`

UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION

Washington,
D.C. 20549



FORM 10-QSB





|[X]                                                   | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934  
|----------------------------------------------------- | ---------------------------------------------------------------------------------------------
|For the
    quarterly period ended September 30, 2006
|OR                                                   
|[_]                                                   | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
    EXCHANGE ACT OF 1934





For the
transition period from                 
to



Commission
File Number 2-80891-NY



MODERN
TECHNOLOGY CORP

(Exact name
of registrant as specified in its charter)





|Nevada                                                                 |  | 11-2620387                              
|---------------------------------------------------------------------- |  | ----------------------------------------
|(State
    or other jurisdiction of
    incorporation or organization) |  | (I.R.S.
    Employer Identification No.)





1739
University Ave #339Oxford, MS 38655

(Address of
principal executive offices)



Registrant's
telephone number, including area code: (662) 236-5928



Indicate by check mark
whether the Registrant (1) has filed all reports required by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the Registrant was required to file such reports) and
(2) has been subject to such filing requirements for the past 90 days: Yes [X]  
No [_]



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

[ ] Yes [x] No



Indicate the number of
shares outstanding of each of the issuer's classes of common stock, as of the
latest practicable date.





|Class                              |  | Outstanding at September 30, 2006
|---------------------------------- |  | ---------------------------------
|Common
    stock, $0.001 par value |  | 4,455,296                        







---







MODERN
TECHNOLOGY CORP.



Table of
Contents



|PART I.  | FINANCIAL INFORMATION                                                                     | 
|-------- | ----------------------------------------------------------------------------------------- | 
|         |                                                                                           | 
|Item 1.  | Consolidated Financial
    Statements (unaudited)                                         | 
|         | Consolidated Balance Sheets                                                               | 
|         | Consolidated Statements of Operations                                                     | 
|         | Consolidated Statements of Cash Flows                                                     | 
|         | Notes to Consolidated Financial Statements                                                | 
|Item 2.  | Management's Discussion and
    Analysis of Financial Condition and Results of Operations | 
|Item 3.  | Quantitative and Qualitative
    Disclosures About Market Risk                            | 
|Item 4.  | Controls and Procedures                                                                   | 
|         |                                                                                           | 
|PART II. | OTHER INFORMATION                                                                         | 
|         |                                                                                           | 
|Item 1.  | Legal Proceedings                                                                         | 
|Item 2.  | Changes in Securities and Use of
    Proceeds                                             | 
|Item 3.  | Defaults Upon Senior Securities                                                           | 
|Item 4.  | Submission of Matters to a Vote
    of Security Holders                                   | 
|Item 5.  | Other Information                                                                         | 
|Item 6.  | Exhibits and Reports on Form 8-K                                                          | 
|         | Signatures                                                                                | 

---



2

Item 1. Consolidated Financial
Statements (unaudited)



PART I -- FINANCIAL INFORMATION





---



---



---

MODERN TECHNOLOGY
CORP.

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2006

NOTE 1: ORGANIZATION AND NATURE OF OPERATIONS

Modern Technology Corp (Modern) is a Nevada Corporation.

We are engaged in aiding both private and public companies in the areas of
business development, financing, product development, corporate strategy,
corporate image and public relations, product distribution and marketing, and
executive management consulting. We collectively refer to companies in which we
own an equity position, our majority owned subsidiaries, corporate customers and
clients as "portfolio companies". We charge for our services in cash or equity
in the portfolio company. We may also exchange our services for revenue sharing
of future sales of products or sharing of proceeds from the sale of licenses and
technologies owned by our portfolio companies. We seek to grow through strategic
acquisitions in addition to generating income from our services.

We seek to build revenues by a model continuous growth, strategic
acquisitions, and commercialization of nascent technology. We seek to improve
operating efficiencies among our portfolio companies through elimination of cost
redundancies and realized synergy between subsidiaries. We also seek to
commercialize new technology and provide to our portfolio companies and
subsidiaries new product lines, operations infrastructure, and significant
intellectual capital.

Modern's office was located in New York, but has been relocated to
Mississippi, with its administrative offices being located in Jackson,
Mississippi.

NOTE 2:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

INTERIM REPORTING

The accompanying unaudited consolidated financial statements for the
three-month period ended September 30, 2006 and September 30, 2005, have been
prepared in accordance with accounting principles generally accepted in the
United States and with the Securities and Exchange Commission (the "SEC") rules
for interim financial information reporting. Accordingly, they do not include
all of the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. These
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-KSB for the fiscal year ended June 30, 2006. In the opinion of management,
all adjustments (consisting only of normal recurring accruals, unless otherwise
indicated) considered necessary for a fair presentation of the results of
operations for the indicated periods have been included. Certain amounts
recorded in previous periods have been reclassified to conform to the current
period presentation. Operating results for the three months ended September 30,
2006 are not necessarily indicative of the results for the full fiscal year.

ACCOUNTING POLICIES

Modern Technology Corp's accounting policies conform to U. S. generally
accepted accounting principles. Significant policies followed are described
below.

The consolidated financial statements include the accounts of the company and
all of its subsidiaries in which a controlling interest is maintained. All
consolidated financial statements have been prepared in US dollars.

STOCK BASED COMPENSATION

The Company has adopted the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation." In accordance with SFAS No. 123, Modern has elected
the disclosure-only provisions related to employee stock options and follows the
intrinsic value method in Accounting Principals Board Opinion (APB) No. 25 in
accounting for stock options issued to employees. Under APB No. 25, compensation
expense, if any, is recognized as the difference between the exercise price and
the fair value of the common stock on the measurement date, which is typically
the date of grant, and is recognized over the service period, which is typically
the vesting period.

RECLASSIFICATIONS

Certain items from prior periods within the financial statements have been
reclassified to conform to current period classifications.

CASH AND CASH EQUIVALENTS

Cash Equivalents consist of highly liquid, short-term investments with
original maturities of 90 days or less. The carrying amount reported in the
accompanying balance sheets approximates fair value.

INVENTORY

Inventory is stated at the lower of cost (first-in, first-out) or market (net
realized value) and consists principally of finished goods. During the year
ended June 30, 2006, the Company has written down its inventory by $1,323,417 to
reflect obsolescence.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost. Depreciation of property and
equipment is provided using straight-line and accelerated methods. The estimated
useful lives are as follows:

Years

Furniture, fixtures and equipment          
5 - 7

Transportation equipment                       
5

Leasehold improvements                        
8 - 10

Buildings 3                                                   
9

Expenditures for major renewals and betterment that extend the useful lives
of property and equipment are capitalized. Expenditures for maintenance and
repairs are charged to expense as incurred.

Depreciation expense for the years ended June 30, 2006 and 2005 was $23,734
and $11,795, respectively.

ESTIMATES IN FINANCIAL STATEMENTS

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

INCOME TAXES

The company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes"
SFAS 109 has as its basic objective the recognition of current and deferred
income tax assets and liabilities based upon all events that may have been
recognized in the financial statements as measured by the provisions of the
enacted tax laws.

Valuation allowances are established when necessary to reduce deferred tax
assets to the estimated amount to be realized. Income tax expense represents the
tax payable for the current period and the change during the period in the
deferred tax assets and liabilities.



IMPACT OF NEW ACCOUNTING STANDARDS

In December 2003, the FASB issued Interpretation No. 46R, "Consolidation of
Variable Interest Entities" (revised December 2003) - an interpretation of ARB
No. 51.  A variable interest entity ("VIE") is one where the contractual or
ownership interest in an entity change with changes in the entity's net asset
value. This interpretation requires the consolidation of a VIE by the primary
beneficiary, and also requires disclosure about VIEs where an enterprise has a
significant variable interest but is not the primary beneficiary. Sound City
leases a facility from a Limited Liability Company ("LCC") owned by the minority
shareholders.  The term of this lease is 10 years, commencing on July 1,
2004 and ending June 30, 2014. Under FIN 46R, the LLC was a VIE at June 30, 2005
and the Company had consolidated the LLC in its consolidated financial
statements.  The Company has decided to spin off its Sound City subsidiary
and has not consolidated this subsidiary at June 30, 2006.

In April 2003, the FASB issued SFAS No. 149 "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS 149 establishes accounting
and reporting standards for derivative instruments and for hedging activities.
This statement is effective for contracts entered into or modified after June
30, 2003. The adoption of SFAS No. 149 did not have a material effect on the
Company's financial position or results from operations.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity." SFAS 150
changes the accounting for certain financial instruments that, under previous
guidance, were accounted for as equity. This statement is effective for
financial instruments entered into or modified after May 31, 2003 and otherwise
is effective at the beginning of the first interim period beginning after
September 15, 2003. The adoption of SFAS No. 150 did not have a material effect
on the Company's financial position or results from operations.

In December 2003, the SEC issued Staff Accounting Bulletin ("SAB") No. 104,
"Revenue Recognition," which codifies, revises, and rescinds certain sections of
SAB No. 101, "Revenue Recognition," in order to make this interpretive guidance
consistent with current authoritative accounting and auditing guidance and SEC
rules and regulations. The changes in SAB No. 104 did not have a material impact
on the Company's financial position or results of operations.

REVENUE RECOGNITION

The Company generally recognizes revenue upon shipment when the
collect-ability of the resulting receivable is reasonably assured. The Company
allows credit for products returned within its policy terms. Such returns are
estimated and an allowance for product returns is recorded at the time of sale,
as necessary.

Revenues associated with rewards programs are recorded when the customer is
entitled to utilize such rewards. The Company simultaneously records the costs
of these rewards. Rewards can be used by customers for one year. After one year,
unused rewards are recorded as revenue.

IMPAIRMENT OF LONG-LIVED ASSETS

The company regularly reviews long-lived assets for indicators of impairment.
Management's judgments regarding the existence of impairment indicators are
based on performance. Future events could cause management to conclude that
impairment indicators exist and that the value of long-lived assets is impaired.
When events or circumstances indicate that the carrying amount of an asset may
not be recoverable, the fair value of the asset is compared to its carrying
value. Impairment losses are measured as the amount by which the carrying value
of an asset exceeds its estimated fair value.



ADVERTISING

Advertising costs are expensed as incurred. Advertising expense for the three
months ended September 30, 2006 and 2005 was $0 and $22,990, respectively.

SHIPPING AND HANDLING COSTS

Amounts billed to customers for shipping costs resulting from a sales
transaction are included in Revenues, while costs incurred by the Company for
shipping and handling are included in cost of goods sold.

NOTE 3:  CONCENTRATIONS OF CREDIT RISK

The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash. The Company does not require collateral
or other security to support customer receivables of rewards programs. The
exposure to credit risk associated with the nonperformance of customers in
fulfilling their contractual obligations can be directly impacted by a decline
in economic or industry conditions, which could impair the customer's ability to
satisfy its obligations. Credit procedures have been established whereby
detailed analyses are performed to control the granting of credit to high-risk
customers of rewards programs.



NOTE 4: OPERATIONS AND LIQUIDITY

The Company has incurred substantial losses in 2006 and 2005. Until such time
that the Company's products and services can be successfully marketed the
Company will continue to need to fulfill working capital requirements through
the sale of stock and/or the issuance of debt. The inability of the Company to
continue its operations as a going concern would impact the recoverability and
classification of recorded asset amounts.

The ability of the company to continue in existence is dependent on its
having sufficient financial resources to bring products and services to market
for marketplace acceptance. As a result of its significant losses, negative cash
flows from operations, and accumulated deficits for the periods ending September
30, 2006, there is doubt about the Company's ability to continue as a going
concern.

Management believes that its current available working capital, anticipated
revenues, further planned reductions in operating expenses, and subsequent sales
of stock and/or placement of debt instruments will be sufficient to meet its
projected expenditures for a period of at least twelve months from September 30,
2006.





---





Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations



This Report contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
including, without limitation, statements regarding the Company's expectations,
beliefs, intentions or future strategies that are signified by the words
"expects," "anticipates," "intends," "believes," or similar language. These
forward-looking statements, including those with respect to our operating
results for 2004, are based upon current expectations and beliefs of the
Company's management and are subject to risks and uncertainties that could cause
results to differ materially from those indicated in the forward-looking
statements. Some, but not all, of the factors, which could cause actual results
to differ materially include those set forth in the risks discussed below under
the subheading "Risk Factors" and elsewhere in this report. The Company
undertakes no obligation to revise or publicly release the results of any
revision to these forward-looking statements, or to explain why actual results
differ. Readers should carefully review the risk factors described in this
section below and in any reports subsequently filed with the Securities and
Exchange Commission.



Overview

We were incorporated
in Nevada in 1982 as a for-profit corporation. We have never experienced any
bankruptcy or similar proceeding. We are engaged in aiding both private and
public companies in the areas of business development, financing, product
development, corporate strategy, corporate image and public relations, product
distribution and marketing, and executive management consulting. We collectively
refer to companies in which we own an equity position as well as our customers
and clients as "portfolio companies". We charge for our services in cash or
equity in the portfolio company. We may also exchange our services for revenue
sharing of future sales of products or sharing of proceeds from the sale of
licenses and technologies owned by our portfolio companies. We seek to grow
through strategic acquisitions in addition to generating income from our
services.



Our sources of
revenue are primarily from:



* Consolidated revenues of our portfolio
      companies which we own in majority;

* Management and consulting fees we may charge
      our portfolio companies;

* Revenue sharing agreements we may have with
      our portfolio companies;

* Royalty and licensing proceeds from the sale
      of technology rights we may own in whole or in part with our portfolio
      companies;

* Proceeds from the sale of securities we may
      own in our portfolio companies;

* Proceeds from the interest and payment of
      debt we may hold in our portfolio companies; and

* Proceeds from the conversion of debt we may
      hold in our portfolio companies into marketable securities and subsequent
      sale of same.



OUR PORTFOLIO COMPANIES

Sound City

We presently own 51%
of Sound City with an option to acquire the remaining 49%. The option is valid
through December 31, 2009, and can be exercised for $3,500,000, which is payable
in cash, stock or a combination of cash or stock. Sound City, Inc. is a consumer
electronics company with customers across the U.S. Sound City markets audio and
video solutions for home and mobile environments, including the HD-TV, Plasma TV
and LCD TV market segments. As a full service dealer, Sound City provides a wide
range of custom home installations addressing numerous applications. With a
customer base of over 900,000 customers, Sound City is a large electronics mail
order companies in the U.S., who distributes its products and solutions through
its direct mail and Web site channels. Consumers can also find the latest audio,
video, car stereo and home theatre products in Sound City's retail locations,
including 12 custom showrooms. Sound City operates a web site at the following
address:



DeMarco Energy Systems of America,
Inc.

We are the holder of
an outstanding convertible debenture in the amount of $1,500,000 issued by
DeMarco Energy Systems of America. The debenture is convertible into shares of
common stock of DeMarco. The convertible debentures bear interest at 10%,
matured on March 25, 2003, and are convertible into shares of Demarco common
stock, at the selling stockholders' option, at the lower of (i) $0.15 or (ii)
60% of the average of the three lowest intraday trading prices for the common
stock on a principal market for the 10 trading days before but not including the
conversion date. As of May 2, 2005, the $1,500,000 convertible debenture was
convertible into 250,000,000 shares of DeMarco common stock. During the year
ended June 30, 2006, we sold these debentures for $500,000 to Shield
Investments.





We have no formal
agreements with this portfolio company outside our being a holder of the
convertible debenture, although our chairman, Anthony K. Welch, is also the
chairman of DeMarco. We have an informal agreement to assist them where
practicable to further their plans and efforts, although there are no written
agreements to this effect and we are not obligated to perform any services for
them.





DeMarco Energy's
primary mission is to provide energy efficient technologies to commercial and
institutional markets through the application of the DeMarco 'Systems' patent.
The company owns a systems patent that was granted on September 3, 1985, known
as the Energy Miser System. The company is primarily focusing on providing
heating and air conditioning powered by the thermal properties of managed water
systems, which include gray-water, re-use water and potable water systems.
DeMarco has exclusive rights to the patented technology.

.



INmarketing Group Inc.



On December 20, 2005 we acquired 51%
of the outstanding common stock of INmarketing Group Inc. (IMG) for $1,000,000
in cash and $1,210,000 in the form of Series B 4% convertible preferred stock of
the Company, with an option to acquire the remaining 49%. The option is valid
through December 19, 2007.





Selecting Portfolio Companies

We may purchase an
equity position, whether minority or majority, in various companies from time to
time. We offer our services to new customers, also referred to as portfolio
companies, for cash payment. We may elect to take equity in the portfolio
company as payment for our services.





We also seek to grow
our revenues and assets by acquisitions. We seek to obtain a majority equity
position in any company we acquire. If we acquire a minority position in a
company, we will seek to enter into agreement with that company whereby we will
generate income from our services. If we acquire a minority position in a
company, we value that equity using a good-faith estimation of its value based
on generally accepted accounting principles combined with our internal judgment
based on industry and economic factors not encompassed by traditional accounting
principles.





We acquire majority
or minority equity positions in portfolio companies by purchasing the equity
with cash, debt, or purchasing the equity by issuing stock in our company. We
may pay for the equity position with a combination of both cash and stock and
debt.





When presented with a
prospective acquisition, we make a good-faith valuation for the business to be
acquired and its future prospects. If the assessment of the prospective
acquisition appears to offer a good or reasonable chance to increase our
revenues and assets both in the short-term and the long-term, we will seek to
acquire the prospective company.





We find new customers
and prospective companies to acquire through out network of relationships within
the business community.



EMPLOYEES

We currently have
three full time employees and three part-time employees, including two in
management, two in business development, one in business advisory and one
administrative position. In our subsidiary, Sound City, we currently have 33
full time and 2 part time employees, including eight in management three in
administrative, 10 in sales, three in advertising, five in warehousing and six
in installations. There exist no organized labor agreements or union agreements
between our employees and us. We believe that our relations with our employees
are good.

Results of Operations:



During the three months ended
September 30, 2006, the Registrant had net loss applicable to common
shareholders of $962.074, as compared with $805,642 for the three months ended
September 30, 2005.



For the three months ended September
30, 2006 and 2005, the Registrant had total revenues of $3,085,878 and
$1,311,779, respectively, as compared with gross margin for the comparable
periods of $681,516 and $369,546, respectively

During the three months ended
September 30, 2006, expenses amounted to $1,604,466, attributable mainly to
general and administrative expenses of $498,201 salaries, benefits and related
taxes of $387,362, and interest expense of $711,683. For the three months ended
September 30, 2005, expenses amounted to $1,127,723 consisting of general and
administrative expenses of $671,145, salaries of 375,570 and interest expense of
$81,002.



Liquidity and Capital Resources



The cash and cash equivalent balance
of the Registrant was $441,792 and $181,701 as of September 30, 2006 and June
30, 2006, respectively.



The Company has incurred substantial
losses through September 30, 2006. Until such time that the Company's products
and services can be successfully marketed, the Company will continue to need to
fulfill working capital requirements through the sale of stock and/or the
issuance of debt. The inability of the Company to continue its operations as a
going concern would impact the recoverability and classification of recorded
asset amounts.



The ability of the company to
continue in existence is dependent on its having sufficient financial resources
to bring products and services to market for marketplace acceptance. As a result
of its significant losses, negative cash flows from operations, and accumulated
deficits for the periods ending September 30, 2006, there is doubt about the
Company's ability to continue as a going concern.



Management believes that its current
available working capital, anticipated revenues, further planned reductions in
operating expenses, and subsequent sales of stock and/or placement of debt
instruments will be sufficient to meet its projected expenditures for a period
of at least twelve months from September 30, 2006.



Item 3.  Controls and Procedures



Disclosure Controls and Procedures. 
The Company's management, with the participation of the Company's Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of the Company's disclosure controls and procedures (as such term is defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) as of the end of the period covered by this
report.  Based on such evaluation, the Company's Chief Executive Officer
and Chief Financial Officer have concluded that, as of the end of such period,
the Company's disclosure controls and procedures are effective in recording,
processing, summarizing and reporting, on a timely basis, information required
to be disclosed by the Company in the reports that it files or submits under the
Exchange Act.



Internal Control Over Financial
Reporting.  There have not been any changes in the Company's internal
control over financial reporting (as such term is defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) during the most recent fiscal quarter that
have materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.



PART
II--OTHER INFORMATION



Item
1. Legal Proceedings



From time to time, we
may become involved in various lawsuits and legal proceedings which arise in the
ordinary course of business. However, litigation is subject to inherent
uncertainties, and an adverse result in these or other matters may arise from
time to time that may harm our business. We are currently not aware of any such
legal proceedings or claims that we believe will have, individually or in the
aggregate, a material adverse affect on our business, financial condition or
operating results.



Item 2.Unregistered Sales of
Equity Securities and Use of Proceeds



None.

Item 3. Defaults Upon Senior
Securities



None.



Item 4. Submission of Matters to a
Vote of Security Holders



None.



Item 5. Other Information



None.



Item 6. Exhibits



a.



|Exhibit
    Number |  | Description                                                                                                                                                                                                  
|------------------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                   |  |                                                                                                                                                                                                              
|31.1*              |  | Certificate of Chief Executive
    Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as
    Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 dated May
    19, 2005.
|31.2*              |  | Certificate of Chief Financial
    Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as
    Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 dated May
    19, 2005.
|32*                |  | Certificate of Chief Executive
    Officer and Chief Financial Officer pursuant to section 18 U.S.C.
    section 1350 dated May 19, 2004.                                                                    



*









Signatures



In accordance with the requirements
of the Exchange Act, the Registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.



|                          | MODERN TECHNOLOGY CORP.
|------------------------- | -----------------------
|                          |                        
|                          | By:                    
|Dated:  November 17, 2006 |