**Table
          of Contents**





**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


WASHINGTON,
      D.C. 20549





**FORM
      10-QSB**





x
                Quarterly
                    report pursuant to Section 13 or 15(d) of the Securities Exchange
                    Act of
                    1934; For the quarterly period ended: July 31,
                    2006





o
            Transition
                report pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934





Commission
      File Number: 0-24857




**POWER
      TECHNOLOGY, INC.**


(Exact
      name of registrant as specified in its charter)





Nevada
            
            88-0395816(State
                or other jurisdiction
            
            IRS
                Employerof
                incorporation or organization)
            
            Identification
                No.)





5300
      Memorial Drive, Suite 700


Houston,
      Texas 77007


(Address
      of principal executive offices, including zip code)





(713)
      621-4310


(Registrant's
      telephone number, including area code)








Check
      whether the issuer: (i) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports), and (ii) has been
      subject to such filing requirements for the past 90 days. Yes x  No
o





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12-b-2 of the Exchange Act). Yes o No x




**APPLICABLE
      ONLY TO ISSUERS INVOLVED IN BANKRUPTCY**


**PROCEEDINGS
      DURING THE PRECEDING FIVE YEARS**




Check
      whether the Registrant filed all documents and reports required to be filed
      by
      Section 12, 13 OR 15(D) of the Exchange Act after the Distribution of securities
      under a plan confirmed by a court. N/A




**APPLICABLE
      ONLY TO CORPORATE ISSUERS**





On
      October 18, 2006, there were 149,391,694 shares of common stock, $.01 par value,
      outstanding.





Transitional
      Small Business Disclosure Format (check one): Yes o No x







**Table
          of Contents**


TABLE
      OF CONTENTS




PART
                I  FINANCIAL INFORMATIONItem
                1.
            Financial
                StatementsConsolidated
                Balance Sheets as of July 31, 2006 (unaudited) and
                January 31, 2006 (audited)
            F-1Consolidated
                Statements of Operations for the six months ended
                July 31, 2006 and 2005 (unaudited)
            F-2Consolidated
                Statements of Cash Flows for the six months ended
                July 31, 2006 and 2005 (unaudited)
            F-3Notes
                to Consolidated Financial
                Statements
            F-4Item
                2.
            Management’s
                Discussion and Analysis or Plan of
                Operations
            1Item
                3.
            Controls
                and Procedures
            19PART
                II  OTHER INFORMATIONItem
                1.
            Legal
                Proceedings
            19Item
                2.
            Unregistered
                Sales of Equity Securities and Use of
                Proceeds
            20Item
                4.
            Submission
                of Matters to a Vote of Security
                Holders
            20Item
                5
            Other
                Information
            21Item
                6.
            Exhibits
            22Signatures
            23




-i-
 **Table
          of Contents**




**PART
      I****FINANCIAL
      INFORMATION**





ITEM
              1.
            FINANCIAL
                STATEMENTS.






**Power
      Technology, Inc.**


**Consolidated
      Balance Sheets**


**(Unaudited)**


July
                31,
            
            January
                31,2006
            
            2006AssetsCurrent
                assets:Cash
                and equivalents
            
            $
            327,631
            
            $
            180,583Accounts
                receivables
            
            
            15,282
            
            
            —Inventory
            
            
            4,118
            
            
            —Deposit
                for equipment
            
            
            —
            
            
            9,470Prepaid
                expenses
            
            
            3,368
            
            
            1,278Total
                current assets
            
            
            350,399
            
            
            191,331Fixed
                assets, net of accumulated depreciation of $33,344and
                $27,156
            
            
            160,849
            
            
            821Goodwill
            
            
            1,174,107
            
            
            —Deposits
            
            
            23,891
            
            
            —Deferred
                financing costs
            
            
            88,253
            
            
            61,438Total
                assets
            
            $
            1,797,499
            
            $
            253,590Liabilities
                and stockholders' deficitCurrent
                LiabilitiesAccounts
                payable and accrued liabilities
            
            $
            365,023
            
            $
            120,770Short-term
                debt
            
            
            49,000
            
            
            49,000Derivative
                liability
            
            
            2,227,206
            
            
            2,441,900Total
                current liabilities
            
            
            2,641,229
            
            
            2,611,670Note
                payable
            
            
            235,000
            
            
            —Convertible
                debentures, net of discount
            
            
            617,040
            
            
            194,279Total
                liabilities
            
            
            3,493,269
            
            
            2,805,949Stockholders'
                (deficit):Preferred
                stock, $0.01 par value, 1,000,000 sharesauthorized,
                none issued or outstanding
            
            
            —
            
            
            —Common
                stock, $0.001 par value, 750,000,000 sharesauthorized,
                148,991,694 shares issued and outstanding
            
            
            148,991
            
            
            135,495Additional
                paid-in capital
            
            
            13,745,943
            
            
            12,082,640Other
                comprehensive loss
            
            
            (1,561
            )
            
            (1,378
            )Accumulated
                deficit
            
            
            (15,589,143
            )
            
            (14,769,116
            )Total
                stockholders' deficit
            
            
            (1,695,770
            )
            
            (2,552,359
            )Total
                liabilities and stockholders' deficit
            
            $
            1,797,499
            
            $
            253,590


The
      accompany notes are an integral part of these financial statements.


F-1
 **Table
          of Contents**




**Power
        Technology, Inc.**
 **Consolidated
        Statements of Operations**
 For
        the three and six months ended July 31,
        2006 and 2005
 **(Unaudited)**


For
                  the three months ended
              
              For
                  the six months endedJuly
                  31, 2006
              
              July
                  31, 20062006
              
              2005
              
              2006
              
              2005Sales
              
              $
              11,468
              
              $
              —
              
              $
              11,468
              
              $
              —Cost
                  of goods sold
              
              
              6,367
              
              
              —
              
              
              6,367
              
              
              —Gross
                  profit
              
              
              5,101
              
              
              —
              
              
              5,101
              
              
              —Expenses:General
                  administrative expenses
              
              
              486,736
              
              
              203,789
              
              
              716,733
              
              
              289,757Research
                  & development
              
              
              52,826
              
              
              5,310
              
              
              93,257
              
              
              11,084Consulting
                  fee
              
              
              21,183
              
              
              263,627
              
              
              243,183
              
              
              371,677Depreciation
                  and amortization
              
              
              5,428
              
              
              1,715
              
              
              6,188
              
              
              3,861Total
                  operating expense
              
              
              566,173
              
              
              474,441
              
              
              1,059,361
              
              
              676,379Loss
                  from operations
              
              
              (561,072
              )
              
              (474,441
              )
              
              (1,054,260
              )
              
              (676,379
              )Other
                  income (expenses)Net
                  change in fair value of derivative liabilities
              
              
              2,665,392
              
              
              —
              
              
              571,640
              
              
              —Interest
                  expense - derivatives
              
              
              (125,711
              )
              
              —
              
              
              (229,707
              )
              
              —Interest
                  expense
              
              
              (65,750
              )
              
              (6,302
              )
              
              (116,376
              )
              
              (12,397
              )Financing
                  fees
              
              
              —
              
              
              (50,895
              )
              
              —
              
              
              (125,000
              )Interest
                  income
              
              
              5,729
              
              
              —
              
              
              8,677
              
              
              —Total
                  other income (expense)
              
              
              2,479,660
              
              
              (57,197
              )
              
              234,234
              
              
              (137,397
              )Net
                  income (loss)
              
              
              1,918,588
              
              
              (531,638
              )
              
              (820,026
              )
              
              (813,776
              )Weighted
                  average number ofcommon
                  shares outstanding-basic and fully diluted
              
              
              140,580,202
              
              
              132,004,555
              
              
              140,299,675
              
              
              130,232,699Net
                  (loss) per share-basic and fully diluted
              
              $
              0.01
              
              $
              (0.00
              )
              $
              (0.01
              )
              $
              (0.01
              )


The
        accompany notes are an integral part of these financial
        statements.


F-2
 **Table
          of Contents**




**Power
        Technology, Inc.**
 **Consolidated
        Statements of Cash Flows**
 For
        the six months ended July 31, 2006 and
        2005
 **(Unaudited)**


For
                  the six months endedJuly
                  31, 20062006
              
              2005Cash
                  flows from operating activitiesNet
                  loss
              
              $
              (820,026
              )
              $
              (813,776
              )Adjustments
                  to reconcile net loss to net cashused
                  in operating activitiesDepreciation
                  and amortization expense
              
              
              6,188
              
              
              3,861Amortization
                  of debt discount
              
              
              229,707
              
              
              125,000Amortization
                  of deferred financing costs
              
              
              23,062
              
              
              —Gain
                  on derivative liabilities
              
              
              (571,640
              )
              
              —Stock
                  option expense
              
              
              300,000
              
              
              18,000Stock
                  issued for directors fees
              
              
              18,000
              
              
              —Stock
                  issued for consulting services
              
              
              72,000
              
              
              371,677Warrants
                  issued for consulting fees
              
              
              —
              
              
              73,003Increase
                  in accounts receivable
              
              
              (12,016
              )
              
              —Increase
                  in inventory
              
              
              (4,118
              )
              
              —Decrease
                  in prepaid expense
              
              
              820
              
              
              —Increase
                  in other assets
              
              
              (3,598
              )
              
              —Increase
                  in accounts payable and accrued liabilities
              
              
              181,051
              
              
              116,598Net
                  cash used in operating activities
              
              
              (580,570
              )
              
              (105,637
              )Cash
                  flows from investing activitiesPurchase
                  of equipment
              
              
              (157,199
              )
              
              —Cash
                  flows from financing activitiesProceeds
                  from debt
              
              
              —
              
              
              10,000Proceeds
                  from convertible debentures, net of financing costs of
                  $55,000
              
              
              495,000
              
              
              —Proceeds
                  from exercise of stock options and warrants
              
              
              390,000
              
              
              113,000Net
                  cash provided by financing activities
              
              
              885,000
              
              
              123,000Effect
                  of exchange rate changes on cash
              
              
              (183
              )
              
              —Net
                  increase (decrease) in cash
              
              
              147,048
              
              
              17,363Cash
                  and equivalents-beginning
              
              
              180,583
              
              
              44,961Cash
                  and equivalents-ending
              
              $
              327,631
              
              $
              62,324Supplemental
                  disclosuresInterest
                  paid
              
              $
              —
              
              $
              —Income
                  taxes paid
              
              $
              —
              
              $
              —Non-cash
                  investing and financing activitiesCommon
                  stock issued to acquire Sentry Power Technology, Inc.
              
              $
              960,000
              
              $
              —Discount
                  on debt from derivatives
              
              $
              356,946
              
              $
              —


The
        accompany notes are an integral part of these financial
        statements.


F-3
 **Table
          of Contents**





**POWER
      TECHNOLOGY, INC.**


**Notes
      to Unaudited Consolidated Financial
      Statements**






**NOTE
      1 - Basis of Presentation and Ability to Continue as a Going
      Concern**





The
      consolidated interim financial statements included herein, presented in
      accordance with United States generally accepted accounting principles and
      stated in US dollars, have been prepared by Power Technology, without audit,
      pursuant to the rules and regulations of the Securities and Exchange Commission.
      Certain information and footnote disclosures normally included in financial
      statements prepared in accordance with generally accepted accounting principles
      have been condensed or omitted pursuant to such rules and regulations, although
      management believes that the disclosures are adequate to make the information
      presented not misleading.




These
      consolidated financial statements reflect all adjustments, consisting of normal
      recurring adjustments, which, in the opinion of management, are necessary for
      fair presentation of the information contained therein. It is suggested that
      these consolidated interim financial statements be read in conjunction with
      the
      financial statements of Power Technology for the year ended January 31, 2006
      and
      notes thereto included in Power Technology's 10-KSB annual report. Power
      Technology follows the same accounting policies in the preparation of interim
      reports.




Results
      of operations for the interim periods are not indicative of annual
      results.





With
      the
      a cquisition
      of the assets of Sentry Power Systems, LLC ,
      Power
      Technology is no longer considered a development stage company as of May 16,
      2006.





The
      accompanying financial statements have been prepared assuming that Power
      Technology will continue as a going concern which contemplates the
      recoverability of assets and the satisfaction of liabilities in the normal
      course of business. Since its inception, Power Technology has been engaged
      substantially in financing activities and developing its product line, incurring
      substantial costs and expenses. As a result, Power Technology incurred net
      losses of ($15,589,143) during the period June 3, 1996 (inception) to July
      31,
      2006. In addition, Power Technology’s development activities since inception
      have been financially sustained by debt and capital contributions from its
      affiliates and others.





The
      ability of Power Technology to continue as a going concern is dependent upon
      its
      ability to raise additional capital from the sale of Common Stock and,
      ultimately, the achievement of significant operating revenues. The accompanying
      financial statements do not include any adjustments that might be required
      should Power Technology be unable to recover the value of its assets or satisfy
      its liabilities.





**NOTE
      2 - Debt**




Convertible
      Debentures-





The
      Convertible Debentures are convertible (“Conversion Feature”) into the common
      stock of Power Technology at any time until repayment of the Convertible
      Debentures at the price per share equal to the lesser of:





a.
            an
                amount equal to 120% of the closing bid price of the common stock
                (the
                “Optional Redemption Feature”); or




b.
            an
                amount equal to 100% of the average of the three lowest closing bid
                prices
                of the common stock for the 30 trading days immediately preceding
                the
                conversion date.





F-4
 **Table
            of Contents**




However,
      in no event shall Cornell convert the Convertible Debentures in such manner
      that
      would cause Cornell to beneficially own more than 4.99% of the then total issued
      and outstanding shares of Power Technology's common stock.





If
      CCP-4
      is repaid under the Optional Redemption Feature, Power Technology must issue
      a
      warrant (the “Warrant Feature”) to Cornell to purchase 1,000,000 shares
      (formerly 50,000 shares for CCP-1 through CCP-3) of its common stock for each
      $100,000 redeemed, exercisable at 120% of the closing bid price of the common
      stock. CCP-4 is secured by substantially all of Power Technology's assets,
      is
      subject to a RRA, and includes default provisions.





Also
      on
      December 22, 2005, Power Technology issued $500,000 of new Convertible
      Debentures due 2007 (“CCP-5”), bearing an annual interest rate of 10%, and
      providing for the same Conversion Feature, Optional Redemption Feature, Warrant
      Feature, RRA, default and other provisions as under the terms of
      CCP-4.





For
      each
      of CCP-4 and CC-5, the Conversion Feature and Optional Redemption Feature were
      designated as embedded derivatives, and have been bundled together as a single
      compound embedded derivative liability. Power Technology utilized a layered
      discounted probability-weighted cash flow approach to determine the initial
      fair
      values of these Convertible Debentures at issuance date (December 22, 2005),
      which were as follows: CCP-4- $370,601 and CCP-5- $381,398. The fair value
      model
      comprises multiple probability-weighted scenarios under various assumptions
      reflecting the economics of CCP-4 and CCP-5, such as the risk-free interest
      rate, expected Company stock price and volatility, likelihood of conversion
      and/or redemption, and likelihood of default status and timely registration.
      At
      inception, the fair values of these single compound embedded derivatives were
      bifurcated from their respective debt host contracts and recorded as derivative
      liabilities, which resulted in a reduction of the initial notional carrying
      amount of the Convertible Debentures (as unamortized discount, which will be
      amortized over the two-year life of the notes under the effective interest
      method). For each of CCP-4 and CCP-5, the Warrant Feature has been designated
      as
      a freestanding derivative liability and has been fair valued utilizing the
      Black-Scholes method with a probability-weighted exercise price. At inception
      (December 22, 2005), the fair values of the Warrant Feature were as follows:
      CCP-4 - $641,478 and CCP-5 - $664,957.





The
      assumptions used in both the layered discount probability-weighted cash flow
      approach for the compound single embedded derivatives within the Convertible
      Debentures and the Black-Scholes approach for the Warrant derivative liability
      comprised the following: risk-free interest rate of 4.4%, volatility of 100%,
      expected stock price average growth of 31.5%, no registration default, 2.5%
      default status, no assumption of alternative financing, expected Warrant term
      of
      5 years, dividend yield of zero percent, and a probability-weighted exercise
      price of $0.075.





The
      Convertible Debentures (CCP-4, CCP-5 and CCP-6) balances at July 31, 2006 as
      adjusted:




CCP-4
              
              CCP-5
              
              CCP-6
              
              TotalConvertible
                  Debentures January 31, 2006
              
              $
              171,317
              
              $
              22,962
              
              $
              —
              
              $
              194,279Issuance
                  of debt
              
              
              
              
              
              
              
              
              550,000
              
              
              550,000Adjustment
                  for Single CompoundEmbedded
                  Derivative with the Convertible Debenture
              
              
              
              
              
              
              
              
              (356,946
              )
              
              (356,946
              )Amortization
                  of discount
              
              
              59,345
              
              
              111,229
              
              
              59,133
              
              
              229,707Convertible
                  Debentures July 31, 2006, as adjusted
              
              $
              230,662
              
              $
              134,191
              
              $
              252,187
              
              $
              617,040


For
      the
      six months ended July 31, 2006, the amortization of unamortized discount on
      the
      Convertible Debentures (CCP-4, CCP-5 and CCP-6) was $229,707 which has been
      classified as interest expense in the accompanying consolidated statements
      of
      operations.





F-5
 **Table
            of Contents**





The
      Compound Embedded Derivatives within Convertible Debentures (CCP-4, CCP-5 and
      CCP-6) derivative liability reflects the following activity for the six months
      ended July 31, 2006:




CCP-4
              
              CCP-5
              
              CCP-6
              
              TotalBalance
                  January 31, 2006
              
              $
              452,221
              
              $
              457,257
              
              $
              356,946
              
              $
              1,266,424Additions
              
              
              
              
              
              
              
              
              
              
              
              —Mark
                  to market for the six months ended July 31, 2006
              
              
              (186,644
              )
              
              (183,651
              )
              
              (44,003
              )
              
              (414,298
              )Balance
                  July 31, 2006
              
              
              265,577
              
              
              273,606
              
              
              312,943
              
              
              852,126




The
      Derivative-Compound Embedded Derivatives within Warrants reflect the following
      activity for the three months ended July 31, 2006




CCP-4
            
            CCP-5
            
            TotalBalance
                January 31, 2006
            
            $
            752,441
            
            $
            779,981
            
            $
            1,532,422Additions
            
            
            
            
            
            
            
            
            —Mark
                to market for the six months ended July 31, 2006
            
            
            (77,257
            )
            
            (80,085
            )
            
            (157,342
            )Balance
                July 31, 2006
            
            $
            675,184
            
            $
            699,896
            
            $
            1,375,080




**NOTE
      3 - Stockholders' Equity**





During
      the six months ended July 31, 2006, Power Technology issued 1,200,000 shares
      of
      common stock for services rendered with a value of $72,000





During
      the six months ended July 31, 2006, warrant holders exercised 1,500,000 warrants
      for an aggregate price of $90,000.





During
      the six months ended July 31, 2006, an option holder exercised 5,000,000 options
      for an aggregate price of $300,000.





During
      the six months ended July 31, 2006, Power Technology issued 120,000 shares
      of
      common stock to directors in payment of their fees, the shares were valued
      at
      $18,000.





During
      the six months ended July 31, 2006, Power Technology issued 5,675,949 shares
      of
      common stock for the purchase of the assets of Sentry Power LLC valued at
      $896,800.





At
      July
      31, 2006, Power Technology had a stock payable of $191,166, recorded for the
      accrual of 606,667 common shares valued at $127,966 to be issued to Power
      Technology’s president under his employment agreement and 400,000 shares valued
      at $63,200 to be issued for the purchase of the assets of Sentry Power, LLC
      (see
      Note 5).





**NOTE
      4 -Warrants and Options**





Warrants





Warrants
      issued by Power Technology are valued on the date of grant using the
      Black-Scholes pricing model using certain assumptions.





Activity
      of warrants during the six months ended July 31, 2006 and 2005 is as
      follows:





F-6
 **Table
            of Contents**




2006
              
              2005Weighted
              
              
              
              WeightedAverage
              
              
              
              AverageWarrants
              
              Share
                  Price
              
              Warrants
              
              Share
                  PriceOutstanding
                  at beginning of period
              
              
              1,500,000
              
              $
              0.060
              
              
              —
              
              $
              —Granted
              
              
              20,094,875
              
              
              0.078
              
              
              —
              
              
              —Exercised
              
              
              (1,500,000
              )
              
              0.060
              
              
              —
              
              
              —Forfeited
              
              
              —
              
              
              —
              
              
              —
              
              
              —Outstanding
                  at end of period
              
              
              20,094,875
              
              $
              0.078
              
              
              —
              
              $
              —




The
      weighted average fair value of the warrants granted during the six months ended
      July 31, 2006 was $0.065. The estimated fair value was determined by using
      the
      Black-Scholes option-pricing model assuming a life of 5 years, volatility of
      100%, no dividends and a risk free rate of 4.4%.





Warrants
      outstanding and exercisable as of July 31, 2006:




Outstanding
            
            ExercisableNumber
                of
            
            Remaining
            
            Number
                ofExercise
                Price
            
            Shares
            
            Life
            
            Shares$
                0.078
            
            
            20,094,875
            
            
            1.833
            
            
            20,094,875




Stock
      options





Power
      Technology has 1,000,000 options to an employee at July 31, 2006 with an average
      exercise price of $0.005. There are 100,000 of these options that are
      exercisable as of July 31, 2006.





During
      the period ended July 31, 2006, Power Technology has issued 4,000,000 options
      to
      two employees as of May 1, 2006. The exercise price is $0.1216 per share. The
      total 4,000,000 options are exercisable as of July 31, 2006. Power Technology
      used the Black-Scholes method to value these options assuming the contract
      life,
      with a 78% volatility, no dividends and 5.24% risk free borrowing. Power
      Technology recorded a $200,000 expense for these options.





During
      the period ended July 31, 2006 Power Technology issued 5,000,000 options to
      a
      consultant with an exercise price of $.06 per share. The options expire on
      February 27, 2007. Power Technology used the Black-Scholes method to value
      these
      options with 100% volatility and 4% risk free borrowing. Power Technology
      recorded a $100,000 expense for these options.


The
      consultant has exercised all 5,000,000





**NOTE
      5 - Acquisition**





On
      May
      16, 2006, our wholly owned subsidiary Sentry Power Technology, Inc. (“SPT”)
      acquired the assets of Sentry Power Systems, LLC (“Sentry”). Sentry sells
      automatic battery back up uninterrupted power supply systems for commercial
      and
      residential use in states and municipalities throughout the northeast and
      southwest United States. The acquisition will strengthen Power Technology as
      a
      competitor in the alternative battery technology industry.





The
      total
      purchase price was $1,195,000 which was paid by issuing 5,675,949 shares of
      our
      common stock valued at $896,800 (based on the closing price per share on the
      day
      before the closing date) and by SPT assuming $235,000 in debt owed by Sentry
      to
      CSI Business Finance, Inc. as evidenced by a secured promissory note. An
      additional 400,000 shares of common stock valued at $63,200 were issued in
      September 2006 for the purchase.  F-7
 **Table
            of Contents**


The
      purchase price allocation based on the estimated fair values of the assets
      acquired at May 16, 2006 is as follows:





Accounts
                receivable
            
            $
            3,266Prepaid
                expenses
            
            
            2,910Property
                and equipment
            
            
            9,017Other
                assets
            
            
            5,700Goodwill
            
            
            1,174,107Total
            
            $
            1,195,000





Goodwill
      will be tested periodically for impairment as required by FASB Statement No.
      142, "Goodwill and other Intangible Assets."





The
      results of this acquisition are included in the consolidated financial
      statements from the date of acquisition. Unaudited pro forma operating results
      for Power Technology, assuming the acquisition occurred at the beginning of
      each
      period, are as follows:




Three
                  Months Ended
                July
                  31,
              
              Six
                  Months Ended
                July
                  31,2006
              
              2005
              
              2006
              
              2005Revenue
              
              $
              11,468
              
              $
              25,044
              
              $
              25,712
              
              $
              115,741Net
                  income (loss)
              
              $
              1,928,805
              
              $
              (617,198
              )
              $
              (771,375
              )
              $
              (1,159,487
              )Net
                  income (loss) per common share
              
              $
              0.01
              
              $
              (0.00
              )
              $
              (0.01
              )
              $
              (0.01
              )




The
      unaudited pro forma results are not necessarily indicative of what would have
      occurred if the acquisition had been in effect for the periods presented. In
      addition, they are not intended to be a projection of future results and do
      not
      reflect any synergies that might be achieved by combining the
      operations.




**NOTE
      6 - Contingency**





On
      July
      29, 2004, we increased the number of authorized shares of common stock from
      100,000,000 to 750,000,000 shares by amending our Articles of Incorporation.
      Subsequent to the filing of the Certificate with the office of the Nevada
      Secretary of State, we issued shares of common stock which caused the number
      of
      outstanding shares to exceed 100,000,000 shares. Currently, the number of shares
      issued and outstanding shares of common stock is 149,391,694.





Power
      Technology has reviewed the procedures used to amend the Articles of
      Incorporation regarding the increase in the authorized number of shares of
      common stock. We believe that we did not fully comply with the requirements
      of
      the Nevada Revised Statues, and as a result, any shares of common stock issued
      in excess of 100,000,000 shares may be void or voidable in view of the lack
      of
      prior shareholder approval of the Amendment to the Articles of
      Incorporation.





In
      order
      to correct and remedy these events, Power Technology intends to call a special
      meeting of the stockholders to authorize the increase of its authorized number
      of shares of common stock from 100,000,000 shares to 750,000,000 shares, and
      to
      amend the Articles of Incorporation accordingly.





If
      the
      shareholders do not approve the increase in the authorized number of shares,
      Power Technology will face possible claims that there has been an overissuance
      of the common stock.


F-8
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          of Contents**




ITEM
              2.
            MANAGEMENT’S
                DISCUSSION AND ANALYSIS OR PLAN OF
                OPERATIONS.




PLAN
      OF OPERATIONS




The
      following discussion of the Company's financial condition and results of
      operations should be read in connection with the Company's consolidated
      financial statements and notes thereto appearing elsewhere in this report.
      This
      discussion contains statements reflecting the opinions of management as well
      as
      forward-looking statements regarding the market and the Company that involve
      risk and uncertainty. These statements relate to expectations and concern
      matters that are not historical facts. Works such as "believes", "expects",
      "anticipates" and similar expressions used throughout this document indicate
      that forward-looking statements are being made.




Although
      management of the Company believes that the expectations and opinions reflected
      in its forward-looking statements are reasonable, these statements are not
      guarantees of future performance. They are subject to risks, uncertainties
      and
      other factors that could cause actual performance to differ materially from
      projected results. Risk factors are disclosed in our annual report on Form
      10-KSB, as amended.




Power
      Technology, Inc., a Nevada corporation, was incorporated on June 3, 1996. We
      are
      in the development stage of designing and producing its batteries and other
      products. We are preparing to produce prototype versions of our battery to
      be
      built in a variety of sizes, amp hour capacities and configurations using
      methods that we anticipate will be practical for economically manufacturing
      batteries on a commercial scale. We have designed and are in the process of
      constructing a pilot plant capable of manufacturing our current collectors
      in
      commercial quantities for use in lead acid batteries. We have not commenced
      any
      commercial production or sales of our batteries or pipeline connection
      equipment. The business of our new wholly owned subsidiary, Sentry Power
      Technology, Inc. (“SPT”) includes the design and assembly of automatic battery
      backup power systems for commercial office space and residential new builder
      markets.




Historically,
      we have used the sale of our common stock, capital contributions and loans
      from
      various stockholders to fund our operations. To date, we have not had adequate
      funds to commercially produce, market, and sell our batteries or pipeline
      connection equipment. There can be no assurances that we will be able to obtain
      a profitable level of operations.





PLAN
      OF
      OPERATIONS





Because
      of the costs of development of our battery systems, the continuing costs of
      our
      battery prototype production and the anticipated costs relating to our pilot
      plant, unless we are able to sign a significant licensing agreement, we will
      incur a loss during our fiscal year ending January 31, 2007.





We
      believe that our cash needs will be satisfied from existing funds for the next
      five months following the quarter for which this Form 10-QSB is filed.
      Additional debt or equity financing or licensing agreement proceeds will be
      required to accomplish our plan of operations during the next 12 months. As
      a
      result, we intend to sell additional shares of our common stock to further
      capitalize our operations. We may also borrow from banks and others to the
      extent necessary to provide liquidity for our operations, although no
      arrangements for any additional


-1-
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borrowings
      have been made. There is no assurance that funds will be available from any
      of
      these sources, or, if available, upon terms and conditions acceptable to us.





We
      intend
      to continue our research and development activities in order to develop our
      batteries for commercial production. We expect to incur substantial capital
      costs designing and building a pilot plant capable of manufacturing our current
      collectors in commercial quantities for our batteries. We intend to manufacture
      prototype versions of our batteries and we expect to incur substantial costs
      in
      manufacturing prototype batteries.





BATTERY
      PILOT PLANT





We
      have
      designed and are in the process of constructing a pilot plant capable of
      manufacturing our current collectors in commercial quantities for use in lead
      acid batteries. The manufacturing process to create a current collector will
      include manufacturing the RVC plates, casting a top frame and tab, bottom and
      side frames on the individual RVC plates, depositing the lead tin alloy on
      the
      RVC plate by electroplating, applying battery paste onto the individual RVC
      foam
      plate, and curing them. Once this process has been completed, the individual
      plate is suitable for use as a current collector. We believe that the
      manufacturing process and machinery necessary for insertion of our current
      collector into a battery case and completing the manufacturing of our battery
      is
      substantially similar to existing processes, methods, and machinery commonly
      used in the manufacture of a typical lead acid battery.





We
      are
      establishing a pilot plant facility in Richmond, British Columbia, Canada.
      We
      have leased from Sun Life assurance Company of Canada approximately 3150 square
      feet of space located at 5600 Parkwood Way, Richmond, British Columbia, Canada,
      for a minimum term of three years, beginning August 1, 2006, at the rate of
      approximately $2,825 per month.





The
      purpose of the Pilot Plant is not to manufacture current collectors in
      commercial quantities for sale to battery manufacturers. The purpose of the
      Pilot Plant is to demonstrate to battery manufacturers the manufacturing
      process, machinery and procedure necessary to manufacture our proprietary RVC
      current collectors.





Based
      on
      the engineering and design that has been performed and the written proposal
      provided, we estimate that the consulting costs, equipment, and materials to
      enable us to begin manufacturing RVC plates will be approximately $93,000.
      This
      system manufactures RVC in billets in a batch process and the blocks of RVC
      are
      then be cut and sliced into the proper size for individual current collectors.
      The system is designed to permit production of 5000 RVC plates of 6 inches
      by 6
      inches by 3 mm per month. We have successfully manufactured RVC billets in
      our
      pilot plant.





In
      March
      2006, we signed a Consulting Services Agreement with Richard R. McCormick,
      a
      former employee of an engineering firm, Destech Corp., which specializes in
      manufacturing reticulated vitreous carbon (“RVC”) and other advanced materials.
      RVC is an electrically conductive, highly porous, rigid, open cell, pure carbon,
      foam structure with a high melting point, high chemical inertness, and low
      bulk
      thermal conductivity. RVC has an exceptionally high void volume (97%), a high
      surface area combined with self supporting rigidity, low resistance to fluid
      flow, an ability to hold infused materials, and superior resistance to very
      high
      temperatures in non-oxidizing environments. Mr. McCormick has fifteen years
      of
      experience in supervising the manufacture of RVC foam. We


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have
      acquired all equipment, supplies, materials, chemicals, instruments, utilities
      and machinery that are required for the production of RVC. Mr. McCormick has
      provided us a manufacturing procedures manual describing the process to be
      utilized to manufacture RVC that meets our specifications for current
      collectors. Mr. McCormick has demonstrated in person to our Chief Technology
      officer, Joey Jung, and other personnel at our facility in Richmond, British
      Columbia, Canada, using our equipment, the proper manufacturing procedures
      for
      making RVC. Mr. McCormick supervised the hands-on manufacturing of RVC by our
      personnel. We have manufactured RVC in billets in a batch process. The blocks
      of
      reticulated vitreous carbon are cut and sliced into the proper size for
      individual current collectors. The system is designed to permit production
      of
      5000 reticulated vitreous carbon plates of 6 inches by 6 inches by 3 mm per
      month. The manufacturing process developed is manual rather than automated
      but
      will be fully capable of scale up with additional manpower and additional
      equipment. Mr. McCormick will provide Company with the information required
      to
      scale up the process for automation.




Wirtz
      Manufacturing Company, Inc., a company which specializes in designing and
      building equipment used to manufacture lead-acid batteries, has built us various
      prototype molds to cast the top lead frame and tab onto the uncoated RVC foam
      plates. Wirtz has completed the engineering and has machined a double panel
      casting mold designed to cast a lead top frame and tab, a bottom, and two side
      frames on uncoated RVC foam plates. Wirtz tested this casting mold in June
      of
      2006 and has used it to successfully cast lead top frame with lug and two side
      frames on uncoated RVC foam plates. We modified this casting mold and designed
      and built in our pilot plant a casting station that permits an operator to
      cast
      top, side and bottom lead frames on uncoated RVC foam plates. We have
      successfully performed casting operations with this casting station and mold.





Following
      testing of the mold, additional engineering and design appears to be necessary
      to adapt the mold to a manufacturing machine so that the top frame, lug and
      side
      frames may be cast at high speed on individual RVC foam plates. Wirtz has
      provided us with a proposal to design and manufacture a production grid mold,
      poring ladle, mold open and close mechanism casting machine which includes
      a
      grid handling system, grid trimming station, and trimmed grid stacker with
      a
      projected capacity to cast top, side and bottom lead frames on 240 uncoated
      RVC
      foam plates per hour. The price for the engineering and manufacturing of the
      casting machine would be approximately $169,000.





We
      engaged in discussion, planning, and negotiations with Technic, Inc., an
      engineering and manufacturing firm which specializes in designing and
      manufacturing electroplating equipment. We entered into an agreement dated
      January 12, 2006, with Technic, Inc. for the purchase of machinery to apply
      lead
      tin plating to RVC plates for its battery systems. The lead tin plating system
      includes the necessary hoist with motorized trolley structural support steel
      with trolley track and electrical tag line, steel tanks with locating saddles
      and twin 60 inch air blow-off manifolds, rectifiers, and its accessories for
      the
      plating system. We also purchased air agitation blowers and air handling ducts
      for the system. The total price for lead tin system and air agitation equipment
      was approximately $108,000. The manufacture of the plating system and air
      agitation equipment has been completed and they have been delivered to our
      facility in Richmond, British Columbia. The plating system is a manual line
      capable of plating 250 current collectors per eight hour shift. Management
      believes the plating system will demonstrate that the electroplating of the
      current collectors can be performed efficiently. Technic, Inc. has provided
      us
      with designs and proposals to increase the system capacity by adding six
      additional plating stations, additional rectifiers, an automated hoist and
      a
      computer controlled, programmable,


-3-
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          of Contents**




automation
      package that would increase the system capacity to plate approximately 1000
      to
      1200 current collectors per eight-hour shift. The price of automation package
      proposal is $278,000. By increasing the number of tanks and other equipment
      and
      machinery, the electroplating system's capacity could be further increased.





We
      have
      engaged in discussion, planning, and negotiations with two engineering and
      manufacturing firms which specialize in designing and manufacturing battery
      plate pasting equipment to design and construct equipment capable of applying
      battery paste on lead-tin coated RVC current collectors. Based on the
      engineering and design that has been performed, we estimate that that the
      battery pasting machine needed to apply battery paste onto our individual
      current collectors will cost approximately $95,000 and that it will take two
      to
      three months to build.





To
      fund
      this pilot plant project we have used and intend to use general corporate funds,
      which include the proceeds from the sale of Secured Convertible Debentures
      to
      Cornell Capital Partners, L.P., and proceeds from the exercise of stock options
      and warrants, as discussed in the section entitled “Liquidity and Capital
      Resources” herein.





Our
      lead
      acid battery is not yet commercially successful because we have not yet
      completed the final design and construction of the equipment necessary to
      manufacture our batteries in commercial quantities. RVC current collectors
      are
      more expensive and time consuming to manufacture than are current collectors
      manufactured by pouring molten lead into a grid patterns. Our battery will
      be
      more expensive to manufacture and its purchase price will be more than a
      traditional lead acid battery.





Management
      believes we will be able to design and build a pilot plant capable of
      manufacturing our current collectors cost effectively in commercial quantities;
      however, further design and engineering may be necessary before a pilot plant
      can be built. The issues related to the successful commercial production of
      our
      current collectors and its battery include: whether we can manufacture RVC
      economically in mass produced commercial quantities; whether we can apply the
      top frame and tab to the plates economically in mass produced commercial
      quantities; whether we can economically electroplate the lead-tin alloy onto
      the
      RVC plates uniformly and consistently in mass produced commercial quantities;
      whether we can apply the side and bottom frame to the plates economically in
      mass produced commercial quantities; whether we can adapting the existing
      battery plate pasting equipment to paste lead-tin coated RVC current collectors
      in economically in mass produced commercial quantities. There can be no
      assurance that we can manufacture our current collectors or batteries cost
      effectively on a commercial scale.





There
      can
      be no assurance that we can establish a competitive position against current
      and
      potential competitors, especially those with greater financial, marketing,
      service, support, technical and other resources than us.





Our
      preliminary testing indicates that various configurations of the battery meet
      or
      exceed some of the performance goals established by major governmental and
      industry groups for electric vehicle batteries. Management’s discussions with
      various manufacturers lead us to believe that there would be a significant
      demand for our battery, if it can be manufactures economically on a commercial
      scale. We also believe our battery has a number of applications such as electric
      vehicles, hybrid powered vehicles, solar power systems, electric motorcycles,
      electric bicycles, electric power management,


-4-
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uninterruptible
      power supply systems, aircraft, marine, and submarine craft and for starting
      batteries for automobiles. We are designing various prototype batteries for
      such
      applications.




PROTOTYPE
      BATTERIES





We
      are
      preparing to produce prototype versions of our battery that will be built in
      a
      variety of configurations using methods that management anticipates will be
      practical for economically manufacturing batteries on a commercial scale. We
      intend to manufacture current collectors which will be used to manufacture
      prototype batteries. We have on hand a total of 110 RVC current collectors
      onto
      which a top lead frame and tab have been cast and which have had a lead-tin
      alloy applied. Seventy of these have lead side frames cast on them. We also
      have
      on hand approximately 800 RVC foam plates, which measure 6 inches by 6 inches
      by
      3mm. These 800 plates are suitable for being made into current collectors for
      our batteries by having frames and tabs cast on them and having a lead tin
      alloy
      applied to them and having battery paste applied to them. Once we have
      manufactured these plates into current collectors and applied battery paste
      to
      them, we intend to use them to manufacture 12 volt prototype batteries. The
      number of RVC plates used as current collectors in a single 12 volt battery
      will
      vary depending on the type, size and amp hour capacity of a
      battery.





In
      November 2005, our management traveled to Taiwan to meet with management and
      engineers from Kung Long Batteries Industrial Co., Ltd., (‘Kung Long”), a
      publicly traded expert manufacturer of lead acid batteries. Kung Long’s stock is
      listed on the Taiwan Stock Exchange under the symbol 1537.TW. Kung Long owns
      and
      operates two manufacturing facilities in Taiwan and one in Viet Nam. It
      manufactures more than 200 different types of batteries, including batteries
      for
      electric vehicles, uninterrupted power supply systems, alternative energy
      systems, solar energy systems, mobile energy, motorcycle and automotive uses.
      Kung Long exports its products to Asia, the U.S.A., Europe, and other countries.
      We discussed with Kung Long management and engineers our technology, and
      possible technology transfer, licensing, royalty and joint venture agreements.
      We signed a memorandum of understanding with Kung Long concerning the
      commercialization of Power Technology’s advanced lead acid battery technology.
      Pursuant to this agreement, on February 20, 2006 we delivered to Kung Long
      22
      positive and 28 negative current collectors for its testing and evaluation.
      During the week of April 24, 2006, our Chief Technology Officer, Joey Jung,
      who
      is fluent in Chinese, met in Taiwan with Kung Long engineers and managers to
      discuss Kung Long’s preliminary testing of our current collectors and technical
      issues relating to the manufacturing of our battery. Based on that testing,
      Kung
      Long has used our current collectors, our core patent pending technology, to
      manufacture a working prototype battery. The current collectors we provided
      to
      Kung Long had top, side and bottom lead frames that were not cast from the
      mold
      manufactured by Wirtz. Kung Long has requested that we provide it with current
      collectors that have top, side and bottom lead frames cast from the mold
      manufactured by Wirtz and we intend to do so. After we provide Kung Long with
      these current collectors, Kung Long intends to manufacture a working prototype
      battery and Kung Long intends to thoroughly test and evaluate our battery’s
      performance. Discussions with Kung Long included the negotiation of technology
      transfer, license, and royalty agreement or a joint venture agreement that
      would
      enable Kung Long to build a new manufacturing facility to produce Power
      Technology batteries.





Power
      Battery Co. (“Power Battery”), a privately held battery manufacturer, has
      requested that we provide it with our current collectors to test in a VRLA
      battery. We intend to do so. We may need to


-5-
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design
      and machine a separate double panel casting mold similar to the one previously
      provided to us by Wirtz to be able to provide Power Battery with current
      collectors that are compatible with its battery manufacturing equipment. Power
      Battery has three major corporate locations around the world. Its Corporate
      headquarters, R&D, manufacturing and USA distribution center are located in
      Paterson, New Jersey and that facility covers the U.S.A., Latin America and
      the
      Pacific Rim. Its high-tech automated manufacturing center in Iberville, Quebec
      covers the Canadian market and a third location in Romsey, England covers the
      European, Middle East and African markets. Power Battery has sales offices
      in
      Milan, Italy and Hong Kong with major distributors throughout South America,
      Europe, Africa and Asia.





We
      intend
      to supply the U.S. Army Tank Automotive Research, Development and Engineering
      Center, (“TARDEC”) a prototype NATO
      6T
      Size Lead battery **** manufactured
      with our current collectors. Part of the Army Materiel Command’s Research
      Development and Engineering Command, TARDEC the nation’s laboratory for advanced
      military ground systems and automotive technology. Its mission is to research,
      develop, engineer, leverage, and integrate advanced technology into ground
      systems and support equipment. It develops and maintains ground vehicles for
      all
      U.S. Armed Forces, numerous federal agencies, and more than 60 foreign
      countries. The NATO 6T Size Lead Battery is used in various tanks, trucks,
      and
      other military vehicles. We have discussed with the staff and power team leaders
      of TARDEQ our providing it with a prototype NATO 6T battery. TARDEC has provided
      us with performance specifications for the NATO 6T automotive valve regulated
      lead acid storage battery. TARDEC has advised us that, if we provide it with
      a
      NATO 6T battery, it will test and evaluate our prototype for possible use by
      the
      U.S. Army. We are in the process of designing and engineering the current
      collectors we will need to manufacture in order to be able to make a NATO 6T
      automotive valve regulated lead acid storage battery that meets the performance
      specifications. In order to manufacture suitable current collectors for use
      in a
      prototype NATO 6T battery, we must design and machine a separate double panel
      casting mold similar to the one previously provide to us by Wirtz to cast a
      lead
      top frame with lug and two side frames and a bottom frame on uncoated RVC foam
      plates. We estimate that the cost of designing and machining such a mold will
      be
      approximately $ 4,000.





Axion
      Power International Inc. (Axion) has requested that we provide it with our
      current collectors so that it may manufacture and test prototype batteries
      that
      feature our current collectors in combination with Axion’s proprietary
      e 3 Supercell technology. Axion has developed patented e 3 Supercell technology, which it describes as a multi-celled asymmetrically
      supercapacitive lead-acid-carbon hybrid battery.  We have designed and
      built a double panel casting mold that will enable us to manufacture and test
      compatibility with Axion's manufacturing capabilities and in conjunction with
      Axion’s e 3 Supercell Supercell technology.





We
      are in
      the process of manufacturing current collectors that will be compatible with
      the
      battery manufacturing equipment at a battery manufacturing plant. We believe
      that by the end of November 2006 we will have manufactured a sufficient number
      of our current collectors to enable us to build at least six prototype batteries
      at the battery manufacturing plant. We intend to manufacture these prototype
      batteries in December of 2006. Once these prototypes have been manufactured
      and
      we have tested them, assuming they meet our expectations, we intend to provide
      a
      prototype battery to Kung Long, a prototype battery to Toyota Tsusho
      Corporation, and to provide the remaining prototypes to other battery
      manufacturers and original equipment manufacturers.


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          of Contents**




LICENSING
      AGREEMENTS




We
      do not
      intend to manufacture and sell our batteries. We plan to license our technology
      to other entities. We intend to discuss and explore various possible business
      combinations or transactions with established battery manufacturers. These
      may
      include joint venture agreements, licensing agreements, technology transfer
      agreements or other agreements by which established manufacturers acquire the
      right to employ our technology to manufacture batteries. We plan to provide
      prototype batteries and demonstrate our pilot plant equipment to established
      battery manufacturers. We intend to negotiate licensing agreements with
      manufacturers by which we would permit established battery manufacturers to
      make
      batteries using our proprietary technology. The business model for these
      agreements would involve the payment to Power Technology of a substantial
      up-front licensing fee and a royalty payment for each reticulated vitreous
      carbon current collector manufactured pursuant to the licensing agreement.




EXPECTED
      PURCHASE OF SIGNIFICANT EQUIPMENT





During
      the next year we expect to make significant equipment purchases in order to
      complete construction of a pilot plant capable of manufacturing our current
      collectors in commercial quantities for use in lead acid batteries. Based on
      the
      preliminary engineering and design, discussions and negotiations with equipment
      manufacturers and suppliers, Management currently estimates that the total
      cost
      of the equipment necessary to a construct a pilot plant capable of manufacturing
      our current collectors in commercial quantities for use in lead acid batteries
      will be approximately $479,000. The equipment will include that needed to
      manufacture RVC plates, equipment to cast a top frame and tab and side frames
      on
      the individual RVC plates, equipment to deposit the lead tin alloy on the RVC
      plate by electroplating, and equipment to apply battery paste onto the
      individual RVC plates. Because the design and engineering of the manufacturing
      equipment has not been finalized, we cannot be certain that we can accurately
      predict the cost of each item of the equipment. Based on the preliminary
      engineering and design that has been performed and discussions and negotiations
      with equipment manufacturers and suppliers, Management estimates that the
      engineering and equipment needed to manufacture RVC plates in a batch process
      will cost approximately $93,000; that the equipment needed to cast a top frame
      and side frames individual RVC plates will cost approximately $170,000; that
      the
      equipment needed to deposit the lead tin alloy on the RVC plate by
      electroplating will cost approximately $108,000; that the equipment needed
      to
      apply battery paste onto the individual RVC plates will cost approximately
      $95,000, and that additional miscellaneous equipment will cost approximately
      $16,000. Through the period ended July 31, 2006, we have paid approximately
      $155,000 for equipment for our pilot plant.


-7-
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ACQUISITION





On
      May
      16, 2006, our wholly owned subsidiary, Sentry Power Technology, Inc. (“SPT”) and
      Power Technology, Inc. (the “Company”) completed a transaction under an Asset
      Purchase Agreement (the “Agreement”) with Sentry Power Systems, LLC (“Sentry”),
      Michael Julian and Robert Magyar. Upon closing, SPT acquired the assets of
      Sentry for a total purchase price of $1,195,000 which was to be paid at closing
      by issuing 6,075,949 shares of our restricted common stock (the “Power Shares”)
      valued at $960,000 (based on the closing price per share on the date immediately
      prior to the closing date as reported by Bloomberg, LP) and by SPT assuming
      $235,000 in debt owed by Sentry to CSI Business Finance, Inc. (“CSI”) as
      evidenced by a Secured Promissory Note (the “Note”). At closing we issued
      5,675,949 shares of restricted common stock and subsequently issued an
      additional 400,000 shares of restricted common stock in September 2006. The
      Power Shares are subject to a Lock-Up and Redemption Agreement (the “Lock-Up
      Agreement”) between the Company, SPT and Sentry.




With
      regard to the CSI debt, SPT assumed the debt to CSI and executed an Assignment,
      Assumption, Modification and Extension of Promissory Note. The Note bears
      interest at the rate of 18% per annum and is due and payable on May 15, 2007.
      Under the terms of the Note, SPT is required to make monthly interest payments
      beginning June 1, 2006. The Note is secured by the assets of SPT pursuant to
      a
      Security Agreement.





We
      guaranteed the Note and executed a Stock Pledge Agreement granting CSI a first
      lien on all capital stock of SPT which we hold. Our agreement to guarantee
      the
      debt to CSI was conditioned upon and subject to the terms and conditions of
      a
      Guaranty Agreement and a Stock Pledge Agreement between Sentry and us which
      provided that Sentry would guaranty up to $250,000 of any obligation that we
      may
      have under our guaranty agreement with CSI. The Stock Pledge Agreement provided
      for Sentry to pledge 1,582,279 of the Power Shares valued at $250,000 as
      security for the Guaranty Agreement.





The
      Lock-Up Agreement provides that Sentry will not sell, pledge, hypothecate,
      transfer, assign or in any other manner dispose of the Power Shares for a period
      of twenty-four (24) months from the Closing Date (except for the 1,582,279
      Power
      Shares pledged as collateral to us). The Lock-Up Agreement provides that if
      SPT
      is not “cash flow positive” twelve (12) months after the Closing Date that we
      have the right to call for redemption and exchange of all of the Power Shares
      held by Sentry in exchange for 65% of the shares then outstanding of SPT. In
      such event, we would then have the right, but not the obligation, to require
      that Sentry file, at our expense, a Registration Statement with the Securities
      and Exchange Commission (“SEC”) to register for re-sale the 35% remaining shares
      of SPT then held by us.





In
      the
      event that we do not elect to exercise our rights then after twenty-four (24)
      months from the Closing Date the lock-up restriction shall terminate. In
      addition, for a period of fifteen (15) days commencing twenty-four (24) months
      after the Closing Date, Sentry shall have the right to require us


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to
      exchange 65% of the shares then outstanding of SPT for all of the Power Shares.
      In such event, we would have the right, but not the obligation, to demand that
      SPT file at their expense a Registration Statement with the SEC to register
      for
      re-sale the 35% remaining shares of SPT which we hold.





For
      purposes of the Lock-Up Agreement, SPT shall be considered “cash flow positive”
where, in the preceding twelve (12) months, SPT has accrued positive earnings
      when earnings are calculated in accordance with generally accepted accounting
      procedures (1) before the deduction of interest and the amortization of
      principal due on the Note in the amount of $235,000, payable to CSI; (2) before
      the deduction of Federal Income Taxes payable by SPT; and (3) before the
      deduction of depreciation expense.





As
      part
      of the transaction, SPT entered into an employment agreement with Robert Magyar
      to serve as SPT’s President and an employment agreement with Michael Julian to
      serve as SPT’s Vice President/Director of Operations.





SPT’s
      business includes the design and assembly of automatic battery backup power
      systems for commercial office space and residential new builder markets. The
      systems provide reliable backup power supply for essential appliance use during
      power outages and blackouts. Increasingly severe seasonal weather, growing
      periods of “above peak” electricity demand, constrained transmission and
      distribution of power, and the growth of high density population centers are
      impacting electrical supply reliability. SPT markets its Sentry systems to
      those
      customers who require backup power solutions but who either cannot or will
      not
      use fossil fuel based generators. Our goal has been the development of automatic
      backup power systems that (i) do not require the use of fossil fuels such as
      gasoline, propane or natural gas, (ii) do not require extensive maintenance
      or
      service costs, (iii) have a higher energy efficiency and conservation factor
      than generators, (iv) provide power on demand, (v) will be more cost effective,
      and (vi) will be more environmentally friendly. Our system consists of solid
      state electronic Direct Current (“DC”) to Alternating Current (“AC”) inverter
      combination power module connected to lead acid batteries contained inside
      a
      pre-wired and lockable steel cabinet. The system is permanently wired into
      the
      user’s main electrical service panel and provides emergency backup power
      protection to specific electrical branch circuits for essential appliance power
      use. In the event of a power outage, the system senses the loss of the (AC)
      utility power and automatically switches to the system’s (DC) batteries in less
      than 20 milliseconds. The DC battery power is converted into AC power for use
      in
      protecting the electrical circuits that are connected to the Sentry system.
      When
      the power outage is over, the system senses the return of the utility AC power
      and transfers the power to the specific electrical branch circuits wired to
      the
      system from the batteries (DC) back over to the utility power. The batteries
      are
      then automatically recharged back to full strength by the system’s internal
      battery charger and charge controller, which control the rate of voltage for
      safe recharging of the batteries. These same system components maintain the
      batteries at full charge level on a daily basis. We currently offer three
      systems for the marketplace; a 3000 watt, two battery system, providing up
      to 30
      hours of power depending on the wattage demand on the circuits that are
      connected to the system, a 6000 watt, four battery system, providing up to
      50
      hours of power depending on the wattage demand on the circuits that are
      connected to the system, and a 6000 watt, eight battery system, providing up
      to
      72 hours of power depending on the wattage demand on the circuits that are
      connected to the system Because of the dominance of fossil fuel based generators
      in the marketplace, the production and sales of automatic battery backup systems
      in the small business commercial and


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residential
      segments has been very limited. We believe there is substantial demand for
      quiet, clean and fully automatic battery systems in these markets.





SPT’s
      future business prospects are substantially dependent upon the ability of SPT
      its homebuilder, utility and dealer base to sell products based on our
      technological advantages over fossil fuel based technologies. There can be
      no
      assurance that the Sentry Power system products can be manufactured cost
      effectively on a commercial scale, that such products will gain market
      acceptance, or that competing products and technologies will not render products
      based on our technologies obsolete or noncompetitive.





In
      certain markets, SPT may enter into broker and/or other distribution agreements
      with established utility companies. Any revenues or profits which may be derived
      from these arrangements will be substantially dependent upon the willingness
      and
      ability of SPT’s broker and distribution partners to devote their financial
      resources and sales and marketing efforts of our systems.





SPT’s
      ability to compete effectively with other companies will depend, in part, on
      its
      ability to control the cost of system components and to ship and deliver systems
      in timely manner. There can be no assurance that SPT can achieve this because
      SPT remains dependent on outside vendors to supply critical components to its
      systems.




The
      automatic battery backup system SPT has developed is capable of accepting and
      using the Power Technology, Inc. battery technology. It is the objective of
      SPT
      to sell and market its system using the Power Technology, Inc. battery
      technology. SPT believes the use of the Power Technology battery design will
      greatly enhance the value proposition of the SPT system by providing an
      increased battery runtime and faster recharging speeds.





Met
      Laboratories, Inc. performed testing and certification process of the SPT 3000
      watt two battery system and the SPT 6000 watt four battery system. Met
      Laboratories, Inc. has certified that the SPT 3000 watt two battery system
      and
      the SPT 6000 watt four battery system comply with Underwriter Laboratories,
      UL
      Standard 1778, covering Uninterruptible Power Supply Equipment. This UL Standard
      covers remote battery supply cabinets with or without batteries, remote status
      panels, bypass switches, rectifier, power conversion units and power
      distribution panels; all key component functions used in the Sentry system.
      As
      of the date of this filing, the SPT 6000 watt eight battery system has passed
      sixteen of the seventeen tests required for the UL certification process by
      Met
      Laboratories, Inc. We are not aware of any material deficiency that will prevent
      us from obtaining the Met Laboratories, Inc. certification mark for the SPT
      6000
      watt eight battery system.





SPT
      executed a three year Manufacturing and Supply Agreement to manufacture the
      SPT
      Sentry systems in its mainland China facilities. B&W Tek, Inc. is an
      Original Equipment Manufacturer (“OEM”) which maintains ISO 13485/ISO 9001
      certification. It engineers and manufactures integrated photonic devices and
      instruments, laser and optical spectrometer systems, modules, and components.
      B&W Tek, Inc. employs over 30 electrical and electronic engineers and
      maintains 40,000 square feet of United States engineering and manufacturing
      facilities and an additional manufacturing facility in Shanghai,
      China.


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The
      purpose of the SPT and B&W Tek, Inc. OEM agreement is to provide SPT with
      adequate production
      capability and inventory to fulfill the order demand for the Sentry systems.
      B&W Tek, Inc. will fabricate the systems’ metal cabinets, install the solid
      state electronic DC to AC inverter combination power module in the system,
      and
      provide all related wiring and cabling. SPT will purchase and install batteries
      into the Sentry systems in the United States. While Sentry expects to benefit
      from the proposed agreement by obtaining quality systems, cost saving and
      necessary production capabilities, the proposed arrangement is not without
      risk.
      There is no guarantee that B&W Tek, Inc. will be able to consistently ship
      the necessary quantities. Neither SPT nor B&W Tek, Inc. have the ability to
      control ocean shipments of product from mainland China to the United States.
      Pursuant to a purchase order, SPT has agreed to purchase and B&W Tek, Inc.
      has agreed to manufacture 50 Sentry Systems. Twenty one of these systems have
      been delivered, and the remaining twenty nine units are scheduled to be
      delivered in November 2006. SPT has and will continue to have its Sentry systems
      manufactured by Power Electronics, Inc. (“PEI”) of Clayton, DE. PEI is a
      contract electrical equipment fabricator and wiring assembler of high voltage
      switching equipment for the electric utility market. Among its clients are
      PECO
      (Philadelphia Electric Company) ConEd (Consolidated Electric of New York) and
      Connectiv (Delmarva Power and Light). PEI has been manufacturing the Sentry
      systems since January 2005 and will continue to do so until SPT shifts
      production to B&W Tek, Inc. PEI has the capacity to produce approximately
      100 systems a year.




**SPT
      DISTRIBUTION STRATEGY**




SPT
      intends to focus its sales and marketing programs to single family, condominium,
      and town home builders and developers, electric utilities, small business
      owners, and independent dealers. SPT offers programs designed to allow builders
      to market and sell its Sentry systems to their customers. SPT offers programs
      designed to allow electric utilities to market and sell our Sentry systems
      directly to their customers. Electric utilities have an interest in offering
      backup power solutions to their customers as a way to relieve customer
      dissatisfaction resulting from power outages in their service areas. SPT is
      developing marketing programs to focus on selling Sentry systems to small
      business owners, such as doctors, lawyers, accountants and other professional
      service providers who own or lease commercial office space. Power outages
      disrupt these service providers’ ability to maintain critical access to computer
      data bases, computer server functions, internet access, and related email
      communications. SPT intends to seek and appoint authorized independent dealers
      to market, sell, and service the Sentry systems. SPT
      has
      signed an agreement with Dailey Nestor Homes of Virginia Beach, Virginia, a
      custom new home builder, to market the Sentry Automatic Battery Standby Power
      Systems in its luxury condominium development, Shore Breeze, in Virginia Beach,
      Virginia. Construction of the condominium development is currently underway
      and
      a SPT 6000 watt automatic wall mount battery backup system is scheduled to
      be
      installed in a model condominium during October 2006.




**COMPETITION**




The
      automatic backup electric power systems industry is mature, well-established
      and
      highly competitive. There is competition from other automatic battery backup
      system suppliers and the fossil fuel generator industry. Xantrex
      Technology Inc. (“Xantrex”) a publicly traded company, of


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Vancouver,
      British Columbia, Canada, which develops, manufactures, and markets advanced
      power electronic products including back up and emergency portable power systems
      for homes and small businesses and auxiliary electrical power for boats,
      recreational vehicles, heavy duty trucks, commercial work vehicles, and
      automobiles. The
      fossil fuel generator industry is characterized by a major domestic and foreign
      producers, including Briggs & Stratton (Generarc), Kohler Power Systems,
      Coleman Emerson Electric, and Honda, all of which have established dealer
      networks and substantially greater financial resources than SPT. Accordingly,
      SPT’s ability to succeed in this market depends upon its ability to market its
      products and demonstrate they have competitive or superior performance
      characteristics and a competitive sales price. Generator product can provide
      significantly more power then inverter based systems based on the size of the
      generator and can have extensive runtimes provided gasoline, natural gas or
      propane is readily available. SPT’s focus is on the customer who wants backup
      power but either cannot or will not use fossil fuel based generators.




In
      the
      future, because there are relatively low barriers to entry in the backup power
      industry, we could experience additional competition from other established
      or
      emerging companies as the market continues to develop and expand. Many potential
      competitors may have well-established relationships with our potential
      customers, have extensive knowledge of the industry, better name recognition
      and
      significantly greater financial, technical, sales, marketing and other
      resources. It is also possible that new competitors or alliances among
      competitors may emerge and rapidly acquire significant market share. Competition
      may increase as a result of industry consolidations. Our competitors may be
      able
      to respond more quickly to new or emerging technologies and changes in customer
      requirements, or to devote greater resources to the development, promotion
      and
      sale of their backup power products.





Increased
      competition may result in price reductions, reduced gross margins and loss
      of
      market share, any of which could adversely affect our business, financial
      condition or results of operations. There can be no assurance that we will
      be
      able to compete successfully against current or future competitors or that
      competitive pressure will not adversely affect its business, financial condition
      or results of operations.




Management
      believes that the principal competitive factors affecting our market include
      features such as functionality, weight, adaptability, ease of use, product
      reputation, quality, price, performance, customer service and support,
      effectiveness of sales and marketing efforts and company
      reputation.





Over
      the
      long term, SPT intends to compete by offering in its Sentry system the PWTC
      battery technology which provides higher utilization efficiency; a smaller
      and
      lighter battery; a battery with a specific energy increase and a battery that
      recharges significantly faster than traditional lead acid batteries.




There
      can
      be no assurance that we will be successful in developing or marketing product
      enhancements or new products that respond to technological change or evolving
      industry standards, that we will not experience difficulties that could delay
      or
      prevent the successful development, introduction and marketing of these products
      or that our new products or enhancements will adequately meet the requirements
      of the marketplace and achieve market acceptance. If we are unable, for
      technological or other reasons, to develop and introduce our new products or
      enhancements, our business, financial condition or results of operations will
      be
      adversely affected.


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CHANGE
      IN
      NUMBER OF EMPLOYEES





We
      do not
      expect significant changes in the number of our employees prior to the time
      we
      complete the design and construction of our pilot plant.





CAPITAL
      EXPENDITURES, CAPITAL RESOURCES AND LIQUIDITY





CAPITAL
      EXPENDITURES. During the fiscal quarter ended July 31, 2006, we incurred
      material capital expenditures of approximately $38,000 for the purchase of
      pilot
      plant machinery and equipment. During the fiscal quarter ended July 31, 2005,
      we
      did not incur any material capital expenditures for office equipment, office
      furniture or other fixed assets.





CAPITAL
      RESOURCES





During
      the fiscal year ended January 31, 2005, our capital resources were provided
      primarily by the sale of its $500,000 convertible debentures to Cornell Capital
      Partners, L.P. The net proceeds of these sales were $425,000 cash. During the
      fiscal year ended January 31, 2006, capital resources were provided by the
      sale
      of a $500,000 convertible debenture to Cornell Capital Partners, L.P. The net
      proceeds of this sale were $485,000 cash. Capital resources during the fiscal
      year ended January 31, 2006, were also provided by the sale of the Company’s
      common stock and the net proceeds of theses sales were $113,000.





In
      February 2006, we received $495,000 from the proceeds from the issuance of
      a
      convertible debenture with Cornell Capital Partners, L.P. (as discussed below).
      Additionally, in April 2006, we received $292,000 as the proceeds from the
      sale
      of our common stock by the exercise of stock options and warrants.





Our
      capital resources have historically been provided by the sale of our common
      stock, the exercise of warrants and options, conversion of convertible debt
      into
      common stock, and by short term loans.





We
      intend
      to raise additional capital and reduce debt through the sale or exchange of
      our
      common stock or other securities to provide additional working capital to fund
      future operations.





We
      will
      require substantial additional financing to complete the capitalization of
      our
      business plan. The additional financing will be used primarily for payment
      of
      liabilities and for expansion of further research and development and marketing.
      We can give no assurance that we will successfully negotiate or obtain
      additional financing, or that we will obtain financing on terms favorable or
      acceptable to us. Our ability to obtain additional capital depends on market
      conditions, the global economy and other factors outside our control. If we
      do
      not obtain adequate financing, or such financing is not available on acceptable
      terms, our ability to satisfy our liabilities, finance our expansion, develop
      or
      enhance our products and services, and respond to competitive pressures would
      be
      significantly limited. Our failure to secure necessary financing could have
      a
      material adverse effect on our business, prospects, financial condition, and
      results of operations.


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LIQUIDITY




The
      following summary table presents comparative cash flows of the Company for
      the
      periods indicated:





SIX
                MONTHS ENDED JULY 31,2006
            
            2005Net
                cash used by operating activities
            
            $
            (580,570
            )
            $
            (105,637
            )Net
                cash used by investing activities
            
            
            (157,199
            )
            
            —Net
                cash provided by financing activities
            
            
            885,000
            
            
            123,000





As
      of
      July 31, 2006, we had approximately $328,000 cash on hand.





At
      July
      31, 2006, we had negative working capital of approximately $2,291,000 compared
      to negative working capital of approximately $2,420,000 on January 31, 2006.





We
      had a
      loss from operations for the six months ended July 31, 2006, of
      $(1,054,260) and an accumulated deficit of $(15,589,143) at July 31, 2006.





Our
      ability to satisfy our obligations will depend in part upon our ability to
      successfully complete the offer and sale of additional shares of its common
      stock and in part upon our ability to reach a profitable level of operations.
      We
      plan to license our technology to other entities. We intend to discuss and
      explore various possible business combinations or transactions with established
      battery manufacturers. These may include joint venture agreements, licensing
      agreements, technology transfer agreements or other agreements by which
      established manufacturers acquire the right to employ our technology to
      manufacture batteries.





SUMMARY
      OF TRANSACTIONS WITH CORNELL CAPITAL PARTNERS, L.P.





We
      entered into a Securities Purchase Agreement (the "Agreement") with Cornell
      Capital Partners, L.P. (“Cornell”) effective December 22, 2005, for the sale of
      redeemable secured convertible debentures in the principal amount of $1,630,580
      (the "Debentures") and stock purchase warrants (the "Warrants") to buy
      20,904,875 shares of our Common Stock. Pursuant to the terms of the Agreement,
      we became obligated to file a registration statement with the Securities and
      Exchange Commission to register for the resale of the shares of our common
      stock
      underlying the Debentures and shares of our common stock underlying the
      Warrants.





Under
      the
      terms of our financing with Cornell, we have received net proceeds of
      $1,405,000. This financing was comprised of three separate segments of funding
      as follows:


-14-
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1.
            In
                August and November 2004, we borrowed an aggregate of $500,000 from
                Cornell through two issuances of 5% Convertible Debentures which
                was
                secured by substantially all of our assets. On May 10, 2005, we refinanced
                the Convertible Debentures with a new Convertible Debenture in the
                principal amount of $514,657, which comprised the original $500,000
                principal plus accrued interest as of that date. On December 22,
                2005, the
                Convertible Debenture was replaced by a new Convertible Debenture
                which
                was issued in the principal amount of $530,580, comprising the original
                $500,000 principal plus accrued interest as of that date. This Convertible
                Debenture: (i) has a due date of December 22, 2007, (ii) bears interest
                at
                a rate of 10% per annum; (iii) was subject to a registration rights
                agreement; and (iv) is subject to certain conversion features. If
                this
                Debenture is repaid under an Optional Redemption Feature, we must
                issue a
                warrant (the “Warrant Feature”) to Cornell to purchase 1,000,000 shares of
                our common stock for each $100,000 redeemed, exercisable at 120%
                of the
                closing bid price of our common stock. This debenture is referred
                to
                herein as the “First Debenture.”





2.
            In
                December 2005, we issued a new Convertible Debenture in the principal
                amount of $500,000. This Convertible Debenture: (i) has a due date
                of
                December 22, 2007, (ii) bears interest at a rate of 10% per annum;
                (iii)
                was subject to a registration rights agreement; (iv) is subject to
                certain
                conversion features including the Optional Redemption Feature and
                Warrant
                Feature as under the terms of the First Debenture. This debenture
                is
                referred to herein as the “Second Debenture.”





3.
            Pursuant
                to the terms and conditions of the Securities Purchase Agreement,
                Cornell
                was obligated to promptly provide the Company with $550,000, less
                certain
                fees and expenses, and with an additional $550,000 within two business
                days before the filing date of a registration statement registering
                shares
                of our common stock underlying the Convertible Debentures and Warrants.
                On
                February 21, 2006, we issued Secured Convertible Debentures with
                Cornell
                in the principal amount of $550,000. This Convertible Debenture:
                (i) has a
                due date of February 21, 2008, (ii) bears interest at a rate of 10%
                per
                annum; (iii) was subject to a registration rights agreement; and
                (iv) is
                subject to certain conversion features including the Optional Redemption
                Feature and Warrant Feature as under the terms of the First Debenture.
                This debenture is referred to herein as the “Third
                Debenture”.





The
      First
      Debenture, Second Debenture and Third Debenture are referred to collectively
      as
      the “Convertible Debentures.”





Conversion
      Feature





The
      Convertible Debentures are convertible (“Conversion Feature”) into our common
      stock at any time until repayment of the Convertible Debentures at the price
      per
      share equal to the lesser of:


a.
            an
                amount equal to 120% of the closing bid price of the common stock
                (the
                “Optional Redemption Feature”); or


b.
            an
                amount equal to 100% of the average of the three lowest closing bid
                prices
                of the common stock for the 30 trading days immediately preceding
                the
                conversion date.




-15-
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Pursuant
      to the terms of the agreements, in no event shall Cornell convert the
      Convertible Debentures in such manner that would cause Cornell to beneficially
      own more than 4.99% of the then total issued and outstanding shares of the
      Company's common stock.





Significant
      Accounting Estimates and Policies





Accounting
      for Stock-Based Compensation. We have elected to apply the disclosure-only
      provisions of SFAS No. 123, Accounting for Stock-Based Compensation. In
      accordance with the provisions of SFAS 123, we apply Accounting Principles
      Board
      Opinion No. 25, Accounting for Stock Issued to Employees, and will use related
      interpretations in accounting for stock option plans. We account for stock
      issued to non-employees in accordance with the provisions of SFAS 123 and the
      Emerging Issues Task Force consensus in Issue No. 96-18, Accounting for Equity
      Instruments That are Issued to Other Than Employees for Acquiring or in
      Conjunction with Selling, Goods or Services. Generally, under APB 25, if the
      option exercise price for a fixed award to an employee is equal to the fair
      value of the common stock at the date of the grant of the stock option, no
      compensation expense is recorded. Under SFAS 123 and EITF 96-18, the amount
      of
      compensation expense that is recorded is based on an option pricing model which
      incorporates such factors as the expected volatility of future movements in
      the
      price of the underlying stock, risk-free interest rates, the term of the options
      and any dividends expected to be paid. As a result, under SFAS 123 and EITF
      96-18, we would generally expect to record a greater amount of compensation
      expense than under APB 25.





Secured
      Convertible Debentures and Warrants- Derivative Financial
      Instruments





The
      Convertible Debentures and the Warrants have been accounted for in accordance
      with SFAS No. 133, “Accounting for Derivative Instruments and Hedging
      Activities,” and Emerging Issues Task Force Issue No. 00-19, “Accounting for
      Derivative Financial Instruments Indexed to, and Potentially Settled in, a
      Company’s Own Stock” (“EITF No. 00-19”). EITF No. 98-5, "Accounting for
      Convertible Securities with Beneficial Conversion Features or Contingently
      Adjustable Conversion Ratios", EITF No. 00-27, “Application of Issue 98-5 to
      Certain Convertible Instruments”, EITF No. 05-02 “Meaning of ‘Conventional
      Convertible Debt Instrument’ in Issue No. 00-19”, EIFT No. 05-04 “The Effect of
      a Liquidated Damages Clause on a Freestanding Financial Instrument Subject
      to
      Issue No. 00-19,” and EITF No. 96-19 “Debtor’s Accounting for a Modification or
      Exchange of Debt Instruments” were also considered.





We
      have
      identified the following instruments and derivatives:





Convertible
      Debentures


Conversion
      Feature


Company’s
      Optional Redemption right


Warrant
      Feature





We
      have
      identified the Conversion Feature and Power Technology’s Optional Redemption
      within the Convertible Debentures to represent embedded derivatives. These
      embedded derivatives have been bifurcated from their respective host debt
      contracts and accounted for as derivative liabilities because they are subject
      to a Registration Rights Agreement (“RRA”). The Conversion Feature and Power
      Technology’s Optional Redemption within the Convertible Debentures have been
      bundled together as


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a
      single
      hybrid compound instrument in accordance with SFAS No. 133 Derivatives
      Implementation Group Implementation Issue No. B-15, “Embedded Derivatives:
      Separate Accounting for Multiple Derivative Features Embedded in a Single Hybrid
      Instrument.” We have identified the Warrant Feature to be detachable
      derivatives. The Single Compound Embedded Derivatives within Convertible
      Debentures and the Derivative Liability for Warrants have been recorded at
      their
      respective fair values at the date of issuance (December 22, 2005); and are
      marked-to-market each quarter with changes in fair value recorded to Power
      Technology’s consolidated statements of operations as “Net change in fair value
      of derivative liabilities.” We have utilized a third party valuation firm to
      fair value these derivative liabilities under the following methods: a layered
      discounted probability-weighted cash flow approach for the Single Compound
      Embedded Derivatives within Convertible Debentures; and the Black-Scholes model
      for the Derivative Liability for Warrants based on a probability-weighted
      exercise price.





The
      fair
      value of the derivative liabilities are subject to the changes in the trading
      value of our common stock. As a result, our financial statements may fluctuate
      from quarter-to-quarter based on factors, such as the price of our stock at
      the
      balance sheet date, the amount of shares converted by debenture holders and/or
      exercised by warrant holders. Consequently, our financial position and results
      of operations may vary from quarter-to-quarter based on conditions other than
      operating revenues and expenses.





UNCERTAINTIES





DEVELOPMENT
      STAGE COMPANY





We
      are in
      the development stage. There is no assurance that our activities will be
      profitable. The likelihood of our success must also be balanced with
      considerations in light of the problems, expenses, difficulties, complications,
      delays and all of the inherent risks frequently encountered in the formation
      and
      operation of a relatively new business.





GOING
      CONCERN





The
      financial statements are presented on the basis that Power Technology is a
      going
      concern, which contemplates the realization of assets and the satisfaction
      of
      liabilities in the normal course of business over a reasonable length of time.





At
      July 31, 2006, we had negative working capital of approximately
      $2,291,000, a loss from operations for the six months ended July 31, 2006,
      of $(1,054,260) and an accumulated deficit of $(15,589,143).





Management
      believes that current plans to expand our operations and a combination of our
      financing and plans to raise capital through the sale of our common stock will
      provide sufficient working capital to allow us to continue as a going concern.





In
      February 2006, we received $495,000 from the proceeds of the issuance of a
      convertible debenture to Cornell Capital Partners, L.P. (as discussed above).
      Additionally, in April 2006, we received $292,000 cash from the sale of our
      common stock and for exercise of stock options and warrants. As


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of
      July
      31, 2006, we had approximately $ $328,000 cash on hand.





COSTS
      OF
      CONDUCTING BUSINESS. We will be required to incur substantial costs for research
      and development and equipment, establishing production and marketing operations,
      and related costs. A substantial portion of those costs must be paid whether
      or
      not any of its batteries or other products proves to be commercially successful
      on a broad scale. Our ability to generate a profit depends, among other factors,
      on the amount of equipment acquisition costs incurred, the amount of revenues
      from the sale of batteries and other products, and control over our operating
      costs.





TECHNOLOGICAL
      CHANGE. We expect that many new technologies and products will be introduced
      in
      the battery industry over the next several years. Established battery
      manufacturers, such as Exide, Delphi, A.C. Delco, Johnson Controls, Inc., East
      Penn Manufacturing Co., Inc GNB, Electrosource, Inc., Energy Conversion Devices,
      Inc., Hawker and Yuasa, all of which have substantially greater financial
      resources than us. These other companies have larger staffs, more resources,
      more laboratories, more equipment, and more manufacturing and testing facilities
      than us. These other companies can also dedicate substantially more personnel
      and resources to research and developing new products than us. They may be
      able
      to develop more technologically advanced products that are less expensive and
      have a greater useful life and better operating performance than our products.
      Our success will depend, among other things, on our ability to develop and
      maintain a competitive position technologically. There can be no assurance
      that
      we will have access to subsequently developed technology by other persons.
      Technological advances by a competitor may result in our present or future
      products becoming non-competitive or obsolete. We cannot be assured that
      competitors will not develop functionally similar or superior batteries, which
      event could have an adverse effect on our business.





CONTRACTS.
      We have no current contracts for the manufacture or sale of our batteries or
      other products. There can be no assurance that we will be able to obtain
      sufficient and suitable contracts for our business plan.





FLUCTUATIONS
      IN OPERATING RESULTS. Our revenues and results of operations may vary
      significantly in the future. Our revenues and results of operations are
      difficult to forecast and could be adversely affected by many factors, some
      of
      which are outside our control, including, among others, the expected relatively
      long sales and implementation cycles for our products; the size and timing
      of
      individual license transactions and joint venture arrangements; seasonality
      of
      revenues; changes in our operating expenses; changes in the mix of products
      sold; timing of introduction or enhancement of products by us or our
      competitors; market acceptance of new products; technological changes in
      technology; personnel changes and difficulties in attracting and retaining
      qualified sales, marketing, technical and consulting personnel; changes in
      customers' budgeting cycles; quality control of products sold; and economic
      conditions generally and in specific industry segments, particularly the
      automotive industry.


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There
      can
      be no assurance that our products will achieve broad market acceptance or that
      we will be successful in marketing our products or enhancements thereto. In
      the
      event that our current or future competitors release new products that have
      more
      advanced features, offer better performance or are more price competitive than
      our products, demand for our products would decline. A decline in demand for,
      or
      market acceptance of, our batteries or other products as a result of
      competition, technological change, or other factors would have material adverse
      effects on our business, financial condition and results of operations.





RAW
      MATERIALS. The basic raw materials and components for the batteries and other
      products being developed by us are readily available. We do not expect to
      experience any significant delays in obtaining timely delivery of our materials
      and components.





SEASONALITY.
      We do not expect to experience material seasonal variations in revenues or
      operating costs, except that sales activity for its batteries may increase
      in
      the summer and winter seasons which is expected to cause an increase in our
      operations.





ITEM
              3.
            CONTROLS
                AND PROCEDURES.





As
      of the
      end of the period of this report, our principal executive and principal
      financial officer carried out an evaluation of the effectiveness of the design
      and operation of our disclosure controls and procedures. This evaluation was
      carried out under the supervision and with the participation of our management,
      including our Chief Executive Officer and Chief Financial Officer. Based on
      that
      evaluation, our Chief Executive Officer and Chief Financial Officer concluded
      that our disclosure controls and procedures are effective. There have been
      no
      changes in our internal controls or in other factors, that have materially
      affected, or is reasonably likely to materially affect, our internal control
      over financial reporting.




**PART
      II****OTHER
      INFORMATION**




ITEM
              1.
            LEGAL
                PROCEEDINGS




On
      September 7, 2005, Merrill Communications, LLC ("Merrill") filed a civil action,
      # 846,770, Merrill Communications, LLC v. Power Technology, Inc. aka and dba
      PWTC Battery Co and Power Technology, in the County Civil Court at Law No.
      2 in
      Harris County, Texas. Merrill alleges we are liable to Merrill in the principal
      sum of $30,349.25 on a sworn account for EDGAR filings transmitted to the SEC.
      Merrill also sought interest and attorneys fees in at least the sum of $10,115.
      On May 12, 2006, we agreed with Merrill to compromise and settle the claims
      at
      issue in this litigation. We paid Merrill $18,500 for a full and final release
      of all claims that were made by Merrill, and Merrill dismissed the civil action
      with prejudice to the right to refile the claim.


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ITEM
              2.
            UNREGISTERED
                SALES OF EQUITY SECURITIES AND USE OF
                PROCEEDS.





During
      our quarter ended July 31, 2006, we completed the following transactions in
      reliance upon exemptions from registration under the Securities Act of 1933,
      as
      amended (the "Act") as provided in Section 4(2) thereof. All certificates issued
      in connection with these transactions were endorsed with a restrictive legend
      confirming that the securities could not be resold without registration under
      the Act or an applicable exemption from the registration requirements of the
      Act. None of the transactions involved a public offering, underwriting discounts
      or sales commissions. We believe that each person was a “qualified” investor
      within the meaning of the Act and had knowledge and experience in financial
      and
      business matters, which allowed them to evaluate the merits and risks of our
      securities. Each person was knowledgeable about our operations and financial
      condition.





In
      April
      2006, we issued 1,500,000 shares of our restricted common stock to warrant
      holders for an aggregate price of $90,000.





In
      May
      2006, we issued 5,675,949 shares of our restricted common stock to Sentry Power
      Systems, LLC pursuant to an Asset
      Purchase Agreement .





In
      May
      2006, we issued Hugo P. Pomrehn, our director at the time, 60,000 shares of
      our
      common stock, valued at $9,000 as director's fees for the previous six
      months.





In
      May
      2006, we issued F. Bryson Farrill, our director, 60,000 shares of our common
      stock, valued at $9,000, as director's fees for the previous six months.








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





We
      held
      our Annual Meeting of Shareholders on June 28, 2006. Bernard J. Walter, F.
      Bryson Farrill, and Thomas J. Hopwood were nominated and elected as Directors
      with the following vote results at the shareholder meeting:





For
            
            WithheldBernard
                J. Walter
            
            
            84,138,813
            
            
            1,673,645F.
                Bryson Farrill
            
            
            85,702,663
            
            
            114,795Thomas
                Hopwood
            
            
            85,767,663
            
            
            44,795





At
      the
      Annual Meeting, the Shareholders ratified Malone & Bailey, P.C. as the
      Company’s Independent Registered Public Accounting Firm for the fiscal year
      ending January 31, 2007, with the following vote results:





95,822,409
            VOTES
                FOR RATIFICATION




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33,155
            VOTES
                AGAINST RATIFICATION26,243
            ABSTAIN





While
      no
      other matters were presented at the Annual Meeting, the following votes were
      submitted by Shareholders with respect to any other business coming before
      the
      Annual Meeting of Shareholders:





80,854,863
            VOTES
                FOR OTHER BUSINESS813,556
            VOTES
                AGAINST OTHER BUSINESS122,387
            ABSTAIN





The
      meeting was adjourned when all matters of business had been
      discussed.





ITEM
              5.
            OTHER
                INFORMATION





On
      July
      27, 2004, our Board of Directors executed a written consent (the “Consent”) with
      a resolution authorizing an amendment of our Articles of Incorporation in order
      to increase the number of authorized shares of common stock of the Company
      from
      100,000,000 to 750,000,000 shares. The Consent authorized the preparation and
      filing of an amendment to the Articles by the officers of the
      Company.





On
      July
      29, 2004, a Certificate of Amendment to Articles of Incorporation for Nevada
      Profit Corporations (the “Certificate”) was filed in the office of the Nevada
      Secretary of State stating that the Articles had been amended pursuant to
      Section 78.207(1) of the Nevada Revised Statues for the increase in the number
      of authorized shares.





Subsequent
      to the filing of the Certificate with the office of the Nevada Secretary of
      State, we issued shares of common stock which caused the number of issued and
      outstanding shares of the Company to exceed 100,000,000 shares. Currently,
      the
      number of shares of the Company issued and outstanding shares of common stock
      is
      149,391,694.





We
      have
      reviewed the procedures used to amend the Articles of Incorporation regarding
      the increase in the authorized number of shares of common stock of the Company.
      We believe that the Company did not fully comply with the requirements of
      Section 78.207 of the Nevada Revised Statutes, and as a result, any shares
      of
      common stock issued by the Company in excess of 100,000,000 shares may be void
      or voidable in view of the lack of prior shareholder approval of the Amendment
      to the Articles of Incorporation of the Company.





In
      order
      to correct and remedy these events, the Company has filed preliminary proxy
      material with the Securities and Exchange Commission and will call a special
      meeting of the stockholders of the Company to authorize the increase of its
      authorized number of shares of common stock from 100,000,000 shares to
      750,000,000 shares, and to amend the Articles of Incorporation
      accordingly.


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ITEM
              6.
            EXHIBITS





Exhibit
              31.1
            Certification
                of Chief Executive Officer and Chief Financial Officer of Power
                Technology, Inc. required by Rule 13a - 14(1) or Rule 15d - 14(a)
                of the
                Securities Exchange Act of 1934, as adopted pursuant to Section 302
                of the
                Sarbanes-Oxley Act of 2002.




Exhibit32.1
            Certification
                of Chief Executive Officer and Chief Financial Officer of Power
                Technology, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act
                of 2002
                and Section 1350 of 18 U.S.C. 63.




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**SIGNATURES**





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




**POWER
      TECHNOLOGY, INC.**




Date: October
      19, 2006


By: /s/
      Bernard J. Walter


Bernard
      J. Walter


President
      Chief Executive Officer and


Principal
      Financial Officer


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