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 September 30, 2018

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 and post such files). ☒ Yes    ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer              ☐	Accelerated filer                      ☐
Non-accelerated filer                ☐	Smaller reporting company   ☒
Emerging growth company    ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐Yes    ☒ No

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: There were 35,568,775 issued and outstanding shares of the issuer’s common stock, $.01 par value per share, on November 8, 2018.

TABLE OF CONTENTS

		PAGE #
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Balance Sheets as of September 30, 2018 and December 31, 2017 (unaudited)	1
	Condensed Statements of Income and Comprehensive Income for the Three and Nine Months Ended September 30, 2018 and 2017 (unaudited)	2
	Condensed Statement of Stockholders’ Equity for the Nine Months Ended September 30, 2018 (unaudited)	3
	Condensed Statements of Cash Flows for the Nine Months Ended September 30, 2018 and 2017 (unaudited)	4
	Notes to Condensed Financial Statements (unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	9
Item 4.	Controls and Procedures	14
PART II.	OTHER INFORMATION
Item 6.	Exhibits	15
	Signatures	15

Part I Financial Information

Item 1 Financial Statements

Mikros Systems Corporation

Condensed Balance Sheets

(Unaudited)

	September 30,			December 31,
	2018			2017
Assets
Current assets:
Cash and cash equivalents	$	1,288,806		$	1,173,177
Receivables on government contracts		1,941,582			1,697,997
Prepaid expenses and other current assets		81,160			72,542
Total current assets		3,311,548			2,943,716
Property and equipment
Equipment		210,388			171,018
Leasehold improvements		21,306			21,306
Furniture & fixtures		42,485			37,557
Less: accumulated depreciation		(102,342	)		(106,570	)
Property and equipment, net		171,837			123,311
Intangible assets		139,945			137,683
Less: accumulated amortization		(69,966	)		(54,101	)
Intangible assets, net		69,979			83,582
Deferred tax assets		55,777			8,745
Total assets	$	3,609,141		$	3,159,354
Liabilities and shareholders' equity
Current liabilities:
Accrued payroll and payroll taxes	$	765,816		$	575,926
Accounts payable and accrued expenses		360,697			482,873
Accrued warranty expense		130,370			40,000
Deferred revenue		25,250			18,750
Total current liabilities		1,282,133			1,117,549
Long-term liabilities		18,930			21,920
Total liabilities		1,301,063			1,139,469
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 35,561,775 shares, respectively		355,689			355,619
Capital in excess of par value		10,101,805			10,087,843
Accumulated deficit		(8,149,416	)		(8,423,577	)
Total shareholders' equity		2,308,078			2,019,885
Total liabilities and shareholders' equity	$	3,609,141		$	3,159,354

 See Notes to Unaudited Condensed Financial Statement

1

Mikros Systems Corporation

Condensed Statements of Income and Comprehensive Income

(unaudited)

	Three Months Ended,					Nine Months Ended,
	September 30,		September 30,			September 30,		September 30,
	2018		2017			2018		2017
Contract Revenues	$	1,893,945	$	1,551,620		$	6,626,716	$	5,047,456
Cost of sales		776,493		636,128			3,055,932		1,909,246
Gross margin		1,117,452		915,492			3,570,784		3,138,210
Expenses:
Engineering		648,739		530,477			1,882,829		1,587,069
General and administrative		413,731		379,407			1,287,668		1,218,694
Total expenses		1,062,470		909,884			3,170,497		2,805,763
Income from operations		54,982		5,608			400,287		332,447
Other income:
Interest		322		701			1,238		2,154
Net income before income taxes		55,304		6,309			401,525		334,601
Income tax expense		18,275		(22,696	)		127,364		139,064
Net income available to common shareholders	$	37,029	$	29,005		$	274,161	$	195,537
Income per common share - basic	$	-	$	-		$	0.01	$	0.01
Basic weighted average number of shares outstanding		35,568,775		35,555,742			35,308,668		35,246,893
Income per common share - diluted	$	-	$	-		$	0.01	$	0.01
Diluted weighted average number of shares outstanding		35,876,540		35,862,205			35,594,805		35,524,857

See Notes to Unaudited Condensed Financial Statements

2

Mikros Systems Corporation

Condensed 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, 2018		-	$	-		35,561,775	$	355,619	$	10,087,843	$	(8,423,577	)	$	2,019,885
Stock compensation		-		-		-		-		13,682		-			13,682
Exercise of non-restricted stock awards		-		-		7,000		70		280		-			350
Net income		-		-		-		-		-		274,161			274,161
Balance at September 30, 2018		-	$	-		35,568,775	$	355,689	$	10,101,805	$	(8,149,416	)	$	2,308,078

See Notes to Unaudited Condensed Financial Statements

3

Mikros Systems Corporation

Condensed Statements of Cash Flows

(Unaudited)

	Nine Months Ended September 30
	2018			2017
Cash flows from operating activities
Net income	$	274,161		$	195,537
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		63,795			33,657
Deferred taxes		(47,032	)		63,260
Share-based compensation expense		13,682			9,782
Changes in assets and liabilities:
(Increase) decrease in receivables on government contracts		(243,585	)		339,333
(Increase) in prepaid expenses and other current assets		(8,618	)		(27,622	)
Increase in accrued payroll and payroll taxes		189,890			49,286
(Decrease) in accounts payable and accrued expenses		(122,176	)		(140,764	)
Increase (decrease) in accrued warranty expense		90,370			(240,980	)
Increase in deferred revenue		6,500			22,500
(Decrease) in long-term liabilities		(2,990	)		(1,696	)
Net cash provided by operating activities		213,997			302,293
Cash flows from investing activities:
Payments related to intangible assets		(2,263	)		(4,983	)
Purchase of property and equipment		(96,455	)		(88,739	)
Net cash used in investing activities:		(98,718	)		(93,722	)
Cash flows from financing activities:
Exercise of stock options		350			12,350
Net cash provided by financing activities:		350			12,350
Net increase in cash and cash equivalents		115,629			220,921
Cash and cash equivalents, beginning of period		1,173,177			858,868
Cash and cash equivalents, end of period	$	1,288,806		$	1,079,789
Supplement cash flow information:
Cash paid during the period for income taxes	$	66,500		$	70,150

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”) 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, 2017.

In the opinion of the Company’s management, the accompanying unaudited interim condensed financial statements contain all adjustments, consisting solely of those which are of a normal recurring nature, necessary to present fairly its financial position as of September 30, 2018, the results of its operations for the three and nine months ended September 30, 2018 and 2017, changes in stockholders’ equity from January 1, 2018 to September 30, 2018 and cash flows for the nine months ended September 30, 2018 and 2017.

Note 2 – Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, as amended (commonly referred to as ASC 606), which replaces numerous requirements in U.S. GAAP, including industry-specific requirements, and provides companies with a single revenue recognition model for recognizing revenue from contracts with customers and significantly expanded the disclosure requirements for revenue arrangements. The new standard, as amended, was effective for the Company for interim and annual reporting periods beginning on January 1, 2018.

As discussed in Note 3, the Company adopted ASC 606 using the modified retrospective transition method. Results for reporting periods beginning after December 31, 2017 are presented under ASC 606, while prior period comparative information has not been restated and continues to be reported in accordance with ASC 605, Revenue Recognition, the accounting standard in effect for periods ended prior to January 1, 2018. Based on contracts in process at December 31, 2017, the Company determined that the impact of the adoption of ASC 606 is immaterial and that the Company will not recognize any of the accelerated net sales at January 1, 2018 in the Company’s statements of operations for any historical or future period.

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 consolidated statements of income and comprehensive income based on the predominant attributes of the performance obligations.

5

Mikros Systems Corporation

Notes to Condensed Financial Statements

(unaudited)

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 September 30, 2018, our ending backlog was $6.5 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.

Warranty Expense

The Company provides a limited warranty, as defined by the related warranty agreements, for its production units. The Company’s warranties require the Company to repair or replace defective products during such warranty period. The Company estimates the costs that may be incurred under its warranty and records a liability in the amount of such costs at the time product revenue is recognized. Factors that affect the Company’s warranty liability include the number of units sold, expected and anticipated rates of warranty claims, and cost per claim. The Company periodically assesses the adequacy of its recorded warranty liability and adjusts the amount as necessary. During the three months ended September 30, 2018 and 2017, the Company recognized a warranty expense of $75,000 and $0, respectively, and for the nine months ended September 30, 2018 and 2017, the Company recognized a warranty expense (benefit) of $115,000 and $(238,967), respectively. Since the inception of the ADEPT IDIQ contract in March 2010, the Company has delivered 224 ADEPT units. As of September 30, 2018, there were 35 ADEPT units that remain under the limited warranty coverage.

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

	September 30,			December 31,
	2018			2017
Balance, beginning of the period	$	40,000		$	240,980
Provision for product warranty		115,000			40,000
Product warranty expirations		-			(238,967	)
Product warranty costs paid		(24,630	)		(2,013	)
Balance, end of the period	$	130,370		$	40,000

6

Mikros Systems Corporation

Notes to Condensed Financial Statements

(unaudited)

Research and Development Expense

Research and Development expenditures for research and development of the Company's products are expensed when incurred and are included in general and administrative expenses. The Company recognized research and development costs as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Salaries	$	7,047	$	68,158	$	69,727	$	159,237
Other costs		14,000		12,193		38,401		39,645
	$	21,047	$	80,351	$	108,128	$	198,882

Intangible Assets

The majority of the Company’s intangible assets is a license acquired during 2015. In July 2015, the Company purchased certain software products, intellectual property and related assets from VSE Corporation. The primary software programs purchased were the Prognostics Framework (PF) and Diagnostic Profiler (DP) programs. The Diagnostic Profiler software is used worldwide by several multinational companies for optimized maintenance of diverse product lines. The Diagnostic Profiler is also used by the US Air Force for depot test programs, and Prognostics Framework is used by the US Army for several missile defense systems.

Licenses are amortized using a straight-line method over their estimated life of six years. For the three and nine months ended September 30, 2018 and 2017, amortization expense related to the Company’s license amounted to $5,250 and $5,250 and $15,750 and $15,750, respectively, and are included in general and administrative expenses on the Statements of Income and Comprehensive Income.

Note 4 – Income Tax Matters

At September 30, 2018, we estimated our annual effective tax rate for 2018 to be 32%. We recognized a tax expense of $18,275 and $127,364 for the three and nine months ended September 30, 2018. At September 30, 2018, 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) decreased its net deferred tax assets by $(47,032) and $63,260 during the nine months ended September 30, 2018 and 2017, respectively. The change in deferred tax assets is attributable to the changes in various book/tax differences.

In December 2017, new legislation was signed into law reducing the corporate U.S. tax rate from 35% to 21% for tax years beginning after December 31, 2017, fully repealing the corporate alternative minimum tax and making the NOL carryforward period indefinite for NOLs generated after 2017. In accordance with ASC Topic 740, deferred tax assets and liabilities are required to be measured at the enacted tax rate expected to apply when temporary differences are to be realized or settled. As of December 31, 2017, the Company re-measured its deferred tax balances based upon the new 21% tax rate.

While the Company has completed its provisional analysis of the income tax effects of the new legislation and recorded a reasonable estimate of such effects, the amounts recorded related to the new legislation may differ, possibly materially, due to, among other things, further refinement of the Company’s calculations, changes in interpretations and assumptions that the Company has made, additional guidance that may be issued by the U.S. Government, and actions and related accounting policy decisions the Company may take as a result of this legislation. The Company will complete its analysis over a one-year measurement period ending no later than December 22, 2018, and any adjustments during this measurement period will be included as an adjustment to income tax expense/benefit in the reporting period when such adjustments are determined.

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 September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Basic earnings per common share:
Net income	$	37,029	$	29,005	$	274,161	$	195,537
Weighted average basic shares outstanding		35,568,775		35,555,742		35,308,668		35,246,893
Basic income per common share	$	-	$	-	$	0.01	$	0.01
Dilutive earnings per common share:
Net income allocable to common shareholders	$	37,029	$	29,005	$	274,161	$	195,537
Weighted average shares outstanding - basic		35,568,775		35,555,742		35,308,668		35,246,893
Diluted effect:
Stock options		76,347		82,200		70,364		75,400
Unvested restricted stock		231,418		224,263		215,773		202,564
Weighted average dilutive shares outstanding		35,876,540		35,862,205		35,594,805		35,524,857
Dilutive income per common share	$	-	$	-	$	0.01	$	0.01

Diluted net income per share for the three and nine months ended September 30, 2018 and 2017 does not reflect the following potential common shares, as the effect would be antidilutive.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Unvested restricted stock		70,000		60,000		80,000		60,000

8

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, 2017 filed with the Securities and Exchange Commission. All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the foregoing. Except as required by law, we assume no duty to update or revise our forward-looking statements.

Item 2. Management’s Discussion and Analysis of Financial Position and Results of Operations.

Mikros Systems Corporation (the “Company”, “we” or “us”) designs and manufactures software, hardware and electronic systems used to maintain complex distributed systems. Examples of such systems include defense equipment such as radars and combat systems, and commercial and industrial applications such as printing presses, power distribution, and utility systems, and Federal Aviation Administration (“FAA”) systems.

Over the past decade, our principal customer has been the U.S. Department of Defense (DoD), primarily the U.S. 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® (PF) and Diagnostic Profiler® (DP) products provide software capabilities which complement our maintenance hardware products (ADEPT and ADSSS) and allow us to provide complete hardware/software solutions for advanced maintenance, particularly of complex distributed systems. Now that we have a complete hardware/software solution for advanced maintenance, we are expanding into commercial and industrial markets.

Product Portfolio

Revenues from our government contracts represented substantially all of our revenues for the nine months ended September 30, 2018. We believe that we can utilize the intellectual property developed under our various SBIR awards to develop proprietary products for both the government and commercial marketplace.

Adaptive Diagnostic Electronic Portable Testset (ADEPT). ADEPT is an automated maintenance workstation designed to significantly reduce the time required to align the AN/SPY-1 Radar System aboard U.S. Navy Aegis cruisers and destroyers, while optimizing system performance and readiness. ADEPT Systems are currently deploying on all Aegis CG and DDG platforms to support the AN/SPY1 radar system. Since the system uses commercial instrument case and modules, ADEPT units can be modified to support both preventative maintenance and condition-based maintenance of other radars and complex electronic systems in military or commercial applications. 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 224 ADEPT units.

9

ADEPT Distance Support Sensor Suite (ADSSS). In 2013, we started development of ADSSS for the Navy’s Littoral Combat Ship (“LCS”). ADSSS is a network-enabled system that can be configured to monitor multiple shipboard systems and report maintenance data onshore for further analysis to detect trends and predict failures. ADSSS provides an open architecture approach with industry standard hardware, and cybersecurity compliant software to acquire and process system operational and maintenance data. ADSSS fully automates the capture of system operation, environment and maintenance data to provide unattended operation. The system monitors key parameters and sends alert notifications when parameters move out of tolerance. 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 call-outs by probability. The use of the diagnostic profiler eliminates the need for the development and maintenance of diagnostic flow charts and hard-coded text sequences. This reduces the effort required to correct bugs and design changes and over the life of the system, could result in significant cost savings.

Prognostics Framework. Prognostics Framework is an analysis software for framework that implements real-time prognostics, diagnostics, and status monitoring to support embedded prognostic applications, health management systems and condition-based maintenance applications. The Prognostics Framework software institutes an information framework that organizes relevant data related to: (i) the condition of the system; (ii) the system’s ability to perform required functions over specific time intervals; and (iii) the need for maintenance actions and repair parts. The Prognostics Framework has been used to implement a complete health management system on one of the first radar systems to require prognostics as a key element of its overall solutions. Other potential applications include complex computer networks, power generators, power supply, cooling and environmental systems.

Government Contracts

In 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 July 2016, we received two additional contract modifications for our current service contract for LCS systems using the ADSSS, which added an additional $4.65 million for ongoing development. This funding extended the program through June 2018 and allows us to perform installations and support for the LCS classes.

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. The first delivery order in the amount of $3.0 million was awarded on September 15, 2016 to perform installations, support and logistics for the LCS class.

In September 2016, we received multiple contracts totaling approximately $0.4 million to continue logistics support of the ADEPT maintenance workstation. These contracts include general engineering support, repair, calibration and training.

In February 2017, we were awarded a follow-on multi-year Small Business Innovation Research (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.

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 during the next three years. 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 (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.

10

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 manufacturing and depot center in Largo, Florida, (“M&D Center”) 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 through 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 in Largo, Florida to provide bi-annual sustainment services for units from the fleet.

Key Performance Indicator

As substantially all of our revenue is derived from contracts with the Federal government, our key performance indicator is the dollar volume of contracts and 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 2017, and expected revenue in 2018, is or will be from sales of ADEPT units and ADSSS systems under our IDIQs contract, continued generation of task orders and our ability to expand the market and potential customer base for ADEPT units will be a key indicator of future revenue. ADEPT units must be serviced and calibrated every two years. Accordingly, as we continue to increase the installed base of ADEPT units and expand the units to other radar systems, we expect to generate future recurring maintenance and service revenue.

11

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 Diagnostic 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 fifth year. We continue to receive repeat orders from these customers to support their applications. We plan to provide “condition-based maintenance” systems for applications such as FAA radar surveillance and support systems, power distribution and utilities infrastructure, commercial shipping, cooling and environmental systems, and other “complex distributed systems” to commercial customers. In that regard, we are currently developing a condition-based maintenance solution for heating ventilation, air conditioning and refrigeration (HVAC) equipment based on our proprietary Prognostics Framework solution. We have deployed two active pilot systems that are providing key maintenance data on a daily basis to service technicians.

In 2018, 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. We will also seek to generate incremental revenue through providing light assembly and production services to commercial customers at our M&D Center.

Over the longer term, we intend to further develop advanced maintenance technologies and implement these technologies in products for deployment in defense applications and to expand into more commercial applications. We believe that many of our core capabilities, remote monitoring, rugged systems, predictive maintenance and communications expertise, are applicable to other industries that work with complex distributed systems, such as utilities, communications and transportation systems. We are currently in discussions with certain industry participants regarding this initiative.

During recent years, the combination of spending caps, discretionary spending cuts, sequestration and further changes in defense spending and priorities have caused, and may in the future continue to cause, delays in funding certain projects. This may negatively impact our revenues and profits.

Changes to Critical Accounting Policies and Estimates

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, as amended (commonly referred to as ASC 606), which replaces numerous requirements in U.S. GAAP, including industry-specific requirements, and provides companies with a single revenue recognition model for recognizing revenue from contracts with customers and significantly expanded the disclosure requirements for revenue arrangements. The new standard, as amended, was effective for the Company for interim and annual reporting periods beginning on January 1, 2018.

We adopted ASC 606 using the modified retrospective transition method. Results for reporting periods beginning after December 31, 2017 are presented under ASC 606, while prior period comparative information has not been restated and continues to be reported in accordance with ASC 605, Revenue Recognition, the accounting standard in effect for periods ending prior to January 1, 2018.

Results of Operations

Three Months Ended September 30, 2018 and 2017

We generated revenues of $1,893,945 during the three months ended September 30, 2018 compared to $1,551,620 during the three months ended September 30, 2017, an increase of $342,325, or 22%. The increase was due primarily to a production order for 26 ADEPT units, increase in revenue from engineering contracts, and the receipt of additional contracts for engineering services, support and repairs and calibration services.

12

Cost of sales consists of direct contract costs including labor, material, subcontracts, warranty expense for ADEPT units that have been delivered, travel, and other direct costs. Cost of sales for the three months ended September 30, 2018 was $776,493 compared to $636,128 for the three months ended September 30, 2017, an increase of $140,365 or 22% and in-line with the increase in revenues. The increase was due primarily to the receipt of a production order for 26 ADEPT units in September 2017, increase in revenues from engineering contracts received in 2017, and the receipt of additional contracts for engineering services, support and repairs and calibration services. As a percentage of revenue, cost of sales was 41% of revenues for both the three months ended September 30, 2018 and 2017, respectively.

The majority of our engineering costs consist of (i) salary, wages and related fringe benefits paid to engineering employees, (ii) rent-related costs, and (iii) consulting fees paid to engineering consultants. As the nature of these costs benefit the entire organization and all research and development efforts, and their benefit cannot be identified with a specific project or contract, these engineering costs are classified as part of “engineering overhead” and included in operating expenses. Engineering costs for the three months ended September 30, 2018 were $648,739 compared to $530,477 for the three months ended September 30, 2017, an increase of $118,262, or 22% and in-line with the increase in revenues. The increase in 2018 was due to increases in engineering salaries and fringe benefits for additional employees hired in 2017, incentive compensation and engineering consulting fees.

General and administrative expenses consist primarily of salary, intellectual property, consulting fees and related costs, professional fees, business insurance, franchise tax, SEC compliance costs, travel, and unallowable expenses (representing those expenses for which the government will not reimburse us, including independent research and development (IR&D) which consists of research and development expenses unrelated to our defense contracts). General and administrative costs for the three months ended September 30, 2018 were $413,731 compared to $379,407 for the three months ended September 30, 2017, an increase of $34,324, or 9%. The increase was due primarily to increases in salaries, incentive compensation, research and development costs and professional fees.

At September 30, 2018, we estimated our annual effective tax rate to be 32%.  We recognized a tax expense of $18,275 for the three months ended September 30, 2018 due primarily to expected net income for the remainder of 2018.  At September 30, 2018, the difference from the expected federal statutory income tax rate is attributable to state income taxes and certain permanent book-tax differences. In December 2017, new legislation was signed into law reducing the corporate U.S. tax rate from 35% to 21% for tax years beginning after December 31, 2017.  Tax expense was $8,000 less under the lower 2018 rate than it would have been using the prior statutory tax rate.

Nine Months Ended September 30, 2018 and 2017

We generated revenues of $6,626,716 during the nine months ended September 30, 2018 compared to $5,047,456 during the nine months ended September 30, 2017, an increase of $1,579,260 or 31%. The increase was due primarily to a production order for 26 ADEPT units in September 2017, increase in revenue from engineering contracts, and the receipt of additional contracts for engineering services, support and repairs and calibration services.

Cost of sales for the nine months ended September 30, 2018 was $3,055,932 compared to $1,909,246 for the nine months ended September 30, 2017, an increase of $1,146,686 or 60%. The increase was due primarily to the receipt of a production order for 26 ADEPT units in September 2017, increase in revenues from engineering contracts received in 2017, and the receipt of additional contracts for engineering services, support and repairs and calibration services. As a percentage of revenue, cost of sales was 46% for the nine months ended September 30, 2018 as compared to 38% of revenues for the nine months ended September 30, 2017. The increase is due to an increase in production costs and other direct costs.

Engineering costs for the nine months ended September 30, 2018 were $1,882,829 compared to $1,587,069 for the nine months ended September 30, 2017, an increase of $295,760, or 19%. The increase in 2018 was due to increases in engineering salaries and fringe benefits for additional employees hired in 2017, incentive compensation and engineering consulting fees.

13

General and administrative costs for the nine months ended September 30, 2018 were $1,287,668 compared to $1,218,694 for the nine months ended September 30, 2017, an increase of $68,974, or 6%.

At September 30, 2018, we estimated our annual effective tax rate for 2018 to be 32%. We recognized a tax expense of $127,364 for the nine months ended September 30, 2018 primarily due to expected net income for 2018. At September 30, 2018, the difference from the expected federal statutory income tax rate is attributable to state income taxes and certain permanent book-tax differences. In December 2017, new legislation was signed into law reducing the corporate U.S. tax rate from 35% to 21% for tax years beginning after December 31, 2017. Tax expense was $62,000 less under the lower 2018 rate than it would have been using the prior statutory tax rate.

Liquidity and Capital Resources

Since our inception, we have financed our operations through debt, private and public offerings of equity securities, and cash generated by operations.

During the nine months ended September 30, 2018, net cash provided by operations was $213,997 compared to net cash provided by operations of $302,293 during the nine months ended September 30, 2017. The decrease was primarily due to the timing of receipts and payments related to our operating assets and liabilities.

Net cash used in investing activities was $98,718 in the nine months ended September 30, 2018 as compared to $92,722 in the nine months ended September 30, 2017, a increase of $4,996. The increase was due to the increase in purchases of equipment and 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 matures on January 31, 2019 and 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 the date of this report, 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 September 30, 2018, we did not have any relationships with unconsolidated entities or financial partners, such as entities often referred to as structured finance or special purpose entities, established for the purpose of facilitating off- balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

Item 4. Controls and Procedures.

An evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934) was carried out by us under the supervision and with the participation of our president, who serves as our principal executive officer and principal financial officer. Based upon that evaluation, our president concluded that as of September 30, 2018, our disclosure controls and procedures were effective to ensure (i) that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (ii) that such information is accumulated and communicated to management, including our president, in order to allow timely decisions regarding required disclosure.

There were no changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) or 15d- 15(f)) that occurred during the fiscal quarter ended September 30, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

14

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
November 13, 2018	By:	/s/ Thomas J. Meaney
		Thomas J. Meaney
		Chief Executive Officer and Chief Financial Officer

15

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.

November 13, 2018

/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 September 30, 2018, 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.

November 13, 2018	By:	/s/ Thomas J. Meaney
		Thomas J. Meaney
		Chief Executive Officer and Chief Financial Officer

XML

Document And Entity Information - shares	9 Months Ended
	Sep. 30, 2018	Nov. 08, 2018
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	Sep. 30, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q3
Amendment Flag	false

XML

Condensed Balance Sheets (Current Period Unaudited) - USD ($)	Sep. 30, 2018	Dec. 31, 2017
Current assets:
Cash and cash equivalents	$ 1,288,806	$ 1,173,177
Receivables on government contracts	1,941,582	1,697,997
Prepaid expenses and other current assets	81,160	72,542
Total current assets	3,311,548	2,943,716
Property and equipment
Equipment	210,388	171,018
Leasehold improvements	21,306	21,306
Furniture & fixtures	42,485	37,557
Less: accumulated depreciation	(102,342)	(106,570)
Property and equipment, net	171,837	123,311
Intangible assets	139,945	137,683
Less: accumulated amortization	(69,966)	(54,101)
Intangible assets, net	69,979	83,582
Deferred tax assets	55,777	8,745
Total assets	3,609,141	3,159,354
Current liabilities:
Accrued payroll and payroll taxes	765,816	575,926
Accounts payable and accrued expenses	360,697	482,873
Accrued warranty expense	130,370	40,000
Deferred revenue	25,250	18,750
Total current liabilities	1,282,133	1,117,549
Long-term liabilities	18,930	21,920
Total liabilities	1,301,063	1,139,469
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 35,561,775 shares, respectively	355,689	355,619
Capital in excess of par value	10,101,805	10,087,843
Accumulated deficit	(8,149,416)	(8,423,577)
Total shareholders' equity	2,308,078	2,019,885
Total liabilities and shareholders' equity	$ 3,609,141	$ 3,159,354

XML

Condensed Balance Sheets (Current Period Unaudited) (Parentheticals) - $ / shares	Sep. 30, 2018	Dec. 31, 2017
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	35,561,775
Common stock, outstanding (in shares)	35,568,775	35,561,775

XML

Condensed Statements of Income and Comprehensive Income (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Contract Revenues	$ 1,893,945	$ 1,551,620	$ 6,626,716	$ 5,047,456
Cost of sales	776,493	636,128	3,055,932	1,909,246
Gross margin	1,117,452	915,492	3,570,784	3,138,210
Expenses:
Engineering	648,739	530,477	1,882,829	1,587,069
General and administrative	413,731	379,407	1,287,668	1,218,694
Total expenses	1,062,470	909,884	3,170,497	2,805,763
Income from operations	54,982	5,608	400,287	332,447
Other income:
Interest	322	701	1,238	2,154
Net income before income taxes	55,304	6,309	401,525	334,601
Income tax expense	18,275	(22,696)	127,364	139,064
Net income available to common shareholders	$ 37,029	$ 29,005	$ 274,161	$ 195,537
Income per common share - basic (in dollars per share)			$ 0.01	$ 0.01
Basic weighted average number of shares outstanding (in shares)	35,568,775	35,555,742	35,308,668	35,246,893
Income per common share - diluted (in dollars per share)			$ 0.01	$ 0.01
Diluted weighted average number of shares outstanding (in shares)	35,876,540	35,862,205	35,594,805	35,524,857

XML

Condensed Statements of Shareholders' Equity (Unaudited) - 9 months ended Sep. 30, 2018 - USD ($)	Preferred Stock [Member]	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Total
Balance (in shares) at Dec. 31, 2017		35,561,775
Balance at Dec. 31, 2017		$ 355,619	$ 10,087,843	$ (8,423,577)	$ 2,019,885
Stock compensation			13,682		13,682
Exercise of non-restricted stock awards (in shares)		7,000
Exercise of non-restricted stock awards		$ 70	280		350
Net income				274,161	274,161
Balance (in shares) at Sep. 30, 2018		35,568,775
Balance at Sep. 30, 2018		$ 355,689	$ 10,101,805	$ (8,149,416)	$ 2,308,078

XML

Condensed Statements of Cash Flows (Unaudited) - USD ($)	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
Cash flows from operating activities
Net income	$ 274,161	$ 195,537
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	63,795	33,657
Deferred taxes	(47,032)	63,260
Share-based compensation expense	13,682	9,782
Changes in assets and liabilities:
(Increase) decrease in receivables on government contracts	(243,585)	339,333
(Increase) in prepaid expenses and other current assets	(8,618)	(27,622)
Increase in accrued payroll and payroll taxes	189,890	49,286
(Decrease) in accounts payable and accrued expenses	(122,176)	(140,764)
Increase (decrease) in accrued warranty expense	90,370	(240,980)
Increase in deferred revenue	6,500	22,500
(Decrease) in long-term liabilities	(2,990)	(1,696)
Net cash provided by operating activities	213,997	302,293
Cash flows from investing activities:
Payments related to intangible assets	(2,263)	(4,983)
Purchase of property and equipment	(96,455)	(88,739)
Net cash used in investing activities:	(98,718)	(93,722)
Cash flows from financing activities:
Exercise of stock options	350	12,350
Net cash provided by financing activities:	350	12,350
Net increase in cash and cash equivalents	115,629	220,921
Cash and cash equivalents, beginning of period	1,173,177	858,868
Cash and cash equivalents, end of period	1,288,806	1,079,789
Supplement cash flow information:
Cash paid during the period for income taxes	$ 66,500	$ 70,150

XML

Note 1 - Basis of Presentation

9 Months Ended

Sep. 30, 2018

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”) 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, 2017.

In the opinion of the Company’s management, the accompanying unaudited interim condensed financial statements contain all adjustments, consisting solely of those which are of a normal recurring nature, necessary to present fairly its financial position as of

September 30, 2018,

the results of its operations for the

three

and

nine

months ended

September 30, 2018

and

2017,

changes in stockholders’ equity from

January 1, 2018

to

September 30, 2018

and cash flows for the

nine

months ended

September 30, 2018

and

2017.

XML

Note 2 - Recent Accounting Pronouncements

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

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

Note

2

–

Recent

Accounting

Pronouncements

In

May 2014,

the FASB issued ASU

2014

-

09,

Revenue from Contracts with Customers, as amended (commonly referred to as ASC

606

), which replaces numerous requirements in U.S. GAAP, including industry-specific requirements, and provides companies with a single revenue recognition model for recognizing revenue from contracts with customers and significantly expanded the disclosure requirements for revenue arrangements. The new standard, as amended, was effective for the Company for interim and annual reporting periods beginning on

January 1, 2018.

As discussed in Note

3,

the Company adopted ASC

606

using the modified retrospective transition method. Results for reporting periods beginning after

December 31, 2017

are presented under ASC

606,

while prior period comparative information has

not

been restated and continues to be reported in accordance with ASC

605,

Revenue Recognition, the accounting standard in effect for periods ended prior to

January 1, 2018.

Based on contracts in process at

December 31, 2017,

the Company determined that the impact of the adoption of ASC

606

is immaterial and that the Company will

not

recognize any of the accelerated net sales at

January 1, 2018

in the Company’s statements of operations for any historical or future period.

XML

Note 3 - Significant Accounting Policies

9 Months Ended

Sep. 30, 2018

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 consolidated statements of income and comprehensive 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

September 30, 2018,

our ending backlog was

$6.5

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.

Warranty

Expense

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

may

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

three

months ended

September 30, 2018

and

2017,

the Company recognized a warranty expense of

$75,000

and

$0,

respectively, and for the

nine

months ended

September 30, 2018

and

2017,

the Company recognized a warranty expense (benefit) of

$115,000

and $(

238,967

), respectively. Since the inception of the ADEPT IDIQ contract in

March 2010,

the Company has delivered

224

ADEPT units. As of

September 30, 2018,

there were

35

ADEPT units that remain under the limited warranty coverage.

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

	September 30,			December 31,
	2018			2017
Balance, beginning of the period	$	40,000		$	240,980
Provision for product warranty		115,000			40,000
Product warranty expirations		-			(238,967	)
Product warranty costs paid		(24,630	)		(2,013	)
Balance, end of the period	$	130,370		$	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 September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Salaries	$	7,047	$	68,158	$	69,727	$	159,237
Other costs		14,000		12,193		38,401		39,645
	$	21,047	$	80,351	$	108,128	$	198,882

Intangible Assets

The majority of the Company’s intangible assets is a license acquired during

2015.

In

July 2015,

the Company purchased certain software products, intellectual property and related assets from VSE Corporation. The primary software programs purchased were the Prognostics Framework (PF) and Diagnostic Profiler (DP) programs. The Diagnostic Profiler software is used worldwide by several multinational companies for optimized maintenance of diverse product lines. The Diagnostic Profiler is also used by the US Air Force for depot test programs, and Prognostics Framework is used by the US Army for several missile defense systems.

Licenses are amortized using a straight-line method over their estimated life of

six

years. For the

three

and

nine

months ended

September 30, 2018

and

2017,

amortization expense related to the Company’s license amounted to

$5,250

and

$5,250

and

$15,750

and

$15,750,

respectively, and are included in general and administrative expenses on the Statements of Income and Comprehensive Income.

XML

Note 4 - Income Tax Matters

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Note

4

– Income Tax Matters

At

September 30, 2018,

we estimated our annual effective tax rate for

2018

to be

32%.

We recognized a tax expense of

$18,275

and

$127,364

for the

three

and

nine

months ended

September 30, 2018.

At

September 30, 2018,

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) decreased its net deferred tax assets by $(

47,032

) and

$63,260

during the

nine

months ended

September 30, 2018

and

2017,

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

In

December 2017,

new legislation was signed into law reducing the corporate U.S. tax rate from

35%

to

21%

for tax years beginning after

December 31, 2017,

fully repealing the corporate alternative minimum tax and making the NOL carryforward period indefinite for NOLs generated after

2017.

In accordance with ASC Topic

740,

deferred tax assets and liabilities are required to be measured at the enacted tax rate expected to apply when temporary differences are to be realized or settled. As of

December 31, 2017,

the Company re-measured its deferred tax balances based upon the new

21%

tax rate.

While the Company has completed its provisional analysis of the income tax effects of the new legislation and recorded a reasonable estimate of such effects, the amounts recorded related to the new legislation

may

differ, possibly materially, due to, among other things, further refinement of the Company’s calculations, changes in interpretations and assumptions that the Company has made, additional guidance that

may

be issued by the U.S. Government, and actions and related accounting policy decisions the Company

may

take as a result of this legislation. The Company will complete its analysis over a

one

-year measurement period ending

no

later than

December 22, 2018,

and any adjustments during this measurement period will be included as an adjustment to income tax expense/benefit in the reporting period when such adjustments are determined.

XML

Note 5 - Income Per Share

9 Months Ended

Sep. 30, 2018

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 September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Basic earnings per common share:
Net income	$	37,029	$	29,005	$	274,161	$	195,537
Weighted average basic shares outstanding		35,568,775		35,555,742		35,308,668		35,246,893
Basic income per common share	$	-	$	-	$	0.01	$	0.01
Dilutive earnings per common share:
Net income allocable to common shareholders	$	37,029	$	29,005	$	274,161	$	195,537
Weighted average shares outstanding - basic		35,568,775		35,555,742		35,308,668		35,246,893
Diluted effect:
Stock options		76,347		82,200		70,364		75,400
Unvested restricted stock		231,418		224,263		215,773		202,564
Weighted average dilutive shares outstanding		35,876,540		35,862,205		35,594,805		35,524,857
Dilutive income per common share	$	-	$	-	$	0.01	$	0.01

Diluted net income per share for the

three

and

nine

months ended

September 30, 2018

and

2017

does

not

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Unvested restricted stock		70,000		60,000		80,000		60,000

XML

Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2018

Accounting Policies [Abstract]

Revenue Recognition, Policy [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 income and comprehensive 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

September 30, 2018,

our ending backlog was

$6.5

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

September 30, 2018

and

2017,

the Company recognized a warranty expense of

$75,000

and

$0,

respectively, and for the

nine

months ended

September 30, 2018

and

2017,

the Company recognized a warranty expense (benefit) of

$115,000

and $(

238,967

), respectively. Since the inception of the ADEPT IDIQ contract in

March 2010,

the Company has delivered

224

ADEPT units. As of

September 30, 2018,

there were

35

ADEPT units that remain under the limited warranty coverage.

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

	September 30,			December 31,
	2018			2017
Balance, beginning of the period	$	40,000		$	240,980
Provision for product warranty		115,000			40,000
Product warranty expirations		-			(238,967	)
Product warranty costs paid		(24,630	)		(2,013	)
Balance, end of the period	$	130,370		$	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 September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Salaries	$	7,047	$	68,158	$	69,727	$	159,237
Other costs		14,000		12,193		38,401		39,645
	$	21,047	$	80,351	$	108,128	$	198,882

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

Intangible Assets

The majority of the Company’s intangible assets is a license acquired during

2015.

In

July 2015,

the Company purchased certain software products, intellectual property and related assets from VSE Corporation. The primary software programs purchased were the Prognostics Framework (PF) and Diagnostic Profiler (DP) programs. The Diagnostic Profiler software is used worldwide by several multinational companies for optimized maintenance of diverse product lines. The Diagnostic Profiler is also used by the US Air Force for depot test programs, and Prognostics Framework is used by the US Army for several missile defense systems.

Licenses are amortized using a straight-line method over their estimated life of

six

years. For the

three

and

nine

months ended

September 30, 2018

and

2017,

amortization expense related to the Company’s license amounted to

$5,250

and

$5,250

and

$15,750

and

$15,750,

respectively, and are included in general and administrative expenses on the Statements of Income and Comprehensive Income.

XML

Note 3 - Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2018

Notes Tables

Schedule of Product Warranty Liability [Table Text Block]

	September 30,			December 31,
	2018			2017
Balance, beginning of the period	$	40,000		$	240,980
Provision for product warranty		115,000			40,000
Product warranty expirations		-			(238,967	)
Product warranty costs paid		(24,630	)		(2,013	)
Balance, end of the period	$	130,370		$	40,000

Research and Development Expense [Table Text Block]

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Salaries	$	7,047	$	68,158	$	69,727	$	159,237
Other costs		14,000		12,193		38,401		39,645
	$	21,047	$	80,351	$	108,128	$	198,882

XML

Note 5 - Income Per Share (Tables)

9 Months Ended

Sep. 30, 2018

Notes Tables

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Basic earnings per common share:
Net income	$	37,029	$	29,005	$	274,161	$	195,537
Weighted average basic shares outstanding		35,568,775		35,555,742		35,308,668		35,246,893
Basic income per common share	$	-	$	-	$	0.01	$	0.01
Dilutive earnings per common share:
Net income allocable to common shareholders	$	37,029	$	29,005	$	274,161	$	195,537
Weighted average shares outstanding - basic		35,568,775		35,555,742		35,308,668		35,246,893
Diluted effect:
Stock options		76,347		82,200		70,364		75,400
Unvested restricted stock		231,418		224,263		215,773		202,564
Weighted average dilutive shares outstanding		35,876,540		35,862,205		35,594,805		35,524,857
Dilutive income per common share	$	-	$	-	$	0.01	$	0.01

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Unvested restricted stock		70,000		60,000		80,000		60,000

XML

Note 3 - Significant Accounting Policies (Details Textual)	3 Months Ended		9 Months Ended		103 Months Ended
	Sep. 30, 2018 USD ($)	Sep. 30, 2017 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2017 USD ($)	Sep. 30, 2018 USD ($)
Revenue, Remaining Performance Obligation, Amount	$ 6,500,000		$ 6,500,000		$ 6,500,000
Product Warranty (Recovery) Expense	75,000	$ 0	$ 115,000	$ (238,967)
Licensing Agreements [Member]
Finite-Lived Intangible Asset, Useful Life			6 years
Amortization of Intangible Assets, Total	$ 5,250	$ 15,750	$ 5,250	$ 15,750
IDIQ Agreement [Member] | ADEPT Units [Member]
Units Delivered					224
Units to be Delivered	35		35		35

XML

Note 3 - Significant Accounting Policies - Reserve for Product Warranty Activity (Details) - USD ($)	9 Months Ended	12 Months Ended
	Sep. 30, 2018	Dec. 31, 2017
Balance, beginning of the period	$ 40,000	$ 240,980
Provision for product warranty	115,000	40,000
Product warranty expirations		(238,967)
Product warranty costs paid	(24,630)	(2,013)
Balance, end of the period	$ 130,370	$ 40,000

XML

Note 3 - Significant Accounting Policies - Research and Development Expense (Details) - General and Administrative Expense [Member] - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Research and development cost	$ 21,047	$ 80,351	$ 108,128	$ 198,882
Research and Development, Salaries [Member]
Research and development cost	7,047	68,158	69,727	159,237
Research and Development, Other Costs [Member]
Research and development cost	$ 14,000	$ 12,193	$ 38,401	$ 39,645

XML

Note 4 - Income Tax Matters (Details Textual) - USD ($)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2018	Dec. 31, 2017
Income Tax Expense (Benefit), Total	$ 18,275	$ (22,696)	$ 127,364	$ 139,064
Valuation Allowance, Deferred Tax Asset, Increase (Decrease), Amount			$ 47,032	$ 63,260
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent						35.00%
Scenario, Forecast [Member]
Effective Income Tax Rate Reconciliation, Percent, Total					32.00%
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent					21.00%

XML

Note 5 - Income Per Share - Weighted Average Shares Outstanding (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Net income	$ 37,029	$ 29,005	$ 274,161	$ 195,537
Weighted average basic shares outstanding (in shares)	35,568,775	35,555,742	35,308,668	35,246,893
Basic income per common share (in dollars per share)			$ 0.01	$ 0.01
us-gaap_EarningsPerShareDilutedAbstract
Net income allocable to common shareholders	$ 37,029	$ 29,005	$ 274,161	$ 195,537
Weighted average basic shares outstanding (in shares)	35,568,775	35,555,742	35,308,668	35,246,893
us-gaap_WeightedAverageNumberDilutedSharesOutstandingAdjustmentAbstract
Stock options (in shares)	76,347	82,200	70,364	75,400
Weighted average dilutive shares outstanding (in shares)	35,876,540	35,862,205	35,594,805	35,524,857
Dilutive income per common share (in dollars per share)			$ 0.01	$ 0.01
Restricted Stock [Member]
us-gaap_WeightedAverageNumberDilutedSharesOutstandingAdjustmentAbstract
Stock options (in shares)	231,418	224,263	215,773	202,564

XML

Note 5 - Income Per Share - Diluted Net Earnings (Loss) Per Share (Details) - shares	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Restricted Stock [Member]
Antidilutive shares (in shares)	70,000	60,000	80,000	60,000