SECURITIES AND EXCHANGE COMMISSION
	                    WASHINGTON, D.C. 20549
                    ----------------------------------
                              FORM 10-KSB
         	ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE
     	               SECURITIES EXCHANGE ACT OF 1934

   For the fiscal year ended December 31, 2006
   Commission file number 2-67918

                      MIKROS SYSTEMS CORPORATION
                      --------------------------
         (Name of Small Business Issuer in Its Charter)
            Delaware                        14-1598200
            --------                        ----------
 (State or other jurisdiction of          (I.R.S. Employer
  incorporation or organization)           Identification No.)

 707 Alexander Road, Suite 208, Princeton, New Jersey 08540
(Address of principal executive offices, Including Zip Code)

Issuer's Telephone Number, including area code: 609-987-1513
                                                ------------
Securities Registered Pursuant to Section 12(b) of the Exchange Act:  None
Securities Registered Pursuant to Section 12(g) of the Exchange Act:

                   Common Stock, $.01 par value

Check whether the issuer is not required to file reports pursuant to Section
13 or 15(d) of the Exchange Act. [  ]

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act 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. [X] Yes [ ] No

Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this Form, and no disclosure will be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of Form 10-KSB or any
amendment to this Form 10-KSB. [X]

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

The issuer's revenues for the fiscal year ended December 31, 2006 were
$2,274,868.

The aggregate market value of the voting and non-voting common equity held by
nonaffiliates of the issuer as of March 26, 2007, was $8,789,257, based on the
average of the bid and asked price quoted by National Quotation Bureau, Inc.

The number of shares outstanding of the issuer's $.01 par value common stock
as of March 26, 2007 was 31,766,753.

				Transitional Small Business Disclosure Format

				Yes:________           No: ____X____


PART I



DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This report contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E
of the Securities Exchange Act of 1934, as amended.  All statements other
than statements of historical facts included or incorporated by reference
in this report, including, without limitation, statements regarding our
future financial position, business strategy, budgets, projected revenues,
projected costs and plans and objective of management for future operations,
are forward-looking statements.  In addition, forward-looking statements
generally can be identified by the use of forward-looking terminology such
as "may," "will," "expects," "intends," "plans," "projects," "estimates,"
"anticipates," or "believes" or the negative thereof or any variation
thereon or similar terminology or expressions.

These forward-looking statements are subject to risks and uncertainties
that could cause actual results to differ materially from results
proposed in such statements.  Although we believe that the expectations
reflected in such forward-looking statements are reasonable, we can give
no assurance that such expectations will prove to have been correct.
Important factors that could cause actual results to differ materially
from our expectations include, but are not limited to: changes in business
conditions, 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 SBIR grants, competitive pricing pressures, market
acceptance of our products under development, delays in the development
of products, and statements of assumption underlying any of the foregoing,
as well as other factors set forth under the caption "Risk Factors"
beginning on page 7 of this report and "Management's Discussions and
Analysis" below.

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 based on changes
in internal estimates or expectations or otherwise.

ITEM 1.  DESCRIPTION OF BUSINESS
---------------------------------

Mikros Systems Corporation ("Mikros" or "the Company") is an advanced
technology company specializing in the research and development of electronic
systems technology primarily for military applications.  Classified by the
U.S. Department of Defense (DoD) as a small business, our capabilities include
technology management, electronic systems engineering and integration, radar
systems engineering, combat/command, control, communications, computers and
intelligence (C4I) systems engineering, and communications engineering. Our
headquarters are located at 707 Alexander Road, Suite 208, in Princeton, New
Jersey.





History of the Company

Founded in 1978 in Albany, New York, Mikros was formed to leverage the
microprocessor advancements coming out of the nearby General Electric Research
and Development Center into state-of-the-art digital signal processing
applications for the defense industry.  We specialized in developing
technology and products advancing the state of military RF (radio frequency or
wireless) and underwater data communications.  Through several U.S. Navy Small
Business Innovation Research (SBIR) awards in the early 1990s, we developed
and fielded the AN/USQ-120 Multi-Frequency Link-11 Data Terminal Set still in
use today in the U.S. Navy.

In the mid 1990s, we began shifting our core business area away from military
communication applications to the rapidly expanding commercial wireless
communications arena.  Our advanced DSP technology base and core competencies
enabled us to develop unique, proprietary technology, high-speed data
broadcasting techniques utilizing the commercial AM and FM radio spectrum.  In
1998, we sold our military communications business to an unrelated third
party.

Due to limited capital and a limited commercial market demand for wireless
data broadcasting (one-way communication) applications, we re-entered the
military electronic systems business in 2002 upon expiration of our non-
compete restrictions imposed by the 1998 sale of our military communications
business.  Because of our past successes in the U.S. DoD SBIR program (11
awards from 1988 through 1996), we began pursuing SBIR awards within our areas
of expertise.

Multi-Function Distributed Analysis Tool

In May 2002, the U.S. Navy's Dahlgren Division, Naval Surface Warfare Center
("NSWCDD") awarded us a $100,000 Phase I SBIR contract to investigate the
feasibility of a Multi-Function Distributed Analysis Tool, or MFDAT.  As
envisioned, the MFDAT was to be a semi-automated, intelligent test tool
designed to support U.S. Navy technical personnel in the maintenance,
alignment and diagnosis of complex electronic systems.  The overall objectives
of the MFDAT program were:

- To achieve higher readiness through reduced maintenance downtime
  and better system assurance;
- To increase system reliability by supporting predictive failure
  analysis and proactive remediation; and
- To promote more effective use of technicians through increased
  automation, distance support and interactive training.

The completed Phase I program produced an operational, proof-of-concept,
software demonstration/simulation model of the MFDAT system.

In August 2003, we were awarded a $750,000 Phase II SBIR contract from Naval
Surface Warfare Center Dahlgren Division ("NSWCDD") to continue our
development of the MFDAT system.  The Phase II program produced a prototype
system capable of performing alignment and maintenance procedures on the Aegis
AN/SPY-1A radar system.  This MFDAT prototype system proved the viability of
incorporating the functionality of multiple electronic test equipment into a
single, programmable system.

In general, the developed MFDAT technology enables common testing processes,
training, and equipment for electronic system support thereby providing a
viable path toward meeting the U.S. Navy's readiness goals while reducing the
dependency on manpower, manpower training, and discrete test equipment.  The
success of our MFDAT Phase II program prompted the U.S. Navy to award an
additional $250,000 enhancement to the Phase II contract to accelerate the
transitioning, or "commercializing" in SBIR parlance, of the technology into a
product suitable for naval shipboard use.  The output of this Phase II SBIR
program was a fully-functional MFDAT prototype.

In September 2004, we received an SBIR Phase III contract from NSWCDD valued
at approximately $2,400,000 to commercialize our MFDAT technology into a
fully-integrated, man-portable test tool qualified for U.S. Navy fleet use.
This contract secures our SBIR data rights in the MFDAT technology for a
period of five years beyond the last delivery under the contract.  We have
named the resulting product ADEPT(r) (ADEPT is a registered trademark of Mikros
Systems Corporation), an acronym standing for Adaptive Diagnostic Electronic
Portable Testset.  Its initial application is as a computer-aided alignment
and maintenance tool for the AN/SPY-1 radar system, which is the primary air,
and surface radar for the Aegis Combat System installed on the Ticonderoga
(CG-47) and Arleigh Burke (DDG-51) class guided missile warships.  Key
anticipated benefits of ADEPT include:

- Significant reduction in system calibration, alignment,
  maintenance, and repair times;
- Improved system readiness, availability, and performance;
- More effective use of technical manpower through increased
  automation, distance support, and interactive training;
- Distance support capable enabling "expert" remote (shore-based)
  system support and fleet-wide system analysis;
- Reduction in the amount of electronic test equipment required for
  organizational level support; and
- Modular and programmable to overcome current test equipment
  obsolescence issues and to support capability enhancements in
  future systems.

The first ADEPT production units were manufactured in 2005 and are currently
undergoing shipboard and land-based testing.  On March 2, 2006, we received an
amendment to the SBIR Phase III contract for additional funding in the amount
of $2,950,000 from The Department of the Navy for the continuation of the
development and production of our ADEPT maintenance tool for U.S. Navy surface
combatants.  This modification will expand the application of ADEPT to include
all Aegis ship variants for cruisers and destroyers.  This market is comprised
of over 80 ships plus shore-based facilities.  Future potential markets
include foreign navies and other U.S. Navy ships.  This maintenance and
training tool allows U.S. Navy personnel to engage cutting-edge technology to
reduce maintenance time and enhance skill levels of shipboard personnel.

Key partners in the ADEPT program are DRS Laurel Technologies of Johnstown,
Pennsylvania; Lockheed Martin Corporation of Moorestown, New Jersey; and In-
Phase Technologies of Clarksburg, New Jersey.  DRS Laurel Technologies
subcontracted tasking includes the development of ADEPT's ruggedized enclosure
and unit manufacturing, test, and qualification.  Subcontract value to date is
approximately $1.5 million.  As the designer of the SPY-1 radar, Lockheed
Martin is our subject matter expert partner, and its subcontract value to date
is $200,000.  In-Phase Technologies is subcontracted to assist in the software
development for ADEPT's virtual instrumentation.  Its contract value to date
is approximately $550,000.

The ADEPT development for the SPY-1A application is complete and six
production units have been delivered to Mikros by DRS Technologies.  The
production units have passed environmental testing and have undergone
functional testing at the SPY-1A radar training site in Dahlgren, Virginia,
aboard the USS SAN JACINTO (CG-56), and at the Cruiser Modernization (CGM)
SPY-1A Test Facility in Moorestown, New Jersey.  We are currently in the
process of developing a smaller, lighter version of ADEPT for applications
where weight and size are critical factors.


Wireless Local Area Network Systems

We began work on another independent SBIR subject area in June 2004.  The
Office of Naval Research awarded us a $100,000 SBIR Phase I contract to
analyze the potential for interference between emerging Wireless Local Area
Network systems (WLANs) and DoD radar systems, and to evaluate and quantify
the potential improvements which may be afforded by selected mitigation
techniques.  This Radar Wireless Spectral Efficiency (RWSE) SBIR Phase I
program was completed in January 2005 and concluded that the potential exists
for mutual interference between WLANs and DoD radars, particularly during
land-based, littoral and harbor navigation operation of DoD radars.  We
recommended that further study of the identified mutual interference
mechanisms was warranted, including empirical testing to characterize the
effects of the interference and the potential mitigation techniques identified
during the Phase I program.


Radar Wireless Spectral Efficiency

On May 1, 2006, we were awarded an SBIR Phase II contract from Space and Naval
Warfare Systems Command (SPAWAR), San Diego, as a follow-on to our SBIR Phase
I work performed under the SBIR topic entitled Radar Wireless Spectral
Efficiency (RWSE).  The total award is valued at approximately $750,000
divided into a $600,000 base program and a $150,000 option program.  This SBIR
Phase II effort will focus on the real world implications of incorporating
wireless networking into the aircraft carrier (CVN platform) environment.  The
overall technical objective is to facilitate the introduction of commercial
wireless communication systems, e.g. Wi-Fi, onto the U.S. Navy CVN platform
through:  (1) the identification and testing of potential own-ship
electromagnetic interference (EMI) issues; (2) the development and testing of
viable mitigation technologies to overcome adverse EMI effects; and (3) the
development of a CVN Wi-Fi network planning tool to support networking within
a highly reconfigurable shipboard environment.  This contract is initially for
the CVN platform, but is expected to be eventually applicable to other U.S.
Navy ships.

Under this RWSE Phase II contract, in September 2006 we performed a survey of
wireless infrastructure on board the aircraft carrier USS GEORGE WASHINGTON
(CVN-73).  Our survey team went aboard and, using special purpose test
equipment and software, evaluated Wi-Fi network operation and the interactions
between these wireless networks and existing ship systems.  In October 2006,
we performed the same type of Wi-Fi evaluations aboard an "amphibious
carrier", the USS BATAAN (LHD-5).  Additional shipboard surveys are in the
planning stages.

Corporate Growth & Strategy

Our strategy for continued growth is three-fold.  First, we expect to continue
expanding our technology base, backlog, and revenue by continuing our active
participation in the DoD SBIR program, bidding on projects that fall within
our areas of expertise - 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 the ADEPT described above,
with broad appeal in both the government and commercial marketplace. This
state-of-the-art test equipment can be used by many commercial and
governmental customers such as the FAA, radio and TV 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(r) we
will develop key relationships with prime defense system contractors.  Our
strategy is to develop these relationships into longer-term, key subcontractor
roles on future major defense programs awarded to these prime contractors.


Competition


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


Intellectual Property


We have two patents covering digital signal processing technology and our base
scheme of implementing Link-11.  We have also developed and continue to
develop intellectual property (technology and data) under our SBIR contracts.
Under the ADEPT(r) development program, we are in process of filing a patent
covering its key technology with the U.S. Patent and Trademark Office. Our
request for a trademark for the product name "ADEPT" has been approved by the
U.S. Patent and Trademark Office, and ADEPT(r) is now a registered trademark of
ours.

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


Customer Concentration

Substantially all of our revenue is derived from SBIR contracts for the
federal government.


Employees

As of December 31, 2006, we had five full-time employees working at our Fort
Washington, Pennsylvania Research & Development Center and three part-time
employees.  None of the employees belong to a labor union.  We believe
relations with our employees are satisfactory.  We also use the services of
subcontractors and/or consultants as necessary to aid in software and hardware
development and for the manufacture of products.


ITEM 2.  DESCRIPTION OF PROPERTY.
---------------------------------

Our principal executive offices are located at 707 Alexander Road, Building 2,
Suite 208, Princeton, New Jersey 08540-6331.  Our engineering research, design
and development facility is located at 220 Commerce Drive, Suite 300, Fort
Washington, Pennsylvania 19034, where we lease approximately 2,513 square feet
of general office space under a lease agreement that terminates in November
2010.  We also maintain a marketing office at Three Crystal Park, 2231 Crystal
Drive, Suite 1005, Arlington, Virginia.


ITEM 3.  LEGAL PROCEEDINGS.
---------------------------

We know of no material, active, or pending legal proceedings against us, nor
are we involved as a plaintiff in any material proceeding or pending
litigation.

RISK FACTORS


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

We have a history of operating losses and although we had net income of
$129,800 for the year ended December 31, 2006 and a working capital surplus of
$263,353, we still had an accumulated deficit of $11,533,705 at December 31,
2006.

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

-  market acceptance of our new products;

-  budgetary constraints of our customers;

-  new product and service introductions by our competitors or us;

-  our employment patterns;

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

-  timing and customer acceptance of our new product and service
   offerings;

-  length of sales cycle; and

-  industry and general economic conditions.

Our success depends on the services of our senior management and our ability
to hire and retain additional skilled personnel.  The future success of our
company depends on the personal efforts and abilities of the members of our
senior management team to provide strategic direction, develop business,
manage operations and maintain a cohesive and stable environment.
Specifically, we are dependent upon Thomas J. Meaney, President and Chief
Executive Officer, and David C. Bryan, Executive Vice President and Chief
Operating Officer.  We do not have employment agreements with any key
personnel. Furthermore, our performance also depends on our ability to attract
and retain management and qualified professional and technical operating
staff. Competition for these skilled personnel is intense. The loss of
services of any key executive, or inability to continue to attract and retain
qualified staff, could have a material adverse effect on our business, results
of operations and financial condition. We do not maintain any key employee
insurance on any of our executives.

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

-  develop and manufacture commercially attractive products;

-  attract and retain an adequate number of customers;

-  enter new markets and compete successfully in them;

-  manage operating expenses; raise additional capital to fund our
   capital expenditure plans; and

-  attract and retain qualified personnel.

We have limited marketing experience.  We will be required to develop a
marketing and sales network that will effectively demonstrate the advantages
of our commercial offerings over competing options.  Our marketing experience
with our new commercial products is limited, and we have not identified a
customer for a commercially feasible application.  We currently perform all
our marketing through our own employees.  There can be no assurance that we
will be successful in our marketing efforts, that we will be able to establish
adequate sales and distribution capabilities, or that we will be able to enter
into marketing agreements or relationships with third parties on financially
acceptable terms.



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

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



We may issue additional shares of our capital stock that could dilute the
value of your shares. Our outstanding securities include shares of convertible
preferred stock and options.  During the respective terms of the options, and
while the preferred stock is outstanding, 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 preferred stock and 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 or through the
exercise of outstanding options 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.

Penny Stock Rules.  Our common stock currently trades on the OTC Bulletin
Since our common stock continues to trade below $5.00 per
        share, our common stock  is considered a "penny stock" and is subject to
         SEC 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
540:  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 rely on third-party contractors for certain engineering services that may
be difficult to replace.  We currently provide a portion of our engineering
services through third-party contractors such as DRS Laurel Technologies.
These services may not continue to be available on commercially reasonable
terms, if at all.  Services that are not immediately replaceable would need to
be internally developed, which could strain existing engineering personnel and
require us to spend substantial time and resources to retain additional
personnel or third-party contractors.  The loss or inability to maintain any
of these engineering service providers could result in delays in the
development of our products and services until equivalent services, if
available, are identified, developed, and integrated, which could harm our
business.

We have 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. In addition, we
have executed certain loan agreements, which prohibit the payment of a
dividend on our common stock as long as such agreements are in place.
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 currently is traded over-the-
counter on the OTC Bulletin Board.  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, and certain of their affiliates, beneficially own
approximately 31.9% 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
4,040,000 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.  The 2,052,433
shares of issued and outstanding preferred stock have certain rights and
preferences, including dividend and liquidation preferences, which also may
have the effect of delaying, deterring or preventing a change in control of
us.  In addition, certain "anti-takeover" provisions of the Delaware General
Corporation Law (the "DGCL"), 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.

Corporate governance requirements are likely to increase our costs and make it
more difficult to attract and retain qualified directors. We are subject to
the Sarbanes-Oxley Act of 2002, as well as rules adopted pursuant to that
legislation by the SEC.  We expect that these and other new laws, rules and
regulations will continue to increase our legal and financial compliance costs
and place a significant burden on management.  We also expect that new
regulatory requirements will make it more difficult and more expensive for us
to obtain director and officer liability insurance.  We may be required to
accept reduced coverage or incur significantly higher premium costs to obtain
coverage.  These new requirements are also likely to make it more difficult
for us to attract and retain qualified individuals to serve as members of our
board of directors or committees of the board, particularly the audit
committee.  In addition, starting with our fiscal year ending December 31,
2007, we will become subject to the requirements of Section 404 of the
Sarbanes-Oxley Act which will require us to make annual assessments of our
internal control over financial reporting and starting with our fiscal year
ending December 31, 2008 file an attestation of this assessment by our
independent registered public accountants.  To date, we have taken limited
actions with respect to compliance under Section 404.  We may need to hire
additional personnel and/or engage outside consulting firms to assist in our
efforts to comply with Section 404.  Any failure to improve our internal
accounting controls or other problems with our control systems could result in
delays or inaccuracies in reporting financial information or non-compliance
with SEC reporting and other regulatory requirements, any of which could
adversely affect or business and stock price.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
-------------------------------------------------------------

None.



PART II

ITEM 5.	MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL
       BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES.
----------------------------------------------------------------------------

Our common stock is quoted on the OTC Bulletin Board under the trading symbol
"MKRS.OB". 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 OTC Bulletin
Board.  The quoted prices 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 in actual
transactions.

                                  Bid
                            High          Low

2006

  First Quarter		$ 0.2900    $ 0.1750
  Second Quarter		  0.2800          0.2100
  Third Quarter		  0.2600          0.2100
  Fourth Quarter		  0.4750          0.2100


2005

  First Quarter		$ 0.2000        $ 0.1400
  Second Quarter		  0.2900	0.1450
  Third Quarter		  0.2400	0.1600
  Fourth Quarter		  0.2100	0.1610


The last price of our common stock as reported on the OTC Bulletin Board as of
March 26, 2007 was $0.48 per share.

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.  Our secured loan agreement with Sun
National Bank prohibits us from paying any dividends on our common stock.
Certain provisions of our convertible preferred stock also 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 to certain contractual restrictions and limitations
imposed under the DGCL. We do not anticipate paying dividends in the
foreseeable future.

As of March 26, 2007, we had 420 holders of record of our common stock.




ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS.
---------------------------------------------

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 accounting principles generally accepted in the United
States of America.  The preparation of these 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, investments, recoverability of long-
lived assets, income taxes, restructuring charges, and contingencies and
litigation.  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.

Revenue Recognition

Revenue from research and development contracts is recognized as work is
performed and costs are incurred.  Billings to the federal government are
generally recognized in accordance with the terms of the applicable contracts,
and utilize provisional indirect rates during the year.  These rates are
subject to audit by applicable government agencies.  Unbilled revenue reflects
work performed, but not billed at the time, pending contractual requirements
and is classified as a current asset.   Billings to customers in excess of
revenue earned are classified as advanced billings, and shown as a liability.


Recently Issued Accounting Standards

In December 2004, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 123R, "Share-Based Payment" ("SFAS 123R"). SFAS 123R replaces
SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") and
supersedes Accounting Principals Board ("APB") Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25"). The Company adopted the provisions of
SFAS 123R as of January 1, 2006 using the modified prospective transition
method, which does not require restatement of prior year results. The forgoing
had no impact on the income statement for the year ended December 31, 2006.
SFAS 123R requires that all share-based payments to employees, including
grants of stock options, be recognized as compensation expense in the
financial statements based on their fair value.

Prior to January 1, 2006, the Company followed APB 25 and the disclosure
requirements for SFAS No. 148 "Accounting for Stock-Based Compensation -
Transition and Disclosure - an Amendment of FASB Statement No. 123" ("SFAS
148") with pro forma disclosures of net income and earnings per share, as if
the fair value-based method of accounting as defined in SFAS 123 has been
applied. The adoption of SFAS 123R had no impact on the Company's consolidated
financial statements as of and for the year ended December 31, 2006, as the
Company had no non-vested stock options as of the date of adoption and no
stock options were granted in 2006.




In June 2006, the FASB ratified Emerging Issues Task Force ("EITF")Issue
No. 06-3, "How Taxes Collected from Customers and Remitted to Governmental
Authorities Should Be Presented in the Income Statement (that is, Gross versus
Net Presentation)", which allows companies to adopt a policy of presenting
taxes in the income statement on either a gross or net basis.  Taxes within
the scope of this EITF would include taxes that are imposed on a revenue
transaction between a seller and a customer.  If such taxes are significant,
the accounting policy should be disclosed as well as the amount of taxes 06-3
included in the financial statements if presented on a gross basis.  EITF is
effective for interim and annual reporting periods beginning after December
15, 2006.  The Company is currently assessing the impact, if any, of EITF
Issue No. 06-03 which it will adopt at the beginning of Fiscal 2007.

In July 2006, the FASB issued FASB Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109"
(FIN 48), which clarifies the accounting for uncertainty in tax positions.
This Interpretation requires that companies recognize in their financial
statements the impact of a tax position, and if that position is more likely
than not of being sustained on audit, based on the technical merits
of the position.  The provisions of FIN 48 are effective for fiscal years
beginning after December 15, 2006, with the cumulative effect of the change in
accounting principle recorded as an adjustment to opening retained earnings.
Management is currently evaluating the impact of adopting FIN 48 on the
financial statements.

In September 2006, the FASB issued Statement No. 157, Fair Value Measurements,
which defines fair value, establishes a framework for measuring fair value
under GAAP, and expands disclosures about fair value measurements.  FASB
Statement No. 157 applies to other accounting pronouncements that require or
permit fair value measurements.  The new guidance is effective for financial
statements issued for fiscal years beginning after November 15, 2007, and for
interim periods within those fiscal years.  We are currently evaluating the
potential impact, if any, of the adoption of FASB Statement No. 157 on our
consolidated financial position, results of operations and cash flows.

On September 13, 2006, the Securities and Exchange Commission "SEC" issued
Staff Accounting Bulleting No. 108 ("SAB 108").  SAB 108 provides interpretive
guidance on how the effects of the carryover or reversal of prior year
misstatements should be considered in quantifying a potential current year
misstatement.  Prior to SAB 108, companies might evaluate the materiality of
financial statement misstatements using either the income statement or balance
sheet approach, with the income statement approach focusing on new
misstatements added in the current year, and the balance sheet approach
focusing on the cumulative amount of misstatement present in a company's
balance sheet.  Misstatements that would be material under one approach could
be viewed as immaterial under another approach, and not be corrected.  SAB 108
now requires that companies view financial statement misstatements as material
if they are material according to either the income statement or balance sheet
approach.  The Company has analyzed SAB 108 and determined that upon adoption
it had no impact on the reported results of operations or financial condition.


Overview

This Management's Discussion and Analysis and other parts of this Annual Report
on Form 10-KSB contain forward-looking statements that involve risks and
uncertainties.  All forward-looking statements included in this Annual
         Report on  Form 10-KSB are based on information available to us on the
         date hereof, and except as required by law, we assume no obligation to
        update any such forward-looking statements.  Our actual results may
        differ materially from those anticipated in these forward-looking
                statements as a result of a number of  factors, including those
                set forth under the caption "Risk Factors" beginning on  page 7
                of this report and elsewhere  herein.  The following should be
                read in  conjunction with our annual  financial statements
               contained elsewhere in this  report.

In 2002, we re-entered the military electronic systems business and began
pursuing SBIR awards within our areas of expertise.  Revenues from our
government contracts represented 100% of our revenues for the years ended
December 31, 2006 and 2005.  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.

On March 2, 2006, we received an amendment to the SBIR Phase III contract for
additional funding in the amount of $2,950,000 from The Department of the Navy
for the continuation of the development and production of our ADEPT(r)
maintenance tool for U.S. Navy surface combatants.  This modification will
expand the application of ADEPT(r) to include all Aegis ship variants for
cruisers and destroyers.  This market is comprised of over 80 ships plus
shore-based facilities. We believe that the potential addressable ADEPT(r)
market for all Aegis ship variants for cruisers and destroyers is
approximately $20 million. Future potential markets include foreign navies and
other U.S. Navy ships.  This maintenance and training tool allows U.S. Navy
personnel to engage cutting-edge technology to reduce maintenance time and
enhance skill levels of shipboard personnel.

On May 1, 2006, we were awarded an SBIR Phase II contract from Space and Naval
Warfare Systems Command (SPAWAR), San Diego, as a follow-on to our SBIR Phase
I work performed under the SBIR topic entitled Radar Wireless Spectral
Efficiency (RWSE).  The total award is valued at approximately $750,000
divided into a $600,000 base program and a $150,000 option program.  This SBIR
Phase II effort will focus on the real world implications of incorporating
wireless networking into the aircraft carrier (CVN platform) environment.  The
overall technical objective is to facilitate the introduction of commercial
wireless communication systems, e.g. Wi-Fi, onto the U.S. Navy CVN platform
through:  (1) the identification and testing of potential own-ship
electromagnetic interference (EMI) issues; (2) the development and testing of
viable mitigation technologies to overcome adverse EMI effects; and (3) the
development of a CVN Wi-Fi network planning tool to support networking within
a highly reconfigurable shipboard environment.  This contract is initially for
the CVN platform, but is expected to eventually be applicable to other U.S.
Navy ships.  We intend to develop and market additional products and services
based upon the knowledge gained in developing the CVN Wi-Fi network planning
tool in the RWSE project.

Under this RWSE Phase II contract we performed a survey of wireless
infrastructure on board the aircraft carrier USS GEORGE WASHINGTON (CVN-73) in
September 2006.  Our survey team went aboard and, using special purpose test
equipment and software, evaluated Wi-Fi network operation and the interactions
between these wireless networks and existing ship systems.  In October 2006,
we performed the same type of Wi-Fi evaluations aboard an "amphibious
carrier", the USS BATAAN (LHD-5).  Additional shipboard surveys are in the
planning stages.



2006 vs. 2005

Total contract revenues in 2006 were $2,274,868 compared to $1,549,669 in
2005, an increase of 46.8%. Contract revenues in both years were derived
entirely from SBIR contracts.  The increase was due to increased billings on
the Phase III SBIR contract and revenues from the RWSE Phase II contract which
was awarded in May 2006. Additionally and as a result of these contracts, our
cost of sales increased from $932,717 in 2005 to $1,361,255 in 2006, an
increase of approximately 45.9%.

General and administrative expenses were $429,391 in 2006 compared to $305,317
in 2005. These expenses increased due to higher costs incurred for
administrative salaries and bid and proposal consultants, and related costs.

Engineering expenses were $324,357 in 2006 compared to $229,610 in 2005. The
increase in engineering costs for the year ended December 31, 2006 was due to
the RWSE Phase II contract and rental and related costs associated with the
lease of our research and development office located in Fort Washington,
Pennsylvania.

Income from operations increased to $159,865 in 2006 as compared to $82,025 in
2005. The increase resulted primarily from our revenue and cost of sales
increasing approximately 46% and our operating expenses increasing only 41%.
Net income remained essentially constant in 2006 as compared to 2005.
Specifically, we realized net income of $129,800 in 2006 compared to net
income of $134,525 in 2005.  This was primarily attributable to the Company
reversing a larger portion of its valuation allowance against its deferred tax
assets associated with available net operating loss carryforwards during 2005
and 2006.

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.

In 2006, net cash provided from operations was $127,753 compared to $31,943 in
2005. The increase was primarily the result of increased contract revenues.
We had working capital of $263,353 as of December 31, 2006 as compared to
working capital of $115,597 at December 31, 2005.

On November 16, 2006, we entered into a $50,000 revolving line of credit with
Sun National Bank (the "Lender") evidenced by a Promissory Note made by us in
favor of the Lender.  The revolving line of credit will be available to us for
two years.  On November 14, 2008, advances will no longer be made under the
revolving line of credit.  At that time, the then outstanding principal
balance will be converted into a five-year term loan with payments based on a
five-year amortization schedule.  The term loan will be payable in 60 equal
monthly installments and be due in full on November 14, 2013. During the first
five months of the revolving line of credit, any outstanding principal balance
will bear interest at 5.99% per annum.  Thereafter, any outstanding principal
balance will bear interest equal to the Sun National Bank Prime Rate.  The
loan is secured by substantially all of our assets pursuant to a Commercial
Security Agreement (the "Security Agreement") made by us in favor of the
Lender and is guaranteed by Thomas J. Meaney, our  President and Chief
Executive Officer. There were no outstanding amounts under this line of credit
at December 31, 2006.

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 12
months.

We anticipate considering the sale of additional debt or equity securities
under appropriate market conditions, alliances or other partnership agreements
with entities interested in supporting our government programs, or other
business transactions which would generate funds sufficient to assure
continuation of our operations and research programs.  There can be no
assurance, assuming we successfully raise additional funds or enter into
business alliances, that we will achieve profitability or positive cash flow.
If we are unable to obtain additional adequate financing or enter into such
business alliances, management will be required to sharply curtail our
operations.


ITEM 7.	FINANCIAL STATEMENTS.
----------------------------------

The financial statements required to be filed pursuant to this Item 7 are
appended to this report beginning on page F-1.


ITEM 8.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
		FINANCIAL DISCLOSURE
----------------------------------------------------------------------------

None.


ITEM 8A. CONTROLS AND PROCEDURES.
---------------------------------

Based on his evaluation of our disclosure controls and procedures (as defined
in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31,
2005, our president (principal executive officer and principal financial
officer) has concluded that our disclosure controls and procedures are
designed to ensure that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act: (i) is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms and are operating in an effective manner; and (ii) is
accumulated and communicated to management, including our president, as
appropriate to allow timely decisions regarding required disclosure.

There have not been any changes in our internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that
occurred during our recent fiscal quarter ended December 31, 2006 that have
materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.


ITEM 8B.  OTHER INFORMATION.
----------------------------

None.


PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND
   CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(A)OF THE EXCHANGE
   ACT
------------------------------------------------------------------------

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

      			  Served as a	Positions with
Name		Age	Director Since	the Company

Paul G. Casner	69	2002		Director


Thomas C. Lynch	64 	1997		Director

Thomas J. Meaney	72	1986		President, Chief Executive
					Officer, Chief Financial
					Officer and Director

Wayne E. Meyer	80	1988		Chairman of the Board and
					Director

Tom L. Schaffnit	60	2000		Director


David C. Bryan	52 	2002		Executive Vice
					President & Chief
							Operating Officer

Patricia A. Kapp	40	1998		Secretary and
					Treasurer


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

Paul G. Casner, Jr. has been a director of the Company since May 2002.
From 1999 to March 2005, Mr. Casner served as Executive Vice President and
Chief Operating Officer of DRS Technologies, Inc.  From 1994 to 1998, Mr.
Casner served as President of the Electronic Systems Group of DRS
Technologies. Before joining DRS Technologies, Mr. Casner was the Chairman and
Chief Executive Officer of Technology Applications and Service Company.  Mr.
Casner has over 35 years of Defense Industry experience, including several
senior positions in Business Management, Technical Management, Strategic
Planning and Business Development. 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. Mr. Casner is also a director of
ACE-COMM Corporation.

Thomas C. Lynch has been a Director of the Company since February 1997. Mr.
Lynch is currently Senior Vice President of The Staubach Company, a position
he has held since October 2001. From August 2000 to November 2001, Mr. Lynch
served as Senior Vice President of Safeguard Scientifics, Inc. From 1998 to
August 2000, he was Executive Vice President and later became President and
Chief Operating Officer of CompuCom Systems, Inc. Prior to joining CompuCom,
Mr. Lynch had been Senior Vice President of Safeguard Scientifics, Inc., a
position he held beginning in November 1995.  Mr. Lynch serves as a Director
on the following boards:  Pennsylvania Eastern Technology Council, Epitome
Systems, Telkonet, Armed Forces Benefit Association, Catholic Leadership
Institute, National Center for the American Revolution at Valley Forge and USO
World Board of Governors.  He has served as President of Valley Forge
Historical Society and Chairman of the Cradle of Liberty Council, Boy Scouts
of America. He currently serves as a trustee of the US Naval Academy
Foundation.

Thomas J. Meaney has been a Director of the Company since July 1986 and was
Chairman of the Board from June 1997 to February 1999. He was appointed
President in June 1986 and continued to serve until February 1997.  On
September  30, 1998, he was reappointed President of the Company.  From
February 1983 to June 1986, Mr. Meaney was Senior Vice President and Director
of Robotic Vision Systems Incorporated ("RVSI"), a manufacturer of robotic
vision systems.  Mr. Meaney served as a Director of RVSI until 1991 when he
resigned from the post.  Prior to 1983 and for more than five years, he was
Vice President - Business Development, International of Norden Systems and
President - Norden Systems Canada, both divisions of United Technologies
Corporation and developers of computer and electronic products and systems.
He presently owns his own defense consulting company with offices in
Arlington, Virginia and Chadds Ford, Pennsylvania.  Mr. Meaney is also a
director of Ocean Power Technologies, Inc.

Wayne E. Meyer has been a Director of the Company since April 1988, Chairman
of the Board 1990 to 1997, and re-elected as Chairman in February 1999. From
1986 to present, he has been the Founder and President of the W.E. Meyer
Corporation, based in Arlington, Virginia. The company engages in consulting
and advice to industry, government and academic institutions in matters of
systems engineering, project management, strategic planning and military and
electronic designs.  He enlisted in the U.S. Navy as an Apprentice Seaman in
1943 and retired in 1985 in the rank of Rear Admiral.  As a national authority
on Ballistic Missile Defense, he serves on numerous boards, groups and panels.

Tom L. Schaffnit has been a Director of the Company since June 2000.  Since
March 1999, he has been President of Schaffnit Consulting, Inc., a technology-
related management consulting company specializing in wireless data
communications and automotive telematics.  He was President of CUE Data
Corporation from February 1997 to March 1999, responsible for creating and
implementing new datacasting services on a nationwide FM subcarrier paging
network.  Previously, he served as a Senior Manager with Deloitte & Touche
Consulting Group, and as Director with Nordicity Group (since acquired by
PricewaterhouseCoopers). Mr. Schaffnit remains actively involved in the
evolution of wireless technology, and is co-author of the book "The
Comprehensive Guide to Wireless Technologies".

David C. Bryan has been Executive Vice President and Chief Operating Officer
of the Company since March 2002.  Mr. Bryan is responsible for R&D, program
management, business development, and general operations. Prior positions
include CTO and COO of Clariti Digital Paging and Technical Director for
Magnavox/General Atronics Corporation. He has 30 years experience in
electronic systems, products, hardware, and software development.

Patricia A. Kapp has been Corporate Secretary of the Company since April
1996.  In  September 1998,  Ms. Kapp was also named Treasurer.  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 are in compliance with all Section 16(a) filing requirements
applicable to such reporting persons.


Audit Committee

In March 2004, the board of directors formed an Audit Committee. The members
of the Audit Committee are Thomas C. Lynch, Wayne E. Meyer and Tom L.
Schaffnit.  The Audit Committee oversees and monitors management's and the
independent outside auditors' participation in the accounting and financial
reporting processes and the audits of the financial statements of the Company.
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.

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.  A copy of  our code of ethics is attached as
Exhibit 14.1 to this report.  Our Code of Business Conduct and Ethics is also
available on our website, www.mikros.us, 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 10.  EXECUTIVE COMPENSATION.
----------------------------------

The following Summary Compensation Table sets forth information concerning
compensation for services in all capacities awarded to, earned by or paid to
the Company's Chief Executive Officer and the four most highly compensated
executive officers of the Company whose aggregate cash compensation exceeded
$100,000 (collectively, the "Named Executives") during the years ended
December 31, 2006 and 2005.  We did not issue any options or other equity
compensation to any of Named Executives in 2006 or 2005.

Summary Compensation Table

	The following table sets forth the compensation for the fiscal years
ended December 31, 2006, and 2005, for services to us in all capacities, of
the named executive officers:


 Fiscal	Salary	Total
                  Year	 ($)	 ($)

1188: Thomas J. Meaney	2006	103,666	103,666
1189:  President	2005	 52,800	 52,800

1191:   David C. Bryan	2006	164,563	164,563
1192:   Executive Vice 	2005	156,000	156,000
1193:   President

Director Compensation

       We do not compensate any of our directors for serving on our board of
directors.  Each member of our board of directors receives reimbursement of
expenses incurred in connection with his or her services as a member of our
board.



ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
-------------------------------------------------------------------------

The following is certain information about our equity compensation plans
as of December 31, 2006:

                              Equity Compensation Plan Information

   (c)
-----------------------------------------------------------
			         Number of securities
    remaining available for
future issuance under
    equity compensation
  outstanding options,    plans (excluding
1219:   rights		 warrants and rights    securities reflected in
										column (a))
Plan Category
1224:  ----------------------------------------

Equity compensation plans
 approved by
 security holders
          361,818	$0.1658		   -

Equity compensation plans
 not approved by
 security holders
           -		   -		   -
--------------	------------------		------------------

 Total
1239:   361,818	$0.1658	 _
              ============                            =============








Common Stock

The following table sets forth certain information, as of March 26, 2007 with
respect to holdings of our common stock by (i) each person known by us to be
the beneficial owner of more than 5% of the total number of shares of common
stock outstanding as of such date, (ii) each of the current directors and
Named Executives, and (iii) all current directors and officers as a group.

  				 Amount and Nature
  			         Beneficial	      Percent
Name of Beneficial Owner    Ownership(1)		of Class


Certain Beneficial Owners:

Princeton Valuation 		2,920,050(2)          8.9
Consultants, L.L.C.
5 Vaughn Drive
Princeton, New Jersey 08540

Current Directors and Named Executives:

David C. Bryan 			   400,000           1.3

Paul G. Casner			   382,400		   1.2

Thomas C. Lynch		         382,400		   1.2

Thomas J. Meaney			 5,557,842(3)        16.5

Wayne E. Meyer		 	 3,071,650(4)         9.7

Tom L. Schaffnit			 1,103,277(5)	   	   3.4

All Current Directors 		10,897,569(6)        31.9
and Officers as a Group (six persons)

*	Less than 1%

(1)	Except as otherwise indicated, all shares are beneficially owned and the
	sole investment and voting power is held by the persons named.

(2)	Includes 202,500 shares issuable upon conversion of Convertible
Preferred Stock and 695,883 shares issuable upon conversion of Series B
Convertible Preferred Stock.

(3)	Includes 50,000 shares issuable upon conversion of Convertible Preferred
Stock and 1,949,775 shares issuable upon conversion of Series B
Convertible Preferred Stock.

(4)	Includes 30,000 shares issuable upon conversion of Series B Convertible
Preferred Stock.

(5)   Includes 361,818 shares issuable upon the exercise of options.

(6)	See Notes 3 through 5.


Convertible Preferred Stock

The following table sets forth certain information, as of March 26, 2007, with
respect to holdings of our Convertible Preferred Stock by (i) each person
known by us to be the beneficial owner of more than 5% of the total number of
shares of our Convertible Preferred Stock outstanding as of such date, (ii)
each of the current directors and Named Executives, and (iii) all current
directors and officers as a group.

           Amount and Nature
     					     of Beneficial	 Percent
Name of Beneficial Owner	     Ownership(1)     	 of Class

Certain Beneficial Owners:

Princeton Valuation Consultants        202,500         79.4
  L.L.C.
5 Vaughn Drive
Princeton, New Jersey 08540

Current Directors and Named Executives:

David C. Bryan 				   --    		   --

Paul G. Casner				   --			   --

Thomas C. Lynch				   --			   --

Thomas J. Meaney				   50,000		  19.6

Wayne E. Meyer				   --			   --

Tom L. Schaffnit				   --                --


All Current Directors and Officers as a Group
(six persons)   			        50,000	        19.6


(1)	Except as otherwise indicated, all shares are beneficially owned and
the sole investment and voting power is held by the persons named.



Series B Convertible Preferred Stock

The following table sets forth certain information, as of March 26, 2007,
with respect to holdings of our Series B Convertible Preferred Stock by (i)
each person known by us to be the beneficial owner of more than 5% of the
total number of shares of our Series B Convertible Preferred Stock outstanding
as of such date, (ii) each of the current directors and Named Executives, and
(iii) all current directors and officers as a group.

         Amount and Nature
       				     of Beneficial	    Percent
Name of Beneficial Owner	      Ownership(1)           of Class

Certain Beneficial Owners:

The Mercantile & General 		   91,342			 8.3
Reinsurance Company, PLC
Moorfields House
Moorfields
London EC2Y 9AL

Princeton Valuation Consultants,      231,961			21.0
 L.L.C
5 Vaughn Drive
Princeton, New Jersey 08540

Current Directors and Named Executives:

David C. Bryan 				    --			 --

Paul G. Casner				    --			 --

Thomas C. Lynch				    --		       --

Thomas J. Meaney				  649,925			59.0

Wayne E. Meyer				   10,000			 *

Tom L. Schaffnit				    --			 --

All Current Directors 			  659,925			59.0
and Officers as a Group
(six persons)

*	Less than 1%

(1)	Except as otherwise indicated, all shares are beneficially owned and the
sole investment and voting power is held by the persons named.







Redeemable Series C Preferred Stock

The following table sets forth certain information, as of March 26, 2007, with
respect to holdings of our Redeemable Series C Preferred Stock by (i) each
person known by us to be the beneficial owner of more than 5% of the total
number of shares of our Redeemable Series C Preferred Stock outstanding as of
such date, (ii) each of the current directors and Named Executives, and (iii)
all current directors and officers as a group.

       Amount and Nature
  						of Beneficial	  	Percent
Name of Beneficial Owner	        Ownership(1)           of Class

Certain Beneficial Owners:

Current Directors and Named Executives:

David C. Bryan 				  --                 --

Paul G. Casner				  --			   --

Thomas C. Lynch				  --			   --

Thomas J. Meaney				 5,000		  100.0

Wayne E. Meyer				  --			   --

Tom L. Schaffnit				  --			   --

All Current Directors and Officers   5,000		  100.0
as a Group (six persons)


* Less than 1%

(1) 	Except as otherwise indicated, all shares are beneficially owned and the
	sole investment and voting power is held by the persons named.



Series D Preferred Stock

The following table sets forth certain information, as of March 26, 2007, with
respect to holdings of our Series D Preferred Stock by (i) each person known
by us to be the beneficial owner of more than 5% of the total number of shares
of our Series D Preferred Stock outstanding as of such date, (ii) each of the
current directors and Named Executives, and (iii) all current directors and
officers as a group.

       Amount and Nature
   						of Beneficial		Percent
Name of Beneficial Owner		   Ownership(1)     	of Class

Certain Beneficial Owners:

Princeton Valuation Consultants,          138,000	      20.0
 L.L.C.
5 Vaughn Drive
Princeton, New Jersey 08540

Frederick C. Tecce				138,000		20.0
c/o Mikros Systems Corporation
707 Alexander Road, Bldg 2, Suite 208
Princeton, New Jersey 08540

JoAnne E. Burns                            69,000		10.0
c/o Mikros Systems Corporation
707 Alexander Road, Bldg 2, Suite 208
Princeton, New Jersey 08540

George W. Taylor					 69,000           10.0
c/o Mikros Systems Corporation
707 Alexander Road, Bldg 2, Suite 208
Princeton, New Jersey 08540

Current Directors and Named Executives:

David C. Bryan 				      --                 --

Paul G. Casner					--			 --

Thomas C. Lynch					--		       --

Thomas J. Meaney					138,000		20.0

Wayne E. Meyer					138,000		20.0

Tom L. Schaffnit					--			 --


All Current Directors and Officers 		276,000	      40.0
as a Group (six persons)


(1)	Except as otherwise indicated, all shares are beneficially owned and the
sole investment and voting power is held by the persons named.



ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
    INDEPENDENCE
-----------------------------------------------------------------------

Thomas J. Meaney is the guarantor of our obligations to Sun National Bank
under our $50,000 revolving line of credit which is secured by substantially
all of our assets.  Mr. Meaney is the President, Chief Executive Officer, and
a director of the Company.

We pay Wayne E. Meyer $500 per month for use of office space at Three Crystal
Park, 2231 Crystal Drive, Suite 105 in Arlington, Virginia.  Mr. Meyer is the
Chairman of the Board of Directors of the Company.


Director Independence

Upon consideration of the criteria and requirements regarding director
independence set forth in the rules of the National Association of Securities
Dealers, Inc. ("NASD"), our board of directors has determined that Paul G.
Casner, Thomas C. Lynch, Tom L. Schaffnit and Wayne E. Meyer, who constitute a
majority of its members, are independent.

With regard to our audit committee, the board of directors has determined that
Messrs. Lynch and Schaffnit are independent and that Mr. Meyer does not
satisfy the independence criteria for audit committee members set forth in
NASD Rule 4350(d) and Rule 10A-3(b)(1) of the Exchange Act.


ITEM 13.  EXHIBITS
-------------------

Note:  All exhibits that were filed as exhibits (i) to our Registration
Statement on Form S-18, File No. 2-67918-NY, as amended, or (ii) if so
specified, to previously filed Annual Reports on Form 10-KSB, Quarterly
Reports on Form 10-QSB or to previously filed Current Reports on Form 8-K, are
indicated by a parenthesis setting forth the exhibit number by which the
exhibits were identified in said Registration Statement and are hereby
incorporated by reference.

      3.1	Certificate of Incorporation [Exhibit 2(I)].
      3.2  	By-laws [Exhibit 2(II)].
      3.3   Form of Certificate of Amendment to Certificate of
           	Incorporation [Exhibit 2(III)].
      3.4  	Form of Certificate of Amendment of Incorporation with
           	respect to increase of authorized shares [Exhibit IV)].
      3.5   Certificate of Designations of Series B Preferred Stock and Series
C Preferred Stock [Exhibit 4.1 to Form 8-K filed September 12,
1988].
      3.6  	Certificate of Designations of Series D Preferred Stock
           	[Exhibit 4.16 to Form 10-K for 1993 filed March 30, 1994].
     10.1   1988 Restricted Stock Award Plan. [Exhibit 10.20 to
           	Form 10-K for 1988 filed May 15, 1989].
     10.2  	Form of Restricted Stock Agreement. [Exhibit 10.21 to
           	Form 10-K for 1988 filed May 15, 1989].
     10.3  	Incentive Stock Option [Exhibit 10(c)(III) to Form 10-K
           	for the year ended December 13, 1981].
     10.4  	Amended and Restated Stock Option Plan (1988)[Exhibit
           	10.27 to Form 10-K for 1989 filed April 3, 1990].
     10.5  	Form of 1996 Warrant with Schedule of Warrants.
     		[Exhibit 10.24 to Form 10-K filed February 28,1997].
     10.6  	Registration Statement of shares included in the
 	     	Incentive Stock Option Plan (1981)and the 1992
     		Incentive Stock Option Plan [Form S-8/S-3 filed April 25,1997].
     10.7   Contribution Agreement dated as of January 28, 2003.
       between the Company and Paul G. Casner, Thomas C. Lynch, Thomas J.
Meaney, Wayne E. Meyer and Tom L. Schaffnit [Exhibit 10.24 to Form
10-KSB filed March 31, 2003].
14.1	Mikros Systems Corporation Code of Business Conduct and Ethics
[Exhibit 14 to Form 10-QSB filed August 11, 2006].
31.1	Certification of principal executive officer and principal
financial officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
32.1   Certification of principal executive officer and principal
financial officer pursuant to Section 906 of the Sarbanes-Oxley
       Act of 2002, 18 U.S.C. 1350.


ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
-----------------------------------------------

Audit Fees

We have engaged Beard Miller Company LLP for the audit of our financial
statements for the years ended December 31, 2006 and 2005 and the reviews of
the financial statements included in each of our quarterly reports on Form 10-
QSB during the years ended December 31, 2006 and 2005 for a fee of $28,160 and
$25,542, respectively.


Audit-Related Fees

There were no fees billed by our independent accountants for audit-related
services during the fiscal years ended December 31, 2006 and 2005.


Tax Fees

There were no fees billed by our independent accountants for tax fees for the
years ended December 31, 2006 and 2005.


All Other Fees

There were no fees billed by our independent accountants for non-audit
services during the years ended December 31, 2006 and 2005.


Audit Committee Pre-Approval Policies and Procedures

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




						SIGNATURE PAGE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                              MIKROS SYSTEMS CORPORATION
                              --------------------------
                                     (Registrant)



Dated: March 30, 2007
                          By: /s/ Thomas J. Meaney
                          --------------------------------
        Thomas J. Meaney, President


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


Signatures                                   Date


/s/ Wayne E. Meyer
---------------------------		   	   March 30, 2007
Wayne E. Meyer, Chairman


/s/ Paul G. Casner
---------------------------		   	   March 30, 2007
Paul G. Casner, Director


/s/ Thomas C. Lynch                    	   March 30, 2007
------------------------------
Thomas C. Lynch, Director


/s/  Thomas J. Meaney
------------------------------		   March 30, 2007
Thomas J. Meaney, Director


/s/  Tom L. Schaffnit                        March 30, 2007
------------------------------
Tom L. Schaffnit, Director




Report of Independent Registered Public Accounting Firm





To the Board of Directors and Shareholders of
MIKROS SYSTEMS CORPORATION
Princeton, New Jersey

We have audited the accompanying balance sheet of Mikros Systems Corporation
(the Company) as of December 31, 2006, and the related statements of income,
shareholders' equity, and cash flows for the years ended December 31, 2006 and
2005.  These financial statements are the responsibility of the Company's
management.  Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting.  Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the Company's internal
control over financial reporting.  Accordingly, we express no such opinion.
An audit also includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.  We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mikros Systems Corporation as
of December 31, 2006, and the results of its operations and its cash flows for
the years ended December 31, 2006 and 2005 in conformity with accounting
principles generally accepted in the United States of America.


/s/ Beard Miller Company LLP




Beard Miller Company LLP
Reading, Pennsylvania
March 26, 2007













       MIKROS SYSTEMS CORPORATION
                              BALANCE SHEET

                                      DECEMBER 31,
         ASSETS                           2006
------------------------------       ------------

CURRENT ASSETS
  Cash                                $  229,459

  Receivables on Government Contracts    201,722

  Other Current Assets                    15,800
                                     ------------
TOTAL CURRENT ASSETS                     446,981
                                     ------------

  Patents and Trademarks			12,188

  Less: Accumulated Amortization          (6,888)
                                     ------------
                                           5,300


  Equipment                               13,114

  Less: Accumulated Depreciation          (5,882)
 						 ------------
  							 7,232
                                     ------------

  Deferred Tax Asset				48,000
                                     ------------

TOTAL ASSETS				 $   507,513
                                     ============

	See Notes to Financial Statements























				MIKROS SYSTEMS CORPORATION
                           BALANCE SHEET (continued)


         LIABILITIES AND                            DECEMBER 31,
      SHAREHOLDERS'  EQUITY		                     2006
----------------------------------                  -----------
CURRENT LIABILITIES

  Accrued Payroll and Payroll Taxes                  $  75,119
  Accounts Payable                                     102,639
  Taxes Payable						5,870
                                                   ------------
TOTAL CURRENT LIABILITIES                              183,628
                                                   ------------

  Long-term Liabilities				      16,022
                                                   ------------

TOTAL LIABILITIES					     199,650

REDEEMABLE SERIES C PREFERRED STOCK
  par value $.01 per share, authorized 150,000
  shares, issued and outstanding 5,000 shares
  (involuntary liquidation value - $80,450)             80,450
                                                    -----------
SHAREHOLDERS' EQUITY


  Preferred Stock, Series B convertible, par value
  $.01 per share, authorized 1,200,000 shares, issued
  and outstanding 1,102,433 shares                      11,024
  (involuntary liquidation value - $1,102,433)

  Preferred Stock, convertible, par value $.01
  per share, authorized 2,000,000 shares, issued
  and outstanding 255,000 shares
  (involuntary liquidation value - $255,000)             2,550


  Preferred Stock, Series D, par value $.01 per share
  690,000 shares authorized, issued and outstanding      6,900
  (involuntary liquidation value - $1,518,000)

  Common Stock, par value $.01 per share,
  authorized 60,000,000 shares, issued and
  outstanding 31,766,753 shares
	                          	                   317,668

  Capital in excess of par value                    11,422,976

  Accumulated Deficit                              (11,533,705)
                                                   ------------
TOTAL SHAREHOLDERS' EQUITY    	          	     227,413
                                                   ------------
TOTAL LIABILITIES AND SHAREHOLDERS'
   EQUITY    				              $    507,513
                                                   ============

	See Notes to Financial Statements

















                       MIKROS SYSTEMS CORPORATION
                         STATEMENTS OF INCOME



				  		Years Ended December 31,
                                        2006          2005
                                    ------------   -----------

 Contract Revenues			$  2,274,868   $1,549,669

 Cost of sales				   1,361,255      932,717
                                    ------------   -----------

 Gross margin				     913,613	616,952
                                    ------------   -----------
 Expenses
   Engineering				     324,357	229,610
   General and Administrative            429,391      305,317
                                     ------------  -----------
   Total expenses                        753,748      534,927
                                     ------------  -----------

 Income from operations       	     159,865       82,025

 Other Income:
   Interest                        		   285            -
                                     ------------  -----------
 Net income before income taxes          160,150       82,025

 Income tax expense (benefit)		      30,350      (52,500)
						 ------------  -----------

 Net income                           $  129,800    $ 134,525
                                     ============  ===========

Basic and diluted earnings
   per share 			 	  $     0.00    $    0.00
                                     ============  ===========
Weighted average number of shares
 outstanding                          31,766,753    31,766,753
                                    ============  =============

See Notes to Financial Statements




















MIKROS SYSTEMS CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2006 AND 2005


 Preferred Stock    Preferred Stock D
   $0.01 Par Value     $0.01 Par Value
1940:    -------------------------------------------------------------
  Par        Number     Par     Number       Par
 of shares  Value   of shares    Value
1943:    --------------------------------------------------------------

Balance,
1949:January 1, 2005   1,102,433  $11,024  255,000    $2,550    690,000   $6,900

Net loss

1953:  ----------   ------- --------- -------   --------- --------
Balance,
Dec. 31, 2005 1,102,433  $11,024  255,000    $2,550    690,000   $6,900


Net income
1959: ----------  ------- ---------- -------   --------- --------
Balance,
 Dec. 31, 2006 1,102,433  $11,024  255,000    $2,550    690,000   $6,900
1962:   =======  ======= =========- =======   ========= ========


1959:  Capital in
  excess of     Accumulated
Par Value       Deficit	     Total
1962:   ------------------------------------------------------------------
               Number      Par
               of shares   Value
1965:   ------------------------------------------------------------------

Balance,
  31,766,753  $317,668 $ 11,422,976   $(11,798,030)    $(36,912)

                                                      134,525      134,525
1978:    --------  --------  -----------   ------------    ---------
Balance,
31,766,753  $317,668   11,422,976   $(11,663,505)    $(97,613)


                                                         129,800      129,800
1983:   ----------  --------- -----------   -------------    ---------
Balance,
1987Dec.  31, 2006 31,766,753  $317,668 $ 11,422,976  $(11,533,705)  $ 227,413
1986: ==========  ========  ===========   =============   ==========

                                  See Notes to Financial Statements




























MIKROS SYSTEMS CORPORATION
STATEMENTS OF CASH FLOWS



                                                Years Ended December 31,
                                                    2006         2005
                                             ------------    -----------
Cash Flow From Operating Activities:
 Net income                                  $   129,800     $   134,525
 Adjustments to reconcile net income
 to net cash provided by operating activities:
 Depreciation and Amortization             9,170           2,663
 Deferred Tax Expense (Benefit)         17,000      (65,000)

Net Changes in Operating Assets and Liabilities
  Receivables on Government Contracts             (99,363)         69,782
  Other Current Assets                              1,093         (12,812)
  Accounts Payable                                 44,468         (22,818)
  Accrued Payroll and Payroll Taxes                24,681           3,412
  Accrued Expenses and Other Liabilities              904         (77,809)
                                                 -----------      ---------

Net Cash Provided By operating activities         127,753	       31,943

Cash Flow From Investing Activities:

   Purchase of Equipment				   (1,590)        (10,182)
   Costs associated with patent and
     trademark development  			         (6,858)         (5,330)
                                               -----------      ----------

Net Cash Used In Investing Activities:             (8,448)        (15,512)

                                               -----------      ----------
Net Increase in Cash                              119,305          16,431

Cash, Beginning of year 	                      	  110,154            93,723
                                     		      -----------      ----------

Cash, end of year                            $    229,459    $    110,154
							     ===========      ==========
Supplementary Cash Flows Information:

  Income taxes paid				   $      6,610	 $		0
		                                   ===========      ==========




See Notes to Financial Statements



				   MIKROS SYSTEMS CORPORATION
                         NOTES TO FINANCIAL STATEMENTS


NOTE 1 -  THE COMPANY
---------------------

Mikros Systems Corporation (the "Company") was founded in 1978. The Company is
an advanced technology company specializing in the research and development of
electronic systems technology primarily for military applications.  Classified
by the U.S. Department of Defense (DoD) as a small business, our capabilities
include technology management, electronic systems engineering and integration,
radar systems engineering, combat/command, control, communications, computers
and intelligence (C4I) systems engineering, and communications engineering.

The Company's primary business is to pursue and obtain Homeland Security, U.S.
Navy, and other governmental authorities.  Since 2002, the Company has been
awarded a number of Phase I, II, and III SBIR contracts.

In September 2004, the Company was awarded a Small Business Innovation
Research (SBIR) Phase III contract from the Naval Surface Warfare Center -
Dahlgren, Virginia valued at approximately $2,400,000, the contract is to
complete the development and to begin initial production of an intelligent
test tool for Navy radars.  The Multi-Function Distributed Analysis Tool
(MFDAT) has been designed by the Company under the SBIR Phase II contract,
which began in August 2003.  As of December 31, 2006 and 2005, the Company had
billed $1,944,687 and $1,512,238, respectively under this Phase III contract.

On March 2, 2006, the Company announced that it had received additional
funding in the amount of $2.95M from The Department of the U.S. Navy for the
continuation of the development and production of the ADEPT(tm)
maintenance tool for U.S. Navy surface combatants.  This modification
2105:  will expand the application of ADEPT(tm) to include all Aegis ship
          variants  for cruisers and destroyers.  This market totals over
         80 ships plus  shore-based facilities.
Future potential markets include foreign navies and other U.S. Navy ships.
This maintenance and training tool allows U.S. Navy personnel to engage
cutting-edge technology to reduce maintenance time and enhance skill levels of
shipboard personnel.

On May 1, 2006, the Company was awarded an SBIR Phase II contract from Space
and Naval Warfare Systems Command (SPAWAR), San Diego, as a follow-on to our
SBIR Phase I work performed under the SBIR topic entitled Radar Wireless
Spectral Efficiency (RWSE).  The total award is valued at approximately
$750,000 divided into a $600,000 base program and a $150,000 option program.
This SBIR Phase II effort will focus on the real world implications of
incorporating wireless networking into the aircraft carrier (CVN platform)
environment.  The overall technical objective is to facilitate the
introduction of commercial wireless communication systems, e.g. Wi-Fi, onto
the U.S. Navy CVN platform through:  (1) the identification and testing of
potential own-ship electromagnetic interference (EMI) issues; (2) the
development and testing of viable mitigation technologies to overcome adverse
EMI effects; and (3) the development of a CVN Wi-Fi network planning tool to
support networking within a highly reconfigurable shipboard environment.  This
contract is initially for the CVN platform, but is expected to be eventually
applicable to other U.S. Navy ships.

Under this RWSE Phase II contract we performed a survey of wireless
infrastructure on board the aircraft carrier USS GEORGE WASHINGTON (CVN-73) in
September 2006.  Our survey team went aboard and, using special purpose test
equipment and software, evaluated Wi-Fi network operation and the interactions
between these wireless networks and existing ship systems.  In October 2006,
we performed the same type of Wi-Fi evaluations aboard an "amphibious
carrier", the USS BATAAN (LHD-5).  Additional shipboard surveys are in the
planning stages.




NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
----------------------------------------


Use of Estimates
----------------

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and reported amounts of revenues and
expenses during the reporting period.  Actual results could differ from those
estimates.


Receivables on Government Contracts
-----------------------------------

Receivables on Government Contracts are stated at outstanding balances, less
an allowance for doubtful accounts, if necessary.  When necessary, the
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, agings of the receivables, adverse situations that may affect
a customers' 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.  No allowance for
doubtful accounts was deemed necessary by management at December 31, 2006.


Cash
----

Cash balances consist of balances that are immediately available to the
Company and are held by financial institutions.  These balances may, at times,
exceed FDIC insured limits.


Equipment
---------

Equipment is stated at cost. Depreciation is computed using the straight-line
method based on estimated useful lives of 3 years. Depreciation expense
amounted to $3,615 and $1,330 for years ended December 31, 2006 and 2005,
respectively.





Earnings per Common Share
-------------------------

The Company reports earnings per share in accordance with the provisions of
Statement of Financial Accounting Standards No. 128 (SFAS No. 128), Earnings
Per Share.  SFAS No. 128 requires the presentation of basic and diluted
earnings per share in conjunction with the disclosure of the methodology used
in computing such earnings per share.  Basic earnings per share excludes the
dilutive effect of securities and other contracts and is computed by dividing
income available to common stockholders by the weighted average common shares
outstanding during the period.  Diluted earnings per share takes into account
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised and converted into common stock.

Stock Options
-------------

Prior to January 1, 2006, the Company's stock option plans were accounted for
under the recognition and measurement provisions of APB Opinion No. 25
(Opinion 25), "Accounting for Stock Issued to Employees," and related
Interpretations, as permitted by FASB Statement No. 123, "Accounting for Stock
Based Compensation." No stock-based employee compensation cost was recognized
in the Company statements of income through December 31, 2005, as all options
granted under the plan had an exercise price equal to the market value of the
underlying common stock on the date of the grant.  Statement No. 123(R)
replaces Statement No. 123, supersedes APB Opinion No. 25 and requires
compensation costs related to share-based payment transactions to be
recognized in the financial statements over the period that an employee
provides service in exchange for the award.  Effective January 1, 2006, the
Company adopted the fair value recognition provisions of FASB Statement No.
123(R), "Share Based Payment," using the modified-prospective transition
method.  Under that transition method, compensation cost recognized after
January 1, 2006 includes: (a) compensation cost for all share-based payments
granted prior to, but not yet vested, as of January 1, 2006 based on the
grant-date fair value calculated in accordance with the provision of Statement
No. 123, and (b) compensation cost for all share-based payments granted
subsequent to December 31, 2005, based on the grant-date fair value calculated
in accordance with the provision of Statement 123(R).  The Company had no
unvested stock options at December 31, 2005, therefore, the adoption of
Statement 123(R) relates only to share-based payments granted after January 1,
2006.  The Company granted no stock options in 2006.

Revenue Recognition
-------------------

Revenues are recognized when the Company incurs reimbursable costs under the
contracts.  During 2006 and 2005, all contract revenues were recognized on
contracts with the Federal Government.

Patents and Trademarks
----------------------

The Company holds two patents covering digital signal processing technology
and its base scheme of implementing Link-11.  The Company has also developed
and continues to develop intellectual property (technology and data) under its
SBIR contracts. Under the ADEPT(r) development program, the Company is in
process of filing for a patent covering its key technology with the U.S.
Patent and Trademark Office. The request for a trademark for the product name
"ADEPT" has been approved by the U.S. Patent and Trademark Office, and ADEPT(r)
is now a registered trademark of the Company.

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

In 2006 and 2005, the Company amortized the costs of its patents and
trademarks in the amount of $5,555 and $1,333, respectively. These costs are
being amortized over their 17 year legal lives.
Income Taxes
------------

The Company accounts for income taxes under the liability method prescribed by
SFAS No. 109, Accounting for Income Taxes.  Deferred tax assets and
liabilities are determined based on the difference between the financial
statement and the tax bases of assets and liabilities as measured by the
enacted tax rates that are expected to be in effect when these differences
reverse.  Deferred tax expense (benefit) is the result of changes in deferred
tax assets and liabilities.  Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that
some portion of a deferred tax asset will not be realized.


Deferred Rent
-------------

Rent expense under operating leases providing for rent abatements and fixed
non-contingent escalations is recognized on a straight-line basis over the
term of each individual underlying lease. The cumulative net excess of
recorded rent expense over lease payments made is reflected on the balance
sheet within long-term liabilities.


Recently Issued Accounting Standards
------------------------------------

In June 2006, the FASB ratified Emerging Issues Task Force ("EITF")Issue
No. 06-3, "How Taxes Collected from Customers and Remitted to Governmental
Authorities Should Be Presented in the Income Statement (that is, Gross versus
Net Presentation)", which allows companies to adopt a policy of presenting
taxes in the income statement on either a gross or net basis.  Taxes within
the scope of this EITF would include taxes that are imposed on a revenue
transaction between a seller and a customer.  If such taxes are significant,
the accounting policy should be disclosed as well as the amount of taxes
included in the financial statements if presented on a gross basis.  EITF 06-3
is effective for interim and annual reporting periods beginning after December
15, 2006.  The Company is currently assessing the impact, if any, of EITF
Issue No. 06-03 which it will adopt at the beginning of Fiscal 2007.

In July 2006, the FASB issued FASB Interpretation No. 48,
"Accounting for Uncertainty in Income Taxes - an interpretation
of FASB Statement No. 109" (FIN 48), which clarifies the
accounting for uncertainty in tax positions.  This Interpretation requires
that companies recognize in their financial statements
the impact of a tax position, and if that position is more likely
than not of being sustained on audit, based on the technical merits
of the position.  The provisions of FIN 48 are effective for fiscal years
beginning after December 15, 2006, with the cumulative effect
of the change in accounting principle recorded as an adjustment to opening
retained earnings.

In September 2006, the FASB issued Statement No. 157, Fair Value Measurements,
which defines fair value, establishes a framework for measuring fair value
under Generally Accepted Accounting Principles, and expands disclosures about
fair value measurements.  FASB Statement No. 157 applies to other accounting
pronouncements that require or permit fair value measurements.  The new
guidance is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and for interim periods within those fiscal
years.  We are currently evaluating the potential impact, if any, of the
adoption of FASB Statement No. 157 on our financial statements.

In September 2006, the Securities and Exchange Commission "SEC" issued Staff
Accounting Bulleting No. 108 ("SAB 108").  SAB 108 provides interpretive
guidance on how the effects of the carryover or reversal of prior year
misstatements should be considered in quantifying a potential current year
misstatement.  Prior to SAB 108, companies might evaluate the materiality of
financial statement misstatements using either the income statement or balance
sheet approach, with the income statement approach focusing on new
misstatements added in the current year, and the balance sheet approach
focusing on the cumulative amount of misstatement present in a company's
balance sheet.  Misstatements that would be material under one approach could
be viewed as immaterial under another approach, and not be corrected.  SAB 108
now requires that companies view financial statement misstatements as material
if they are material according to either the income statement or balance sheet
approach.  The Company has analyzed SAB 108 and determined that upon adoption
it had no impact on the reported results of operations or financial condition.


NOTE 3 - REDEEMABLE SERIES C PREFERRED STOCK AND SHAREHOLDERS' EQUITY
--------------------------------------------------------------------

REDEEMABLE SERIES C PREFERRED STOCK
-----------------------------------

The Redeemable Series C Preferred Stock is not convertible into any other
class of the Company's stock and is subject to redemption at the Company's
option at any time or if certain events occur, such as capital
reorganizations, consolidations, mergers, or sale of all or substantially all
of the Company's assets. Upon any liquidation, dissolution or winding up of
the Company, each holder of Redeemable Series C Preferred Stock will be
entitled to be paid, before any distribution or payment is made upon any other
class of stock of the Company, an amount in cash equal to the redemption price
for each share of Redeemable Series C Preferred Stock held by such holder, and
the holders of Redeemable Series C Preferred Stock will not be entitled to any
further payment. The redemption price per share is $16.09.


SERIES B CONVERTIBLE PREFERRED STOCK
------------------------------------

Each share of Series B Preferred Stock is convertible into three shares of the
Company's common stock at a price of $.33 per share of common stock to be
received upon conversion and entitles the holder thereof to cast three votes
on all matters to be voted on by the Company's shareholders.  Upon any
liquidation, dissolution, or winding up of the Company, each holder of Series
B Preferred Stock will be entitled to be paid, after all distributions of
payments are made upon the Redeemable Series C Preferred Stock and before any
payment is made upon the Company's Convertible Preferred Stock, an amount in
cash equal to $1.00 for each share of Series B Preferred Stock held, and such
holders will not be entitled to any further payment.


CONVERTIBLE PREFERRED STOCK
---------------------------

Each share of the convertible preferred stock can be redeemed at the
Company's option for $1 per share or can be converted into shares of
the Company's common stock.  Each share of preferred stock is
convertible into one share of common stock.  This conversion rate is
subject to adjustment in certain circumstances.  Upon any liquidation,
dissolution or winding up of the Company, each holder will be entitled
to their redemption price once shareholders of Redeemable Series C
Preferred Stock and Series B Preferred stock have been fully paid.


SERIES D PREFERRED STOCK
------------------------

The Series D Preferred Stock provides for an annual cumulative dividend of
$.10 per share.  The shares are not convertible into any other class of stock
and are subject to redemption at the Company's option at any time at a
redemption price of $1.00 per share plus all unpaid cumulative dividends.
Upon liquidation, dissolution or winding up of the Corporation, each holder of
Series D Preferred Stock will be entitled to be paid, after all distributions
or payments are made upon the Corporation's Convertible Preferred Stock,
Series B Preferred Stock, and Redeemable Series C Preferred Stock, an amount
in cash equal to the Redemption Price for each share of Series D Preferred
Stock held by such holder. The holders of Series D Preferred Stock will not be
entitled to any further payment.

During January 2006, the holders of the shares of Series D Preferred Stock
agreed to waive future accumulation of dividends, effective as of January 1,
2006. As of December 31, 2006 and 2005, there were dividends in arrears on
shares of Series D Preferred Stock of $828,000.  Such waiver does not affect
dividends accrued through December 31, 2006.


COMMON STOCK WARRANTS
---------------------

Certain shareholders held warrants that gave such shareholders the right to
purchase, at any time, 5,459,000 shares of the Company's common stock.

These warrants expired in November 2006 and were exercisable at a price of
$.78 per share for the purchase of 3,071,000 shares of common stock and $.65
per share for the purchase of 2,388,000 shares of common stock.  None of the
warrants were exercised during 2006 or 2005.







NOTE 4 - INCOME TAXES
---------------------

The income tax provision is comprised of the following:


    						   2006   	   2005
                            		 ---------   ---------
Current tax expense      	    	$ 13,350    $12,500
Deferred tax expense (benefit)        17,000    (65,000)
                                     ---------   ---------

Net Tax Provision(Benefit)  		$ 30,350  $ (52,500)
                                    =========   =========


The reconciliation between the statutory federal income tax rate
and the Company's effective tax rate is as follows:

                               2006		  2005
                             --------   ----------
Federal statutory rate		  34.0%	 34.0%
State taxes                      6.0         6.0
Utilization of net operating
 loss carry forwards and
 reduction of deferred
  Valuation allowance          (21.0)     (104.0)
                             ---------  ----------
Effective tax rate              19.0% 	(64.0%)
                             =========  ==========



Total available net operating loss carry forwards at December 31, 2006
are reflected in the following schedule:


                     		YEAR         AVAILABLE FOR      AVAILABLE FOR
              			 OF             FEDERAL            STATE
            		     EXPIRATION       TAX PURPOSES      TAX PURPOSE


                              2010             462,000              79,000
                              2011           1,422,000                  -
                              2017             339,000                  -
                              2019             307,000                  -
                              2021              77,000                  -
                              2022              39,000                  -
				2023		  107,000
                                           --------------     -------------
                                           $ 2,753,000         $    79,000
                                           ==============     =============


During 2006, federal net operating loss carry forwards of approximately
$140,000 were utilized by the Company for purposes of the Company's tax
provision. Consequently, the Company's valuation allowance associated with the
related deferred tax assets was reduced by approximately $35,000 and $104,000
in 2006 and 2005, respectively.





The deferred tax asset consists of the following as of December 31:


                               2006          2005
                             ---------    ---------
Deferred tax asset:
  Net operating loss
  carry forwards           $    930,940 $    982,940
  Valuation allowance          (882,940)    (917,940)
                             ----------   -----------
Net deferred tax asset     $     48,000 $     65,000
                             ==========   ===========


NOTE 5 - STOCK OPTIONS
----------------------

The Company has outstanding stock options for the purchase of the Company's
common stock.  These options were issued pursuant to a stock option plan
adopted by the Company in 1992. The ability to grant options under this plan
expired in 2002.  Specific terms of the remaining options outstanding under
this plan are dictated by the term of individual stock option agreements.
Generally, the exercise price of the options is the market price of the
Company's stock on the date that the option was granted.

A summary of the status of the Company's stock option plan as of December 31,
2006 and 2005 is presented below:

Weighted              Weighted
     Average              Average
   Exercise              Exercise
Common Stock Options: 2006     Price        2005     Price
  -----------------------------------------
Options outstanding beginning
  of year                     391,818   $0.1658     401,818     $0.1913
Granted 	     -         -           -           -
Exercised  	     -         -           -           -
Cancelled                   ( 30,000)        -     (10,000)          -
                                     -----------------------------------------
Options outstanding,
           end of year             361,818   $0.1658     391,818     $0.1914
                                  ================================

Options exercisable,
           end of year:             361,818   0.1658      391,818     0.1914
	                   ================================

The aggregate intrinsic value of options outstanding and exercisable
at December 31, 2006 was approximately $92,000.



The following table summarizes information about options outstanding at
December 31, 2006:
					        2006
                               Options Outstanding
   ---------------------------------------------------------
               Number        Weighted Avg.       Options
   Exercise  Outstanding       Remaining       Exercisable at
   Prices   at 12/31/06    Contractual Life       12/31/06
                                (Years)
   --------  -----------    ----------------   -------------
  $0.1500	  280,000 		   3.08   		    280,000
  $0.2200      81,818		   3.67        	     81,818

              361,818                      	    361,818
              =======                              =========


Note 6 - EARNINGS PER SHARE
---------------------------

The Company's calculation of earnings per share is as follows:

        2006	        2005
       -----        -----
Net income applicable to common
 shareholders				      $     129,800   $    134,525
                                              ==========    ==========
Average basic shares outstanding             31,766,753     31,766,753

Assumed conversion of preferred stock	    3,562,299      3,562,299
Effect of dilutive options and warrants         139,596         80,000
                                              ----------   -----------
Average dilutive shares outstanding          35,468,648     35,409,052
                                             ===========   ===========

Earnings per share - basic and
 diluted					       $     0.00   $      0.00
                                             ============  ===========



No shares were excluded due to there anti-dilutive effect for the year ended
December 31, 2006.

A total of 5,570,818 common stock options and warrants were not included in
the computation of diluted earnings per share because of their anti-dilutive
effect for the year ended December 31, 2005.


Note 7 - LINE OF CREDIT
-----------------------

On November 16, 2006, Mikros Systems Corporation (the "Company") entered into
a $50,000 revolving line of credit with Sun National Bank (the "Lender")
evidenced by a Promissory Note (the "Note") made by the Company in favor of
the Lender.  The revolving line of credit will be available to the Company for
two years.  Commencing on November 14, 2008, advances will no longer be made
under the revolving line of credit.  At that time, the then outstanding
principal balance will be converted into a five-year term loan with payments
based on a five-year amortization schedule.  The term loan will be payable in
60 equal monthly installments and be due in full on November 14, 2013. During
the first five months of the revolving line of credit, any outstanding
principal balance will bear interest at 5.99% per annum.  Thereafter, any
outstanding principal balance will bear interest equal to the Sun National
Bank Prime Rate.  The loan is secured by substantially all of the Company's
assets pursuant to a Commercial Security Agreement (the "Security Agreement")
made by the Company in favor of the Lender and is guaranteed by Thomas J.
Meaney, the Company's President and Chief Executive Officer. There were no
outstanding amounts under this line of credit at December 31, 2006.

NOTE 8 - COMMITMENTS
--------------------

The Company leases its executive office and marketing facilities through
month-to-month leases. The Company's engineering-research, design and
development lease agreement runs through November 30, 2010.   Total rent
expense during 2006 and 2005 was $57,582 and $45,314, respectively.  The rent
expense during 2006 is shown net of month-to-month sub-lease payments of
approximately $5,400 by a related party. The Company executed a new lease for
engineering office space located in Fort Washington, Pennsylvania that
commenced on September 1, 2005 and continues for 63 months.  The first monthly
payment of $5,181 was due on January 1, 2006 and the terms of the lease
include an annual rate increase through the end of the lease.  The Company's
obligation under the non cancellable operating leases is as follow:


				2007	   $ 64,475
				2008	   $ 66,202
				2009	   $ 67,929
				2010	   $ 63,755
				2011     $      0

				TOTAL	   $262,361



											Exhibit 31.1

CERTIFICATION

I, Thomas J. Meaney, certify that:

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

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

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

4. 	As the sole certifying officer of the small business issuer, I am
	responsible for establishing and maintaining disclosure controls and
	procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
	for the small business issuer and have:

	a)	designed such disclosure controls and procedures, or caused such
		disclosure controls and procedures to be designed under my
		supervision, to ensure that material information relating to the
		small business issuer is made known to me by others within those
		entities, particularly during the period in which this report is
		being prepared;

	b)	[Paragraph omitted in accordance with SEC transition instructions
		contained in SEC Release 34-47986]

	c)	evaluated the effectiveness of the small business issuer's
		disclosure controls and procedures and presented in this report
		our conclusions about the effectiveness of the disclosure controls
		and procedures, as of the end of the period covered by this report
		based on such evaluation; and

	d)	disclosed in this report any change in the small business issuer's
		internal control over financial reporting that occurred during the
		small business issuer's most recent fiscal quarter that has
		materially affected, or is reasonably likely to materially affect,
		the small business issuer's internal control over financial
		reporting; and

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

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

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


					/s/ Thomas J. Meaney _______________

Dated:	March 30, 2007	Thomas J. Meaney, President, Chief
					Executive Officer and Chief Financial Officer
					(Principal Executive Officer and
					Principal Financial Officer)


EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


		In connection with the Annual Report on Form 10-KSB of Mikros
Systems Corporation (the "Company") for the year ended December 31, 2006 as
filed with the Securities and Exchange Commission on or about the date hereof
(the "Report"), the undersigned, Thomas J. Meaney, President, Chief Executive
Officer and Chief Financial Officer of the Company, hereby certifies, pursuant
to 18 U.S.C. Section 1350, that to his knowledge:

   (1) 	The Report fully complies with the requirements of Section 13(a)
		or 15(d) of the Securities Exchange Act of 1934; and

   (2) 	The information contained in the Report fairly presents, in all
		material respects, the financial condition and results of
		operations of the Company.


					/s/ Thomas J. Meaney* ___________
Dated:	March 30, 2007	Thomas J. Meaney, President, Chief
					Executive Officer and Chief Financial Officer
					(Principal Executive Officer and
					Principal Financial Officer)

*A signed original of this written statement required by Section 906 has been
provided to the Company and will be retained by the Company and furnished to
the Securities and Exchange Commission or its staff upon request.











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