400 | $ | 33,500 | $ | 40,100 | $ | 33,500 | ||||||||
Research and Development Costs
Research and Development expenditures for the research and development of the Company's products are expensed when incurred, and are included in general and administrative expenses. The Company recognized research and development costs of $1,544$8,191 and $1,649 for the three months ended March 31,June 30, 2015 and 2014, respectively, and $9,735 and $3,297, for the six months ended June 30, 2015 and 2014, respectively.
MIKROS SYSTEMS CORPORATION
NOTES TOCONDENSEDFINANCIALSTATEMENTSMikros Systems Corporation
(Unaudited)Notes to Condensed Financial Statements
(unaudited)
NOTENote 4 – Income (Loss) Per Share
For periods with net income, net income per common share information is computed using the two-class method. Under the two-class method, basic net income per common share is computed by dividing the net income attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Basic net loss attributable to common stockholders is computed by an adjustment to subtract from net income the portion of current period earnings that the preferred shareholders would have been entitled to receive pursuant to their dividend rights had all of the period’s earnings been distributed. No such adjustment to earnings is made during periods with a net loss, as the holders of the convertible preferred shares have no obligation to fund losses.
The Company’s calculation of earnings per share is as follows:
Three Months Ended, | Six Months Ended, | |||||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Basic earnings per common share: | ||||||||||||||||
Net income applicable to common shareholders - basic | $ | 120,712 | $ | 130,283 | $ | 261,501 | $ | 122,249 | ||||||||
Portion allocable to common shareholders | 99.2 | % | 99.2 | % | 99.2 | % | 99.2 | % | ||||||||
Net income allocable to common shareholders | 119,746 | 129,242 | 259,409 | 121,271 | ||||||||||||
Weighted average basic shares outstanding | 31,947,753 | 31,888,753 | 32,124,260 | 31,886,549 | ||||||||||||
Basic earnings per share | $ | - | $ | - | $ | 0.01 | $ | - | ||||||||
Dilutive earnings per common share: | ||||||||||||||||
Net income allocable to common shareholders | 119,746 | 129,242 | 259,409 | 121,271 | ||||||||||||
Add: undistributed earnings allocated to participating securities | 966 | 1,042 | 2,092 | 978 | ||||||||||||
Numerator for diluted earnings per common share | 120,712 | 130,283 | 261,501 | 122,249 | ||||||||||||
Weighted average basic shares outstanding | 31,947,753 | 31,888,753 | 32,124,260 | 31,886,549 | ||||||||||||
Diluted effect: | ||||||||||||||||
Stock options | 19,250 | 18,000 | 18,667 | 16,333 | ||||||||||||
Unvested restricted stock awards | 19,250 | - | 17,600 | - | ||||||||||||
Conversion equivalent of dilutive Series B Convertible Preferred Stock | 3,307,299 | 3,307,299 | 3,307,299 | 3,307,299 | ||||||||||||
Conversion equivalent of dilutive Convertible Preferred Stock | 255,000 | 255,000 | 255,000 | 255,000 | ||||||||||||
Weighted average dilutive shares outstanding | 35,548,552 | 35,469,052 | 35,722,826 | 35,465,181 | ||||||||||||
Dilutive earnings per share | $ | - | $ | - | $ | 0.01 | $ | - | ||||||||
March 31, 2015 | March 31, 2014 | |||||||
Basic earnings per common share: | ||||||||
Net income (loss) applicable to common shareholders – basic | $ | 140,789 | $ | (8,034) | ||||
Portion allocable to common shareholders | 99.2% | 100.0% | ||||||
Net income allocable to common shareholders | 139,663 | (8,034) | ||||||
Weighted average basic shares outstanding | 31,947,753 | 31,884,320 | ||||||
Basic earnings per share | $ | - | $ | - | ||||
Dilutive earnings per common share: | ||||||||
Net income allocable to common shareholders | 139,663 | (8,034) | ||||||
Add: undistributed earnings allocated to participating securities | 1,126 | - | ||||||
Numerator for diluted earnings per common share | 140,789 | (8,034) | ||||||
Weighted average basic shares outstanding | 31,947,753 | 31,884,320 | ||||||
Diluted effect: | ||||||||
Stock options | 28,000 | - | ||||||
Unvested restricted stock awards | 15,714 | |||||||
Conversion equivalent of dilutive Series B Convertible Preferred Stock | 3,307,299 | - | ||||||
Conversion equivalent of dilutive Convertible Preferred Stock | 255,000 | - | ||||||
Weighted average dilutive shares outstanding | 35,553,766 | 31,884,320 | ||||||
Dilutive earnings per share | $ | - | $ | - | ||||
TheMikros Systems Corporation
Notes to Condensed Financial Statements
(unaudited)
This table below sets forth the calculation of the percentage of net earnings (loss) allocable to common shareholders under the two-class method:
March 31, 2015 | March 31, 2014 | |||||||
Numerator: | ||||||||
Weighted average participating common shares | 31,947,753 | 31,884,320 | ||||||
Denominator: | ||||||||
Weighted average participating common shares | 31,947,753 | 31,884,320 | ||||||
Add: Weighted average shares of Convertible Preferred Stock | 255,000 | - | ||||||
Weighted average participating shares | 32,202,753 | 31,884,320 | ||||||
Portion allocable to common shareholders | 99.2 % | 100.0 % | ||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Numerator: | ||||||||||||||||
Weighted average participating common shares | 31,947,753 | 31,888,753 | 32,124,260 | 31,886,549 | ||||||||||||
Denominator: | ||||||||||||||||
Weighted average participating common shares | 31,947,753 | 31,888,753 | 32,124,260 | 31,886,549 | ||||||||||||
Add: Weighted average shares of Convertible Preferred Stock | 255,000 | 255,000 | 255,000 | 255,000 | ||||||||||||
Weighted average participating shares | 32,202,753 | 32,143,753 | 32,379,260 | 32,141,549 | ||||||||||||
Portion allocable to common shareholders | 99.2 | % | 99.2 | % | 99.2 | % | 99.2 | % | ||||||||
Diluted earnings (loss) per share for the three and six months ended March 31,June 30, 2015 and 2014 dodoes not reflect the following potential common shares, as the effect would be antidilutive.
June 30,2015 | June 30, 2014 | |||||||
Stock options | 610,000 | 610,000 | ||||||
Unvested portion of restricted stock | - | 75,000 | ||||||
Convertible preferred stock | - | - | ||||||
| 610,000 | 685,000 | |||||||
March 31, 2015 | March 31, 2014 | |||||||
Stock options | 610,000 | 638,000 | ||||||
Unvested restricted stock awards | - | 89,000 | ||||||
Convertible preferred stock | - | 3,562,299 | ||||||
Total | 610,000 | 4,289,299 | ||||||
NOTENote 5–Income TaxMatters
The Company conducts an on-going analysis to review its net deferred tax asset and the need for a related valuation allowance. As a result of this analysis and the actual results of operations, the Company has (decreased) increaseddecreased its net deferred tax assets by ($30,000)$54,000 and $29,907$14,902 during the threesix months ended March 31,June 30, 2015 and 2014, respectively. The change in deferred tax assets is attributable to the utilization of income tax attributes, primarily federal net operating losses, as the Company anticipates annual earnings from operations to continue.
NOTENote 6–ShareBased Share-Based Compensation
During the three and six months ended March 31,June 30, 2015 and 2014, the Company did not issue stock option awards. During the threesix months ended March 31,June 30, 2014, 7,000 shares were exercised for proceeds in the amount of $350. The Company recognized stock-based compensation expense for stock options of $37 and $3,027$2,850 for the three months ended March 31,June 30, 2015 and 2014, respectively. AsThe Company recognized stock-based compensation expense for stock options of March 31,$74 and $5,680 for the six months ended June 30, 2015 and 2014, there were outstanding options to purchase 638,000 shares of common stock.respectively. The intrinsic value of the options as of March 31,June 30, 2015 is $3,080.
As of March 31,June 30, 2015 and 2014, there were 44,000 and 103,000 restricted stock awards outstanding, respectively.outstanding. The Company recognized stock-based compensation expense for restricted stock of $644 and of $821$1,018 for the three months ended March 31,June 30, 2015 and 2014, respectively. The Company recognized stock-based compensation expense for restricted stock of $1,288 and $2,036 for the six months ended June 30, 2015 and 2014, respectively.
As of March 31,June 30, 2015, there was $4,057$3,376 of unrecognized stock-based compensation expense related to all outstanding equity awards that will be recognized in a future periods.
Mikros Systems Corporation
Notes to Condensed Financial Statements
(unaudited)
NOTENote 7 – Related Party Transactions
Paul Casner, the chairman of the Company’s board of directors, also serves as the executive chairman and CEO of Atair Aerospace Incorporation. During 2014, Atair provided subcontracting services to the Company relating to the design of the chassis component within the ADEPT units. The Company incurred subcontracting service costs from Atair of $2,279 during the three and six months ended June 30, 2015. During the three and six months ended March 31,June 30, 2014, the Company incurred subcontracting service costs from Atair of $24,689. The Company did not incur any of these service costs in 2015.$2,000 and $26,689, respectively.
Note 8 – Subsequent Events
In July 2015, the Company purchased certain software products, intellectual property and related assets from VSE Corporation. As payment for such products, the Company agreed to pay to VSE Corporation 30% of the gross royalty revenue related to the Company’s sale of licenses for the purchased software products during the six year period following the completion of the transaction, up to a maximum amount of $1,000,000. The primary software programs purchased by the Company are the Prognostics Framework (PF) and Diagnostic Profiler (DP) programs. The Diagnostic Profiler software is used worldwide by several multinational companies for optimized maintenance of diverse product lines. The Diagnostic Profiler is also used by the US Air Force for depot test programs, and Prognostics Framework is used by the US Army for several missile defense systems.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report contains “forward-looking statements” – that is, statements related to future, not past, events. In this context, forward-looking statements often address our expected future business and financial performance and financial condition, and often contain words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “see,” or “will.” These forward- lookingforward-looking statements are not guarantees and are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. For us, particular uncertainties that could cause our actual results to be materially different than those expressed in our forward- lookingforward-looking statements include: changes in business conditions;conditions; a decline in or redirection of the U.S. defense budget;budget; the termination of any contracts with the U.S. Government;Government; continuation of the Federal automatic sequestration cuts;cuts; changes in our sales strategy and product development plans;plans; changes in the marketplace;marketplace; continued services of our executive management team;team; our limited marketing experience;experience; our ability to integrate newly acquired software into our business model; competition between us and other companies seeking Small Business Innovative Research (“SBIR”) grants;grants; competitive pricing pressures;pressures; market acceptance of our products under development;development; delays in the development of products;products; and statements of assumption underlying any of the foregoing, as well as other factors set forth under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2014 filed with the Securities and Exchange Commission.
All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the foregoing. Except as required by law, we assume no duty to update or revise our forward- lookingforward-looking statements based on changes in internal estimates or expectations or otherwise.
Item 2. Management’s Discussion and Analysis of Financial Position and Results of Operations
Mikros Systems Corporation (“Mikros,” the “Company,” “we” or “us”) is an advanced technology company specializing in the research and development of electronic systems technology primarily for military applications. Classified by the Department of Defense (“DoD”) as a small business, our capabilities include technology management, electronic systems engineering and integration, radar systems engineering, combat/command, control, communications, computers and intelligence (“C4I”) systems engineering, and communications engineering.
Overview
Our primary business focus is to pursue SBIR programs from the DoD, Department of Homeland Security, and other governmental authorities, and to expand this government funded research and development into products and services. Since 2002, we have been awarded several Phase I, II, and III SBIR contracts.
Revenues from our government contracts represented 100% of our revenues for the three and six months ended March 31,June 30, 2015 and 2014. We believe that we can utilize the intellectual property developed under our various SBIR awards to develop proprietary products for both the government and commercial marketplace.
ADEPT®
Our primary source of revenue is sales of our Adaptive Diagnostic Electronic Portable Testset, or ADEPT®,ADEPT, to the United States Navy. ADEPT is an automated maintenance workstation designed to significantly reduce the man-hours required to align the AN/SPY-1 Radar System aboard U.S. Navy AEGIS cruisers and destroyers, while optimizing system performance and readiness. ADEPT represents a new approach to Navy shipboard maintenance, integrating modular instrumentation cards in a rugged enclosure with an onboard computer, input and output devices, networking hardware, removable hard drives, and a touch screen display. A custom software application provides the user interface and integrates the hardware with a database that stores user information, instrument readings, maintenance requirements, and training aids. ADEPT is designed to be adapted to other complex shipboard system, and to provide integrated distance support capabilities for remote diagnostics and troubleshooting by shore-based Navy experts. We are currently extending the ADEPT system to a second Navy radar system the SPS-49, which is expected to assist in optimizingthat will help optimize performance for the Ballistic Missile Defense mission.
ADSSS
In 2013, we developed a second-generation of our ADEPTAdaptive Distance Support Sensor Suite, or ADSSS, for the Littoral Combat Ship (LCS). ADSSS is a network-enabled system which can be configured to monitor manymultiple shipboard systems and report maintenance data onshore for further analysis to detect trends and predict failures. This development program remains on schedule in-houseinternally and initial shipboard testing is planned for Summer 2015.2016. We expect ADSSS to be used on both variants of the LCS which is currently planned to be at least 32 ships. ADSSS, with its remote monitoring and prognostics capabilities, has also generated interest in other ship classes, including Aegis, and we are currently pursuing several related opportunities.
Recent Developments
In July 2015, we purchased certain software products, intellectual property and related assets from VSE Corporation. The primary software programs purchased by us are the Prognostics Framework (PF) and Diagnostic Profiler (DP) programs. The Diagnostic Profiler software is used worldwide by several multinational companies for optimized maintenance of diverse product lines. The Diagnostic Profiler is also used by the US Air Force for depot test programs, and Prognostics Framework is used by the US Army for several missile defense systems. We believe that the new software products provide us with the opportunity to service commercial customers and additional DoD customers outside of the Navy.
Contracts
On March 18, 2010, we were awarded and entered into a multi-year Indefinite Delivery, Indefinite Quantity (“IDIQ”) contract with the Naval Surface Warfare Center related to our ADEPT product. The contract is for a term of five years and provides for the purchase and sale of up to $26 million of ADEPT units and related engineering and logistics support. InThe initial term of the contract was five years, and in March 2015, the period of performance was extended through August 11, 2016. TheSubstantially all of our revenue is attributable to our ADEPT contracts drive all revenue.product. In the past, we were generating revenues primarily from the production and delivery of ADEPT units. After executing the ADEPT program for four years, we now have contracts to do further R&D on ADEPT units to enhance functionality as well as provide other forms of support. We expect additional delivery orders during the remaining term of the contract.
In June 2013, we were awarded a $2.8 million service contract with Condition-Based Maintenance (“CBM”) for LCS Systemssystems using the ADEPT Distance Support Sensor Suite, or ADSSS. This project will extend the development of the ADEPT to better facilitate the integration of multiple distributed sensors and portable data collection units, provide enhanced automated data collection and processing capabilities, and support hosting of prognostics modeling tools that use the collected data to predict remaining end of life for equipment under test components.
In January 2014, we were awarded a $0.5 million contract by the U.S. Navy that will extend the ADEPT system to a second Navy radar, the SPS-49 long-range air surveillance radar.
During the second quarter of 2014, we were awarded four contracts collectively valued at approximately $1.0 million to be funded over the next two years. [NTD: Confirm whether it is still the “next two years” or a shorter period] Two of the awards are to support and improve our ADEPT product line by providing funding for continued training of Navy personnel and a new development effort to upgrade ADEPT instrumentation functions for data acquisition. The remaining two awards are to upgrade the ADSSS system for the Navy’sNavy's new Littoral Combat Ship (“LCS”).LCS. Under the first ADSSS contract, we will design a new portable maintenance device for shipboard use, working closely with the Naval Ship Systems Engineering Station (“NAVSSES”) office in Philadelphia, PA.Pennsylvania. The second ADSSS award extends to the ADSSS “Pilot Program” which previously installed ADSSS on the USS Freedom. This contract award funds the installation of an ADSSS Pilot systemCBM equipment on a second LCS ship, the USS Forth Worth.Fort Worth and continued shipboard testing. This "Pilot Program" extends our pilot installation of ADSSS on the USS Freedom, a project that was described by our Navy customer as "completely successful".
In July 2014, we were awarded additional funding of $0.3 million under the current IDIQ contract to upgrade the capabilities of the first 6669 ADEPT units currently deployed in the fleet. This effort involves installing a faster and more capable controller module and upgrading the Operating Systemoperating system software from Windows XP to Windows 7, and will be executed at the our Largo FL facility as units are returned for routine calibration.
In August 2014, we were awarded a major new production contract valued at $5 million for 54 additional ADEPT units. The Navy plans to purchase fifty-four (54) ADEPT units over the next year. As of March 31,June 30, 2015, we have delivered 12 of these units. These systems are deployed on Navy “Aegis”Aegis destroyers and cruisers to support the AN/SPY-1 radar in air defense and ballistic missile defense missions. These systems join the 125 ADEPT units previously deployed and in everyday use by the Navy. Also, in August and September 2014, we were awarded two contracts for approximately $0.2 million for ADEPT training and calibration of 34 ADEPT units. WeIn January 2015, we were also awarded an additional $0.1 million in January 2015, for the calibration of 31 moreadditional ADEPT units to be calibrated.units.
In November 2014, we were awarded a contract valued at $0.1 million for technical support on the USS Fort Worth (LCS3) using the latest version of our ADSSS (ADEPT Distance Support Sensor Suite) which will provide the SPS-75 Air Search Radar and Rolling Airframe (RAM) systems with Combat Systems (CS) Condition Based Monitoring (CBM), CBM and Distance Support (DS) capability.
In March 2015, we received a further production contract, valued at $1.1 million, for an additional ten ADEPT units for the Aegis AN/SPY-1 radar. TheseWe expect to deliver these additional units will be manufactured at the Mikros Manufacturing and Depot Facility in Largo FL, and will be delivered late this year,2015 following the completion of the current production run of 54 units.
In Also during March 2015, the Navy also issued an additional contract for ADEPT General Engineeringgeneral engineering and Support,support, with initial funding of $0.1 million. This contract covers various technical tasking for deployed ADEPT systems, including logistics support, customer consultation and regularly scheduled team review meetings.
In May 2015, Mikroswe received a study contract valued at $30 thousand from Lockheed Martin Corporation, to start work with Lockheed Martin on Condition Based MaintenanceCBM for Aegis systems.
In August 2015, the Navy issued Mikros a contract award valued at approximately $0.2 million, for the calibration of 45 additional ADEPT units. This is the seventh contract award of this type that Mikros has received in support of the calibration effort.
It should be noted that contracting with the Federal government is a lengthy and complex process and that many factors could materialize that would negatively impact our ability to secure future contracts. In addition, our contracts with the Federal government contain unfavorable termination provisions and are subject to audit and modification.
Key Performance Indicator
As substantially all of our revenue is derived from contracts with the Federal government, our key performance indicator is the dollar volume of contracts awarded to us. Increases in the number and value of contracts awarded will generally result in increased revenues in future periods and, assuming relatively stable variable costs associated with our fulfilling such contracts, increased profits in future periods. The timing of such awards is uncertain as we sell to Federal government agencies where the process of obtaining such awards can be lengthy and at times uncertain. As the majority of our revenue in 2015, and expected revenue over the next ninesix months, is or will be from sales of ADEPT units under our IDIQ contract, continued generation of task orders and our ability to expand the market and potential customer base for ADEPT units will be a key indicator of future revenue. ADEPT units must be serviced and calibrated every two years. Accordingly, as we continue to increase the installed base of ADEPT units and expand the units to other radar systems, we expect to generate future recurring maintenance and service revenue.
Outlook
Our strategy for continued growth is three-fold. First, we expect to continue expanding our technology base, backlog and revenue by continuing our active participation in the DoD SBIR program and bidding on projects that fall within our areas of expertise. These areas include electronic systems engineering and integration, radar systems engineering, combat/C4I (Command, Control, Communications, Computers & Intelligence) systems engineering, and communications engineering. We believe that we can potentially utilize the intellectual property developed under our various SBIR awards to develop proprietary products, such as the ADEPT described above, with broad appeal in both the government and commercial marketplace. This state-of-the-art test equipment can be used by many commercial and governmental customers such as the FAA, radio and television stations, cellular phone service providers and airlines. Second, we will continue to pursue SBIR projects with the Department of Homeland Security, the U.S. Navy, and other government agencies. Third, we believe that through our marketing of products such as ADEPT, we will develop key relationships with prime defense contractors. Our strategy is to develop these relationships into longer-term, key subcontractor roles on future major defense programs awarded to these prime contractors.
In 2015, our primary strategic focus is to continue to: (i) establish Mikros as a premium provider of research and development and product development services to the defense industry, including assembly and integration at our facility in Largo, FL, to the defense industry;FL; and (ii) grow our business, generate profits and increase our cash reserves through obtaining additional SBIR contracts, and positioning ourselves to obtain future SBIR contracts.contracts, and using our newly purchased software products to increase our service offerings. From an operational prospective, we expect to focus substantial resources on generating purchase orders under the IDIQ contract for ADEPT units, expanding ADEPT to support other radar systems, and exploring commercialization opportunities. We intend to capitalize on the Navy modernization program which could result in two or three ADEPT units being placed on each destroyer and cruiser in the U.S. Navy, with the potential to install multiple units on additional U.S. Navy ships and submarines. As the installed base increases, we expect additional and recurring revenue for calibration and other maintenance and support.
Over the longer term, we expect to further develop technology based on existing and additional SBIR contracts and to develop these technologies into products for wide deployment to DoD customers and contractors as well as developing potential commercial applications. We believe that many of our core capabilities, remote monitoring, rugged systems, predictive maintenance and communications expertise, are applicable to other industries that work with complex distributed systems, such as utilities, communications and transportation systems. We are currently in discussions with certain industry participants regarding this initiative.
During the past two fiscal years, the combination of spending caps, discretionary spending cuts, sequestration and further proposed reductions in defense spending has caused, and may in the future continue to cause, delays in funding certain projects. This has and may continue to adversely impact our revenues and profits.
Changes to Critical Accounting Policies and Estimates
Our critical accounting policies and estimates are set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014. As of March 31,June 30, 2015, there have been no changes to such critical accounting policies and estimates.
Results of Operations
ThreeMonthsEndedMarch31, June 30, 2015and 20120144
We generated revenues of $2,476,039$1,734,382 during the three months ended March 31,June 30, 2015 compared to $883,340$1,209,802 during the three months ended March 31,June 30, 2014, an increase of $1,592,669,$524,580, or 180%43%. The increase was primarily the result of receivingattributable to the production contractcontracts for 5464 ADEPT units and seven additional labor contracts.units.
Cost of sales consists of direct contract costs including labor, material, subcontracts, and warranty expense for ADEPT units that have been delivered, travel, stock-based compensation expense and other direct costs. Cost of sales for the three months ended March 31,June 30, 2015 was $1,461,905$877,168 compared to $412,679$439,701 for the three months ended March 31,June 30, 2014, an increase of $1,049,226,$437,467 or 254%99%. The increase was due to our growth in revenue and attributable to receiving the production contract for 54 ADEPT units and seven additional labor related contracts for engineering and logistical support.an aggregate of 64 ADEPT units.
The majority of our engineering costs consist of (i) salary, wages and related fringe benefits paid to engineering employees,
(ii) rent-related costs, and (iii) consulting fees paid to engineering consultants. As the nature of these costs benefit the entire organization and all research and development efforts, and their benefitbenefits cannot be identified with a specific project or contract, these engineering costs are classified as part of “engineering overhead” and included in operating expenses. Engineering costs for the three months ended March 31,June 30, 2015 were $422,415$326,521 compared to $225,902$276,751 for the three months ended March 31,June 30, 2014, an increase of $196,513,$49,770, or 87%. The18%.The increase was primarily due to the increase in fringe benefits, salaries and consulting fees and incentive compensations offset by a decrease in recruiting costs.incentive compensation.
General and administrative expenses consist primarily of salary, intellectual property, consulting fees and related costs, professional fees, business insurance, franchise tax, SEC compliance costs, travel, and unallowable expenses (representing those expenses for which the government will not reimburse us). General and administrative costs for the three months ended March 31,June 30, 2015 were $322,023$300,574 compared to $284,131$308,504 for the three months ended March 31,June 30, 2014, an increasea decrease of $37,892,$7,930, or 13%3%. The increasedecrease was due primarily to an increase in incentive compensation and unallowable costs offset by a decreasedecreases in bid and proposal costs and professional fees.fees, offset by an increase in salaries and legal costs.
At March 31,June 30, 2015, we estimatedestimate our annual effective tax rate for 2015 to be 47.8%47.6%. We recognized a tax expense of $129,000$109,500 for the three months ended March 31,June 30, 2015 primarily due to expected net income for the remainder of 2015. At March 31,June 30, 2015,the difference from the expected federal income tax rate is attributable to state income taxes and certain permanent book-tax differences. As of March 31,June 30, 2015, we had net operating loss carryforwards of $170,709, which will begin expiring in 2033 if not utilized.
We reported net income of $140,789$120,712 during the three months ended March 31,June 30, 2015 as compared to a net lossincome of $8,034$130,283 during the three months ended March 31,June 30, 2014. The decrease in net income was primarily attributable to income tax expense due to higher revenues.
Six Months Ended June 30, 2015 and 2014
We generated revenues of $4,210,421 million during the six months ended June 30, 2015 compared to $2,093,142 million during the six months ended June 30, 2014, an increase of $2,117,279, or 101%. The increase was primarily attributable to the production contracts for 64 ADEPT units.
Cost of sales for the six months ended June 30, 2015 was $2,339,073 compared to $852,380 for the six months ended June 30, 2014, an increase of $1,486,693, or 174%. The increase was due to our growth in revenue and attributable to receiving the production contracts for an aggregate of 64 ADEPT units.
Engineering costs for the six months ended June 30, 2015 were $748,936 compared to $502,653 for the six months ended June 30, 2014, an increase of $246,283, or 49%. The increase was primarily due to the increase in fringe benefits, salaries, consulting fees, engineering travel and incentive compensations offset by a decrease in recruiting costs.
General and administrative costs for the six months ended June 30, 2015 were $622,597 compared to $592,635 for the six months ended June 30, 2014, an increase of $29,962, or 5%. The increase was due primarily to an increase in salaries offset by a decrease in bid and proposal costs and professional fees.
We recognized a tax expense of $238,500 for the six months ended June 30, 2015 primarily due to expected net income for the remainder of 2015. At June 30, 2015, the difference from the expected federal income tax rate is attributable to state income taxes, certain permanent book-tax differences and the income tax benefit related to the tax benefit recognized from the decrease in valuation allowance established for net deferred tax assets.
We had net income of $261,501 during the six months ended June 30, 2015 as compared to net income of $122,249 during the six months ended June 30, 2014. The increase is primarily attributable primarily to the award under the ADEPT contractcontracts of 54 units and additional labor related contracts for engineering and logistical support in 2015.an aggregate of 64 units.
Liquidity and Capital Resources
Since our inception, we have financed our operations through debt, private and public offerings of equity securities and cash generated by operations.
As of March 31, 2015, we had cash and cash equivalents of $1,159,075 and net working capital of $1,824,497. During the threesix months ended March 31,June 30, 2015, net cash provided by operating activitiesoperations was $134$643 compared to $64,584 during the six months ended June 30, 2014. While our net income increased by $139,252, net cash used in operating activities of $128,489 during the three months ended March 31, 2014. The increase wasprovided by operations decreased due primarily to us having net income of $140,789decreases in 2015 compared to a net loss of $8,034 in 2014 and the timing of payments related to our operating assets and liabilities. Specifically, accounts payable increased due to the timing of our vendor payments and additional material purchases for new contracts. The accrued payroll and payroll taxes, increased due to 6 additional employees and timing of payroll processing. Additionally,increases in accounts receivable, increased as a result of additional contracts and timing of billings and collections.partially offset by higher deferred tax expense.
During the threesix months ended March 31,June 30, 2015, net cash used in investmentinvesting activities was $2,693 compared to net cash used in investment activities of $6,430$11,890 during the threesix months ended March 31,June 30, 2014. The decrease is attributable to lower capital expenditures.expenditures in 2015.
During the threesix months ended March 31,June 30, 2015, there was no net cash provided by financing activities compared to net cash provided by financing activities of $350 during the threesix months ended March 31, 2014. TheJune 30, 2014.The decrease was attributable to the exercise of stock options in 2014.
We believe our available cash resources and expected cash flows from operations will be sufficient to fund operations for the next twelve months. We do not expect to incur any material capital expenditures during the next twelve months.
In order to pursue strategic opportunities, obtain additional SBIR contracts, or acquire strategic assets or businesses, we may need to obtain additional financing or seek strategic alliances or other partnership agreements with other entities. In order to raise any such financing, we anticipate considering the sale of additional debt or equity securities under appropriate market conditions. There can be no assurance, assuming we successfully raise additional funds or enter into business alliances, that we will remain profitable or continue to generate positive cash flow.
Off-Balance Sheet Arrangements
As of March 31,June 30, 2015, we did not have any relationships with unconsolidated entities or financial partners, such as entities often referred to as structured finance or special purpose entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.
Item 4. Controls and Procedures.
An evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934) was carried out by us under the supervision and with the participation of our president, who serves as our principal executive officer and principal financial officer. Based upon that evaluation, our president concluded that as of March 31,June 30, 2015, our disclosure controls and procedures were effective to ensure (i) that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (ii) that such information is accumulated and communicated to management, including our president, in order to allow timely decisions regarding required disclosure.
Our management, including our president, conducted an evaluation of the effectiveness of internal control over financial reporting. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) inInternal Control - Integrated Framework (2013). There were no changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) or 15d- 15(f)15d-15(f)) that occurred during the fiscal quarter ended March 31,June 30, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 6. Exhibits |
No. | Description |
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31.1 | Certification of principal executive officer and principal financial officer pursuant to Rules 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002. |
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SIGNATURES
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32.1 | Certification of principal executive officer and principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002. |
101.INS | XBRL Instance |
101.SCH | XBRL Taxonomy Extension Schema |
101.CAL | XBRL Taxonomy Extension Calculation |
101.DEF | XBRL Taxonomy Extension Definition |
101.LAB | XBRL Taxonomy Extension Labels |
101.PRE | XBRL Taxonomy Extension Presentation |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| MIKROS SYSTEMS CORPORATION |
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August 14, 2015 | By: | /s/ Thomas J. Meaney | ||
Thomas J. Meaney President and Chief Financial Officer |
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May 15, 2015
By: /s/ Thomas J. Meaney
15
Thomas J. Meaney
President and Chief Financial Officer
19/19