UNITED STATES
SECURITIESANDEXCHANGECOMMISSIONUNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,D.C. 20549
☒ | QUARTERLYREPORTPURSUANTTOSECTION13OR15(d)OFTHESECURITIESEXCHANGEACTOF1934 |
ForthequarterlyperiodendedSeptember 30, 2017
For the quarterly period ended September 30, 2019 |
or
☐ | TRANSITIONREPORTPURSUANTTOSECTION13OR15(d)OFTHESECURITIESEXCHANGEACTOF1934 |
For the transition period from _____to_____. |
Forthetransitionperiodfrom_____to_____.
Commission File Number: 000-14801
Commission File Number: 000-14801
Mikros Systems Corporation
(Exact name of registrant as specified in its charter)
Delaware | 14-1598200 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
707AlexanderRoad,BuildingTwo,Suite208, Princeton,NewJersey08540
(Address of Principal Executive Offices)
(609) 987-1513
(Registrant’sRegistrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
None |
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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer | ☐ | |
Non-accelerated filer ☐ | Smaller reporting company | ☒ | |
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐Yes ☒ 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 35,561,77535,588,775 issued and outstanding shares of the issuer’s common stock, $.01 par value per share, on November 14, 2017.13, 2019.
TABLE OF CONTENTS
PAGE # | |||
PARTI. | FINANCIALINFORMATION |
| |
Item 1. | Financial Statements | ||
Condensed Balance Sheets as of September 30, | 1 | ||
Condensed Statements of | 2 | ||
Condensed | 3 | ||
Condensed Statements of Cash Flows for the Nine Months Ended September 30, | 4 | ||
Notes to Condensed Financial Statements (unaudited) | 5 | ||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | ||
10 | |||
| |||
Item | Controls and | 15 | |
PART II. | OTHER INFORMATION | ||
Item 6. | Exhibits | 16 | |
Signatures | 16 |
Part I Financial Information | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Item 1 Financial Statements | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mikros Systems Corporation | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance Sheets | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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September 30, | December 31, | |||||||
2019 | 2018 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 1,884,123 | $ | 2,206,749 | ||||
Receivables on government contracts | 352,687 | 1,043,738 | ||||||
Prepaid expenses and other current assets | 334,073 | 94,717 | ||||||
Total current assets | 2,570,883 | 3,345,204 | ||||||
Property and equipment | ||||||||
Operating lease-right to use asset | 383,467 | - | ||||||
Equipment | 389,923 | 357,796 | ||||||
Leasehold improvements | 21,306 | 21,306 | ||||||
Furniture & fixtures | 43,174 | 43,174 | ||||||
Less: accumulated depreciation | (155,203 | ) | (109,484 | ) | ||||
Property and equipment, net | 682,667 | 312,792 | ||||||
Intangible assets | 140,660 | 140,428 | ||||||
Less: accumulated amortization | (91,106 | ) | (75,241 | ) | ||||
Intangible assets, net | 49,554 | 65,187 | ||||||
Deferred tax assets | 32,453 | 34,623 | ||||||
Total assets | $ | 3,335,557 | $ | 3,757,806 | ||||
Liabilities and shareholders' equity | ||||||||
Current liabilities: | ||||||||
Accrued payroll and payroll taxes | $ | 501,759 | $ | 868,618 | ||||
Accounts payable and accrued expenses | 42,510 | 308,415 | ||||||
Accrued warranty expense | 100,835 | 153,723 | ||||||
Lease obligation, current portion | 124,354 | - | ||||||
Deferred revenue | 35,173 | 39,824 | ||||||
Total current liabilities | 804,631 | 1,370,580 | ||||||
Lease obligation, net of current portion | 277,131 | - | ||||||
Other long-term liabilities | - | 19,560 | ||||||
Total liabilities | 1,081,762 | 1,390,140 | ||||||
Shareholders' equity: | ||||||||
Preferred stock, convertible, par value $.01 per share, authorized 5,000,000 shares, none issued and outstanding | - | - | ||||||
Common stock, par value $.01 per share, authorized 60,000,000 shares, issued and outstanding 35,588,775 and 35,568,775 shares, respectively | 355,889 | 355,689 | ||||||
Capital in excess of par value | 10,124,721 | 10,106,344 | ||||||
Accumulated deficit | (8,226,815 | ) | (8,094,367 | ) | ||||
Total shareholders' equity | 2,253,795 | 2,367,666 | ||||||
Total liabilities and shareholders' equity | $ | 3,335,557 | $ | 3,757,806 | ||||
See Notes to Unaudited Condensed Financial Statements |
Mikros Systems Corporation | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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(unaudited)
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Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Contract revenues | $ | 1,017,121 | $ | 1,893,945 | $ | 4,890,889 | $ | 6,626,716 | ||||||||
Cost of sales | 317,015 | 776,493 | 1,887,708 | 3,055,932 | ||||||||||||
Gross margin | 700,106 | 1,117,452 | 3,003,181 | 3,570,784 | ||||||||||||
Expenses: | ||||||||||||||||
Engineering | 691,337 | 648,739 | 2,049,425 | 1,882,829 | ||||||||||||
General and administrative | 349,230 | 413,731 | 1,182,537 | 1,287,668 | ||||||||||||
Total expenses | 1,040,567 | 1,062,470 | 3,231,962 | 3,170,497 | ||||||||||||
(Loss) income from operations | (340,461 | ) | 54,982 | (228,781 | ) | 400,287 | ||||||||||
Other income: | ||||||||||||||||
Interest income | 898 | 322 | 3,569 | 1,238 | ||||||||||||
(Loss) income before income taxes | (339,563 | ) | 55,304 | (225,212 | ) | 401,525 | ||||||||||
Income tax benefit (expense) | 130,031 | (18,275 | ) | 92,764 | (127,364 | ) | ||||||||||
Net (loss) income available to common shareholders | $ | (209,532 | ) | $ | 37,029 | $ | (132,448 | ) | $ | 274,161 | ||||||
(Loss) income per common share - basic | $ | (0.01 | ) | $ | - | $ | - | $ | 0.01 | |||||||
Basic weighted average number of shares outstanding | 35,588,775 | 35,568,775 | 35,578,519 | 35,308,668 | ||||||||||||
(Loss) income per common share - diluted | $ | (0.01 | ) | $ | - | $ | - | $ | 0.01 | |||||||
Diluted weighted average number of shares outstanding | 35,588,775 | 35,876,540 | 35,578,519 | 35,594,805 | ||||||||||||
See Notes to Unaudited Condensed Financial Statements |
Mikros Systems Corporation | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Statements of
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Preferred Stock | Common Stock | |||||||||||||||||||||||||||
$0.01 Par Value | $0.01 Par Value | Capital in Excess | Accumulated | |||||||||||||||||||||||||
Number of shares | Par Value | Number of Shares | Par Value | of Par Value | Deficit | Total | ||||||||||||||||||||||
Balance at July 1, 2019 | - | - | 35,588,775 | $ | 355,889 | $ | 10,119,222 | $ | (8,017,283 | ) | $ | 2,457,828 | ||||||||||||||||
Stock compensation | - | - | - | - | 5,499 | 5,499 | ||||||||||||||||||||||
Net loss | - | - | - | - | - | (209,532 | ) | (209,532 | ) | |||||||||||||||||||
Balance at September 30, 2019 | - | $ | - | 35,588,775 | $ | 355,889 | $ | 10,124,721 | $ | (8,226,815 | ) | $ | 2,253,795 | |||||||||||||||
Preferred Stock | Common Stock | |||||||||||||||||||||||||||
$0.01 Par Value | $0.01 Par Value | Capital in Excess | Accumulated | |||||||||||||||||||||||||
Number of shares | Par Value | Number of Shares | Par Value | of Par Value | Deficit | Total | ||||||||||||||||||||||
Balance at July 1, 2018 | - | - | 35,568,775 | $ | 355,689 | $ | 10,097,266 | $ | (8,186,445 | ) | $ | 2,266,510 | ||||||||||||||||
Stock compensation | - | - | - | - | 4,539 | 4,539 | ||||||||||||||||||||||
Net income | - | - | - | - | - | 37,029 | 37,029 | |||||||||||||||||||||
Balance at September 30, 2018 | - | $ | - | 35,568,775 | $ | 355,689 | $ | 10,101,805 | $ | (8,149,416 | ) | $ | 2,308,078 | |||||||||||||||
Preferred Stock | Common Stock | |||||||||||||||||||||||||||
$0.01 Par Value | $0.01 Par Value | Capital in Excess | Accumulated | |||||||||||||||||||||||||
Number of shares | Par Value | Number of shares | Par Value | of Par Value | Deficit | Total | ||||||||||||||||||||||
Balance at January 1, 2019 | - | $ | - | 35,568,775 | $ | 355,689 | $ | 10,106,344 | $ | (8,094,367 | ) | $ | 2,367,666 | |||||||||||||||
Stock compensation | - | - | - | - | 14,577 | - | 14,577 | |||||||||||||||||||||
Exercise of stock options | 20,000 | 200 | 3,800 | 4,000 | ||||||||||||||||||||||||
Net loss | - | - | - | - | - | (132,448 | ) | (132,448 | ) | |||||||||||||||||||
Balance at September 30, 2019 | - | $ | - | 35,588,775 | $ | 355,889 | $ | 10,124,721 | $ | (8,226,815 | ) | $ | 2,253,795 | |||||||||||||||
Preferred Stock | Common Stock | |||||||||||||||||||||||||||
$0.01 Par Value | $0.01 Par Value | Capital in Excess | Accumulated | |||||||||||||||||||||||||
Number of shares | Par Value | Number of shares | Par Value | of Par Value | Deficit | Total | ||||||||||||||||||||||
Balance at January 1, 2018 | - | $ | - | 35,561,775 | $ | 355,619 | $ | 10,087,843 | $ | (8,423,577 | ) | $ | 2,019,885 | |||||||||||||||
Stock compensation | 13,682 | 13,682 | ||||||||||||||||||||||||||
Exercise of stock options | 7,000 | 70 | 280 | 350 | ||||||||||||||||||||||||
Net income | 274,161 | 274,161 | ||||||||||||||||||||||||||
Balance at September 30, 2018 | - | $ | - | 35,568,775 | $ | 355,689 | $ | 10,101,805 | $ | (8,149,416 | ) | $ | 2,308,078 | |||||||||||||||
See Notes to Unaudited Condensed Financial Statements |
Mikros Systems Corporation | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Statements of Cash Flows | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Nine months ended September 30, | ||||||||
2019 | 2018 | |||||||
Cash flows from operating activities: | ||||||||
Net (loss) income | $ | (132,448 | ) | $ | 274,161 | |||
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: | ||||||||
Depreciation and amortization | 61,584 | 63,795 | ||||||
Deferred tax expense (benefit) | 2,170 | (47,032 | ) | |||||
Share-based compensation expense | 14,577 | 13,682 | ||||||
Changes in assets and liabilities: | ||||||||
Decrease (increase) in receivables on government contracts | 691,051 | (243,585 | ) | |||||
(Increase) in prepaid expenses and other current assets | (239,356 | ) | (8,618 | ) | ||||
(Decrease) increase in accrued payroll and payroll taxes | (366,860 | ) | 189,890 | |||||
(Decrease) in accounts payable and accrued expenses | (265,904 | ) | (122,176 | ) | ||||
(Decrease) increase in accrued warranty expense | (52,888 | ) | 90,370 | |||||
(Decrease) increase in deferred revenue | (4,651 | ) | 6,500 | |||||
(Decrease) in long-term liabilities | (1,542 | ) | (2,990 | ) | ||||
Net cash (used in) provided by operating activities | (294,266 | ) | 213,997 | |||||
Cash flows from investing activities: | ||||||||
Payments related to intangible assets | (233 | ) | (2,263 | ) | ||||
Purchase of property and equipment | (32,127 | ) | (96,455 | ) | ||||
Net cash used in investing activities: | (32,360 | ) | (98,718 | ) | ||||
Cash flows from financing activities: | ||||||||
Exercise of stock options | 4,000 | 350 | ||||||
Net cash provided by financing activities: | 4,000 | 350 | ||||||
Net (decrease) increase in cash and cash equivalents | (322,626 | ) | 115,629 | |||||
Cash and cash equivalents, beginning of period | 2,206,749 | 1,173,177 | ||||||
Cash and cash equivalents, end of period | $ | 1,884,123 | $ | 1,288,806 | ||||
Cash paid for income taxes | $ | 121,000 | $ | 66,500 | ||||
See Notes to Unaudited Condensed Financial Statements
|
Mikros Systems Corporation
Notes to Condensed Financial Statements
(unaudited)
Note 1 – Basis of Presentation
The financial statements included herein have been prepared by Mikros Systems Corporation (the “Company”, “we” or “us”) 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, 2018.
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 September 30, 2019, the results of its operations for the three and nine months ended September 30, 2019 and 2018, changes in shareholders’ equity for the three and nine months ended September 30, 2019 and 2018 and cash flows for the nine months ended September 30, 2019 and 2018.
Note 2 – Recent Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The new standard supersedes the present U.S. GAAP standard on leases and requires substantially all leases to be reported on the balance sheet as right-of-use assets and lease obligations. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, and interim reporting periods within those annual reporting periods. Early adoption is permitted and in the original guidance the modified retrospective application was required, however, in July 2018 the FASB issued ASU 2018-11 which permits entities with another transition method in which the effective date would be the date of initial application of transition. Under this optional transition method, we would recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. We adopted ASU 2016-02 as of January 1, 2019 using the modified retrospective approach and the optional transition method. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward historical lease classifications.
Adoption of the new standard resulted in the recording of operating lease right-of-use assets and operating lease liabilities on our balance sheet, but did not have an impact on the Company's beginning retained earnings, statement of income, or statement of cash flows. The most significant impact was the recognition of right-of-use assets and lease liabilities for operating leases.
Note 3 – Significant Accounting Policies
Revenue Recognition
We provide our products and services under fixed-price and cost-reimbursable contracts. Under fixed-price contracts we agree to perform the specified work for a pre-determined price. To the extent our actual costs vary from the estimates upon which the price was negotiated, we will generate more or less profit or could incur a loss. Cost-reimbursable contracts provide for the payment of allowable costs incurred during performance of the contract. We also enter into cost-plus-fixed-fee contracts. The fixed-fee in a cost-plus-fixed-fee contract is negotiated at the inception of the contract and that fixed-fee does not vary with actual costs. We account for a contract after it has been approved by all parties to the arrangement, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.
We assess each contract at its inception to determine whether it should be combined with other contracts. When making this determination, we consider factors such as whether two or more contracts were negotiated and executed at or near the same time or were negotiated with an overall profit objective. If combined, we treat the combined contracts as a single contract for revenue recognition purposes.
We evaluate the products or services promised in each contract at inception to determine whether the contract should be accounted for as having one or more performance obligations. The products and services in our contracts are typically not distinct from one another due to their complex relationships and the significant contract management functions required to perform under the contract.
Mikros Systems Corporation
Notes to Condensed Financial Statements
(unaudited)
Accordingly, our contracts are typically accounted for as one performance obligation. Significant judgment is required in determining performance obligations, and these decisions could change the amount of revenue and profit recorded in a given period. We classify net sales as products or services on our statements of income based on the predominant attributes of the performance obligations.
We determine the transaction price for each contract based on the consideration we expect to receive for the products or services being provided under the contract. Our contracts do not include variable consideration. At the inception of a contract we estimate the transaction price based on our current rights and do not contemplate future modifications. Contracts are often subsequently modified to include changes in specifications, requirements or price, which may create new or change existing enforceable rights and obligations. Depending on the nature of the modification, we consider whether to account for the modification as an adjustment to the existing contract or as a separate contract. Generally, modifications to our contracts or delivery orders are distinct and will be accounted for as a separate contract.
We recognize revenue as performance obligations are satisfied and the customer obtains control of the products and services. In determining when performance obligations are satisfied, we consider factors such as contract terms, payment terms and whether there is an alternative future use of the product or service. Substantially all of our revenue is recognized over a period of time as we perform under the contract because control of the work in process transfers continuously to the customer. This continuous transfer of control of the work in process to the customer is supported by clauses in the contract that allow the customer to unilaterally terminate the contract for convenience, pay us for costs incurred plus a reasonable profit, and take control of any work in process.
For performance obligations to deliver products with continuous transfer of control to the customer, revenue is recognized based on the extent of progress towards completion of the performance obligation, generally using the cost-to-cost measure of progress for our contracts because it best depicts the transfer of control to the customer as we incur costs on our contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs to complete the performance obligation. For performance obligations to provide services to the customer, revenue is recognized over a period of time based on costs incurred as our customer receives and consumes the benefits.
Backlog (i.e., unfulfilled or remaining performance obligations) represents the sales we expect to recognize for our products and services for which control has not yet transferred to the customer. The estimated consideration is determined at the outset of the contract and considers the risks related to the technical, schedule and cost impacts to complete the contract. Periodically, we review these risks and may increase or decrease backlog accordingly. As the risks on such contracts are successfully retired, the estimated consideration from customers may be reduced, resulting in a reduction of backlog without a corresponding recognition of revenue. As of September 30, 2019, our ending backlog was $1.9 million. For arrangements with the Department of Defense, we generally do not begin work on contracts until funding is appropriated by the customer. Billing timetables and payment terms on our contracts vary based on a number of factors, including the contract type.
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 September 30, 2019 and 2018, the Company recognized a warranty expense of $0 and $75,000, respectively, and for the nine months ended September 30, 2019 and 2018, the Company recognized a warranty (benefit) expense of ($40,400) and $115,000, respectively. Since the inception of the ADEPT IDIQ contract in March 2010, the Company has delivered 226 ADEPT units. As of September 30, 2019, there were 26 ADEPT units remaining under the limited warranty coverage.
Mikros Systems Corporation
Notes to Condensed Financial Statements
(unaudited)
The following table reflects the reserve for product warranty activity for:
September 30, 2019 | December 31, 2018 | |||||||
Balance, beginning of the period | $ | 153,723 | $ | 40,000 | ||||
Provision for product warranty | - | 142,000 | ||||||
Product warranty expirations | (40,400 | ) | - | |||||
Product warranty costs paid | (12,488 | ) | (28,277 | ) | ||||
Balance, end of the period | $ | 100,835 | $ | 153,723 | ||||
Research and Development Expense
Research and Development expenditures for 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 as follows:
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Salaries | $ | 15,841 | $ | 7,047 | $ | 33,482 | $ | 69,727 | ||||||||
Other costs | 4,584 | 14,000 | 17,038 | 38,401 | ||||||||||||
| $ | 20,425 | $ | 21,047 | $ | 50,520 | $ | 108,128 | |||||||||
Intangible Assets
The Company’s intangible assets include a license acquired during 2015. In July 2015, the Company purchased certain software products, intellectual property and related assets from VSE Corporation. The primary software programs purchased were the Prognostics Framework and Diagnostic Profiler 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.
Licenses are amortized using a straight-line method over their estimated life of nine years. For the three and nine months ended September 30, 2019 and 2018, amortization expense related to the Company’s license amounted to $5,250 and $5,250 and $15,750 and $15,750, respectively, and is included in general and administrative expenses on the Statements of Income.
Note 4 – Income Tax Matters
At September 30, 2019, we estimated our annual effective tax rate for 2019 to be 41%. We recognized a tax benefit of $92,764 for the nine months ended September 30, 2019. At September 30, 2019, the difference from the statutory federal income tax rate is attributable to state income taxes and certain permanent book-tax differences.
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) increased its net deferred tax assets by $(2,170) and $47,032 during the nine months ended September 30, 2019 and 2018, respectively. The change in deferred tax assets is attributable to the changes in various book/tax temporary differences.
Mikros Systems Corporation
Notes to Condensed Financial Statements
(unaudited)
Note 5 – (Loss) Income Per Share
Net (loss) income per common share information is as follows:
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Basic earnings per common share: | ||||||||||||||||
Net (loss) income | $ | (209,532 | ) | $ | 37,029 | $ | (132,448 | ) | $ | 274,161 | ||||||
Weighted average basic shares outstanding | 35,588,775 | 35,568,775 | 35,578,519 | 35,308,668 | ||||||||||||
Basic (loss) income per common share | $ | (0.01 | ) | $ | - | $ | - | $ | 0.01 | |||||||
Dilutive earnings per common share: | ||||||||||||||||
Net (loss) income allocable to common shareholders | $ | (209,532 | ) | $ | 37,029 | $ | (132,448 | ) | $ | 274,161 | ||||||
Weighted average shares outstanding - basic | 35,588,775 | 35,568,775 | 35,578,519 | 35,308,668 | ||||||||||||
Dilutive effect: | ||||||||||||||||
Stock options | - | 76,347 | - | 70,364 | ||||||||||||
Unvested restricted stock | - | 231,418 | - | 215,773 | ||||||||||||
Weighted average dilutive shares outstanding | 35,588,775 | 35,876,540 | 35,578,519 | 35,594,805 | ||||||||||||
Diluted (loss) income per common share | $ | (0.01 | ) | $ | - | $ | - | $ | 0.01 | |||||||
Diluted net (loss) income per share for the three and nine months ended September 30, 2019 and 2018 does not reflect the following potential common shares, as the effect would be antidilutive.
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Unvested restricted stock | 449,000 | 70,000 | 449,000 | 80,000 | ||||||||||||
Note 6 – Operating Leases
The Company adopted the ASU Topic 842- Leases beginning January 1, 2019 and adopted the practical expedients consistently for all of its leases. Accordingly, the Company:
● | Did not reassess whether any expired or existing contracts are or contain leases. |
● | Did not reassess the lease classification for any expired or existing leases. |
● | Did not reassess initial direct costs for any existing leases. |
In addition, the Company elected to retrospectively determine the lease term and assess impairment of right of use asset.
At the date of transition, the Company recognized an operating lease liability and right of use asset. The amount of lease liability is equal to the present value of the remaining lease payments as of January 1, 2019 discounted using the incremental borrowing rate of 4.89%.
Mikros Systems Corporation
Notes to Condensed Financial Statements
(unaudited)
A right-of-use asset is measured at the amount of the lease liability adjusted for the amount of deferred straight-line rent, prepaid rent and lease incentive allowances previously recognized.
The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at the inception date and requires an assessment of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset. A reassessment is made after inception of the lease only if one of the following applies:
a. | there is a change in contractual terms, other than a renewal or extension of the arrangement; |
b. | a renewal option is exercised or extension granted, unless the term of the renewal or extension was initially included in the |
| there is a
|
d. | there is
|
Whenever a reassessment is made, lease accounting shall commence or cease from the date when the change in circumstances gave rise to the reassessment for scenarios (a), (c) or (d) and at the date of renewal or extension period for scenario (b).
Leases where the lessor retains substantially all of the risks and rewards of ownership are classified as operating leases. Operating lease payments are recognized as an operating expense on a straight-line basis over the lease term.
The Company has operating lease agreements for each of its offices. The Company has determined that the risks and benefits related to the leased properties are retained by the lessors. Accordingly, these are accounted for as operating leases. These lease agreements are for terms ranging from 5.25 to 5.33 years and provide for rental escalations of approximately 2.1%.
The following table presents the maturity profile of the Company’s operating lease liabilities based on the contractual undiscounted payments with a reconciliation of these amounts to the remaining net present value of the operating lease liability reported in the balance sheet as of September 30, 2019.
Year | Amount | |||
Remainder of 2019 | $ | 34,869 | ||
2020 | 141,976 | |||
2021 | 144,976 | |||
2022 | 110,967 | |||
Total lease payments | 432,788 | |||
Less: Interest | (31,303 | ) | ||
Net present value of lease liabilities | $ | 401,485 | ||
The weighted average remaining lease terms and discount rates for all of the Company’s operating leases as of September 30, 2019 were as follows:
Weighted average lease term (in months) | 36 | |||
| 4.89 |
|
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-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-looking statements include: changes in business conditions; a decline or redirection of the U.S. defense budget; the termination of any contracts with the U.S. Government; changes in our sales strategy and product development plans; changes in the marketplace; continued services of our executive management team; our limited marketing experience; competition between us and other companies seeking Small Business Innovation Research grants; competitive pricing pressures; market acceptance of our products under development: delays in the development of products; our ability to adequately integrate our software offerings into our business model, our ability to develop and market solutions for commercial customers, numerous other matters of national, regional and global scale, including those of a political, economic, business and competitive nature; 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, 2018 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-looking statements.
| MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATION. |
This Management’s Discussion and Analysis of Financial Condition and Results of Operations summarizes the significant factors affecting the operating results, financial condition, liquidity and cash flows of the Company as of and for the periods presented below. The following discussion and analysis should be read in conjunction with our unaudited condensed financial statements and related information contained herein and our audited financial statements as of December 31, 2018.
Overview
Mikros Systems Corporation (the “Company”, “we”, “Mikros” or “us”) designs and manufactures software, hardware and electronic systems used to maintain complex distributed systems. Examples of such systems include defense equipment such as radars and combat systems, and commercial and industrial applications such as printing presses, power distribution, utility systems, and Federal Aviation Administration systems.
Our primary business focus is to pursue Small Business Innovation Research programs from the Department of Defense, 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 Small Business Innovation Research contracts, and several IDIQ contracts for our ADEPT and ADSSS products.
Revenues from our government contracts represented substantially all of our revenues for the nine months ended September 30, 2019 and 2018. Over the past decade, our principal customer has been the U.S. Department of Defense, primarily the U.S. Navy (“Navy”). We have developed the following two key systems for software and software-related services to separate the elements and account for them separately. VSOE exists when a company can support what the fair value of its software and/or software-related services is based on evidence of the prices charged when the same elements are sold separately. VSOE of fair value is required, generally, in order to separate the accounting for various elements in a software and related services arrangement. The Company has established VSOE of fair value for the majority of the PCS, professional services, and training. Given the limited number of sales related to this software, and the fact that the Company does not sell the PCS element separately, there is no VSOE currently available to bifurcate the PCS element from the contract. In accordance with Accounting Standards Codification Topic 985-605-25-10a, the fees earned from sale of licenses to which the only undelivered element is the PCS, are recognized ratably over the life of the contract. Revenues from the sale of software licenses and maintenance for the three and nine months ended September 30, 2017 and 2016 were $10,000 and $10,695 and $22,500 and $72,196, respectively. At September 30, 2017 and December 31, 2016, deferred revenues amounted to $30,000 and $7,500, respectively.
Unbilled revenue reflects work performed, but not billed at the time, per contractual requirements. As of September 30, 2017 and December 31, 2016, the Company had unbilled revenues of $226,130 and $235,421, respectively which are recorded within receivables on government contracts in the Company’s balance sheet. Billings to customers in excess of revenue earned are classified as advanced billings, and shown as a liability. As of September 30, 2017 and December 31, 2016, there were no advanced billings.
WarrantyExpense
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 September 30, 2017 and 2016, the Company recognized a warranty benefit of $0 and $65,500, respectively, and for the nine months ended September 30, 2017 and 2016, the Company recognized a warranty benefit of $238,967 and $86,301, respectively. As of September 30, 2017, no ADEPT units remain under the limited warranty coverage.
The following table reflects the reserve for product warranty activity for:
September 30, 2017 | December 31, 2016 | |||||||
Balance, beginning of the period | $ | 240,980 | $ | 359,654 | ||||
Provision for product warranty | - | 1,800 | ||||||
Product warranty expirations | (238,967 | ) | (86,301 | ) | ||||
Product warranty costs paid | (2,013 | ) | (34,173 | ) | ||||
Balance, end of the period | $ | - | $ | 240,980 | ||||
Mikros Systems Corporation
Notes to Condensed Financial Statements
(unaudited)
Research and Development Expense
Research and Development expenditures of the Company's products are expensed when incurred, and are included in general and administrative expenses. The Company recognized research and development costs as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Salaries | $ | 68,158 | $ | 12,288 | $ | 159,237 | $ | 49,292 | ||||||||
Other costs | 12,193 | 1,600 | 39,645 | 9,852 | ||||||||||||
| $ | 80,351 | $ | 13,888 | $ | 198,882 | $ | 59,144 | |||||||||
Intangible Assets
The majority of the Company’s intangible assets consists of a license acquired during 2015. In July 2015, the Company purchased certain software products, intellectual property and related assets from VSE Corporation. The primary software programs purchased were 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.
Licenses are amortized using a straight-line method over their estimated life of six years. For the three and nine months ended September 30, 2017 and 2016, amortization expense related to the Company’s license amounted to $5,250 and $5,250 and $15,750 and $15,750, respectively, and are included in general and administrative expenses on the Statements of Income and Comprehensive Income.
Note 4–IncomePerShare
Net income per common share information is as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Basic earnings per common share: | ||||||||||||||||
Net income | $ | 29,005 | $ | 20,726 | $ | 195,537 | $ | 30,559 | ||||||||
Discount upon exchange of Preferred Stock, net of related fees | - | 3,275 | - | 1,106,872 | ||||||||||||
| 29,005 | 24,001 | 195,537 | 1,137,431 | |||||||||||||
Portion allocable to common shareholders | 100.0 | % | 100.0 | % | 100.0 | % | 99.5 | % | ||||||||
Net income available to common shareholders | $ | 29,005 | $ | 24,001 | $ | 195,537 | $ | 1,131,744 | ||||||||
Weighted average basic shares outstanding | 35,555,742 | 32,419,016 | 35,246,893 | 32,048,486 | ||||||||||||
Basic (loss) income per common share | $ | - | $ | - | $ | 0.01 | $ | 0.04 | ||||||||
Dilutive earnings per common share: | ||||||||||||||||
Net income allocable to common shareholders | $ | 29,005 | $ | 24,001 | $ | 195,537 | $ | 1,131,744 | ||||||||
Add: undistributed earnings allocated to participating securities | - | - | - | 5,687 | ||||||||||||
Numerator for diluted earnings per common share | 29,005 | 24,001 | 195,537 | 1,137,431 | ||||||||||||
Weighted average shares outstanding - basic | 35,555,742 | 32,419,016 | 35,246,893 | 32,048,486 | ||||||||||||
Diluted effect: | ||||||||||||||||
Stock options | 82,200 | 10,316 | 75,400 | 46,827 | ||||||||||||
Unvested restricted stock units | 224,263 | 6,087 | 202,564 | 5,263 | ||||||||||||
Conversion equivalent of dilutive Series B Convertible Preferred Stock | - | 429,294 | - | 2,194,224 | ||||||||||||
Conversion equivalent of dilutive Convertible Preferred Stock | - | - | - | 155,420 | ||||||||||||
Weighted average dilutive shares outstanding | 35,862,205 | 32,864,713 | 35,524,857 | 34,450,220 | ||||||||||||
Dilutive income per common share | $ | - | $ | - | $ | 0.01 | $ | 0.03 | ||||||||
MikrosSystemsCorporation
Notes to Condensed Financial Statements
(unaudited)
The table below sets forth the calculation of the percentage of net earnings allocable to common shareholders under the two-class method in 2016.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Numerator: | ||||||||||||||||
Weighted average participating common shares | 35,555,742 | 32,419,016 | 35,246,893 | 32,048,486 | ||||||||||||
Denominator: | ||||||||||||||||
Weighted average participating common shares | 35,555,742 | 32,419,016 | 35,246,893 | 32,048,486 | ||||||||||||
Add: Weighted average shares of Convertible Preferred Stock | - | - | - | 155,420 | ||||||||||||
Weighted average participating shares | 35,555,742 | 32,419,016 | 35,246,893 | 32,203,906 | ||||||||||||
Portion allocable to common shareholders | 100.0 | % | 100.0 | % | 100.0 | % | 99.5 | % | ||||||||
Diluted net income per share for the three and nine months ended September 30, 2017 and 2016 does not reflect the following potential common shares, as the effect would be antidilutive.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Stock options | - | 610,000 | - | 610,000 | ||||||||||||
Unvested restricted stock | 60,000 | - | 60,000 | - | ||||||||||||
Note5 – Income Tax Matters
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 net deferred tax assets decreased by $63,260 and $12,940 during the nine months ended September 30, 2017 and 2016, respectively. The change in deferred tax assets is attributable to the reversal of various book/tax differences, utilization of income tax attributes, primarily federal net operating losses, as the Company anticipates annual earnings from operations to continue.
Note6 – Stock-Based Compensation
During 2017, the Company issued 70,000 shares of restricted stock with a weighted average fair value of $0.46 per share. As of September 30, 2017, there was $29,740 of unrecognized stock-based compensation expense related to the restricted stock issued during 2017, which will be recognized in future periods. During the nine months ended September 30, 2017, 67,000 options were exercised for proceeds amounting to $12,350. The intrinsic value of the options as of September 30, 2017 is $56,550.
During the three and nine months ended September 30, 2017 and 2016, the Company recognized stock-based compensation expense of $3,571 and $614 and $9,782 and $1,864, respectively.
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- 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- looking statements include: changes in business conditions; a decline or redirection of the U.S. defense budget; the termination of any contracts with the U.S. Government; changes in our sales strategy and product development plans; changes in the marketplace; continued services of our executive management team; our limited marketing experience; competition between us and other companies seeking Small Business Innovative Research (“SBIR”) grants; competitive pricing pressures; market acceptance of our products under development; delays in the development of products; our ability to adequately integrate our software offerings into our business model, our ability to develop and market solutions for commercial customers, numerous other matters of national, regional and global scale, including those of a political, economic, business and competitive nature; 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, 2016 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-looking statements.
Item 2. Management’s Discussion and Analysis of Financial Position and Results of Operations.
Mikros Systems Corporation (the “Company”, “we” or “us”) designs and manufactures software, hardware and electronic systems used to maintain complex distributed systems. Examples of such systems include defense equipment such as radars and combat systems, and commercial and industrial applications such as printing presses, power distribution, utility systems, and Federal Aviation Administration (“FAA”) systems.
Over the past decade, our principal customer has been the U.S. Department of Defense, primarily the U.S. Navy. We provide the following two key systems to the Navy for maintenance of radars and combat systems:
● | ADEPT®, the |
|
|
More recently, we have developed and marketed software products to analyze maintenance data collected from target systems, optimize maintenance procedures, and predict failures. Our Prognostics Framework® (PF) and Diagnostic Profiler® (DP) products provide software capabilities which complement our maintenance hardware products (ADEPT and ADSSS), and allow us to provide complete hardware/software solutions for advanced maintenance, particularly of complex distributed systems. Now that we have a complete hardware/software solution for advanced maintenance, we are expanding into commercial and industrial markets.
Product Portfolio
Adaptive Diagnostic Electronic Portable Testset, (ADEPT). ADEPT is an automateda PC-based maintenance automation workstation designedused to significantly reducemaintain the time required to align theNavy’s premier AN/SPY-1 Radar System aboard U.S. Navy Aegis cruisersphased array radar on Cruisers (CG) and destroyers, while optimizing system performance and readiness. ADEPT Systems are currently deploying on all Aegis CG and DDG platforms to support the AN/SPY1 radar system. ADEPT represents an innovative 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 systems, and provide integrated distance support capabilities for remote diagnostics and troubleshooting by shore-based Navy experts.Destroyers (DDG).
● |
|
More recently, we have developed and marketed software products to analyze maintenance data collected from target systems, optimize maintenance procedures, and predict failures. Our Prognostics Framework® (PF) and Diagnostic Profiler® (DP) products provide software capabilities which complement our maintenance hardware products (ADEPT and ADSSS) and allow us to provide complete hardware/software solutions for advanced maintenance, particularly of complex distributed systems. Now that we have a complete hardware/software solution for advanced maintenance, we are expanding into commercial and industrial markets.
Product Portfolio
Revenues from our government contracts represented substantially all of our revenues for the nine months ended September 30, 2019. We believe that we can utilize the intellectual property developed under our various Small Business Innovation Research awards to develop proprietary products for both the government and commercial marketplace.
Adaptive Diagnostic Electronic Portable Testset (ADEPT). ADEPT is an automated maintenance workstation designed to significantly reduce the time required to align the AN/SPY-1 Radar System aboard U.S. Navy Aegis cruisers and destroyers, while optimizing system performance and readiness. ADEPT Systems are currently deploying on all Aegis CG and DDG platforms to support the AN/SPY1 radar system. Since the system uses commercial instrument case and modules, ADEPT units can be modified to support both preventative maintenance and condition-based maintenance of other radars and complex electronic systems in military or commercial applications. Since inception of the program, we have delivered a total of 226 ADEPT units. In October 2019, we received notice from Program Executive Office Integrated Warfare Systems that the ADEPT program will not be funded in fiscal year 2020.
ADEPT Distance Support Sensor Suite (ADSSS). In 2013, we started development of ADSSS for the Navy’s Littoral Combat Ship (“LCS”). ADSSS is a network-enabled system that can be configured to monitor multiple shipboard systems and report maintenance data onshore for further analysis to detect trends and predict failures. ADSSS provides an open architecture approach with industry standard hardware, and cybersecurity compliant software to acquire and process system operational and maintenance data. ADSSS fully automates the capture of system operation, environment and maintenance data to provide unattended operation. The system monitors key parameters and sends alert notifications when parameters move out of tolerance. ADSSS, with its remote monitoring and prognostics capabilities, is now being further developed for installation on two additional ship classes.
Diagnostic Profiler. The Diagnostic Profiler is an integrated development environment for developing diagnostic capabilities used in maintenance, embedded diagnostics and troubleshooting applications. The software provides diagnostic services to its host application, including fault call-outs, suggested “next best” test to further isolate faults, and direct maintenance actions. When additional faults are identified, the software prioritizes the fault call-outs by probability. The use of the diagnostic profiler eliminates the need for the development and maintenance of diagnostic flow charts and hard-coded text sequences. This reduces the effort required to correct bugs and design changes and over the life of the system, could result in significant cost savings.
Prognostics Framework. Prognostics Framework is an analysis software for framework that implements real-time prognostics, diagnostics, and status monitoring to support embedded prognostic applications, health management systems and condition-based maintenance applications. The Prognostics Framework software institutes an information framework that organizes relevant data related to: (i) the condition of the system; (ii) the system’s ability to perform required functions over specific time intervals; and (iii) the need for maintenance actions and repair parts. The Prognostics Framework has been used to implement a complete health management system on one of the first radar systems to require prognostics as a key element of its overall solutions. Other potential applications include complex computer networks, power generators, power supply, cooling and environmental systems.
Government Contracts
In September 2016, we were awarded and entered into a multi-year IDIQ contract with the Naval Surface Warfare Center, Port Hueneme Division, relating to our ADSSS product. The contract has a term of five years and provides for the purchase and sale of up to $48 million of ADSSS units and related engineering and logistics support. The first delivery order in the amount of $3.0 million was awarded on September 15, 2016 to perform installations, support and logistics for the LCS class.
In April 2017, we received contract awards totaling $2.0 million from the U.S. Navy to extend the capabilities of the ADSSS Condition-Based Maintenance (CBM) system to support a fourth Navy radar system, the MK 99. The Small Business Innovation Research office in Dahlgren, VA provided $0.5 million of the total funding to support this effort.
In June 2018, we received the second delivery order under our multi-year IDIQ relating to our ADSSS product. This $2.5 million order provides for further MK 99 Fire Control System (FCS) development, test and installation.
In September 2019, we received the third delivery order under our multi-year IDIQ relating to our ADSSS product. The award covers the installation of condition-based maintenance systems for the Littoral Combat Ship and has a ceiling of $15 million.
In October 2019, we received an additional contract award under our multi-year IDIQ relating to our ADSSS product. This incremental funding with a ceiling up to $6 million, under the third delivery order, covers the development of a new variant of the AN/SYM-3 system and installation of the new CBM system on two additional ship classes; the Aircraft Carriers (CVN class) and the “Big Deck” Amphibious Assault Ships (LHD/LHA class).
In February 2017, we were awarded a follow-on multi-year Small Business Innovation Research Phase III IDIQ contract with the Naval Surface Warfare Center, Crane Division, for our ADEPT program. The contract provides for the purchase and sale of up to $35.1 million of ADEPT units and related engineering, such as calibration, repair, training and other logistics services. We have been awarded several delivery orders under the ADEPT IDIQ Contract. In October 2019, we received notice from Program Executive Office Integrated Warfare Systems that the ADEPT program will not be funded in fiscal year 2020. We will continue to fulfill our current obligations under outstanding engineering services task orders previously issued under the program. As of the date of this report, we have the following open task orders:
| $0.1 million for ADEPT |
● | $0.04 million for |
● | $0.2 million
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Commercial Contracts
In September 2019, Saab Grintek Defence renewed its annual contract for Diagnostic Profiler and Diagnostician Software Maintenance and Support.
Key Performance Indicator
As substantially all of our revenue is derived from contracts with the U.S. Federal government, our key performance indicator is the dollar volume of contracts and task orders awarded to us under our IDIQ contract covering the ADSSS program. Increases in the number and value of contracts and trade orders awarded will generally result in increased revenues in future periods and, assuming relatively stable variable costs associated with our fulfilling such awards, 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 substantial majority of our revenue is expected to come from sales of ADSSS systems under our IDIQ contract, continued generation of task orders and our ability to expand the market and potential customer base for our products will be a key indicator of future revenue.
Outlook
Our strategy for continued growth is based on continuing expansion of our defense business and executing new initiatives to apply our advanced maintenance technology in commercial markets. With regard to the defense industry, we expect to continue expanding our technology base, backlog and revenue by continuing our active participation in the Department of Defense Small Business Innovation Research 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 utilize the intellectual property developed under our various Small Business Innovation Research awards to develop proprietary products, such as ADEPT and ADSSS, with broad appeal in both the government and commercial marketplace. Our state of the art test equipment can be used by many commercial and governmental customers such as the Federal Aviation Administration, radio and television stations, cell phone stations, and airlines. Second, we will continue to pursue Small Business Innovation Research projects with the Department of Homeland Security, the U.S. Navy, and other government agencies. Third, we believe that through our marketing of products, we will develop key relationships with prime defense contractors. Our strategy is to develop these relationships into long-term, key subcontractor roles on future major defense programs awarded to these prime contractors.
Historically, the ADEPT IDIQ contract generated a material amount of our revenue. In 2019, revenues from this program materially decreased as we did not receive any new production orders, ongoing maintenance and recalibration services were reduced, and we experienced delays in follow-on contract awards. In October 2019, we received notice from Program Executive Office Integrated Warfare Systems that the ADEPT program will not be funded in fiscal year 2020. Although this development adversely impacted our revenues and level of activity in 2019, we expect to offset this reduction in future periods through awards under our ADSSS IDIQ contract.
With regard to commercial markets, our Diagnostics Profiler and Prognostics Framework software offerings complement our hardware products and allow us to provide complete hardware/software solutions for advanced maintenance applications. Current customers for these systems include major multinational corporations such as HP Indigo, which recently extended our Diagnostic Profiler software support for a ninth year. We continue to receive repeat orders from these customers to support their applications.
We plan to provide “condition-based maintenance” systems for “complex distributed systems” to commercial customers. In that regard, we are currently developing a condition-based maintenance solution for heating ventilation, air conditioning and refrigeration (HVAC) equipment based on our proprietary Prognostics Framework solution. We have deployed two active pilot systems that are providing key maintenance data on a daily basis to service technicians. More recently, we commenced a pilot program with an energy consulting firm to collect energy consumption data to reduce power consumption, decrease system downtime, and recommend proactive maintenance to commercial and industrial energy users. We are also in discussions with additional commercial companies regarding the use of our condition-based maintenance applications.
In the fourth quarter of 2019 and into 2020, our primary strategic focus is to continue as a premium provider of Research and Product Development services to the defense industry, generate multiple task orders under our ADSSS IDIQ contract, and expand our commercial business through marketing and sales of our Prognostics Framework and Diagnostic Profiler software products. In furtherance of this strategy, we have made material investments in our engineering and technical staffs to provide broader and deeper expertise to our customers. We will also seek to generate incremental revenue through providing light assembly and production services to commercial customers at our manufacturing and depot center in Largo, Florida (the “M&D Center”).
Over the longer term, we intend to further develop advanced maintenance technologies and implement these technologies in products for deployment in defense applications and to expand into more 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 recent years, the combination of spending caps, discretionary spending cuts, sequestration and further changes in defense spending and priorities have caused, and may in the future continue to cause, delays in funding certain projects. This may negatively impact our revenues and profits.
Changes to Critical Accounting Policies and Estimates
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The new standard supersedes the present U.S. GAAP standard on leases and requires substantially all leases to be reported on the balance sheet as right-of-use assets and lease obligations. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, and interim reporting periods within those annual reporting periods. Early adoption is permitted and in the original guidance the modified retrospective application was required, however, in July 2018 the FASB issued ASU 2018-11 which permits entities with another transition method in which the effective date would be the date of initial application of transition. Under this optional transition method, we would recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. We adopted ASU 2016-02 as of January 1, 2019 using the modified retrospective approach and the optional transition method. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward historical lease classifications.
Adoption of the new standard resulted in the recording of operating lease right-of-use assets and operating lease liabilities on our balance sheet, but did not have an impact on the Company's beginning retained earnings, statement of income or statement of cash flows. The most significant impact was the recognition of right-of-use assets and lease liabilities for operating leases, while our accounting for finance leases remained substantially unchanged.
Results of Operations
Three Months Ended September 30, 2019 and 2018
We generated revenues of $ $1,017,121 during the three months ended September 30, 2019 compared to $ $1,893,945 during the three months ended September 30, 2018, a decrease of $876,824, or 46%. The decrease was due principally to delays of follow-on contract awards and no ADEPT units produced in 2019.
Cost of sales consists of direct contract costs including labor, material, subcontracts for the ADEPT units that have been delivered, travel, and other direct costs. Cost of sales during the three months ended September 30, 2019 was $ 317,015 compared to $ 776,493 for the three months ended September 30, 2018, a decrease of $459,478 or 59%. The decrease relates to a change in the mix of contracts generating revenues as compared to the third quarter of 2018. In 2019, we did not produce any ADEPT units and all revenue was generated from engineering support services.
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 benefit 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 September 30, 2019 were $691,337 compared to $648,739 for the three months ended September 30, 2018, an increase of $42,598, or 7%. The increase in 2019 was due to delays of follow-on contract awards, and shift of increases in engineering personnel from revenue generating contracts.
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, including independent research and development (IR&D) which consists of research and development expenses unrelated to our defense contracts). General and administrative costs for the three months ended September 30, 2019 were $349,230 compared to $413,731 for the three months ended September 30, 2018, a decrease of $64,501, or 16%. The decrease in 2019 was due to a decrease in research and development costs and the elimination of incentive compensation expenses in 2019.
We recognized a tax benefit of $130,031 for the three months ended September 30, 2019. At September 30, 2019, the difference from the expected federal statutory income tax rate is attributable to state income taxes and certain permanent book-tax differences.
We reported a net loss of $209,532 for the three months ended September 30, 2019 as compared to net income of $37,029 for the three months ended September 30, 2018. The decrease was attributable primarily to the decrease in revenues in the third quarter of 2019.
Nine Months Ended September 30, 2019 and 2018
We generated revenues of $ $4,890,889 during the nine months ended September 30, 2019 compared to $6,626,716 during the nine months ended September 30, 2018, a decrease of $ $1,735,827, or 26%. The decrease was due principally to delays of follow-on contract awards and no ADEPT units produced in 2019.
Cost of sales for the nine months ended September 30, 2019 was $1,887,708 compared to $3,055,932 for the nine months ended September 30, 2018, a decrease of $1,168,224 or 38%. The decrease relates to a change in the mix of contracts generating revenues as compared to the corresponding period of 2018. In 2019, we did not produce any ADEPT units and all revenue was generated from engineering support services.
Engineering costs for the nine months ended September 30, 2019 were $2,049,425 compared to $1,882,829 for the nine months ended September 30, 2018, an increase of $166,596, or 8%. The increase in 2019 was due to delays of follow-on contract awards, and a shift of increases in engineering personnel from revenue generating contracts.
General and administrative costs for the nine months ended September 30, 2019 were $1,182,537 compared to $1,287,668 for the nine months ended September 30, 2018, a decrease of $105,131, or 9%. The decrease is due to the elimination of the incentive compensation expenses in 2019.
At September 30, 2019, we estimated our annual effective tax rate for 2019 to be 41%. We recognized a tax benefit of $92,764 for the nine months ended September 30, 2019 primarily due to expected net losses for the remainder of 2019. At September 30, 2019, the difference from the expected federal statutory income tax rate is attributable to state income taxes and certain permanent book-tax differences.
We reported a net loss of $132,448 for the nine months ended September 30, 2019 as compared to net income of $274,161 for the nine months ended September 30, 2018. The decrease was attributable primarily to the decrease in revenues in the first nine months of 2019.
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.
During the nine months ended September 30, 2019, net cash used in operations was $294,266 compared to net cash provided by operations of $213,997 during the nine months ended September 30, 2018. The decrease was primarily due to the net loss for the nine months ended September 30, 2019 and timing of receipts and payments related to our operating assets and liabilities.
Net cash used in investing activities was $32,360 in the nine months ended September 30, 2019 as compared to $98,718 in the nine months ended September 30, 2018, a decrease of $66,358. The decrease was due to the decrease in purchases of equipment and furniture and fixtures related to an expansion of our Pennsylvania offices in 2018.
On January 31, 2018, we entered into a $550,000 credit facility with PNC Bank. The facility initially matured on January 31, 2019 and has been extended to January 31, 2020. The facility accrues interest at a variable rate equal to the Daily LIBOR Rate plus 250 basis points. Interest is paid monthly. Principal borrowings may be prepaid at any time without penalty and the facility is secured by substantially all of our assets. The facility contains customary affirmative and negative nonfinancial covenants. As of September 30, 2019, no amounts were outstanding under the facility.
In order to pursue strategic opportunities, obtain additional Small Business Innovation Research 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.
Off-Balance Sheet Arrangements
As of September 30, 2019, 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 delivery of ADEPT units under our Phase III IDIQ contract at NSWC Crane. These new units will continue our fleet support on Aegis cruisers and destroyers in the U.S. Navy.
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 and delivery orders awarded to us under our IDIQ contracts. 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 awards, 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 2016, and expected revenue in 2017, is or will be from sales of ADEPT units and ADSSS systems under our IDIQ contracts, continued generation of delivery 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 based on continuing expansion of our defense business, plus new initiatives to apply our advanced maintenance technology in commercial markets. With regard to the defense industry, 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 use the technology and intellectual property developed under our various SBIR awards to develop proprietary products with broad appeal in both government and commercial markets. 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 long-term, key subcontractor roles on future major defense programs awarded to these prime contractors.
With regard to commercial markets, our Diagnostics Profiler and Prognostics Framework software offerings complement our hardware products and allow us to provide complete hardware/software solutions for advanced maintenance applications. Current customers for these systems include major multinational corporations such as HP, which recently extended our Diagnostic Profiler software support with for a fifth year. We continue to receive repeat orders from these customers to support their applications. We plan to provide “condition-based maintenance” systems for applications such as FAA radar surveillance and support systems, power distribution and utilities infrastructure, commercial shipping, cooling and environmental systems, and other “complex distributed systems” to commercial customers. In that regard, we are currently developing a condition-based maintenance solution for heating ventilation, air conditioning and refrigeration (HVAC) equipment based on our proprietary Prognostics Framework solution. We have deployed two active pilot systems that are providing key maintenance data on a daily basis to service technicians.
In 2017, our primary strategic focus is to continue as a premium provider of R&D and product development services to the defense industry, generate multiple delivery orders under our two IDIQ contracts, extend ADEPT and ADSSS to additional combat systems and ship classes, and expand our commercial business through marketing and sales of our Prognostics Framework and Diagnostic Profiler software products. We will also seek to generate incremental revenue through providing light assembly and production services to commercial customers at our manufacturing and depot center in Largo, Florida.
Over the longer term, we intend to further develop advanced maintenance technologies and implement these technologies in products for deployment in defense applications and to expand into additional 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, and building maintenance. 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 may negatively 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, 2016. As of September 30, 2017, there have been no changes to such critical accounting policies and estimates.
Results of Operations
ThreeMonthsEndedSeptember 30, 2017and2016
We generated revenues of $1,551,620 during the three months ended September 30, 2017 compared to $1,180,491 during the three months ended September 30, 2016, an increase of $371,129, or 31%. The increase was due primarily to a production order for 11 ADEPT units in February 2017 and the receipt of additional contracts for engineering services, support and repairs and calibration services amounting to $3,355,938.
Cost of sales consists of direct contract costs including labor, material, subcontracts, warranty expense for ADEPT units that have been delivered, travel, and other direct costs. Cost of sales for the three months ended September 30, 2017 was $636,128 compared to $446,810 for the three months ended September 30, 2016, an increase of $189,318 or 42%. The increase was due primarily to the receipt of a production order for 11 ADEPT units in February 2017 and the receipt of four additional contracts for engineering services, support and repairs and calibration services. As a percentage of revenue, cost of sales was 41% of revenues for the three months ended September 30, 2017 as compared to 38% of revenues for the three months ended September 30, 2016. The increase is due to an increase in production costs and other direct costs.
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 benefit 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 September 30, 2017 were $530,477 compared to $421,296 for the three months ended September 30, 2016, an increase of $109,181, or 26%. The increase was due to significant increases in fringe benefits and engineering salaries due to the hiring of six additional employees, recruiting costs, travel and subsistence expenses, engineering consulting costs, and 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, including independent research and development (IR&D) which consists of research and development expenses unrelated to our defense contracts). General and administrative costs for the three months ended September 30, 2017 were $379,407 compared to $261,528 for the three months ended September 30, 2016, an increase of $117,879, or 45%. The increase was due primarily to increases in salaries, incentive compensation, research and development costs, and professional fees.
At September 30, 2017, we estimated our annual effective tax rate for 2017 to be 46%. We recognized a tax benefit of $(22,695) for the three months ended September 30, 2017 primarily due to stock compensation related tax deductions and tax credits. At September 30, 2017, the difference from the expected federal income tax rate is attributable to state income taxes and certain permanent book-tax differences.
NineMonthsEndedSeptember 30, 2017and2016
We generated revenues of $5,047,456 during the nine months ended September 30, 2017 compared to $3,146,792 during the nine months ended September 30, 2016, an increase of $1,900,664, or 60%. The increase was due primarily to a production order for 11 ADEPT units in February 2017 and the receipt of ten additional contracts for engineering services, support and repairs and calibration services amounting to $6,756,321.
Cost of sales for the nine months ended September 30, 2017 was $1,909,246 compared to $1,120,664 for the nine months ended September 30, 2016, an increase of $788,582 or 70%. The increase was due primarily to the receipt of a production order for 11 ADEPT units in February 2017 and the receipt of ten additional contracts for engineering services, support and repairs, and calibration services. As a percentage of revenue, cost of sales was 38% for the nine months ended September 30, 2017 as compared to 36% of revenues for the nine months ended September 30, 2016. The increase is due to an increase in production costs and other direct costs.
Engineering costs for the nine months ended September 30, 2017 were $1,587,069 compared to $1,058,058 for the nine months ended September 30, 2016, an increase of $529,011, or 50%. The increase was due to significant increases in fringe benefits and engineering salaries due to the hiring of six additional employees, recruiting costs, travel and subsistence expenses, engineering consulting costs and incentive compensation.
General and administrative costs for the nine months ended September 30, 2017 were $1,218,694 compared to $894,430 for the nine months ended September 30, 2016, an increase of $324,264, or 36%. The increase was due primarily to increases in salaries, incentive compensation, research and development costs, and professional fees.
At September 30, 2017, we estimated our annual effective tax rate for 2017 to be 42%. We recognized a tax expense of $139,064 for the nine months ended September 30, 2017 primarily due to expected net income for the remainder of 2017. At September 30, 2017, the difference from the expected federal income tax rate is attributable to state income taxes and certain permanent book-tax differences.
LiquidityandCapitalResources
Since our inception, we have financed our operations through debt, private and public offerings of equity securities, and cash generated by operations.
During the nine months ended September 30, 2017, net cash provided by operations was $302,293 compared to net cash used in operations of $965,768 during the nine months ended September 30, 2016. The increase was due primarily to an increase in net income of $164,978 and the timing of receipts and payments related to our operating assets and liabilities.
We currently do not have any outstanding loan or line of credit with any bank or financial institution. 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-BalanceSheetArrangements
As of September 30, 2017, 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.
Item4.ControlsandProcedures.
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 Chief Executive Officer, who serves as our principal executive officer and principal financial officer. Based upon that evaluation, our president concluded that as of September 30, 2019, 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, as amended, 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.
There were no changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) or 15d- 15(f)) that occurred during the fiscal quarter ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 6. Exhibits
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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.
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