TABLE OF CONTENTS

 

 

		Page
PART I
Item 1.	Business	1
Item 1A.	Risk Factors	4
Item 2.	Properties	9
Item 3.	Legal Proceedings	9
Item 4.	Mine Safety Disclosures	9
PART II
Item 5.	Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	9
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operation	10
Item 8.	Financial Statements and Supplementary Data	14
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosures	15
Item 9A.	Controls and Procedures	15
Item 9B.	Other Information	15
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	16
Item 11.	Executive Compensation	18
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	20
Item 13.	Certain Relationships and Related Transactions, and Director Independence	22
Item 14.	Principal Accountant Fees and Services	23
PART IV
Item 15.	Exhibits and Financial Statement Schedules	24
Item 16.	Form 10-K Summary	24

 

 

PART I

 

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

 

This document 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.” Forward-looking statements by their nature address matters that are, to different degrees, uncertain. For us, particular uncertainties that could cause our actual results to be materially different than those expressed in our forward-looking statements include, but are not limited to: changes in business conditions, a decline or redirection of the U.S. defense budget, the termination of any contracts with the U.S. Government, changes in our sales strategy and product development plans, changes in the marketplace, continued services of our executive management team, our limited marketing experience, competition between us and other companies seeking Small Business Innovation Research grants, competitive pricing pressures, market acceptance of our products under development, delays in the development of products, our ability to adequately integrate our software offerings into our business model, our ability to market our solutions to commercial customers, the duration and severity of the current coronavirus COVID-19 pandemic and its effect on our business operations, personnel, and the geographic markets in which we operate and numerous other matters of national, regional and global scale, including those of a political, economic, business and competitive nature. These uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. These uncertainties are described in more detail in Part I, Item 1A. “Risk Factors” of this Annual Report on Form 10-K. 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 do not undertake to update our forward-looking statements.

 

ITEM 1. BUSINESS.

 

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

 

Over the past decade, our principal customer has been the U.S. Department of Defense (“DoD”), primarily the U.S. Navy (“Navy”). We provide the following key system to the Navy for maintenance of radars and combat systems:

 

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ADSSS®, the ADEPT Distance Support Sensor Suite, 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.

 

Our Products

 

Adaptive Diagnostic Electronic Portable Testset. ADEPT, also known as the AN/PSM-132, is an automated maintenance workstation designed to significantly reduce the time required to align all variants of the AN/SPY1 Radar System aboard U.S. Navy AEGIS cruisers and destroyers while optimizing system performance and readiness. Manufacturing, selling and servicing ADEPT units was a substantial part of our business over the past decade. During the life of the program, we delivered a total of 226 ADEPT units to our Navy customers. Effective October 1, 2019, the US Navy determined to stop funding the ADEPT program.

 

ADEPT Distance Support Sensor Suite. In 2013, we started development of ADSSS for the Navy’s LCS. Our system has now matured and has earned the official Navy nomenclature AN/SYM-3. The LCS is the U.S. Navy’s latest combat warship. AN/SYM-3 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. AN/SYM-3 provides an open architecture approach with industry-standard hardware, and cybersecurity compliant software to acquire and process system operational and maintenance data. The AN/SYM-3 system 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.

 

The first full AN/SYM-3 system was successfully completed on LCS 2 and onshore installation of prognostics software has been completed at Port Hueneme Division. The ADSSS is used on both variants of the LCS, currently planned to be at least 32 ships. In 2019, we completed installations on four more LCS ships that are being deployed allowing for data collection while operational at sea. During 2020, we expect to install systems on two or three additional ships. We are working with the government to have their virtual data transport system installed on two deploying ships, allowing for near real-time data to be sent back to shore and processed through our prognostics framework models.  During 2020, we expect to  add four new combat system elements to our LCS platform which is expected to expand our footprint and bring condition-based maintenance plus (CBM +) to additional mission-critical systems.

 

Through our NSSMS contract awarded in the fourth quarter of 2019, we  plan to develop a new variant of the AN/SYM-3 system for the NATO Seasparrow Surface Missile System.  NSSMS is installed on Navy Aircraft Carriers (CVN class) and “Big Deck” Amphibious Assault Ships (LHD/LHA class), so the new variant could be installed on these two new ship classes. We have started the software, hardware, and systems engineering tasks needed to move this CBM capability to land based test events and then to a long-term pilot installation for four systems on the NSSMS platform.

 

The SYM-3 has also generated interest from other ship classes, Aegis and unmanned systems, and for use to monitor shipboard hull, mechanical and electrical (HME) systems, additional combat systems, and navigational radars.  This is part of the Navy’s continued effort  to increase operational, sustainability and lethality for many different ship classes.    

 

 

Diagnostic Profiler. The Diagnostic Profiler is an integrated development environment for developing diagnostic capabilities used in maintenance, embedded diagnostics, and troubleshooting applications. The software provides diagnostic services to its host application, including fault callouts, suggested “next best” test to further isolate faults, and direct maintenance actions. When additional faults are identified, the software prioritizes the fault callouts by probability. The use of the Diagnostic Profiler eliminates the need for the development and maintenance of diagnostic flow charts and hard-coded text sequences. This reduces the effort required to correct bugs and design changes. Over the life of the system, this could result in significant cost savings. This system is used by clients and has also generated yearly support contracts for service. Mikros has also been upgrading and customizing the system to the client needs. 

 

Prognostics Framework. Prognostics Framework is an analytic software framework for implementing real-time prognostics, diagnostics, and status monitoring to support embedded prognostic applications, health management systems and condition-based maintenance applications. The Prognostics Framework software institutes an information framework that organizes relevant data related to: (i) the condition of the system; (ii) the system’s ability to perform required functions over specific time intervals; and (iii) the need for maintenance actions and repair parts. The Prognostics Framework has been used to implement a complete health management system on one of the first radar systems to require prognostics as a key element of its overall solutions. Other potential applications include complex computer networks, power generators, power supply, cooling, C4I (Command, Control, Communications, Computers & Intelligence), environmental and imaging systems.

 

Government Contracts

 

In September 2016, we were awarded and entered into a multi-year IDIQ contract with the Naval Surface Warfare Center, Port Hueneme Division, relating to our ADSSS product. The contract has a term of five years and provides for the purchase and sale of up to $48 million of ADSSS units and related engineering and logistics support. The first delivery order in the amount of  $3.0 million was awarded on September 15, 2016 to perform installations, support and logistics for the LCS class.

 

In June 2018, we received the second delivery order under our multi-year IDIQ relating to our ADSSS product. This $2.5 million order provides for further MK 99 Fire Control System (FCS) development, test and installation.

 

In September 2019, we received the third delivery order under our multi-year IDIQ relating to our ADSSS product. The award covers the installation of condition-based maintenance systems for the Littoral Combat Ship and has a ceiling of $15 million.  As of the date of this report, approximately $1.0 million of incremental funding has been awarded for work to be executed in government fiscal year (FY) 2020. 

 

In October 2019, we received an additional contract award under our multi-year IDIQ relating to our ADSSS product. This incremental funding with a ceiling up to $6 million, under the third delivery order, covers the development of a new variant of the AN/SYM-3 system and installation of the new CBM system on two additional ship classes; the Aircraft Carriers (CVN class) and the “Big Deck” Amphibious Assault Ships (LHD/LHA class). As of the date of this report, $1.0 million of incremental funding has been awarded for work to be executed in FY 2020 and we expect an additional award in the amount of $1.7 million in the second quarter of 2020.  

 

In April 2017, we received contract awards totaling $2.0 million from the U.S. Navy to extend the capabilities of the ADSSS Condition-Based Maintenance (CBM) system to support a fourth Navy radar system, the MK 99. The Small Business Innovation Research office in Dahlgren, VA provided $0.5 million of the total funding to support this effort.

 

In February 2017, we were awarded a follow-on multi-year Small Business Innovation Research Phase III IDIQ contract with the Naval Surface Warfare Center, Crane Division, for our ADEPT program. The contract provided for the purchase and sale of up to $35.1 million of ADEPT units and related engineering, such as calibration, repair, training and other logistics services. We have been awarded several delivery orders under the ADEPT IDIQ Contract. In October 2019, we received notice from Program Executive Office Integrated Warfare Systems that the ADEPT program will not be funded in fiscal year 2020. We will continue to fulfill our current obligations under outstanding engineering services task orders previously issued under the program. As of the date of this report, we have one open task order for general engineering services.

 

In November 2019, we were awarded a five (5) year Basic Ordering Agreement (BOA) from Naval Air Warfare Center Aircraft Division, to begin a Phase I SBIR effort entitled “Unmanned Surface Vehicle and Unmanned Underwater Vehicle Autonomous Behavior Development”. The amount of this Phase I effort was approximately $150,000.

 

Small Business Innovation Research Grants

 

We have been an active participant in the DoD’s Small Business Innovation Research (SBIR) grant program which has resulted in the award of numerous prime government contracts including the multi-year IDIQ contracts upon which we have built our business in recent years. We have renewed our bid and proposal efforts to pursue 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, communications engineering, remote monitoring, and augmented reality. In that regard, in 2019, we generated one Phase I award for sensor signal processing on a Navy unmanned vehicle platform.

 

 

Commercial Contracts

 

In 2019 and 2020, HP Indigo, Saab Grintek Defense and Northrop Grumman renewed their annual contracts for Diagnostic Profiler and Diagnostician Software Maintenance and Support.  We have also increased our capabilities to provide online support at one of the client’s facility. 

 

Manufacturing and Depot Center

 

We operate a Manufacturing and Depot Center in Largo, Florida which has been manufacturing our AN/PSM-132 and AN/SYM-3 systems for our DoD customers since 2010. Our center is American National Standards Institute (ANSI) ISO 9001:2015 certified for manufacturing, distribution and support of electronic systems for military and commercial applications and products. The facility is supported by our Research and Development center in Fort Washington, PA which is ISO 9001:2015 certified for design and development of electronic systems for military and commercial applications and products. Our quality management system complies with Naval Sea Systems Command Standard Item 009-04. In addition to facility certifications, we have personnel trained and certified in numerous IPC – Association Connecting Electronics Industries, Lean Six Sigma (LSS), and Manufacturing Skill Standards Council (MSSC) specialties. We offer light manufacturing, integration, kitting, build-to-print, and box-build with testing services to commercial customers and DoD contractors. Expanding the Largo facility’s light manufacturing and integration services for commercial customers and other DoD contractors is a key component of our long-term growth strategy. At this time, we are  producing AN/SYM-3 kits that will be used for different combat systems for our planned Navy ship installs for both LCS and NSSMS.  We are also starting the manufacturing effort for CBM + opportunities for commercial clients that will utilize our Mikros MindR® data collection system, our commercial version of our PF solution, which is more affordable, light weight, and easily installed in different customer environments.

 

Corporate Growth & Strategy

 

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. Regarding the defense industry, we expect to continue expanding our technology base, backlog and revenue by continuing to bid 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, communications engineering, remote monitoring, and augmented reality. 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 actively participate in the SBIR program and pursue SBIR projects with the DoD, Department of Homeland Security and other government agencies. Third, we believe that through our marketing of products, such as AN/SYM 3 (ADSSS), 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.

 

Regarding commercial markets, our Diagnostics Profiler and Prognostics Framework software offerings complement our hardware products and allow us to provide complete hardware/software solutions for advanced maintenance applications. Current customers for these systems include major multinational corporations such as HP Indigo, which recently extended our Diagnostic Profiler software support for a seventh year. We continue to receive repeat orders from these customers to support their applications. We plan to provide “condition-based maintenance” systems for “complex distributed systems” to commercial customers. In that regard, we are currently developing a condition-based maintenance solution for industrial equipment based on our proprietary Prognostics Framework solution, which we call Mikros MindR®. We have deployed two active pilot systems that are providing key maintenance data daily to service technicians. We are also in discussion with additional commercial companies regarding the use of our condition-based maintenance applications.

 

In 2020, 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 IDIQ and BOA contracts,  additional Phase I and Phase II SBIR grants with a view to obtaining additional government contracts, and, expand our commercial business through marketing and sales of our Prognostics Framework and Diagnostic Profiler software products. In furtherance of this strategy, we will also seek to generate incremental revenue through providing light assembly and production services to commercial customers at our M&D Center in Largo, Florida.

 

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

 

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

 

 

Competition

 

The SBIR arena is highly competitive and we compete against numerous small businesses for SBIR awards. In our general business area of electronic defense systems and products, we also compete against many larger companies that have greater financial and human resources. We believe that the primary competitive factors in obtaining SBIR contracts are technical expertise, prior relevant experience, and cost. We believe that our history of completing projects in a timely and efficient manner, along with the experience of our management and technical personnel, enables us to compete effectively for SBIR grants.

 

Intellectual Property

 

Under SBIR data rights, we are protected from unauthorized use of SBIR-developed technology and data for a period of five years after acceptance of all items to be delivered under a particular SBIR contract or any follow-on contract.

 

Customer Concentration and Dependence on Federal Government

 

Substantially all of our revenue is derived from SBIR and IDIQ contracts with the U.S. Federal government. In 2019, approximately 99% of our revenues were realized in connection with government contracts. In 2018, approximately 98% of our revenues were realized in connection with government contracts. Although our operations are not subject to any particular government approval or regulations, we are dependent upon funding being made available to the DoD in amounts sufficient to cover the SBIR grants and other DoD contracts for which we compete.

 

Research and Development

 

We specialize in the development of electronic systems technology for military and commercial applications. All our research and development costs in 2019 and 2018 were for the benefit of our customers, who are agencies of the federal government. The customer-sponsored research and development projects are performed under contracts and are accounted for as contract costs as the work is performed. In future periods, we may engage in company-sponsored research and development projects which would be expensed as incurred.

 

In 2019, we continued to devote substantial resources to expanding our technical expertise and strengthening our research and development capabilities. These efforts included hiring additional engineering professionals, implementing policies and procedures required to earn and maintain important certifications, including ISO 9001:2015 quality certifications and Naval Sea Systems Quality Standard 009-004. We believe these investments will continue to make us more competitive and generate new opportunities in both government and commercial markets.

  

Backlog

 

Backlog represents the estimated amount of future revenues to be recognized under negotiated contracts as work is performed. Our backlog consists primarily of ADSSS systems to be developed and delivered together with related engineering and logistics support. At December 31, 2019, our backlog was $1.8 million.

 

Employees

 

As of December 31, 2019, we had 26 full-time employees and 2 part-time employees of which 21 work at our Fort Washington, Pennsylvania, Research & Development Center, 1 works at our Princeton, New Jersey corporate headquarters, 1 works at our Washington, DC office, and 5 work at our Largo, Florida M&D Center. None of our employees belong to a labor union. We believe relations with our employees are good. We also use the services of subcontractors and consultants as necessary to aid in software and hardware development and for the manufacture of products.

 

ITEM 1A. RISK FACTORS.

 

An investment in our common stock involves a high degree of risk. You should carefully consider the following risk factors in addition to other information in this Annual Report on Form 10-K before purchasing our common stock. The risks and uncertainties described below are those that we currently deem to be material and that we believe are specific to our company and our industry. In addition to these risks, our business may be subject to risks currently unknown to us. If any of these or other risks actually occurs, our business may be adversely affected, the trading price of our common stock may decline and you may lose all or part of your investment.

 

 

RISKS ASSOCIATED WITH OUR BUSINESS AND OR INDUSTRY

 

A decline in or a redirection of the U.S. defense budget could result in a material decrease in our sales, earnings and cash flows.

 

Because we derive nearly all our revenue from contracts with the federal government, the success and development of our business will continue to depend on our successful participation in federal government contract programs. Changes in federal government budgetary priorities could directly affect our financial performance. A significant decline in government expenditures, a shift of expenditures away from programs that we support or a change in federal government contracting policies could cause federal government agencies to reduce their purchases under contracts, to exercise their right to terminate contracts at any time without penalty or not to exercise options to renew contracts.

 

Our government contracts are primarily dependent upon the U.S. defense budget. DoD budgets which may continue to be negatively affected by several factors, including events we cannot foresee, U.S. Government budget deficits, current or future economic conditions, new administration priorities, U.S. national security strategies, a change in spending priorities, the cost of sustaining U.S. military and related security operations around the world where U.S. military support may be pivotal, and other related exigencies and contingencies. While we are unable to predict the impact and outcome of these uncertainties, the effect of changes in these DoD imperatives have and could continue to cause the DoD budget to decrease.

 

In August 2011, Congress enacted the Budget Control Act of 2011 (“BCA”) which imposed spending caps and discretionary spending cuts, including a reduction of defense spending, between the 2012 and 2021 U.S. Government fiscal years. The BCA also triggered an automatic sequestration process, which imposed additional budget cuts to National security accounts. The Bipartisan Budget Act of 2018 (the “BBA”) provided sequestration relief for fiscal years 2018 and 2019, however, sequestration remains in effect, for fiscal years 2020 and 2021.

 

The U.S. defense budget for government fiscal year (FY) 2020 is set at $718 billion with the President's defense budget request including major growth to most mission areas. BCA caps were raised for FY 2021 from their original level, and FY 2021 DoD funding is expected to be similar to FY 2020. Further, the DoD budget requires the agreement and action of both Congress and the President. In addition, in previous years the U.S. government has been unable to complete its budget process before the end of its fiscal year, resulting in both governmental shut-downs and Continuing Resolutions (CRs) providing only enough funds for U.S. government agencies to continue operating at prior year levels. Further, if the U.S. government debt ceiling is not raised and the national debt reaches the statutory debt ceiling, the U.S. government could default on its debts. Although FY20 appropriations have been enacted and FY21 topline funding levels have been agreed to, the timeliness of FY21 and future appropriations for government departments and agencies remains a recurrent risk.

 

Levels of U.S. defense spending are very difficult to predict and may be impacted by numerous factors such as the evolving nature of the national security threat, U.S. foreign policy, the domestic political environment, macroeconomic conditions and the ability of the U.S. government to enact relevant legislation such as authorization and appropriations bills. Future budget cuts or investment priority changes, including changes associated with the authorizations and appropriations process, could result in reductions, cancellations, and/or delays of existing contracts or programs. Any of these impacts could have a material adverse effect on our results of operations, financial position and/or cash flows.

 

We depend on U.S. Government contract awards that are only partially funded and which depend upon annual budget appropriations. A delay in the completion of the U.S. Government’s budget process or the impact of sequestration (automatic spending cuts) could delay procurement of the services and solutions we provide and have an adverse effect on our future revenue.

 

Budget decisions made by the U.S. Government are outside of our control and could have significant consequences for our business. Funding for U.S. Government contract awards is subject to Congressional appropriations. Although multi-year awards may be planned or authorized in connection with major procurements, Congress generally appropriates funds on a fiscal year basis even though a program may be expected to continue for several years. Consequently, awards often initially receive only partial funding, and additional funds are committed only as Congress makes further appropriations. The termination of funding for any of our U.S. Government prime contracts or subcontracts could result in a loss of anticipated future revenue attributable to that program and a reduction in our cash flows and could have an adverse impact on our operating results.

  

In years when the U.S. Government does not complete its budget process before the end of its fiscal year on September 30, government operations are typically funded pursuant to a “continuing resolution” that authorizes agencies of the U.S. Government to continue to operate but does not authorize new spending initiatives. When the U.S. Government operates under a continuing resolution, delays can occur in the procurement of the services and solutions that we provide. When supplemental budgets are required to operate the U.S. Government and passage of legislation needed to approve any supplemental budget is delayed, the overall funding environment for our business could be adversely affected.

 

Our government contracts contain unfavorable termination provisions and are subject to audit and modification.

 

If a termination right is exercised by the government, it could have a material adverse effect on our business, financial condition and results of operations. Companies engaged primarily in supplying defense related equipment and services to U.S. Government agencies are subject to certain business risks particular to the defense industry. These risks include the ability of the U.S. Government to unilaterally:

 

 

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suspend us from receiving new contracts;

 

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terminate existing contracts;

 

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reduce the value of existing contracts; and

 

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audit our contract related costs and fees, including allocated indirect costs.

 

 

All of our U.S. Government contracts can be terminated by the U.S. Government either for its convenience or if we default by failing to perform under the terms of the contract. Termination for convenience provisions provide only for our recovery of costs incurred or committed settlement expenses and profit on the work completed prior to termination. Termination for default provisions provide for us to be liable for excess costs incurred by the U.S. Government in procuring undelivered items from another source.

 

We rely predominantly on U.S. Government entities, and the loss of our contracts could have a material adverse effect on our results of operations and cash flows.

 

Our earnings are predominantly derived from contracts with agencies of the U.S. Government. The loss of any of these contracts could have a material adverse effect on our results of operations and cash flows.

 

In addition, future financial results may be adversely affected by:

 

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curtailment of the U.S. Government’s use of technology or other services and products providers, including curtailment due to government budget reductions and related fiscal matters;

 

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geopolitical developments that affect demand for our products and services; and

 

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technological developments that impact purchasing decisions or our competitive position.

 

We may experience variability in our quarterly operating results.

 

Our revenue, gross margin, operating income and net income may vary from quarter to quarter due to a number of factors. Many factors, some of which are not within our control, may contribute to fluctuations in operating results. These factors include the following:

 

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market acceptance of our products;

 

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budgetary constraints of the federal government;

 

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new product and service introductions by us or our competitors;

 

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ability to earn new task orders and contract awards as others expire;

 

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market factors affecting the availability or costs of qualified technical personnel;

 

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timing and customer acceptance of our product and service offerings;

 

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length of sales cycle; and

 

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industry and general economic conditions.

 

 

 

Any failure by us to continue to generate task orders or fulfill our obligations under our current ADSSS, or AN/SYM-3, IDIQ contract would have a material adverse effect on our financial condition and results of operation.

 

In the third quarter of 2016, we were awarded a IDIQ contract for production, delivery, logistics and engineering support for our ADSSS system. This contract has a term of five years and provides for the purchase of up to $48 million of ADSSS systems and related support. Sales under this IDIQ contract and a second IDIQ contract accounted for a substantial majority of our revenues in the last two fiscal years. We expect our current IDIQ contract for the AN/SYM-3 program will account for the substantial majority of our revenues in future periods. As a result, we are substantially dependent upon generating continued task orders under this IDIQ contract. Any reduction or delay in task orders, any decision to cut or reduce spending on this program, or any failure by us to fulfill our contractual obligations under this IDIQ contract would result in substantially reduced revenue and profits and would have a material adverse effect on our financial condition and results of operation.

 

Our success depends on the services of our senior management and our ability to hire and retain additional skilled personnel.

 

Our future success depends on the personal efforts and abilities of the members of our senior management team to provide strategic direction, develop business, manage operations and maintain a cohesive and stable environment. Specifically, we are dependent upon Thomas J. Meaney, Chief Executive Officer and Chief Financial Officer, Walter T. Bristow, our President and Chief Operating Officer, and David Henry Silcock, Chief Technology Officer. We do not have employment agreements with any key personnel. Furthermore, our performance also depends on our ability to attract and retain management and qualified professional and technical operating staff, which are in high demand in our industry. The loss of services of any key executive, or our inability to continue to attract and retain qualified technical staff, could have a material adverse effect on our business, results of operations and financial condition. We do not maintain any key employee insurance on any of our executives.

 

 

The demand for our products is subject to rapid technological change.

 

The demand for our products and planned products is characterized by rapid changes in technology, including the potential introduction of new types of wireless communications and digital signal processor technologies, which could have a material adverse impact on our business. Our future success will depend in part on our ability to continually enhance our current technology and to develop or acquire new ideas that address the needs of the defense industry and other potential users. There can be no assurance that we will be successful in developing new products or procedures that respond to technological changes. There can be no assurance that research and development by competitors will not render our technology obsolete or uncompetitive. In addition, in a technology based industry, there can be no assurance that a claim of patent or other infringement will not be made against us. While we are not aware of any such claims, no infringement studies have been conducted on our behalf.

 

Our industry is highly competitive.

 

High technology applications such as those being developed by us often require large investments of both money and talent. Many large entities with greater financial, technical and human resources than us are currently investing heavily in products and services that compete directly with our services and underlying products. There is no assurance that our offerings can be successfully marketed against such competition. In addition, being first in the market with new high technology is a critical factor in our success in the market. There is no assurance that we will be able to introduce new offerings to the market before any of our competitors. As the markets in which we compete are mature and new and existing companies compete for customers, price competition is likely to intensify, and such price competition could adversely affect our results of operations.

 

We rely on third-party contractors for certain engineering services that may be difficult to replace.

 

We currently provide a portion of our engineering services through third-party contractors. These services may not continue to be available on commercially reasonable terms, if at all. Services that are not immediately replaceable would need to be internally developed, which could strain existing engineering personnel and require us to spend substantial time and resources to retain additional personnel or third-party contractors. The loss or inability to maintain any of these engineering service providers could result in delays in the development of our products and services until equivalent services, if available, are identified, developed, and integrated, which could harm our business.

 

We have limited operating history in providing commercial applications.

 

Historically, we have developed and sold technology and products for military applications, primarily to the U.S. Navy. We are developing commercial products and applications that perform different functions than our historic products and are targeted at an entirely different customer base. Because we have not previously operated as a provider of commercial products, we have no basis to evaluate our ability to develop, market and sell such products. Our ability to commercialize any products or services and generate operating profits and positive operating cash flow will depend principally upon our ability to:

 

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develop and manufacture commercially attractive products;

 

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attract and retain an adequate number of customers;

 

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enter new markets and compete successfully in them;

 

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manage operating expenses;

 

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raise any necessary capital; and

 

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attract and retain qualified personnel.

 

Our business could be negatively impacted by security threats, including cybersecurity threats, and other disruptions.

 

As a defense contractor, we face various security threats, including cybersecurity threats to gain unauthorized access to sensitive information; threats to the security of our facilities and infrastructure; and threats from terrorist acts. Although we utilize various procedures and controls to monitor these threats and mitigate our exposure to such threats, there can be no assurance that these procedures and controls will be sufficient in preventing security threats from materializing. If any of these events were to materialize, they could lead to losses of sensitive information, critical infrastructure, personnel or capabilities, essential to our operations and could have a material adverse effect on our reputation, financial position, results of operations, or cash flows.

 

Cybersecurity attacks in particular are evolving and include but are not limited to, malicious software, attempts to gain unauthorized access to data, and other electronic security breaches that could lead to disruptions in mission critical systems, unauthorized release of confidential or otherwise protected information and corruption of data. These events could damage our reputation and lead to financial losses from remedial actions, loss of business or potential liability.

 

 

The recent outbreak of the novel coronavirus could significantly disrupt our operations and have a significant negative impact on our business, revenues, financial condition and results of operations.

 

In March 2020, the World Health Organization recognized the outbreak of a novel strain of the coronavirus, COVID-19, as a pandemic.  We expect that our business will be adversely impacted by the effects of the outbreak which has severely restricted the level of economic activity around the world. In response to this coronavirus outbreak the governments of many countries, states, cities and other geographic regions have taken preventative or protective actions, such as imposing restrictions on travel and business operations and advising or requiring individuals to limit or forego their time outside of their homes.  Further, individuals' ability to travel has been curtailed through mandated travel restrictions and may be further limited through additional voluntary or mandated closures of travel-related businesses. These actions have expanded significantly in the past several weeks and are expected to continue to expand.  The Governor of Pennsylvania has ordered the closure of all non-life sustaining businesses in Pennsylvania where the majority of our employees work.  Although our employees can work remotely, this coronavirus outbreak has had a negative effect on our revenues to date in 2020 and could continue to adversely impact our financial results during the current year. In addition, our third-party manufacturers, suppliers, and sub-contractors have been and will be disrupted by worker absenteeism, quarantines and restrictions on their employees’ ability to work, office and factory closures, or other travel or health-related restrictions.  Given the uncertainty regarding the spread of this coronavirus, the related financial impact cannot be reasonably estimated at this time. 

 

There can be no assurance that any decrease in sales resulting from COVID-19 will be offset by increased sales in subsequent periods. Although the magnitude of the impact of the outbreak on our business and operations remains uncertain, the continued spread of the COVID-19, or the occurrence of other epidemics and the imposition of related public health measures and travel and business restrictions will adversely impact our business, financial condition, operating results and cash flows. In addition, we have experienced and will experience disruptions to our business operations resulting from quarantines, self-isolations, or other movement and restrictions on the ability of our employees to perform their jobs that may impact our ability to meet required milestones or customer commitments. These disruptions may also impact our ability to win time sensitive competitive bidding selection processes. There are numerous uncertainties associated with this coronavirus outbreak, including the number of individuals who will become infected, whether a vaccine or cure that mitigates the effect of the virus will be synthesized, and, if so, when such vaccine or cure will be ready to be used, and the extent of the protective and preventative measures that have been put in place by both governmental entities and other businesses and those that may be put in place in the future.  Any or all of the forgoing uncertainties could have a material adverse effect on our results of operations, financial position and/or cash flows.

 

RISKS RELATED TO OUR COMMON STOCK

 

We may issue additional shares of our capital stock that could dilute the value of your shares.

 

Our outstanding securities include options to purchase common stock. During the respective terms of the options, the holders thereof are given an opportunity to profit from a rise in the market price of our common stock, causing a dilution of the interests of existing stockholders. Thus, the terms on which we may obtain additional financing during that period may be adversely affected. The holders of options may exercise their respective rights to acquire our common stock at a time when we could be seeking to raise additional capital through sales of securities on terms more favorable than those being offered by us to new investors. In the event that such holders exercise their rights to acquire shares of our common stock at such time, the net tangible book value per share of our common stock will be subject to dilution.

 

Future sales of our securities by existing stockholders could adversely affect the market price of our common stock.

 

Future sales of shares by existing stockholders under Rule 144 of the Securities Act of 1933, as amended, through the exercise of outstanding options, through vesting of restricted stock awards, or otherwise could have a negative impact on the market price of our common stock. We are unable to estimate the number of shares that may be sold under Rule 144 because such sales depend on the market price for our common stock, the personal circumstances of the sellers, and a variety of other factors. Any sale of substantial amounts of our common stock in the open market may adversely affect the market price of our common stock and may adversely affect our ability to obtain future financing in the capital markets.

 

Our common stock is considered a “penny stock” and is subject to the penny stock rules.

 

Our common stock currently trades over-the-counter on the OTCQB. Since our common stock continues to trade below $5.00 per share, our common stock is considered a “penny stock” and is subject to Securities and Exchange Commission rules and regulations which impose limitations upon the manner in which our shares can be publicly traded. These regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the associated risks. Under these regulations, certain brokers who recommend such securities to persons other than established customers or certain accredited investors must make a special written suitability determination regarding such a purchaser and receive such purchaser’s written agreement to a transaction prior to sale. These regulations may have the effect of limiting the trading activity of our common stock and reducing the liquidity of an investment in our common stock.

 

We have never paid dividends on our common stock and we do not anticipate paying dividends in the foreseeable future.

 

We have never paid cash dividends on our common stock. Any payment of cash dividends in the future will depend upon our earnings (if any), financial condition and capital requirements. We do not anticipate paying dividends in the foreseeable future. Accordingly, any potential investor who anticipates the need for current dividends from its investment should not purchase any of our securities.

 

Our common stock is thinly traded and the price of our common stock may experience price volatility.

 

Our common stock is currently traded over-the-counter on the OTCQB. There can be no assurance that an active market for our shares will develop or, if developed, will be sustained. Absent a public trading market, an investor may be unable to liquidate its investment. We believe that factors such as the announcements of the availability of new services and new contracts by us or our competitors, quarterly fluctuations in our financial results and general conditions in the communications industry could cause the price of our common stock to fluctuate substantially. If stockholders seek to sell their shares in a thinly traded stock, it may be difficult to obtain the price desired. In addition, stock markets have experienced extreme price volatility in recent years. This volatility has had a substantial effect on the market prices of securities issued by many companies for reasons unrelated to the operating performance of the specific companies.

  

 

Our share ownership is highly concentrated.

 

Our directors, officers and principal stockholders, beneficially own approximately 23% of our common stock and will continue to have significant influence over the outcome of all matters submitted to the stockholders for approval, including the election of our directors. In addition, such influence by management could have the effect of discouraging others from attempting to take control of us, thereby increasing the likelihood that the market price of our common stock will not reflect a premium for control.

 

We have adopted certain anti-takeover provisions.

 

We are authorized to issue 3,000,000 shares of preferred stock, which may be issued by our Board of Directors on such terms, and with such rights, preferences and designations as the board may determine. Issuance of such preferred stock, depending upon the rights, preferences and designations thereof, may have the effect of delaying, deterring or preventing a change in control of our company. In addition, certain “anti-takeover” provisions of the Delaware General Corporation Law, among other things, restrict the ability of stockholders to effect a merger or business combination or obtain control of the Company, and may be considered disadvantageous by a stockholder.

 

Ineffective internal controls could impact our business and operating results.

 

Our internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. Even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. If we fail to maintain the adequacy of our internal controls, including any failure to implement required new or improved controls, or if we experience difficulties in their implementation, our business and operating results could be harmed and we could fail to meet our financial reporting obligations.

 

ITEM 2. PROPERTIES.

 

Our principal executive offices are located in Princeton, New Jersey, where we are subject to a month to month lease.

 

Our engineering research, design and development facility is located in Fort Washington, Pennsylvania, where we lease approximately 6,000 square feet of general office space under a lease agreement that was renewed in March, 2017 and will continue through March 2022.

 

We maintain a marketing office in Washington, D.C. under a month-to-month lease.

 

We lease a facility in Largo, Florida, which supports production of our ADSSS system and related engineering and logistics support. We entered into a one year lease agreement commencing in October, 2019.

 

We believe that our office, research, design, and development space is adequate to support our current and anticipated operations over the next 12 months.

 

ITEM 3. LEGAL PROCEEDINGS.

 

We are not currently a party to any legal action.

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

Not Applicable.

  

PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

 

Our common stock is quoted on the OTCQB under the trading symbol “MKRS”. Over-the-counter market quotations represent only prices between dealers on each trading day as submitted from time to time by certain of the securities dealers wishing to trade in our common stock, do not reflect retail mark-ups, mark-downs or commissions, and may not represent actual transactions.

 

Dividends

 

We have never paid cash dividends on our common stock. Any payment of cash dividends in the future will depend upon our earnings (if any), financial condition, and capital requirements. Certain provisions of our credit facility prohibit us from declaring or paying dividends on our common stock. The declaration and payment of dividends on our common stock is subject to the discretion of our Board of Directors and limitations imposed under applicable Delaware law. We do not anticipate paying dividends in the foreseeable future.

 

Holders

 

As of March 27, 2020, we had 280 holders of record of our common stock.

 

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

This Management’s Discussion and Analysis of Financial Condition and Results of Operations and other parts of this Annual Report on Form 10-K contain forward looking statements that involve risks and uncertainties. All forward looking statements included in this Annual Report on Form 10-K are based on information available to us on the date hereof, and except as required by law, we assume no obligation to update any such forward looking statements. Our actual results may differ materially from those anticipated in these forward looking statements as a result of a number of factors, including those set forth under the caption “Risk Factors” contained in this report and elsewhere herein. The following should be read in conjunction with our annual financial statements contained elsewhere in this report.

 

Overview

 

Our primary business focus is to (i) provide engineering services, products, software and related maintenance under contracts with the United States Department of Defense (DoD), primarily the United States Navy and (ii) pursue Small Business Innovation Research (SBIR) programs from the DoD, Department of Homeland Security, and other governmental authorities, with a view to expanding this government funded research and development into government contracts. Since 2002, we have been awarded several Phase I, II, and III SBIR contracts, and several IDIQ contracts for our ADEPT and ADSSS products.

 

Revenues from our government contracts represented substantially all of our revenues for the years ended December 31, 2019 and 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.

 

Product Portfolio

 

Adaptive Diagnostic Electronic Portable Testset. ADEPT, also known as the AN/PSM-132, is an automated maintenance workstation designed to significantly reduce the time required to align all variants of the AN/SPY-1 Radar System aboard U.S. Navy Aegis cruisers and destroyers, while optimizing system performance and readiness. Manufacturing, selling and servicing ADEPT units was a substantial part of our business over the past decade. During the life of the program, we delivered a total of 226 ADEPT units to our Navy customers. Effective October 1, 2019, the US Navy determined to stop funding the ADEPT program in fiscal year 2020.

 

ADEPT Distance Support Sensor Suite. In 2013, we started development of ADSSS for the Navy’s LCS. Our system has now matured and has earned Nomenclature AN/SYM-3 from the Navy. AN/SYM-3 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. AN/SYM-3 provides an open architecture approach with industry-standard hardware, and cybersecurity compliant software to acquire and process system operational and maintenance data. The AN/SYM-3 system 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. It is currently installed on five ships allowing for data collection while at sea.

 

The AN/SYM-3 system is used on both variants of the LCS, currently planned to be at least 32 ships and we plan to  extend the system to the Aircraft Carriers (CVN class) and the “Big Deck” Amphibious Assault Ships (LHD/LHA class). The system has also generated interest in other  ship classes, including Aegis and unmanned systems, and to monitor shipboard hull, mechanical and electrical systems additional combat systems, and navigational radars.

 

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 implement design changes. Over the life of the system, this could result in significant cost savings.

 

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

 

 

Government Contracts

 

Please see ITEM 1. BUSINESS above for a description of our Government Contracts.

 

Key Performance Indicator

 

As substantially all of our revenue is derived from contracts with the U.S. Federal government, our key performance indicators are (i) the dollar volume of contracts and task orders awarded to us under our IDIQ contract, and (ii) the number and dollar amount of new contracts and SBIR grants awarded to us. Increases in the number and value of contracts and delivery 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 2019, and expected revenue in 2020, is or will be from sales of AN/SYM-3 systems under our IDIQ contract, continued generation of task orders and our ability to expand the market and potential customer base for this technology is our primary focus.

 

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 to bid 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, communications engineering, remote monitoring and augmented reality. 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 actively participate in the SBIR program and pursue SBIR projects with the DoD, Department of Homeland Security, U.S. Navy, and other government agencies. Third, we believe that through our marketing of products, we will develop key relationships with prime defense contractors. Our strategy is to develop these relationships into long-term, key subcontractor roles on future major defense programs awarded to these prime contractors.

 

With regard to commercial markets, our Diagnostics Profiler and Prognostics Framework software offerings complement our hardware products and allow us to provide complete hardware/software solutions for advanced maintenance applications. Current customers for these systems include major multinational corporations such as HP, which recently extended our Diagnostic Profiler software support for a seventh year. We continue to receive repeat orders from these customers to support their applications. We plan to provide “condition-based maintenance” systems for “complex distributed systems” to commercial customers. In that regard, we are developing a condition-based maintenance solution for heating ventilation, air conditioning and refrigeration (HVAC) equipment based on our proprietary Prognostics Framework solution which we call Mikros Mindr. We have deployed two active pilot systems that are providing key maintenance data on a daily basis to service technicians. We are also working with an energy consulting business in Florida to remotely monitor energy use and required maintenance for its customers. We are in discussions with additional commercial companies regarding the use of our condition based maintenance applications.

 

In 2020, 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 ADSSS IDIQ and BOA contracts, additional Phase I and Phase II SBIR grants with a view to obtaining additional government contracts, and expand our commercial business through marketing and sales of our Prognostics Framework and Diagnostic Profiler software products. In furtherance of this strategy, we have made material investments in our engineering and technical staffs to provide broader and deeper expertise to our customers. We will also seek to generate incremental revenue through providing light assembly and production services to commercial customers at our M&D Center in Largo, Florida.

 

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

 

Recent Developments

 

As discussed under “Item 1A. Risk Factors” above, an outbreak of a novel strain of the coronavirus, COVID-19, has been recognized as a pandemic by the World Health Organization. This outbreak has severely restricted the level of economic activity around the world. In response to this coronavirus outbreak the governments of many countries, states, cities and other geographic regions have taken preventative or protective actions, such as imposing restrictions on travel and business operations and advising or requiring individuals to limit or forego their time outside of their homes. The Governor of Pennsylvania has ordered the closure of all non-life sustaining businesses in Pennsylvania where the majority of our employees work.  Further, individuals' ability to travel has been curtailed through mandated travel restrictions and may be further limited through additional voluntary or mandated closures of travel-related businesses. These actions have expanded significantly in the past several weeks and are expected to continue to expand. Although our employees are able to work remotely, this coronavirus outbreak has had a negative effect on our revenues to date in 2020 and could continue to adversely impact our financial results during the current year. Given the uncertainty regarding the spread of this coronavirus, the related financial impact cannot be reasonably estimated at this time.

 

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. 

 

Critical Accounting Policies and Estimates

 

The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to bad debts, warranty costs, recoverability of long-lived assets, income taxes, backlog and commitments. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to an understanding of our financial statements because they inherently involve significant judgments and uncertainties.

 

 

Revenue Recognition We provide our products and services under fixed-price and cost-reimbursable contracts. Under fixed-price contracts we agree to perform the specified work for a pre-determined price. To the extent our actual costs vary from the estimates upon which the price was negotiated, we will generate more or less profit or could incur a loss. Cost-reimbursable contracts provide for the payment of allowable costs incurred during performance of the contract. We also enter into cost-plus-fixed-fee contracts. The fixed-fee in a cost-plus-fixed-fee contract is negotiated at the inception of the contract and that fixed-fee does not vary with actual costs. We account for a contract after it has been approved by all parties to the arrangement, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.

 

We assess each contract at its inception to determine whether it should be combined with other contracts. When making this determination, we consider factors such as whether two or more contracts were negotiated and executed at or near the same time or were negotiated with an overall profit objective. If combined, we treat the combined contracts as a single contract for revenue recognition purposes.

 

We evaluate the products or services promised in each contract at inception to determine whether the contract should be accounted for as having one or more performance obligations. The products and services in our contracts are typically not distinct from one another due to their complex relationships and the significant contract management functions required to perform under the contract. Accordingly, our contracts are typically accounted for as one performance obligation. Significant judgment is required in determining performance obligations, and these decisions could change the amount of revenue and profit recorded in a given period. We classify net sales as products or services on our statements of income based on the predominant attributes of the performance obligations.

 

We determine the transaction price for each contract based on the consideration we expect to receive for the products or services being provided under the contract. Our contracts do not include variable consideration. At the inception of a contract we estimate the transaction price based on our current rights and do not contemplate future modifications. Contracts are often subsequently modified to include changes in specifications, requirements or price, which may create new or change existing enforceable rights and obligations. Depending on the nature of the modification, we consider whether to account for the modification as an adjustment to the existing contract or as a separate contract. Generally, modifications to our contracts or delivery orders are distinct and will be accounted for as a separate contract.

 

We recognize revenue as performance obligations are satisfied and the customer obtains control of the products and services. In determining when performance obligations are satisfied, we consider factors such as contract terms, payment terms and whether there is an alternative future use of the product or service. Substantially all of our revenue is recognized over a period of time as we perform under the contract because control of the work in process transfers continuously to the customer. This continuous transfer of control of the work in process to the customer is supported by clauses in the contract that allow the customer to unilaterally terminate the contract for convenience, pay us for costs incurred plus a reasonable profit, and take control of any work in process.

 

For performance obligations to deliver products with continuous transfer of control to the customer, revenue is recognized based on the extent of progress towards completion of the performance obligation, generally using the cost-to-cost measure of progress for our contracts because it best depicts the transfer of control to the customer as we incur costs on our contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs to complete the performance obligation. For performance obligations to provide services to the customer, revenue is recognized over a period of time based on costs incurred as our customer receives and consumes the benefits.

 

Backlog (i.e., unfulfilled or remaining performance obligations) represents the sales we expect to recognize for our products and services for which control has not yet transferred to the customer. The estimated consideration is determined at the outset of the contract and considers the risks related to the technical, schedule and cost impacts to complete the contract. Periodically, we review these risks and may increase or decrease backlog accordingly. As the risks on such contracts are successfully retired, the estimated consideration from customers may be reduced, resulting in a reduction of backlog without a corresponding recognition of sales. As of December 31, 2019, our ending backlog was $1.8 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.

 

Accounts Receivable Accounts receivable from government contracts are stated at outstanding balances. When necessary, an allowance for doubtful accounts is established through provisions charged against operations. Receivables deemed to be uncollectible are charged against the allowance and subsequent recoveries, if any, are credited to the allowance.

 

 

Management’s periodic evaluation of the adequacy of the allowance is based on past experience, aging of the receivables, adverse situations that may affect a customer's ability to pay, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires estimates that may be susceptible to significant change. Unpaid balances remaining after the stated payment terms are considered past due. Substantially all of our business is conducted with the federal government in which nonpayment for awarded contracts is unlikely. No allowance for doubtful accounts was deemed necessary by management at December 31, 2019 and 2018.

 

Warranty We provide a limited warranty, as defined by the related warranty agreements, for its production units. Our warranties require us to repair or replace defective products during the 12 month period following delivery and acceptance of production units by the government. We estimate the costs that may be incurred under its warranty and record a liability in the amount of such costs at the time product revenue is recognized. Factors that affect our warranty liability include the number of units sold, anticipated rates of warranty claims, and cost per claim. We periodically assess the adequacy of our recorded warranty liability and adjust the amount as necessary. During the years ended December 31, 2019 and 2018, we recognized a warranty (benefit) expense of ($141,235) and $142,000, respectively. Since the inception of the ADEPT IDIQ contract in March 2010, the Company has delivered 226 ADEPT units.

 

Income Taxes Deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities, and are measured at the prevailing enacted tax rates that will be in effect when these differences are settled or realized. Deferred tax assets, including tax loss and credit carryforwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

 

We recognize liabilities for uncertain tax positions. If we ultimately determine that the payment of such a liability is not necessary, then we reverse the liability and recognize a tax benefit during the period in which the determination is made that the liability is no longer necessary. As of December 31, 2019 and 2018, there were no tax contingencies or unrecognized tax positions recorded.

 

Recently Issued Accounting Pronouncements

 

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards (ASU) 2016-02, Leases (Topic 842). The new standard supersedes the present U.S. GAAP standard on leases and requires substantially all leases to be reported on the balance sheet as right-of-use assets and lease obligations. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, and interim reporting periods within those annual reporting periods. Early adoption is permitted and in the original guidance the modified retrospective application was required, however, in July 2018 the FASB issued ASU 2018-11 which permits entities with another transition method in which the effective date would be the date of initial application of transition. Under this optional transition method, we would recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. We adopted ASU 2016-02 as of January 1, 2019 using the modified retrospective approach and the optional transition method. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward historical lease classifications.

 

Adoption of the new standard resulted in the recording of operating lease right-of-use assets and operating lease liabilities on our balance sheet, but did not have an impact on the Company's beginning retained earnings, consolidated statement of income , or statement of cash flows. The most significant impact was the recognition of right-of-use assets and lease liabilities for operating leases, while our accounting for finance leases remained substantially unchanged. As of January 1, 2019, total right-of-use assets related to our operating leases was $470,648 and an operating lease liability of $488,971, respectively. 

 

Results of Operations

 

Years ended December 31, 2019 and 2018

 

We generated revenues of $6,366,226 in the year ended December 31, 2019 compared to $8,561,346 in 2018, a decrease of $2,195,120, or 26%. The decrease was due principally to delays of follow-on contract awards and no ADEPT units produced in 2019.

 

Cost of sales consists of direct contract costs including labor, material, subcontracts, warranty expense benefit  for ADEPT units that have been delivered, travel, and other direct costs. Costs of sales were $2,279,823 in 2019 compared to $3,602,555 in 2018, a decrease of $1,322,732, or 37%. The decrease relates to a change in the mix of contracts generating revenues as compared to 2018. In 2019, we did not produce any ADEPT units and all revenue was generated from engineering support services. As a percentage of revenue, cost of sales decreased to 35.8% of revenue in 2019 from 42.1% of revenue in 2018 due to no ADEPT production contracts.

 

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 were $2,547,007 in 2019 as compared to $2,712,810 in 2018, a decrease of $165,803, or 6%. The decrease in 2019 was due to delays of follow-on contract awards and a shift of engineering personnel from revenue generating contracts resulting in such costs being included in general and administrative expenses.

  

 

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 (consisting of those expenses for which the government will not reimburse us). General and administrative expenses were $1,478,046 in 2019 as compared to $1,752,768 in 2018, a decrease of $274,722, or 16%. The decrease in 2019 was due to a reduction in research and development costs and the elimination of incentive compensation expenses.

 

The income tax expense was $35,321 in 2019 and $166,734 in 2018, representing an effective income tax rate of 54% and 34%, respectively. For both 2019 and 2018, the difference from the expected federal income tax rate is attributable to state income taxes and certain permanent book-tax differences.

 

We reported a net income of $30,532 in 2019 as compared to $329,210 in 2018. The decrease was attributable primarily to the decrease in revenues during 2019 offset by decreases in our selling, cost of sales, general and administrative expenses and engineering expenses.  

 

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.

 

At December 31, 2019, we had cash and cash equivalents of $1,621,309 and net working capital of $1,969,983. During the year ended December 31, 2019, net cash used in operating activities was $524,810 compared to cash provided by operating activities of $1,286,701 in 2018. The decrease in operating cash flows was due primarily to a decrease in net income and increases in liabilities as a result of timing of payments to vendors and employees and the timing of our billings and collections.

 

Net cash used in investing activities was $64,630 for the year ended December 31, 2019 as compared to $253,479 for the year ended December 31, 2018. The decrease was due to a decrease in purchases of equipment, furniture and fixtures related to an expansion of our offices in Pennsylvania.

 

During 2019, cash provided by financing activities was $4,000 as compared to $350 in 2018. The cash provided by financing activities for both periods relates to the exercise of employee stock options.

 

On January 31, 2018, we entered into a $550,000 credit facility with PNC Bank. The facility initially matured on January 31, 2020 and has been extended to January 31, 2021 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.

 

We believe our available cash resources and expected cash flows from operations will be sufficient to fund operations for the next twelve months. We do not expect to incur any material capital expenditures during the next twelve months.

 

Off-Balance Sheet Arrangements

 

As of December 31, 2019, we did not have any relationships with unconsolidated entities or financial partners, such as entities often referred to as structured finance or special purpose entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

 

The financial statements required to be filed pursuant to this Item 8 are appended to this report located immediately after the signature page.

 

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

 

None.

  

ITEM 9A. CONTROLS AND PROCEDURES.

 

Disclosure 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 as amended (the “Exchange Act”), was carried out by us under the supervision and with the participation of our Chief Executive Officer, who serves as our Principal Executive Officer and Principal Financial Officer. Based upon that evaluation, our Chief Executive Officer concluded that as of December 31, 2019, our disclosure controls and procedures were effective to ensure (i) that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’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.

 

Management’s Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the Exchange Act. Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial reporting and the preparation of financial statements for external purposes, in accordance with GAAP. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Our management, including our Chief Executive Officer, conducted an evaluation of the effectiveness of internal control over financial reporting. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013). Based on its assessment, management has concluded that, as of December 31, 2019, the Company’s internal control over financial reporting was effective based on those criteria.

 

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. The management report was not subject to attestation by our registered public accounting firm pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, which permits us to provide only management’s report in this annual report.

 

Changes in Internal Control Over Financial Reporting

 

There have not been any changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal year ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

ITEM 9B. OTHER INFORMATION.

 

None.

 

 

PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

 

The current members of our Board of Directors and executive officers of our Company are as follows:

 

Name	Age	Positions with the Company
Paul G. Casner	82	Chairman of the Board of Directors
David W. Jolly	47	Director
Thomas C. Lynch	77	Director
Tom L. Schaffnit	73	Director
Mark J. Malone	53	Director
Thomas J. Meaney	85	Chief Executive Officer, Chief Financial Officer, and Director
Walter T. Bristow	62	President and Chief Operating Officer
David Henry Silcock	67	Chief Technology Officer, Director of Special Projects
Patricia A. Kapp	53	Vice President of Finance, Secretary and Treasurer

 

 

Board of Directors

 

We believe that our Board should be composed of individuals with sophistication and experience in many substantive areas that impact our business. We believe that experience, qualifications, or skills in the following areas are most important: regulatory and government affairs; accounting and finance; design, innovation and engineering; strategic planning; human resources and development practices; and board practices of other corporations. These areas are in addition to the personal qualifications described in this section. We believe that all of our current Board members possess the professional and personal qualifications necessary for board service, and have highlighted particularly noteworthy attributes for each Board member in the individual biographies below. In addition, length of service on our Board has provided several directors with significant exposure to both our business and our industry in which we compete. The principal occupation and business experience, for at least the past five years, of each current director is as follows:

 

Paul G. Casner, Jr. has been a director since May 2002 and was elected Chairman of the Board in October 2009. Since 2008, he has served as a director and as the Chief Executive Officer of Atair Aerospace, Inc., an aerospace defense contractor located in Brooklyn, New York. From 2005 to July 2011, Mr. Casner was the CEO and President of Integral Systems, Inc., a defense contractor based in Columbia, Maryland. Mr. Casner recently served as the COO of The Boston Holding Group, a financial management and investment organization. Mr. Casner has over forty years of defense industry experience, holding several senior positions in business management, technical management, strategic planning and business development including serving as the President of the Electronic Systems Group of DRS Technologies. He is a member of the Naval Reserve Association and is a Commodore of the Navy League of the United States, in addition to other professional affiliations. As a result of these and other professional experiences, Mr. Casner possesses particular knowledge and experience in executive management, business development, technology development, and the defense industry that strengthen the Board’s collective qualifications, skills, and experience.

 

Thomas C. Lynch has been a Director since February of 1997. Admiral Lynch retired from the U.S. Navy after a decorated 31-year career. A graduate of the U.S. Naval Academy, his Naval assignments included Chief, Navy Legislative Affairs; Commander of the Eisenhower Battle Group during Operation Desert Shield; Superintendent of the U.S. Naval Academy from 1991 to 1994; and Director of the Navy Staff at the Pentagon from 1994 to 1995. He was also the captain of the 1963 Navy Cotton Bowl team with teammate Roger Staubach, its Heisman winning Quarterback. In 2010, he was awarded the USNA Distinguished Graduate Award. After retiring from the Navy, from 1995 to 2001 Lynch served as a Senior Vice President for Safeguard Scientifics, where he was responsible for operations, mergers and acquisitions and oversight of emerging partnership companies including CompuCom Systems, where he became President and COO. Following that, from 2001 to 2008 Mr. Lynch served as a Senior Vice President for Staubach Company, now Jones Lang LaSalle (JLL), and later managing Director for the Musser Group. Currently, Admiral Lynch is Executive Chairman of NewDay USA, a mortgage lending company focused on providing VA loans for active duty and retired military personnel. He also serves as Chairman of the U.S. Naval Academy Athletic & Scholarship Foundation. As a result of these and other professional experiences, Mr. Lynch possesses particular knowledge and experience in management, board practices of other organizations, operations and the defense industry that strengthen the Board’s collective qualifications, skills, and experience.

 

 

David W. Jolly has been a director since January 2017 and brings over 20 years of Federal Government experience, most recently as a member of the United States Congress. Since July 2018, Mr. Jolly has served as Executive Vice President and Principal of Shumaker Advisors Florida, LLC, a Tampa, Florida based firm providing public affairs services to public and private sector clients. From February 2017 until July 2018, Mr. Jolly served as an independent consultant and advisor focusing on strategic planning and government relations. From March 2014 through January 2017, Mr. Jolly served as a member of the United States House of Representatives representing the 13^th District of Florida. During his tenure, he served on the House Committee on Appropriations where he was responsible for oversight and funding of all Federal Departments and Agencies, including the Department of Defense. From 2008 until being elected to the United States Congress, Mr. Jolly served as managing partner of Three Bridges Advisors, a government relations firm, and Three Bridges Law, while also serving as Vice President of Boston Finance Group. Prior to that, he was a lobbyist with Van Scoyoc Associates in Washington, DC.  Mr. Jolly served as a senior staff member (1995-2001) and later general counsel (2002-2006) to United States Representative C. W. Bill Young, who served as the Chairman of the House Committee on Appropriations between 1999 and 2005.  From 2001 until 2002, he was an associate at Fried Frank, an international law firm. Mr. Jolly earned a Bachelor of Arts in History from Emory University in Atlanta, Georgia. and a Juris Doctorate cum laude from the George Mason University School of Law in Arlington, Virginia. Mr. Jolly possesses particular knowledge and experience in Federal Government contracting, United States Department of Defense appropriations, and the defense industry that strengthen the Board’s collective qualifications, skills, and experience.

 

Tom L. Schaffnit has been a director since June 2000. Mr. Schaffnit has an engineering education and background, complemented by an MBA degree and senior management experience. Since March 1999, he has been President of Schaffnit Consulting, Inc., a technology-related management consulting company specializing in vehicle safety communications, automotive telematics, and wireless data communications. Since December 2009, he has also been President of A2 Technology Management LLC, a company focused on policy and security research related to connected and automated vehicles. Mr. Schaffnit is actively involved in the development and deployment of wireless technologies and standards. He is currently working with the U.S. Department of Transportation on wireless safety communications to facilitate the deployment of vehicle-to-vehicle and vehicle-to-infrastructure systems to prevent crashes and to support safe automated driving. Mr. Schaffnit possesses particular knowledge and experience in technology development and management that strengthen the Board’s collective qualifications, skills, and experience.

 

Thomas J. Meaney has been a director since July 1986. He has served as Chief Executive Officer of the Company since 1998. Mr. Meaney has over forty years of executive management experience, including holding senior positions at Robotic Vision Systems Incorporated, a manufacturer of robotic vision systems, and Norden Systems, a division of United Technologies Corporation. Mr. Meaney presently owns his own defense consulting company with offices in Arlington, Virginia and Chadds Ford, Pennsylvania. As a result of these and other professional experiences, Mr. Meaney possesses particular knowledge and experience in management, manufacturing, the defense industry, and board practices of other corporations that strengthen the Board’s collective qualifications, skills, and experience.

 

Mark J. Malone has been a director since February 2019, served as President of the Company from November 1, 2017 until March 1, 2020 and served as Vice President, Commercial Markets of the Company from May 1, 2017 to November 1, 2017. He currently serves as a consultant to the Company. Mr. Malone has more than 20 years of experience in investment banking and capital markets.  Prior to joining the Company, he served as Managing Director in the Institutional Equity Capital Markets division of Guggenheim Partners from February 2015 through March 2017. He was Managing Director at Janney Capital Markets from December 2013 through February 2015, and Managing Director at Lazard Capital Markets from March 2008 until December 2013. In these senior positions, Mr. Malone performed a variety of executive management functions in equity sales, including revenue/profit responsibilities, and has extensive experience in new business development, capital raising, and relationship management. Mr. Malone earned a BS in Business Administration from the University of Richmond and is the son-in-law of Thomas J. Meaney, the Chief Executive Officer and a director of the Company. Mr. Malone possesses particular knowledge and experience in executive management, corporate finance, and capital markets that strengthen the Board’s collective qualifications, skills, and experience.

 

Executive Officers

 

The principal occupation and business experience, for at least the past five years, of each current executive officer is as follows:

 

Walter T. (Chuck) Bristow our President, has served as Chief Operating Officer of the Company since July 2017. Mr. Bristow was Vice President of Operations from February 2015 to July 2017, with responsibility for operations in the Fort Washington, Pennsylvania and Largo, Florida facilities. Mr. Bristow was Vice President of Engineering from August 2007 until February 2015 and served as our Director of Engineering from October 2003 to October 2007. Prior to Mikros, Mr. Bristow served as the Director of Network Engineering for Clariti Telecommunications International, and a hardware engineer with Magnavox/General Atronics Corporation, a manufacturer of military communications equipment.

 

David Henry Silcock has been Chief Technology Officer since February 2009, and was a Senior Staff Engineer from 2003 until 2009. Mr. Silcock was also appointed as Director of Special Projects in February 2015. Mr. Silcock has more than thirty years of experience and has been lead engineer on a number of successful R&D programs, including frequency-diversity modems for tactical radio networks, telemetry networks for ocean-going buoys, and digital voice pager design and development. He also has experience in network and system simulation, software and microprocessor architecture, custom VSLI development, DSP and real-time systems.

 

Patricia A. Kapp has been Corporate Secretary since April 1996. In September 1998, Ms. Kapp was also named Treasurer and in 2015, was named Vice President of Finance. Ms. Kapp has served in various capacities with the Company since 1987.

  

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Exchange Act requires our directors, officers and stockholders who beneficially own more than 10% of any class of our equity securities registered pursuant to Section 12 of the Exchange Act to file initial reports of ownership and reports of changes in ownership with respect to our equity securities with the SEC. All reporting persons are required by SEC regulation to furnish us with copies of all reports that such reporting persons file with the SEC pursuant to Section 16(a). Based solely on our review of the copies of such forms received by us and upon written representations of such reporting persons, we believe that all reporting persons timely filed all reports required by Section 16(a) under the Exchange Act.

 

Audit Committee

 

In March 2004, our Board of Directors formed an Audit Committee. The members of the Audit Committee are Tom L. Schaffnit (Chair), Thomas C. Lynch, Paul G. Casner, Jr. and David W. Jolly. The Audit Committee oversees and monitors management’s and the independent outside auditor’s participation in the accounting and financial reporting processes and the audits of our financial statements. The Audit Committee has the responsibility to appoint, compensate, retain and oversee the work of the outside independent auditors and to consult with the independent auditors and the appropriate officers of the Company on matters relating to outside auditor independence, corporate financial reporting, accounting procedures and policies, adequacy of financial accounting and operating controls, and the scope of audits. The Audit Committee is governed by an Audit Committee Charter, which was adopted on March 10, 2004 and amended on March 17, 2008 and February 9, 2009.

 

Since our inception, we have had a limited number of employees and generated limited revenues, most of which have been from a single customer. In light of the foregoing, and the need to conserve our financial resources to execute our business plan, our Board of Directors concluded that the benefits of retaining an individual who qualifies as an “audit committee financial expert,” would be outweighed by the costs of retaining such a person. As a result, no member of our Board of Directors qualifies as an “audit committee financial expert.”

 

Code of Ethics

 

We have adopted a written code of ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. Our Code of Business Conduct and Ethics is available on our website, www.mikrossystems.com, or without charge upon written request directed to Patricia A. Kapp, Secretary, Mikros Systems Corporation, 707 Alexander Road, Building Two, Suite 208, Princeton, New Jersey 08540.

 

ITEM 11. EXECUTIVE COMPENSATION

 

The following table provides certain summary information concerning compensation earned by the executive officers named below (“named executive officers”) during the years ended December 31, 2019 and 2018.

 

SUMMARY COMPENSATION TABLE

 

Name and Principal Position	Year	Salary ($)	Bonus ($)	Stock Awards ($)	Total ($)
Thomas J. Meaney  Chief Executive Officer and Chief Financial Officer	2019 2018	167,242 222,290	- 50,000	- -	167,242 272,290
Mark J. Malone (1)  President	2019 2018	250,000 208,333	- 50,000	- 13,200 (2)	250,000 271,533
Walter T. Bristow (3)  Chief Operating Officer	2019 2018	175,000 175,000	- 25,000	-	175,000 200,000

 

(1)  On March 2, 2020, Mr. Malone resigned as President of the Company.

 

(2) On October 22, 2018, we granted Mr. Malone a restricted stock award consisting of 30,000 shares of common stock. The award vests in five equal annual installments beginning on October 22, 2019 and will be fully vested October 22, 2023.  The grant date fair value computed in accordance with FASB ASC Topic 718 was based on closing market price of our common stock of $0.44 per share on the date of grant. 

 

(3)  On March 2, 2020, Mr. Bristow was appointed to serve as the President of the Company.

 

 

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR−END

 

The following table sets forth information regarding unexercised stock options and restricted stock awards that have not vested for each named executive officer outstanding as of December 31, 2019:

 

Name		Number of Shares or Units of Stock That Have Not Vested (#)				Market Value of Shares or Units of Stock That Have Not Vested ($)(1)
Mark J. Malone			42,000	(2)			5,040
Walter T. Bristow			10,000	(3)			1,200

 

 

(1)

Market value at December 31, 2019 based on closing market price of our common stock on December 31, 2019 of $0.12 per share.

 

(2)

Represents the unvested portion of (i) a restricted stock award consisting of 30,000 shares of common stock granted on May 1, 2017 which vests in five equal annual installments beginning on May 1, 2018 and is fully vested on May 1, 2022, and (ii) a restricted stock award consisting of 30,000 shares of common stock granted on October 22, 2018 which vests in five equal annual installments beginning on October 22, 2019 and is fully vested on October 22, 2023.

 

(3)

Represents the unvested portion of a restricted stock award consisting of 25,000 shares of common stock granted on July 25, 2016, which vests in five equal annual installments beginning on July 25, 2017 and is fully vested on July 25, 2021.

 

Narrative Disclosure to Summary Compensation and Outstanding Equity Awards Tables

 

On July 25, 2016, we granted to Mr. Bristow a restricted stock award consisting of 25,000 shares of common stock. The award vests in five equal annual installments beginning on July 25, 2017 and will be fully vested July 25, 2021.

 

On May 1, 2017 and October 22, 2018, we issued to Mr. Malone under the 2017 Stock Incentive Plan restricted stock awards consisting of 30,000 shares of common stock. The awards vest in five equal annual installments beginning on the date of grant and will be fully vested on the fifth anniversary of such grant. For a more complete description of the terms and conditions of the foregoing awards, including a description of the change in control provisions, please see “2017 Omnibus Incentive Plan” and “2007 Equity Incentive Plan” in Item 12 below.

 

We do not have any employment agreements with any of our named executive officers. Each year we consider payment of discretionary cash bonuses based primarily on Company and to a lesser extent, individual performance. Based on our financial performance in 2018 and 2019, we awarded discretionary bonuses to our named executive officers in 2018 and did not award any bonuses in 2019. We believe these bonuses were not only commensurate with our overall financial performance, but were also necessary to motivate and retain our key officers.

 

COMPENSATION OF DIRECTORS

 

The following table sets forth the compensation for year ended December 31, 2019 for those persons who served as members of our Board of Directors during 2019:

 

Name (1)		Fees earned or paid in cash ($)				All Other Compensation				Total ($)
Paul G Casner			20,000				40,000	(2)			60,000
Thomas C. Lynch			20,000				-				20,000
Tom L. Schaffnit			20,000				-				20,000
David W. Jolly			20,000				-				20,000

 

  

(1)	Thomas J. Meaney and Mark J. Malone are not listed in the above table because they did not receive any compensation for serving on our Board of Directors in 2019.

 

(2)	Consists of management consulting fees. See ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS AND DIRECTOR INDEPENDENCE below.

 

 

Narrative Disclosure to Director Compensation Table

 

We pay an annual fee of $20,000 to each of our non-employee directors. We also make periodic grants of equity awards to our non-employee directors. Each member of our Board of Directors receives reimbursement of expenses incurred in connection with his services as a member of our board or board committees.

 

For a description of the terms and conditions of equity awards that may be granted to our non-employee directors, including a description of the change in control provisions, see “ 2017 Omnibus Incentive Plan ” in Item 12 below.

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

 

The following table sets forth certain information, as of March 27, 2020 with respect to holdings of our common stock by (i) each person known by us to be the beneficial owner of more than 5% of the total number of shares of common stock outstanding as of such date, (ii) each of our directors and executive officers, and (iii) all directors and executive officers as a group. Except as otherwise indicated, the address of each person is 707 Alexander Road, Suite 208, Princeton, New Jersey 08540.

 

 

Name of Beneficial Ownership	Amount and Nature of Beneficial Ownership(1)		Percent of Class
Walter T. Bristow	103,000	(2)	*
Paul G. Casner	431,000	(3)	1.3%
David W. Jolly	30,000	(4)	*
Patricia A. Kapp	213,000		*
Thomas C. Lynch	386,040	(3)	1.2%
Mark J. Malone	60,000	(5)	*
Thomas J. Meaney	6,024,235		17.0%
Tom L. Schaffnit	851,400	(3)	2.4%
David Henry Silcock	67,730	(6)	*
All Current Directors and Officers as a Group (nine persons)	8,166,405		22.9%
*Less than 1%

 

 

(1) The beneficial owners and amount of securities beneficially owned have been determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended, and, in accordance therewith, includes all shares of our common stock that may be acquired by such beneficial owners within 60 days of March 27, 2020 upon the exercise or conversion of outstanding options or other convertible securities. This table has been prepared based on 35,588,775 shares of common stock outstanding on March 27, 2020. Except as otherwise indicated, all shares are beneficially owned and the sole investment and voting power is held by the persons named.

 

(2) Includes 25,000 shares of restricted common stock which vest in five equal annual installments commencing July 25, 2017.

 

(3) Includes 24,000 shares of restricted stock which vest in three equal annual installments commencing July 25, 2017.

 

(4) Consists of 30,000 shares of restricted stock which vest in three equal annual installments commencing January 31, 2018.

 

(5) Consists of 60,000 shares of restricted stock which vest in five equal annual installments commencing one year after the date of grant.

 

(6) Includes 25,000 shares of restricted common stock which vest in five equal annual installments commencing July 25, 2017.

 

 

EQUITY COMPENSATION PLAN INFORMATION

 

The following is certain information about our equity compensation plans as of December 31, 2019:

 

Plan Category		Number of securities to be issued upon exercise of outstanding options, warrants and rights				Weighted– average exercise price of outstanding options, warrants and rights				Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)
Equity compensation plans not approved by security holders			0			$	-				2,970,000
Total			0			$	-				2,970,000

 

 

2017 Omnibus Incentive Plan

 

On July 24, 2017, we adopted the Mikros Systems Corporation 2017 Omnibus Incentive Plan (the “2017 Plan”) under which we may grant cash and equity-based incentive awards to eligible service providers. The 2017 Plan is administered by the compensation committee of the Board of Directors, which may delegate its duties and responsibilities to one or more officers, agents or advisors (referred to collectively as the plan administrator below), subject to the limitations imposed under the 2017 Plan and applicable law. The aggregate number of shares of common stock available for issuance under the 2017 Plan is 3,000,000 shares.

 

The 2017 Plan provides for the grant of stock options, stock appreciation rights, or SARs, restricted stock, dividend equivalents, restricted stock units, performance awards, performance cash awards, and other stock or cash based awards. All awards under the 2017 Plan will be set forth in award agreements, which will detail the terms and conditions of awards, which may include any applicable vesting and payment terms and post-termination exercise limitations. Until such time, if any, that the 2017 Plan is approved by our stockholders, we may not issue incentive stock options, or ISOs.

 

The plan administrator may select performance measures for an award to establish performance goals for a performance period. When determining performance goals, the plan administrator may provide for the inclusion or exclusion of the impact of certain non-recurring events as well as certain legal, regulatory, tax or accounting changes.

 

In the event of a change in control in which outstanding awards under the 2017 Plan are not assumed or substituted, then prior to the change in control (i) all outstanding options and SARs will become immediately exercisable in full and will terminate upon consummation of the change in control; (ii) all restrictions and vesting requirements applicable to any award based solely on the continued service of the participant will terminate; and (iii) all awards, the vesting or payment of which are based on performance goals, will vest as though such performance goals were achieved at target. Notwithstanding the foregoing, in connection with a change in control, the plan administrator may determine that outstanding stock-based awards granted under the 2017 Plan, whether or not exercisable or vested, will be canceled and terminated in exchange for a cash payment (or the delivery of shares, other securities or a combination of cash, shares and securities) equal to the difference, if any, between the consideration to be received by Company stockholders in respect of a share of common stock in connection with such change in control and the purchase price per share, if any, under the award, multiplied by the number of shares of common stock subject to such award.

 

Our Board of Directors may terminate the 2017 Plan at any time and the plan administrator may amend the 2017 Plan at any time; however, no amendment, other than an amendment that increases the number of shares available under the 2017 Plan, may adversely affect an award outstanding under the 2017 Plan without the consent of the affected participant, and stockholder approval will be obtained for any amendment to the extent necessary to comply with applicable law or SAR to reduce its price per share. The 2017 Plan will remain in effect until the day before the tenth anniversary of the date it was initially approved by our Board of Directors, unless earlier terminated by our Board of Directors. No awards may be granted under the 2017 Plan after its termination. As of the date of this report, 30,000 shares of restricted stock have been issued under the 2017 Plan.

 

2007 Stock Incentive Plan

 

On August 6, 2007, we adopted the Mikros Systems Corporation 2007 Stock Incentive Plan (the "Plan"). The Plan provided for the issuance of up to 3,000,000 shares of our common stock in the form of stock options or restricted stock awards to our employees, officers or directors as well as our consultants or advisors. The Plan terminated on August 5, 2017. The Plan is administered by our Board of Directors which has full and final authority to interpret the Plan. To the extent permitted by applicable law, our Board may delegate any or all of its powers under the Plan to one or more committees or subcommittees of the Board. The Plan is not subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended, and is not a "qualified plan" under Section 401(a) of the Internal Revenue Code of 1986, as amended.

 

 

All stock options granted under the Plan are exercisable for a period of up to ten years from the date of grant, are subject to vesting as determined by the Board of Directors upon grant, and have an exercise price equal to not less than the fair market value of our common stock on the date of grant. Unless otherwise determined by the Board of Directors, awards may not be transferred except by will or the laws of descent and distribution. The Board of Directors has discretion to determine the effect on any award granted under the Plan of the death, disability, retirement, resignation, termination or other change in employment or other status of any participant in the Plan.

 

Upon the occurrence of a "reorganization event", defined as the merger of the Company with or into another corporation as a result of which our common stock is converted into or exchanged for cash, securities or other property or is cancelled, the exchange of all shares of our common stock for cash, securities or other property pursuant to a share exchange, or the liquidation of the Company, the Board of Directors may take any number of actions. These actions include providing for all options outstanding under the Plan to be assumed by the acquiring corporation or to become immediately vested and exercisable in full, and in the case of a reorganization event in which holders of our common stock receive a cash payment, to provide for a cash payment to holders of options equal to the excess, if any, of the per share cash payment over the exercise price of such options. Except as may otherwise set forth in an award agreement, upon the occurrence of a reorganization event other than a liquidation or dissolution of the Company, the repurchase and other rights of the Company under each outstanding restricted stock award shall inure to the benefit of the Company’s successor. Upon the occurrence of a reorganization event involving the liquidation or dissolution of the Company, an outstanding restricted stock award may be subject to acceleration of vesting unless otherwise provided in the award agreement. As of the date of this report, we have issued 457,000 shares of restricted stock under the Plan which are subject to vesting.

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

 

Procedures for the Approval of Related Person Transactions

 

Our Board of Directors reviews and, if appropriate, approves in advance all related person transactions.  At any time in which an executive officer, director or nominee for director becomes aware of any contemplated transaction that, in that person’s judgment may be a related person transaction, the executive officer, director or nominee for director is expected to notify the chairman of the Board of Directors, or in the event the Chairman of the Board of Directors has an interest, the Secretary of the Company, of the transaction. Generally, the directors having no interest in the proposed transaction review such transaction and may consult with outside legal counsel regarding whether the transaction is, in fact, a related person transaction requiring special approval by the Board of Directors. If the transaction is considered to be a related person transaction, then the directors having no interest in the proposed transaction will review and, if appropriate, approve the transaction at its next scheduled meeting or at a special meeting.

 

Related Person Transactions

 

Consulting Arrangement with Mr. Casner. During the years ended December 31, 2019 and 2018, we paid $40,000 and $26,000 respectively, to Paul G. Casner, the Chairman of our Board of Directors, in consideration of management consulting services.

 

Consulting Arrangement with Mr. Malone.  On March 2, 2020, we entered into a consulting agreement with Mark Malone to provide financial advisory, strategic planning and corporate governance consulting services to the Board of Directors. The consulting agreement has an initial term ending on May 31, 2020, provides for a fee of $20,000 per month plus a potential discretionary performance bonus, may be extended for additional one (1) month terms upon mutual agreement of the parties with the monthly fee adjusted to reflect any reduction in the volume of services, and provides for all restrictions and vesting provisions applicable to the 60,000 shares of restricted stock previously awarded to Mr. Malone to lapse and accelerate in full on May 31, 2020, provided that the consulting agreement has not been earlier terminated.

 

Director Independence

 

Upon consideration of the criteria and requirements regarding director independence set forth in Rule 5605(a)(2) of the rules of the Nasdaq Stock Market, we have determined that Paul G. Casner, Thomas C. Lynch, Tom L. Schaffnit and David W. Jolly are independent.

 

With regard to our Audit Committee, the Board of Directors has determined that Messrs. Jolly, Lynch and Schaffnit (Chair), who constitute a majority of the members of the Audit Committee, are independent with respect to the independence criteria for Audit Committee members set forth in Rule 5605(c)(2) of the rules of the Nasdaq Stock Market and Rule 10A-3(b)(1) of the Exchange Act.

 

 

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

 

Audit Fees

 

On April 6, 2018, the Audit Committee approved the engagement of Baker Tilly Virchow Krause, LLP (“Baker Tilly”) as the Company’s independent registered public accounting firm for the Company’s fiscal year ended December 31, 2018 to audit the Company’s annual financial statements and review the Company’s financial statements included in the Company’s quarterly reports. Aggregate fees and expenses billed by Baker Tilly for the foregoing professional services for the years ended December 31, 2019 and 2018 were $68,721 and $65,325, respectively.

 

Audit-Related Fees

 

There were no fees billed by our independent accountants for audit-related services during the fiscal years ended December 31, 2019 and 2018.

 

Tax Fees

 

There were no fees billed by our independent accountants for tax fees for the years ended December 31, 2019 and 2018.

 

All Other Fees

 

There were no fees billed by our independent accountants for non-audit services during the years ended December 31, 2019 and 2018.

 

Audit Committee Pre-Approval Policies and Procedures

 

All auditing services and non-audit services (other than the de minimis exceptions provided by Exchange Act) provided to us by our independent accountants must be pre-approved by the Audit Committee. Any future Audit-Related Fees and Tax Fees were pre- approved by the Audit Committee.

 

 

PART IV

 

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 

 

The following exhibits are filed or incorporated by reference as part of this report: 

 

3.1	Restated Certificate of Incorporation of Mikros Systems Corporation (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 3, 2017).
3.2	By-laws (incorporated by reference to Exhibit 3.2 to the Registrant's Annual Report on Form 10-K filed with the Commission on April 2, 2018).
3.3	Amendment No. 1 to the By-laws of Mikros Systems Corporation (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 28, 2017).
10.1	Mikros Systems Corporation 2007 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed with the Securities and Exchange Commission August 9, 2007).
10.2	Form of Exchange Agreement by and between Mikros Systems Corporation and certain holders of shares of preferred stock (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on August 15, 2016).
10.3	Exchange Agreement by and between Mikros Systems Corporation and the United States Small Business Administration dated May 3, 2016 (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on August 15, 2016).
10.4	Mikros Systems Corporation 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 28, 2017).
10.5	Form of Restricted Stock Award Agreement under the Mikros Systems Corporation 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 28, 2017).
10.6	Form of Stock Option Agreement under the Mikros Systems Corporation 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 28, 2017).
10.7	Loan Agreement dated January 31, 2018 between Mikros Systems Corporation and PNC Bank, National Association (incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q filed with the Commission on May 15,2018).
10.8	Committed Line of Credit Note payable to PNC Bank, National Association dated January 31, 2018  (incorporated by reference to Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q filed with the Commission on May 15,2018).
10.9	Security Agreement dated January 31, 2018 between Mikros Systems Corporation and PNC Bank, National Association  (incorporated by reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q filed with the Commission on May 15,2018).
14.1	Mikros Systems Corporation Code of Business Conduct and Ethics (incorporated by reference to Exhibit 14 to the Company's Form 10- QSB filed August 11, 2006).
31.1	Certification of principal executive officer and principal financial officer pursuant to Section 302 of the Sarbanes- Oxley Act of 2002.
32.1	Certification of principal executive officer and principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350.
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

 

ITEM 16. FORM 10-K SUMMARY

 

None.

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) 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
Dated: March 30, 2020	By:	/s/ Thomas J. Meaney
		Thomas J. Meaney Chief Executive Officer and Chief Financial Officer

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated and on the date indicated.

 

SIGNATURES	DATE
/s/ Paul G. Casner	March 30, 2020
Paul G. Casner, Director
/s/ Thomas C. Lynch	March 30, 2020
Thomas C. Lynch, Director
/s/Mark J. Malone
Mark J. Malone, Director	March 30, 2020
/s/ Thomas J. Meaney	March 30, 2020
Thomas J. Meaney, Chief Executive Officer, Chief Financial Officer, and Director (Principal Executive Officer, Principal Financial and Accounting Officer)
/s/ Tom L. Schaffnit	March 30, 2020
Tom L. Schaffnit, Director
/s/ David W. Jolly	March 30, 2020
David W. Jolly, Director

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To the shareholders and the board of directors of Mikros Systems Corporation

 

Opinion on the Financial Statements

 

We have audited the accompanying balance sheets of Mikros Systems Corporation (the "Company") as of December 31, 2019 and 2018, and the related statements of income, shareholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ Baker Tilly Virchow Krause, LLP

 

We have served as the Company's auditor since 2018.

 

Philadelphia, Pennsylvania

March 30, 2020

 

 

Part I Financial Information

Item 1 Financial Statements

Mikros Systems Corporation

Balance Sheets

 

 

See Notes to Financial Statements

 

 

Mikros Systems Corporation

Statements of Income

 

 

See Notes to Financial Statements

 

 

Mikros Systems Corporation

Statements of Shareholders' Equity

 

 

See Notes to Financial Statements

 

 

Mikros Systems Corporation

Statements of Cash Flows

 

 

See Notes to Financial Statements

 

 

MIKROS SYSTEMS CORPORATION

Notes to Financial Statements

 

 

 

 

 

 

MIKROS SYSTEMS CORPORATION

Notes to Financial Statements

 

 

 

 

MIKROS SYSTEMS CORPORATION

Notes to Financial Statements

 

 

 

  

 

 

 

40