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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ~~☒Yes ☐No~~☒ Yes ☐ No

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: There were ~~35,494,775~~35,568,775 issued and outstanding shares of the issuer’s common stock, $.01 par value per share, on May 11, ~~2017.~~2018.

	March 31,			December 31,
	2018			2017
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	1,417,115		$	1,173,177
Receivables on government contracts		1,627,878			1,697,997
Prepaid expenses and other current assets		279,058			72,542
Total current assets		3,324,051			2,943,716
Property and equipment:
Equipment		188,966			171,018
Leasehold improvements		21,306			21,306
Furniture & fixtures		38,659			37,557
Less: accumulated depreciation		(113,977	)		(106,570	)
Property and equipment, net		134,954			123,311
Intangible assets		137,950			137,683
Less: accumulated amortization		(59,389	)		(54,101	)
Intangible assets, net		78,561			83,582
Deferred tax assets		18,646			8,745
Total assets	$	3,556,212		$	3,159,354

Liabilities and shareholders' equity
Current liabilities:
Accrued payroll and payroll taxes	$	512,716		$	575,926
Accounts payable and accrued expenses		796,737			482,873
Accrued warranty expense		40,000			40,000
Deferred revenue		7,500			18,750
Total current liabilities		1,356,953			1,117,549
Long-term liabilities		21,115			21,920
Total liabilities		1,378,068			1,139,469
Shareholders' equity:
Preferred stock, convertible, par value $.01 per share, authorized 5,000,000 shares, none issued and outstanding		-			-
Common stock, par value $.01 per share, authorized 60,000,000 shares, issued and outstanding 35,568,775 and 35,561,775 shares, respectively		355,689			355,619
Capital in excess of par value		10,092,727			10,087,843
Accumulated deficit		(8,270,272	)		(8,423,577	)
Total shareholders' equity		2,178,144			2,019,885
Total liabilities and shareholders' equity	$	3,556,212		$	3,159,354

	Three Months Ended March 31,
	2018			2017

Cash flows from operating activities
Net income	$	153,305		$	90,307
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		12,695			9,578
Deferred tax expense		(9,901	)		35,169
Share-based compensation expense		4,604			2,639
Changes in assets and liabilities:
Decrease in receivables on government contracts		70,119			558,275
Decrease (increase) in prepaid expenses and other current assets		(206,516	)		2,509
(Decrease) in accrued payroll and payroll taxes		(63,210	)		(73,341	)
Increase in accounts payable and accrued expenses		313,864			23,242
(Decrease) in accrued warranty expense		-			(142,890	)
(Decrease) increase in deferred revenue		(11,250	)		(7,500	)
(Decrease) in long-term liabilities		(805	)		(373	)
Net cash provided by operating activities		262,905			497,615
Cash flows from investing activities:
Payments related to intangible assets		(267	)		(788	)
Purchase of property and equipment		(19,050	)		(7,560	)
Net cash used in investing activities:		(19,317	)		(8,348	)
Cash flows from financing activities:
Exercise of stock options		350			3,350
Net cash provided by financing activities:		350			3,350
Net increase in cash and cash equivalents		243,938			492,617
Cash and cash equivalents, beginning of period		1,173,177			858,868
Cash and cash equivalents, end of period	$	1,417,115		$	1,351,485

Note3–SignificantAccountingPolicies

RevenueRecognition

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

Mikros Systems Corporation

Notes to Condensed Financial Statements

(unaudited)

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

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

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

Backlog (i.e., unfulfilled or remaining performance obligations) represents the sales we expect to recognize for our products and services for which control has not yet transferred to the customer. The estimated consideration is determined at the outset of the contract and considers the risks related to the technical, schedule and cost impacts to complete the contract. Periodically, we review these risks and may increase or decrease backlog accordingly. As the risks on such contracts are successfully retired, the estimated consideration from customers may be reduced, resulting in a reduction of backlog without a corresponding recognition of sales. As of March 31, 2018, our ending backlog was $4.9 million. For arrangements with the Department of Defense (“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.

WarrantyExpense

The Company provides a limited warranty, as defined by the related warranty agreements, for its production units. The Company’s warranties require the Company to repair or replace defective products during such warranty period. The Company estimates the costs that may be incurred under its warranty and records a liability in the amount of such costs at the time product revenue is recognized. Factors that affect the Company’s warranty liability include the number of units sold, expected and anticipated rates of warranty claims, and cost per claim. The Company periodically assesses the adequacy of its recorded warranty liability and adjusts the amount as necessary. During the three months ended March 31, 2018 and 2017, the Company recognized a net warranty recovery which is a component of the Company’s cost of sales of $0 and $(141,300), respectively. Since the inception of the ADEPT IDIQ contract in March 2010, the Company has delivered 200 ADEPT units. As of March 31, 2018, there are 11 ADEPT units that remain under the limited warranty coverage.

Mikros Systems Corporation

Notes to Condensed Financial Statements

(unaudited)

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

	March 31,		December 31,
	2018		2017
Balance, beginning of the period	$	40,000	$	240,980
Provision for product warranty		-		40,000
Product warranty expirations		-		(238,967	)
Product warranty costs paid		-		(2,013	)
Balance, end of the period	$	40,000	$	40,000

Research and Development Expense

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

	Three months ended March 31,
	2018		2017
Salaries	$	37,026	$	39,606
Other costs		3,793		2,189
	$	40,819	$	41,795

Intangible Assets

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

Licenses are amortized using a straight-line method over their estimated life of six years. For the three months ended March 31, 2018 and 2017, amortization expense related to the Company’s licenses amounted to $5,250 and $5,250, respectively, and are included in general and administrative expenses on the Statements of Operations and Comprehensive Income.

Mikros Systems Corporation

Notes to Condensed Financial Statements

(unaudited)

Note 4–IncomePerShare

Net income per common share information is as follows:

	Three Months Ended March 31,
Basic earnings per common share:	2018		2017
Net income allocable to common shareholders	$	153,305	$	90,307

Weighted average basic shares outstanding		35,564,419		35,430,119

Basic income per common share	$	-	$	-

Dilutive earnings per common share:
Net income allocable to common shareholders	$	153,305	$	90,307

Weighted average shares outstanding - basic		35,564,419		35,430,119
Diluted effect:
Stock options		70,364		71,523
Unvested restricted stock		194,782		141,750
Weighted average dilutive shares outstanding		35,829,565		35,643,392

Dilutive income per common share	$	-	$	-

Diluted net income per share for the three months ended March 31, 2018 and 2017 does not reflect the following potential common shares, as the effect would be antidilutive.

	Three Months Ended March 31,
	2018		2017

Stock options		-		335,000

Unvested restricted stock		70,000		30,000

The financial statements included herein have been prepared by Mikros Systems Corporation (the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. These condensed financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

In the opinion of the Company’s management, the accompanying unaudited interim condensed financial statements contain all adjustments, consisting solely of those which are of a normal recurring nature, necessary to present fairly its financial position as of March 31, 2017, the results of its operations for the three months ended March 31, 2017 and 2016, changes in stockholders’ equity from January 1, 2017 to March 31, 2017 and cash flows for the three months ended March 31, 2017 and 2016.

There have been no developments to recently issued accounting standards, including the expected dates of adoption and estimated effects on the Company’s condensed financial statements, from those disclosed in the Company’s 2016 Annual Report on Form 10-K.

The Company is engaged in research and development contracts with the federal government to develop certain technology to be utilized by the U.S. Department 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 the Company’s contracts may also be accrued as they are billable, under the terms of the agreements, unless such accrual is not reasonably related to the proportionate performance of the total work or services to be performed by the Company from inception to completion. Under the terms of certain contracts, fixed fees are not recognized until the receipt of full payment has become unconditional, that is, when the product has been delivered and accepted by the federal government. Backlog represents the estimated amount of future revenues to be recognized under negotiated contracts as work is performed. The Company’s backlog includes future Adaptive ~~Diagnostic Electronic Portable Testset(“ADEPT”) units to be developed and delivered to the federal government.~~

The Company recognizes revenue as it relates to the license of software when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and collection is probable. The sale and/or license of software products and technology is deemed to have occurred when a customer either has taken possession of or has access to take immediate possession of the software or technology. Software license agreements include post-contract customer support ("PCS"). For the Company’s software and software-related multiple element arrangements, where customers purchase both software related products and software related services, the Company uses 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 a company can support what the fair value of its 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 elements in a software and related services arrangement. The Company has established VSOE of fair value for the majority of the PCS, professional services, and training. Given the limited number of sales related to this software, and the fact that the Company does 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 and maintenance for the three months ended March 31, 2017 and 2016 were $7,500 and $27,750, respectively. At March 31, 2017 and December 31, 2016, deferred revenues amounted to $0 and $7,500, respectively.

Unbilled revenue reflects work performed, but not billed at the time, per contractual requirements. As of March 31, 2017 and December 31, 2016, the Company had unbilled revenues of $218,261 and $235,421, respectively which are recorded within receivables on government contracts in the Company’s balance sheet. Billings to customers in excess of revenue earned are classified as advanced billings, and shown as a liability. As of March 31, 2017 and December 31, 2016, there were no advanced billings.

The Company provides a limited warranty, as defined by the related warranty agreements, for its production units. The Company’s warranties require the Company to repair or replace defective products during such warranty period. The Company estimates the costs that may be incurred under its warranty and records a liability in the amount of such costs at the time product revenue is recognized. Factors that affect the Company’s warranty liability include the number of units sold, expected and anticipated rates of warranty claims, and cost per claim. The Company periodically assesses the adequacy of its recorded warranty liability and adjusts the amount as necessary. During the three months ended March 31, 2017 and 2016, the Company recognized a net warranty (recovery) expense, which is a component of the Company’s cost of sales of $(141,300) and $(20,801), respectively. Since the inception of the ADEPT IDIQ contract in March 2010, the Company has delivered 189 ADEPT units. As of March 31, 2017, there are 26 ADEPT units that remain under the limited warranty coverage.

~~The following table reflects the reserve for product warranty activity as of March 31, 2017 and December 31, 2016:~~

Licenses are amortized using a straight-line method over their estimated life of six years. For the three months ended March 31, 2017 and 2016, amortization expense related to the Company’s license amounted to $5,250 and $5,250, respectively, and are included in general and administrative expenses on the Condensed Statements of Operations and Comprehensive Income.

~~The table below sets forth the calculation of the percentage of net earnings allocable to common shareholders under thetwo-class method in 2016~~

~~Diluted net income per share for the three and nine months ended March 31, 2017 and 2016 does not reflect the following potential common shares, as the effect would be antidilutive.~~

At March 31, 2018, we estimated our annual effective tax rate for 2018 to be 31%. We recognized a tax expense of $68,812 for the three months ended March 31, 2018. At March 31, 2018, the difference from the statutory federal income tax rate is attributable to state income taxes and certain permanent book-tax differences.

The Company conducts an on-going analysis to review its net deferred tax asset and the need for a related valuation allowance. As a result of this analysis and the actual results of operations, the Company has (increased) decreased its net deferred tax assets by ~~$35,169~~$(9,901) and ~~$1,381~~$35,169 during the three months ended March 31, ~~2017~~2018 and ~~2016,~~2017, respectively. The change in deferred tax assets is attributable to the ~~reversal of~~changes in various book/tax differences.

~~At March~~In December 2017, new legislation was signed into law reducing the corporate U.S. tax rate from 35% to 21% for tax years beginning after December 31, 2017, fully repealing the corporate alternative minimum tax and making the NOL carryforward period indefinite for NOLs generated after 2017. In accordance with ASC Topic 740, deferred tax assets and liabilities are required to be measured at the enacted tax rate expected to apply when temporary differences are to be realized or settled. As of December 31, 2017, the Company ~~estimated~~re-measured its ~~annual effective~~deferred tax ~~rate for 2017 to be 49.3%. The~~balances based upon the new 21% tax rate.

While the Company ~~recognized a tax expense~~has completed its provisional analysis of ~~$87,775 for~~ the ~~three months ended March 31, 2017 primarily due to expected net income for the remainder of 2017. At March 31, 2017, the difference from the expected federal~~ income tax ~~rate is attributable to state income taxes~~effects of the new legislation and ~~certain permanent book-tax differences.~~

~~On January 30, 2017,~~recorded a reasonable estimate of such effects, the ~~Company issued 30,000 shares of restricted stock with a fair value of $0.37 per share. As of March 31, 2017, there was $11,100 of unrecognized stock-based compensation expense~~amounts recorded related to the ~~restricted stock~~new legislation may differ, possibly materially, due to, among other things, further refinement of the Company’s calculations, changes in interpretations and assumptions that the Company has made, additional guidance that may be issued ~~in January 2017 which~~by the U.S. Government, and actions and related accounting policy decisions the Company may take as a result of this legislation. The Company will complete its analysis over a one-year measurement period ending no later than December 22, 2018, and any adjustments during this measurement period will be ~~recognized~~included as an adjustment to income tax expense/benefit in ~~future periods. During~~ the ~~three months ended March 31, 2017, 22,000 options were exercised for proceeds amounting to $3,350. The intrinsic value of the options as of March 31, 2017 is $40,530.~~

~~The Company recognized stock-based compensation expense for restricted stock of $2,639 and $636 for the three months ended March 31, 2017 and 2016, respectively.~~reporting period when such adjustments are determined.

This report contains “forward-looking statements” – that is, statements related to future, not past, events. In this context, forward-looking statements often address our expected future business and financial performance and financial condition, and often contain words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “see,” or “will.” These ~~forward- looking~~forward-looking statements are not guarantees and are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. For us, particular uncertainties that could cause our actual results to be materially different than those expressed in our ~~forward- looking~~forward-looking statements include: changes in business conditions; a decline or redirection of the U.S. defense budget; the termination of any contracts with the U.S. Government; changes in our sales strategy and product development plans; changes in the marketplace; continued services of our executive management team; our limited marketing experience; competition between us and other companies seeking Small Business Innovative Research (“SBIR”) grants; competitive pricing pressures; market acceptance of our products under ~~development;~~development: delays in the development of products; our ability to adequately integrate our ~~new~~ software offerings into our business model, our ability to develop and market solutions for commercial customers, numerous other matters of national, regional and global scale, including those of a political, economic, business and competitive nature; statements of assumption underlying any of the foregoing, as well as other factors set forth under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2017 filed with the Securities and Exchange Commission. All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the foregoing. Except as required by law, we assume no duty to update or revise our forward-looking statements.

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

The following discussion and analysis summarizes the significant factors affecting the operating results, financial condition, liquidity and cash flows of our Company as of and for the periods presented below and should be read in conjunction with our unaudited condensed financial statements and related information contained herein and in our audited financial statements as of December 31, 2017.

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

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

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.

Revenues from our government contracts represented substantially all of our revenues for the year ended December 31, 2017. We believe that we can utilize the intellectual property developed under our various SBIR awards to develop proprietary products for both the government and commercial marketplace.

Adaptive Diagnostic Electronic Portable Testset ~~(ADEPT®)~~(ADEPT).ADEPT is an automated maintenance workstation designed to significantly reduce the time required to align the AN/SPY-1 Radar System aboard U.S. Navy Aegis cruisers and destroyers, while optimizing system performance and readiness. ADEPT Systems are currently deploying on all Aegis CG and DDG platforms to support the AN/SPY1 radar system. ADEPT represents an innovative approach to Navy shipboard maintenance, integrating modular instrumentation cards in a rugged enclosure with an onboard computer, input and output devices, networking hardware, removable hard drives, and a touch-screen display. A custom software application provides the user interface and integrates the hardware with a database that stores user information, instrument readings, maintenance requirements, and training aids. ADEPT is designed to be adapted to other complex shipboard systems, and provide integrated distance support capabilities for remote diagnostics and troubleshooting by shore-based Navy experts.

Since the system uses commercial instrument case and modules, ADEPT units can be modified to support both preventative maintenance and condition-based maintenance of other radars and complex electronic systems in military or commercial applications. In that regard, we have a service contract with the U.S. Navy to extend ADEPT to a second U.S. Navy radar system, the SPS-49. These services are expected to assist in optimizing performance for the Ballistic Missile Defense Mission. As of the date of this report, we have delivered a total of ~~189~~200 ADEPT units.

~~Adaptive~~ADEPT Distance Support Sensor Suite (ADSSS).In 2013, we started development of ~~the ADEPT Distance Support Sensor Suite, or~~ ADSSS for the Navy’s Littoral Combat Ship (“LCS”). ~~The LCS is the U.S. Navy’s latest combat warship.~~ ADSSS is a network-enabled system that can be configured to monitor multiple shipboard systems and report maintenance data onshore for further analysis to detect trends and predict failures. ADSSS provides an open architecture approach with industry standard hardware, and cybersecurity compliant software to acquire and process system operational and maintenance data. ADSSS fully automates the capture of system operation, environment and maintenance data to provide unattended operation. The system monitors key parameters and sends alert notifications when parameters move out of tolerance.

~~A pilot version of ADSSS has been deployed on the LCS Class since 2014. Development of the production system is ongoing and initial shipboard testing was completed in 2016~~. We expect ADSSS to be used on both variants of the LCS, currently planned to be at least 32 ships. ADSSS, with its remote monitoring and prognostics capabilities, has also generated interest in other ship classes, including Aegis, and we are currently pursuing several related opportunities.

Diagnostic ~~Profiler.~~Profiler. The Diagnostic Profiler is an integrated development environment for developing diagnostic capabilities used in maintenance, embedded diagnostics and troubleshooting applications. The software provides diagnostic services to its host application, including fault call-outs, suggested “next best” test to further isolate faults, and direct maintenance actions. When additional faults are identified, the software prioritizes the fault call-outs by probability. The use of the diagnostic profiler eliminates the need for the development and maintenance of diagnostic flow charts and hard-coded text sequences. This reduces the effort required to correct bugs and design changes and over the life of the system, could result in significant cost savings.

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

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, but 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 ~~the~~our ADSSS product. The contract has a term of five years and provides for the purchase and sale of up to $48 million of ADSSS units and related engineering and logistics support. The IDIQ contract covers the first eight ships of the 28 ship program. The first delivery order in the amount of $3.0 million was awarded on September 15, 2016 to perform installations, support and logistics for the LCS class.

In September 2016, we ~~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 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 ~~for~~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 and April 2017, we were awarded the second, third and ~~third~~fourth delivery orders under the ADEPT IDIQ Contract. The second delivery order covers 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 for $0.6 million is to provide ~~logistic~~sustainment services, such as calibration, repair, evaluations, and screenings of ADEPT units to be performed in our Manufacturing and Depot (M&D) Center in Largo, Florida. The fourth delivery order for $0.1 million is to provide training to sailors in the fleet to operate the ADEPT maintenance automation workstation.

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 (SBIR) office in Dahlgren, VA provided $0.5 million of the total funding to support this effort. ~~Along with those awards,~~

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

In August 2017, we received a modification to our ADEPT sustainment delivery order, adding $0.5 million to allow our manufacturing and depot center in Largo, Florida, (“M&D Center”) to continue to provide bi-annual sustainment services for ~~$0.1~~units from the fleet cycling through our M&D Center. The sustainment efforts include implementing modifications of existing units (54 in total) awaiting fielding.

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

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

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

As substantially all of our revenue is derived from contracts with the ~~federal~~Federal government, our key performance indicator is the dollar volume of contracts and ~~delivery~~task orders awarded to us under our IDIQ contracts. Increases in the number and value of contracts and trade orders awarded will generally result in increased revenues in future periods and, assuming relatively stable variable costs associated with our fulfilling such awards, increased profits in future periods. The timing of such awards is uncertain as we sell to ~~federal~~Federal government agencies where the process of obtaining such awards can be lengthy and at times uncertain. As the substantial majority of our revenue ~~for the three months ended March 31,~~in 2017, and expected revenue ~~for the next nine months of 2017,~~in 2018, is or will be from sales of ADEPT units and ADSSS systems under our ~~IDIQ contracts,~~IDIQs contract, continued generation of ~~delivery~~task orders and our ability to expand the market and potential customer base for ADEPT units will be a key indicator of future revenue. ADEPT units must be serviced and calibrated every two years. Accordingly, as we continue to increase the installed base of ADEPT units and expand the units to other radar systems, we expect to generate future recurring maintenance and service revenue.

Our strategy for continued growth is based on continuing expansion of our defense business ~~plus~~and executing new initiatives to apply our advanced maintenance technology in commercial markets. With regard to the defense industry, we expect to continue expanding our technology base, backlog and revenue by continuing our active participation in the DoD SBIR program and bidding on projects that fall within our areas of expertise. These areas include electronic systems engineering and integration, radar systems engineering, combat/C4I (Command, Control, Communications, Computers & Intelligence) systems engineering, and communications engineering. We believe that we can utilize the intellectual property developed under our various SBIR awards to develop proprietary products, such as ADEPT and ADSSS, with broad appeal in both the government and commercial marketplace. Our state-of-the-art test equipment can be used by many commercial and governmental customers such as the FAA, radio and television stations, cell phone stations, and airlines. Second, we will continue to pursue SBIR projects with the Department of Homeland Security, the U.S. Navy, and other government agencies. Third, we believe that through our marketing of products, such as ADEPT, we will develop key relationships with prime defense contractors. Our strategy is to develop these relationships into long-term, key subcontractor roles on future major defense programs awarded to these prime contractors.

With regard to commercial markets, our Diagnostics Profiler and Prognostics Framework software offerings complement our hardware products and allow us to provide complete hardware/software solutions for advanced maintenance applications. Current customers for these systems include major multinational corporations such as HP, which recently extended our Diagnostic Profiler software support with for a fifth year. We continue to receive repeat orders from these customers to support their applications. We plan to provide “condition-based maintenance” systems for applications such as FAA radar surveillance and support systems, power distribution and utilities infrastructure, commercial shipping, cooling and environmental systems, and other “complex distributed systems” to commercial customers. ~~Customers~~In that regard, we are currently 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. We have ~~received several repeat orders from these customers and continue~~deployed two active pilot systems that are providing key maintenance data on a daily basis to ~~support their applications.~~service technicians.

In ~~2017,~~2018, our primary strategic focus is to continue as a premium provider of R&D and product development services to the defense industry, generate multiple ~~delivery~~task orders under our two IDIQ contracts, and expand our commercial business through marketing and sales of our Prognostics Framework and Diagnostic Profiler software products. We will also seek to generate incremental revenue through providing light assembly and production services to commercial customers at our ~~manufacturing and depot center in Largo, Florida.~~M&D Center.

Over the longer term, we intend to further develop advanced maintenance technologies and implement these technologies in products for deployment in defense applications and to expand into ~~additional~~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, and building maintenance.~~systems. We are currently in discussions with certain industry participants regarding this initiative.

During ~~the past two fiscal~~recent years, the combination of spending caps, discretionary spending cuts, sequestration and further ~~proposed reductions~~changes in defense spending ~~has~~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.

~~Our critical accounting policies~~In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, as amended (commonly referred to as ASC 606), which replaces numerous requirements in U.S. GAAP, including industry-specific requirements, and ~~estimates are set forth in our Annual Report on Form 10-K~~provides companies with a single revenue recognition model for recognizing revenue from contracts with customers and significantly expanded the disclosure requirements for revenue arrangements. The new standard, as amended, was effective for the ~~fiscal year ended~~Company for interim and annual reporting periods beginning on January 1, 2018.

We adopted ASC 606 using the modified retrospective transition method. Results for reporting periods beginning after December 31, ~~2016. As of March 31,~~ 2017 ~~there have~~are presented under ASC 606, while prior period comparative information has not been ~~no changes~~restated and continues to ~~such critical~~be reported in accordance with ASC 605, Revenue Recognition, the accounting ~~policies and estimates.~~standard in effect for periods ending prior to January 1, 2018.

We generated revenues of $2,490,660 during the three months ended March 31, 2018 compared to $1,754,973 during the three months ended March 31, 2017, ~~compared to $987,929 during the three months ended March 31, 2016,~~ an increase of ~~$767,044,~~$735,687, or ~~78%~~42%. The increase was due primarily ~~due~~ to a production order for 1126 ADEPT units in ~~February~~September 2017, increase in revenue from engineering contracts, and the receipt of ~~six~~ additional contracts for engineering services, support and repairs and calibration ~~services amounting to $584,537.~~services.

Cost of sales consists of direct contract costs including labor, material, subcontracts, warranty expense for ADEPT units that have been delivered, travel, and other direct costs. Cost of sales for the three months ended March 31, ~~2017~~2018 was ~~$651,536~~$1,177,032 compared to ~~$324,328~~$651,536 for the three months ended March 31, ~~2016,~~2017, an increase of ~~$327,208~~$525,496 or ~~101%~~81%. The increase was due primarily ~~due~~ to the receipt of a production order for 1126 ADEPT units in ~~February~~September 2017, increase in ~~addition to~~revenues from engineering contracts received in 2017, and the receipt of ~~six~~ additional contracts for engineering services, support and repairs and calibration services. As a percentage of revenue, cost of sales increased to 47% of revenues for the three months ended March 31, 2018 as compared to 37% of revenues for the three months ended March 31, ~~2017 as compared to 33% of revenues for the three months ended March 31, 2016.~~2017. The increase was due primarily ~~due~~ to the change of the mix of costs incurred in ~~2017~~2018 specifically, increases in direct labor, material and subcontract costs related to engineering service ~~contracts awarded in the first quarter of 2017 which were offset by the expiration of warranty reserves.~~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 for the three months ended March 31, ~~2017~~2018 were ~~$517,180~~$640,293 compared to ~~$323,913~~$517,180 for the three months ended March 31, ~~2016,~~2017, an increase of ~~$193,267,~~$123,113, or ~~60%~~24%. The increase in 2018 was due to ~~significant~~ increases in engineering salaries and fringe benefits ~~and engineering salaries due to the hiring of six~~for additional employees hired in 2017, recruiting costs, incentive compensation, engineering consulting fees, and ~~incentive compensation.~~training for engineers.

General and administrative expenses consist primarily of salary, intellectual property, consulting fees and related costs, professional fees, business insurance, franchise tax, SEC compliance costs, travel, and unallowable expenses (representing those expenses for which the government will not reimburse ~~us)~~us, including independent research and development which consists of research and development expenses unrelated to our defense contracts). General and administrative costs for the three months ended March 31, ~~2017~~2018 were ~~$408,903~~$451,678 compared to ~~$336,148~~$408,903 for the three months ended March 31, ~~2016,~~2017, an increase of ~~$72,755,~~$42,775, or ~~22%~~10%. The increase was due primarily to increases in ~~Independent Research & Development (IR&D)~~bid and proposal salaries, ~~incentive compensation,~~insurance costs, and professional fees.

At March 31, ~~2017,~~2018, we estimated our annual effective tax rate for ~~2017~~2018 to be ~~49%~~31%. We recognized a tax expense of ~~$87,775~~$68,812 for the three months ended March 31, ~~2017 primarily due to expected net income for the remainder of 2017.~~2018. At March 31, ~~2017,~~2018, the difference from the ~~expected~~statutory federal income tax rate is attributable to state income taxes and certain permanent book-tax differences. In December 2017, new legislation was signed into law reducing the corporate U.S. tax rate from 35% to 21% for tax years beginning after December 31, 2017. Tax expense was $34,000 less under the lower 2018 rate than it would have been using the prior statutory tax rate.

We reported a net income of $153,305 for the three months ended March 31 2018 as compared to $90,307 for the three months ended March 31 2017, an increase of $62,998 or 70%. The increase was attributable primarily to the increase in revenues during the first quarter of 2018 which was offset by cost of sales increases in excess of our increase in revenue which was partially offset by smaller increases in our general and administrative expenses and engineering expenses, and a lower federal income tax rate.

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

During the three months ended March 31, ~~2017,~~2018, net cash provided by operations was ~~$497,615~~$262,905 compared to net cash ~~used in~~provided by operations of ~~$609,580~~$497,615 during the three months ended March 31, ~~2016.~~2017. The ~~increase~~decrease was primarily due to ~~an increase in net income of $88,461 and~~ the timing of receipts and payments related to our operating assets and liabilities.

~~We currently do not have~~Net cash used in investing activities was $19,317 in the three months ended March 31 2018 as compared to $8,348 in the three months ended March 31 2017, an increase of $10,969. The increase was due to the purchase of additional equipment, and furniture and fixtures, related to an expansion of our offices in Pennsylvania.

On January 31, 2018, we entered into a $550,000 credit facility with PNC Bank. The facility matures on January 31, 2019 and accrues interest at a variable rate equal to the Daily LIBOR Rate plus 250 basis points. Interest is paid monthly. Principal borrowings may be prepaid at any time without penalty and the facility is secured by substantially all of our assets. The facility contains customary affirmative and negative nonfinancial covenants. As of the date of this report, no amounts were outstanding ~~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~~under the ~~next twelve months. We do not expect to incur any material capital expenditures during the next twelve months.~~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.

As of March 31, ~~2017,~~2018, we did not have any relationships with unconsolidated entities or financial partners, such as entities often referred to as structured finance or special purpose entities, established for the purpose of facilitating off- balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

An evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934) was carried out by us under the supervision and with the participation of our ~~president,~~chief executive officer, who serves as our principal executive officer and principal financial officer. Based upon that evaluation, our ~~president~~chief executive officer concluded that as of March 31, ~~2017,~~2018, our disclosure controls and procedures were effective to ensure (i) that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (ii) that such information is accumulated and communicated to management, including our president, in order to allow timely decisions regarding required disclosure.

There were no changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) or 15d- 15(f)) that occurred during the fiscal quarter ended March 31, ~~2017~~2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

~~During the quarter ended March 31, 2017,~~On February 28, 2018, we issued ~~22,000~~7,000 shares of common stock to ~~certain employees and consultants~~an employee upon exercise of options ~~in consideration~~at an exercise price of ~~cash payment of $3,350.~~$0.05 per share. The ~~forgoing shares~~foregoing securities were issued in a private placement transaction pursuant to the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as ~~amended.~~amended, without general solicitation or advertising of any kind and without payment of placement agent or brokerage fees to any person.

*This certification is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act.

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

☒QUARTERLYREPORTPURSUANTTOSECTION13OR15(d)OFTHESECURITIESEXCHANGEACTOF1934 ForthequarterlyperiodendedMarch 31, 2018 or ☐ TRANSITIONREPORTPURSUANTTOSECTION13OR15(d)OFTHESECURITIESEXCHANGEACTOF1934 Forthetransitionperiodfrom_____to_____.	~~QUARTERLY~~~~REPORT~~~~PURSUANT~~TO~~SECTION~~13OR~~15(d)~~OF~~THE~~~~SECURITIES~~~~EXCHANGE~~~~ACT~~OF~~1934~~
	~~For~~~~the~~~~quarterly~~~~period~~~~ended~~ ~~March 31, 2017~~
		or
☐	~~TRANSITION~~~~REPORT~~~~PURSUANT~~TO~~SECTION~~13OR~~15(d)~~OF~~THE~~~~SECURITIES~~~~EXCHANGE~~~~ACT~~OF~~1934~~
	~~For~~~~the~~~~transition~~~~period~~~~from~~~~_____to_____.~~

Delaware	~~Delaware~~		14-1598200
	~~(State~~(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

		PAGE #
PARTI.	FINANCIALINFORMATION

Item 1.	Financial ~~Statements~~Statements.


	Condensed Balance Sheets as of March 31, ~~2017~~2018 (unaudited) and December 31, ~~2016 (unaudited)~~2017	1

	Condensed Statements of Operations and Comprehensive Income for the Three ~~MonthsEnded~~Months Ended March 31, 2018 and 2017 ~~and 2016~~ (unaudited)	2

	Condensed Statement of ~~Stockholders’~~Shareholder's Equity for the Three Months Ended March 31, ~~2017(unaudited)~~ 2018 (unaudited)	3

	Condensed Statements of Cash Flows for the Three Months Ended March 31, 2018 and 2017 ~~and 2016(unaudited)~~ (unaudited)	4

	Notes to Condensed Financial Statements (unaudited)	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations~~ Operations.	9

Item 4.	Controls and ~~Procedures~~ Procedures.	13 14

PARTII.	OTHERINFORMATION

Item 2.	Unregistered Sales of Equity Securities and Use of ~~Proceeds~~Proceeds.	14 15

Item 6.	~~Exhibits~~ Exhibits.	14 15

SIGNATURES		~~Signatures~~	1516

	March 31,			December 31,
	2017			2016

Assets
Current assets:
Cash and cash equivalents	$	1,351,485		$	858,868
Receivables on government contracts		1,146,026			1,704,301
Prepaid expenses and other current assets		52,635			55,144
Total current assets		2,550,146			2,618,313
Property and equipment
Equipment		103,253			95,693
Furniture & fixtures		16,394			16,394
Less: accumulated depreciation		(90,725	)		(86,436	)
Property and equipment, net		28,922			25,651
Intangible assets		129,704			128,916
Less: accumulated amortization		(38,236	)		(32,947	)
Intangible assets, net		91,468			95,969
Deferred tax assets		169,822			204,991
Total assets	$	2,840,358		$	2,944,924
Liabilities and shareholders' equity
Current liabilities:
Accrued payroll and payroll taxes	$	387,093		$	460,434
Accounts payable and accrued expenses		362,114			338,872
Accrued warranty expense		98,090			240,980
Deferred revenue		-			7,500
Total current liabilities		847,297			1,047,786
Long-term liabilities		140,004			140,377
Total liabilities		987,301			1,188,163



Shareholders' equity:
Preferred stock, convertible, par value $.01 per share, authorized5,000,000 shares, none issued and outstanding		-			-
Common stock, par value $.01 per share, authorized 60,000,000 shares,issued and outstanding 35,476,775 and 35,424,775 shares, respectively		354,769			354,249
Capital in excess of par value		10,067,363			10,061,894
Accumulated deficit		(8,569,075	)		(8,659,382	)
Total shareholders' equity		1,853,057			1,756,761
Total liabilities and shareholders' equity	$	2,840,358		$	2,944,924

	Three Months Ended,
	March 31,
	2018		2017

Contract revenues	$	2,490,660	$	1,754,973

Cost of sales		1,177,032		651,536

Gross margin		1,313,628		1,103,437

Expenses:
Engineering		640,293		517,180
General and administrative		451,678		408,903

Total expenses		1,091,971		926,083

Income from operations		221,657		177,354

Other income:
Interest		460		728

Net income before income taxes		222,117		178,082

Income tax expense		68,812		87,775

Net income available to common shareholders	$	153,305	$	90,307

Income per common share - basic	$	-	$	-

Basic weighted average number of shares outstanding		35,564,419		35,430,119

Income per common share - diluted	$	-	$	-

Diluted weighted average number of shares outstanding		35,829,565		35,643,392

	~~707~~~~Alexander~~~~Road,~~~~Building~~~~Two,~~~~Suite~~~~208,~~ ~~Princeton,~~~~New~~~~Jersey~~~~08540~~
	~~(Address of Principal Executive Offices)~~

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

	Three Months Ended,
	March 31,
	2017		2016

Contract Revenues	$	1,754,973	$	987,929

Cost of sales		651,536		324,328

Gross margin		1,103,437		663,601

Expenses:
Engineering		517,180		323,913
General and administrative		408,903		336,148

Total expenses		926,083		660,061

Income from operations		177,354		3,540

Other income:
Interest		728		1,449

Net income before income taxes		178,082		4,989

Income tax expense		87,775		3,143

Net income available to common shareholders	$	90,307	$	1,846

Income per common share - basic	$	-	$	-

Basic weighted average number of shares outstanding		35,430,119		32,030,138

Income per common share - diluted	$	-	$	-

Diluted weighted average number of shares outstanding		35,643,392		35,608,255

	Preferred Stock				Common Stock
	$0.01 Par Value				$0.01 Par Value				Capital in
	Number of shares		Par Value		Number of shares		Par Value		Excess of Par Value		Accumulated Deficit			Total
Balance at January 1, 2018		-	$	-		35,561,775	$	355,619	$	10,087,843	$	(8,423,577	)	$	2,019,885
Stock compensation		-		-		-		-		4,604		-			4,604
Exercise of non-restricted stock awards		-		-		7,000		70		280		-			350
Net income		-		-		-		-		-		153,305			153,305

Balance at March 31, 2018		-	$	-		35,568,775	$	355,689	$	10,092,727	$	(8,270,272	)	$	2,178,144

	March 31, 2017			December 31, 2016
Beginning balance	$	240,980		$	359,654
Provision for product warranty		-			1,800
Product warranty expirations		(141,300	)		(86,301	)
Product warranty costs paid		(1,590	)		(34,173	)
Ending balance	$	98,090		$	240,980

No.	~~No.~~	Description

	~~3.1~~10.1	~~Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-k , filed with the SEC on February 3, 2017)~~Loan Agreement entered dated January 31, 2018, between Mikros Systems Corporation and PNC Bank, National Association.

	~~32.1~~32.1*	Certification of principal executive officer and principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.

	101.INS	XBRL Instance

	101.SCH	XBRL Taxonomy Extension Schema

101.CAL	~~101.CAL~~	XBRL Taxonomy Extension Calculation

	101.DEF	XBRL Taxonomy Extension Definition

	101.LAB	XBRL Taxonomy Extension Labels

	101.PRE	XBRL Taxonomy Extension Presentation

	MIKROS SYSTEMS CORPORATION

May 15, 2018	By:	/s/ Thomas J. Meaney
~~May 15, 2017~~	~~By:~~	~~/s/ Thomas J. Meaney~~


		Thomas J. Meaney
		~~President~~ Chief Executive Officer and Chief Financial Officer