**Table
          of Contents**





**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


WASHINGTON,
      D.C. 20549





**FORM
      10-QSBAMENDMENT NO. 1**





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.)





7101
      Highway 71 West, Suite 200


Austin,
      Texas 78735


(Address
      of principal executive offices, including zip code)





(512)
      288-8528


(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





**EXPLANATORY
        NOTE**
  The
        only
        changes in this Form 10-QSB/A for the quarterly period ended July 31, 2006
        from
        the Form 10-QSB filed by the Issuer for the quarterly period ended July 31,
        2006, filed on October 19, 2006, are contained in the Consolidated
        Financial Statements, and in certain of the Notes to the Consolidated
        Financial Statements, specifically note 1, note 2, and note 7.
        The restated negative working capital, the restated loss from operations
        for the quarter ended July 31, 2006 and the restated accumulated deficit
        since
        inception are discussed in Item 2, Management's Discussion and Analysis or
        Plan of Operations, in the ”Liquidity” section on page 14. The restated
        negative working capital, the restated loss from operations for the quarter
        ended July 31, 2006 and the restated accumulated deficit since
        inception are discussed in Item 2, Management's Discussion and Analysis or
        Plan of Operations, the “Going Concern” section on page 17.
 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
                  
                  2006(Restated)AssetsCurrent
                      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 $33,244 and
                      $27,156
                  
                  
                  160,848
                  
                  
                  821Goodwill
                  
                  
                  1,174,107
                  
                  
                  -Deposits
                  
                  
                  23,891
                  
                  
                  -Deferred
                      financing fees, net of accumulated amortization of $31,747
                      and
                      $3,562
                  
                  
                  88,253
                  
                  
                  61,438Total
                      other assets
                  
                  
                  1,286,251
                  
                  
                  61,438Total
                      assets
                  
                  $
                  1,797,498
                  
                  $
                  253,590Liabilities
                      and Stockholders' DeficitCurrent
                      LiabilitiesAccounts
                      payable
                  
                  $
                  365,023
                  
                  $
                  120,770Short-term
                      debt
                  
                  
                  49,000
                  
                  
                  49,000Derivative
                      liability
                  
                  
                  2,068,944
                  
                  
                  2,441,900Total
                      current liabilities
                  
                  
                  2,482,967
                  
                  
                  2,611,670Long-term
                      debtNote
                      payable
                  
                  
                  235,000
                  
                  
                  -Convertible
                      debentures net of discount
                  
                  
                  617,040
                  
                  
                  194,279Total
                      liabilities
                  
                  
                  3,335,007
                  
                  
                  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 shares authorized,148,991,694
                      and 135,495,745 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
                  
                  
                  (15,430,882
                  )
                  
                  (14,769,116
                  )Total
                      stockholders' deficit
                  
                  
                  (1,537,509
                  )
                  
                  (2,552,359
                  )Total
                      liabilities and stockholders' deficit
                  
                  $
                  1,797,498
                  
                  $
                  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,
                    
                    July
                        31,2006
                    
                    2005
                    
                    2006
                    
                    2005(Restated)
                    
                    
                    
                    (Restated)Sales
                    
                    $
                    11,468
                    
                    $
                    -
                    
                    $
                    11,468
                    
                    $
                    -Consulting
                        Revenue
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -Total
                        revenue
                    
                    
                    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 (expense)Interest
                        income
                    
                    
                    5,729
                    
                    
                    -
                    
                    
                    8,677
                    
                    
                    -Interest
                        expense
                    
                    
                    (191,461
                    )
                    
                    (6,302
                    )
                    
                    (346,083
                    )
                    
                    (12,397
                    )Financing
                        fees
                    
                    
                    -
                    
                    
                    (50,895
                    )
                    
                    -
                    
                    
                    (125,000
                    )Gain
                        on derivative liabilities
                    
                    
                    2,823,654
                    
                    
                    -
                    
                    
                    729,902
                    
                    
                    -Total
                        other income (expense)
                    
                    
                    2,637,922
                    
                    
                    (57,197
                    )
                    
                    392,496
                    
                    
                    (137,397
                    )Net
                        income (loss)
                    
                    $
                    2,076,850
                    
                    $
                    (531,638
                    )
                    $
                    (661,764
                    )
                    $
                    (813,776
                    )Other
                        comprehensive loss-foreign currency translation
                    
                    
                    (489
                    )
                    
                    -
                    
                    
                    (183
                    )
                    
                    -Total
                        comprehensive income (loss)
                    
                    $
                    2,076,361
                    
                    $
                    (531,638
                    )
                    $
                    (661,947
                    )
                    $
                    (813,776
                    )Weighted
                        average number ofcommon
                        shares outstanding:Basic
                    
                    
                    140,580,202
                    
                    
                    132,004,555
                    
                    
                    140,299,675
                    
                    
                    130,232,699Diluted
                    
                    
                    148,616,629
                    
                    
                    132,004,555
                    
                    
                    140,299,675
                    
                    
                    130,232,699Net
                        income (loss) per share:Basic
                    
                    $
                    0.01
                    
                    $
                    (0.00
                    )
                    $
                    (0.00
                    )
                    $
                    (0.01
                    )Diluted
                    
                    $
                    0.01
                    
                    $
                    (0.00
                    )
                    $
                    (0.00
                    )
                    $
                    (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
                    
                    2005(Restated)Cash
                        flows from operating activitiesNet
                        loss
                    
                    $
                    (661,764
                    )
                    $
                    (813,776
                    )Adjustments
                        to reconcile net loss to net cashused
                        by operating activitiesDepreciation
                        and amortization expense
                    
                    
                    6,188
                    
                    
                    3,861Amortization
                        of debt discount
                    
                    
                    229,707
                    
                    
                    125,000Amortization
                        of deferred financing cost
                    
                    
                    23,062
                    
                    
                    -Gain
                        on derivative liabilities
                    
                    
                    (729,902
                    )
                    
                    -Stock
                        issued for executive compensation and expense
                        reimbursement
                    
                    
                    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
                    
                    
                    821
                    
                    
                    -Increase
                        in other assets
                    
                    
                    (3,598
                    )
                    
                    -Increase
                        (decrease) in accounts payable
                    
                    
                    181,051
                    
                    
                    116,598Net
                        cash used by operating activity
                    
                    
                    (580,569
                    )
                    
                    (105,637
                    )Cash
                        flows from investing activitiesPurchase
                        of equipment
                    
                    
                    (157,199
                    )
                    
                    -Net
                        cash used by investing activities
                    
                    
                    (157,199
                    )
                    
                    -Cash
                        flows from financing activitiesProceeds
                        from debt
                    
                    
                    495,000
                    
                    
                    10,000Issuance
                        of common stock
                    
                    
                    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
                    
                    
                    147,049
                    
                    
                    17,363Cash
                        and equivalents-beginning
                    
                    
                    180,583
                    
                    
                    44,961Cash
                        and equivalents-ending
                    
                    $
                    327,632
                    
                    $
                    62,324Supplemental
                        disclosuresInterest
                        paid
                    
                    $
                    -
                    
                    $
                    -Income
                        taxes paid
                    
                    $
                    -
                    
                    $
                    -Non-cash
                        investing and financing activitiesValue
                        of shares issued for acquistion
                    
                    $
                    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 $15,430,882 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
                  )
                  
                  (38,709
                  )
                  
                  (409,004
                  )Balance
                      July 31, 2006
                  
                  
                  265,577
                  
                  
                  273,606
                  
                  
                  318,237
                  
                  
                  857,420
  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
                
                
                (157,565
                )
                
                (163,333
                )
                
                (320,898
                )Balance
                    July 31, 2006
                
                $
                594,876
                
                $
                616,648
                
                $
                1,211,524
  **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)
                  
                  $
                  2,076,850
                  
                  $
                  (617,198
                  )
                  $
                  (661,764
                  )
                  $
                  (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.
  **NOTE
            7 – Restatement**
  In
            June
            2007, Power Technology concluded that it was necessary to restate its
            financial
            results for the quarter ended July 31, 2006 to correct errors in the
            derivative
            liabilities as calculated by a third party specialist. Power Technology
            had
            previously recognized derivative liabilities of $2,227,206 as of July
            31 2006.
            After further review, Power Technology has determined that the formulas
            in the
            valuation model used by the independent valuation expert to determine
            the
            estimated value of derivative liabilities were incorrect and thus overstated
            the
            value of the derivative liabilities. As a result, Power Technology has
            obtained
            a revised valuation report and has decreased the derivative liabilities
            to
            $2,068,944 at July 31, 2006. There is no impact on the financial information
            for
            the six months ended July 31, 2005.
  A
            summary
            of the effects of this restatement as of July 31, 2006 and for the three
            months
            and six months then ended is shown in the following table:
  As
                      previouslyreported
                  
                  As
                      restatedDerivative
                      liabilities
                  
                  $
                  2,227,206
                  
                  $
                  2,068,944Total
                      current liabilities
                  
                  
                  2,641,229
                  
                  
                  2,482,967Accumulated
                      deficit
                  
                  
                  (15,589,143
                  )
                  
                  (15,430,882
                  )Total
                      stockholders' deficit
                  
                  
                  (1,695,770
                  )
                  
                  (1,537,509
                  )
 
 Three
                      months ended July 31,2006Gain
                      on derivative liabilities
                  
                  
                  2,665,392
                  
                  
                  2,823,654Net
                      income
                  
                  
                  1,918,588
                  
                  
                  2,076,850Six
                      months ended July 31, 2006Gain
                      on derivative liabilities
                  
                  
                  571,640
                  
                  
                  729,902Net
                      loss
                  
                  
                  (820,026
                  )
                  
                  (661,764
                  )
 F-8
 **Table
              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-
 **Table
              of Contents**
  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
 -2-
 **Table
              of Contents**
  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-
 **Table
              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-
 **Table
              of Contents**
  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-
 **Table
              of Contents**
  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.
 -6-
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  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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              of Contents**
  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
 -8-
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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
 -9-
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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.
 -10-
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              of Contents**
 
 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
 -11-
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              of Contents**
 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.
 -12-
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              of Contents**
  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.
 -13-
 **Table
              of Contents**
 
 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 $2,132,568 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 $15,430,882 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
 -16-
 **Table
              of Contents**
 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
          $1,718,545, a loss from operations for the six months ended July 31, 2006,
          of $(561,072) and an accumulated deficit of $(15,430,882).
 
 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
 -17-
 **Table
              of Contents**
  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.
 -18-
 **Table
              of Contents**
 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.
 -19-
 **Table
              of Contents**
  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
  -20-
 **Table
              of Contents**
  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.
 -21-
 **Table
              of Contents**
  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.
  -22-
 **Table
              of Contents**
  **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: July
          2 ,
          2007
 By: /s/
          Bernard J. Walter
 Bernard
          J. Walter
 President
          Chief Executive Officer and
 Principal
          Financial Officer
       -23-