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industry and general economic conditions.

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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;

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 2,5006,000 square feet of general office space under a lease agreement that was renewed in March, 20162017 and will continue through June 2021.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 ADEPT product lineADSSS system and quality assurance, field support,related engineering and life cycle management.logistics support. We entered into a one year lease agreement commencing in October, 2016.2019.

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”. The following table sets forth the range of high and low bid prices of our common stock for the periods indicated as reported by the OTCQB. The quoted pricesOver-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 differ substantially from prices innot represent actual transactions.

The last price of our common stock as reported on the OTCQB as of March 16, 2017 was $0.38 per share.Dividends

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 16, 2017,27, 2020, we had 363280 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-lookingforward looking statements that involve risks and uncertainties. All forward-lookingforward 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-lookingforward looking statements. Our actual results may differ materially from those anticipated in these forward-lookingforward 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 SBIRSmall Business Innovation Research (SBIR) programs from the DoD, Department of Homeland Security, and other governmental authorities, andwith a view to expandexpanding this government funded research and development into products and services.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, 20162019 and 2015.2018. 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). 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. ADEPT Systems are currently deploying on all Aegis CGManufacturing, selling and DDG platforms to support the AN/SPY1 radar system. Since the system uses commercial instrument case and modules,servicing ADEPT units can be modified to support both preventative maintenance and condition-based maintenancewas a substantial part of other radars and complex electronic systems in military or commercial applications. In that regard, we have a service contract withour business over the U.S. Navy to extend ADEPT to a second U.S. Navy radar system,past decade. During the SPS-49. These services are expected to assist in optimizing performance for the Ballistic Missile Defense Mission. Aslife of the date of this report,program, we have delivered a total of 189226 ADEPT units.units to our Navy customers. Effective October 1, 2019, the US Navy determined to stop funding the ADEPT program in fiscal year 2020.

AdaptiveADEPT Distance Support Sensor Suite (ADSSS). In 2013, we started development of ADSSADSSS for the Navy’s Littoral Combat Ship (“LCS”). ADSSSLCS. 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. ADSSSAN/SYM-3 provides an open architecture approach with industry standardindustry-standard hardware, and cybersecurity compliant software to acquire and process system operational and maintenance data. ADSSSThe 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. We expect ADSSS to beIt 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. ADSSS, with its remote monitoringships and prognostics capabilities,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 we are currently pursuing several related opportunities.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 and overchanges. Over the life of the system, this could result in significant cost savings.

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

On March 18, 2010, we were awarded and entered into a multi-year IDIQ contract with the Naval Surface Warfare Center related to our ADEPT product. The contract provided for the purchase and sale of up to $26 million of ADEPT units and related engineering and logistics support. The initial term of the contract was five years, and the period of performance was extended through February 13, 2017, to conclude some development programs.

In March 2016, we received a contract award valued at approximately $0.15 million to provide Initial System Familiarization Training of the ADEPT system on all CG-47 and DDG-51 Class ships. The first event in Norfolk has already occurred, and a second event in San Diego is currently scheduled for May.

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

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

In September 2016, we were awarded and entered into a multi-year IDIQ contract with the Naval Surface Warfare Center, Port Hueneme Division, relating to our ADSSS product. The contract has a term of five years and provides for the purchase and sale of up to $48 million of ADSSS units and related engineering and logistics support.The IDIQ contract covers the first eight ships of the 28 ship program. The first delivery order in the amount of $3.0 million was awarded on September 15, 2016 to perform installations, support and logistics for the LCS classes

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

In February 2017, we were awarded a follow-on multi-year Small Business Innovation Research (SBIR) Phase III IDIQ contract with the Naval Surface Warfare Center, Crane Division, for our ADEPT program. The contract has a term of five years and provides for the purchase and sale of up to $35.1 million of ADEPT units and related engineering, such as calibration, repair, training and other logistics services. The first delivery order in the amount of $1.1 million was also awarded in February 2017 to build eleven ADEPT systems for continuing fleet support on all Aegis cruisers and destroyers.

In March 2017, we were awarded the second and third delivery orders under the ADEPT IDIQ. The second order is for engineering services in the amount of $11.5 million, will be funded incrementally, and facilitate the engineering and technical support for the ADEPT program during the next three years. The third delivery order in the amount of $0.6 million is to provide logistic services, such as calibration, repair, evaluations and screenings of ADEPT units to be performed in our Manufacturing and Depot Center in Largo, Florida.

Key Performance Indicator

As substantially all of our revenue is derived from contracts with the federalU.S. Federal government, our key performance indicator isindicators are (i) the dollar volume of contracts and deliverytask orders awarded to us under our IDIQ contracts.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 federalFederal government agencies where the process of obtaining such awards can be lengthy and at times uncertain. As the substantial majority of our revenue in 2016,2019, and expected revenue in 2017,2020, is or will be from sales of ADEPT units and ADSSSAN/SYM-3 systems under our IDIQsIDIQ contract, continued generation of deliverytask orders and our ability to expand the market and potential customer base for ADEPT units will be a key indicator of future revenue. ADEPT units must be serviced and calibrated every two years. Accordingly, as we continue to increase the installed base of ADEPT units and expand the units to other radar systems, we expect to generate future recurring maintenance and service revenue.this technology is our primary focus.

Outlook

Our strategy for continued growth is based on continuing expansion of our defense business plusand executing new initiatives to apply our advanced maintenance technology in commercial markets. With regard to the defense industry, we expect to continue expanding our technology base, backlog and revenue by continuing our active participation in the DoD SBIR program and biddingto 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 communications engineering.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-artstate 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, the U.S. Navy, and other government agencies. Third, we believe that through our marketing of products, such as ADEPT, we will develop key relationships with prime defense contractors. Our strategy is to develop these relationships into long-term, key subcontractor roles on future major defense programs awarded to these prime contractors.

With regard to commercial markets, our newDiagnostics 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 applications such as FAA radar surveillance and support systems, power distribution and utilities infrastructure, commercial shipping, cooling and environmental systems, and other “complex distributed systems” to commercial customers. CustomersIn that regard, we are developing a condition-based maintenance solution for these systems, include major multinational corporations.heating ventilation, air conditioning and refrigeration (HVAC) equipment based on our proprietary Prognostics Framework solution which we call Mikros Mindr. We have received several repeat orders from these customersdeployed 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 continue to support theirrequired maintenance for its customers. We are in discussions with additional commercial companies regarding the use of our condition based maintenance applications.

In 2017,2020, our primary strategic focus is to continue as a premium provider of R&D and product development services to the defense industry, generate multiple deliverytask orders under our twoADSSS 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 manufacturing and depot centerM&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 additionalmore 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.

DuringRecent 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 two fiscalseveral 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 proposed reductionschanges in defense spending hasand 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, stock-based compensation, 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 are engaged in researchprovide our products and developmentservices under fixed-price and cost-reimbursable contracts. Under fixed-price contracts withwe agree to perform the federal government to develop certain technology to be utilized byspecified work for a pre-determined price. To the U.S. Departmentextent 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 Defense (“DoD”). The contracts are cost plus fixed fee contracts and revenue is recognized on the basis of such measurement of partial performance as will reflect reasonably assured realization or delivery of completed articles. Fees earned under our contracts may also be accrued as they are billable, under the terms of the agreements, unless such accrual is not reasonably related to the proportionateallowable costs incurred during performance of the total workcontract. 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 to be performed by us frompromised in each contract at inception to completion. Underdetermine whether the terms of certaincontract should be accounted for as having one or more performance obligations. The products and services in our contracts fixed fees are typically not recognized untildistinct from one another due to their complex relationships and the receipt of full payment has become unconditional, thatsignificant contract management functions required to perform under the contract. Accordingly, our contracts are typically accounted for as one performance obligation. Significant judgment is whenrequired in determining performance obligations, and these decisions could change the product has been delivered and accepted by the federal government. Backlog represents the estimated 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 revenuesmodifications. Contracts are often subsequently modified to be recognized under negotiated contractsinclude 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 work is performed. Our backlog includes future ADEPT units and ADSSS systems to be developed and deliveredan adjustment to the federal government.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 it relatesperformance 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 licensecustomer. This continuous transfer of software when persuasive evidencecontrol of an arrangement exists, delivery has occurredthe 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 services have been rendered,remaining performance obligations) represents the price is fixed or determinable, and collection is probable. The sale and/or license of softwaresales we expect to recognize for our products and technologyservices for which control has not yet transferred to the customer. The estimated consideration is deemed to have occurred when a customer either has taken possession of or has access to take immediate possessiondetermined at the outset of the softwarecontract 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 technology. Software license agreements include post-contract customer support ("PCS"). For our software and software-related multiple element arrangements, wheredecrease backlog accordingly. As the risks on such contracts are successfully retired, the estimated consideration from customers purchase both software related products and software related services, we use vendor-specific objective evidence (“VSOE”) of fair value for software and software-related services to separate the elements and account for them separately. VSOE exists when we can support what the fair value of our software and/or software-related services is based on evidence of the prices charged when the same elements are sold separately. VSOE of fair value is required, generally, in order to separate the accounting for various elementsmay be reduced, resulting in a software and related services arrangement. We establish VSOEreduction of fair value for the majoritybacklog without a corresponding recognition of the PCS, professional services, and training. However, given the limited number of sales related to this software, and the fact that we do not sell the PCS element separately, there is no VSOE currently available to bifurcate the PCS element from the contract. In accordance with Accounting Standards Codification Topic 985-605-25-10a, the fees earned from sale of licenses to which the only undelivered element is the PCS, are recognized ratably over the life of the contract. Revenues from the sale of software licenses for the year ended December 31, 2016 and 2015 were $84,001 and $24,000, respectively. At December 31, 2016 and 2015, deferred revenues amounted to $7,500 and $24,000, respectively.

Unbilled revenue reflects work performed, but not billed at the time, per contractual requirementsand software related maintenance.sales. As of December 31, 20162019, 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 2015, we had unbilled revenuespayment terms on our contracts vary based on a number of $235,421 and $60,857, respectively which are recorded within receivables on government contracts in our balance sheet. Billings to customers in excess of revenue earned are classified as advanced billings, and shown as a liability. As of December 31, 2016 and 2015, there were $0 and $125,157, respectively, of advanced billings.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.

The allowance for doubtful accounts is maintained at a level considered adequate to provide for losses that can be reasonably anticipated.

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. AllSubstantially 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, 20162019 and 2015.2018.

Warranty Expense. We provide a limited warranty, as defined by the related warranty agreements, for ourits production units. Our warranties require us to repair or replace defective products during such warrantythe 12 month period which is 12 months following delivery and acceptance of production units by the government. We estimate the costs that may be incurred under ourits 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, expected and 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. We had a net warranty expense (recovery), which is a component of our cost of sales of $(84,501) and $400,500 forDuring the years ended December 31, 20162019 and 2015,2018, we recognized a warranty (benefit) expense of ($141,235) and $142,000, respectively. Since the inception of the ADEPT IDIQ contract awarded to us in March 2010, we havethe Company has delivered 189226 ADEPT units. As of December 31, 2016, there are 52 ADEPT units that remain under the limited warranty coverage. The warranty recovery is attributable to the warranty product expirations outpacing warranty product expenses for units produced and sold under the IDIQ contract. We had an accrued warranty expense liability of $240,980 and $359,654 at December 31, 2016 and 2015, respectively.

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 had $112,871 of state net operating loss carry forwards at December 31, 2016 which begin to expire in 2033. Our valuation allowance associated with the related deferred tax assets decreased by $13 in 2016.

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, 20162019 and 2015,2018, there were no tax contingencies or unrecognized tax positions recorded.

Share-based Compensation. We record compensation expense associated with stock options and other forms of equity compensation based on the estimated fair value at the grant date. There were no stock options issued during the years ended December 31, 2016 and 2015. In July 2016, we granted 387,000 restricted stock awards. The fair value of the restricted stock awards amounted to $46,440 and was determined on the date of grant using our closing stock price of $0.12. The fair value of the restricted stock awards will be amortized over the vesting period of three to five years utilizing the straight-line method.

Recently Issued Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers” updating the accounting guidance related to revenue recognition. The updated accounting guidance provides a single, contract-based revenue recognition model to help improve financial reporting by providing clearer guidance on when an entity should recognize revenue and by reducing the number of standards to which an entity has to refer. The updated accounting guidance is effective for us as of January 1, 2018. The core principle of ASU 2014-09 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In applying the new guidance, an entity will (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the contract’s performance obligations; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 applies to all contracts with customers except those that are within the scope of other topics in the FASB Accounting Standards Codification. Entities have the option of using either a full retrospective or modified approach to adopt ASU 2014-09. The Company is in the initial stages of evaluating the effect of adoption of ASU 2014-09 on its financial statements and continues to evaluate the available transition methods. The Company has begun assessing the standard as it will pertain to its contracts, which includes performing a detailed review of its existing key contracts and comparing historical accounting policies and practices to the new standard. The Company will continue its evaluation of the standards update through the date of adoption.

In August 2014, the FASB issued ASU No. 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”. ASU 2014-15 will explicitly require management to assess an entity’s ability to continue as a going concern, and to provide related footnote disclosure in certain circumstances. The new standard will be effective for all entities in the first annual period ending after December 15, 2016. Earlier adoption is permitted. The adoption did not have a material effect on our financial position or disclosures in the footnotes to our financial statements.

In November 2015, the FASB issued ASU 2015-17, “Balance Sheet Classification of Deferred Taxes”. ASU 2015-17 requires that deferred tax assets and liabilities be classified as noncurrent on the Balance Sheet. On December 31, 2015, we adopted ASU 2015-17 and changed the method of classifying Deferred Tax Assets and Liabilities using a prospective method. Prior balance sheets were not retrospectively adjusted. The adoption did not have a material effect on our financial position.

In February 2016, the FASBFinancial Accounting Standards Board (FASB) issued ASU No.Accounting Standards (ASU) 2016-02, “LeasesLeases (Topic 842)”. ASU 2016-02The new standard supersedes the present U.S. GAAP standard on leases and requires the recognition of lease rights and obligations as assets and liabilities on the balance sheet. Previously, lessees were not requiredsubstantially all leases to recognizebe reported on the balance sheet as right-of-use assets and liabilities arising from operating leases. The ASU also requires disclosure of key information about leasing arrangements.lease obligations. ASU 2016-02 is effective onfor 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 methodapproach and the optional transition method. In addition, we elected the package of adoption, with early adoption permitted. Whilepractical expedients permitted under the Company is currently evaluatingtransition guidance within the effect ASU 2016-02 willnew 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 financial statements and disclosures, the adoptionCompany's beginning retained earnings, consolidated statement of this ASU will result in an increase to the Company’s stated assets and liabilities.

In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation—Stock Compensation (Topic 718) (“ASU No. 2016-09”). This update is part of the FASB’s Simplification Initiative, which simplifies the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity, or liabilities, and classification on the statement of cash flows. The new standard is effectivemost significant impact was the recognition of right-of-use assets and lease liabilities for annual periods beginning after December 15, 2016,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 interim periods within those annual periods. Early adoption is permitted for any entity in any interim or annual period. The Company will adopt ASU 2016-09 in the first quarteran operating lease liability of 2017. We do not expect a material impact on our financial statements from the adoption of this guidance.$488,971, respectively. 

Results of Operations

Years ended December 31, 20162019 and 20152018

We generated revenues of $5,067,365 for$6,366,226 in the year ended December 31, 20162019 compared to $7,360,204$8,561,346 in 2015,2018, a decrease of $2,292,839,$2,195,120, or 31%26%. The decrease was due primarilyprincipally to the completiondelays of the production contracts for 64follow-on contract awards and no ADEPT units produced in 2015 and significant delays in the award of several Navy contracts. During the third quarter 2016, we received a $48 million IDIQ contract for our ADSSS system and in the first quarter of 2017, we received a $35.1 million IDIQ contract for our ADEPT product. We have received multiple delivery orders under both IDIQ contracts and expect additional delivery orders throughout 2017. In March 2017, we were awarded the second and third delivery orders for engineering services in the amount of $11.5 million which will be funded incrementally, and facilitate the engineering and technical support for the ADEPT program during the next three years. The third delivery order contract in the amount of $0.6 million is to provide logistic services, such as calibration, repair, evaluations and screenings of ADEPT units to be performed in our Manufacturing and Depot Center in Largo, Florida.

In addition we expect additional contract awards in 2017. Delays in the award of contracts are not uncommon in the current defense contracting environment and we may experience similar delays in future periods.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 $2,047,002$2,279,823 in 20162019 compared to $3,585,127$3,602,555 in 2015,2018, a decrease of $1,538,125,$1,322,732, or 43%37%. The decrease was primarily duerelates to a change in the completionmix of the production contracts for 64generating revenues as compared to 2018. In 2019, we did not produce any ADEPT units in 2015 and lowerall revenue in 2016.was generated from engineering support services. As a percentage of revenue, cost of sales decreased to 40%35.8% of revenues for 2016 as compared to 49%revenue in 2019 from 42.1% of revenues for 2015. The decrease was due primarily to the changerevenue in the mix of costs incurred in 2016 and significant decreases in material purchases2018 due to delays in receivingno ADEPT production orders. These amounts were partially offset by slight increases in direct labor and subcontract costs related to engineering service contracts awarded in the first quarter of 2016.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“engineeringof “engineering overhead” and included in operating expenses. Engineering costs were $1,632,228$2,547,007 in 20162019 as compared to $1,551,449$2,712,810 in 2015, an increase2018, a decrease of $80,779,$165,803, or 5%6%. The increasedecrease in 20162019 was due to increasesdelays of follow-on contract awards and a shift of engineering personnel from revenue generating contracts resulting in engineering salaries, travelsuch costs outside services,being included in general and recruiting costs which amounts were offset by decreases in engineering tools and equipment costs, incentive compensation, and office related supply costs.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, research and development and unallowable expenses (consisting of those expenses for which the government will not reimburse us). General and administrative expenses were $1,213,718$1,478,046 in 20162019 as compared to $1,425,242$1,752,768 in 2015,2018, a decrease of $211,524,$274,722, or 15%16%. The decrease in 20162019 was due to decreases in incentive compensation, business development, professional fees, and general and administrative salaries which amounts were offset by increasesa reduction in research and development costs and SEC compliance costs.

We reported a net incomethe elimination of $82,490 in 2016 as compared to $461,536 in 2015. The decrease was attributable primarily to the decrease in revenues during 2016 without proportional decreases in our selling, general and administrative expenses and engineeringincentive compensation expenses.

At December 31, 2016, we estimated our annualThe income tax expense was $35,321 in 2019 and $166,734 in 2018, representing an effective income tax rate for 2016 to be 53.9%. At December 31, 2016,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. Income tax expense

We reported a net income of $30,532 in 2019 as compared to $329,210 in 2018. The decrease was $96,425 in 2016 and $339,948 in 2015, representing an effective income tax rate of 53.9% and 42.4%, respectively. The change in the effective federal income tax rate is attributable to percentage increases in state income taxes and permanent book-tax differences in relationprimarily to the decrease in income before taxes.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, 2016,2019, we had cash and cash equivalents of $858,868$1,621,309 and net working capital of $1,570,527.$1,969,983. During the year ended December 31, 2016,2019, net cash used in operating activities was $1,398,511$524,810 compared to net cash provided by operating activities of $1,732,344$1,286,701 in 2015.2018. The decrease in operating cash flows was due primarily to a decrease in net income and increases in accounts receivable resulting fromliabilities as a result of timing of payments to vendors and employees and the timing of our billings and collections and decreases in net income and accounts payable and other current liabilities due to timing of payments to vendors and employees.collections.

During 2016,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 $599,742. This amount was used$4,000 as compared to complete$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 recapitalization transaction (the “Recapitalization Transaction”) pursuant$550,000 credit facility with PNC Bank. The facility initially matured on January 31, 2020 and has been extended to whichJanuary 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 issued and outstanding shares of our preferred stock were exchanged or redeemed for a combination of cashassets. The facility contains customary affirmative and shares of our common stock in the amounts set forth in the table below.

negative nonfinancial covenants. As part of the Recapitalization Transaction, we also repurchased 2,084,167 sharesdate of common stock owned bythis report, no amounts were outstanding under the United States Small Business Administration. Pursuant to the Recapitalization Transaction, we made aggregate cash payments of $540,892, issued 5,089,189 shares of common stock, which resulted in the net issuance of 3,005,022 additional shares of common stock, and eliminated $2,955,433 of aggregate liquidation preferences applicable to our previously outstanding shares of preferred stock.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 currently do not have any outstanding loan or line of credit with any bank or financial institution. We believe our available cash resources and expected cash flows from operations will be sufficient to fund operations for the next twelve months. We do not expect to incur any material capital expenditures during the next twelve months.

Off-Balance Sheet Arrangements

As of December 31, 2016,2019, 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.

Not ApplicableNone.

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),1934 as amended (the “Exchange Act”), was carried out by us under the supervision and with the participation of our president,Chief Executive Officer, who serves as our Principal Executive Officer and Principal Financial Officer. Based upon that evaluation, our presidentChief Executive Officer concluded that as of December 31, 2016,2019, 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 president,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, 2016,2019, 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 )Act) that occurred during the fiscal quarteryear ended December 31, 20162019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION.

Not Applicable.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:

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. FromSince 2008, until March 2016, 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 40forty 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. Lynchhas 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 19941994; 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 becameserved as a Senior Vice President for Staubach Company, now Jones Lang LaSalle (JLL), and continues serving them as a consultant.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 Co-Chair for the NewDay USA Foundation, Managing Director for the Musser Group, Chairman of the U.S. Naval Academy Athletic & Scholarship Foundation, and Vice Chair of Philadelphia Sports Congress. Admiral Lynch serves as director of the following boards: U.S. Naval Academy Foundation, Economics Pennsylvania, and Vietnam Veterans Memorial Fund.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.

Thomas J. Meaneyhas been a director since July 1986. He has served as President of the Company since 1998. Mr. Meaney has over 40 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.

Tom L. Schaffnit has been a director since June 2000. Tom 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 US Department of Transportation on the Connected Vehicle Program, which is facilitating the deployment of vehicle-to-vehicle and vehicle-to-infrastructure wireless communications to prevent crashes and support automated driving. Mr. Schaffnit possesses particular knowledge and experience in technology development and management 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 is currentlyhas 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, Ga.Georgia. and a Juris Doctorate cum laude from the George Mason University School of Law in Arlington, Va.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 was promoted toour President, has served as Chief Operating Officer inof the Company since July 2016.2017. Mr. Bristow was Vice President of Operations from February 2015 to July 2016,2017, with responsibility for operations in the Fort Washington, PAPennsylvania and Largo, FLFlorida 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 Silcockhas 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 30thirty 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. Kapphas 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 except that all officers and directors of the Company who were granted restricted stock awards on July 25, 2016 failed to timely file Forms 4 reporting these grants.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, and 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 fiscal years ended December 31, 20162019 and 2015.2018.

SUMMARY COMPENSATION TABLE

(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 $0.12$0.44 per share on the date of grant.

(2)(3)  On July 25, 2016, we granted Messrs.March 2, 2020, Mr. Bristow and Silcock restricted stock awards each consistingwas appointed to serve as the President of 25,000 shares of common stock. The awards vest in five equal annual installments beginning on July 25, 2017 and will be fully vested July 25, 2021. 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, 2016:2019: