10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

☒  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

or

☐  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____to_____.

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.)

707 Alexander Road, Building Two, Suite 208, Princeton, New Jersey 08540

(Address of Principal Executive Offices)

(609) 987-1513

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes    ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 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 35,568,775 issued and outstanding shares of the issuer’s common stock, $.01 par value per share, on May 14, 2019.

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

TABLE OF CONTENTS

		PAGE #
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements.
	Balance Sheets as of March 31, 2019 and December 31, 2018 (unaudited)	1
	Statements of Income for the Three Months Ended March 31, 2019 and 2018 (unaudited)	2
	Statement of Shareholders’ Equity for the Three Months Ended March 31, 2019 (unaudited)	3
	Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018 (unaudited)	4
	Notes to Condensed Financial Statements (unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	10
Item 4.	Controls and Procedures.	15
PART II.	OTHER INFORMATION
Item 6.	Exhibits.	16
	Signatures	16

Part I Financial Information

Item 1 Financial Statements

Mikros Systems Corporation

Balance Sheets

(unaudited)

	March 31,			December 31,
	2019			2018
Assets
Current assets:
Cash and cash equivalents	$	1,616,834		$	2,206,749
Receivables on government contracts		1,301,712			1,043,738
Prepaid expenses and other current assets		74,621			94,717
Total current assets		2,993,167			3,345,204
Property and equipment:
Operating lease-right of use asset		442,138			-
Equipment		388,638			357,796
Leasehold improvements		21,306			21,306
Furniture & fixtures		43,174			43,174
Less: accumulated depreciation		(124,698	)		(109,484	)
Property and equipment, net		770,558			312,792
Intangible assets		140,428			140,428
Less: accumulated amortization		(80,529	)		(75,241	)
Intangible assets, net		59,899			65,187
Deferred tax assets		37,707			34,623
Total assets	$	3,861,331		$	3,757,806
Liabilities and shareholders' equity
Current liabilities:
Accrued payroll and payroll taxes	$	559,269		$	868,618
Accounts payable and accrued expenses		204,419			308,415
Accrued warranty expense		146,950			153,723
Lease obligation, current portion		119,880			-
Deferred revenue		37,221			39,824
Total current liabilities		1,067,739			1,370,580
Lease obligation, net of current portion		340,581			-
Other long-term liabilities		-			19,560
Total liabilities		1,408,320			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 35,568,775 and 35,568,775 shares, respectively		355,689			355,689
Capital in excess of par value		10,110,883			10,106,344
Accumulated deficit		(8,013,561	)		(8,094,367	)
Total shareholders' equity		2,453,011			2,367,666
Total liabilities and shareholders' equity	$	3,861,331		$	3,757,806

See Notes to Unaudited Condensed Financial Statements 

1

Mikros Systems Corporation

Statements of Income

(unaudited)

	Three months ended March 31,
	2019		2018
Contract revenues	$	2,020,265	$	2,490,660
Cost of sales		778,542		1,177,032
Gross margin		1,241,723		1,313,628
Expenses:
Engineering		662,250		640,293
General and administrative		463,565		451,678
Total expenses		1,125,815		1,091,971
Income from operations		115,908		221,657
Other income:
Interest income		1,732		460
Net income before income taxes		117,640		222,117
Income tax expense		36,835		68,812
Net income available to common shareholders	$	80,805	$	153,305
Income per common share - basic	$	-		-
Basic weighted average number of shares outstanding		35,568,775		35,564,419
Income per common share - diluted	$	-		-
Diluted weighted average number of shares outstanding		35,807,830		35,829,565

See Notes to Unaudited Condensed Financial Statements 

2

Mikros Systems Corporation

Statement of Shareholders' Equity

(unaudited)

	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	$	(8,094,366	)	$	2,367,667
Share-based compensation		-		-		-		-		4,539		-			4,539
Net income		-		-		-		-		-		80,805			80,805
Balance at March 31, 2019		-	$	-		35,568,775	$	355,689	$	10,110,883	$	(8,013,561	)	$	2,453,011

See Notes to Unaudited Condensed Financial Statements

3

Mikros Systems Corporation

Statements of Cash Flows

(unaudited)

	Three months ended March 31,
	2019			2018
Cash flows from operating activities:
Net income	$	80,805		$	153,305
Adjustments to reconcile net income to net cash provided by (used in ) operating activities:
Depreciation and amortization		20,502			12,695
Deferred tax benefit		(3,084	)		(9,901	)
Share-based compensation expense		4,539			4,604
Changes in assets and liabilities:
(Increase) decrease in receivables on government contracts		(257,974	)		70,119
Decrease (increase) in prepaid expenses and other current assets		20,096			(206,516	)
Increase in accrued payroll and payroll taxes		(309,349	)		(63,210	)
(Decrease) increase in accounts payable and accrued expenses		(103,995	)		313,864
(Decrease) in accrued warranty expense		(6,773	)		-
(Decrease) in deferred revenue		(2,603	)		(11,250	)
(Decrease) in long-term liabilities		(1,237	)		(805	)
Net cash (used in) provided by operating activities		(559,073	)		262,905
Cash flows from investing activities:
Payments related to intangible assets		-			(267	)
Purchase of property and equipment		(30,842	)		(19,050	)
Net cash used in investing activities:		(30,842	)		(19,317	)
Cash flows from financing activities:
Exercise of stock options		-			350
Net cash provided by financing activities:		-			350
Net (decrease) increase in cash and cash equivalents		(589,915	)		243,938
Cash and cash equivalents, beginning of period		2,206,749			1,173,177
Cash and cash equivalents, end of period	$	1,616,834		$	1,417,115

See Notes to Unaudited Condensed Financial Statements

4

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” or “we”) 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 March 31, 2019, the results of its operations for the three months ended March 31, 2019 and 2018, changes in shareholders’ equity from January 1, 2019 to March 31, 2019 and cash flows for the three months ended March 31, 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 prior 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 of $470,648 and operating lease liabilities of $488,971 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.

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.

5

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 sales. As of March 31, 2019, our ending backlog was $2.7 million. For arrangements with the U.S. Department of Defense, or DoD, 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 March 31, 2019 and 2018, the Company did not recognize any warranty expense. Since the inception of the ADEPT IDIQ contract in March 2010, the Company has delivered 226 ADEPT units. As of March 31, 2019, there were 37 ADEPT units remaining under the limited warranty coverage.

6

Mikros Systems Corporation

Notes to Condensed Financial Statements

(unaudited)

The following table reflects the reserve for product warranty activity for:

	March 31,
	2019			2018
Balance, beginning of the period	$	153,723		$	40,000
Provision for product warranty		-			-
Product warranty expirations		-			-
Product warranty costs paid		(6,773	)		-
Balance, end of the period	$	146,950		$	40,000

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 March 31,
	2019		2018
Salaries	$	6,446	$	37,026
Other costs		-		3,793
	$	6,446	$	40,819

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 (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 months ended March 31, 2019 and 2018, amortization expense related to the Company’s license amounted to $5,250 for both periods and is included in general and administrative expenses on the Statements of Income.

Note 4 – Income Tax Matters

At March 31, 2019, we estimated our annual effective tax rate for 2019 to be 31%. We recognized a tax expense of $36,835 for the three months ended March 31, 2019. At March 31, 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 increased its net deferred tax assets by $(3,084) and $(9,901) during the three months ended March 31, 2019 and 2018, respectively. The change in deferred tax assets is attributable to the changes in various book/tax differences.

7

Mikros Systems Corporation

Notes to Condensed Financial Statements

(unaudited)

Note 5 – Income Per Share

Net income per common share information is as follows:

	Three months ended March 31,
	2019		2018
Basic earnings per common share:
Net income	$	80,805	$	153,305
Weighted average basic shares outstanding		35,568,775		35,564,419
Basic income per common share	$	-	$	-
Dilutive earnings per common share:
Net income allocable to common shareholders	$	80,805	$	153,305
Weighted average shares outstanding - basic		35,568,775		35,564,419
Diluted effect:
Stock options		57,333		70,364
Unvested restricted stock		181,722		194,782
Weighted average dilutive shares outstanding		35,807,830		35,829,565
Dilutive income per common share	$	-	$	-

Diluted net income per share for the three ended March 31, 2019 and 2018 does not reflect issuance of the following potential common shares, as the effect would be antidilutive.

	Three months ended March 31,
	2019		2018
Unvested restricted stock		80,000		70,000

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%.

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.

8

Mikros Systems Corporation

Notes to Condensed Financial Statements

(unaudited)

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 lease term;

c. there is a change in the determination of whether fulfillment is dependent on a specified asset; or

d. there is a substantial change to the asset.

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 March 31, 2019.

Year	Amount
Remainder of 2019	$	139,727
2020		142,726
2021		145,726
2022		74,238
Total lease payments		502,417
Less: Interest		(41,956	)
Net present value of lease liabilities	$	460,461

The weighted average remaining lease terms and discount rates for all of the Company’s operating leases as of March 31, 2019 were as follows:

Weighted average lease term (months)	45
Weighted average discount rate	4.89	%

9

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, 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.

ITEM 2. 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, and utility systems, and Federal Aviation Administration (“FAA”) systems.

Our primary business focus is to pursue SBIR programs from the U.S. Department of Defense, or DoD, Department of Homeland Security, and other governmental authorities, and to expand this government funded research and development into products and services. Since 2002, we have been awarded several Phase I, II, and III SBIR contracts, and several IDIQ contracts for our ADEPT and ADSSS products.

Revenues from our government contracts represented substantially all of our revenues for the three months ended march 31, 2019 and 2018. Over the past decade, our principal customer has been the DoD, primarily the U.S. Navy (“Navy”). We provide the following two key systems to the Navy for maintenance of radars and combat systems:

● ADEPT®, the Adaptive Diagnostic Electronic Portable Testset, is a PC-based maintenance automation workstation used to maintain the Navy’s premier AN/SPY-1 phased array radar on Cruisers (CG) and Destroyers (DDG).

● ADSSS®, the ADEPT Distance Support Sensor Suite, is a Condition-Based Maintenance (CBM) system used to monitor Combat System Elements (CSEs) onboard the Littoral Combat Ship (LCS).

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® and Diagnostic Profiler® 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.

10

Products Portfolio

Adaptive Diagnostic Electronic Portable Testset (ADEPT). ADEPT, also known as the AN/PSM-132, is an automated maintenance workstation designed to significantly reduce the time (ADEPT) required to align all variants of the AN/SPY1 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 military or commercial applications. In that regard, we have a service contract with the U.S. Navy to extend ADEPT to a second U.S. Navy radar system, the SPS-49. These services are expected to assist in optimizing performance for the Ballistic Missile Defense Mission. As of the date of this report, we have delivered a total of 226 ADEPT units.

ADEPT Distance Support Sensor Suite (ADSSS). In 2013, we started development of ADSSS for the Navy’s LCS. Our system has now matured and has earned Nomenclature AN/SYM-3 from the Navy. 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. We expect ADSSS to be used on both variants of the LCS, currently planned to be at least 32 ships. ADSSS, with its remote monitoring and prognostics capabilities, has also generated interest in other ship classes, including Aegis, and we are currently pursuing several related opportunities.

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 callouts 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. This system is used by commercial customers and has also generated yearly support contracts for service. We are under contract with Northrup Grumman to provide more capabilities to this system and onsite support.

Prognostics Framework. Prognostics Framework is an analytic software framework for implementing 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, C4I (Command, Control, Communications, Computers & Intelligence), environmental and imaging systems.

Government Contracts

In April 2016, we received three contracts to continue logistics support of the ADEPT maintenance automation workstation. A contract valued at approximately $0.3 million to provide ADEPT General Engineering and Support was awarded, along with two other logistics contracts to perform necessary updates, repair and calibration on the ADEPT units, totaling $0.25 million. Along with the contracts received for our ADEPT product, we received a follow-on contract in the amount of $0.1 million, for technical support on the USS Fort Worth (LCS3) using the latest version of our ADSSS.

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 IDIQ contract covers the first eight ships of the 28 ship program. Since the award, we have received multiple delivery awards, some of which are described below.

In February 2017, we were awarded a follow-on multi-year SBIR 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. Since the award, we have received multiple delivery orders, some of which are described below.

11

In March and April 2017, we were awarded the second, third and fourth delivery orders under the ADEPT IDIQ Contract. The second delivery order covers engineering services in the amount of $11.5 million which will be funded incrementally and facilitate the engineering and technical support for the ADEPT program over a three year period. The third delivery order contract for $0.6 million is to provide sustainment services, such as calibration, repair, evaluations, and screenings of ADEPT units to be performed in our Manufacturing and Depot Center (‘M&D Center”) in Largo, Florida. The fourth delivery order for $0.1 million is to provide training to sailors in the fleet to operate the ADEPT maintenance automation workstation.

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 SBIR office in Dahlgren, VA provided $0.5 million of the total funding to support this effort.

In July 2017 and November 2017, we received modifications which added funding to our ADEPT IDIQ Contract, for engineering services in the amounts of $0.4 million and $0.1 million, respectively. These awards will allow us to continue to support the ADEPT product line in the fleet, implement necessary software enhancements, and provide general support of the program.

In August 2017, we received a modification to our ADEPT sustainment delivery order, adding $0.5 million to allow our M&D Center in Largo, Florida to continue to provide bi-annual sustainment services for units from the fleet cycling through our M&D Center.

In September 2017, we received a delivery order in the amount of $2.4 million for the production and delivery of additional ADEPT units. These new units will continue our fleet support on Aegis cruisers and destroyers in the U.S. Navy. In 2018, we received additional modifications to our ADEPT IDIQ Contract and incremental awards for continued engineering services in the aggregate amount of $0.42 million. This funding will support necessary software enhancements to sustainment services for the ADEPT product out of our M&D Center.

In February and March 2018, we received modifications to our ADEPT sustainment delivery orders, adding $0.25 million to allow us to continue to provide bi-annual sustainment services for units from the fleet cycling through the M&D Center. In addition to those sustainment services, it allows our team at the M&D Center to provide training to sailors in the fleet to operate the ADEPT maintenance automation workstation.

Between January 2018 and April 2018, we received multiple contract awards which increased funding on our ADEPT IDIQ Contract for Engineering Services. The total amount awarded in the first quarter of 2018 was $0.5 million and an additional $1.6 million was awarded in April 2018. This funding will allow us to continue supporting the ADEPT product line in the fleet and implementing necessary software enhancements to increase readiness.

In June 2018, we received the second delivery order on our current multi-year IDIQ contract with the Naval Surface Warfare Center, Port Hueneme Division, relating to our ADSSS product. The award totaling $2.5 million will support the MK 99 FCS development, test and installation.

In August 2018, we received a contract modification to add funding to our ADEPT IDIQ Contract for engineering services in the amount of $1.3 million. This additional funding will support the ADEPT product line in the fleet, implement necessary software enhancements and provide general support.

In September 2018, we received modifications to our ADEPT sustainment delivery orders, adding $0.25 million. This funding allows the M&D Center to provide bi-annual sustainment services for units from the fleet.

In November 2018, we received a contract modification to add funding to our ADEPT IDIQ Contract for engineering services in the amount of $0.2 million. This additional funding will support the ADEPT product line in the fleet, implement necessary software enhancements and provide general support.

In May 2019, we received a contract modifications to add funding to our ADEPT IDIQ Contract in the amounts of $0.05 million for sustainment services and $0.8 million for engineering services. These awards will allow us to continue to support the ADEPT product line in the fleet, implement necessary software enhancements, and provide general support of the program.

Commercial Contracts

In May 2019, our long-time customer HP Indigo renewed its annual contract for Diagnostic Profiler and Diagnostician Software Maintenance and Support.

12

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 contracts. 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 in 2018, and expected revenue in 2019, is or will be from sales of ADEPT units and ADSSS systems under our IDIQ contracts, continued generation of task orders and our ability to expand the market and potential customer base for ADEPT units will be a key indicator of future revenue. ADEPT units must be serviced and calibrated every two years. Accordingly, as we continue to increase the installed base of ADEPT units and expand the units to other radar systems, we expect to generate future recurring maintenance and service revenue.

Outlook

Our strategy for continued growth is 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 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 utilize the intellectual property developed under our various SBIR 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 FAA, radio and television stations, cell phone stations, and airlines. Second, we will continue to pursue SBIR projects with the Department of Homeland Security, the U.S. Navy, and other government agencies. Third, we believe that through our marketing of products, such as ADEPT, we will develop key relationships with prime defense contractors. Our strategy is to develop these relationships into 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 for a sixth 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 2019, our primary strategic focus is to continue as a premium provider of R&D and product development services to the defense industry, generate multiple task orders under our two IDIQ contracts, 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 M&D 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 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.

13

Changes to Critical Accounting Policies and Estimates

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The new standard supersedes the prior 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 of $470,648 and operating lease liabilities of $488,971 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 March 31, 2019 and March 31, 2018

We generated revenues of $2,020,265 during the three months ended March 31, 2019 compared to $2,490,660 during the three months ended March 31, 2018, a decrease of $470,395, or 19%. This resulted primarily from a reduction in the production of ADEPT units from 26 partial production in the first quarter of 2018 to no ADEPT units produced in the first quarter of 2019. Revenues in the first quarter of 2019 consisted entirely of engineering support services contracts.

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 for the three months ended March 31, 2019 was $778,542 compared to $1,177,032 for the three months ended March 31, 2018, a decrease of $398,490 or 34%. The reduction resulted from a change in the mix of revenue in the first quarter of 2019. 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 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 March 31, 2019 were $662,250 compared to $640,293 for the three months ended March 31, 2018, an increase of $21,957, or 3%.

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 which consists of research and development expenses unrelated to our defense contracts). General and administrative costs for the three months ended March 31, 2019 were $463,565 as compared to $451,678 for the three months ended March 31, 2018, an increase of $11,887, or 3%.

We reported a net income of $80,805 in the three months ended March 31, 2109 as compared to $153,305 in three months ended March 31, 2018. The decrease was attributable primarily to the decrease in revenues in the first quarter 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 three months ended March 31, 2019, net cash used in operations was $559,073 compared to net cash provided by operations of $262,905 during the three months ended March 31, 2018. The decrease was due primarily to the timing of receipts and payments related to our operating assets and liabilities.

14

Net cash used in investing activities was $30,842 in the three months ended March 31, 2019 as compared to $19,317 in the three months ended March 31, 2018, an increase of $11,525. The increase was due to the increase in purchases of equipment, furniture and fixtures related to an expansion of our offices in Pennsylvania.

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 March 31, 2019, no amounts were outstanding under the facility.

In order to pursue strategic opportunities, obtain additional SBIR contracts, or acquire strategic assets or businesses, we may need to obtain additional financing or seek strategic alliances or other partnership agreements with other entities. In order to raise any such financing, we anticipate considering the sale of additional debt or equity securities under appropriate market conditions. There can be no assurance, assuming we successfully raise additional funds or enter into business alliances, that we will remain profitable or continue to generate positive cash flow.

Off-Balance Sheet Arrangements

As of March 31, 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 Procedures.

An evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934) was carried out by us under the supervision and with the participation of our Chief Executive Officer, who serves as our principal executive officer and principal financial officer. Based upon that evaluation, our Chief Executive Officer concluded that as of March 31, 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 March 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

15

PART II. OTHER INFORMATION 

Item 6.   Exhibits

No.	Description
31.1	Certification of principal executive officer and principal financial officer pursuant to Rules 13a-14(a) or 15d- 14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
32.1	Certification of principal executive officer and principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.
101.INS	XBRL Instance
101.SCH	XBRL Taxonomy Extension Schema
101.CAL	XBRL Taxonomy Extension Calculation
101.DEF	XBRL Taxonomy Extension Definition
101.LAB	XBRL Taxonomy Extension Labels
101.PRE	XBRL Taxonomy Extension Presentation

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	MIKROS SYSTEMS CORPORATION
May 14, 2019	By:	/s/ Thomas J. Meaney
		Thomas J. Meaney
		Chief Executive Officer and Chief Financial Officer

16

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Thomas J. Meaney, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Mikros Systems Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. As the registrant’s sole certifying officer, I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13(a)-15(f) and 15(d)-15(f)) for the registrant 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 registrant, 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. As the registrant’s sole certifying officer, I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control over financial reporting.

May 14, 2019

/s/ Thomas J. Meaney

Thomas J. Meaney

Chief Executive Officer and Chief Financial Officer

EX-32.1

Exhibit 32.1

Certifications Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

(18 U.S.C. Section 1350)

In connection with the Quarterly Report (the “report”) of Mikros Systems Corporation (the “Company”) on Form 10-Q for the period ended March 31, 2019, as filed with the Securities and Exchange Commission, I, Thomas J. Meaney, President and Chief Financial Officer of the Company, do hereby certify, pursuant to Section 906 of the Sarbanes- Oxley Act of 2002 (18 U.S.C. § 1350), that to my knowledge:

(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.

May 14, 2019	By:	/s/ Thomas J. Meaney
		Thomas J. Meaney
		Chief Executive Officer and Chief Financial Officer

XML

Document And Entity Information - shares	3 Months Ended
	Mar. 31, 2019	May 14, 2019
Document Information [Line Items]
Entity Registrant Name	MIKROS SYSTEMS CORP
Entity Central Index Key	0000317340
Trading Symbol	mkrs
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Entity Current Reporting Status	Yes
Entity Emerging Growth Company	false
Entity Small Business	true
Entity Common Stock, Shares Outstanding (in shares)		35,568,775
Document Type	10-Q
Document Period End Date	Mar. 31, 2019
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q1
Amendment Flag	false

XML

Balance Sheets (Current Period Unaudited) - USD ($)	Mar. 31, 2019	Dec. 31, 2018
Current assets:
Cash and cash equivalents	$ 1,616,834	$ 2,206,749
Receivables on government contracts	1,301,712	1,043,738
Prepaid expenses and other current assets	74,621	94,717
Total current assets	2,993,167	3,345,204
Property and equipment:
Operating lease-right of use asset	470,648
Equipment	388,638	357,796
Leasehold improvements	21,306	21,306
Furniture & fixtures	43,174	43,174
Less: accumulated depreciation	(124,698)	(109,484)
Property and equipment, net	770,558	312,792
Intangible assets	140,428	140,428
Less: accumulated amortization	(80,529)	(75,241)
Intangible assets, net	59,899	65,187
Deferred tax assets	37,707	34,623
Total assets	3,861,331	3,757,806
Current liabilities:
Accrued payroll and payroll taxes	559,269	868,618
Accounts payable and accrued expenses	204,419	308,415
Accrued warranty expense	146,950	153,723
Lease obligation, current portion	119,880
Deferred revenue	37,221	39,824
Total current liabilities	1,067,739	1,370,580
Lease obligation, net of current portion	340,581
Other long-term liabilities		19,560
Total liabilities	1,408,320	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 35,568,775 and 35,568,775 shares, respectively	355,689	355,689
Capital in excess of par value	10,110,883	10,106,344
Accumulated deficit	(8,013,561)	(8,094,367)
Total shareholders' equity	2,453,011	2,367,667
Total liabilities and shareholders' equity	$ 3,861,331	$ 3,757,806

XML

Balance Sheets (Current Period Unaudited) (Parentheticals) - $ / shares	Mar. 31, 2019	Dec. 31, 2018
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized (in shares)	5,000,000	5,000,000
Preferred stock, shares issued (in shares)	0	0
Preferred stock, shares outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, authorized (in shares)	60,000,000	60,000,000
Common stock, issued (in shares)	35,568,775	35,568,775
Common stock, outstanding (in shares)	35,568,775	35,568,775

XML

Statements of Income (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Contract revenues	$ 2,020,265	$ 2,490,660
Cost of sales	778,542	1,177,032
Gross margin	1,241,723	1,313,628
Expenses:
Engineering	662,250	640,293
General and administrative	463,565	451,678
Total expenses	1,125,815	1,091,971
Income from operations	115,908	221,657
Other income:
Interest income	1,732	460
Net income before income taxes	117,640	222,117
Income tax expense	36,835	68,812
Net income available to common shareholders	$ 80,805	$ 153,305
Income per common share - basic (in dollars per share)
Basic weighted average number of shares outstanding (in shares)	35,568,775	35,564,419
Income per common share - diluted (in dollars per share)
Diluted weighted average number of shares outstanding (in shares)	35,807,830	35,829,565

XML

Statement of Shareholders' Equity - 3 months ended Mar. 31, 2019 - USD ($)	Preferred Stock [Member]	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Total
Balance (in shares) at Dec. 31, 2018		35,568,775
Balance at Dec. 31, 2018		$ 355,689	$ 10,106,344	$ (8,094,366)	$ 2,367,667
Share-based compensation			4,539		4,539
Net income				80,805	80,805
Balance (in shares) at Mar. 31, 2019		35,568,775
Balance at Mar. 31, 2019		$ 355,689	$ 10,110,883	$ (8,013,561)	$ 2,453,011

XML

Statements of Cash Flows (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Cash flows from operating activities:
Net income	$ 80,805	$ 153,305
Adjustments to reconcile net income to net cash provided by (used in ) operating activities:
Depreciation and amortization	20,502	12,695
Deferred tax benefit	(3,084)	(9,901)
Share-based compensation expense	4,539	4,604
Changes in assets and liabilities:
(Increase) decrease in receivables on government contracts	(257,974)	70,119
Decrease (increase) in prepaid expenses and other current assets	20,096	(206,516)
Increase in accrued payroll and payroll taxes	(309,349)	(63,210)
(Decrease) increase in accounts payable and accrued expenses	(103,995)	313,864
(Decrease) in accrued warranty expense	(6,773)
(Decrease) in deferred revenue	(2,603)	(11,250)
(Decrease) in long-term liabilities	(1,237)	(805)
Net cash (used in) provided by operating activities	(559,073)	262,905
Cash flows from investing activities:
Payments related to intangible assets		(267)
Purchase of property and equipment	(30,842)	(19,050)
Net cash used in investing activities:	(30,842)	(19,317)
Cash flows from financing activities:
Exercise of stock options		350
Net cash provided by financing activities:		350
Net (decrease) increase in cash and cash equivalents	(589,915)	243,938
Cash and cash equivalents, beginning of period	2,206,749	1,173,177
Cash and cash equivalents, end of period	$ 1,616,834	$ 1,417,115

XML

Note 1 - Basis of Presentation

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

Note

1

–

Basis

of

Presentation

The financial statements included herein have been prepared by Mikros Systems Corporation (the “Company” or “we”) 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

March 31, 2019,

the results of its operations for the

three

months ended

March 31, 2019

and

2018,

changes in shareholders’ equity from

January 1, 2019

to

March 31, 2019

and cash flows for the

three

months ended

March 31, 2019

and

2018.

XML

Note 2 - Recent Accounting Pronouncements

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

New Accounting Pronouncements and Changes in Accounting Principles [Text Block]

Note

2

–

Recent

Accounting

Pronouncements

In

February 2016,

the FASB issued ASU

2016

-

02,

Leases (Topic

842

). The new standard supersedes the prior 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 of

$470,648

 and operating lease liabilities of

$488,971

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.

XML

Note 3 - Significant Accounting Policies

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Significant Accounting Policies [Text Block]

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.

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 sales. As of

March 31, 2019,

our ending backlog was

$2.7

million. For arrangements with the U.S. Department of Defense, or DoD, 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

March 31, 2019

and

2018,

the Company did

not

recognize any warranty expense. Since the inception of the ADEPT IDIQ contract in

March 2010,

the Company has delivered

226

ADEPT units. As of

March 31, 2019,

there were

37

ADEPT units remaining under the limited warranty coverage.

The following table reflects the reserve for product warranty activity for:

	March 31,
	2019			2018
Balance, beginning of the period	$	153,723		$	40,000
Provision for product warranty		-			-
Product warranty expirations		-			-
Product warranty costs paid		(6,773	)		-
Balance, end of the period	$	146,950		$	40,000

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 March 31,
	2019		2018
Salaries	$	6,446	$	37,026
Other costs		-		3,793
	$	6,446	$	40,819

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 (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

months ended

March 31, 2019

and

2018,

amortization expense related to the Company’s license amounted to

$5,250

for both periods and is included in general and administrative expenses on the Statements of Income.

XML

Note 4 - Income Tax Matters

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Note

4

– Income Tax Matters

At

March 31, 2019,

we estimated our annual effective tax rate for

2019

to be

31%.

We recognized a tax expense of

$36,835

for the

three

months ended

March 31, 2019.

At

March 31, 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 increased its net deferred tax assets by $(

3,084

) and $(

9,901

) during the

three

months ended

March 31, 2019

and

2018,

respectively. The change in deferred tax assets is attributable to the changes in various book/tax differences.

XML

Note 5 - Income Per Share

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Earnings Per Share [Text Block]

Note

5

–

Income

Per

Share

Net income per common share information is as follows:

	Three months ended March 31,
	2019		2018
Basic earnings per common share:
Net income	$	80,805	$	153,305
Weighted average basic shares outstanding		35,568,775		35,564,419
Basic income per common share	$	-	$	-
Dilutive earnings per common share:
Net income allocable to common shareholders	$	80,805	$	153,305
Weighted average shares outstanding - basic		35,568,775		35,564,419
Diluted effect:
Stock options		57,333		70,364
Unvested restricted stock		181,722		194,782
Weighted average dilutive shares outstanding		35,807,830		35,829,565
Dilutive income per common share	$	-	$	-

Diluted net income per share for the

three

ended

March 31, 2019

and

2018

does

not

reflect issuance of the following potential common shares, as the effect would be antidilutive.

	Three months ended March 31,
	2019		2018
Unvested restricted stock		80,000		70,000

XML

Note 6 - Operating Leases

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Lessee, Operating Leases [Text Block]

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%.

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 lease term;

c. there is a change in the determination of whether fulfillment is dependent on a specified asset; or

d. there is a substantial change to the asset.

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

March 

31,

2019.

Year	Amount
Remainder of 2019	$	139,727
2020		142,726
2021		145,726
2022		74,238
Total lease payments		502,417
Less: Interest		(41,956	)
Net present value of lease liabilities	$	460,461

The weighted average remaining lease terms and discount rates for all of the Company’s operating leases as of

March 31, 2019

were as follows:

Weighted average lease term (months)	45
Weighted average discount rate	4.89	%

XML

Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2019

Accounting Policies [Abstract]

Revenue [Policy Text Block]

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.

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 consolidated statements of earnings 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 sales. As of

March 31, 2019,

our ending backlog was

$2.7

million. For arrangements with the DoD, 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.

Standard Product Warranty, Policy [Policy Text Block]

Warranty

Expense

The Company provides a limited warranty, as defined by the related warranty agreements, for its production units. The Company’s warranties require the Company to repair or replace defective products during such warranty period. The Company estimates the costs that

may

be incurred under its warranty and records a liability in the amount of such costs at the time product revenue is recognized. Factors that affect the Company’s warranty liability include the number of units sold, expected and anticipated rates of warranty claims, and cost per claim. The Company periodically assesses the adequacy of its recorded warranty liability and adjusts the amount as necessary. During the

three

months ended

March 31, 2019

and

2018,

the Company did

not

recognize any warranty expense. Since the inception of the ADEPT IDIQ contract in

March 2010,

the Company has delivered

226

ADEPT units. As of

March 31, 2019,

there were

37

ADEPT units remaining under the limited warranty coverage.

The following table reflects the reserve for product warranty activity for:

	March 31,
	2018			2017
Balance, beginning of the period	$	153,723		$	40,000
Provision for product warranty		-			-
Product warranty expirations		-			-
Product warranty costs paid		(6,773	)		-
Balance, end of the period	$	146,950		$	40,000

Research and Development Expense, Policy [Policy Text Block]

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 March 31,
	2019		2018
Salaries	$	6,446	$	37,026
Other costs		-		3,793
	$	6,446	$	40,819

Intangible Assets, Finite-Lived, Policy [Policy Text Block]

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 (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

months ended

March 31, 2019

and

2018,

amortization expense related to the Company’s license amounted to

$

5,250

for both periods and is included in general and administrative expenses on the Statements of Income.

XML

Note 3 - Significant Accounting Policies (Tables)

3 Months Ended

Mar. 31, 2019

Notes Tables

Schedule of Product Warranty Liability [Table Text Block]

	March 31,
	2019			2018
Balance, beginning of the period	$	153,723		$	40,000
Provision for product warranty		-			-
Product warranty expirations		-			-
Product warranty costs paid		(6,773	)		-
Balance, end of the period	$	146,950		$	40,000

Research and Development Expense [Table Text Block]

	Three months ended March 31,
	2019		2018
Salaries	$	6,446	$	37,026
Other costs		-		3,793
	$	6,446	$	40,819

XML

Note 5 - Income Per Share (Tables)

3 Months Ended

Mar. 31, 2019

Notes Tables

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	Three months ended March 31,
	2019		2018
Basic earnings per common share:
Net income	$	80,805	$	153,305
Weighted average basic shares outstanding		35,568,775		35,564,419
Basic income per common share	$	-	$	-
Dilutive earnings per common share:
Net income allocable to common shareholders	$	80,805	$	153,305
Weighted average shares outstanding - basic		35,568,775		35,564,419
Diluted effect:
Stock options		57,333		70,364
Unvested restricted stock		181,722		194,782
Weighted average dilutive shares outstanding		35,807,830		35,829,565
Dilutive income per common share	$	-	$	-

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share [Table Text Block]

	Three months ended March 31,
	2019		2018
Unvested restricted stock		80,000		70,000

XML

Note 6 - Operating Leases (Tables)

3 Months Ended

Mar. 31, 2019

Notes Tables

Lessee, Operating Lease, Liability, Maturity [Table Text Block]

Year	Amount
Remainder of 2019	$	139,727
2020		142,726
2021		145,726
2022		74,238
Total lease payments		502,417
Less: Interest		(41,956	)
Net present value of lease liabilities	$	460,461

Operating Lease, Weighted Average Remaining Lease Terms and Discount Rates [Table Text Block]

Weighted average lease term (months)	45
Weighted average discount rate	4.89	%

XML

Note 2 - Recent Accounting Pronouncements (Details Textual) - USD ($)	Mar. 31, 2019	Dec. 31, 2018
Operating Lease, Right-of-Use Asset	$ 470,648
Operating Lease, Liability, Total	$ 488,971

XML

Note 3 - Significant Accounting Policies (Details Textual)	3 Months Ended
	Mar. 31, 2019 USD ($)	Mar. 31, 2018 USD ($)
Contract with Customer, Asset, after Allowance for Credit Loss, Total	$ 2,700,000
Product Warranty Expense (Benefit)	$ 0	$ 0
Restricted Stock [Member] | Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	3 years
Licensing Agreements [Member]
Finite-Lived Intangible Asset, Useful Life	6 years
Amortization of Intangible Assets, Total	$ 5,250	$ 5,250
IDIQ Agreement [Member] | ADEPT Units [Member]
Units Delivered	226
Units to be Delivered	37

XML

Note 3 - Significant Accounting Policies - Reserve for Product Warranty Activity (Details) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Balance, beginning of the period	$ 153,723	$ 40,000
Provision for product warranty
Product warranty expirations
Product warranty costs paid	(6,773)
Balance, end of the period	$ 146,950	$ 40,000

XML

Note 3 - Significant Accounting Policies - Research and Development Expense (Details) - General and Administrative Expense [Member] - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Research and development cost	$ 6,446	$ 40,819
Research and Development, Salaries [Member]
Research and development cost	6,446	37,026
Research and Development, Other Costs [Member]
Research and development cost		$ 3,793

XML

Note 4 - Income Tax Matters (Details Textual) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Income Tax Expense (Benefit), Total	$ 36,835	$ 68,812
Valuation Allowance, Deferred Tax Asset, Increase (Decrease), Amount	$ 3,084	$ 9,901
Forecast [Member]
Effective Income Tax Rate Reconciliation, Percent, Total	31.00%

XML

Note 5 - Income Per Share - Weighted Average Shares Outstanding (Details) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Net income	$ 80,805	$ 153,305
Weighted average basic shares outstanding (in shares)	35,568,775	35,564,419
Basic income per common share (in dollars per share)
us-gaap_EarningsPerShareDilutedAbstract
Net income allocable to common shareholders	$ 80,805	$ 153,305
Weighted average basic shares outstanding (in shares)	35,568,775	35,564,419
us-gaap_WeightedAverageNumberDilutedSharesOutstandingAdjustmentAbstract
Stock options (in shares)	57,333	70,364
Weighted average dilutive shares outstanding (in shares)	35,807,830	35,829,565
Dilutive income per common share (in dollars per share)
Restricted Stock [Member]
us-gaap_WeightedAverageNumberDilutedSharesOutstandingAdjustmentAbstract
Stock options (in shares)	181,722	194,782

XML

Note 5 - Income Per Share - Diluted Net Earnings (loss) Per Share (Details) - shares	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Restricted Stock [Member]
Antidilutive shares (in shares)	80,000	70,000

XML

Note 6 - Operating Leases (Details Textual)	Mar. 31, 2019 Rate
Lessee, Operating Lease, Discount Rate	4.89%
Operating Lease, Provided, Rental Escalations	2.10%
Minimum [Member]
Lessee, Operating Lease, Term of Contract	5 years 91 days
Maximum [Member]
Lessee, Operating Lease, Term of Contract	5 years 120 days

XML

Note 6 - Operating Leases - Maturity Based on the Contractual Undiscounted Payments (Details)	Mar. 31, 2019 USD ($)
Remainder of 2019	$ 139,727
2020	142,726
2021	145,726
2022	74,238
Total lease payments	502,417
Less: Interest	(41,956)
Net present value of lease liabilities	$ 488,971

XML

Note 6 - Operating Leases - Weighted Average Remaining Lease Terms and Discount Rates (Details)	Mar. 31, 2019
Weighted average lease term (Month)	3 years 270 days
Weighted average discount rate	4.89%