**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 
 **Washington,
        D.C. 20549**
 
 **FORM
        10-QSB/A**
 **(Amendment
        No.1)**
  (Mark
        One)
 
 x
              Quarterly
                  Report under Section 13 or 15(d) of the Securities Exchange Act
                  of 1934
 
 For
        the
        quarterly period ended September 30, 2006
 
 or
 
 o
              Transition
                  Report under Section 13 or 15(d) of the Securities Exchange Act
                  of 1934
 
 For
        the
        transition period from _______ to _______
 
 Commission
        file number: 000-50532
  **S****OLOMON****T****ECHNOLOGIES,****I****NC.**
 (Exact
        name of small business issuer as specified in its charter)
  **Delaware**
              
              **52-1812208**(State
                  or other jurisdiction of incorporation or organization)
              
              (I.R.S.
                  Employer
                Identification
                  No.)
 
 **1400
        L&R Industrial Blvd.**
 **Tarpon
        Springs, Florida 34689**
 (Address
        of principal executive offices)
 
 **(727)
        934-8778**
 **Issuer’s
        Telephone Number**
 
 Check
        whether the issuer: (1) filed all reports required to be filed by Section
        13 or
        15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
        for
        such shorter period that the registrant was required to file such reports),
        and
        (2) has been subject to such filing requirements for the past 90 days. Yes
x No  ̈
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act). Yes  ̈ No x
 
 State
        the
        number of shares outstanding of each of the issuer’s classes of common equity,
        as of the latest practicable date: As of November 10, 2006, there were
        33,755,987 shares of common stock outstanding.
 
 Transitional
        Small Business Disclosure Format (check one): Yes  ̈ No x .
  
  The
        Registrant hereby amends the Quarterly Report on Form 10-QSB for the quarterly
        period ended September 30, 2006, that was initially filed by Solomon
        Technologies, Inc. (the “Company”) on November 14, 2006 (the “Initial Form
        10-QSB”), to amend and restate the Company’s consolidated financial statements
        contained in the Initial Form 10-QSB and the Management’s Discussion and
        Analysis of Financial Condition and Results of Operations (“MD&A”) contained
        in the Initial Form 10-QSB. The amendments to the financial statements
        principally relate to the valuation of the Company’s common stock and Series C
        preferred stock issued in connection with its acquisition of Technipower
        LLC in
        August 2006 and recognition of a liability associated with a compensation
        plan
        for two senior executives. On or about January 11, 2007, the Company determined
        that the common stock issued in connection with the acquisition of
        Technipower LLC should have been valued at $1.40 per share based on the market
        price of the common stock on the closing date, instead of the $0.65 per share
        price used in the Initial Form 10-QSB. The $0.65 per share price used in
        the
        Initial Form 10-QSB was based on the average of the average closing bid prices
        of the common stock over two 30-day periods, one ending three days before
        the
        closing and one ending two days before the closing. Also, on or about January
        11, 2007, the Company determined that there was no beneficial conversion
        feature
        attributable to its Series C preferred stock and that dividends on the Series
        C
        preferred stock should have been accreted, as the Company concluded that
        it was
        probable it would redeem the Series C preferred stock in the near term. On
        or
        about January 11, 2007, the Company also recorded a $60,000 distribution
        paid to
        a Series B preferred stockholder in March 2006 related to common stock issued
        to
        induce the holder to convert the Series B preferred stock to common stock.
        On or
        about April 12, 2007, the Company’s board of directors determined that the
        financial statements for the quarter ended September 30, 2006 would require
        further revision to recognize a liability associated with a compensation
        plan
        for two senior executives. Specifically, the Company’s board of directors
        decided to revise the financial statements for the quarter ended September
        30,
        2006 to accrue $1,410,761 of compensation expense due to two senior executives
        pursuant to an agreement. The MD&A has been amended to make certain
        conforming changes, restructure the discussion of the Company’s results of
        operations and include the Company’s Critical Accounting Policies and Estimates.
        In addition, Exhibits 31.1, 31.2, 32.1 and 32.2 of the Initial Form 10-QSB
        have
        been amended to contain currently dated certifications from the Company’s Chief
        Executive Officer and Chief Financial Officer. No other information in
        the Initial Form 10-QSB is amended hereby. Except as described above,
        this Form 10-QSB/A does not reflect events occurring after the date of filing
        of
        the Initial Form 10-QSB or update disclosures in that report affected by
        subsequent events.
  2
  **INDEX**
 
 Page
                Number**PART
                  I. FINANCIAL INFORMATION**
              
              
              4Item
                  1. Financial Statements
              
              
              4Condensed
                  Consolidated Balance Sheet at September 30, 2006
                  (Unaudited)
              
              
              4Condensed
                  Consolidated Statements of Operations - Three months and nine months
                  ended
                  September 30, 2006 and 2005 (Unaudited)
              
              
              5Condensed
                  Consolidated Statements of Cash Flows - Nine months ended September
                  30,
                  2006 and 2005 (Unaudited)
              
              
              6Condensed
                  Consolidated Statement of Deficiency in Assets at September 30,
                  2006
                  (Unaudited)
              
              
              7Notes
                  to Condensed Consolidated Financial Statements (Unaudited)
              
              
              8Item
                  2.Management’s
                  Discussion and Analysis of Financial Condition and Results of 
                  Operations
              
              
              21PART
                  II.
              
              
              29Item
                  6. Exhibits
              
              
              29**SIGNATURE
                  PAGE**
              
              
              30
 
 **Introductory
        Comment**
 
 Throughout
        this Quarterly Report on Form 10-QSB as amended, the terms “we,” “us,” “our,”
“Solomon” and “our company” refer to Solomon Technologies, Inc., a Delaware
        corporation, and, unless the context indicates otherwise, includes our
        wholly-owned subsidiary, Town Creek Industries, Inc.
  3
  **PART
        I**
  **Item
                  1.**
                **Financial
                    Statements**
 **Solomon
        Technologies, Inc.**
 Condensed
        Consolidated Balance Sheet
 September
        30, 2006
 As
        Restated
 (Unaudited)
 **Assets**Current
                    assetsCash
                
                $
                306,643Accounts
                    receivable, net
                
                
                526,865Inventories,
                    net
                
                
                1,803,691Due
                    from related party
                
                
                41,979Prepaid
                    expenses and other current assets
                
                
                379,8343,059,012Noncurrent
                    assetsProperty
                    and equipment, net
                
                
                112,714Goodwill
                
                
                6,229,958Intangible
                    assets
                
                
                2,021,033Other
                    assets
                
                
                141,9998,505,704$
                11,564,716**Liabilities
                    and Stockholders' Equity**Current
                    liabilitiesAccounts
                    payable
                
                $
                1,403,082Accrued
                    Compensation
                
                
                1,410.761Other
                    accrued expenses
                
                
                702,792Capital
                    lease obligations
                
                
                14,366Revolving
                    note payable
                
                
                755,000Notes
                    payable to related parties
                
                
                1,849,0696,135,070**Stockholders'
                    Equity**Series
                    C convertible preferred stock
                  4,615,381
                    issued and outstanding (liquidation value $3,036,164)
                
                
                3,036,164Common
                    stock, par value $0.001 per share;
                  authorized
                    100,000,000 shares;
                  33,702,237
                    issued and outstanding
                
                
                33,702Additional
                    paid-in capital
                
                
                35,824,321Accumulated
                    deficit
                
                
                (33,464,541
                )5,429,646$
                11,564,716
 See
          accompanying notes.
 4
  **Solomon
        Technologies, Inc.**
 Condensed
        Consolidated Statements of Operations
 (Unaudited)
 **Three
                    Months Ended**
                
                
                **Nine
                    Months Ended****September
                    30,**
                
                
                **September
                    30,**
                
                
                **September
                    30,**
                
                
                **September
                    30,****2006**
                
                
                **2005**
                
                
                **2006**
                
                
                **2005****As
                    Restated**
                
                
                
                
                
                **As
                    Restated**Net
                    sales
                
                $
                823,531
                
                $
                3,674
                
                $
                836,443
                
                $
                66,747Cost
                    of goods sold
                
                
                632,913
                
                
                994
                
                
                652,533
                
                
                81,165Gross
                    margin
                
                
                190,617
                
                
                2,680
                
                
                183,910
                
                
                (14,418
                )Operating
                    expenses:Research
                    and development
                
                
                119,128
                
                
                —
                
                
                119,128
                
                
                —Selling,
                    general and administrative
                
                
                2,412,437
                
                
                560,618
                
                
                3,864,667
                
                
                2,381,7752,531,565
                
                
                560,618
                
                
                3,983,795
                
                
                2,381,775Operating
                    loss
                
                
                (2,340,948
                )
                
                (557,938
                )
                
                (3,799,885
                )
                
                (2,396,193
                )Other
                    expensesInterest
                    expense
                
                
                (394,628
                )
                
                (986,225
                )
                
                (1,382,378
                )
                
                (2,441,810
                )Other
                    expenses
                
                
                (175,507
                )
                
                —
                
                
                (175,507
                )
                
                —Loss
                    on extinguishment of redeemablepreferred
                    stock and other debt
                
                
                —
                
                
                —
                
                
                (5,652,404
                )
                
                (39,924
                )(507,135
                )
                
                (986,225
                )
                
                (7,210,289
                )
                
                (2,481,734
                )Net
                    loss
                
                
                (2,911,083
                )
                
                (1,544,163
                )
                
                (11,010,174
                )
                
                (4,877,927
                )Preferred
                    stock dividends
                
                
                (36,164
                )
                
                —
                
                
                (96,164
                )
                
                —Loss
                    applicable to commonstockholders
                
                $
                (2,947,247
                )
                $
                (1,544,163
                )
                $
                (11,106,338
                )
                $
                (4,877,927
                )Basic
                    and diluted net loss percommon
                    share
                
                $
                (0.10
                )
                $
                (0.21
                )
                $
                (0.44
                )
                $
                (0.79
                )Weighted
                    average common sharesoutstanding
                    - basic and diluted
                
                
                30,200,548
                
                
                7,396,745
                
                
                25,207,772
                
                
                6,203,034
  See
        accompanying notes.
  5
 
 **Solomon
        Technologies, Inc.**
 Condensed
        Consolidated Statements of Cash Flows
 (Unaudited)
 **For
                    the Nine Months Ended****September
                    30,****2006**
                
                **2005****As Restated****Operating
                    activities**Net
                    loss
                
                $
                (11,010,174
                )
                $
                (4,877,927
                )Adjustments
                    to reconcile net loss to cash used by operationsCommon
                    stock, warrants and options issued for services, fees and
                    compensation
                
                
                1,110,801
                
                
                888,861Loss
                    on extinguishment of redeemable preferred stock and other
                    debt
                
                
                5,652,404
                
                
                39,924Accretion
                    and dividends
                
                
                698,257
                
                
                2,413,703Amortization
                    and depreciation
                
                
                397,578
                
                
                71,797Loss
                    on sale of equipment
                
                
                —
                
                
                371Change
                     in operating assets and liabilitiesAccounts
                    receivable
                
                
                (57,800
                )
                
                433Inventories
                
                
                231,484
                
                
                7,033Prepaid
                    expenses and other current assets
                
                
                25,117
                
                
                37,474Accounts
                    payable and accrued expenses
                
                
                2,159,931
                
                
                453,641Net
                    cash used by operating activities
                
                
                (792,402
                )
                
                (964,690
                )**Investing
                    Activities**Cash
                    received from Technipower LLC acquisition
                
                
                123,137
                
                
                —Purchase
                    of equipment
                
                
                (12,021
                )
                
                (685
                )Proceeds
                    from sale of equipment
                
                
                —
                
                
                10,500Net
                    cash (used) provided by inventing activities
                
                
                111,116
                
                
                9,815**Financing
                    Activities**Proceeds
                    from issuance of notes payable to related parties
                
                
                899,249
                
                
                750,000Repayments
                    of notes and loans payable
                
                
                —
                
                
                (9,507
                )Proceeds
                    from revolving note payable
                
                
                50,000
                
                
                —Proceeds
                    from Rule 16B
                
                
                36,702
                
                
                —Repayments
                    of capital lease obligations
                
                
                (1,715
                )
                
                —Net
                    cash provided by financing activities
                
                
                984,236
                
                
                740,493**Change
                    in cash**
                
                
                302,950
                
                
                (214,382
                )**Cash
                    at beginning of period**
                
                
                3,693
                
                
                249,024**Cash
                    at end of period**
                
                $
                306,643
                
                $
                34,642
  See
        accompanying notes.
  6
 
 **Solomon
        Technologies, Inc.**
 Condensed
        Consolidated Statement of Deficiency in Assets
 As
        Restated
 (Unaudited)
 **Series
                    B**
                
                **Series
                    C****Convertible**
                
                **Convertible**
                
                
                
                
                
                
                
                **Additional****Preferred
                    Stock**
                
                **Preferred
                    Stock**
                
                **Common
                    Stock**
                
                **Paid-In**
                
                **Accumulated****Shares**
                
                **Amount**
                
                **Shares**
                
                **Amount**
                
                **Shares**
                
                **Amount**
                
                **Capital**
                
                **Deficit**
                
                **Total**Balance
                    at December 31, 2005
                
                
                120,000
                
                $
                120,000
                
                
                
                
                $
                —
                
                
                8,487,330
                
                $
                8,487
                
                $
                14,876,095
                
                $
                (22,358,203
                )
                $
                (7,353,621
                )Issuance
                    of Redeemable Series C Preferred Stock in connection with acquisition
                    of
                    Technipower
                
                
                
                
                
                
                
                
                4,615,381
                
                
                3,000,000
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                3,000,000Issuance
                    of common stock in connection with acquisition of
                    Technipower
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                4,461,537
                
                
                4,462
                
                
                6,241,538
                
                
                
                
                
                6,246,000Shares
                    issued to extinguish Redeemable Series A Preferred Stock
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                15,357,370
                
                
                15,357
                
                
                12,424,113
                
                
                
                
                
                12,439,470Conversion
                
                
                (120,000
                )
                
                (120,000
                )
                
                
                
                
                
                
                
                175,439
                
                
                175
                
                
                179,825
                
                
                (60,000
                )
                
                -Shares
                    and warrants issued at fair value for fees and services
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                1,426,150
                
                
                1,427
                
                
                1,185,848
                
                
                
                
                
                1,187,275Exchange
                    of warrants for shares
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                2,698,237
                
                
                2,698
                
                
                (2,698
                )
                
                
                
                
                -Cashless
                    exercise of warrants
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                79,330
                
                
                79
                
                
                208,428
                
                
                
                
                
                208,507Shares
                    issued to extinguish debt
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                266,844
                
                
                267
                
                
                177,033
                
                
                
                
                
                177,300Stock
                    option grants
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                78,238
                
                
                
                
                
                78,238Payment
                    related to Rule 16B
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                36,702
                
                
                
                
                
                36,702Shares
                    issued for directors' fees
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                750,000
                
                
                750
                
                
                389,250
                
                
                
                
                
                390,000Expenses
                    paid on Company's behalf
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                129,949
                
                
                
                
                
                129,949Reclassification
                    of common stock warrants to liabilities
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (100,000
                )
                
                
                
                
                (100,000)
                )Preferred
                    stock dividends
                
                
                
                
                
                
                
                
                
                
                
                36,164
                
                
                
                
                
                
                
                
                
                
                
                (36,164
                )
                
                —Net
                    loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (11,010,174
                )
                
                (11,010,174
                )Balance
                    at September 30, 2006
                
                
                —
                
                $
                —
                
                
                4,615,381
                
                $
                3,036,164
                
                
                33,702,237
                
                $
                33,702
                
                $
                35,824,321
                
                $
                (33,464,541
                )
                $
                5,429,646
  See
        accompanying notes.
  7
 
 **Notes
        to Condensed Consolidated Financial Statements
        (unaudited)**
 
 **NOTE
        1  - NATURE OF OPERATIONS AND BASIS OF PRESENTATION**
 
 The
        historical business of Solomon Technologies, Inc. (“STI” or the “Company”) has
        been the development, engineering, manufacturing, licensing and sale of electric
        power drive systems. In August 2006, the Company acquired Technipower LLC
        (See
        Note 4), a manufacturer of power supplies and related equipment for the defense,
        aerospace and commercial markets. As a result of this acquisition, the Company
        now operates in two segments, the Motive Power Division which encompasses
        the
        historical business of STI, and the Power Electronics Division which encompasses
        the business of Technipower LLC.
 
 The
        Company is presently pursuing direct sales opportunities for its products
        and
        technologies in the marine, industrial and automotive markets. The Company
        is
        identifying licensing opportunities that it anticipates will leverage its
        existing or acquired knowledge and provide substantial positive current
        financial impact while it also aggressively pursues infringers of its existing
        patents. The Company is also identifying acquisition targets that it expects
        will augment its existing intellectual property, marketing channels and human
        resources and provide strong cash flow.
 
 The
        accompanying unaudited condensed consolidated financial statements have been
        prepared assuming that the Company will continue as a going concern. The
        Company
        has incurred significant operating losses and used cash in its operating
        activities for several years. For the first nine-months ended September 30,
        2006, the Company had a net loss of $11,010,174 and used cash of $792,402
        in
        operating activities. As of September 30, 2006, the Company has a working
        capital deficiency of $3,076,058. These conditions raise substantial doubts
        about the Company’s ability to continue as a going concern.
 
 Management
        is continuing to implement a plan to broaden its market and product base
        and
        exploit its intellectual property that it expects will generate substantial
        profits and cash flow. As part of this plan, management intends to grow its
        business through licensing of its proprietary and patented technologies and
        through the acquisition of businesses that fit its strategy. Management is
        identifying licensing opportunities that leverage its existing or acquired
        knowledge and provide substantial positive current financial impact while
        it
        also aggressively pursues infringers of its existing patents. Management
        is also
        identifying acquisition targets that augment its existing intellectual property,
        marketing channels and human resources and provide strong cash flow.
        Additionally, management is actively seeking additional sources of capital.
        There can be no assurance that management can successfully implement its
        business plan or raise sufficient capital. Without sufficient additional
        capital
        or long term debt and ultimately profitable operating results the Company
        will
        not be able to continue as a going concern. The accompanying condensed
        consolidated financial statements do not include any adjustments relating
        to the
        recoverability and classification of asset carrying amounts or the amounts
        and
        classification of liabilities that may result from the outcome of this
        uncertainty.
 
 The
        accompanying unaudited condensed consolidated financial statements have been
        prepared in accordance with U.S. generally accepted accounting principles
        for
        interim financial information and pursuant to the rules and regulations of
        the
        Securities and Exchange Commission (“SEC”). The accompanying financial
        statements for the interim periods are unaudited. They reflect all adjustments
        (consisting only of normal recurring adjustments) which are, in the opinion
        of
        management, necessary for a fair presentation. These financial statements
        should
        be read in conjunction with the financial statements and related footnotes
        for
        the year ended December 31, 2005 contained in the annual report on Form 10-KSB
        as filed with the SEC. Operating results for interim periods are not necessarily
        indicative of the results for the full year.
  8
 
 **NOTE
        2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**
 
 **Principles
        of Consolidation and Restatement**
 
 The
        consolidated financial statements include the accounts of the Company and
        its
        wholly-owned subsidiary, Technipower LLC, from the date of acquisition. All
        material intercompany accounts and transactions have been eliminated in
        consolidation.
 
 We
        noted
        certain errors in our interim financial statements for the three and nine
        month
        periods ended September 30, 2006 which were included in our filing on Form
        10-QSB for the period ended September 30, 2006. The errors principally related
        to the valuation of the Company’s common stock and Series C preferred stock
        issued in connection with our acquisition of Technipower LLC and recognition
        of
        a liability associated with a compensation plan for two senior executives.
        We
        have concluded that the common stock issued should have been valued at
        $1.40 per share based on our market price of the common stock on the
        closing date instead of the $0.65 per share price used in our initial
        filing, which was based on the average of the average closing bid prices
        of the
        common stock over two 30-day periods, one ending three days before the closing
        and one ending two days before the closing. Also, we concluded that there
        was no
        beneficial conversion feature attributable to our Series C preferred stock
        and
        that dividends on the Series C preferred stock should have been accreted
        as we
        have concluded that it is probable that we will redeem the Series C preferred
        stock in the near term. Such redemption price will include accrued dividends.
        Further, we concluded that the Series C preferred stock conversion feature
        as
        well as outstanding common stock warrants should have been accounted for
        as
        derivative liabilities and recorded at their fair value on the Series C closing
        date. The change in the fair value of the derivative liabilities is reported
        in
        the statement of operations for the three and nine month periods. We also
        recorded a $1,410,761 accrual for compensation due to two senior executives
        related to an agreement, $60,000 distribution paid to a Series B preferred
        stock holder in March 2006 related to common stock issued to induce the holder
        to convert the Series B preferred stock to common stock and reclassified
        the amortization of deferred debt costs to interest expense.
 
 The
        effect of the correction on the Company’s balance sheet as of September 30, 2006
        follows:
 As
                    PreviouslyLine
                    Item Description
                
                Reported
                
                RestatedGoodwill
                
                $
                2,883,958
                
                $
                6,229,958Accrued
                    compensation
                
                
                -
                
                
                1,410,761Other
                    accrued expenses
                
                
                636,792
                
                
                702,792Series
                    C convertible preferred stock
                
                
                3,000,000
                
                
                3,036,164Additional
                    paid-in capital
                
                
                33,409,814
                
                
                35,824,321Accumulated
                    deficit
                
                
                (32,883,409
                )
                
                (33,464,541
                )
  The
        effect of the correction on the Company’s statements of operations for the three
        and nine month periods ended September 30, 2006 follow:
 Three
                    Month Period Ended
                
                Nine
                    Month Period EndedSeptember
                    30, 2006
                
                September
                    30, 2006As
                    Previously
                
                
                
                As
                    PreviouslyLine
                    Item Description
                
                Reported
                
                Restated
                
                Reported
                
                RestatedOperating
                    expenses
                
                $
                1,594,330
                
                $
                2,531,565
                
                $
                3,123,079
                
                $
                3,983,795Operating
                    loss
                
                
                (1,403,713
                )
                
                (2,340,948
                )
                
                (2,939,169
                )
                
                (3,799,885
                )Interest
                    expense
                
                
                (63,012
                )
                
                (394,628
                )
                
                (832,333
                )
                
                (1,382,378
                )Other
                    expense
                
                
                (1,000
                )
                
                (175,507
                )
                
                (1,000
                )
                
                (175,507
                )Net
                    loss
                
                
                (1,467,725
                )
                
                (2,911,085
                )
                
                (9,424,906
                )
                
                (11,010,174
                )Preferred
                    stock dividends/beneficial conversion feature
                
                $
                1,100,000
                
                $
                36,164
                
                $
                1,100,000
                
                $
                96,164Loss
                    attributable to common stock holders
                
                
                (2,567,725
                )
                
                (2,947,247
                )
                
                (10,524,906
                )
                
                (11,106,338
                )Basic
                    and diluted net loss per common share
                
                
                (0.09
                )
                
                (0.10
                )
                
                (0.42
                )
                
                (0.44
                )
  9
  The
        effect of the correction on the Company’s statement of cash flows for the nine
        months ended September 30, 2006 follow:
  As
                      PreviouslyLine
                      Item Description
                  
                  Reported
                  
                  RestatedNet
                      loss
                  
                  $
                  (9,424,906
                  )
                  $
                  (11,010,174
                  )Accounts
                      payable and accrued expenses
                  
                  
                  574,663
                  
                  
                  2,159,931
 
 **Use
        of Estimates**
 
 The
        preparation of the Company’s condensed consolidated 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 amount of assets and liabilities at the date of the financial
        statements and the reported amount of net revenue and expenses during the
        reporting period. The Company bases estimates on historical experience and
        on
        various assumptions about the future that are believed to be reasonable based
        on
        available information. The Company’s reported financial position or results of
        operations may be materially different under different conditions or when
        using
        different estimates and assumptions, particularly with respect to significant
        accounting policies. In the event that estimates or assumptions prove to
        differ
        from actual results, adjustments are made in subsequent periods to reflect
        more
        current information.
 
 Estimates
        are primarily used in determining the valuation of goodwill, intangible assets,
        provision for losses in accounts receivable, allowances for inventory
        obsolescence, accounting for depreciation and certain accrued
        liabilities.
  **Revenue
        Recognition and Accounts Receivable**
 
 The
        Company recognizes revenue from product sales when it is realized or realizable
        and earned. The Company considers revenue realized and realizable when it
        has
        persuasive evidence of an arrangement, the product has been delivered and
        is
        fully functional, the sales price is fixed or determinable and collectibility
        is
        reasonably assured. In general, these conditions are met when the product
        is
        shipped. Revenues from services are recognized when the services have been
        completed. Credit is extended based on an evaluation of each customer’s
        financial condition; collateral is not required. The Company provides an
        allowance for uncollectible trade receivables, when appropriate, based on
        aging
        analysis, specific known troubled accounts and historical collection
        experience.
  **Inventories**
 
 Inventories,
        which consists of raw materials, completed sub-assemblies and electronic
        components, is stated at the lower of cost or market on a first-in first-out
        basis. The Company provides estimated inventory allowances for slow moving
        and
        obsolete inventory as well as inventory whose carrying value is in excess
        of net
        realizable value.
 
 **Property
        and Equipment**
 
 Property
        and equipment is carried at cost. Depreciation is charged to expense over
        the
        estimated useful lives of the equipment using the straight-line method. In
        general, the useful life of the Company’s equipment is between 3 and 7 years.
        When assets are retired or disposed of, the cost and related accumulated
        depreciation are removed from the accounts and any gain or loss is recognized
        for the period.
 
 At
        September 30, 2006, the Company had equipment with a net carrying value of
        $26,144 that was under capital lease agreements. Amortization expense for
        this
        equipment is included in depreciation expense.
  10
 
 **Goodwill**
 
 Goodwill
        represents the excess of the purchase price of an acquired enterprise or
        assets
        over the fair values of the identifiable assets acquired and liabilities
        assumed. Goodwill is tested for impairment annually in its fourth quarter,
        or
        whenever events or circumstances occur indicating that goodwill might be
        impaired. If the carrying amount of the reporting unit goodwill exceeds the
        implied fair value of that goodwill, an impairment loss is
        recognized.
 
 **Intangible
        Assets**
 
 The
        Company's intangible assets, excluding goodwill, consist of amortizing
        intangible assets of a customer list, trade name, patents and a non-compete
        agreement. These assets are being amortized over their estimated useful lives
        and are subject to impairment tests on an annual or periodic basis.
 
 **Business
        Acquisition Expenses**
 
 Direct
        costs incurred in business acquisition efforts are capitalized for transactions
        that are likely to occur. Such costs are evaluated at the end of each reporting
        period. Costs associated with a potential acquisition that is deemed unlikely
        to
        occur are expensed upon such determination. Capitalized acquisition costs
        at
        September 30, 2006, which are included in “other assets,” are
        $141,999.
 
 **Research
        and Development Costs**
 
 Research
        and development costs are expensed as incurred.
 
 **Income
        Taxes**
 
 Deferred
        tax assets and liabilities are recognized for the expected future tax
        consequences attributed to differences between the financial statement carrying
        amounts of existing asset and liabilities and their respective tax basis.
        Deferred tax assets and liabilities are measured using the enacted tax rates
        expected to be applied to taxable income in the years in which those temporary
        differences are expected to reverse. Valuation allowances are recorded to
        reduce
        deferred tax assets when it is more likely than not that a tax benefit will
        not
        be realized.
  **Loss
        Per Share**
 
 Basic
        and
        diluted loss per share amounts are computed by dividing the net loss
        attributable to common stockholders by the weighted average number of common
        shares outstanding during the period. Common stock equivalents are
        anti-dilutive.
 
 **NOTE
        3  - STOCK BASED COMPENSATION**
 
 Effective
        January 1, 2006, the Company adopted Statement of Financial Accounting Standards
        No. 123(R), “Share-Based Payment” (SFAS No. 123(R)), using the modified
        prospective method. Under this method, compensation cost is recognized for
        all
        share-based payments granted, modified, or settled after January 1, 2006,
        as
        well as for any unvested awards that were granted prior thereto. Compensation
        cost for unvested awards granted prior to January 1, 2006 is recognized using
        the same estimate of the grant-date fair value and the same attribution method
        used to determine the pro forma disclosures under SFAS No. 123 “Accounting for
        Stock-Based Compensation.” Compensation costs for awards granted after January
        1, 2006 is based on the estimated fair value of the awards on their grant
        date
        and is generally recognized over the required services period.
 
 Prior
        to
        January 1, 2006, the Company accounted for its stock options under the
        recognition and measurement principles of Accounting Principles Board (APB)
        Opinion No. 25 “Accounting for Stock Issued to Employees.” and related
        interpretations. No stock-based compensation expense was recognized in
        operations as all options granted had an exercise price equal to the market
        value of the underlying common stock on the date of grant. The effect of
        adopting FAS 123(R) was to increase compensation cost and increase reported
        net
        loss by $78,238 for the three and nine-months ended September 30, 2006 for
        stock
        options issued in 2006. All stock options outstanding at December 31, 2005
        and
        2004 were fully vested.
  11
 
 In
        calculating compensation expense related to stock option grants, the fair
        value
        of each stock option is estimated on the date of grant using the Black-Scholes
        option-pricing model and the following weighted average
        assumptions:
 **Nine-Months
                  Ended September 30, 2006**Expected
                  term
              
              
              3
                  YearsExpected
                  volatility
              
              
              156
              %Dividend
                  yield
              
              
              0.0
              %Risk-free
                  interest rate
              
              
              4.85
              %Forfeiture
                  rate
              
              
              0
              %
  The
        computation of expected volatility used in the Black-Scholes pricing model
        is
        based on the historical volatility of the Company’s share price. The expected
        term is based on a review of historical employee exercise behavior with respect
        to option grants.
 
 A
        summary
        of the changes in stock options outstanding for the nine-months ended September
        30, 2006 follows:
 WeightedAverageShares
                
                Exercise
                    PriceOutstanding
                    at January 1, 2006
                
                
                847,835
                
                $
                1.71Granted
                
                
                195,000
                
                
                2.25Exercised
                
                
                —
                
                
                —Forfeited/Expired
                
                
                (280,000
                )
                
                0.96Outstanding
                    at September 30, 2006
                
                
                762,835
                
                $
                1.54
  The
        following table summarizes the Company's stock options at September 30,
        2006:
 Options
                    Outstanding
                
                Options
                    ExercisableWeighted
                
                Weighted
                
                
                
                WeightedAverage
                
                Average
                
                
                
                AverageRange
                      of
                    Exercise
                        Prices
                
                Number
                
                Remaining
                    Life
                
                Exercise
                    Price
                
                Number
                
                Exercise
                    Price$.055
                    to $1.00
                
                
                355,335
                
                
                3.81
                
                $
                0.87
                
                
                355,335
                
                $
                0.87$2.00
                    to $2.25
                
                
                407,500
                
                
                2.56
                
                $
                2.51
                
                
                328,548
                
                $
                2.03762,835
                
                
                
                
                
                
                
                
                683,884
 
 **NOTE
        4  - BUSINESS ACQUISITION**
 
 On
        August
        17, 2006, the Company completed the acquisition of Technipower LLC
        (Technipower), a privately-held company based in Danbury, Connecticut. Certain
        shareholders of the Company are holders of warrants and capital
        appreciation units of Technipower. The purchase price of $9,665,836 which
        includes acquisition related costs of approximately $420,000 consisted of
        the
        issuance 4,615,381 shares of the Company’s Series C preferred stock
        with a fair value of $3,000,000 and 4,461,538 shares of common stock with
        a fair
        value of $6,246,153. The fair value of our Series C preferred stock was based
        upon the expected cash redemption amount of $3,000,000. The fair value of
        the common stock was based upon the closing market price on August 17,
        2006.
  12
 
 This
        acquisition was recorded under the purchase method of accounting with the
        total
        consideration allocated to the assets acquired and liabilities assumed based
        on
        estimates of fair value. The allocation process requires an analysis of acquired
        tangible assets, customer relationship, trade-names and non-compete agreements
        to identify and record the fair value of all assets acquired and liabilities
        assumed. Management is responsible for valuing acquired assets and assumed
        liabilities at fair value. Management considered various factors in determining
        fair value, including but not limited to future expected discounted cash
        flows,
        third-party valuations, and appropriate discount rates. The excess of the
        purchase price over the fair value of the net assets acquired has been allocated
        to goodwill.
 
 The
        purchase accounting for this acquisition is summarized as
        follows:
 **Amount**
                
                **Estimated
                    Useful Life**Net
                    tangible assets, including $123,137 of cash
                
                $
                1,698,878Identifiable
                    intangible assets:Customer
                    relationship
                
                
                1,210,000
                
                
                5
                    yearsTrade
                    name
                
                
                367,000
                
                
                10
                    yearsNon-compete
                
                
                160,000
                
                
                5
                    yearsGoodwill
                
                
                6,229,958Total
                    purchase price
                
                $
                9,665,836
  The
        acquisition costs have not been paid as of September 30, 2006. The Company
        may
        issue additional shares to the sellers at the one year anniversary if the
        30-day
        average trading price is more than 5% less than $0.65 per share. Such amounts,
        if any, will not affect purchase consideration.
 
 The
        results of operations of Technipower have been included in the Company’s
        consolidated financial statements subsequent to the date of acquisition.
        The
        financial information in the table below summarizes the unaudited combined
        results of operations of the Company and Technipower, on a pro forma basis,
        as
        though the companies had been combined as of the beginning of each of the
        periods presented:
  Three
                  Months Ended
              
              Nine
                  Months EndedSeptember
                  30,
                2006
              
              September
                  30,
                2005
              
              September
                  30,
                2006
              
              September
                  30,
                2005Net
                  revenues
              
              $
              1,349,295
              
              $
              1,245,174
              
              $
              3,873,351
              
              $
              3,768,289Net
                  loss
              
              $
              (2,947,160
              )
              $
              (1,831,578
              )
              $
              (11,339,489
              )
              $
              (5,713,105
              )Net
                  loss per share:Basic
                  and diluted
              
              $
              (0.08
              )
              $
              (0.15
              )
              $
              (0.43
              )
              $
              (0.54
              )
 
 The
        pro
        forma financial information is presented for informational purposes only
        and is
        not indicative of the results of operations that would have been achieved
        if the
        merger had taken place at the beginning of each of the periods
        presented.
  **NOTE
        5  - INTANGIBLE ASSETS**
 
 The
        following table presents the details of the Company’s intangible assets at
        September 30, 2006:
 Cost
                
                Accumulated
                  Amortization
                
                Net
                    Book
                  ValueAmortizable:Customer
                    relationship
                
                $
                1,210,000
                
                $
                (29,274
                )
                $
                1,180,726Trade
                    name
                
                
                367,000
                
                
                (4,440
                )
                
                362,560Non-compete
                    agreement
                
                
                160,000
                
                
                (3,871
                )
                
                156,129Patents
                
                
                814,162
                
                
                (492,554
                )
                
                321,618$
                2,551,162
                
                $
                (530,129
                )
                $
                2,021,033
  13
 
 Based
        on
        the carrying amount of the intangible assets and assuming no future impairment
        of the underlying assets, the estimated future amortization is as follows
        for
        the years ended December 31:
  2006
                    (October 1 through December 31)
                
                $
                98,5822007
                
                
                394,3292008
                
                
                394,3292009
                
                
                388,9002010
                
                
                317,654Thereafter
                
                
                427,239$
                2,021,033
  **NOTE
        6  - INVENTORIES**
 
 Inventories
        at September 30, 2006 consist of the following:
 Raw
                    materials
                
                $
                944,146Work-in-process
                
                
                787,373Finished
                    goods
                
                
                72,172$
                1,803,691
 
 **NOTE
        7  - STOCK ISSUANCES AND OTHER EQUITY EVENTS**
 
 On
        February 15, 2006, the Company issued 15,357,370 shares of common stock with
        an
        estimated fair value of $12,439,470 to extinguish its obligations under its
        redeemable Series A preferred stock. In February 2006, the Company also issued
        256,844 shares of its common stock with an estimated fair value of $170,200
        to
        extinguish its obligations under notes payable, including accrued interest.
        In
        connection with these transactions an extinguishment loss of $5,667,569 was
        recognized.
 
 In
        connection with the extinguishment of the redeemable Series A preferred stock
        in
        February 2006, the Company also issued 2,698,237 shares of common stock in
        exchange for 5,396,474 common stock warrants held by the Series A holders.
        The
        Company recorded this as an equity transaction so no gain or loss was
        recognized.
  On
        March
        13, 2006, the holder of 120,000 shares of Series B preferred stock converted
        to
        175,439 shares of common stock. The Company induced the holder to convert
        by
        issuing 58,480 shares of common stock in excess of the number received in
        accordance with the terms of the Series B preferred stock. The excess shares
        issued had a fair value of $60,000 and have been recorded as an increase
        to the
        accumulated deficit and added to net loss to arrive at net loss attributable
        to
        common stockholders.
 
 During
        the quarter ended March 31, 2006 the Company issued 100,000 warrants and
        477,500
        common shares with an estimated aggregate fair value of $264,450 to directors,
        certain note holders, and an officer for services and fees. Operating results
        include a related charge for $264,450. The warrants may be exercised to purchase
        100,000 shares of the Company’s common stock at $.40 a share.
 
 On
        April
        4, 2006, the Company filed a certificate of elimination for its redeemable
        Series A preferred stock and its Series B preferred stock with the Secretary
        of
        State of Delaware, the Company’s state of incorporation. The Company filed the
        certificate of elimination because no shares of either class of preferred
        stock
        were outstanding and the Company had no plans to issue such stock.
  14
 
 On
        May 3,
        2006, the Company issued an aggregate of 124,700 shares of common stock to
        the
        holders of certain promissory notes as an inducement to each noteholder agreeing
        to extend the promissory notes. The issuance was recorded at fair value and
        the
        Company recorded $62,350 of non-cash compensation.
 
 On
        May 8,
        2006, in connection with the execution of a letter of intent to acquire Power
        Solutions, Inc., the Company issued 100,000 shares of common stock to each
        of
        Myron Koslow and the Norman S. and Marian B. Berkowitz Revocable Trust. The
        issuance was recorded at fair value and the Company recorded $142,000 of
        capitalized business acquisition costs.
 
 On
        May 8,
        2006, the Company issued 10,000 shares of common stock with an estimated
        fair value of $7,100 to Floyd E. Johnson in settlement of $22,265 of
        indebtedness arising from services rendered to us by FEJ Consulting. In
        connection with this transaction, the Company recorded a gain of $15,165
        on the
        settlement of debt.
 
 On
        May
        31, 2006, the Company issued 20,000 shares of common stock with an estimated
        fair value of $14,200 to its President, Peter W. DeVecchis pursuant to Mr.
        DeVecchis’ employment agreement.
 
 On
        June
        5, 2006, the Company issued an aggregate of 63,750 shares of common stock
        to the
        holders of certain promissory notes as an inducement to each noteholder agreeing
        to purchase the notes. The issuance was recorded at fair value and the Company
        recorded $42,075 of non-cash compensation.
 
 On
        August
        4, 2006 the Company granted 150,000 of common shares to each of the five
        directors of the Company for services performed over the last year. The
        aggregate of 750,000 shares issued to the five directors is estimated to
        have a
        fair market value of $375,000.
 
 On
        August
        17, 2006 and in connection with the acquisition of Technipower, the Company
        issued 4,615,381 shares of Series C convertible redeemable preferred stock.
        The
        fair value of the Series C preferred stock of $3,000,000 was determined
        based on the cash redemption amount. At the time of the transaction, we expected
        to redeem the Series C preferred stock for cash in the near term.
 
 The
        holders of the Series C preferred stock are entitled to dividends at the
        rate of
        10% of the stated value ($0.65 per share) and a liquidation preference equal
        to
        the stated value plus accrued dividends. The holders of the Series C preferred
        stock may convert their shares on or after December 16, 2006 into shares
        of
        common stock based on the greater of (a) the stated value divided by the
        conversion price (initially set at $0.65 per share) and (b) the liquidation
        preference divided by the average daily closing price of the Company’s common
        stock. The Company has the right to redeem the Series C preferred stock at
        any
        time at the liquidation preference through October 15, 2006 and the liquidation
        preference plus $250,000 from October 16, 2006 through December 15, 2006.
        After
        December 15, 2006, the Series C preferred stock can be redeemed by the Company
        equal to 175% of the stated value, plus $250,000, plus any accrued but unpaid
        dividends. The holders do not have a redemption right. The holders have a
        voting
        right equal to 1.25 times the number of shares of Series C preferred stock
        held.
        The Company is recording the dividend as management expects to redeem the
        Series
        C preferred stock, including dividends, in the near term.
  The
        Series C preferred stock is classified as permanent equity in accordance
        with
        EITF Topic D-98, *Classification
        and Measurement of Redeemable Securities,* and
        Accounting Series Release No. 268, *Presentation
        in Financial Statements of “Redeemable Preferred Stock.”* Permanent equity classification is appropriate as redemption is solely within
        the control of the Company. Series C preferred stock dividends are being
        accrued
        as payment of dividends is considered probable.
 
 We
        concluded that the Series C preferred stock conversion feature should be
        bifurcated and separately classified as a derivative liability in accordance
        with SFAS 133, *Accounting
        for Derivative Instruments and Hedging* Activities. The principal reason for this conclusion is that the conversion
        feature may result in a variable number of common stock shares issued upon
        conversion of the Series C preferred stock. Therefore and in accordance with
        EITF 00-19, *Accounting
        for Derivative Financial Instruments Indexed to, and Potentially Settled
        in, a
        Company’s Own Stock,* the
        conversion feature cannot be classified as an equity instrument. In accordance
        with SFAS 133, the conversion feature will be stated at fair value with changes
        in fair value recorded in current earnings. On the day of issuance and again
        at
        September 30, 2006, management concluded that the value of the conversion
        feature was negligible as it was probable that the Series C preferred stock
        would be redeemed prior to December 15, 2006, the first day that the Series
        C
        preferred stock shares were convertible. As such, no value was assigned to
        the
        conversion feature.
  15
 
 On
        August
        17, 2006, the Company reclassified its common stock warrants from permanent
        equity to liabilities, recording the liability at $100,000. Fair value of
        the
        warrant liability was determined based on the intrinsic value of the warrants
        on
        August 17, 2006, the maximum amount the Company would have to pay to settle
        the
        liability. The reclassification was required due to the variable conversion
        feature embedded in the Series C preferred stock described above. Subsequently,
        the liability was adjusted to fair value with the change in the liability
        recorded as other expense in the accompanying financial statements. In
        connection with the cashless exercise of warrants in the third quarter, the
        Company issued 79,330 shares of common stock with a fair value of $208,507.
        At
        the time of settlement, the portion of the warrant liability related to these
        warrants had a fair value of $222,500. The $13,993 settlement gain was netted
        against other expense. For the period from August 17, 2006 through September
        30,
        2006 the Company recorded a net $174,507 expense related to the change in
        the
        warrant liability. The warrant liability is $66,000 at September 30,
        2006.
  **NOTE
        8  - NOTES PAYABLE**
 
 On
        April
        7, 2006, the Company borrowed $50,000 from Peter and Barbara Carpenter (the
        “Carpenters”) and Woodlaken LLC assigned $50,000 of its promissory note issued
        by the Company on March, 2006 in the aggregate principal amount of $172,000
        (the
“Woodlaken Note”) to the Carpenters. On April 10, 2006, the Company borrowed
        $50,000 from Pascal Partners, LLC and Woodlaken assigned $50,000 of the
        Woodlaken Note to Pascal. The Company issued promissory notes in the principal
        amount of $100,000 to the
        Carpenters and Pascal. The Company also issued a promissory note in the
        principal amount of $72,000 to Woodlaken representing the balance of the
        principal amount under the Woodlaken Note. The new notes bear interest at
        a rate
        of 12% per annum and were due to mature on April 30, 2006.
 
 On
        April
        28, 2006, the Company entered into an agreement with all related and affiliated
        party promissory note holders to extend the terms of each note to June 30,
        2006.
        As an inducement to the extension, the Company issued each investor 10,000
        shares of common stock for each $100,000 in principal amount of Notes held
        for
        an aggregate of 124,700 shares.
 
 On
        May
        23, 2006, the Company borrowed $200,000 from Coady Family LLC (“Coady”) and
        issued a promissory note in the principal amount of $200,000 to Coady. The
        new
        note bears interest at a rate of 12% per annum and was due to mature on June
        30,
        2006.
 
 On
        June
        13, 2006, the Company borrowed $25,000 from Steven Kilponen (“Kilponen”) and
        issued a promissory note in the principal amount of $25,000 to Kilponen.
        The new
        note bears interest at a rate of 12% per annum and was due to mature on June
        30,
        2006.
 
 On
        July
        3, 2006, the Company borrowed $100,000 from Meriden Cooper and issued a
        promissory note in the principal amount of $100,000 to Meriden Cooper. The
        new
        note bears interest at a rate of 12% per annum and is due to mature on January
        15, 2007. As an incentive to Meriden Cooper purchasing the note, the Company
        issued to Meriden Cooper 50,000 shares of common stock with a fair value
        of
        $25,500. We expensed this amount in the third quarter.
 
 On
        July
        28, 2006 the Company borrowed $125,000 from Jezebel Management Corporation
        (“Jezebel”) and issued a promissory note in the principal amount of $125,000 to
        Jezebel. The new note bears interest at a rate of 15% per annum and matures
        on
        August 28, 2006. As an incentive to purchase the note the Company has agreed
        to
        issue 25,000 shares of common stock to Jezebel with a fair value of $12,500.
        We
        expensed this amount in the third quarter.
  16
 
 On
        August
        11, 2006 the Company entered into an agreement dated as of June 30, 2006
        with
        all of its noteholders to extend the maturity date for all promissory notes
        held
        to January 15, 2007. As an incentive to the noteholders, the Company has
        agreed
        to issue to each of the noteholders shares of common stock of the Company
        in an
        amount equal to 35,000 shares for each $100,000, in principal amount of notes,
        or fraction thereof, held by such noteholder. Total shares approved were
        548,950
        of which 461,450 were issued and outstanding at September 30, 2006. The shares
        had a fair value of $614,824 which was recorded as deferred debt costs and
        is
        being amortized over the debt extension period. Amortization expense for
        the
        three months ended September 30, 2006 was approximately $240,000.
 
 The
        board
        of directors of the Company has authorized the Company to borrow up to an
        additional $28,000 from the initial investors and others on the same terms
        as
        the notes and the new note issued to Meriden Cooper.
 
 Interest
        expense on loans to related parties was $50,906 and $16,332 for the three
        months
        ended September 30, 2006 and 2005, respectively, and $118,911 and $26,108
        for
        the nine months ended September 30, 2006 and 2005, respectively.
  Further,
        common stock issued as incentive to extend, in payment of prior interest
        due or
        as incentive to participate or increase related party loans is charged to
        interest expense. Total charges to additional interest expense for this activity
        were $662,217 for the three month period ended September 30, 2006 and $880,643
        for the nine month period ended September 30, 2006.
  Pursuant
        to the Company’s revolving note payable (the “Note”) with a bank, the Company
        can borrow up to $1,500,000 based on a collateral formula inclusive of accounts
        receivable and certain classes of inventory. The Note bears interest at the
        prime rate (8.25% at September 30, 2006), requires no principal amortization,
        and has a maturity date of June 1, 2007.
 
 **NOTE
        9  - CONCENTRATION OF RISK**
 
 Customers:
 
 Five
        customers accounted for 85% of sales for the nine months ended September
        30,
        2006, of which $439,254 is included in accounts receivable at September 30,
        2006. Two customers accounted for 48% and 23% respectively of sales for the
        nine
        months ended September 30, 2005.
 
 Supplier:
 
 Presently,
        the Company has one manufacturer for a principal component of its marine
        propulsion systems. If the supplier were to become unwilling or unable to
        continue fulfilling the Company’s orders, it could have a materially adverse
        effect on the Company’s financial position.
  **NOTE
        10  - COMMITMENT AND CONTINGENCIES**
 
 **Patent
        Infringement**
 
 The
        Company has an agreement with Oliver Street Finance LLC (“Oliver Street”). Under
        this agreement Oliver Street provides funding to the Company to prosecute
        the
        Company’s patent infringement action against Toyota Motor Corporation, Toyota
        Motor Sales U.S.A., Inc. and Toyota Manufacturing North America (collectively,
        “Toyota”). Oliver Street pays all legal fees and out of pocket expenses billed
        by the Company’s special patent counsel in connection with the litigation
        against Toyota and approved by the Company in exchange for a portion of any
        recovery that the Company may receive from the litigation equal to the greater
        of 40% of the recovery or the actual amount of legal fees and expenses Oliver
        Street pays on the Company’s behalf. Michael A. D’Amelio, a director and
        shareholder of the Company, is a principal of Oliver Street. Through February
        15, 2006, Mr. D’Amelio was the beneficial owner of more than 10% of the
        Company’s common stock. During this period, expenses paid on behalf of the
        Company by Oliver Street totaling $129,949 were recorded as professional
        fee
        expense as well as an increase t o
        additional paid-in capital. In connection with the extinguishment of the
        Redeemable Series A Preferred Stock for common stock on February 15, 2006,
        Mr.
        D’Amelio’s beneficial ownership of the Company's common stock decreased to below
        10%. As such, expenses paid by Oliver Street on behalf of the Company since
        February 15, 2006 are no longer reflected in the financial
        statements.
  17
 
 The
        Company has filed a lawsuit against Toyota alleging claims for patent
        infringement and damages from the unauthorized use of the Company’s patents. In
        connection therewith the Company filed a complaint with the United States
        International Trade Commission (“ITC”) seeking an exclusion order prohibiting
        the importation of infringing technology. The ITC held a hearing from October
        30, 2006 through November 3, 2006. The Company anticipates that the ITC
        Administrative Law Judge will issue an initial determination on or
        before February 13, 2007.
 
 The
        Company is not involved in any other litigation.
 
 **Accrued
        and Unpaid Payroll Taxes**
 
 At
        September 30, 2006, the Company has accrued interest and penalties of $185,000
        related to unpaid payroll and payroll related taxes of approximately $79,000.
        On
        July 28, 2006, the Company paid $62,758 for unpaid payroll taxes, which is
        expected to resolve the trust portion of the IRS liability. The penalty and
        interest portion of this obligation remains outstanding and continues to
        subject
        the Company to delinquency proceedings from the U.S. Internal Revenue
        Service.
  **Leases**
 
 Technipower
        leases certain equipment under capital leases with third parties, which include
        a security interest in the property maintained by the lessors. In addition,
        Technipower leases its premises in Danbury, Connecticut under an operating
        lease, which expires in July 2012. The lease requires the lessor to furnish
        certain improvements to the demised premises and provides for escalations
        for
        real estate taxes and operating expenses. Future minimum lease payments lease
        at
        September, 2006 follow:
 
 Operating
                Lease
              
              Capital
                Leases2006
              
              $
              24,375
              
              $
              3,9742007
              
              
              97,500
              
              
              11,1982008
              
              
              97,500
              
              
              —2009
              
              
              97,500
              
              
              —2010
              
              
              97,500
              
              
              —Thereafter
              
              
              150,313
              
              
              —15,172$
              564,688Interest
              
              
              
              
              
              (806
              )$
              14,366


Rent
          expense for the nine months ended September 30, 2006 was $37,781.
 18


**NOTE
      11  - TRANSACTIONS WITH RELATED PARTIES**





During
      the quarter ended September 30, 2006 the Company issued a total of 461,450
      shares of common stock to certain note holders to extend the terms of payment
      to
      January 15, 2007. The estimated fair market value was $461,450. In addition
      certain note holders were issued 75,000 common shares as incentive to purchase
      additional promissory notes. The estimated fair market value was $37,500. Both
      of these issues were charged to operating expense during the quarter ended
      September 30, 2006.





The
      Company also issued 750,000 shares of common stock to its Directors as incentive
      for each to continue their service with the Company. The estimated fair market
      value for these shares was $390,000 and this was also charged to operating
      expense.





In
      2006
      and 2005, Bril Corporation provided bookkeeping services for $5,000 a month.
      Two
      principals of Bril Corporation are also directors and stockholders of
      the Company. Total expense was $15,000 for the three months ended September
      30,
      2006 and 2005, and $45,000 for the nine months ended September 30, 2006 and
      2005.





**NOTE
      12  - SEGMENTS**





The
      major
      segments the Company serves are the Motive Power Division which encompasses
      the
      electric power drive technologies and the Power Electronics Division which
      represents the business of Technipower and specializes in the design,
      development and production of customer power systems, chassis and power supply
      products for defense related markets.




Segment
      financial information follows:





NINE
                MONTHS ENDED
            
            THREE
                MONTH ENDEDSeptember
                30,
              2006
            
            September
                30,
              2005
            
            September
                30,
              2006
            
            September
                30,
              2005Revenues:Sales
                to unaffiliated customers:Power
                Electronics
            
            $
            799,312
            
            $
            0
            
            $
            799,312
            
            $
            0Motive
                Power
            
            
            37,131
            
            
            66,747
            
            
            24,219
            
            
            3,674$
            836,443
            
            $
            66,747
            
            $
            823,531
            
            $
            3,674Net
                Loss:Power
                Electronics
            
            $
            (54,730
            )
            $
            0
            
            $
            (54,730
            )
            $
            0Motive
                Power
            
            
            (3,745,155
            )
            
            (2,286,193
            )
            
            (2,286,218
            )
            
            (557,938
            )Operating
                Loss
            
            
            (3,749,885
            )
            
            (2,286,193
            )
            
            (2,340,948
            )
            
            (557,938
            )Interest
                expense
            
            
            (1,382,378
            )
            
            (2,441,810
            )
            
            (394,628
            )
            
            (986,225
            )Other
                expense
            
            
            (6,027,911
            )
            
            (39,924
            )
            
            (175,507
            )
            
            0Net
                Loss
            
            
            (11,010,174
            )
            
            (4,767,927
            )
            
            (2,911,083
            )
            
            (1,544,163
            )Preferred
                stock dividends
            
            
            (96,164
            )
            
            0
            
            
            (36,164
            )
            
            0Loss
                applicable to common shareholders
            
            $
            (11,106,338
            )
            $
            (4,767,927
            )
            $
            (2,947,247
            )
            $
            (1,544,163
            )





NINE
                MONTHS ENDEDSeptember
                30,
              2006
            
            September
                30,
              2005Depreciation
                and Amortization:Power
                Electronics
            
            $
            45,815
            
            $
            0Motive
                Power
            
            
            351,763
            
            
            71,797$
            397,578
            
            $
            71,797Capital
                Expenditures:Power
                Electronics
            
            $
            10,058
            
            $
            0Motive
                Power
            
            
            1,963
            
            
            685$
            12,021
            
            $
            685Identifiable
                Assets at September 30, 2006:Power
                Electronics
            
            $
            10,686,184Motive
                Power
            
            
            878,532$
            11,564,716


19




**NOTE
      13  - NEW ACCOUNTING STANDARDS**





In
      September 2006, the FASB issued Financial Accounting Standard No. 157, ‘‘Fair
      Value Measurements’’ (‘‘SFAS 157’’). SFAS 157 is effective for financial
      statements issued for fiscal years beginning after November 15, 2007 as well
      as
      interim periods within such fiscal years. SFAS 157 provides a common fair value
      hierarchy for companies to follow in determining fair value measurements in
      the
      preparation of financial statements and expands disclosure requirements relating
      to how such fair value measurements were developed. SFAS 157 clarifies the
      principle that fair value should be based on the assumptions that the
      marketplace would use when pricing an asset or liability, rather than company
      specific data. The Company is currently assessing the impact that SFAS 157
      will
      have on its results of operations and financial position.





In
      June
      2006, the FASB issued FASB Interpretation No. 48, ‘‘Accounting for Uncertainty
      in Income Taxes (an interpretation of FASB Statement No. 109)’’ (‘‘FIN 48’’).
      The provisions of FIN 48 are effective for fiscal years beginning after December
      15, 2006. This statement was issued to clarify the accounting for the
      uncertainty related to income taxes. FIN 48 requires the evaluation of whether
      a
      tax position is more likely than not to be sustained upon examination with
      the
      assumption that the position will be examined by the relevant tax authorities.
      FIN 48 also requires such tax positions to be measured at the largest amount
      of
      the respective benefit that is greater than 50% likely of being realized upon
      ultimate settlement. The Company is currently assessing the impact that the
      adoption of FIN 48 will have on its results of operations and financial
      position.





In
      September 2006, the U.S. Securities and Exchange Commission staff issued Staff
      Accounting Bulletin No. 108 (“SAB 108”), Considering the Effects of Prior Year
      Misstatements when Quantifying Misstatements in Current Year Financial
      Statements. SAB 108 eliminates the diversity of practice surrounding how public
      companies quantify financial statement misstatements. It establishes an approach
      that requires quantification of financial statement misstatements based on
      the
      effects of the misstatements on each of the company's financial statements
      and
      the related financial statement disclosures. We do not expect SAB 108 to have
      a
      material impact on our financial condition or results of operations. SAB 108
      must be applied to annual financial statements for their first fiscal year
      ending after November 15, 2006.




20





**ITEM
                2.**
            **MANAGEMENT’S
                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**





***The
      following discussion and analysis of our consolidated financial condition and
      results of operations for the quarters ended September 30, 2006 and 2005 should
      be read in conjunction with our consolidated financial statements included
      elsewhere in this Quarterly Report.***





**Overview**




Our
      historical business has been the development, engineering, manufacturing,
      licensing and sale of electric power drive systems. We intend to expand the
      licensing, manufacturing, and sale of electric power drive systems, including
      those incorporating hybrid and regenerative technologies, and the licensing
      and
      manufacture of our Electric Wheel TM and
      Electric Transaxle TM for
      automotive, hybrid and all-electric vehicle applications. Our goal is to become
      a leader in the manufacture, licensing and sale of electric power drive systems
      for specialized high value original equipment manufacturers.





We
      have
      historically generated limited operating revenues. In order for us to market
      our
      existing products successfully on a national and international level, we will
      likely be required to complete public or private offerings of our equity
      securities successfully. If we are unable to obtain necessary financing, we
      will
      expand our operations only as cash flow from operations allows.





We
      are
      presently pursuing direct sales opportunities for our products and technologies
      in the marine, industrial and automotive markets. We are also implementing
      a
      plan to broaden our market and product base and exploit our intellectual
      property that we expect will generate substantial profits and cash flow. As
      part
      of this plan, we intend to grow our business through licensing of our
      proprietary and patented technologies and through the acquisition of businesses
      that fit our strategy. We are identifying licensing opportunities that we
      anticipate will leverage our existing or acquired knowledge and provide
      substantial positive current financial impact while we also aggressively pursue
      infringers of our existing patents. We are also identifying acquisition targets
      that we expect will augment our existing intellectual property, marketing
      channels and human resources and provide positive cash flow. We cannot assure
      you, however, that we will be able to identify licensing opportunities and
      acquisition targets that meet these goals, or if we identify such opportunities
      or targets that we will be able to take full advantage of them.





On
      August
      17, 2006, we entered into a Securities Purchase Agreement with Integrated Power
      Systems LLC, Power Designs Inc., The Vantage Partners LLC, certain other persons
      and Technipower LLC, a Danbury, Connecticut based manufacturer of power supplies
      and related equipment for the defense, aerospace and commercial sectors, and
      simultaneously closed on the acquisition of all of the outstanding membership
      units and warrants to purchase membership units of Technipower. We purchased
      Technipower for 4,615,381 shares of Series C convertible redeemable preferred
      stock, 4,461,537 shares of common stock and the assumption of certain
      liabilities totaling approximately $850,000, including approximately $700,000
      outstanding under Technipower’s $1.5 million revolving credit facility.
      Twenty-five percent of the common stock was deposited in escrow to support
      the
      sellers’ indemnity obligations under the purchase agreement. The escrowed shares
      will also fund any required working capital adjustment in our favor. The share
      amounts were calculated using an agreed $.65 per share price, which was based
      on
      the average of the average closing bid prices of the common stock over two
      30-day periods, one ending three days before the closing and one ending two
      days
      before the closing. We must issue additional shares to the sellers at the one
      year anniversary of the closing if the 30-day average trading price at that
      time
      is more than 5% less than $.65 per share. At our option, we may instead pay
      the
      adjustment in cash. We agreed to register the shares of common stock we issued
      to the sellers and the shares of common stock issuable upon conversion of the
      Series C preferred stock we issued to the sellers. The common share value in
      our
      financial statements was calculated based on the closing market price on the
      date of the closing of the transaction, August 17, 2006, of $1.40 per
      share.




Under
      the
      Certificate of Designations for our Series C preferred stock, the holders of
      the
      Series C preferred stock are entitled to dividends at the rate of 10% of the
      stated value of the Series C preferred stock and a liquidation preference equal
      to the stated value of the Series C preferred stock plus accrued dividends.
      The
“stated value” per share of Series C Preferred Stock is currently $0.65.
      The holders of Series C preferred stock also have redemption rights. We
      were
      obligated to make a payment of $250,000 in cash to the holders of the Series
      C
      preferred stock if we did not redeem their shares by October 15, 2006. We have
      not yet redeemed the Series C preferred stock or made this payment. If the
      Series C preferred stock is not redeemed and such $250,000 payment is not made
      by December 15, 2006, the redemption price increases to 175% of the stated
      value
      of the Series C preferred stock, plus accrued interest.




21





As
      a
      result of the acquisition of Technipower, our operations now comprise two
      divisions: a Motive Power Division, which encompasses our electric power drive
      technologies, and a Power Electronics Division, which encompasses the business
      of Technipower. With this new structure, we intend to exploit opportunities
      for
      market consolidation, cross marketing and core business growth in separate
      but
      compatible niche markets for specialized high value original equipment
      manufacturer (“OEM”) power applications and electric power drive systems. While
      our operating assets are divisionalized, we expect and encourage a formal
      exchange of engineering and sales talent across the business units.





Our
      Power
      Electronics Division focuses its efforts in engineered power systems while
      also
      providing both technical and sales augmentation to our Motive Power Division.
      Our Power Electronics Division specializes in the design, development and
      production of custom power ready systems, chassis and power supply products
      for
      defense related markets. The Division also provides advanced legacy support
      and
      specialized defense-related build-to-print capabilities.





On
      May 8,
      2006, we entered into a letter of intent to acquire Power Solutions, Inc.,
      a
      Long Island, New York based manufacturer of high volume direct current power
      supplies and power supply systems and components for the medical,
      telecommunications and commercial sectors. The letter of intent has expired
      and
      we cannot assure you whether or when the acquisition will close. Moreover,
      we
      cannot assure you that Power Solutions will not be acquired by another company
      or taken off the market completely.




In
      order
      to fund future acquisitions we may effect one or more private sales of equity
      or
      debt securities. We have not yet determined the terms or amount of the
      securities to be sold. However, any such securities will be offered and sold
      without registration under the Securities Act of 1933, as amended, and may
      not
      be reoffered or resold by the purchasers in the United States absent
      registration or an applicable exemption from the registration requirements
      of
      the Securities Act.




Our
      goal
      is to increase revenue significantly, generate enough cash to finance our
      operations and growth and, eventually, become profitable. We currently do not
      generate enough cash from operations to continue operations indefinitely. Our
      ability to continue is dependent on either raising significant capital or
      increasing revenue, or both. If we are unable to raise such capital and unable
      to increase revenue significantly, we will likely not be able to generate enough
      cash to continue operations. In that event, we would have to seek alternative
      opportunities, such as selling our assets or seeking a merger partner or other
      business combination; otherwise we may default on our debt obligations and
      lose
      our assets to our creditors.





In
      February 2004, we issued 35,000 shares of preferred stock and warrants to
      purchase 35,000 shares of common stock to five investors for $140,000. On April
      15, 2004, the five investors from the February 2004 private placement
      unanimously consented to an amendment to the existing Series A convertible
      preferred stock designation and, in return, exchanged their investment in the
      February 2004 private placement for an aggregate of 140,000 shares of redeemable
      Series A preferred stock and 280,000 warrants. In May 2004, we completed a
      private placement of our redeemable Series A preferred stock, a mandatorily
      redeemable, convertible preferred stock, and warrants to purchase common stock,
      raising gross proceeds from the offering of $1,745,000, before deducting
      placement agent fees and costs. On November 5, 2004, we sold an aggregate of
      390,000 shares of redeemable Series A preferred stock and warrants to purchase
      an aggregate of 780,000 shares of common stock to five investors for $1.00
      per
      unit in the initial closing of a second private placement of our redeemable
      Series A preferred stock and warrants. We sold an aggregate of an additional
      225,000 shares of redeemable Series A preferred stock and warrants to purchase
      an additional 450,000 shares of common stock to two investors in a second
      closing of the private placement on December 23, 2004.





22




We
      borrowed $1,712,085 in short-term debt financing from certain of our principal
      stockholders and other investors from March 2005 through October 2006. These
      notes are secured by a lien on all of our tangible and intangible assets. On
      March 15, 2006, we issued and sold an aggregate of 235,856 shares of common
      stock to the noteholders. Of these shares, 93,356 shares of common stock were
      issued upon conversion of accrued and unpaid interest on the promissory notes
      through February 28, 2006 at a price per share equal to a 20% discount from
      the
      market price per share of our common stock as of March 14, 2006. The remaining
      142,500 shares were issued to certain of the noteholders as an inducement to
      each noteholder agreeing to extend the maturity date of the notes from March
      15,
      2006 to April 30, 2006. On May 3, 2006, we issued and sold an additional
      aggregate of 124,700 shares of common stock to certain of the noteholders as
      an
      inducement to such noteholders agreeing to extend the maturity date of their
      notes from April 30, 2006 to June 30, 2006. On June 5, 2006, we issued and
      sold
      an aggregate of 63,750 shares of common stock to the holders of certain of
      the
      promissory notes. These shares were issued as an inducement to each noteholder
      agreeing to purchase the notes. On August 11, 2006, we entered into an agreement
      dated as of June 30, 2006 with certain of our noteholders pursuant to which
      the
      maturity date of their notes was extended from June 30, 2006 to January 15,
      2007. As an inducement to such noteholders agreeing to extend their notes,
      we
      issued to each of the noteholders 35,000 shares for each $100,000 of principal
      amount of notes, or fraction thereof, held by each holder.




On
      July
      28, 2006 we borrowed $125,000 from Jezebel Management Corporation and issued
      a
      promissory note in the principal amount of $125,000 to Jezebel. The note bore
      interest at a rate of 15% per annum and matured on August 28, 2006. As an
      incentive to purchase the note we issued 25,000 shares of common stock to
      Jezebel. This note is now past due and is accruing interest at the rate of
      18%
      per annum.





In
      August
      2005, we issued 1,754 shares of our common stock and an aggregate of 518,016
      shares of our Series B preferred stock in settlement of certain
      obligations.





We may
      have to seek additional capital through the sale of debt and/or equity
      securities in 2007 in order to fund our operating capital needs.





On
      September 12, 2005, we filed a lawsuit against Toyota Motor Corporation, Toyota
      Motor Sales U.S.A., Inc. and Toyota Motor Manufacturing North America in the
      United States District Court for the Middle District of Florida, Tampa Division,
      Tampa, Florida for infringement of our Electric Wheel patent. In the lawsuit
      we
      allege that the hybrid transmission drive in the Toyota Prius and Highlander
      infringes a number of claims contained in our U.S. Patent No. 5,067,932 and
      we
      are asking for an injunction barring further infringement as well as damages
      for
      the unauthorized use of our patent by Toyota and its affiliates.





On
      January 10, 2006, we filed a complaint with the United States International
      Trade Commission (“ITC”) in Washington D.C. seeking an exclusion order
      prohibiting the importation of infringing technology. On or about February
      8,
      2006, the ITC instituted an investigation based on our complaint. The ITC acts
      as an administrative investigative body to determine, among other things,
      whether or not goods imported into the United States infringe U.S. patents.
      If
      we are successful in our ITC action, Toyota could be prohibited from importing
      into the United States infringing combination motor and transmission systems
      and
      those products containing such systems, including the Toyota Prius and
      Highlander models. On September 19, 2006, we expanded this claim to include
      the
      Toyota Camry and Lexus hybrid models. The ITC held a hearing on our complaint
      from October 30 through November 3, 2006. We anticipate that the ITC
      Administrative Law Judge will issue an initial determination on or
      before January 18, 2007.





The
      patent infringement action brought in the United States District Court for
      the
      Middle District of Florida, Tampa Division, is stayed until the ITC case is
      completed.





Although
      the cost of litigation in these matters is often large, we have arranged
      financing from sources outside our company to fully fund the litigation to
      its
      conclusion. We provide more information about the arrangements we have made
      to
      fund this litigation in “Liquidity and Capital Resources” below.





23




On
      September 14, 2005, we issued an aggregate of 26,000 shares of our common stock
      to three employees of our company and one consultant in consideration for their
      services. On March 28, 2006, we issued 10,000 shares to one consultant in
      consideration of his services to our company.





On
      February 15, 2006, we completed a recapitalization of our Series A preferred
      stock whereby each outstanding share of Series A preferred stock and all accrued
      and unpaid dividends thereon were converted into five shares of common stock.
      At
      the time of the recapitalization there were 3,071,474 shares of Series A
      preferred stock outstanding. These shares were converted into 15,357,370 shares
      of common stock. In addition, on February 15, 2006, warrants to purchase an
      aggregate of 4,646,474 shares of common stock at an exercise price of $1.00
      per
      share were exchanged by the warrant holders for an aggregate of 2,323,237 shares
      of common stock, and on March 3, 2006, warrants to purchase an aggregate of
      750,000 shares of common stock at an exercise price of $1.00 per share were
      exchanged by the warrant holders for an aggregate of 375,000 shares of common
      stock. The warrants were held principally by the individuals and entities that
      had held the Series A preferred stock. The recapitalization and warrant exchange
      were effected on the basis of an exemption from registration provided by Section
      3(a)(9) of the Securities Act of 1933, as amended.




Prior
      to
      the recapitalization, Woodlaken LLC, a Connecticut limited liability company,
      served as the representative of the holders of the Series A preferred stock.
      Woodlaken had held an irrevocable proxy from each holder of Series A preferred
      stock to vote such holder’s shares of Series A preferred stock for directors and
      on other matters on which the Series A preferred stock was entitled to vote.
      Woodlaken was able to elect a majority of our board of directors and exercise
      significant influence over all matters requiring stockholder approval, including
      the approval of significant corporate transactions. As a result of the
      recapitalization, the proxies held by Woodlaken terminated.




**Results
      of Operations**




The
      following discussion should be read in conjunction with our financial statements
      and the related notes thereto included elsewhere herein.





*Three
      months ended September 30, 2006 compared with three months ended September
      30,
      2005.*





For
      the
      three months ended September 30, 2006 we generated revenues of $823,531 as
      compared to $3,674 for the three months ended September 30, 2005, an increase
      of
      $819,857. Cost of products sold for the three months ended September 30, 2006
      was $632,913, generating a gross margin of $190,617. Cost of products sold
      for
      the three months ended September 30, 2005 was $994, generating a gross margin
      of
      $2,680. The increase in our revenues was due to the results of our Power
      Electronics Division, which was acquired on August 17, 2006. We believe that
      with this addition, revenue levels will continue to equal or exceed those of
      previous quarters.





Research
      and development costs were $119,128 for the three months ended September 30,
      2006 as compared to $0 for the three months ended September 30, 2005. The
      increase was the result of continued R&D expenditures in our Power
      Electronics Division in the amount of $109,128, and $10,000 of R & D
      expenditures in our Motive Power Division.





Selling,
      general and administrative expenses were $2,412,437 for the three months ended
      September 30, 2006 as compared to $560,618 for the three months ended September
      30, 2005, an increase of $1,851,819. This increase was primarily due to a charge
      of $1,410,000 to deferred compensation in recognition of a November 2005
      compensation resolution regarding Mr. Laskowski and Mr. D’Amelio, and
      approximately $140,000 related to the Power Electronics Division. Other general
      and administrative expenses were above the previous year because of an
      increase in management activity and professional fees focused on the acquisition
      of Technipower LLC.





We
      incurred interest expense of $394,628 for the three months ended September
      30,
      2006. Interest expense incurred for the three months ended September 30, 2005
      was $986,225. The decrease of $591,597 in interest expense was primarily due
      to
      a decrease in interest accretion of $986,225 recorded on our redeemable Series
      A
      preferred stock, which was recapitalized as common shares in the first quarter
      of 2006, partially offset by an issuance of common stock to certain promissory
      noteholders as incentive to extend due dates for payment to January
      2007.




24





We
      reported a net loss for the three months ended September 30, 2006 of $2,911,083.
      Our net loss for the three months ended September 30, 2005 was $1,544,163.
      Loss
      applicable to common stockholders for the three months ended September 30,
      2006
      was $2,947,247, reflecting dividends of $36,164 relating to Series C preferred
      stock issued in August 2006.





*Nine
      Months ended September 30, 2006 Compared to Nine Months ended September 30,
      2005.*





For
      the
      nine months ended September 30, 2006 we incurred a non-cash loss of $5,652,404,
      primarily caused by the extinguishment of debt of redeemable preferred stock.
      The loss was measured by the excess of the market value of our common stock
      issued of $12,439,470 over the carrying value of the obligations including
      accrued accretion and interest of 6,823,176. Last year we incurred a loss of
      $39,924 on a similar transaction.





For
      the
      nine months ended September 30, 2006 we generated revenues of $836,443 as
      compared to $66,747 for the nine months ended September 30, 2005, an increase
      of
      $769,696. This increase was primarily due to the addition of Technipower LLC
      which now operates as the Power Electronics Division. The Motive Power Division
      (core business) experienced a decrease of $29,616 from the prior year reflecting
      a change in focus in sales and marketing from specific application-based
      products to a broader based technology licensing mode. Cost of products sold
      for
      the nine months ended September 30, 2006 was $652,533 generating a gross margin
      of $183,910. Cost of product sold for the nine months ended September 30, 2005
      was $81,165 generating a gross margin loss of $14,418. The increase in our
      margin was due to the addition of Technipower revenues to our operating
      activity. We believe our margin will continue to improve with the continuity
      of
      our Power Electronics Division and with an increase in sales in our Motive
      Power
      Division.





Research
      and development costs were $119,128 for the nine months ended September 30,
      2006
      compared to $0 for the nine months ended September 30, 2005. The increase was
      the result of continued R&D expenditures in our Power Electronics Division
      of $109,128 and $10,000 of R&D expenditures in our Motive Power
      Division.





Selling,
      general and administrative expenses were $3,864,667 for the nine months ended
      September 30, 2006 as compared to $2,381,775 for the nine months ended September
      30, 2005. This increase of $1,942,259, or 82%, was the result of a deferred
      compensation accrual for Mr. Laskowski and Mr. D’Amelio regarding a November
      2005 compensation resolution.





Interest
      Expense was $1,382,378 for the nine months ended September 30, 2006 as compared
      to $2,441,810 for the nine months ended September 30, 2005. The decrease of
      $1,059,432 was due to a decrease in interest accretion of $1,664,175 reflecting
      the recapitalization of redeemable Series A preferred stock during the first
      quarter of 2006, offset by an issuance of common stock to promissory note
      holders to extend the terms of the notes and to purchase additional
      notes.




In
      February 2006, we issued 15,357,370 shares of common stock with an estimated
      fair value of $12,439,470 to extinguish our obligations under our
      redeemable Series A preferred stock. We recognized an extinguishment loss of
      $5,616,294. Also in 2006, we settled other obligations with the issuance of
      common stock resulting in an additional extinguishment loss of $36,110. Total
      extinguishment loss related to these transactions was $5,667,569.





We
      reported a net loss for the nine months ended September 30, 2006 of $11,010,174.
      Our net loss for the nine months ended September 30, 2005 was $4,877,927. The
      increase in net loss for the nine months ended September 30, 2006 was primarily
      due to the non-cash loss of $5,616,294 on the extinguishment of redeemable
      preferred stock described above. Loss applicable to common stockholders for
      the
      nine months ended September 30, 2006 was $11,106,338 reflecting dividends of
      $96,164 relating to Series C preferred stock issued in August 2006, and Series
      B
      preferred stock conversion costs.




**Liquidity
      and Capital Resources**




Our
      available cash balance at September 30, 2006 was $306,643. We borrowed
      $1,849,069 in short-term debt financing from certain of our principal
      stockholders and other investors from March 2005 through 2006. These notes
      are
      secured by a lien on all of our tangible and intangible assets. We have been
      authorized by the board to obtain an additional $150,931 of short-term debt
      financing.




25





During
      the nine months ended September 30, 2006, we used net cash of $792,402 from
      operations. This consisted of a net loss of $11,010,174 augmented by net
      non-cash charges of $9,447,712. Additionally, we provided net cash in financing
      activities of $984,236 consisting primarily of proceeds from notes payable.
      The
      Power Electronics Division experienced positive cash flow from operating
      activities of $129,568.





On
      November 22, 2005, we entered into an agreement with Oliver Street Finance
      LLC
      in which Oliver Street agreed to provide funding to us to prosecute our
      litigation against Toyota Motor Corporation, Toyota Motor Sales U.S.A., Inc.
      and
      Toyota Motor Manufacturing North America. Oliver Street agreed to pay all legal
      fees and out-of pocket expenses billed by our special patent counsel, Mintz,
      Levin, Cohn, Ferris, Glovsky and Popeo, P.C., in connection with the litigation
      and approved by us in exchange for a portion of any recovery that we receive
      in
      the litigation equal to the greater of 40% of the recovery or the actual amount
      of legal fees and expenses Oliver Street pays on our behalf. Michael D’Amelio, a
      vice president, director and principal stockholder of our company, is also
      a
      principal owner of Oliver Street.





We
      have
      incurred significant operating losses and used cash in our operating activities
      for several consecutive years. As of September 30, 2006 we have deficiencies
      in
      both working capital and net assets. These conditions raise substantial doubt
      about our ability to continue as a going concern. In the past we have been
      able
      to obtain financing to fund our losses. We expect to seek additional capital
      through the sale of debt and/or equity in the fourth quarter of 2006 in order
      to
      fund our operating and capital needs, although there can be no assurance that
      we
      will be successful. Our ability to continue is dependent on obtaining additional
      long-term financing and ultimately achieving profitable operating results.
      To
      date we have not been able to establish acceptable sales levels. With the
      acquisition of Technipower, we believe our ability to achieve profitability
      has
      been enhanced.





In
      order
      to fund future acquisitions, we intend to effect one or more private sales
      of equity or debt securities. We have not yet determined the terms or amount
      of
      the securities to be sold. However, any such securities will be offered and
      sold
      without registration under the Securities Act of 1933, as amended, and may
      not
      be reoffered or resold by the purchasers in the United States absent
      registration or an applicable exemption from the registration requirements
      of
      the Securities Act.





**CRITICAL
      ACCOUNTING POLICIES AND ESTIMATES**





The
      preparation of our consolidated financial statements in conformity with
      accounting principles generally accepted in the United States requires us to
      make estimates and judgments that affect the reported amounts of assets and
      liabilities, net revenue and expenses, and the related disclosures. We base
      our
      estimates on historical experience, our knowledge of economic and market factors
      and various other assumptions that we believe to be reasonable under the
      circumstances. Estimates and judgments used in the preparation of our financial
      statements are, by their nature, uncertain and unpredictable, and depend upon,
      among other things, many factors outside of our control, such as demand for
      our
      products and economic conditions. Accordingly, our estimates and judgments
      may
      prove to be incorrect and actual results may differ, perhaps significantly,
      from
      these estimates under different estimates, assumptions or conditions. We believe
      the following critical accounting policies are affected by significant
      estimates, assumptions and judgments used in the preparation of our consolidated
      financial statements.





***Revenue
      Recognition***





We
      recognize revenue when it is realized or realizable and earned. We consider
      revenue realized or realizable and earned when it has persuasive evidence of
      an
      arrangement, delivery has occurred, the sales price is fixed or determinable,
      and collectibility is reasonably assured. Delivery does not occur until products
      have been shipped or services have been provided to the client, risk of loss
      has
      transferred to the client and client acceptance has been obtained, client
      acceptance provisions have lapsed, or we have objective evidence that the
      criteria specified in the client acceptance provisions have been satisfied.
      In
      situations where a formal acceptance is required but the acceptance only relates
      to whether the product meets its published specifications, revenue is generally
      recognized upon shipment provided all other revenue recognition criteria are
      met. The sales price is not considered to be fixed or determinable until all
      contingencies related to the sale have been resolved.




26





Revenue
      from service sales is recognized at the contractual rates as labor hours are
      delivered and direct expenses are incurred.





***Allowances
      for Doubtful Accounts***





We
      perform credit evaluations of our customers’ financial condition. We maintain
      allowances for doubtful accounts for estimated losses resulting from the
      inability of our customers to make required payments. We record our bad debt
      expenses as selling, general and administrative expenses. When we become aware
      that a specific customer is unable to meet its financial obligations to us,
      for
      example, as a result of bankruptcy or deterioration in the customer’s operating
      results or financial position, we record a specific allowance to reflect the
      level of credit risk in the customer’s outstanding receivable balance. In
      addition, we record additional allowances based on certain percentages of our
      aged receivable balances. These percentages are determined by a variety of
      factors including, but not limited to, current economic trends, historical
      payment and bad debt write-off experience. We are not able to predict changes
      in
      the financial condition of our customers, and if circumstances related to our
      customers deteriorate, our estimates of the recoverability of our trade
      receivables could be materially affected and we may be required to record
      additional allowances. Alternatively, if we provide more allowances than we
      need, we may reverse a portion of such provisions in future periods based on
      our
      actual collection experience.





***Inventory
      Valuation***





We
      assess
      the value of our inventory on a quarterly basis and write-down those inventories
      that are obsolete or in excess of our forecasted usage to their estimated
      realizable value. Our estimates of realizable value are based upon our analysis
      and assumptions including, but not limited to, forecasted sales levels by
      product, expected product lifecycle, product development plans and future demand
      requirements. Our marketing department plays a key role in our excess review
      process by providing updated sales forecasts, managing product rollovers and
      working with manufacturing to maximize recovery of excess inventory. If actual
      market conditions are less favorable than our forecasts or actual demand from
      our customers is lower than our estimates, we may be required to record
      additional inventory write downs. If actual market conditions are more favorable
      than anticipated, inventory previously written down may be sold, resulting
      in
      lower cost of sales and higher income from operations than expected in that
      period.





***Patents
      and Trademarks***





Our
      patents and trademarks are stated at cost. The recoverability of patents and
      trademarks is re-evaluated each year based upon management’s expectations
      relating to the life of the technology and current competitive market
      conditions. We are amortizing these costs over the life of the respective patent
      or trademark.





***Stock-Based
      Compensation***





Effective
      January 1, 2006, we adopted SFAS No. 123(R), “Share-Based Payment” using the
      modified-prospective method. Under this method, compensation cost is recognized
      for all share-based payments granted, modified, or settled after January 1,
      2006, as well as for any unvested awards that were granted prior thereto.
      Compensation cost for unvested awards granted prior to January 1, 2006 is
      recognized using the same estimate of the grant-date fair value and the same
      attribution method used to determine the pro forma disclosures under SFAS No.
      123, “Accounting for Stock-Based Compensation.” Compensation costs for awards
      granted after January 1, 2006 is based on the estimated fair value of the awards
      on their grant date and is generally recognized over the required service
      period.





No
      stock
      options were granted in the first two quarters of 2006 and all stock options
      outstanding at December 31, 2005 were fully vested. As such, the adoption of
      SFAS No. 123(R) had no impact on our financial statements.





Prior
      to
      January 1, 2006, we accounted for stock-based compensation using the intrinsic
      value method prescribed in Accounting Principles Board Opinion No. 25,
      Accounting for Stock Issued to Employees, and related interpretations.
      Accordingly, compensation cost for stock options was measured as the excess,
      if
      any, of the estimated fair market value of our stock at the date of the grant
      over the amount an employee must pay to acquire the stock.




27





***Financial
      Instruments***





Financial
      instruments are initially recorded at their fair values at the time of issuance.
      Multiple financial instruments issued in a transaction are recorded at their
      relative fair values using Black Scholes and other valuation techniques. Those
      recorded as liabilities are remeasured at each reporting period with changes
      in
      fair value reported in operations. Financial instruments issued to settle
      obligations are valued at their fair value on the day of issuance. Differences
      between fair value and carrying value are recognized in operations.





**Off-Balance
      Sheet Arrangements**





We
      have
      no off-balance sheet arrangements that have or are reasonably likely to have
      a
      current or future material effect on our financial condition, changes in
      financial condition, revenues or expenses, results of operations, liquidity,
      capital expenditures or capital resources.





**Special
      Note Regarding Forward-Looking Statements**





This
      Quarterly Report contains “forward-looking statements,” which include
      information relating to future events, future financial performance, strategies,
      expectations, competitive environment, regulation and availability of resources.
      These forward-looking statements include, without limitation, statements
      regarding


·
                expectations
                    as to market acceptance of our
                    products,


·
              expectations
                  as to revenue growth and
                  earnings,




·
              the
                  time by which certain objectives will be
                  achieved,


·
              proposed
                  new products,


·
              our
                  ability to protect our proprietary and intellectual property
                  rights,




·
              statements
                  concerning projections, predictions, expectations, estimates or
                  forecasts
                  as to our business, financial and operational results and future
                  economic
                  performance, and


·
              statements
                  of management’s goals and objectives and other similar expressions
                  concerning matters that are not historical
                  facts.





Words
      such as “may,” “should,” “could,” “would,” “predicts,” “potential,” “continue,”
“expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates”
and similar expressions, as well as statements in future tense, identify
      forward-looking statements.





Forward-looking
      statements should not be read as a guarantee of future performance or results,
      and will not necessarily be accurate indications of the times at, or by which,
      such performance or results will be achieved. Forward-looking information is
      based on information available at the time and/or management’s good faith belief
      with respect to future events, and is subject to risks and uncertainties that
      could cause actual performance or results to differ materially from those
      expressed in the statements. Important factors that could cause such differences
      include, but are not limited to




·
            industry
                competition, conditions, performance and
                consolidation,




·
            legislative
                and/or regulatory
                developments,




28




·
            the
                effects of adverse general economic conditions, both within the United
                States and globally,




·
            any
                adverse economic or operational repercussions from recent terrorist
                activities, any government response thereto and any future terrorist
                activities, war or other armed conflicts,
                and




·
            other
                factors described in the “Risk Factors” contained in Exhibit 99.1 to our
                Annual Report on Form 10-KSB for the year ended December 31,
                2005.




Forward-looking
      statements speak only as of the date the statements are made. We assume no
      obligation to update forward-looking statements to reflect actual results,
      changes in assumptions or changes in other factors affecting forward-looking
      information except to the extent required by applicable securities laws. If
      we
      update one or more forward-looking statements, no inference should be drawn
      that
      we will make additional updates with respect thereto or with respect to other
      forward-looking statements.




29




**ITEM
                6.**
            **Exhibits**




**Exhibit
                No.**
            
            **Description**10.1
            
            Amended
                and Restated 2003 Stock Option Plan (1)10.2
            
            Senior
                Secured Promissory Note issued to Millennium Trust Co. LLC Custodian
                FBO
                Joseph Cooper Rollover IRA 90M020013 (2)10.3
            
            Joinder
                Agreement by and between Solomon Technologies, Inc. and Millennium
                Trust
                Co. LLC Custodian FBO Joseph Cooper Rollover IRA 90M020013 dated
                July 3,
                2006 (2)10.4
            
            Promissory
                Note issued to Jezebel Management Corporation dated July 28, 2006
                (2)10.5
            
            Agreement
                dated as of September 30, 2006, among Solomon Technologies, Inc.,
                Woodlaken LLC, Jezebel Management Corporation, Pinetree (Barbados),
                Inc.,
                Coady Family LLC, F. Jay Leonard, Peter and Barbara Carpenter, Pascal
                Partners, LLC, Steven Kilponen and Millennium Trust Co. LLC Custodian
                FBO
                Joseph Cooper Rollover IRA 90M020013 (1)10.6
            
            Securities
                Purchase Agreement dated as of August 17, 2006, by and among Solomon
                Technologies, Inc., Integrated Power Systems LLC, Power Designs Inc.,
                The
                Vantage Partners LLC, Anthony F. Intino, II, Allison E. Bertorelli,
                and
                Mariano Moran, the holders of Warrants listed on the signature pages
                thereto and Technipower LLC (1)10.7
            
            Registration
                Rights Agreement dated as of August 17, 2006 (1)10.8
            
            Escrow
                Agreement dated as of August 17, 2006 (1)10.9
            
            Lease
                Agreement by and between Commerce Park Realty LLC and Power Designs,
                Inc.,
                as assigned to Technipower LLC (1)10.10
            
            Loan
                and Security Agreement dated May 3, 2006 between Technipower LLC
                and
                Citizens Bank of Massachusetts, as amended (1)31.1
            
            Certification
                by Chief Executive Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.31.2
            
            Certification
                by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002.32.1
            
            Certification
                by Chief Executive Officer pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002.32.2
            
            Certification
                by Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
                Act of 2002.





(1)
            Incorporated
                by reference from the Registration Statement on Form SB-2, File No.
                333-138240 filed on October 27, 2006.(2)
            Incorporated
                by reference from the Quarterly Report on Form 10-QSB filed on August
                14,
                2006.




30


**SIGNATURES**





In
      accordance with Section 13 or 15(d) of the Securities and Exchange Act of 1934,
      as amended, Solomon Technologies, Inc. has duly caused this report to be signed
      on its behalf by the undersigned thereunto duly authorized.


Dated:
                  April 20, 2007
                
                **SOLOMON
                  TECHNOLOGIES, INC.**By:
              
              /s/
                  Gary G. BrandtGary
                  G. Brandt
                Chief
                  Executive Officer
                (principal
                  executive officer)By:
              
              /s/
                  Samuel F. OcchipintiSamuel
                  F. Occhipinti
                Chief
                  Financial Officer
                (principal
                  financial and accounting officer)