QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2006
Commission File No. 2-67918
in its Charter) Delaware 14-1598200 -------- ---------- (State or Other Jurisdiction (I.R.S. Employer of Incorporation or Organization) Identification No.) |
Check whether the issuer: (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange
Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes: ___X___ No:_______
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes:________ No:___X___
State the number of shares outstanding of each of the issuer?s classes of common equity, as of August 11, 2006:
Class Number of Shares ----- ---------------- Common Stock, par value $.01 31,766,753 |
Transitional Small Business Disclosure Format (check one):
Yes:___ ___ No:__X____
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
CONDENSED BALANCE SHEET
As of June 30, 2006 3
CONDENSED STATEMENTS OF OPERATIONS
For the Three Months Ended and Six
5
CONDENSED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30,
2006 and 2005 6
NOTES TO THE CONDENSED FINANCIAL
STATEMENTS 7
Item 2. Management?s Discussion and Analysis of
of Financial Condition and Results of
Operations
Overview 11
Results of Operations 13
Liquidity and Capital Resources 14
Item 3. Controls and Procedures 16
PART II. OTHER INFORMATION
Item 5. Other Information 17
Item 6. Exhibits 17
SIGNATURES 18
CERTIFICATIONS 19
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PART I. Financial Information
Item 1. Condensed Financial Statements
MIKROS SYSTEMS CORPORATION
CONDENSED BALANCE SHEET
(UNAUDITED)
June 30,
ASSETS 2006
------ --------
CURRENT ASSETS
Cash $ 142,954
Receivables on Government
Contracts 104,717
Other Current Assets 24,627
--------
TOTAL CURRENT ASSETS 272,298
--------
FIXED ASSETS
EQUIPMENT 11,524
Less: Accumulated Depreciation (3,964)
--------
FIXED ASSETS, NET 7,560
--------
OTHER ASSETS
Deferred Tax Asset 53,000
Patents 6,941
Less: Accumulated Amortization (4,408)
--------
Patents, Net 2,533
--------
TOTAL OTHER ASSETS 55,533
--------
TOTAL ASSETS $ 335,391
=========
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See Accompanying Notes to Condensed Financial Statements.
MIKROS SYSTEMS CORPORATION
CONDENSED BALANCE SHEET (UNAUDITED)
June 30,
LIABILITIES AND SHAREHOLDERS' EQUITY 2006
---------
CURRENT LIABILITIES
Accrued Payroll and Payroll Taxes $ 66,796
Accrued Expenses 3,370
Accounts Payable 52,224
---------
TOTAL CURRENT LIABILITIES 122,390
Accrued Expenses 16,228
---------
TOTAL LIABILITIES 138,618
---------
REDEEMABLE SERIES C PREFERRED STOCK
par value $.01 per share, authorized 150,000
shares, issued and outstanding 5,000 shares 80,450
(involuntary liquidation value - $80,450) ---------
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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
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
Preferred Stock, Series D, par value $.01 per
share, 690,000 shares authorized, issued and
outstanding
(involuntary liquidation value - $1,518,000) 6,900
Common Stock, par value $.01 per share,
authorized 60,000,000 shares, issued and
outstanding 31,766,753 317,668
Capital in excess of par 11,422,976
Accumulated deficit (11,644,795)
-----------
TOTAL SHAREHOLDERS' EQUITY 116,323
-----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 335,391
===========
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See Accompanying Notes to Condensed Financial Statements.
MIKROS SYSTEMS CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended, Six Months Ended,
June 30, 2006 June 30, 2005 June 30, 2006 June 30, 2005
------------- ------------- ------------- -------------
Revenues:
Contract Revenue $ 411,403 $ 436,356 $ 949,993 $ 791,769
Cost of Sales 234,423 266,215 573,929 472,645
------------ ----------- ----------- -----------
Gross Margin 176,980 170,141 376,064 319,124
------------ ----------- ----------- -----------
Expenses:
Engineering 47,360 26,677 99,542 48,132
General &
Administrative 131,362 99,939 246,097 196,653
------------ ----------- ----------- -----------
Total Expenses 178,722 126,616 345,639 244,785
(Loss) Income from
Operations (1,742) 43,525 30,425 74,339
Other Income:
Interest 285 0 285 0
------------ ----------- ----------- -----------
Net (Loss) Income Before
Income Tax Expense (1,457) 43,525 30,710 74,339
Income Tax Expense 0 0 12,000 0
------------ ----------- ----------- -----------
Net (Loss) Income $ (1,457) $ 43,525 $ 18,710 $ 74,339
============ =========== =========== ===========
Basic and diluted
earnings per share $ 0.00 $ 0.00 $ 0.00 $ 0.00
============ =========== =========== ===========
Weighted average number
of shares
outstanding 31,766,753 31,766,753 31,766,753 31,766,753
============ =========== =========== ===========
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See Accompanying Notes to Condensed Financial Statements.
MIKROS SYSTEMS CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30, 2006 June 30, 2005
------------- ----------------
Cash Flow From Operating Activities:
Net Income $ 18,710 $ 74,339
Adjustments to reconcile Net Income
to net cash provided by
Operating Activities:
Depreciation and Amortization 4,772 707
Deferred Tax Provision 12,000 0
Net Changes in Operating Assets and
Liabilities
(Increase) Decrease in:
Accounts Receivable (2,358) 30,732
Other Current Assets (7,734) (8,712)
Increase (Decrease) in:
Accounts Payable (5,947) (23,607)
Accrued Payroll and Payroll Taxes 16,358 390
Accrued Expenses (1,390) (46,500)
--------- ---------
Net Cash provided by
Operating Activities 34,411 27,349
--------- ---------
Cash Flow from Investing Activities:
Purchase of Equipment 0 (3,102)
Costs associated with Patent Development (1,611) 0
--------- ---------
Net Cash used in Investing Activities (1,611) (3,102)
--------- ---------
Net Increase in Cash 32,800 24,247
Cash, beginning of the period 110,154 93,723
--------- ---------
Cash, end of period $ 142,954 $ 117,970
========= =========
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See Accompanying Notes to Condensed Financial Statements.
MIKROS SYSTEMS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2006
(UNAUDITED)
Note 1 ? Basis of Presentation:
The financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company?s Annual Report on Form 10-KSB for the year ended December 31, 2005.
In the opinion of the Company?s management, the accompanying unaudited financial statements contain all adjustments, consisting solely of those which are of a normal recurring nature, necessary to present fairly its financial position as of June 30, 2006 and the results of its operations and its cash flows for the six months ended June 30, 2006.
Interim results are not necessarily indicative of results for the full fiscal year.
Note 2 ? Shareholder?s Equity:
The Series C Preferred Stock is not convertible into any other class of the Company?s stock and is subject to redemption at the Company?s option at any time. In addition, redemption is mandatory if certain events occur, such as capital reorganizations, consolidations, mergers, or a sale of all or substantially all of the Company?s assets. Upon any liquidation, dissolution or winding up of the Company, each holder of Series C Preferred Stock will be entitled to be paid, before any distribution or payment is made upon any other class of stock of the Company, an amount in cash equal to the then effective redemption price for each share of Series C Preferred Stock held by such holder. Upon payment of the effective redemption price, the holders of Series C Preferred Stock will not be entitled to any further payment.
Each share of Series B Preferred Stock is convertible into three shares of the Company's common stock at a price of $0.33 per share of common stock to be received upon conversion and entitles the holder thereof to cast three votes on all matters to be voted on by the Company's Shareholders. Upon any liquidation, dissolution, or winding up of the Company, each holder of Series B Preferred Stock will be entitled to be paid, after all distributions of payments are made upon the Series C Preferred Stock and before any payment is made upon the Company's Convertible Preferred Stock, an amount in cash equal to $1.00 for each share of Series B Preferred Stock held, and such holders will not be entitled to any further payment.
Each share of the convertible preferred stock can be redeemed at the Company's option for $1.00 per share or can be converted into shares of the Company's common stock. Each share of preferred stock is convertible into one share of common stock. This conversion rate is subject to adjustment in certain circumstances. Upon any liquidation, dissolution or winding up of the Company, each holder will be entitled to their redemption price once the holders of Series B and Series C Preferred Stock have been fully paid.
The Series D Preferred Stock provides for an annual cumulative dividend of $0.10 per share. The shares are not convertible into any other class of stock and are subject to redemption at the Company's option at any time at a redemption price of $1.00 per share plus all unpaid cumulative dividends. Upon liquidation, dissolution or winding up of the Company, each holder of Series D Preferred Stock will be entitled to be paid, after all distributions or payments are made upon the Company's Convertible Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock, an amount in cash equal to the effective redemption price for each share of Series D Preferred Stock held by such holder. Upon payment of the effective redemption price, the holders of Series D Preferred Stock will not be entitled to any further payment.
As of June 30, 2006, there were dividends in arrears on shares of Series D Preferred Stock of $828,000. In January 2006, the holders of the shares of Series D Preferred Stock agreed to waive future accumulation of dividends effective as of January 1, 2006. Such waiver did not affect dividends accrued through December 31, 2005.
Note 3 ? Earnings Per Share
The Company?s calculation of earnings per share is as follows for the periods presented:
Three Months Ended Six Months Ended
June 30, 2006 June 30, 2005 June 30, 2006 June 30, 2005
Net (loss) income applicable to
to common stockholders $ (1,457) $ 43,525 $ 18,710 $ 74,339
============ ============= ============= =============
Average basic shares
outstanding 31,766,753 31,766,753 31,766,753 31,766,753
Assumed conversion
of preferred stock 0 3,562,299 3,562,299 3,562,299
Effect of dilutive
options and warrants 0 86,452 131,049 56,000
------------ ------------- -------------- ------------
Average diluted shares
outstanding 31,766,753 35,415,504 35,460,101 35,385,052
============ ============= ============== ============
Net earnings per common
share, basic and
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A total of 9,413,117 convertible preferred shares, common stock options and warrants were not included in the computation of diluted earnings per share because of their anti-dilutive effect for the three months ended June 30, 2006.
A total of 5,489,000 common stock options and warrants were not included in the computation of diluted earnings per share because of their anti-dilutive effect for the six months ended June 30, 2006.
A total of 5,570,818 common stock options and warrants were not included in the computation of diluted earnings per share because of their anti-dilutive effect for the three months and six months ended June 30, 2005.
Note 4 ? New Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board (FASB) issued Statement No. 123(R), ?Share-Based Payment.? Statement No. 123(R) replaces Statement No. 123, ?Accounting for Stock-Based Compensation,? and supersedes APB Opinion No. 25, ?Accounting for Stock Issued to Employees.? Statement No. 123(R) requires compensation costs related to share-based payment transactions to be recognized in the financial statements over the period that an employee provides service in exchange for the award. Public companies are required to adopt the new standard using a modified prospective method and may elect to restate prior periods using the modified retrospective method. Under the modified prospective method, companies are required to record compensation cost for new and modified awards over the related vesting period of such awards prospectively and record compensation cost prospectively for the unvested portion, at the date of adoption, of previously issued and outstanding awards over the remaining vesting period of such awards. No change to prior periods presented is permitted under the modified prospective method. Under the modified retrospective method, companies record compensation costs for prior periods retroactively through restatement of such periods using the exact pro forma amounts disclosed in the companies' footnotes. Also, in the period of adoption and after, companies record compensation cost based on the modified prospective method.
The Company adopted SFAS No. 123(R) effective January 1, 2006, using the modified prospective method with no restatement. The impact of future option or stock grants is dependent upon the quantity and nature of future stock-based compensation grants.
In February 2006, the FASB issued FASB Staff Position No. FAS
123(R)-4, ?Classification of Options and Similar Instruments
Issued as Employee Compensation That Allow for Cash Settlement
upon the Occurrence of a Contingent Event?. This position amends
SFAS 123R to incorporate that a cash settlement feature that
can be exercised only upon the occurrence of a contingent event
that is outside the employee?s control does not meet certain
conditions in SFAS 123R until it becomes probable that the
event will occur. The guidance in this FASB Staff Position
was applied upon initial adoption of Statement 123R and did
not have an impact on the Company?s financial statements.
In July 2006, the FASB issued FASB Interpretation No. 48, ?Accounting for Uncertainty in Income Taxes ? an interpretation of FASB Statement No. 109? (FIN 48), which clarifies the accounting for uncertainty in tax positions. This Interpretation requires that companies recognize in their financial statements the impact of a tax position, and if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. We are currently evaluating the impact of adopting FIN 48 on our financial statements.
Item 2. Management?s Discussion and Analysis of
Financial Condition and Results of Operations.
Unless otherwise indicated or the context otherwise requires, all
references to ?Mikros?, the ?Company?, ?we?, or ?our? and similar
terms refer to Mikros Systems Corporation. Mikros is an advanced
technology company specializing in the research and development of
electronic systems technology primarily for military applications.
Classified by the U.S. 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. Our
headquarters are located at 707 Alexander Road, Suite 208, in
Princeton, New Jersey.
On March 2, 2006, we received an amendment to the SBIR Phase III contract for additional funding in the amount of $2,950,000 from The Department of the Navy for the continuation of the development and production of our Adaptive Diagnostic Electronic Portable Testset or ADEPT? maintenance tool for U.S. Navy surface combatants. This modification will expand the application of ADEPT? to include all Aegis ship variants for cruisers and destroyers. This market totals over 80 ships plus shore-based facilities. Future potential markets include foreign navies and other U.S. Navy ships. This maintenance and training tool allows U.S. Navy personnel to engage cutting-edge technology to reduce maintenance time and enhance skill levels of shipboard personnel.
ADEPT? began as a U.S. Navy Small Business Innovation Research (SBIR) program in 2002, and over the course of development, Mikros has filed for three technology patents with the U.S. Patent & Trademark Office dealing with maintenance procedure automation and dynamic maintenance personnel training. Mikros expects to file additional patents in the near future.
The SPY-1A development is complete and six production units have been delivered to Mikros by DRS Technologies. The production units have passed environmental testing and have undergone limited functional testing at the SPY-1A radar training site in Dahlgren, Virginia. Additional functional testing is scheduled for August at the newly opened SPY-1A test facility at Lockheed Martin Corporation?s Moorestown, New Jersey facility. The U.S. Navy is also planning for ADEPT? testing at its Wallops Island, Virginia facility as well as shipboard testing. The existing contract calls for the production of an additional ten ADEPT? systems to be installed in Aegis ships.
On May 1, 2006, we were awarded an SBIR Phase II contract from Space and Naval Warfare Systems Command (SPAWAR), San Diego, as a follow-on to our SBIR Phase I work performed under the SBIR topic entitled Radar Wireless Spectral Efficiency (RWSE). The total award is valued at approximately $750,000 divided into a $600,000 base program and a $150,000 option program. This SBIR Phase II effort will focus on the real world implications of incorporating wireless networking into the aircraft carrier (CVN platform) environment. The overall technical objective is to facilitate the introduction of commercial wireless communication systems, e.g. Wi-Fi, onto the U.S. Navy CVN platform through: (1) the identification and testing of potential own-ship electromagnetic interference (EMI) issues; (2) the development and testing of viable mitigation technologies to overcome adverse EMI effects; and (3) the development of a CVN Wi-Fi network planning tool to support networking within a highly reconfigurable shipboard environment. This contract is initially for the CVN platform, but is expected to be eventually applicable to other U.S. Navy ships.
Mikros continues to pursue several SBIR projects with the Department of Homeland Security, the U.S. Navy, and other government agencies.
Statements contained or incorporated by reference in this Quarterly Report on Form 10-QSB that are not based on historical facts are ?forward-looking statements? within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements regarding future events and our future results are based on current expectations, estimates, forecasts, and projections and the beliefs and assumptions of our management including, without limitation, our expectations regarding results of operations, selling, general and administrative expenses, research and development expenses and the sufficiency of our cash for future operations. Forward-looking statements may be identified by the use of forward-looking terminology such as ?may,? ?will,? ?expect,? ?estimate,? ?anticipate,? ?continue,? or similar terms, variations of such terms or the negative of those terms.
Such forward-looking statements include, without limitation, statements regarding technology under development, strategies and objectives. The forward-looking statements include risks and uncertainties, including, but not limited to, the anticipated size of and growth in the markets for the Company?s products, the trends favoring the use of the Company?s proposed commercial products, the anticipated demand for the Company?s new products, the timing of development and implementation of the Company?s new product offerings, the utilization of such products by the Company?s clients and trends in future operating performance, and other factors not within the Company?s control. The factors discussed herein and expressed from time to time in the Company?s filings with the Securities and Exchange Commission could cause actual results and development to be materially different from those expressed in or implied by such statements. The forward-looking statements made herein are only made as of the date of this report and the Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.
Our critical accounting policies and estimates are set forth in our Annual Report on Form 10-KSB for the fiscal year ended December 31, 2005. As of June 30, 2006, there have been no changes to such critical accounting policies and estimates.
Section 404 of the Sarbanes-Oxley Act of 2002 requires management to perform an evaluation of its internal control over financial reporting and have our independent auditors attest to such evaluation as of December 31, 2007. We have been actively preparing for the implementation of this requirement by, among other things, establishing an ongoing program to document, evaluate and test the systems and processes necessary for compliance. While we anticipate that we will be able to comply on a timely basis with these requirements, unforeseen delays may occur which could prevent us from achieving timely compliance.
If we fail to complete our evaluation on a timely basis and in a satisfactory manner, or if our external auditors are unable to attest on a timely basis to the adequacy of our internal controls, we may be subject to additional scrutiny surrounding our internal controls over financial reporting.
Three Months Ended June 30, 2006 and 2005
There were revenues of $411,403 for the second quarter ended June 30, 2006 compared to $436,356 for the same period in 2005 and there were cost of sales of $234,423 for the quarter ended June 30, 2006 compared to $266,215 for the same period in 2005. These decreases are attributable primarily to lower subcontractors? costs and lower direct charges incurred on the SBIR Phase III contract.
Engineering costs for the quarter ended June 30, 2006 were $47,360 compared to $26,677 in the quarter ended June 30, 2005. There were higher engineering costs for the quarter ended June 30, 2006 due to increased salary expenses and costs related to the relocation of our research and development engineering office.
General and administrative expenses for the quarter ended June 30, 2006 were $131,362 compared to $99,939 in the quarter ended June 30, 2005. This increase was due to higher costs incurred for salaries and related costs in connection with the Company?s bid and proposals.
For the three months ended March 31, 2006, income tax expense was $0, due to the net operating loss incurred.
We experienced a net loss of $1,457 for the three months ended June 30, 2006 compared to net income of $43,525 for the same period in 2005.
Six Months Ended June 30, 2006 and 2005
There were revenues of $949,993 for the six months ended June 30, 2006 compared to $791,769 for the same period in 2005 and there were cost of sales of $573,929 for the six months ended June 30, 2006 compared to $472,645 for the same period in 2005. These increases are attributable primarily to higher direct charges related to the SBIR Phase II and III contracts.
Engineering costs for the six months ended June 30, 2006 were $99,542 compared to $48,132 for the same period in 2005. This increase is attributable primarily to increased salary expenses and costs related to the relocation of our research and development engineering office.
General and administrative expenses for the six months ended June 30, 2006 were $246,097 compared to $196,653 in the six months ended June 30, 2005. This increase is attributable primarily to the SBIR Phase II and III contracts and higher costs incurred for salaries and related costs in connection with the Company?s bid and proposals.
For the six months ended June 30, 2006, income tax expense was $12,000 compared to $0 for the same period in 2005. During 2005, the Company?s deferred tax assets were fully reserved by a valuation allowance, thus the related income tax expense was offset by the reversal of the corresponding valuation allowance.
Net income for the six months ended June 30, 2006 was $18,710 compared to $74,339 for the same period in 2005.
Since our inception, we have financed our operations through debt, private and public offerings of equity securities and cash generated by operations.
In September 2004, we were awarded an SBIR Phase III contract from the Naval Surface Weapons Center ? Dahlgren, Virginia valued at approximately $2,400,000. The contract is to complete the development and to begin initial production of an intelligent test tool for Navy radars. The MFDAT has been designed by the Company under a $1,000,000 SBIR Phase II contract, which began in August 2003. In March 2006, an amendment to this SBIR Phase III contract increased funding by approximately $2,950,000 and extended the period of performance through February 2008. The contract amendment calls for an expansion of ADEPT? applications to include all Aegis ship variants for cruisers and destroyers.
On May 1, 2006, we were awarded an SBIR Phase II contract from Space and Naval Warfare Systems Command (SPAWAR), San Diego, as a follow-on to our SBIR Phase I work performed under the SBIR topic entitled Radar Wireless Spectral Efficiency (RWSE). The total award is valued at approximately $750,000 divided into a $600,000 base program and a $150,000 option program.
We maintain a line of credit facility for maximum borrowings of up to $34,000. There was $170 outstanding under this line at June 30, 2006.
For the six months ended at June 30, 2006, we had net income of $18,710 and working capital of $149,908. However, we still had an accumulated deficit of $11,644,795.
We intend to continue the development and marketing of our commercial applications of our wireless communications technology both directly and through third parties. In order to continue such development and marketing, we will be required to raise additional funds. We intend to consider the sale of additional debt and equity securities under appropriate market conditions, alliances or other partnership agreements with entities interested in supporting our commercial programs, or other business transactions which would generate resources sufficient to assure continuation of our operations and research programs. There can be no assurance, assuming we successfully raise additional funds or enter into business alliances, that we will achieve profitability or positive cash flow. If we are unable to obtain additional adequate financing or enter into such business alliances, management will be required to sharply curtail our operations.
Our major outstanding contractual obligations relate to the leases of our executive office and marketing facilities through month-to-month leases. We executed a new lease for engineering office space in Fort Washington, Pennsylvania that commenced on September 1, 2005 and continues for 63 months. The first monthly payment of $5,181.00 was due on January 1, 2006 and the terms of the lease include an annual rate increase through the end of lease.
Item 3. Controls and Procedures.
Based on his evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of June 30, 2006, our president (principal executive officer and principal financial officer) has concluded that our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC?s rules and forms and are operating in an effective manner.
There were no changes in our internal controls or in other factors that could significantly affect these controls during the quarter ended June 30, 2006.
PART II. OTHER INFORMATION
Item 5. Other Information
On June 22, 2006, the Board of Directors of Mikros approved and adopted the Mikros Systems Corporation Code of Business Conduct and Ethics, a copy of which is attached to this Form 10-QSB as Exhibit 14.
Our Code of Business Conduct and Ethics is also available on our website, www.mikros.us, or without change upon written request directed to Patricia A. Kapp, Secretary, Mikros Systems Corporation, 707 Alexander Road, Building Two, Suite 208, Princeton, New Jersey 08540.
Our Code of Business Conduct and Ethics sets forth legal and ethical standards applicable to all of our directors, officers, and employees. We intend to disclose on our website any amendments to, or waivers from, our Code of Business Conduct and Ethics that are required to be publicly disclosed.
Item 6. Exhibits
Exhibit 14 Mikros Systems Corporation Code of Business
Conduct and Ethics.
Exhibit 31.1 Certification of principal executive officer and
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principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.1 Certification of principal executive officer and principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
MIKROS SYSTEMS CORPORATION
DATE: August 11, 2006 By:/s/Thomas J. Meaney
----------------------
President
(Chief Executive Officer and
Chief Financial Officer)
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Exhibit 14
MIKROS SYSTEMS CORPORATION
CODE OF BUSINESS CONDUCT AND ETHICS
This Code of Business Conduct and Ethics (the ?Code?) sets forth legal and ethical standards of conduct for directors, officers and employees of Mikros Systems Corporation (the ?Company?). This Code is intended to deter wrongdoing and to promote the conduct of all Company business in accordance with high standards of integrity and in compliance with all applicable laws and regulations. This Code applies to the Company and all of its subsidiaries and other business entities controlled by it worldwide.
If you have any questions regarding this Code or its application to you in any situation, you should contact your supervisor or the Company?s Chief Executive Officer or Chief Financial Officer.
Compliance with Laws, Rules and Regulations
The Company requires that all employees, officers and directors comply with all laws, rules and regulations applicable to the Company wherever it does business. You are expected to use good judgment and common sense in seeking to comply with all applicable laws, rules and regulations and to ask for advice when you are uncertain about them.
If you become aware of the violation of any law, rule or regulation by the Company, whether by its officers, employees, directors, or any third party doing business on behalf of the Company, it is your responsibility to promptly report the matter to your supervisor or to the Company?s Chief Executive Officer or Chief Financial Officer. While it is the Company?s desire to address matters internally, nothing in this Code should discourage you from reporting any illegal activity, including any violation of the securities laws, antitrust laws, environmental laws or any other federal, state or foreign law, rule or regulation, to the appropriate regulatory authority. Employees, officers and directors shall not discharge, demote, suspend, threaten, harass or in any other manner discriminate or retaliate against an employee because he or she reports any such violation, unless it is determined that the report was made with knowledge that it was false. This Code should not be construed to prohibit you from testifying, participating or otherwise assisting in any state or federal administrative, judicial or legislative proceeding or investigation.
Conflicts of Interest
Employees, officers and directors must act in the best interests of the Company. You must refrain from engaging in any activity or having a personal interest that presents a ?conflict of interest.? A conflict of interest occurs when your personal interest interferes, or appears to interfere, with the interests of the Company. A conflict of interest can arise whenever you, as an officer, director or employee, take action or have an interest that prevents you or reasonably could be expected to prevent you from performing your Company duties and responsibilities honestly, objectively and effectively.
For example:
No employee, officer or director shall perform services as a consultant, employee, officer, director, advisor or in any other capacity for, or have a financial interest in, a direct competitor of the Company, other than services performed at the request of the Company and other than a financial interest representing less than one percent (1%) of the outstanding shares of a publicly-held company; and
No employee, officer or director shall use his or her position with the Company to influence a transaction with a supplier or customer in which such person has any personal interest, other than a financial interest representing less than one percent (1%) of the outstanding shares of a publicly-held company.
It is your responsibility to disclose any transaction or relationship that reasonably could be expected to give rise to a conflict of interest to the Company?s Chief Executive Officer or Chief Financial Officer or, if you are an executive officer or director, to the Board of Directors, who shall be responsible for determining whether such transaction or relationship constitutes a conflict of interest.
Insider Trading
Employees, officers and directors who have material non-public information about the Company or other companies, including our suppliers and customers, as a result of their relationship with the Company are prohibited by law and Company policy from trading in securities of the Company or such other companies, as well as from communicating such information to others who might trade on the basis of that information.
If you are uncertain about the constraints on your purchase or sale of any Company securities or the securities of any other company that you are familiar with by virtue of your relationship with the Company, you should consult with the Company?s Chief Executive Officer or Chief Financial Officer before making any such purchase or sale.
Confidentiality
Employees, officers and directors must maintain the confidentiality of confidential information entrusted to them by the Company or other companies, including our suppliers and customers, except when disclosure is authorized by a supervisor or legally mandated. Unauthorized disclosure of any confidential information is prohibited. Additionally, employees should take appropriate precautions to ensure that confidential or sensitive business information, whether it is proprietary to the Company or another company, is not communicated within the Company except to employees who have a need to know such information to perform their responsibilities for the Company.
Third parties may ask you for information concerning the Company. Subject to the exceptions noted in the preceding paragraph, employees, officers and directors (other than the Company?s authorized spokespersons) must not discuss internal Company matters with, or disseminate internal Company information to, anyone outside the Company, except as required in the performance of their Company duties and after an appropriate confidentiality agreement is in place. This prohibition applies particularly to inquiries concerning the Company from the media, market professionals (such as securities analysts, institutional investors, investment advisers, brokers and dealers) and security holders. All responses to inquiries on behalf of the Company must be made only by the Company?s authorized spokespersons. If you receive any inquiries of this nature, you must decline to comment and refer the inquirer to your supervisor or one of the Company?s authorized spokespersons.
You also must abide by any lawful obligations that you have to your former employer. These obligations may include restrictions on the use and disclosure of confidential information, restrictions on the solicitation of former colleagues to work at the Company and non-competition obligations.
Honest and Ethical Conduct and Fair Dealing
Employees, officers and directors should endeavor to deal honestly, ethically and fairly with the Company?s suppliers, customers, competitors and employees. Statements regarding the Company?s products and services must not be untrue, misleading, deceptive or fraudulent. You must not take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts or any other unfair-dealing practice.
Protection and Proper Use of Corporate Assets
Employees, officers and directors should seek to protect the Company?s assets. Theft, carelessness and waste have a direct impact on the Company?s financial performance. Employees, officers and directors must use the Company?s assets and services solely for legitimate business purposes of the Company and not for any personal benefit or the personal benefit of anyone else.
Employees, officers and directors must advance the Company?s legitimate interests when the opportunity to do so arises. You must not take for yourself personal opportunities that are discovered through your position with the Company or the use of property or information of the Company.
Gifts and Gratuities
The use of Company funds or assets for gifts, gratuities or other favors to employees or government officials is prohibited, except to the extent such gifts are in compliance with applicable law, insignificant in amount and not given in consideration or expectation of any action by the recipient.
Employees, officers and directors must not accept, or permit any member of his or her immediate family to accept, any gifts, gratuities or other favors from any customer, supplier or other person doing or seeking to do business with the Company, other than items of insignificant value. Any gifts that are not of insignificant value should be returned immediately and reported to your supervisor. If immediate return is not practical, they should be given to the Company for charitable disposition or such other disposition as the Company, in its sole discretion, believes appropriate.
Common sense and moderation should prevail in business entertainment engaged in on behalf of the Company. Employees, officers and directors should provide, or accept, business entertainment to or from anyone doing business with the Company only if the entertainment is infrequent, modest and intended to serve legitimate business goals. Bribes and kickbacks are criminal acts, strictly prohibited by law. You must not offer, give, solicit or receive any form of bribe or kickback anywhere in the world.
Accuracy of Books and Records and Public Reports
Employees, officers and directors must honestly and accurately report all business transactions. You are responsible for the accuracy of your records and reports. Accurate information is essential to the Company?s ability to meet legal and regulatory obligations.
All Company books, records and accounts shall be maintained in accordance with all applicable regulations and standards and accurately reflect the true nature of the transactions they record. The financial statements of the Company shall conform to generally accepted accounting rules and the Company?s accounting policies. No undisclosed or unrecorded account or fund shall be established for any purpose. No false or misleading entries shall be made in the Company?s books or records for any reason, and no disbursement of corporate funds or other corporate property shall be made without adequate supporting documentation.
It is the policy of the Company to provide full, fair, accurate, timely and understandable disclosure in reports and documents filed with, or submitted to, the Securities and Exchange Commission and in other public communications.
Concerns Regarding Accounting or Auditing Matters
Employees with concerns regarding questionable accounting or auditing matters or complaints regarding accounting, internal accounting controls or auditing matters may confidentially, and anonymously if they wish, submit such concerns or complaints in writing to the Company?s Chief Executive Officer or Chief Financial Officer at the Company?s principal executive offices or may use the telephone number 609-987-1513. All such concerns and complaints will be forwarded to the Audit Committee of the Board of Directors, unless they are determined to be without merit by the Chief Executive Officer and Chief Financial Officer of the Company. In any event, a record of all complaints and concerns received will be provided to the Audit Committee each fiscal quarter. Any such concerns or complaints may also be communicated, confidentially and, if you desire, anonymously, directly to any member of the Audit Committee of the Board of Directors.
The Audit Committee will evaluate the merits of any concerns or complaints received by it and authorize such follow-up actions, if any, as it deems necessary or appropriate to address the substance of the concern or complaint.
The Company will not discipline, discriminate against or retaliate against any employee who reports a complaint or concern, unless it is determined that the report was made with knowledge that it was false.
Dealings with Independent Auditors
No employee, officer or director shall, directly or indirectly, make or cause to be made a materially false or misleading statement to an accountant in connection with (or omit to state, or cause another person to omit to state, any material fact necessary in order to make statements made, in light of the circumstances under which such statements were made, not misleading to, an accountant in connection with) any audit, review or examination of the Company?s financial statements or the preparation or filing of any document or report with the SEC. No employee, officer or director shall, directly or indirectly, take any action to coerce, manipulate, mislead or fraudulently influence any independent public or certified public accountant engaged in the performance of an audit or review of the Company?s financial statement.
Waivers of this Code of Business Conduct and Ethics
While some of the policies contained in this Code must be strictly adhered to and no exceptions can be allowed, in other cases exceptions may be appropriate. Any employee or officer who believes that an exception to any of these policies is appropriate in his or her case should first contact his or her immediate supervisor. If the supervisor agrees that an exception is appropriate, the approval of the Company?s Chief Executive Officer must be obtained. The Chief Executive Officer shall be responsible for maintaining a record of all requests for exceptions to any of these policies and the disposition of such requests.
Any executive officer or director who seeks an exception to any of these policies should contact the Chairman of the Board of Directors of the Company. Any waiver of this Code for executive officers or directors or any change to this Code that applies to executive officers or directors may be made only by the Board of Directors of the Company and will be disclosed as required by law or stock market regulation.
Reporting and Compliance Procedures
Every employee, officer and director has the responsibility to ask questions, seek guidance, report suspected violations and express concerns regarding compliance with this Code. Any employee, officer or director who knows or believes that any other employee or representative of the Company has engaged or is engaging in Company-related conduct that violates applicable law or this Code should report such information to his or her supervisor or to the Company?s Chief Executive Officer or Chief Financial Officer, as described below. You may report such conduct openly or anonymously without fear of retaliation. The Company will not discipline, discriminate against or retaliate against any employee who reports such conduct, unless it is determined that the report was made with knowledge that it was false, or who cooperates in any investigation or inquiry regarding such conduct. Any supervisor who receives a report of a violation of this Code must immediately inform the Company?s Chief Executive Officer or Chief Financial Officer.
You may report violations of this Code, on a confidential or anonymous basis, by contacting the Company?s Chief Executive Officer or Chief Financial Officer by fax, mail or e-mail at: 707 Alexander Road, Bldg 2, Suite 208, Princeton, New Jersey 08543, fax #609-987-8114 or email to tmeaney@mikros.us. In addition, the Company has established a telephone number 609-987-1513 where you can leave a recorded message about any violation or suspected violation of this Code. While we prefer that you identify yourself when reporting violations so that we may follow up with you, as necessary, for additional information, you may leave messages anonymously if you wish.
If the Company?s Chief Executive Officer or Chief Financial Officer receives information regarding an alleged violation of this Code, he or she shall, as appropriate, (a) evaluate such information, (b) if the alleged violation involves an executive officer or a director, inform the Chief Executive Officer and Board of Directors of the alleged violation, (c) determine whether it is necessary to conduct an informal inquiry or a formal investigation and, if so, initiate such inquiry or investigation and (d) report the results of any such inquiry or investigation, together with a recommendation as to disposition of the matter, to the Company?s Chief Executive Officer or Chief Financial Officer for action, or if the alleged violation involves an executive officer or a director, report the results of any such inquiry or investigation to the Board of Directors or a committee thereof. Employees, officers and directors are expected to cooperate fully with any inquiry or investigation by the Company regarding an alleged violation of this Code. Failure to cooperate with any such inquiry or investigation may result in disciplinary action, up to and including discharge.
The Company shall determine whether violations of this Code have occurred and, if so, shall determine the disciplinary measures to be taken against any employee who has violated this Code. In the event that the alleged violation involves an executive officer or a director, the Chief Executive Officer and the Board of Directors, respectively, shall determine whether a violation of this Code has occurred and, if so, shall determine the disciplinary measures to be taken against such executive officer or director.
Failure to comply with the standards outlined in this Code will result in disciplinary action including, but not limited to, reprimands, warnings, probation or suspension without pay, demotions, reductions in salary, discharge and restitution. Certain violations of this Code may require the Company to refer the matter to the appropriate governmental or regulatory authorities for investigation or prosecution. Moreover, any supervisor who directs or approves of any conduct in violation of this Code, or who has knowledge of such conduct and does not immediately report it, also will be subject to disciplinary action, up to and including discharge.
Dissemination and Amendment
This Code shall be distributed to each new employee, officer and director of the Company upon commencement of his or her employment or other relationship with the Company and shall also be distributed annually to each employee, officer and director of the Company, and each employee, officer and director shall certify that he or she has received, read and understood the Code and has complied with its terms.
The Company reserves the right to amend, alter or terminate this Code at any time for any reason. The most current version of this Code can be found on the Company?s website at www.mikros.us. This document is not an employment contract between the Company and any of its employees, officers or directors.
Certification
I, ______________________________ do hereby certify that:
(Print Name Above)
1. I have received and carefully read the Code of Business Conduct and Ethics of Mikros Systems Corporation.
2. I understand the Code of Business Conduct and Ethics.
3. I have complied and will continue to comply with the terms of the Code of Business Conduct and Ethics.
Date: _____________________ __________________________________
(Signature)
EACH EMPLOYEE, OFFICER AND DIRECTOR IS REQUIRED TO SIGN, DATE AND RETURN THIS CERTIFICATION TO THE HUMAN RESOURCES DEPARTMENT WITHIN FIVE (5) DAYS OF ISSUANCE. FAILURE TO DO SO MAY RESULT IN DISCIPLINARY ACTION.
Exhibit 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Thomas J. Meaney, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Mikros Systems Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;
4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a- 15(e) and 15d-15(e)) for the small business issuer and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;
(b) [Paragraph omitted in accordance with SEC transition instructions contained in SEC Release 34-47986]
(c) evaluated the effectiveness of the small business issuer?s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the small business issuer?s internal control over financial reporting that occurred during the small business issuer?s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the small business issuer?s internal control over financial reporting; and
5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the small business issuer?s auditors and the audit committee of the small business issuer?s board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer?s ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer?s internal control over financial reporting.
Dated: August 11, 2006 s/ Thomas J. Meaney__________
Thomas J. Meaney, Chief
Executive Officer and Chief
Financial Officer
(Principal Executive Officer and
Principal Financial Officer)
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EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-QSB of Mikros Systems Corporation (the ?Company?) for the quarter ended June 30, 2006 as filed with the Securities and Exchange Commission on the date hereof (the ?Report?), the undersigned, Thomas J. Meaney, President of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: August 11, 2006 /s/ Thomas J. Meaney *
Thomas J. Meaney, President,
Chief Executive Officer and Chief
Financial Officer
(Principal Executive Officer and
Principal Officer)
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*A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.