*Table
            of Contents*





**U.S.
      SECURITIES AND EXCHANGE COMMISSION**


WASHINGTON,
      D.C. 20549





**FORM
      10-KSB**





x
            ANNUAL
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT
                OF
                1934
              FOR
                THE FISCAL YEAR ENDED**JANUARY
                31, 2007**




**COMMISSION
      FILE NUMBER: 0-24857**





**POWER
      TECHNOLOGY, INC.**


(Name
      of
      Small Business Issuer in Its Charter)





**NEVADA**


(State
      or
      Other Jurisdiction of


Incorporation
      or Organization)





**88-0395816**


(I.R.S.
      Employer Identification No.)





**7101
      HIGHWAY 71 WEST, SUITE 200**


**AUSTIN,
      TX 78735**


(Address
      of principal executive offices)





**512.288.8528**


(Issuer's
      telephone number)





SECURITIES
      REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT: N/A


NAME
      OF
      EACH EXCHANGE ON WHICH REGISTERED: N/A





SECURITIES
      REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:


COMMON
      STOCK, PAR VALUE $.001





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





Check
      whether the issuer: (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
      12b-2 of the Exchange Act).Yes oNo x





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




The
      Issuer's revenues for the year ended January 31, 2007 were $
      23,097.





The
      aggregate market value of Common Stock held by non-affiliates of the registrant
      at May 31, 2007, based upon the last reported sales prices on the Pink Sheets
      was $2,542,843.





As
      of May
      31, 2007, there were 161,903,230
      shares of Common Stock outstanding.





Documents
      incorporated by reference: None





Transitional
      Small Business Disclosure Format: Yes o       No x







*Table
        of Contents*


**TABLE
      OF CONTENTS**





PART
                I
            
            PageItem
                1.
            Business
            1Item
                2.
            Description
                of Properties
            33Item
                3.
            Legal
                Proceedings
            33Item
                4.
            Submission
                of Matters to a Vote of Security
                Holders
            33PART
                IIItem
                5.
            Market
                for Common Equity, Related Stockholder Matters and
                Small Business Issuer Purchases Of Equity Securities
            34Item
                6.
            Plan
                of Operation
            37Item
                7.
            Financial
                Statements
            F-1Item
                8.
            Changes
                in and Disagreements with Accountants on Accounting
                and Financial Disclosure
            50Item
                8A.
            Controls
                and Procedures
            50Item
                8B.
            Other
                Information
            50PART
                IIIItem
                9.
            Directors,
                Executive Officers, Promoters, Control Persons
                and Corporate Governance; Compliance with Section 16(a) of The Exchange
                Act
            50Item
                10.
            Executive
                Compensation
            53Item
                11.
            Security
                Ownership of Certain BeneficialOwners
                and Management andRelated
                Stockholder Matters
            55Item
                12.
            Certain
                Relationships and Related Transactions and Director
                Independence
            57Item
                13.
            Exhibits
            58Item
                14.
            Principal
                Accountant Fees and Services
            59SIGNATURES
            
            61




-i-
 *Table
          of Contents*




**PART
      I**





ITEM
      1. DESCRIPTION OF BUSINESS.





Power
      Technology, Inc. (the "Company"), a Nevada corporation, was incorporated on
      June
      3, 1996. However, we did not conduct any significant operations until March
      1998
      when we acquired all of the issued and outstanding capital stock and assets
      of
      PowerTek Technology Corporation, Inc. (formerly called Power Technology, Inc.).
      Power Technology changed its corporate name from "Zepplin Production Corp."
      to
      Power Technology, Inc. in March 1998 to reflect the change in the purposes
      and
      nature of its business.





We
      are a
      research and development company. Our business development has included the
      research and development of improved technology for deep cycle batteries; the
      manufacture of preliminary prototype batteries; the filing and prosecution
      of
      patent applications on its technology of a battery current collector comprised
      of reticulated carbon substrate to which a lead-tin containing alloy is
      deposited and the design of equipment and machinery to manufacture our unique
      battery current collectors. Our wholly owned subsidiary, Sentry Power
      Technology, Inc.’s (“SPT”) 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. We have
      not been involved in any bankruptcy, receivership or similar proceedings and
      have not had any material reclassification, merger, consolidation, or purchase
      or sale of a significant amount of assets not in the ordinary course of
      business.





BATTERIES





Our
      primary business has been to develop improved technology for batteries to be
      used in electric vehicles, hybrid powered vehicles, solar power systems,
      electric motorcycles, electric bicycles, electric wheelchairs, electric power
      management, uninterruptible power supply systems, automobiles, aircraft, marine
      and submarine craft. Our battery technology has passed from the "proof of
      principle" stage, by which we validated the proposition that lead acid battery
      current collectors comprised of reticulated vitreous carbon (“RVC”) foam plates
      onto which a lead tin alloy has been deposited are a significant improvement
      over existing solid lead current collectors. We have manufactured preliminary
      prototype batteries, original, full-scale, working models of our new product,
      using methods that would not be practical for economically manufacturing
      batteries on a commercial scale.





Our
      goal
      has been the development of batteries that (i) are smaller and lighter than
      conventional batteries which produce the same electrical capacity, (ii) have
      a
      higher specific energy density, (iii) have a higher energy efficiency, (iv)
      have
      a quicker recharge rate, (v) will be more cost effective, and (vi) will be
      more
      environmentally friendly.





We
      intend
      to continue our development efforts to be funded in part through licensees
      and
      industrial joint venture partners and from the sale of our securities.





The
      importance of electric vehicles and hybrid vehicles in the United States and
      abroad has increased because of concerns regarding air pollution, global
      climactic changes, ozone layer depletion, noise abatement, the increase in
      the
      price of gasoline, and dependence on imported oil.  -1-
 *Table
            of Contents*


However,
      because of the costs and limited range of currently available batteries, the
      production and sales of electric vehicles has been very limited. There appears
      to be substantial demand for a high power, durable, high charge/discharge rate
      battery for electric cars and other hybrid electric vehicles (such as two and
      three wheeled vehicles that are numerous in Europe and third world countries).





Our
      future business prospects are substantially dependent upon our ability with
      joint venture partners and licensees to develop, manufacture and sell products
      based on our battery technologies. Additional development efforts will be
      required before products based on our technologies can be manufactured and
      sold
      commercially. There can be no assurance that certain products based on our
      technologies 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 fields, we may enter into licensing or joint venture agreements with
      established companies. Any revenues or profits which may be derived by us from
      these arrangements will be substantially dependent upon the willingness and
      ability of our licensees and joint venture partners to devote their financial
      resources and manufacturing and marketing capabilities to commercialize products
      based on our technologies.





Our
      ability to compete effectively with other companies will depend, in part, on
      our
      ability to protect and maintain the proprietary nature of its technology. There
      can be no assurance that our patents or other proprietary rights will be
      determined to be valid or enforceable if challenged in court or administrative
      proceedings or that our patents or other proprietary rights, even if determined
      to be valid, will be broad enough in scope to enable us to prevent third parties
      from producing products using similar technologies or processes. There can
      also
      be no assurance that we will not become involved in disputes with respect to
      the
      patents or proprietary rights of third parties.





BATTERY
      TECHNOLOGY





The
      battery we are developing is an electrochemical battery of the type having
      a
      positive plate, a negative plate, an electrolyte contacting and bridging the
      plates, and a transducer in contact with the plate(s) to apply electronic energy
      to the plate(s). Each plate is comprised of a rigid metal structure which
      significantly increases the exposed surface area of the plates for the paste
      to
      be in contact. The surface structure of the plates is specially coated with
      an
      electrically conductive metal.





GLOSSARY
      OF TECHNICAL TERMS





Certain
      technical terms used herein have the following meanings:





Active
      Material - The constituents of a cell that participate in the electrochemical
      charge/discharge reactions. This does not include separators, current
      collectors, and connectors.





Ampere
      or
      Amp (A) - The unit of measurement of current flow. One volt placed across a
      one
      ohm resistance will cause a current of one Amp to flow. One amp for one hour
      is
      called an "amp-hour" or Ah.  -2-
 *Table
            of Contents*


Ampere-hour
      or Ah - A unit of electrical capacity that measures how much energy the battery
      will store. This is obtained by multiplying the current in amperes by the time
      in hours of discharge. A battery delivering 5 amperes for 20 hours, delivers
      100
      Amp Hr of capacity.





Current
      Collector - A part of an electrode that conducts electrons. It also serves
      as a
      structural support for the electrode.





Current
      Density (mA/cm(2)) - The current per unit of electrode area. It is equal to
      the
      charge or discharge current divided by the total geometric area of the positive
      or negative electrode. Current density is measured in milliamps divided by
      square centimeter .





Cycle
      life -The number of times a rechargeable battery can be charged and discharged.
      One battery cycle includes a charge section and a discharge section.





Deep
      Cycle Battery - A battery
      designed to regularly discharge 80 percent or higher of its capacity before
      recharging. A deep
      cycle battery has less instant energy than a starting, lighting and ignition
      battery but it has greater long-term energy delivery.





Deep
      Cycle Discharge - A qualitative term indicating the withdrawal of a significant
      percentage of capacity (typically, 80 percent or more)





Electrical
      Efficiency (%) - The amount of the discharge capacity in amp hours:(Ah) divided
      by the amount of recharge capacity in (Ah)





Electrode
      (battery) - the chemically active portions of a battery.





Electrolyte
      - The conductive chemical (such as acid), usually fluid or gel, in which the
      electricity flows within the battery, and which supports the chemical reactions
      required.





Energy
      Density - The amount of energy stored per unit volume of a battery. It is
      measured by the number of watt hours divided by the volume of the battery in
      liters. (Whr/L)





EV
      -Electric Vehicle - a vehicle propelled exclusively by an electric drive system
      powered by an electrochemical energy storage device, typically a rechargeable
      battery.





HEV-
      Hybrid Electric Vehicle - a vehicle propelled both by an electrochemical energy
      storage device coupled to an electric drive and an auxiliary power unit powered
      by a conventional fuel such as reformulated gasoline, direct injection diesel
      or
      compressed natural gas.





Lead
      Tin
      Containing Alloy - a
      homogeneous mixture or solid solution of lead and tin metals.





PAM
      -
      Positive active material, it is the constituents of a cell that participate
      in
      the electrochemical charge/discharge reactions. (paste on the positive plate)





Power
      Density (W/L) the amount of power a battery can delivery per unit volume. It
      is
      measured by the number of watts divided by the volume in liters.





Reticulated
      Carbon Substrate - a
      carbon
      material with reticulate structure and is used as a surface on which another
      material is coated or attached.”


-3-
 *Table
            of Contents*




Reticulated
      Vitreous Carbon (“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.





SLI
      battery - Starting, lighting, and ignition battery





Specific
      Capacity (Ah/kg) - Capacity per unit weight of active material and/or current
      collectors. It is measured by the number of amp hours divided by the weight
      of
      the battery in kilograms.





Specific
      Power Density (W/kg) - The amount of power per unit weight of a battery. It
      is
      measured by the number of watts divided by the weight of the battery in
      kilograms.





Specific
      Surface Area (cm(2)/cm(3)) The effective surface area per unit volume. It is
      a
      measure of the number of square centimeters of the surface area divided by
      the
      number of cubic centimeters of the object.





Utilization
      Efficiency (%) - The percentage by weight of the limiting active material
      present in an electrode that is electrochemically available for discharge at
      useful voltages. It is equal to the actual capacity (Ah) divided by the
      theoretical capacity (Ah).





Volt
      -
      (V) - The unit of measurement of electrical potential.





Watt
      -
      (W) - A measurement of total power. It is amperes multiplied by volts. One
      horsepower equals about 750 watts.





Watt-hours
      or kilowatt-hours (kWh) is the number of watts times the number of hours.




*
      * * * *
      * * *





Electrochemical
      batteries typically include a pair of oppositely charged plates (positive and
      negative) with electrolyte to convey ions from one plate to the other when
      the
      circuit is completed.





Conventional
      lead-acid batteries typically use lead molded into a grid pattern as a current
      collector. The surface area of a conventional lead current collector is
      approximately 4.6 cm(2) per cm(3). Our battery employs a high specific surface
      area, 18 cm(2) per cm(3), open-cell, RVC electrode structure coated with a
      lead-tin alloy to advance the reliable lead-acid chemistries to new performance
      levels by significantly increasing the utilization efficiency of PAM.





Because
      the capability of a battery is directly related to the surface area of its
      current collectors which are in contact with paste, their capability is usually
      enhanced by sculpting their surfaces to increase and open up their surface
      areas. Our technology further increases the surface areas of the plates without
      compromising their strength or resistance to vibration, erosion and loss of
      material. Our technology also increases the energy density for both the weight
      and size of the


-4-
 *Table
            of Contents*




battery.
      The size of our battery is significantly reduced compared to a traditional
      lead-acid battery of the same amp-hour capacity.





CATELLA
      RESEARCH LABORATORY TEST REPORT





Our
      preliminary prototype batteries were independently tested by B C Research,
      Inc
      of Vancouver Canada, by the Long-Yuan Shuang-Deng battery company of China
      and
      by the Catella Generics Centre of Battery Technology ("Catella') in Sweden.





The
      test
      report from Long-Yuan Shuang-Deng battery manufacture states that the positive
      active material utilization efficiency of our battery was 63% as compared to
      the
      conventional lead acid battery's 35%.





The
      Catella report concluded that our battery gives improved properties to lead-acid
      batteries. Catella's report says:





"The
      electrochemical utilization of the paste mass is considerably improved with
      the
      reticulated structure plates in lead-acid batteries. We have recorded an
      increase in the area specific capacity withdrawn by about 90 % in the current
      range 3 to 100 mA/cm(2). The plate weight is lower, by 20-25% for the positive
      and 45-50% for the negative, and the area larger, by about 30% for the positive
      as well as the negative, for the conventional plates used for comparison."





The
      following table shows part of the data summary in Catella test report. The
      test
      was to compare the performance of Power Technology's reticulated plates and
      conventional lead-acid battery grids. The test was carried out with single
      two
      volt cell arrangement which comprising two negative plates and one positive.
      Single cell testing is a common practice used by battery manufactures in the
      research stage for concept proofing and prototype testing.




Power
                  Technology Battery
              
              Conventional
                  Lead-Acid BatteryCut
                  Off Voltage (V)
              
              
              1.75
              
              
              1.75Capacity
                  (Ah)
              
              
              21.7
              
              
              12.5Amp
                  hoursPAM
                  Efficiency (%)
              
              
              67
              
              
              38


Our
      proprietary reticulated-structure battery has been independently proven to
      provide performance characteristics (most notably, high specific energy density)
      that are suitable to pure electric vehicles such as the neighborhood electric
      vehicle (NEV).





We
      believe our lead-acid battery technology has the following advantages over
      conventional lead acid battery:





1.
            The
                reticulated grid offers up to four times higher effective surface
                area per
                unit volume as compared to a typical molded lead current collector
                grid
                used in conventional lead-acid batteries. The higher surface area
                and the
                shortened distance between ours current collector wires and the active
                material particles,


-5-
 *Table
          of Contents*


generate
      a higher utilization efficiency of the active material which is a key parameter
      for the improvement of the lead-acid battery.





2.
            The
                weight per unit volume of the reticulated grid, depending on the
                lead-alloy coating thickness, can be as much as two to four times
                lower
                than for a conventional grid. Thus, significant savings in battery
                weight
                can be achieved. As a result of that, weight saving of our battery
                plates
                for equivalent power delivered is 40% to 50% lighter than a conventional
                lead-acid battery. Fewer and lighter plates mean our battery is 30%
                to 50%
                smaller and lighter, compared to a regular lead-acid battery.





3.
            An
                increase of the active material utilization efficiency improves the
                specific energy. In electric vehicles the specific energy is directly
                correlated with the driving range. Generally, a 50% improvement in
                specific energy increases the driving range of an electric vehicle
                by
                about 74%.





4.
            The
                reticulated structure increased the utilization efficiency by up
                to 65%.
                This increase coupled with the weight reduction, resulted in a specific
                energy increase of up to 60% versus a conventional lead-acid battery
                equipped with book-mould grid.





5.
            The
                cycle life of our reticulated battery was tested with deep cycle
                discharge
                protocol. Cycling results at a one-hour discharge rate showed the
                battery
                last 700 cycles before the battery could not be recharged to 80%
                of the
                rated specific capacity.





6.
            The
                amount to time required to fully recharge our battery is significantly
                less than conventional lead acid battery. AccelRate Power Systems
                Inc.,
                formerly Key Capital Group, manufactures battery chargers and tested
                our
                prototype. AccelRate reported that their testing showed our battery
                can be
                fully recharged in 2.5 hours compared to a conventional lead-acid
                battery
                that takes 6-8 hours. AccelRate's test report also shows there is
                insignificant temperature rise when charging as compared to a conventional
                lead-acid battery whose temperature rise under charge is significant.





We
      are
      unaware of any competitor which uses technology similar to our own for current
      collectors in lead acid batteries.





PILOT
      PLANT




We
      have
      designed and have partially constructed 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 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  -6-
 *Table
            of Contents*


battery
      is substantially similar to existing processes, methods, and machinery commonly
      used in the manufacture of a typical lead acid battery.





We
      are
      establishing our 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 $2,951 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.





We
      have
      completed the engineering, design and installation of equipment necessary to
      manufacture RVC plates. The consulting costs, equipment, and materials to
      manufacture RVC plates totaled 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. 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.
      Mr. McCormick has fifteen years of experience in supervising the manufacture
      of
      RVC foam. We have acquired all equipment, supplies, materials, chemicals,
      instruments, utilities and machinery that were required for the production
      of
      RVC. Mr. McCormick has provided us a manufacturing procedures manual describing
      the process we 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 successfully manufactured RVC that meets our
      specifications 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 and equipment we installed is manual rather than automated
      but we believe it 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.  -7-
 *Table
            of Contents*


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
      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. Technic, Inc. is an engineering and manufacturing firm which
      specializes in designing and manufacturing electroplating equipment we purchased
      a lead tin plating system which 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
      electroplating plating system and air agitation equipment has been delivered
      and
      installed in 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
      nine additional plating stations, additional rectifiers, an automated hoist
      and
      a computer controlled, programmable, 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 operated
      the electroplating system and performed a series of test runs to deposit the
      lead tin alloy on RVC plates onto which the top frame and tab, bottom and side
      frames have been cast by our casting station and mold. Based on those test
      runs,
      we modified the equipment and following those modifications, during the month
      of
      December 2006 we have performed additional test runs and we believe we have
      developed the proper electrolysis bath chemistry and power settings to uniformly
      and consistently successfully deposit the lead tin alloy on our RVC current
      collectors.




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 designed
      and built the equipment necessary to manufacture our batteries in commercial
      quantities. RVC  -8-
 *Table
            of Contents*


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 finally completed. 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. We began
      successfully manufacturing current collectors. During August of 2006 we began
      to
      successfully manufactured RVC. During October of 2006, we began to successfully
      cast and apply the top side and bottom frames to the hundreds of RVC plates
      we
      had manufactured and we have successfully electroplated the lead-tin alloy
      onto
      those RVC plates uniformly. We used some of these plates to manufacture
      prototype batteries.





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, 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





Pursuant
      to a Technology Development and Support Agreement, during 2001 scientists
      employed by BC Research, Inc. (“BCR”) manufactured four prototype batteries for
      us that included current collectors composed of RVC plates on which a lead-tin
      alloy had been deposited by electroplating. Two prototypes were 50 ampere hour
      capacity, 12 volt batteries that were 4.5 inches wide, 6.5 inches long, 6 inches
      high and weighed 11 Kilograms. These two prototype batteries each took
      approximately 21 man hours to construct. One prototype was a 75 ampere hour
      12
      volt battery that was 5 inches wide, 8.5 inches long, 6 inches high, weighed
      14
      Kilograms and it took approximately 25 man hours to construct. One prototype
      was
      a 310 ampere hour, 2 volt battery that was 5.7 inches wide, 8.5 inches long,
      6
      inches high, weighed 14 Kilograms and it took approximately 32 man hours to
      construct. In the fall of 2005, we  -9-
 *Table
            of Contents*


manufactured
      a 30 amp hour, 12 volt prototype battery that was 5 inches wide, 7.5 inches
      long, 6 inches high, weighed 9.5 Kilograms.





In
      February of 2007 we applied battery paste to positive and negative current
      collectors we had manufactured and electroplated in our pilot plant. The battery
      paste was manually applied to each current collector at which time it
      technically became an electrode.





In
      February of 2007 we delivered
      sufficient positive patented electrodes to Axion Power International, Inc.,
      a
      battery manufacturer in Newcastle, Pennsylvania, to enable it to manufacture
      and
      test a prototype battery that features our positive electrodes with Axion’s
      proprietary e3 Super Cell Technology.





During
      April of 2007, a commercial battery plant used our positive and negative
      electrodes to manufacture five Valve Regulated, Absorbed Glass Matt, Maintenance
      Free, Lead Acid batteries for customer evaluation and testing. The prototype
      batteries were manufactured using existing standard processes and machinery
      necessary for insertion of our electrodes collector into the battery case.
      The
      completion of the manufacturing of our prototype batteries used existing
      standard processes, methods, and machinery commonly used in the manufacture
      of a
      typical lead acid battery. Our prototype batteries were tested at the
      manufacturing plant. The batteries were pressure tested, did not leak, and
      the
      batteries had no internal shorts.





We
      have
      charged these batteries and following the completion of our preliminary
      testing, a battery will be delivered for testing and evaluation to Kung Long
      Batteries Industrial Co. Ltd., a publicly traded expert manufacturer of lead
      acid batteries and to Power Battery Co., a privately owned battery manufacturer
      which has major locations in Patterson, New Jersey, Iberville, Quebec, Canada,
      and Romsey, England. In addition, prototype batteries will be delivered to
      other
      independent battery manufacturers for evaluation and testing. We
      anticipate completing the preliminary testing of these prototype batteries
      by
      July 1, 2007 and intend to post data relating to that preliminary testing on
      our
      website, http://www.pwtcbattery.com/.





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.


-10-
 *Table
          of Contents*




LICENSING
      AGREEMENTS




We
      do not
      intend to manufacture and sell our batteries on a commercial scale. We do plan
      to manufacture our proprietary current collectors which would be a component
      part of a lead acid battery. We own the rights to U.S. Patent Serial Number
      7,060,391 B2 titled Current Collector Structure and Methods to Improve the
      Performance of a Lead-Acid Battery, which relates to a current collector for
      use
      in lead-acid batteries comprising a reticulated carbon substrate having
      circuitous pores and a layer of lead tin alloy applied to the reticulated carbon
      substrate. This patent was issued on June 13, 2006 and will provide patent
      protection until March 25, 2024. We
      consider the rights to this Patent Application to be our core
      technology. 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.





The
      distribution method for batteries employing our unique current collectors will
      be by third parties who manufacture and sell the batteries pursuant to include
      joint venture agreements, licensing agreements, technology transfer agreements
      or other agreements. We have not yet executed any licensing agreements,
      technology transfer agreements or other similar agreements. Any revenues or
      profits which we may derive from these arrangements will be substantially
      dependent upon the willingness and ability of our licensees and joint venture
      partners to devote their financial resources and manufacturing and marketing
      capabilities to commercialize products based on our technologies.





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 Lon’s preliminary testing of our
      current collectors and technical issues relating to the manufacturing of our
      battery. We intend to deliver on of our recently manufactured prototype
      batteries to Kung Long for testing and evaluation our battery’s performance. Discussions
      with Kung Long included the negotiation of


-11-
 *Table
            of Contents*




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.





BATTERY
      COMPETITION





The
      market for our batteries and other proposed products is highly competitive,
      subject to rapid change and significantly affected by new product introductions
      and other market activities of industry participants. Our proposed battery
      products are targeted at the established deep cycle battery market and at the
      emerging market of electric powered automobiles and other electric vehicles.
      Our
      competitors offer a variety of products and services to address these markets.
      We currently face direct and indirect competition from traditional batteries.





The
      battery industry is mature, well-established and highly competitive. The
      industry is characterized by a few major domestic and foreign producers
      including Exide, Delphi, A.C. Delco, Johnson Controls, Inc., GNB, Electrosource,
      Inc., Energy Conversion Devices, Inc., Hawker and Yuasa, all of which have
      substantially greater financial resources than us. Accordingly, our ability
      to
      succeed in this market depends upon our ability to demonstrate superior
      performance and cost attributes of our technology. We have historically
      concentrated our activities in the electric vehicle segment of the market with
      a
      view to demonstrating improved energy to weight and longer battery life in
      comparison to traditional lead-acid batteries. Our principal competitors in
      the
      electric vehicle market have directed their efforts to other battery types,
      such
      as nickel-cadmium, nickel-metal hydride, nickel-iron and sodium-sulfur
      batteries, rather than lead-acid formulations, although at least one major
      automobile manufacturer and one major battery company are known to have research
      and development projects underway to develop lead-acid batteries for electric
      vehicles.





In
      May
      2003, Firefly Energy Inc. was formed and spun off by Caterpillar Inc., a Fortune
      100 industrial manufacturing company. Firefly has announced its business plan
      to
      manufacture a high performance, extremely low weight, reduced cost battery
      utilizing traditional but non-corrosive lead-acid chemistry. On December 27,
      2005, the U.S. Patent and Trademark Office issued to Firefly patent number
      6,979,513, titled, "Battery Including Carbon Foam Current Collectors." The
      invention is a battery comprised of an electrical current collector constructed
      of carbon or lightweight graphite foam. The patent does not reference any lead
      tin other alloy being deposited on the entire surface of the Firefly carbon
      or
      lightweight graphite foam. If Firefly is able to manufacture its current
      collectors in commercial quantities for use in batteries and if its uncoated
      current collector has the structural integrity and strength to withstand the
      physical forces involved in pasting and the physical force a battery undergoes
      while in use, then Firefly’s technology will directly compete with our
      technology.





In
      the
      future, because there are relatively low barriers to entry in the battery
      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
      and are capable of offering batteries which have multiple applications. It
      is
      also possible that new competitors or alliances among competitors may emerge
      and
      rapidly acquire significant market share. We also expect that competition will
      increase as a result of industry consolidations. Our competitors may be able
      to
      respond more quickly to new or emerging


-12-
 *Table
            of Contents*




technologies
      and changes in customer requirements, or to devote greater resources to the
      development, promotion and sale of their battery 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.





We
      intend
      to compete by offering 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 with insignificant temperature rise when charging as compared
      to
      a conventional lead-acid battery whose temperature rise under charge is
      significant.




The
      disadvantage our battery technology is that it will be more time consuming
      and
      expensive to build our current collectors than the time and expense for building
      typical lead mold current collectors for use in traditional lead acid batteries.
      Although we believe that we will compete favorably with respect to such factors,
      there can be no assurance that we can establish a competitive position against
      current and potential competitors, especially those with greater financial,
      marketing, service, and support, technical and other resources than us.





COSTS
      AND
      EFFECTS OF COMPLIANCE WITH ENVIROMENTAL LAWS





We
      purchased air agitation blowers and air handling ducts at a cost of
      approximately $7,500 for our lead tin plating system. The industrial space
      where
      we have located our pilot plant is equipped with all necessary equipment that
      will enable us to comply with the applicable federal, provincial and local
      environmental laws relating the operation of our pilot plant.





AUTOMATIC
      BATTERY BACKUP POWER SYSTEMS





ACQUISITION
      - SENTRY POWER TECHNOLOGY, INC.





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


-13-
 *Table
            of Contents*




in
      September 2006. The Power Shares were 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 was due and payable on May 15, 2007
      at
      which time CSI agreed to extend the due date on the Note to June 30, 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 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  -14-
 *Table
            of Contents*


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
      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


-15-
 *Table
            of Contents*




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
      nineteen 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.




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.  -16-
 *Table
            of Contents*




**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 has been delivered to a model
      condominium.




**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 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.  -17-
 *Table
            of Contents*





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.





SUBSEQUENT
      EVENTS CONCERNING SENTRY POWER TECHNOLOGY, INC.





On
      April
      11, 2006, our wholly owned subsidiary, Sentry Power Technology, Inc. (“SPT”) and
      we entered into an Asset Purchase Agreement (the “Agreement”) with Sentry Power,
      LLC (“Sentry LLC”). Pursuant to the terms of the Agreement, SPT acquired the
      assets of Sentry LLC for a total purchase price of $1,195,000 which was paid
      at
      closing by issuing $960,000 worth of our restricted common stock (the “Power
      Shares”). Additionally, SPT assumed $235,000 in debt presently owed by Sentry
      LLC to CSI Business Finance, Inc. (“CSI”).




With
      regard to the debt, SPT assumed the debt to CSI and executed a new security
      agreement and we guaranteed the note. At closing, we executed a stock pledge
      agreement granting CSI a first lien on all capital stock or other interest
      of
      SPT which we hold. Our agreement to guarantee the debt was conditioned upon
      and
      subject to the terms and conditions of a Guaranty Stock Pledge Agreement (the
      “Stock Pledge Agreement”) which was entered into at closing between Sentry LLC
      and us which provides for Sentry LLC to pledge as collateral for the Stock
      Pledge Agreement an amount equal to $250,000 of the Power Shares. As part of
      the
      transaction, SPT entered into employment agreements with Robert Magyar to serve
      as SPT’s President and Michael Julian to serve as SPT’s Vice President/Director
      of Operations. Following
      the execution of the Agreement, disagreements arose between us and SPT on one
      hand, and Mike Julian and Sentry LLC on the other hand, concerning certain
      matters relating to the transaction.




On
      May
      10, 2007, the Company, SPT, Mike Julian and Sentry LLC executed a Mutual Release
      (the “Sentry Release”) concerning the disagreements. Pursuant to the Sentry
      Release, Mike  -18-
 *Table
            of Contents*


Julian
      resigned as Vice President/Director of Operations of SPT and released all claims
      for further compensation under the Employment Agreement. Mike Julian and Sentry
      LLC released the Company and SPT from and with respect to any and all claims
      Julian or Sentry LLC has had or may have, arising out of or in any way connected
      with the CSI Note (as hereinafter defined), the Assignment, the Asset Purchase
      Agreement, the Employment Agreement, and the Stock Pledge Agreement. The Company
      and SPT released Mike Julian and Sentry LLC from and with respect to any and
      all
      claims the Company and SPT have had or may have, arising out of or in any way
      connected with the CSI Loan, the Assignment, the Asset Purchase Agreement,
      the
      Employment Agreement, and the Stock Pledge Agreement.




As
      part
      of the transaction, Sentry LLC agreed to execute and executed a Stock Pledge
      Agreement between Sentry LLC and CSI (the “Sentry-CSI Stock Pledge”). Pursuant
      the Sentry-CSI Stock Pledge, Sentry LLC pledged and delivered to CSI its
      6,075,949 shares of our common stock for the payment of our obligations
      under the that
      certain Secured Promissory Note dated April 7, 2006 (the “CSI Note”) issued
      in
      favor of CSI by Sentry LLC pursuant
      to which the Company, as successor-in-interest to Sentry LLC, has promised
      to
      pay the principal sum of $235,000 and the obligations of the Company under
      that
      certain that certain Secured Promissory Note dated January 31, 2007 issued
      in
      favor of CSI, pursuant
      to which the Company promised to pay the principal sum of $165,000 to CSI.




On
      May
      10, 2007, the Company, SPT, and Robert Magyar executed a Mutual Release
      concerning any and all claims they had or may have against each other arising
      out of or in any way connected with the CSI Note and the Asset Purchase
      Agreement.




On
      May
      10, 2007 the Company and SPT executed an Amendment to the May 1, 2006 Employment
      Agreement of Robert Magyar pursuant to which Robert Magyar released any and
      all
      claims he may have to Power Technology, Inc. Share Certificates #10137, #10138,
      and #10156 in the name of Sentry Power Systems LLC, evidencing ownership of
      6,075,949 shares of common stock. We agreed to Issue to Robert Magyar 500,000
      shares of our restricted common stock.





With
      regard to the CSI debt, SPT assumed the $235,000 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 was due and payable on May
      15,
      2007 at which time CSI agreed to extend the due date on the Note to June 30,
      2007.





PIPELINE
      CONNECTION TECHNOLOGY





Although
      we do not have any current plans to pursue this area of business, we own the
      rights to U.S. Patent 5,442,846 which is titled "Procedure and Apparatus for
      Cold Joining of Metallic Pipes." We have conducted research and development
      operations regarding our patented pipeline connection technology. We have
      developing equipment designed to join large diameter pipe utilizing magnetic
      pulse methods, a cold form method joining a metal sleeve around the ends of
      two
      abutting pipes. A hinged magnetic work coil developed by us is clamped around
      the sleeve joining two pipes to produce a ringed shaped crimping force forcing
      a
      uniform joint with uniform stress distributions. The pipes may have annular
      grooved ends, grooved to approximately 1/3 of its depth, to be gripped by the
      grooves of the sleeve. A pressure sensitive adhesive may be applied to the pipe
      ends to improve the performance and seal of the splice. When the magnetic pulse
      is applied by the equipment, it instantly crushes the sleeve onto the  -19-
 *Table
            of Contents*


pipe
      and
      into the shallow grooves milled into the pipe ends, which improves its pullout
      resistance.





This
      pipeline connection technology is particularly useful for joining oil and gas
      pipelines, oil and gas well casings, and other large pipe connections such
      as
      those at refineries, chemical plants and other industrial operations. The cold
      magnetic impulse method creates a uniform joint connection between pipes. The
      magnetic impulse method also has the advantage that it can be performed in
      the
      field in any weather condition.





Our
      pipeline connection technology is based upon the principle that whenever a
      rapidly changing magnetic flux cuts across a conductive material, such as the
      grooved sleeve to be used in our design, a current is induced in the material.
      The current is proportional to the initial intensity and time rate of change
      of
      the magnetic flux. The induced current creates an associated magnetic field
      of
      such polarity as to oppose the magnetic field producing the current, creating
      very significant forces of repulsion. This effect is commonly called "Lenz's
      Law
      of Repulsion". This repulsion force of our work coil pinches the conductive
      sleeve around the pipes.





To
      commercialize the pipeline connection technology, we must complete the design
      of
      a modular clamp, a field fastening system, field power supply systems for
      onshore and offshore applications and a control unit. We have solicited and
      received a proposal to design, engineer and fabricate a prototype power supply
      system from IAP Research, Inc. (“IAP”), a product development engineering
      services firm that specializes in electromagnetic metal forming and innovative
      electrical and mechanical engineering solutions. The budget estimate for the
      IAP
      project is approximately $500,000.





Our
      pipeline connection technology will require additional development, design
      and
      engineering, fabrication of machinery, testing, and evaluation before a field
      unit capable of joining large diameter pipe can be manufactured and delivered
      to
      potential customers. We have not made the decision to discontinue our research
      and development activities regarding patented alloy sensor technology; however,
      during the year ended January 31, 2006, no research and development activities
      regarding patented alloy sensor technology were conducted, due to lack of
      funding and Management’s decision to concentrate primarily on developing our
      battery technology.





RESEARCH
      AND DEVELOPMENT




Mr.
      Joey
      Jung became Chief Technology Officer of Power Technology effective November
      26,
      2004. Mr. Jung is a co-inventor of our battery technology and is primarily
      responsible for our research and product development.





Prior
      to
      Mr. Jung’s employment, during the fiscal year beginning January 31, 2004, we
      curtailed our research and development activities due to a lack of funds. Prior
      to 2004, significant research and development activities had been performed
      by
      BC Research, Inc. for us relating to microstuctural and surface analyses and
      electrochemical testing of our device useful for detecting the presence of
      water
      in a fuel tank, an invention described in US Patents 4,107,797 and 4,595,916.
      As
      an employee of BC Research, Inc., Mr. Jung was personally involved in this
      research project.





We
      own
      the rights to U.S. Patent 6,060,198, which is titled "Electrochemical Battery
      Structure and Method." This patent covers the basic invention of a metal battery
      plate comprised of rigid  -20-
 *Table
            of Contents*


elongated
      tendrils that form a conductive structure with substantial additional surface
      area that is exposed to a battery. Prior to 2004, significant research and
      development activities had been performed by BC Research, Inc. for us to study
      the properties of reticulated lead structure and to optimize its performance.
      As
      an employee of BC Research, Inc., Mr. Jung was personally involved in this
      research project.





Prior
      to
      2004, significant research and development activities relating to a unique
      RVC
      foam current collector structure, which increases the electrochemically active
      surface area within the battery had been performed for us by BC Research, Inc.
      As an employee of BC Research, Inc., Mr. Jung was personally involved in this
      research, which resulted in filing a patent application and obtaining the rights
      to U.S. Patent Serial Number 7,060,391 B2 titled Current Collector Structure
      and
      Methods to Improve the Performance of a Lead-Acid Battery, which relates to
      a
      current collector for use in lead-acid batteries comprising a reticulated carbon
      substrate having circuitous pores and a layer of lead tin alloy applied to
      the
      reticulated carbon substrate. Mr. Jung is a co-inventor of this patented
      technology. .





Since
      Mr.
      Jung became an
      employee of Power Technology, he has been primarily responsible for research
      and
      product development. With the
      addition of Mr. Jung as an
      employee of Power Technology, research and development efforts have been
      directed to designing a pilot plant capable of manufacturing our current
      collectors in commercial quantities for use in lead acid batteries, developing
      various methods and processes to manufacture the current collectors for use
      in
      our batteries and improving the performance and expanding the capabilities
      of
      its prospective products. As an employee of Power Technology, Mr. Jung was
      personally involved in research and development, which resulted in the filing
      of U.S.
      Patent Application Serial Number 12/279,103
      titled Current Collector Structure and Methods to Improve the Performance of
      a
      Lead-Acid Battery, which relates to methods improving the performance,
      especially cycling performance, of batteries using current collector structures
      based on light-weight, porous, open pore, high specific surface area foam
      substrates at least partially coated with a metal alloy. Although we expect
      that
      certain of our products will be developed internally, we may, based on timing
      and cost considerations, acquire technology and products from third parties
      or
      retain consultants.





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.





PROPRIETARY
      RIGHTS AND LICENSING





The
      Company's success is dependent upon proprietary technology. The Company will
      rely primarily on a combination of patents, trade secrets, confidentiality
      procedures and contractual provisions with its employees, consultants and
      business partners and in its license agreements to protect its proprietary
      rights. In addition to its patents, the Company seeks to protect its products,
      documentation and other written materials under trade secret and copyright
      laws,
      which afford only limited protection. Despite the Company's efforts to protect
      its proprietary rights, unauthorized parties may attempt to reverse engineer
      or
      otherwise copy aspects of the  -21-
 *Table
            of Contents*


Company's
      products or to obtain and use information that the Company regards as
      proprietary. While the Company is not aware that any of its products infringe
      upon the proprietary rights of third parties, there can be no assurance that
      third parties will not claim infringement by the Company with respect to current
      or future products. The Company owns the rights to U.S. Patent 6,060,198, which
      is titled "Electrochemical Battery Structure and Method." Patent 6,060,198
      was
      filed on May 29, 1998, was issued on May 9, 2000 and provides patent protection
      until May 28, 2018. This patent covers the basic invention of a metal battery
      plate comprised of rigid elongated tendrils that form a conductive structure
      with substantial additional surface area that is exposed to a battery. Thus,
      battery performance is markedly improved since a battery's capacity to deliver
      electrical current is a straight-line function of the amount of plate surface
      area in contact with the battery paste. We
      own
      the rights to U.S. Patent Serial Number 7,060,391 B2 titled Current Collector
      Structure and Methods to Improve the Performance of a Lead-Acid Battery, which
      relates to a current collector for use in lead-acid batteries comprising a
      reticulated carbon substrate having circuitous pores and a layer of lead tin
      alloy applied to the reticulated carbon substrate. This patent was issued on
      June 13, 2006 and will provide patent protection until March 25, 2024. We
      consider the rights to this Patent Application to be our core technology. We
      also
      own the rights to U.S. Patent Application Serial Number 12/279,103 titled
      Current Collector Structure and Methods to Improve the Performance of a
      Lead-Acid Battery, which relates to methods improving the performance,
      especially cycling performance, of batteries using current collector structures
      based on light-weight, porous, open pore, high specific surface area foam
      substrates at least partially coated with a metal alloy.





We
      also
      own the rights to national patent applications deriving from International
      Patent Application Number PCT/US02/30607 filed September 25, 2002 at the World
      Intellectual Property Organization under the Patent Cooperation Treaty, titled
      Current Collector Structure and Methods to Improve the Performance of a
      Lead-Acid Battery. This patent application offers improved battery technology
      by
      disclosing a vitreous carbon substrate coated with a metallic alloy as a
      substitute for the porous metal battery plate, thereby reducing a battery's
      weight and improving its cycle life. Power Technology has filed patent
      applications on the technology in strategic locations that include the United
      States, Canada, Japan, China, Taiwan, and Australia and has also filed a
      European regional patent application for the same technology. In addition,
      we
      own the rights to U.S. Patent Application Serial Number 11/048,104 titled Method
      of Manufacture of a Battery and Current Collector, which covers an improved
      process of manufacturing a battery with a vitreous carbon substrate. We own
      the
      rights to U.S. Patent 5,442,846 which is titled "Procedure and Apparatus for
      Cold Joining of Metallic Pipes." Patent 5,442,846 was filed on September 23,
      1993, was issued on August 22, 1995, and provides patent protection until
      September 22, 2013.





EMPLOYEES





As
      of May
      31, 2007, we had three (3) full-time employees, one of whom was engaged in
      product research and development. None of our employees is represented by a
      labor union with respect to his or her employment. We have experienced no
      organized work stoppages and we believe our relationship with our employees
      is
      good. Management believes that our future success will also depend to a
      significant extent upon its ability to attract, train and retain highly skilled
      technical, management, sales, marketing and consulting personnel. Competition
      for such personnel in the industry in the United States is intense. There can
      be
      no assurance that we will be successful in attracting or retaining such
      personnel and the failure to attract or retain such personnel could have a
      material adverse effect on our business or results of operations.


-22-
 *Table
            of Contents*




MEDIA
      CAMPAIGN




On
      February 1, 2005, we entered into an agreement with Clearvision, Inc. ("TVA")
      a
      full service media production and placement company to develop and launch a
      national media campaign to focus on building name brand awareness in the
      business community for our battery technology. TVA guaranteed us a minimum
      of 24
      live or pre-recorded nationally televised interviews during the course of the
      contract. Since November of 2005 our president had 20 Radio Talk show interviews
      concerning our company and its technology. TVA produced a one half hour
      exclusive television special, a video news release, a corporate video, a
      tradeshow loop presentation, internet streaming video and newspaper features.
      Since November 2005, the half hour video has had over 1,500 airings in the
      top
      50 markets on various national and local cable TV, satellite TV, and broadcast
      affiliates throughout the U.S. and Canada.





CONSULTING
      AGREEMENTS





On
      April
      19, 2004, we entered into a consulting agreement with SeaWay Trading, Inc.
      for a
      period of two years with a monthly payment to Seaway of $15,000. SeaWay’s
      obligations included using reasonable and best efforts to organize marketing
      programs via strategic alliances and to assist in protecting the proprietary
      technology held by us and identify and qualify international candidates for
      the
      marketing of our products. The consulting services included efforts by Seaway
      to
      arrange strategic alliances on our behalf with Oriental and Motolite
      Corporation, (“OMC”), the largest battery manufacturer in the Philippines and
      Southeast Asia and its United States subsidiary, Ramcar Batteries, Inc., which
      operates a battery manufacturing plant in California. Discussions and meetings
      between our management and OMC and Ramcar representatives were arranged to
      explore a licensing and royalty agreement by which OMC and Ramcar would
      manufacture our batteries. Ramcar personnel met with our management at Ramcar’s
      manufacturing facility to provide advice concerning the design of manufacturing
      equipment and technical issues relating to industry practices in the manufacture
      of prototype batteries and regular production batteries. Seaway also provided
      consulting services to assist us in protecting our proprietary technology in
      China and Japan. In May 2004, we issued 5,000,000 shares of our common stock
      as
      payment of twelve monthly payments due SeaWay Trading, Inc. On August 18, 2004,
      we entered into an amendment to the consulting agreement, pursuant to which
      we
      issued 5,000,000 shares of our common stock as full and final payments of all
      monthly fees and benefits due SeaWay for services rendered and to be rendered
      pursuant to the two year contract.





In
      July
      2005, we entered into a contract with Princeton Research, Inc. (“PRI”) by which
      PRI agreed to perform due diligence review of the Company, prepare analytical
      reports and perform investor relations for us for the period from July 1, 2005
      through June 30, 2006. We agreed to pay to PRI as its fee and as consideration
      for services provided, $2,500 per moth. The fees paid to PRI pursuant to this
      agreement were paid by the issuance of 500,000 shares of our restricted common
      stock.





On
      February 10, 2006, upon the expiration of his previous consulting agreement,
      we
      entered into a new consulting contract with Mr. Timothy J. Connolly to provide
      general business strategic consulting and management advisory services for
      the
      period January 1, 2006 through December 31, 2006. Mr. Connolly agreed to provide
      three eight-hour workdays per month of general management strategic consulting
      services, including: advising on corporate structure; advising  -23-
 *Table
            of Contents*


on
      marketing and press releases; developing strategic alliances; advising on
      and assistance with negotiating licensing agreements; advising on and assisting
      with obtaining patents; implementation of financial systems, structures and
      controls; retaining of appropriate executive, legal and accounting services;
      consulting on matters with our board of directors, including assisting the
      board
      of directors in developing policies and procedures and assisting the board
      of
      directors in mergers, acquisitions, and other business combinations. Mr.
      Connolly agreed to provide office space, a conference room, telecommunication
      equipment; secure high speed internet access, computer equipment, copying
      equipment, a receptionist and clerical assistance for our use during the term
      of
      the agreement at 109 North Post Oak Place, Suite 422, Houston, Texas 77024.
      We
      agreed to pay Mr. Connolly the sum of $50,000 cash, plus $6,000 per month,
      paid
      quarterly. These monthly payments will be made in cash for a period of 12 months
      or, at our option, the fees paid shall be paid in shares of our common stock
      at
      the lower of $.06 per share or 80% of the highest closing bid price per share
      the common stock as reported by Bloomberg, LP on the day prior to the date
      the
      payment is due. We also agreed to pay Mr. Connolly an advisory fee equal to
      5%
      of the total transaction value of any acquisition, merger, or debt financing
      which is consummated during the term of the agreement. We granted Mr. Connolly
      fully vested options for the right to purchase on demand, for one year, up
      to
      5,000,000 shares of our common stock at the lower of $.06 per share or 80%
      of
      the highest closing bid price per share for our common stock as reported by
      Bloomberg, LP on the day prior to the notice by Mr. Connolly of his intent
      to
      exercise his option rights. All the shares issued and the shares underlying
      the
      options were registered by us under Form S-8 on February 17, 2006. On February
      21, 2006, we amended the consulting agreement with Mr. Connolly to provide
      for
      payment and options at $0.06 per share with no floating feature. On March 2,
      2006, the Board of Directors decided to prepay the entire fee owed to Mr.
      Connolly under the consulting agreement by issuing 1,200,000 shares of our
      common stock. Pursuant to the terms of the consulting agreement, Mr. Connolly
      will not own more than 4.99% of Power Technology at any time, unless mutually
      agreed by Mr. Connolly and the Company.




On
      February 10, 2006, we entered into a consulting contract with Yoshi Yamanashi
      (“Yamanashi”) to provide general business strategic consulting and management
      advisory services for the two year period of January 1, 2006 through December
      31, 2007. The services provide by Yamanashi will include: advising on and
      assisting with our marketing, sales, licensing and general business practices
      in
      Japan; developing strategic alliances in Japan; arranging and facilitating
      communications between us and Japanese companies which may wish to purchase,
      license, or manufacture our products; advising on and assisting with negotiating
      licensing agreements; advising on and assisting with retaining of appropriate
      legal and accounting services in Japan; advising and assisting us with
      compliance with Japanese business customs, practices, laws and regulations;
      and
      performing such other duties mutually agreed upon. We will pay Yamanashi a
      commission of 10% of the total net licensing fee we receive from those companies
      to whom we are introduced by Yamanashi. We will also pay Yamanashi a commission
      of 5% of the net royalties actually received by us from those companies, for
      our
      products manufactured by those companies, for the first three years of the
      royalty agreement. Yamanashi shall not seek or accept any commission, payment
      or
      compensation directly or indirectly from any Japanese licensees and companies
      with whom we contract and Yamanashi’s sole compensation for consulting with us
      and assisting us in arranging contracts with Japanese companies will be the
      consideration paid to Yamanashi by us. Yamanashi will pay all his own out of
      pocket expenses, including travel, entertainment, and communications.  -24-
 *Table
            of Contents*


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.
      Mr. McCormick has fifteen years of experience in supervising the manufacture
      of
      RVC foam. Mr. McCormick agreed to provide us with the necessary technical
      information and training to enable us to manufacture RVC. Using Mr. McCormick’s
      services, we acquired all equipment, supplies, materials, chemicals,
      instruments, utilities and machinery that are required for the production of
      RVC. Mr. McCormick provided us a manufacturing procedures manual describing
      the
      process we utilized to manufacture RVC that meets our specifications for current
      collectors. Mr. McCormick 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 successfully manufactured RVC that meets our specifications
      in billets in a batch process. The manufacturing process and equipment we
      installed is manual rather than automated but we believe it 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. We agreed to pay Mr. McCormick an initial payment of
      $15,000, $34 per hour for the time he spends on the project, and an additional
      $15,000 upon the completion of all services required to complete the
      project.





On
      February 27, 2007, we entered into a new consulting contract with Mr. Timothy
      J.
      Connolly to provide general business strategic consulting and management
      advisory services for the period February 1, 2007 January 31, 2007. Mr. Connolly
      agreed to provide three eight-hour workdays per month of general management
      strategic consulting services, including but not limited to: advising on
      corporate structure; advising on marketing and press releases; developing
      strategic alliances; advising on and assistance with negotiating licensing
      agreements; advising on and assisting with obtaining patents; implementation
      of
      financial systems, structures and controls and providing bookkeeping services
      of
      up to eight hours per month which shall include entry of data in QuickBooks
      Financial Software format; consulting on matters of the board of directors
      of
      the Company, including but not limited to assisting the board of directors
      in
      developing policies and procedures; and assisting the board of directors of
      the
      Company in mergers, acquisitions, and other business combinations. We agreed
      to
      pay Mr. Connolly $6,100 per month for the first three months of the agreement
      and $5,000 per month for the next nine months of the agreement. These monthly
      payments were to be made in cash for a period of 12 months or, at our option,
      the fees paid shall be paid in shares of our common stock at no higher than
      the
      highest closing bid price per share the common stock of the Company, as reported
      by Bloomberg, LP, on the last trading day prior to the date the payment is
      due
      on a quarterly basis. We also agreed to pay Mr. Connolly an advisory fee equal
      to 5% of the total transaction value of any acquisition, merger, or debt
      financing which is originated by him or on which he is specifically requested
      by
      the Company perform services. We granted Mr. Connolly fully vested options
      for
      the right to purchase on demand, for fourteen months, up to 5,000,000 shares
      of
      our common stock at the price of $.04 per share. The shares underlying the
      options were registered by us under Form S-8 on April 2, 2007. On March 2,
      2006,
      the Board of Directors decided to prepay the entire fee owed to Mr. Connolly
      under the consulting agreement by issuing 1,406,667 shares of our common stock.
      Pursuant to the terms of the consulting agreement, Mr. Connolly will not own
      more than 4.99% of Power Technology at any time, unless mutually agreed by
      Mr.
      Connolly and the Company.





On
      April
      1, 2007, we entered into a contract with Princeton Research, Inc. (“PRI”) by
      which PRI agreed to perform due diligence review of the Company, prepare
      analytical reports and perform  -25-
 *Table
            of Contents*


investor
      relations for us for the period from April 1, 2007 through September 30, 2006.
      We agreed to pay to PRI as its fee and as consideration for services provided,
      $2,500 per moth. The fees paid to PRI pursuant to this agreement were paid
      by
      the issuance of 300,000 shares of our restricted common stock.





**FORWARD-LOOKING
      STATEMENTS**





This
      Form
      10K-SB contains forward-looking statements. These forward-looking statements
      are
      not historical facts but rather are based on current expectations, estimates
      and
      projections about our industry, our beliefs and our assumptions. Words such
      as
      "anticipates", "intends", "plans", "will", "believes", "seeks", and "estimates",
      and variations of these words and similar expressions, are intended to identify
      forward-looking statements. These statements are not guarantees of future
      performance and are subject to risks, uncertainties and other factors, some
      of
      which are beyond our control, are difficult to predict and could cause actual
      results to differ materially from those expressed, implied or forecasted in
      the
      forward-looking statements. In addition, the forward-looking events discussed
      in
      this Form 10-KSB might not occur. These risks and uncertainties include, among
      others, those described in "Risk Factors" and elsewhere in this Form 10-KSB.
      You
      are cautioned not to place under reliance on these forward-looking statements,
      which reflect our management's view only as of the date of this Form 10-KSB.
      Except as required by law, the Company undertakes no obligation to update any
      forward-looking statement, whether as a result of new information, future events
      or otherwise. The reader is cautioned not to place undue reliance on any such
      statements, each of which speaks only as of the date made. Such statements
      are
      subject to certain risks and uncertainties, including but not limited to our
      history of losses, our limited operating history, our need for additional
      financing, rapid technological change, and an uncertain market, that could
      cause
      actual results to differ materially from historical earnings and those presently
      anticipated or projected. Factors that may cause actual results to differ
      materially from those contemplated by such forward-looking statements include,
      among others, the factors described below. The Company undertakes no obligation
      to release publicly revisions made to any forward-looking statements to reflect
      events or circumstances occurring after the date of such statements. All written
      and oral forward-looking statements made after the date of this Form 10-KSB,
      our
      annual report and/or attributable to us or persons acting on our behalf are
      expressly qualified in their entirety by this discussion.




**RISK
      FACTORS**





WE
      HAVE
      EXPERIENCED RECENT SUBSTANTIAL OPERATING LOSSES AND MAY INCUR ADDITIONAL
      OPERATING LOSSES IN THE FUTURE.





We
      have
      incurred operating and net losses and negative cash flow from operations since
      our inception. For the years ended January 31, 2007 and 20065, we had net losses
      of $1,908,959
      and $3,245,966,
      respectively. As of the fiscal year ending January 31, 2007, we had an
      accumulated deficit of $16,678,075.
      In the future, we may continue to incur operating and net losses and negative
      cash flow from operations, due in part to anticipated increases in expenses
      for
      research and product development, the acquisition of capital assets,
      acquisitions of complementary businesses and technologies and expansion of
      our
      sales and marketing capabilities. We may not be able to achieve or maintain
      profitability. Moreover, if we do achieve profitability, the level of any
      profitability cannot be predicted and may vary significantly from quarter to
      quarter. In the event we are unable to increase our gross margins, reduce our
      costs and/or generate sufficient  -26-
 *Table
            of Contents*


additional
      revenues to offset our increased costs, we may continue to sustain losses and
      our business plan and financial condition will be materially and adversely
      affected.





OUR
      LIMITED OPERATING HISTORY OF PRODUCING BATTERIES MAKES AN EVALUATION OF US
      AND
      OUR FUTURE EXTREMELY DIFFICULT, AND PROFITS ARE NOT ASSURED.





In
      view
      of our limited operating history of producing batteries, you may have difficulty
      in evaluating us and our business and prospects. You must consider our business
      and prospects in light of the risks, expenses and difficulties frequently
      encountered by companies in their early stage of development. For our business
      plan to succeed, we must successfully undertake most of the following
      activities:





*
            Comply
                with applicable laws and
                regulations;


*
            Identify
                and enter into binding agreements with suitable joint venture partners
                for
                our future projects;


*
            Raise
                a sufficient amount of funds to continue our research and development
                program;


*
            Implement
                and successfully execute our business strategy;


*
            Respond
                to competitive developments and market changes;
                and


*
            Attract,
                retain and motivate qualified
                personnel.





There
      can
      be no assurance that we will be successful in undertaking any or all of such
      activities. Our failure to undertake successfully most, if not all, of the
      activities described above could materially and adversely affect our business,
      prospects, financial condition and results of operations. In addition, there
      can
      be no assurance that our research and production activities will produce
      commercially viable products, if any at all. There can be no assurance that
      sales of our products will ever generate significant revenues, that we will
      ever
      generate additional positive cash flow from our operations or that we will
      be
      able to achieve or sustain profitability in any future period.





SHAREHOLDERS
      COULD INCUR NEGATIVE IMPACT DUE TO THE AVAILABILITY OF RESALE OF A SIGNIFICANT
      PERCENTAGE OF OUR OUTSTANDING SHARES OF COMMON STOCK.





As
      of May
      31, 2007, there were 161,903,230
      shares of our common stock outstanding. Of these shares, approximately
      48,583,030 shares of our common stock were restricted, however, these shares
      will become eligible to be sold pursuant Rule 144 of the Securities Act of
      1933,
      as amended (the “Securities Act”). However, 33,220,663 of these shares of common
      stock are subject to lock up agreements with varying termination dates. In
      the
      event that a substantial number of these shares are offered for sale in the
      market by several holders, the market price of our common stock could be
      adversely affected. No prediction can be made as to the effect, if any, that
      sales of shares of our common stock or the availability of such shares for
      sale
      will have on the market prices prevailing from time to time. Nevertheless,
      the
      possibility that substantial amounts of common stock may be sold in the public
      market would likely have an adverse effect on prevailing market prices for
      the
      common stock.


-27-
 *Table
          of Contents*




FUTURE
      SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.




We
      have
      entered into material agreements with Cornell Capital Partners, L.P. described
      herein (Item 6-Plan of Operation). As a result of these agreements with Cornell,
      approximately 165,732,318
      shares of our common stock that were
      issued to selling stockholders or that may be issued to Cornell upon the
      conversion of warrants or the Convertible Debenture may depress our stock price.
      The Convertible Debenture provides that the number of shares of our common
      stock
      that may be issued by us or acquired by Cornell shall not exceed 4.99% of the
      total number of then issued and outstanding shares of our common stock.





As
      of May
      1, 2007, there were 48,583,030 shares of common stock then outstanding as
      "restricted securities" as defined in Rule 144 which will be available for
      sale
      in the future. These shares may be sold in the future without registration
      under
      the Securities Act to the extent permitted by Rule 144 or other exemptions
      under
      the Securities Act.





As
      of May
      31, 2007, we had 11,060,483 shares of common stock which remain to be issued
      under certain stock, SAR and stock option plans which have been registered
      on
      Form S-8 filings on April 2, 2007. Of those shares, 7,000,000 shares have been
      reserved for issuance upon the exercise of stock options which have been
      granted. These 11,060,483 shares can
      be
      sold in the public market upon issuance, subject to restrictions under the
      securities laws applicable to resales by affiliates.





EXISTING
      SHAREHOLDERS WILL EXPERIENCE SIGNIFICANT DILUTION FROM SALES OF OUR COMMON
      STOCK
      UNDER EQUITY FINANCING AND COULD RESULT IN A CHANGE OF CONTROL.





The
      issuance of our common stock pursuant to the Convertible Debenture and Warrants
      will dilute the percentage of the ownership by the current shareholders. We
      may
      have to issue an additional 165,732,318 shares
      of
      our common stock under the Convertible Debentures with Cornell Capital Partner,
      LP (as discussed herein). Upon issuance, these 165,732,318 shares
      of
      common stock, together with the common stock presently held by Cornell would
      represent approximately 52.34%
      of our then outstanding common stock. As a result, our net income per share
      could decrease in future periods, and the market price of our common stock
      could
      decline. If our stock price is lower, then our existing stockholders would
      experience greater dilution. We cannot predict the actual number of shares
      of
      common stock that may be issued pursuant to any other future equity financing
      transaction, in part, because the purchase price of the shares will fluctuate
      based on prevailing market conditions and we do not know the exact amount of
      funds we will need. A
      change
      in control of the Company could occur as the result of a dilution of the
      percentage of the ownership of our stock by the existing largest shareholders.





CORNELL
      WILL PAY LESS THAN THE THEN PREVAILING MARKET PRICE AND WILL HAVE AN INCENTIVE
      TO SELL ITS SHARES.





Cornell
      may purchase shares of our common stock pursuant to the Warrants and Convertible
      Debentures at a purchase price that is less than the then-prevailing market
      price of our common stock. Cornell will have an incentive to sell any shares
      of
      our common stock that it purchases to realize a gain on the difference between
      the purchase price and the then-prevailing market price of our common stock.
      To
      the extent Cornell sells its common stock, the common stock price may decrease
      due to the additional shares in the market. This could allow Cornell to sell
      greater amounts of common stock, the sales of which would further depress the
      stock price.


-28-
 *Table
            of Contents*




CERTAIN
      SECURITY HOLDERS HAVE PAID LESS THAN THE THEN PREVAILING MARKET PRICE AND WILL
      HAVE AN INCENTIVE TO SELL THEIR SHARES.





During
      the past two fiscal years, we entered contracts for services with consultants
      which gave us the option to pay for those services in cash or to issue shares
      of
      our common stock for those services at prices that were less than the
      then-prevailing market price of our common stock. In payment for those services,
      we issued 6,264,967 shares of our common stock and at the time we agreed to
      the
      conversion rate, the discount to the then prevailing market price ranged up
      to a
      33% discount. As part of the contract for services with consultants, we also
      issued options to purchase up to 10,000,000 shares of our common stock at prices
      that were less than the then-prevailing market price of our common stock
      and the discount for these options to the then prevailing market price
      ranged up to a 33% discount. In the future, if we do not have sufficient cash
      to
      pay for services we require, we may pay for those services by issuing shares
      of
      our common stock at prices that may be less than the then-prevailing market
      price of our common stock and we may also issue options to purchase shares
      of
      our common stock at prices that may be less than the then-prevailing market
      price of our common stock.. These security holders will have an incentive to
      sell shares and/or exercise their options to purchase shares of our common
      stock
      to realize a gain on the difference between the purchase/exercise price and
      the
      then-prevailing market price of our common stock. To the extent these security
      holders sell their common stock, the price of our common stock per share may
      decrease due to the additional shares in the market. This could allow these
      security holders to sell greater amounts of common stock, the sales of which
      could depress our stock price. The issuance of our common stock at prices less
      than the then prevailing market could result in dilution to our existing
      shareholders.





OUR
      COMMON STOCK PRICE
      MAY BE AFFECTED BY LIMITED TRADING VOLUME AND MAY FLUCTUATE CONSIDERABLY.





Our
      common stock is currently traded on the Over-the-Counter Bulletin Board. Prior
      to this offering, there has been a limited public market for our common stock
      and there can be no assurance that an active trading market for our common
      stock
      will develop. As a result, this could adversely affect our shareholders' ability
      to sell our common stock in short time periods, or possibly at all. Our common
      stock is thinly traded compared to larger, more widely known companies in our
      industry. Thinly traded common stock can be more volatile than common stock
      traded in an active public market. Our common stock has experienced, and is
      likely to experience in the future, significant price and volume fluctuations,
      which could adversely affect the market price of our common stock without regard
      to our operating performance. In addition, we believe that factors such as
      quarterly fluctuations in our financial results and changes in the overall
      economy or the condition of the financial markets could cause the price of
      our
      common stock to fluctuate substantially.





THE
      SALE
      OF MATERIAL AMOUNTS OF COMMON STOCK COULD ENCOURAGE SHORT SALES BY THIRD
      PARTIES.





Significant
      downward pressure on our stock price caused by the sale of a significant number
      of shares underlying the debentures could cause our stock price to decline,
      thus
      allowing short sellers of our stock an opportunity to take advantage of any
      decrease in the value of our stock. Short selling is where a person sells shares
      of stock not yet owned by that person in the anticipation of being able to
      buy
      the stock at a later date at a lower price per share. The presence of short
      sellers in our common stock may further depress the price of our common
      stock.


-29-
 *Table
            of Contents*




THE
      TRADING PRICE OF OUR COMMON STOCK ENTAILS ADDITIONAL REGULATORY REQUIREMENTS,
      WHICH MAY NEGATIVELY AFFECT SUCH TRADING PRICE.





The
      trading price of our common stock is below $5.00 per share. As a result of
      this
      price level, trading in our common stock would be subject to the requirements
      of
      certain rules promulgated under the Securities Exchange Act of 1934, as amended
      (the “Exchange Act”). These rules require additional disclosure by
      broker-dealers in connection with any trades generally involving any non-NASDAQ
      equity security that has a market price of less than $5.00 per share, subject
      to
      certain exceptions. Such rules require the delivery, before any penny stock
      transaction, of a disclosure schedule explaining the penny stock market and
      the
      risks associated therewith, and impose various sales practice requirements
      on
      broker-dealers who sell penny stocks to persons other than established customers
      and accredited investors (generally institutions). For these types of
      transactions, the broker-dealer must determine the suitability of the penny
      stock for the purchaser and receive the purchaser's written consent to the
      transaction before sale. The additional burdens imposed upon broker-dealers
      by
      such requirements may discourage broker-dealers from effecting transactions
      in
      our common stock. As a consequence, the market liquidity of our common stock
      could be severely affected or limited by these regulatory
      requirements.





IN
      THE
      FUTURE, WE WILL INCUR SIGNIFICANT INCREASED COSTS AS A RESULT OF OPERATING
      AS A
      PUBLIC COMPANY, AND OUR MANAGEMENT WILL BE REQUIRED TO DEVOTE SUBSTANTIAL TIME
      TO NEW COMPLIANCE INITIATIVES.





Upon
      the
      effectiveness of the registration statement covering the resale of shares,
      we
      will incur significant legal, accounting and other expenses as a fully-reporting
      public company. In addition, the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley
      Act”), as well as new rules subsequently implemented by the SEC, have imposed
      various new requirements on public companies, including requiring changes in
      corporate governance practices. Our management and other personnel will need
      to
      devote a substantial amount of time to these new compliance initiatives.
      Moreover, these rules and regulations will increase our legal and financial
      compliance costs and will make some activities more time-consuming and costly.
      For example, we expect these new rules and regulations to make it more difficult
      and more expensive for us to obtain director and officer liability insurance,
      and we may be required to incur substantial costs to maintain the same or
      similar coverage.





In
      addition, the Sarbanes-Oxley Act requires, among other things, that we maintain
      effective internal controls for financial reporting and disclosure controls
      and
      procedures. In particular, commencing in fiscal 2008, we must perform system
      and
      process evaluation and testing on the effectiveness of our internal controls
      over financial reporting as required by Section 404 of the Sarbanes-Oxley Act.
      Subsequently, in fiscal 2009, our independent registered public accounting
      firm
      will report on the effectiveness of our internal controls over financial
      reporting, as required by Section 404 of the Sarbanes-Oxley Act. Our
      testing, or the subsequent testing by our independent registered public
      accounting firm, may reveal deficiencies in our internal controls over financial
      reporting that are deemed to be material weaknesses. Our compliance with
      Section 404 will require that we incur substantial accounting expense and
      expend significant management efforts. We currently do not have an internal
      audit group, and we will need to hire additional accounting and financial staff
      with appropriate public company experience and technical accounting knowledge.
      Moreover, if we are not able to comply with the requirements  -30-
 *Table
            of Contents*


of
      Section 404 in a timely manner, or if we or our independent registered
      public accounting firm identifies deficiencies in our internal controls over
      financial reporting that are deemed to be material weaknesses, the market price
      of our stock could decline, and we could
      be
      subject to sanctions or investigations by the SEC or other regulatory
      authorities, which would require additional financial and management
      resources.





IF
      OUR
      PRODUCTS AND SERVICES DO NOT BECOME WIDELY USED IN INDUSTRY, IT IS UNLIKELY
      THAT
      WE WILL BE PROFITABLE.





Compared
      to other technologies, our technologies are new and unproven. In addition,
      we
      have a very limited history of providing products and services. It is uncertain
      whether new customers, if any, will use these products and services. In order
      to
      be successful, our products and services must meet the requirements of the
      industry involved in each product, and we must convince potential customers
      to
      use our products and services instead of competing technologies. Market
      acceptance will depend on many factors, including our ability to: convince
      potential customers that our technologies are attractive alternatives to other
      technologies; manufacture products and conduct services in sufficient quantities
      with acceptable quality and at an acceptable cost; convince potential customers
      to purchase products and services from us rather than developing them
      internally; and place and service sufficient quantities of our products. Because
      of these and other factors, we can give no assurance that our products and
      services will gain market acceptance.





GOING
      CONCERN QUALIFICATION BY AUDITORS.





The
      accountants' reports of our independent certified public accountants for fiscal
      years ending January 31, 2007, 2006, and 2005 express a going concern
      qualification by the auditors. We have had recurring operating losses for the
      past several years which raise substantial doubts about our ability to continue
      as a going concern. See Independent Auditor's Report(s), Note 2 to the
      Consolidated Financial Statements of Power Technology, and Plan of Operation
      -
“Plan of Operation and Uncertainties". We had $23,097 revenue during our last
      fiscal year. We have no commercial battery product and have no customers who
      have agreed to purchase our battery products. We do not own all the equipment
      necessary to manufacture our products. Our success is dependent on us raising
      additional capital.





THE
      BATTERY INDUSTRY IS HIGHLY COMPETITIVE AND SUBJECT TO TECHNOLOGIGAL CHANGE
      AND
      WE MAY NOT HAVE THE RESOURCES NECESSARY TO COMPETE SUCCESSFULLY.





The
      market for our batteries and other proposed products is highly competitive,
      subject to rapid change and significantly affected by new product introductions
      and other market activities of industry participants. Our proposed battery
      products are targeted at an emerging market of electric powered automobiles
      and
      other vehicles, and our competitors offer a variety of products and services
      to
      address this market. Further, we currently face direct and indirect competition
      from traditional batteries.





The
      battery industry is mature, well-established and highly competitive. The
      industry is characterized by a few major domestic and foreign producers
      including 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  -31-
 *Table
            of Contents*


financial
      resources than us. Accordingly, our ability to succeed in this market depends
      upon its ability to demonstrate superior performance and cost attributes of
      our
      technology. Initially, we intend to concentrate our activities in the electric
      vehicle segment of the market with a view to demonstrating improved energy
      to
      weight and longer battery life in comparison to traditional lead-acid batteries.
      Our principal competitors in the electric vehicle market have directed their
      efforts to other battery types, such as nickel-cadmium, nickel-metal hydride,
      nickel-iron and sodium-sulfur batteries, rather than lead-acid formulations.
      However, at least one major automobile manufacturer and one major battery
      company are known to have research and development projects underway to develop
      lead-acid batteries for electric vehicles.





In
      the
      future, because there are relatively low barriers to entry in the battery
      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
      and are capable of offering batteries which have multiple applications. It
      is
      also possible that new competitors or alliances among competitors may emerge
      and
      rapidly acquire significant market share. We also expect that competition will
      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 battery products. Moreover, the battery business is characterized
      by rapid and continuous technological innovation. We anticipate that we will
      face increased competition in the future as new companies enter the market
      and
      advanced technologies become available. Our products, services and expertise
      may
      be rendered obsolete or uneconomical by technological advances or entirely
      different approaches developed by us or one or more of our competitors. For
      example, advances may render some of our existing approaches to our technologies
      obsolete. Additionally, the existing approaches of our competitors may be more
      effective than those we develop. As a result, we may not be able to compete
      successfully with existing or future competitors.




OUR
      SUCCESS DEPENDS ON PROPRIETARY TECHNOLOGY.




Our
      success is dependent upon proprietary technology. We intend to rely primarily
      on
      a combination of patents, trade secrets, confidentiality procedures and
      contractual provisions with our employees, consultants and business partners
      and
      in our license agreements to protect our proprietary rights. In addition to
      our
      patents, we seek to protect our products, documentation and other written
      materials under trade secret and copyright laws, which afford only limited
      protection. Despite our efforts to protect our proprietary rights, unauthorized
      parties may attempt to reverse engineer or otherwise copy aspects of our
      products or to obtain and use information that we regard as proprietary. We
      may
      not be able to protect our proprietary technology from infringement by third
      parties.





OUR
      SUCCESS WILL DEPEND ON OUR ABILITY TO ATTRACT AND RETAIN EXPERIENCED SCIENTISTS
      AND SALES PERSONNEL.





Our
      future success will depend to a significant extent on our ability to attract,
      retain and motivate highly skilled scientists and sales personnel. Our ability
      to enter into new engagements and provide additional services to customers
      depends, in large part, on our ability to hire and retain scientists with the
      skills necessary to keep pace with continuing changes in technology and
      sales


-32-
 *Table
            of Contents*




personnel
      who are highly motivated. Management believes that there is a shortage of,
      and
      significant competition for, scientists with the skills and experience in the
      sciences necessary to perform the services we offer. The scientists must have
      advanced degrees in Chemical Engineering with specialization in electrochemical
      engineering and knowledge of battery manufacturing. We compete with other
      contract research companies and academic institutions for new personnel. In
      addition, our inability to hire additional qualified personnel may require
      an
      increase in the workload for both existing and new personnel. Management
      believes that our present Vice President of Technology is qualified to keep
      pace
      with continuing changes in battery technology and to manage the engineering
      aspects of our business plan. However, we may not be successful in attracting
      new scientists or sales personnel or in retaining or motivating our existing
      personnel.





ITEM
      2. DESCRIPTION OF PROPERTIES





We
      are
      currently lease executive offices located at 7101 Highway 71 West, Suite 200,
      Austin Texas, 78735 pursuant to a lease agreement with Oak Hill Executive
      Suites. Pursuant to a lease which calls for monthly base rental of $690 per
      month, we have the use of the approximately 200 square feet of office space
      and
      also includes use of a conference room, telecommunication equipment; secure
      high
      speed internet access, copying equipment, a receptionist and clerical
      assistance. 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 a base rental of $2,951 per month. This space includes offices,
      laboratory, and our pilot plant facility. We believe that our current facilities
      are adequate for our needs through 2008, and that should it be needed, suitable
      additional or alternative space on commercially reasonable terms, as it becomes
      necessary.





ITEM
      3. LEGAL PROCEEDINGS





NONE





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





None
      during the Fiscal Year ending January 31, 2007. However, as previously disclosed
      in our Form 8-K, at a Special Meeting of Shareholders held on February 22,
      2007,
      our shareholders approved an Amendment to our Articles of Incorporation to
      increase the number of authorized shares of common stock from 100,000,000 to
      750,000,000 as approved by a shareholder vote of:





115,101,365
            
            VOTES
                FOR5,442,796
            
            VOTES
                AGAINST339,834
            
            ABSTAIN





On
      February 22, 2007, we filed an Amendment to our Articles of Incorporation with
      the Secretary of State of Nevada to reflect the approved increase in authorized
      shares.





Additionally,
      at the Special Meeting of Shareholders held February 22, 2007, our shareholders
      approved and ratified the issuance of the 49,391,694 excess shares issued by
      us
      since July 29, 2004, as approved by a shareholder vote of:





-33-
 *Table
          of Contents*




116,138,754
            
            VOTES
                FOR3,411,806
            
            VOTES
                AGAINST1,250,274
            
            ABSTAIN




PART
      II





ITEM
      5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
      EQUITY AND OTHER STOCKHOLDER MATTERS.





Market
      Information





Our common
      stock is traded on the OTC Bulletin Board under the symbol “PWTC.OB”. These
      over the counter market quotations may reflect inter-dealer prices, without
      retail mark-up, mark-down or commission and may not necessarily reflect actual
      transaction prices.





The
      following chart sets forth the high and low closing bid prices for each quarter
      for the last two fiscal years. Such prices represent quotations between dealers,
      without dealer markup, markdown or commissions, and may not represent actual
      transactions.





Quarter
            High
            LowQuarter
                ending 4/30/05
            $0.166
            $0.048Quarter
                ending 7/31/05
            0.08
            0.046Quarter
                ending 10/31/05
            0.10
            0.051Quarter
                ending 1/31/06
            0.105
            0.068Quarter
                ending 4/30/06
            0.175
            0.082Quarter
                ending 7/31/06
            0.165
            0.07Quarter
                ending 10/31/06
            0.095
            0.03Quarter
                ending 1/31/07
            0.075
            0.029Quarter
                ending 4/30/07
            0.075
            0.035




As
      of
June
      8, 2007, the closing price for shares of our common stock in the
      over-the-counter market, as reported by the Pink Sheets was $0.0145.





No
      prediction can be made as to the effect, if any, that future sales of shares
      of
      our common stock or the availability of our common stock for future sale will
      have on the market price of our common stock prevailing from time-to-time.
      The
      additional registration of our common stock and the sale of substantial amounts
      of our common stock in the public market could adversely affect the prevailing
      market price of our common stock.





When
      the
      trading price of the Company's common stock is below $5.00 per share, the common
      stock is considered to be "penny stocks" that are subject to rules promulgated
      by the Securities and Exchange Commission (Rule 15-1 through 15g-9) under the
      Securities Exchange Act of 1934. These rules impose significant requirements
      on
      brokers under these circumstances, including: (a) delivering to customers the
      Commission's standardized risk disclosure document; (b) providing customers
      with
      current bid and ask prices; (c) disclosing to customers the brokers-dealer's
      and
      sales representatives compensation; and (d) providing to customers monthly
      account statements.


-34-
 *Table
            of Contents*




Record
      Holders





As
      of May
      31, 2007, we had approximately 155 registered holders of our common stock,
      including shares held in street name. As of May 31, 2007, there were 161,903,230 shares
      of
      common stock issued and outstanding.





Dividends





There
      are
      no restrictions in our articles of incorporation or bylaws that prevent us
      from
      declaring dividends. The Nevada Revised Statutes, however, do prohibit us from
      declaring dividends where, after giving effect to the distribution of the
      dividend:




We
      would
      not be able to pay our debts as they become due in the usual course of business;
      or





Our
      total
      assets would be less than the sum of our total liabilities plus the amount
      that
      would be needed to satisfy the rights of stockholders who have preferential
      rights superior to those receiving the distribution.





We
      have
      not declared any dividends and we do not plan to declare any dividends in the
      foreseeable future. Our current policy is to retain any earnings in order to
      finance the expansion of our operations. Our Board of Directors will determine
      future declaration and payment of dividends, if any, in light of the
      then-current conditions they deem relevant and in accordance with the Nevada
      Revised Statutes.





REGISTRAR
      AND TRANSFER AGENT





The
      registrar and transfer agent of the Company is Pacific Stock Transfer Company,
      P.O. Box 93385, Las Vegas, Nevada 89193; telephone (702) 361-3033.





EQUITY
      COMPENSATION PLAN INFORMATION **(1)**





Plan
                category
            Number
                of securities to be issued upon exercise of outstanding options, warrants
                and rights
              
              (a)
            Weighted-average
                exercise price of outstanding options, warrants and rights
              
              (b)
            Number
                of securities remaining available for future issuance under equity
                compensation plans (excluding securities reflected in column
                (a))
              
              (c)Equity
                compensation plans approved by security holders
            1,000,000
            $0.005
            1,208,333Equity
                compensation plans not approved by security holders
            
            
            6,988,334Total
            2,000,000
            N/A
            8,196,667





**(1)**
            **As
                of January 31, 2007.**





We
      adopted the 2004-B Stock Option, SAR, and Stock Bonus Plan (the "2004 Plan")
      effective August 1, 2004, which authorized us to grant qualified and
      non-qualified stock options with, or


-35-
 *Table
          of Contents*


without
      stock appreciation rights and to grant stock bonuses to employees, non-employee
      directors, and consultants of Power Technology. There were 20,000,000 shares
      of
      our common stock available for grant to participants designated by the Stock
      Plan Committee under the 2004 Plan. As of January 31, 2007, 1,208,333 shares
      of
      common stock remain to be issued which are reserved for issuance upon exercise
      of options or stock bonuses granted or reserved for grant under the 2004 Plan.
      On March 22, 2007 we filed a post-effective
      amendment to the Plan registration statement to de-register any of the remaining
      shares of common stock that were registered but will not be issued in connection
      with the Registrant Statement. No further shares will be issued pursuant to
      the
      2004 Plan.





In
      July
      2005, we adopted the 2005 Stock Option, SAR and Stock Bonus Consultant Plan
      (the
“2005 Plan”) which authorized us to grant non-qualified stock options with or
      without stock appreciation rights and to grant stock bonuses to consultants
      of
      Power Technology. There were 5,000,000 shares of our common stock available
      for
      grant to participants designated by the Stock Plan Committee under the 2005
      Plan. As of January 31, 2007, there were 188,334 shares of our common stock
      remaining to be issued which are reserved for issuance upon the exercise of
      options or stock bonuses reserved for grant under the 2005 Plan. On March 22,
      2007 we filed a post-effective
      amendment to the Plan registration statement to de-register any of the remaining
      shares of common stock that were registered but will not be issued in connection
      with the Registrant Statement. No further shares will be issued pursuant to
      the
      2005 Plan.





On
      February 8, 2006 we adopted the 2006 Stock Option, SAR and Stock Bonus
      Consultant Plan , which authorized the Company to grant non-qualified stock
      options with or without stock appreciation rights, SAR's and stock bonuses
      to
      consultants of the Company. Under the plan, there were 13,000,000
      shares of our common stock available for grant to participants designated by
      the
      Stock Plan Committee. On February 17, 2006 the Company filed with the SEC a
      Form
      S-8 registration statement which registered these shares. On March 2, 2006,
      we issued 1,200,000 shares of our common stock to Timothy J. Connolly in
      pre-payment of his fee for consulting services. On February 21, 2006, the
      Company granted Timothy J. Connolly fully vested options for the right to
      purchase on demand, until February 10, 2007, up to 5,000,000 shares of our
      common stock at $.06 per share. Pursuant to this warrant, on April 11, 2006,
      Mr.
      Connolly purchased 1,700,000 shares of our common stock at $.06 per share.
      On
      April 26, 2006, Mr. Connolly purchased 1,666,667 shares of our common stock
      at
      $.06 per share. On May 18, 2006, Connolly purchased 1,633,333 shares of our
      common stock at $.06 per share. As of January 31, 2007, there were 6,800,000
      shares of our common stock remaining to be issued which are reserved for
      issuance upon the exercise of options or stock bonuses reserved for grant under
      the 2006 Plan. On March 22, 2007 we filed a post-effective
      amendment to the Plan registration statement to de-register any of the remaining
      shares of common stock that were registered but will not be issued in connection
      with the Registrant Statement. No further shares will be issued pursuant to
      the
      2006 Plan.





In
      March
      2003, we issued 500,000 warrants to purchase shares of our restricted common
      stock to F. Bryson Farrill and 500,000 warrants to purchase shares of our
      restricted common stock to Hugo P. Pomrehn and 500,000 warrants to purchase
      shares of our restricted stock to Lee P. Balak as Director Compensation. These
      warrants were exercisable at $0.06 per share and were scheduled to expire on
      April 22, 2006. On April 20, 2006, the holders of the warrants exercised the
      warrants in full.


-36-
 *Table
            of Contents*




Subsequent
      to the fiscal year ending January 31, 2007, on March 28, 2007, we adopted the
      2007 Stock Option, SAR and Stock Bonus Consultant Plan ,which authorized
      the Company to grant non-qualified stock options with or without stock
      appreciation rights, SAR's and stock bonuses to consultants of the Company.
      Under the plan, there were 15,000,000 shares of our common stock
      available for grant to participants designated by the Stock Plan Committee.
      On
      April 2, 2007 the Company filed with the SEC a Form S-8 registration statement
      which registered these shares. The Company granted Timothy J. Connolly fully
      vested options for the right to purchase on demand, until April 30, 2008, up
      to
      5,000,000 shares of our common stock at $.04 per share.





RECENT
      SALE OF UNREGISTERED SECURITIES





Set
      forth
      below is information regarding the issuance and sales of our securities without
      registration during our fiscal year ending January 31, 2007. Except as otherwise
      noted, all sales below were made in reliance on Section 4(2) of the Securities
      Act of 1933, as amended and no such sales involved the use of an underwriter
      and
      no commissions were paid in connection with the sale of any securities. No
      advertising or general solicitation was employed in offering the securities.
      In
      each instance, the offerings and sales were made to a limited number of persons,
      who were either (i) accredited investors, (ii) business associates of the
      Company (iii) employees of the Company, or (iv) executive officers or directors
      of the Company. In addition, the transfer of such securities was restricted
      by
      the Company in accordance with the requirements of the Act. Furthermore, all
      of
      the above-referenced persons were provided with access to our filings with
      the
      Securities and Exchange Commission.




**NONE**





ITEM
      6. PLAN OF OPERATION.





The
      following discussion of our financial condition and results of operations should
      be read in connection with our consolidated financial statements and notes
      thereto appearing elsewhere in this annual 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
      our management 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. Factors that could cause or contribute to differences between actual
      and projected results include, but are not limited to, the current lack of
      funding needed for working capital, debt repayment and capital investment,
      failure to attract management and staff, the inability to grow membership
      subscriptions, and lack of success in launching additional service offerings.
      Additional risk factors are disclosed elsewhere in this annual report.




Power
      Technology, Inc., a Nevada corporation, was incorporated on June 3, 1996. We
      are
      in the early stages of designing and producing our batteries and other products.
      We have produced prototype versions of our battery. We are preparing to produce
      additional 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  -37-
 *Table
            of Contents*


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.




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, we will incur a loss during our fiscal year ending January 31, 2008.





We
      believe that our cash needs will be satisfied from existing funds for the next
      one month. 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 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.





PILOT
      PLANT




We
      have
      designed and have partially constructed 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 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 our 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 $2,951 per month.  -38-
 *Table
            of Contents*


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.





We
      have
      completed the engineering, design and installation of equipment necessary to
      manufacture RVC plates. The consulting costs, equipment, and materials to
      manufacture RVC plates totaled 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. 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.
      Mr. McCormick has fifteen years of experience in supervising the manufacture
      of
      RVC foam. We have acquired all equipment, supplies, materials, chemicals,
      instruments, utilities and machinery that were required for the production
      of
      RVC. Mr. McCormick has provided us a manufacturing procedures manual describing
      the process we 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 successfully manufactured RVC that meets our
      specifications 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 and equipment we installed is manual rather than automated
      but we believe it 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.


-39-
 *Table
            of Contents*




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. Technic, Inc. is an engineering and manufacturing firm which
      specializes in designing and manufacturing electroplating equipment we purchased
      a lead tin plating system which 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
      electroplating plating system and air agitation equipment has been delivered
      and
      installed in 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
      nine additional plating stations, additional rectifiers, an automated hoist
      and
      a computer controlled, programmable, 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 operated
      the electroplating system and performed a series of test runs to deposit the
      lead tin alloy on RVC plates onto which the top frame and tab, bottom and side
      frames have been cast by our casting station and mold. Based on those test
      runs,
      we modified the equipment and following those modifications, during the month
      of
      December 2006 we have performed additional test runs and we believe we have
      developed the proper electrolysis bath chemistry and power settings to uniformly
      and consistently successfully deposit the lead tin alloy on our RVC current
      collectors.





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 designed
      and built 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 finally completed. The issues related to the successful commercial
      production of our current collectors and its battery include: whether  -40-
 *Table
            of Contents*


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. We began
      successfully manufacturing current collectors. During August of 2006 we began
      to
      successfully manufactured RVC. During October of 2006, we began to successfully
      cast and apply the top side and bottom frames to the hundreds of RVC plates
      we
      had manufactured and we have successfully electroplated the lead-tin alloy
      onto
      those RVC plates uniformly. We used some of these plates to manufacture
      prototype batteries.





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, 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





Pursuant
      to a Technology Development and Support Agreement, during 2001 scientists
      employed by BC Research, Inc. (“BCR”) manufactured four prototype batteries for
      us that included current collectors composed of RVC plates on which a lead-tin
      alloy had been deposited by electroplating. Two prototypes were 50 ampere hour
      capacity, 12 volt batteries that were 4.5 inches wide, 6.5 inches long, 6 inches
      high and weighed 11 Kilograms. These two prototype batteries each took
      approximately 21 man hours to construct. One prototype was a 75 ampere hour
      12
      volt battery that was 5 inches wide, 8.5 inches long, 6 inches high, weighed
      14
      Kilograms and it took approximately 25 man hours to construct. One prototype
      was
      a 310 ampere hour, 2 volt battery that was 5.7 inches wide, 8.5 inches long,
      6
      inches high, weighed 14 Kilograms and it took approximately 32 man hours to
      construct. In the fall of 2005, we manufactured a 30 amp hour, 12 volt prototype
      battery that was 5 inches wide, 7.5 inches long, 6 inches high, weighed 9.5
      Kilograms.





In
      February of 2007 we applied battery paste to positive and negative current
      collectors we had manufactured and electroplated in our pilot plant. The battery
      paste was manually applied to each current collector at which time it
      technically became an electrode.





During
      April of 2007, a commercial battery plant used our positive and negative
      electrodes to manufacture five Valve Regulated, Absorbed Glass Matt, Maintenance
      Free, Lead Acid batteries  -41-
 *Table
            of Contents*


for
      customer evaluation and testing. The prototype batteries were manufactured
      using
      existing standard processes and machinery necessary for insertion of our
      electrodes collector into the battery case. The completion of the manufacturing
      of our prototype batteries used existing standard processes, methods, and
      machinery commonly used in the manufacture of a typical lead acid battery.
      Our
      prototype batteries were tested at the manufacturing plant. The batteries were
      pressure tested and did not leak, The battery cases were properly filled with
      electrolyte. The batteries had no internal shorts.





We
      have
      charged these batteries and following the completion of our preliminary
      testing, a battery will be delivered for testing and evaluation to Kung Long
      Batteries Industrial Co. Ltd., a publicly traded expert manufacturer of lead
      acid batteries and to Power Battery Co., a privately owned battery manufacturer
      which has major locations in Patterson, New Jersey, Iberville, Quebec, Canada,
      and Romsey, England. In addition, prototype batteries will be delivered to
      other
      independent battery manufacturers for evaluation and testing. We
      anitcipate completing the preliminary testing of these prototype batteries
      by
      July 1, 2007 and intend to post data relating to that preliminary testing on
      our
      website, http://www.pwtcbattery.com/.





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. We have entered into discussed with two established
      battery manufacturers concerning a joint project to manufacture prototype NATO
      6T batteries for evaluation and testing by TARDEC.





EXPECTED
      PURCHASE OF SIGNIFICANT EQUIPMENT





We
      expect
      to make significant equipment purchases in order to construct a pilot plant
      capable of manufacturing our current collectors in commercial quantities for
      use
      in lead acid batteries. 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. 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 have engaged in


-42-
 *Table
            of Contents*




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.





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 year ended January 31, 2007, we incurred
      material capital expenditures of  $155,626 for the purchase of pilot plant
      machinery to manufacture Reticulated Vitreous Carbon foam (“RVC”); for the
      purchase of a double panel casting mold to cast a lead top frame and tab, a
      bottom, and two side frames on uncoated RVC foam plates; and for the purchase
      of
      machinery to apply lead tin plating to reticulated vitreous carbon plates.
      During the fiscal year ended January 31, 2007, 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, 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.





During
      the fiscal year ended January 31, 2007, capital resources were provided by
      the
      sale of restricted common stock to warrant holders who exercised 1,500,000
      warrants for an aggregate price of $90,000 and by the sale of common stock
      to an
      option holder who exercised options to purchased 3,366,667 shares of common
      stock for an aggregate price of $202,000.





On
      January 31, 2007, we executed a Secured Promissory Note with CSI Business
      Finance, Inc. (“CSI”) in the amount of $165,000, which was funded to us as
      follows: $75,000 on January 31, 2007, $45,000 on March 1, 2007 and a final
      funding of $45,000 on April 1, 2007. The Note bears interest at 18% per annum
      from the date of funding until paid in full. Accrued interest is due and payable
      on the first day of March 2007, and on the 1 st day
      of
      each subsequent month during the term of the Note. The Note matures on June
      30,
      2007. We may prepay the Note. In addition, the Note has been secured by a Stock
      Pledge Agreement between CSI and our Chief Executive Officer, Bernard Walter,
      covering 9,971,604 shares of our common stock held by Mr. Walter.





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.


-43-
 *Table
            of Contents*




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.





LIQUIDITY





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





FISCAL
      YEAR ENDED JANUARY 31,





2007
            
            2006Net
                cash used by operating activities
            
            $
            (920,290
            )
            $
            (482,110
            )Net
                cash provided by financing activities
            
            $
            977,500
            
            $
            628,580Net
                cash used by investing activities
            
            $
            (155,626
            )
            $
            (9,470
            )





At
      January 31, 2007, we had $80,649 of cash. As of May 31, 2007, we had
      approximately $20,200 cash on hand.





At
      January 31, 2007, we had negative working capital of $2,017,706.
      Management believes that it will be necessary to increase it working capital
      to
      continue our research and development activities, which may be achieved by
      incurring additional indebtedness from stockholders or others.





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.





STRATEGIC
      ALTERNATIVES





Our
      board
      of directors has voted to explore potential strategic alternatives for the
      company aimed at maximizing shareholder value. These alternatives may include
      possible merger candidates,  -44-
 *Table
            of Contents*


sale
      of
      the company's subsidiary operations, or the sale or strategic partnership with
      others of the company's patented technology. We have recently received inquiries
      from potential strategic partners regarding parts of the company's business,
      and
      the board is committed to exploring all alternatives to maximize shareholder
      value.




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:





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


-45-
 *Table
          of Contents*


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.





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.





Subsequent
      to our January 31, 2007 fiscal year end, on March 8, 2007 Cornell exercised
      its
      conversion rights under the December 22, 2005 Convertible Debenture relating
      to
      $25,000 of the principal due and was issued 1,077,586 shares of our common
      stock. Subsequent to our January 31, 2007 fiscal year end, on April 18, 2007,
      Cornell exercised its conversion rights under the December 22, 2005 Convertible
      Debenture relating to $100,000 of the principal due and was issued 3,125,000
      shares of our common stock. Subsequent to our January 31, 2007 fiscal year
      end,
      on May 18, 2007, Cornell exercised its conversion rights under the December
      22,
      2005 Convertible Debenture relating to $100,000 of the principal due and is
      to
      be issued 4,166,667 shares of our common stock.




Significant
      Accounting Estimates and Policies





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.  -46-
 *Table
            of Contents*


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 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.





Share-Based
      Compensation





On
      February 1, 2006, Power Technology adopted SFAS No. 123(R), "Share-Based
      Payment". SFAS 123(R) replaced SFAS No. 123 and supersedes APB Opinion No.
      25.
      SFAS 123(R) requires all share-based payments to employees, including grants
      of
      employee stock options, to be recognized in the financial statements based
      on
      their fair values. The pro forma disclosures previously permitted under SFAS
      123
      are no longer an alternative to financial statement recognition. Power
      Technology adopted SFAS 123(R) using the modified prospective method which
      requires the application of the accounting standard as of February 1, 2006.
      The
      consolidated financial statements for the year ended January 31, 2007 reflect
      the impact of adopting SFAS 123(R). In accordance with the modified prospective
      method, the consolidated financial statements for prior periods have not been
      restated to reflect, and do not include, the impact of SFAS
      123(R).


-47-
 *Table
            of Contents*




UNCERTAINTIES





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.
      However, there are conditions that raise substantial doubt about our ability
      to
      continue as a going concern.





At
      January 31, 2007, we had negative working capital of $2,017,706
      a loss from operations for the year ended January 31, 2007 of $2,772,935
      and an accumulated deficit of $16,678,075
      since June 3, 1996, the date of our inception.





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.





On
      January 31, 2007, we executed a Secured Promissory Note with CSI Business
      Finance, Inc. (“CSI”) in the amount of $165,000, which was funded to us as
      follows: $75,000 on January 31, 2007, $45,000 on March 1, 2007 and a final
      funding of $45,000 on April 1, 2007. As of May 31,, 2007, we had approximately
      $20,000 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.


-48-
 *Table
          of Contents*




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.




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
      7. FINANCIAL STATEMENTS.




The
      consolidated financial statements of the Company as of January 31, 2007 and
      for
      the fiscal years ended January 31, 2007 and 2006, beginning on page F-1, are
      provided with this Form 10-KSB annual report and are incorporated herein by
      reference.


-49-
 *Table
          of Contents*




REPORT
      OF
      INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To
        the
        Board of Directors
 Power
        Technology, Inc.
 Houston,
        Texas
 
 We
        have
        audited the accompanying consolidated balance sheet of Power Technology,
        Inc. as
        of January 31, 2007, and the related consolidated statements of operations,
        stockholders’ deficit and cash flows for each of the two years then
        ended. These financial statements are the responsibility of Power
        Technology, Inc.'s management. Our responsibility is to express an opinion
        on
        these financial statements based on our audits.
  We
        conducted our audits in accordance with standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audits to obtain reasonable assurance about whether the
        financial statements are free of material misstatement. An audit includes
        examining, on a test basis, evidence supporting the amounts and disclosures
        in
        the financial statements. An audit also includes assessing the accounting
        principles used and significant estimates made by management, as well as
        evaluating the overall financial statement presentation. We believe that
        our
        audits provide a reasonable basis for our opinion.
 
 In
        our
        opinion, the consolidated financial statements referred to above present
        fairly,
        in all material respects, the financial position of Power Technology, Inc.
        as of
        January 31, 2007, and the results of its operations and its cash flows for
        the years ended January 31, 2007 and 2006 in conformity with accounting
        principles generally accepted in the United States of America.
 
 The
        accompanying consolidated financial statements have been prepared assuming
        that
        the Company will continue as a going concern. As discussed in Note 2 to the
        consolidated financial statements, the Company has experienced significant
        losses since inception and has a working capital deficit at January 31, 2007.
        Those conditions, among others, raise substantial doubt about the Company's
        ability to continue as a going concern. Management's plans regarding these
        matters are also described in Note 2. The accompanying consolidated financial
        statements do not include any adjustments that might result from the outcome
        of
        this uncertainty.
 
 
 Malone
        & Bailey, PC
 Houston,
        Texas
 www.malone-bailey.com
 
 May
        30,
        2007
 F-1
 *Table
            of Contents*


**POWER
        TECHNOLOGY, INC.**
 CONSOLIDATED
        BALANCE SHEET


January
                  31,2007AssetsCurrent
                  assets:Cash
                  and equivalents
              
              $
              80,649Accounts
                  receivables
              
              
              1,372Inventory
              
              
              144,563Other
                  current assets
              
              
              19,606Total
                  current assets
              
              
              246,190Fixed
                  assets, net of accumulated depreciation of $62,254
              
              
              142,266Deposits
              
              
              2,708Deferred
                  financing fees
              
              
              58,336Total
                  assets
              
              $
              449,500Liabilities
                  and Stockholders' DeficitCurrent
                  LiabilitiesAccounts
                  payable
              
              $
              714,612Short-term
                  debt
              
              
              366,000Short-term
                  debt - related party
              
              
              10,500Derivative
                  liability
              
              
              1,172,784Total
                  current liabilities
              
              
              2,263,896Convertible
                  debentures, net of discount of $722,140
              
              
              908,440Total
                  liabilities
              
              
              3,172,336Stockholders'
                  deficit:Preferred
                  stock, $0.01 par value, 1,000,000 sharesauthorized,
                  none issued or outstandingCommon
                  stock, $0.001 par value, 750,000,000 sharesauthorized,
                  149,391,694 shares issued and outstanding
              
              
              149,391Additional
                  paid-in capital
              
              
              13,808,744Accumulated
                  deficit
              
              
              (16,678,075
              )Other
                  comprehensive loss
              
              
              (2,896
              )Total
                  stockholders' deficit
              
              
              (2,722,836
              )Total
                  liabilities and stockholders' deficit
              
              $
              449,500


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


F-2
 *Table
          of Contents*





**POWER
      TECHNOLOGY, INC.**


CONSOLIDATED
      STATEMENTS OF
      OPERATIONS


FOR
      THE YEARS ENDED JANUARY 31, 2007 AND
      2006




2007
              
              2006Sales
              
              $
              23,097
              
              $
              —Cost
                  of goods sold
              
              
              31,124
              
              
              —Gross
                  profit
              
              
              (8,027
              )
              
              —Expenses:General
                  administrative expenses
              
              
              1,079,428
              
              
              500,978Research
                  & development
              
              
              214,034
              
              
              31,857Consulting
                  fee
              
              
              262,241
              
              
              660,350Depreciation
                  and amortization
              
              
              35,098
              
              
              6,879Impairment
                  of goodwill
              
              
              1,174,107
              
              
              —Total
                  operating expense
              
              
              2,764,908
              
              
              1,200,064Net
                  operating loss
              
              
              (2,772,935
              )
              
              (1,200,064
              )Other
                  income (expense):Interest
                  income
              
              
              10,935
              
              
              15Interest
                  expense
              
              
              (773,021
              )
              
              (510,718
              )Net
                  gain (loss) on derivative liabilities
              
              
              1,626,062
              
              
              (1,521,299
              )Impairment
                  of long lived assets
              
              
              —
              
              
              (13,900
              )Total
                  other income (expense)
              
              
              863,976
              
              
              2,045,902Net
                  loss
              
              
              (1,908,959
              )
              
              (3,245,966
              )Other
                  comprehensive loss-foreign currency translation
              
              
              (1,518
              )
              
              (1,378
              )Total
                  comprehensive loss
              
              
              (1,910,477
              )
              
              (3,247,344
              )Weighted
                  average number ofcommon
                  shares outstanding-basic and fully diluted
              
              
              145,679,644
              
              
              133,781,064Net
                  loss per share-basic and fully diluted
              
              $
              (0.01
              )
              $
              (0.02
              )


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


F-3
 *Table
          of Contents*


**POWER
        TECHNOLOGY, INC.**
 CONSOLIDATED
        STATEMENTS OF
        EQUITY
 FOR
        THE YEARS ENDED JANUARY 31, 2007 AND
        2006


Additional
              
              
              
              Prior
              
              TotalCommon
                  Stock
              
              Paid-In
              
              Accumulated
              
              Period
              
              Stockholders'Shares
              
              Amount
              
              Capital
              
              Deficit
              
              Adjustments
              
              (Deficit)Balance
                  January 31, 2005
              
              
              126,180,201
              
              $
              126,180
              
              $
              11,194,541
              
              $
              (11,523,150
              )
              $
              —
              
              $
              (202,429
              )Shares
                  issued for consulting services
              
              
              9,064,967
              
              
              9,064
              
              
              675,756
              
              
              
              
              
              
              
              
              684,820Shares
                  issued for compensation
              
              
              1,250,577
              
              
              1,251
              
              
              98,343
              
              
              
              
              
              
              
              
              99,594Share
                  issued for cash
              
              
              3,000,000
              
              
              3,000
              
              
              110,000
              
              
              
              
              
              
              
              
              113,000Share
                  rescission
              
              
              (4,000,000
              )
              
              (4,000
              )
              
              4,000
              
              
              
              
              
              
              
              
              —Foreign
                  currency translation
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (1,378
              )
              
              (1,378
              )Net
                  loss
              
              
              
              
              
              
              
              
              
              
              
              (3,245,966
              )
              
              
              
              
              (3,245,966
              )Balance
                  January 31, 2006
              
              
              135,495,745
              
              
              135,495
              
              
              12,082,640
              
              
              (14,769,116
              )
              
              (1,378
              )
              
              (2,552,359
              )Shares
                  issued for consulting services
              
              
              1,200,000
              
              
              1,200
              
              
              170,800
              
              
              
              
              
              
              
              
              172,000Shares
                  issued for acquistion
              
              
              6,075,949
              
              
              6,076
              
              
              953,924
              
              
              
              
              
              
              
              
              960,000Shares
                  issued for compensation
              
              
              120,000
              
              
              120
              
              
              17,880
              
              
              
              
              
              
              
              
              18,000Share
                  issued for options and warrants exercised
              
              
              6,500,000
              
              
              6,500
              
              
              383,500
              
              
              
              
              
              
              
              
              390,000Stock
                  options merger
              
              
              
              
              
              —
              
              
              200,000
              
              
              
              
              
              
              
              
              200,000Foreign
                  currency translation
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (1,518
              )
              
              (1,518
              )Net
                  loss
              
              
              
              
              
              
              
              
              
              
              
              (1,908,959
              )
              
              
              
              
              (1,908,959
              )Balance
                  January 31, 2007
              
              
              149,391,694
              
              $
              149,391
              
              $
              13,808,744
              
              $
              (16,678,075
              )
              $
              (2,896
              )
              $
              (2,722,836
              )


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


F-4
 *Table
          of Contents*




**POWER
      TECHNOLOGY, INC.**


CONSOLIDATED
        STATEMENTS OF CASH
        FLOWS
 FOR
        THE YEARS ENDED JANUARY 31, 2007 AND
        2006


2007
              
              2006Cash
                  flows from operating activitiesNet
                  loss
              
              $
              (1,908,959
              )
              $
              (3,245,966
              )Adjustments
                  to reconcile net loss to net cashfrom
                  operating activitiesDepreciation
                  and amortization expense
              
              
              35,098
              
              
              2,079Impairment
                  of long lived assets
              
              
              1,174,107
              
              
              18,700Amortization
                  of debt discount
              
              
              521,107
              
              
              461,383Amortization
                  of deferred financing cost
              
              
              58,102
              
              
              3,562(Gain)
                  loss on derivatives
              
              
              (1,626,062
              )
              
              1,521,299Stock
                  issued for executive compensation and expense
                  reimbursement
              
              
              300,000
              
              
              61,941Stock
                  issued for directors fees
              
              
              18,000
              
              
              37,653Share-based
                  compensation for consulting services
              
              
              72,000
              
              
              684,820Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              1,894
              
              
              —Inventory
              
              
              (144,563
              )
              
              —Prepaid
                  expense and other current assets
              
              
              (15,418
              )
              
              (1,278
              )Deposits
              
              
              562
              
              
              —Accounts
                  payable
              
              
              593,842
              
              
              (26,303
              )Net
                  cash (used) by operating activity
              
              
              (920,290
              )
              
              (482,110
              )Cash
                  flows from investing activitiesPurchase
                  of equipment
              
              
              (155,626
              )
              
              —Decrease
                  in deposits
              
              
              —
              
              
              (9,470
              )Net
                  cash used by investing activities
              
              
              (155,626
              )
              
              (9,470
              )Cash
                  flows from financing activitiesProceeds
                  from debt
              
              
              577,000
              
              
              1,682,237Repayment
                  of debt
              
              
              —
              
              
              (1,101,657
              )Proceeds
                  from debt - related party
              
              
              10,500
              
              
              —Payment
                  of deferred financing costs
              
              
              —
              
              
              (65,000
              )Issuance
                  of common stock
              
              
              390,000
              
              
              113,000Net
                  cash provided by financing activities
              
              
              977,500
              
              
              628,580Effect
                  of exchange rate changes on cash
              
              
              (1,518
              )
              
              (1,378
              )Net
                  increase (decrease) in cash
              
              
              (99,934
              )
              
              135,622Cash
                  and equivalents-beginning
              
              
              180,583
              
              
              44,961Cash
                  and equivalents-ending
              
              $
              80,649
              
              $
              180,583Supplemental
                  disclosures:Interest
                  paid
              
              $
              —
              
              $
              66,769Income
                  taxes paid
              
              $
              —
              
              $
              —Non-cash
                  investing and financing activities:Value
                  of shares issued for acquistion
              
              $
              960,000
              
              $
              —


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


F-5
 *Table
          of Contents*




**POWER
      TECHNOLOGY, INC.**


**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
  NOTE
        1 -
        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Organization
 
 Power
        Technology, Inc. (“Power Technology”) was originally incorporated as PowerTek in
        Nevada on January 19, 1996. Power Technology was organized primarily for
        the
        purpose of developing an advanced battery technology for use in the growing
        electric car industry. As of January 31, 2007, Power Technology has been
        able to
        advance the battery technology to a proof of principle stage and is currently
        seeking additional capital to finance the development of the technology to
        a
        preliminary prototype stage.
 
 Basis
        of
        Presentation
 
 The
        consolidated financial statements include the accounts of Power Technology
        and
        its wholly-owned subsidiaries, PowerTek Technology Corporation, Inc. and
        Sentry
        Power Systems, LLC. Significant inter-company accounts and transactions have
        been eliminated. With the acquisition of the assets of Sentry Power Systems,
        LLC, Power Technology is no longer considered a development stage company
        as of
        May 16, 2006.
 
 Use
        of
        Estimates
 
 The
        preparation of financial statements in conformity with generally accepted
        accounting principles requires management to make estimates and assumptions
        that
        affect the reported amounts of assets and liabilities and disclosure of
        contingent assets and liabilities at the date of the financial statements
        and
        the reported amounts of revenue and expenses during the reporting period.
        Actual
        results could differ significantly from those estimates.
 
 Cash
        and
        Cash Equivalents
 
 For
        the
        purpose of the statements of cash flows, all highly liquid investments with
        the
        maturity of three months or less are considered to be cash
        equivalents.
 
 Inventory
 
 Inventory
        is stated at the lower of cost (first-in, first-out) or market and consists
        of
        battery systems.
 
 Fixed
        Assets
 
 Property
        and equipment are recorded at cost. Minor additions and renewals are expensed
        in
        the year incurred. Major additions and renewals are capitalized and depreciated
        over their estimated useful lives. Depreciation is calculated using the
        straight-line method over the estimated useful lives of five to seven
        years.
 
 Revenue
        Recognition
 
 Power
        Technology recognizes revenue on an accrual basis when persuasive evidence
        of an
        arrangement exists, services have been rendered, the sales price is fixed
        or
        determinable, and collectibility is reasonably assured.
 
 Product
        Development Costs
 
 The
        products will comprise multiple features and offerings that are currently
        under
        development, and it is anticipated that the offerings will require future
        development and refinement. In connection with the development of its products,
        Power Technology will incur external costs for research, development, and
        consulting services, and internal costs for payroll and related expenses
        of its
        technology employees directly involved in the development. All costs will
        be
        reviewed for determination of whether capitalization or expense as product
        development cost is appropriate.
 F-6
 *Table
              of Contents*
  Impairment
        of Long-Lived Assets
 
 Long-lived
        assets held and used by Power Technology, including fixed assets and goodwill,
        are reviewed for possible impairment whenever events or circumstances indicate
        the carrying amount of an asset may not be recoverable or are impaired. Power
        Technology assesses recoverability of the carrying value of the asset by
        estimating the future net cash flows expected to result from the asset,
        including eventual disposition. If the future net cash flows are less than
        the
        carrying value of the asset, an impairment loss is recorded equal to the
        difference between the asset's carrying value and fair value.
 
 Earnings
        per Share
 
 Power
        Technology follows Statement of Financial Accounting Standards ("SFAS") No.
        128.
        "Earnings Per Share". Basic earnings per common share ("EPS") calculations
        are
        determined by dividing net income (loss) by the weighted average number of
        shares of common stock outstanding during the year. Diluted earnings per
        common
        share calculations are determined by dividing net income (loss) by the weighted
        average number of common shares and dilutive common share equivalents
        outstanding. During periods when common stock equivalents, if any, are
        anti-dilutive they are not considered in the computation.
 
 Foreign
        Currency Translations
 
 The
        functional currency for Power Technology's foreign operations is the local
        currency. Assets and liabilities of Power Technology's foreign operations
        are
        translated into U.S. dollars at the exchange rates in effect at the balance
        sheet date; revenues and expenses are translated using the average exchange
        rates in effect during the period. The cumulative translation adjustments
        are
        included in accumulated other comprehensive income or loss, which is a separate
        component of stockholders' equity. Foreign currency transaction gains or
        losses
        are included in the results of operations.
 
 Stock-Based
        Compensation
 
 On
        February 1, 2006, Power Technology adopted SFAS No. 123(R), "Share-Based
        Payment". SFAS 123(R) replaced SFAS No. 123 and supersedes APB Opinion No.
        25.
        SFAS 123(R) requires all share-based payments to employees, including grants
        of
        employee stock options, to be recognized in the financial statements based
        on
        their fair values. The pro forma disclosures previously permitted under SFAS
        123
        are no longer an alternative to financial statement recognition. Power
        Technology adopted SFAS 123(R) using the modified prospective method which
        requires the application of the accounting standard as of February 1, 2006.
        The
        consolidated financial statements for the year ended January 31, 2007 reflect
        the impact of adopting SFAS 123(R). In accordance with the modified prospective
        method, the consolidated financial statements for prior periods have not
        been
        restated to reflect, and do not include, the impact of SFAS 123(R).
 
 Prior
        to
        fiscal 2007, Power Technology accounted for share-based compensation to
        employees and directors under the intrinsic value method under APB Opinion
        No.
        25. Under this method, Power Technology had not recognized compensation expense
        for stock granted when the underlying number of shares is known and the exercise
        price of the option is greater than or equal to the fair market value of
        the
        stock on the grant date. Had Power Technology determined compensation expense
        for stock option grants based on their estimated fair value at their grant
        date,
        Power Technology's net loss and net loss per share would have been as follows
        for the year ended January 31, 2006:
  **2006**Net
                    loss as reported
                
                $
                (3,245,966
                )Add:
                    Stock based compensation determinedunder
                    intrinsic value-based method
                
                
                —Less:
                  stock based compensation determinedunder
                    fair value-based method
                
                
                —Pro
                  forma net loss
                
                $
                (3,245,966
                )
 F-7
 *Table
                of Contents*
  Basic
                  and diluted net loss per common share:As
                    reported
                
                $
                (0.02
                )Pro
                    forma
                
                $
                (0.02
                )
 Income
        Taxes
 
 Power
        Technology recognizes deferred tax assets and liabilities based on differences
        between the financial reporting and tax basis of assets and liabilities using
        the enacted tax rates and laws that are expected to be in effect when the
        differences are expected to be recovered. Power Technology provides a valuation
        allowance for deferred tax assets for which it does not consider realization
        of
        such assets to be more likely than not.
 
 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”, EITF 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.
 
 Power
        Technology has identified the following instruments and
        derivatives:
 
 Convertible
        Debentures
 Conversion
        Feature
 Company's
        Optional Redemption right
 Warrant
        Feature
 
 Power
        Technology has 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 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.”
 
 Power
        Technology has 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.” Power Technology has 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 Power Technology's common stock. As a result, Power Technology's
        financial statements may fluctuate from quarter-to-quarter based on factors,
        such as the price of Power Technology's stock at the balance sheet date,
        the
        amount of shares converted by debenture holders and/or exercised by warrant
        holders. Consequently, Power Technology's financial position and results
        of
        operations may vary from quarter-to-quarter based on conditions other than
        operating revenues and expenses.
  F-8
 *Table
            of Contents*
  Recent
        Pronouncements
 
 In
        July
        2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
        48 (FIN 48), *Accounting
        for Uncertainty in Income Taxes* .
        FIN 48
        clarifies the accounting for uncertainty in income taxes recognized in an
        enterprise’s financial statements in accordance with Statement of ** Financial
        Accounting Standard 109 (SFAS 109), *Accounting
        for Income Taxes* .
        This
        Interpretation defines the minimum recognition threshold a tax position
        is ** required
        to meet before being recognized in the financial statements. FIN 48 is effective
        for fiscal years beginning after December 15, 2006. Power Technology
        has ** determined
        that the adoption of FIN 48 will not have a material impact on its financial
        position and results of operations.
 
 In
        September 2006, the FASB issued FASB Statement No. 157, Fair Value Measurements
        (SFAS 157). SFAS 157 provides enhanced guidance for using fair value to measure
        assets and liabilities. The standard also responds to investors’ requests for
        expanded information about the extent to which companies measure assets and
        liabilities at fair value, the information used to measure fair value, and
        the
        effect of fair value measurements on earnings. The standard applies whenever
        other standards require (or permit) assets or liabilities to be measured
        at fair
        value. The standard does not expand the use of fair value in any new
        circumstances. SFAS 157 is effective for financial statements issued for
        fiscal
        years beginning after November 15, 2007, and interim periods within those
        fiscal
        years. Early adoption is permitted. Power Technology is currently evaluating
        the
        effect that the adoption of SFAS 157 will have on its financial position
        and
        results of operations.
 
 Reclassifications
 
 Certain
        prior year amounts have been reclassified to conform with the current year
        presentation.
  NOTE
        2 -
        GOING CONCERN
  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 $1,908,959 and $3,245,966 during the years ended January 31, 2007
        and
        2006, respectively. 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
        3 -
        FIXED ASSETS
 
 Fixed
        assets as of January 31, 2007 consisted of the following:
 
 Prototype
                  Plant
              
              $
              100,012Office
                  equipment
              
              
              25,728Manufacturing
                  equipment
              
              
              76,615Leasehold
                  improvements
              
              
              2,165Less:
                  Accumulated depreciation
              
              
              (62,254
              )Fixed
                  assets, net
              
              $
              142,266
  Depreciation
        expense for the years ended January 31, 2007 and 2006 was $35,098 and $2,079,
        respectively.
  F-9
 *Table
            of Contents*
  NOTE
        4 -
        PATENTS
 
 Certain
        costs were capitalized for patents. All other related patent acquisition
        and
        development costs have been expensed. During fiscal 2005, $55,000 was deemed
        impaired and written off. During fiscal 2006, the remaining amount was written
        off.
  NOTE
        5 -
        NOTES PAYABLE AND SECURED CONVERTIBLE DEBENTURES
 
 Notes
        Payable-
 
 In
        July
        2004, Power Technology borrowed $49,000 from a third party. This loan is
        non-interest bearing and is due on demand.
 
 As
        part
        of the acquisiton of Sentry, Power Technology assumed a note for $235,000
        payable to CSI Business Finance, Inc. (“CSI”). This loan bears interest at 10%
        and is due on June 30, 2007. Power Technology borrowed an additional $75,000
        from CSI under a new promissory note in the amount of $165,000. The remaining
        $90,000 was received in March and April 2007. The new loan bears interest
        at 18%
        and is due on June 30, 2007.
 
 During
        December 2006, Power Technology borrowed $10,500 from its chief executive
        officer. This loan is non-interest bearing and is due on demand.
 
 Convertible
        Debentures-
 
 In
        August
        and November 2004, Power Technology borrowed $500,000 from Cornell Capital
        Partners, L.P. (“Cornell” or “CCP”) through two issuances of 5% Convertible
        Debentures (“CCP-1” and “CCP-2”), secured by substantially all of Power
        Technology's assets. On May 10, 2005, Power Technology refinanced CCP-1 and
        CCP-2 with a new Convertible Debenture (“CCP-3”) in the principal amount of
        $514,657, which comprised the original $500,000 principal plus accrued interest.
        On December 22, 2005, CCP-3 was replaced by a new Convertible Debenture
        (“CCP-4”), which was issued in the principal amount of $530,580, comprising the
        original $500,000 principal plus accrued interest. CCP-4 has a due date of
        December 22, 2007, and bears interest at 10% per annum. CCP-1 through CCP-6
        are
        collectively referred to as the “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.
  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.
 F-10
 *Table
              of Contents*
  In
        February 2006, Power Technology issued $550,000 of new Convertible Debentures
        due on February 21, 2008 (“CCP-6”), 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, CCP-5 and CCP-6, 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, which
        were
        as follows: CCP-4- $370,601, CCP-5- $381,398 and CCP-6- $356,946. The fair
        value
        model comprises multiple probability-weighted scenarios under various
        assumptions reflecting the economics of CCP-4, CCP-5 and CCP-6, 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, the fair values of the Warrant Feature were as follows: CCP-4
        -
        $641,478, CCP-5 - $664,957 and CCP-6 - $664,957.
 
 With
        respect to CCP-4, the fair value of the Warrant Feature at inception of $641,478
        was recorded as a loss on early extinguishment of debt in the accompanying
        consolidated statements of operations. With respect to CCP-5, the excess
        of the
        unamortized discount over its notional balance amounting to $561,356 (including
        financing costs of $65,000 paid to a related party of Cornell) at inception
        was
        charged to interest expense in the accompanying consolidated statements of
        operations. With respect to CCP-6, the excess of the unamortized discount
        over
        its notional balance amounting to $356,946 (including financing costs of
        $55,000
        paid to a related party of Cornell) at inception, was charged to interest
        expense in the accompanying consolidated statements of operations.
 
 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) activity for the years ended
        January 31, 2007 and 2006 was as follows:
  CCP-4
              
              CCP-5
              
              CCP-6
              
              TotalConvertible
                  Dentures - notional amount at inception
              
              $
              530,580
              
              $
              550,000
              
              $
              —
              
              $
              1,080,580Adjustment
                  for Single CompoundEmbedded
                  Derivative with the Convertible Debenture
              
              
              (370,601
              )
              
              (550,000
              )
              
              
              
              
              (920,601
              )Amortization
                  of discount
              
              
              11,338
              
              
              22,962
              
              
              
              
              
              34,300Convertible
                  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
              
              
              140,674
              
              
              241,993,
              
              
              138,440
              
              
              521,107Convertible
                  Debentures - January 31, 2007
              
              $
              311,991
              
              $
              264,955
              
              $
              331,494
              
              $
              908,440
 
 F-11
 *Table
              of Contents*
  For
        the
        years ended January 31, 2007 and 2006, the amortization of unamortized discount
        on the Convertible Debentures (CCP-4, CCP-5 and CCP-6) was $521,107 and $34,300,
        respectively, which has been classified as interest expense in the accompanying
        consolidated statements of operations.
 
 The
        Compound Embedded Derivatives within Convertible Debentures (CCP-4, CCP-5
        and
        CCP-6) derivative liability reflects the following activity for the year
        ended
        January 31, 2007:
 
 CCP-4
              
              CCP-5
              
              CCP-6
              
              TotalBalance
                  - January 31, 2006
              
              $
              452,221
              
              $
              457,257
              
              $
              —
              
              $
              909,478Additions
              
              
              
              
              
              
              
              
              356,946
              
              
              356,946Mark-to-market
              
              
              (306,747
              )
              
              (309,408
              )
              
              (350,667
              )
              
              (966,822
              )Balance
                  - January 31, 2007
              
              
              145,474
              
              
              147,849
              
              
              6,279
              
              
              299,602
  The
        Derivative-Compound Embedded Derivatives within Warrants reflect the following
        activity for the year ended January 31, 2007.
 
 CCP-4
              
              CCP-5
              
              TotalBalance
                  - January 31, 2006
              
              $
              752,441
              
              $
              779,981
              
              $
              1,532,422Additions
              
              
              
              
              
              
              
              
              —Mark-to-market
              
              
              (323,696
              )
              
              (335,544
              )
              
              (659,240
              )Balance
                  - January 31, 2007
              
              $
              428,745
              
              $
              444,437
              
              $
              873,182
  
 NOTE
        6 -
        RELATED PARTY TRANSACTIONS
 
 Power
        Technology issued 721,165 shares of common stock valued at $62,020 to Bernard
        Walter and 529,412 shares of common stock valued at $33,000 to directors
        as
        compensation for fiscal year ended January 31, 2006.
 
 Lee
        Balak
        made cash payments of $16,907 to third parties to pay expenses of Power
        Technology during the years ended January 31, 2005, 2004 and 2003. Power
        Technology repaid $16,907 in cash to Mr. Balak during the year ended
        January 31, 2006.
 
 Lee
        Balak
        surrendered ownership of 4,000,000 shares of Power Technology common stock
        during the year ended January 31, 2006 to settle a potential claim.
 
 During
        the year ended January 31, 2007, Power Technology issued 120,000 shares of
        common stock to directors
 F-12
 *Table
              of Contents*
  Bryson
        Farrill and H.P. Pomrehn in payment of their fees, the shares were valued
        at
        $18,000.
 
 During
        the year ended January 31, 2007, 4,000,000 stock options were issued to
        directors M. Julian and R. Magyar for an aggregate price of $200,000. These
        options expired before being exercised.
 
 During
        December 2006, Power Technology borrowed $10,500 from its chief executive
        officer. This loan is non-interest bearing and is due on demand.
  NOTE
        7 -
        INCOME TAXES
  Power
        Technology uses the liability method, where deferred tax assets and liabilities
        are determined based on the expected future tax consequences of temporary
        differences between the carrying amounts of assets and liabilities for financial
        and income tax reporting purposes. During fiscal 2007 and 2006, Power Technology
        incurred net losses and, therefore, has no tax liability. The net deferred
        tax
        asset generated by the loss carry-forward has been fully reserved. The
        cumulative net operating loss carry-forward is approximately $10,693,000
        at
        January 31, 2007, and will expire in the years 2016 through 2025.
 
 The
        utilization of the net operating loss carry-forward is limited under Section
        382
        of the Internal Revenue Code due to the change in control of Power Technology.
        At January 31, 2007, deferred tax assets consisted of the
        following:
  Deferred
                  tax assetsNet
                  operating losses
              
              $
              3,743,000Less:
                  valuation allowances
              
              
              (3,743,000
              )Net
                  deferred tax asset
              
              $
              —
  NOTE
        8 -
        STOCKHOLDERS' EQUITY
 
 On
        February 22, 2007, Power Technology increased the number of authorized shares
        of
        common stock to 750,000,000.
 
 During
        the year ended January 31, 2007, Power Technology issued 1,200,000 shares
        of
        common stock for services rendered with a value of $72,000
 
 During
        the year ended January 31, 2007, a warrant holder exercised 1,500,000 warrants
        for an aggregate price of $90,000.
 
 During
        the year ended January 31, 2007, an option holder exercised 5,000,000 options
        for an aggregate price of $300,000.
 
 During
        the year ended January 31, 2007, 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 year
        ended January 31, 2007 Power
        Technology issued 6,075,949 shares of common stock for the purchase of the
        assets of Sentry Power LLC valued at $960,000.
 
 At
        January 31, 2007 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.
 During
          the year ended January 31, 2006, Power Technology issued common shares
          as
          follows:
 
 -   
          9,064,000 shares to unrelated parties for consulting services valued at
          $684,818
 
 -   
          1,251,000 issued to officers and directors of Power Technology for services
          valued at $82,077
 
 -   
          3,000,000 shares for exercise of warrants for cash of
          $113,000
  NOTE
        9 -
        OPTIONS AND WARRANTS
 
 Stock
        options
 F-13
 *Table
              of Contents*
  Power
        Technology issued 1,000,000 options to an employee on November 30, 2004 with
        an
        exercise price of $0.005. All of these options are exercisable as of January
        31,
        2007.
 
 Power
        Technology issued 4,000,000 options to two employees as of May 1, 2006. The
        exercise price is $0.1216 per share. 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. These options have expired on October 31,
        2006.
 
 During
        the year ended January 31, 2007 Power Technology issued 5,000,000 options
        to a
        consultant with an exercise price of $0.06 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
        5,000,000 options at a price of $0.06 per option.
 
 Activity
        of options during the years ended January 31, 2007 and 2006 is as
        follows:
  **2007**
                
                **2006****Options**
                
                **Weighted
                    Average**
                  **Share
                    Price**
                
                **Options**
                
                **Weighted
                    Average**
                  **Share
                    Price**Outstanding
                      at beginning of year
                
                
                1,000,000
                
                $
                0.050
                
                
                1,000,000
                
                $
                0.050Granted
                
                
                9,000,000
                
                
                0.090Exercised
                
                
                (5,000,000
                )
                
                0.060Forfieted
                
                
                (4,000,000
                )
                
                0.122
                
                
                —
                
                
                —Outstanding
                    at end of year
                
                
                1,000,000
                
                $
                0.050
                
                
                1,000,000
                
                $
                0.050
 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 year ended January 31, 2007 and 2006 is as
        follows:
  **2007**
                
                **2006****Options**
                
                **Weighted
                    Average**
                  **Share
                    Price**
                
                **Options**
                
                **Weighted
                    Average**
                  **Share
                    Price**Outstanding
                      at beginning of year
                
                
                1,500,000
                
                $
                0.060
                
                
                13,240,000
                
                $
                0.120Granted
                
                
                20,094,875
                
                
                0.078
                
                
                1,750,000
                
                
                0.040Exercised
                
                
                (1,500,000
                )
                
                0.060
                
                
                (3,000,000
                )
                
                0.040Forfieted
                
                
                —
                
                
                —
                
                
                (10,490,000
                )
                
                0.000Outstanding
                    at end of year
                
                
                20,094,875
                
                $
                0.078
                
                
                1,500,000
                
                $
                0.060
 The
        weighted average fair value of the warrants granted during the years ended
        January 31, 2007 and 2006 was $0.03 and $0.04, respectively. The estimated
        fair
        value was determined by using the Black-Scholes option-pricing model assuming
        a
        life of warrants; volatility of 78-100% and 166%; no dividends and a risk
        free
        rate of 4.4%-5.2% and 1.5%, respectively.
 
 Warrants
        outstanding and exercisable as of October 31, 2006:
 
 Outstanding
              
              ExercisableNumber
                  of
              
              Remaining
              
              Number
                  ofExercise
                  Price
              
              Shares
              
              Life
              
              Shares$0.078
              
              
              20,094,875
              
              
              1.583
              
              
              20,094,875
 
 F-14
 *Table
              of Contents*
  NOTE
        10 -
        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 6,075,949 shares
        of our
        common stock valued at $960,000 (based on the closing price per share on
        the
        date immediately prior to 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.
  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.
 
 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 was
        tested at January 31, 2007 for impairment as required by FASB Statement No.
        142,
        "Goodwill and other Intangible Assets." Power Technology determined that
        the
        goodwill was fully impaired at January 31, 2007 due to negative cash flow
        of SPT
        since the acquisition and expected to continue in the near future.
 
 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:
  Year
                  Ended January 31,2007
              
              2006Revenue
              
              $
              25,712
              
              $
              74,427Net
                  Income
              
              $
              (884,063
              )
              $
              (3,640,671
              )Net
                  income (loss) per common share
              
              $
              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
        12 -
        COMMITMENTS AND CONTINGENCIES
 
 In
        February 2006, Power Technology entered into a consulting contract with Timothy
        J. Connolly ("Connolly") to provide general business strategic consulting
        and
        management advisory services for the period January 1, 2006 through December
        31,
        2006. Connolly agreed to provide Power Technology office space, a conference
        room, telecommunication equipment, secure high speed internet access, computer
        equipment, copying equipment, a receptionist and clerical assistance for
        Power
        Technology's use during the term of the agreement. Power
        Technology
  F-15
 *Table
            of Contents*
  agreed
        to
        pay Connolly, the sum of $ 50,000 cash, plus $6,000 per month, paid quarterly
        in
        cash or stock. Power Technology agreed to pay Connolly an advisory fee equal
        to
        5% of the total transaction value of any acquisition, merger, or debt financing
        which is consummated during the term of this agreement. Power Technology
        granted
        Connolly fully vested options for the right to purchase on demand, for one
        year,
        up to 5,000,000 shares of the common stock of Power Technology at $.06 per
        share. All the shares and underlying the options are to be registered by
        Power
        Technology upon demand by Connolly under Form S-8. Connolly will not own
        more
        than 4.9% of Power Technology at any time, unless mutually agreed by Connolly
        and Power Technology. In April 2006, Connolly purchased 3,366,667 shares
        of
        common stock at $0.06 per share by exercising options.
 
 On
        February 10, 2006, Power Technology entered into a consulting contract with
        Yoshi Yamanashi ("Yamanashi") to provide general business strategic consulting
        and management advisory services for the two year period of January 1, 2006
        through December 31, 2007. Power Technology will pay Yamanashi a commission
        of 10% of the total net licensing fees Power Technology actually receives
        from
        those companies to whom Power Technology is introduced by Yamanashi. Power
        Technology will also pay Yamanashi a commission of 5% of the net royalties
        actually received by Power Technology from those companies for Power Technology
        products manufactured by those companies, for the first three years of the
        royalty agreement.
  On
        February 21, 2006, Power Technology borrowed an additional $550,000 from
        Cornell. The debenture was part of the Securities Purchase Agreement with
        Cornell dated December 30, 2005, which provided for the sale of a total of
        $1,630,580 in redeemable secured convertible debentures and warrants to purchase
        20,904,875 shares of common stock.
 
 On
        April
        11, 2006, Power Technology's wholly owned subsidiary, Sentry Power Technology,
        Inc. (“SPT”) and Power Technology entered into an Asset Purchase Agreement with
        Sentry Power, LLC (“Sentry”). SPT, acquired the assets of Sentry for a total
        purchase price of $1,195,000 paid at closing by issuing $960,000 worth of
        Power
        Technology's restricted common stock. Additionally, SPT assumed $235,000 in
        debt owed by Sentry to CSI Business Finance, Inc. (“CSI”).
  With
        regard to the debt, SPT will assume the debt to CSI and will execute a new
        security agreement and Power Technology will guarantee the note. At closing,
        Power Technology will execute a stock pledge agreement granting CSI a first
        lien
        on all capital stock or other interest of SPT which Power Technology holds.
        Power Technology's agreement to guarantee the debt is conditioned upon and
        subject to the terms and conditions of a Guaranty Stock Pledge Agreement
        (the
“Stock Pledge Agreement”) to be entered into at closing between Sentry and Power
        Technology which will provide for Sentry to pledge as collateral for the
        Stock
        Pledge Agreement an amount equal to $250,000 of the Power Shares.
 
 Lease
        Commitment -
 
 Power
        Technology leases office facilities in Austin, Texas under an operating lease
        agreement which commenced on April 1, 2007 and expires September 30, 2007.
        The
        lease agreement requires monthly payments of $690 per month.
 
 Power
        Technology leases office facilities in Canada under an operating lease agreement
        which commenced on August 1, 2006 and expires July 31, 2009. The lease agreement
        requires future monthly payments of $2,951 per month. Future minimum lease
        payments are as follows:
 
 Year
              
              Amount2007
              
              $
              35,4122008
              
              
              35,4122009
              
              
              20,657Total
              
              $
              91,481
 
 Total
        rental expense in 2007 and was $35,307 and $1,443, respectively. Power
        Technology does not have any capital leases or other operating lease
        commitments.
 F-16
 *Table
            of Contents*
  NOTE
        13 -
        SUBSEQUENT EVENTS
 
 During
        the year ended January 31, 2007, following the execution of the Asset Purchase
        Agreement, disagreements arose between Power Technology and SPT on one hand
        and
        Mike Julian and Sentry LLC on the other hand concerning certain matters relating
        to the CSI Note, the Assignment and Assumption, the Asset Purchase Agreement,
        the Mike Julian Employment Agreement, the Stock Pledge Agreement and the
        related
        transactions. On May 10, 2007, Power Technology, SPT, Mike Julian and Sentry
        executed a Mutual Release (the “Sentry Release”) concerning those claims.
        Pursuant to the Sentry Release, Mike Julian resigned as Vice President/Director
        of Operations of SPT and acknowledges that he is not entitled to be paid
        any
        further sums as salary or reimbursement of expenses pursuant to the Employment
        Agreement. Mike Julian and Sentry released Power Technology and SPT from
        and
        with respect to any and all claims Julian or Sentry has had or may have,
        arising
        out of or in any way connected with the CSI Loan, the Assignment, the Asset
        Purchase Agreement, the Employment Agreement, and the Stock Pledge Agreement.
        Sentry agreed to execute and executed a Stock Pledge Agreement between Sentry
        and CSI (the “Sentry-CSI Stock Pledge”) Pursuant the Sentry-CSI Stock Pledge,
        Sentry pledged to and delivered to CSI, in negotiable format, its 6,075,949
        shares of common stock of Power Technology for the payment of the
        obligations of Power Technology under the Secured
        Promissory Note dated April 7, 2006 (the “CSI Note”) issued
        in
        favor of Pledgee by Sentry pursuant
        to which Power Technology, as successor-in-interest to Sentry LLC, has promised
        to pay the principal sum of $235,000 and the obligations of Power Technology
        under the Secured Promissory Note dated January 31, 2007 (the “PWTC-CSI Note”) issued
        in
        favor of CSI, pursuant
        to which Power Technology promised to pay the principal sum of $165,000 to
        CSI.
        Pursuant to the Sentry-CSI Stock Pledge, CSI shall have the right to sell
        all or
        any portion of the Pledged Stock at any time at any price in its sole discretion
        for the purpose of paying principal or interest when due under either or
        both of
        the CSI Note or the PWTC-CSI Note. Power Technology and PTI released Mike
        Julian
        and Sentry from and with respect to any and all Power Technology and PTI
        have
        had or may have, arising out of or in any way connected with the CSI Loan,
        the
        Assignment, the Asset Purchase Agreement, the Employment Agreement, and the
        Stock Pledge Agreement. On May 10, 2007, Power Technology, SPT, and Robert
        Magyar executed a Mutual Release (the “Sentry Release”) concerning any and all
        claims they had or may have against each other arising out of or in any way
        connected with the CSI Loan and the Asset Purchase Agreement. On May 10,
        2007
        Power Technology and SPT executed an Amendment to the May 1, 2006 Employment
        Agreement of Robert Magyar pursuant to which Robert Magyar released, waive
        and
        forever relinquish any and all claims he may have to the 6,075,949 shares
        of
        common stock.  Power Technology agreed to issue to Robert Magyar 500,000
        restricted shares of common stock.


F-17
 *Table
          of Contents*




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




Beckstead
      and Watts, LLP, the previous independent registered accounting firm of Power
      Technology, Inc. for the fiscal years ended January 31, 2003 and 2004, resigned
      on March 10, 2005, from further audit services to the Company because the firm
      has been the auditor of the Registrant for more than five years, as required
      by
      the Sarbanes-Oxley Act of 2002, as amended.





During
      the fiscal years ended January 31, 2003 and 2004, the financial statements
      of
      the Company did not contain any adverse opinion or a disclaimer of opinion,
      nor
      were they qualified or modified as to any uncertainty, audit scope, or
      accounting principles, except that the reports of Beckstead
      and Watts, LLP for such fiscal years indicated conditions which raised
      substantial doubt about the Company's ability to continue as a going
      concern.





For
      the
      two fiscal years ended January 31, 2003 and 2004, and the subsequent interim
      periods ended October 31, 2004, there were no disagreements between the Company
      and Beckstead and Watts, LLP on any matter of accounting principles or practice,
      financial statement disclosure, or auditing scope or practices which if not
      resolved to the satisfaction of Beckstead and Watts, LLP would have caused
      Beckstead and Watts, LLP to make reference to the subject matter of the
      disagreement in connection with its reports.





On
      March
      11, 2005, the Company executed an engagement letter to Malone & Bailey, PC.,
      located at 2925 Briarpark, Suite 930, Houston, TX 77042 to audit the
      consolidated financial ending. The Board of Directors approved the appointment
      of Malone & Bailey, PC on May 10, 2005. On March 10, 2007, the Company
      executed an engagement letter to Malone & Bailey, PC. to audit the
      consolidated financial statements of the Company for its fiscal year ended
      January 31, 2007, and the related statements of income, stockholders' equity,
      and cash flows for the year then ending. During the two most recent fiscal
      years
      or any subsequent interim period, the new independent registered accounting
      statements of the Company for its fiscal year ended January 31, 2005, and the
      related statements of income, stockholders' equity, and cash flows for the
      year
      then firm had not previously been engaged as either the principal accountant
      of
      the Company to audit its financial statements or of any significant subsidiary,
      nor has the Company consulted with the firm regarding any accounting issue,
      auditing or financial reporting issue regarding such financial statements or
      any
      reportable event prior to March 31, 2005.





ITEM
      8A. CONTROLS AND PROCEDURES





Bernard
      J. Walter, our Chief Executive Officer and Chief Financial Officer, has
      concluded that our disclosure controls and procedures were
      not effective due to the significant adjustments from the auditors related
      to the goodwill impairment and the derivative liability. He has evaluated these
      controls and procedures as of January 31, 2007. There were no changes in our
      internal controls over financial reporting that have materially affected, or
      are
      reasonably likely to materially affect, our internal controls over financial
      reporting.





ITEM
      8B. OTHER INFORMATION





None.





PART
      III





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




DIRECTORS
      AND EXECUTIVE OFFICERS





The
      following table sets forth our Directors and executive officers as of January
      31, 2007.




**Name**
            **Age**
            **Position**Bernard
                J. Walter
            59
            Director,
                President, Secretary and TreasurerF.
                Bryson Farrill
            79
            DirectorThomas
                J. Hopwood
            61
            DirectorJoey
                Jung
            34
            Vice
                President and Chief Technology
                Officer




-50-
 *Table
          of Contents*




**Bernard
      J. Walter, Director, Chairman of the Board, President and
      CEO**





Mr.
      Walter became a director of Power Technology effective July 1, 2004, to fill
      the
      vacancy on the Board of Directors created by the resignation of Lee A. Balak.
      Effective July 6, 2004, Mr. Walter executed an employment agreement with Power
      Technology, and the Board of Directors appointed Mr. Walter to be the Chief
      Executive Officer, President, Treasurer and Secretary of Power Technology.
      From
      2000 to July of 2004, Mr. Walter was the General Counsel and a business and
      technical consultant to LFF Systems, Inc., a private roofing supply products
      company. From 2000 to December of 2004, Mr. Walter was a director, Vice
      President and General Counsel to eSimulation, Inc., a private technology
      development company that provides web based, online, process optimization
      systems for the operation of chemical and gas processing plants. From 1973
      until
      his employment by Power Technology, Mr. Walter had been a practicing attorney
      in
      the State of Texas. Mr. Walter graduated from the University of St. Thomas
      with
      a B.A. degree in 1970, and graduated from the University of Houston Law Center
      with a J.D. degree in 1973.





**F.
      Bryson Farrill - Director**





Mr.
      Farrill became a director of Power Technology on October 25, 1999. From 1990
      to
      the present, Mr. Farrill has been a financial consultant to high technology
      companies and other companies. Mr. Farrill is a director of Swiss Medica, Inc.
      a
      publicly traded pharmaceutical products company and a director of Balaton Group,
      Inc. a private financial services company and a director of Devine
      Entertainment, Inc. a publicly traded film production company and senior partner
      of Belgravia Financial, Ltd, a private real estate firm. He is an accredited
      representative of the Financial Services Authority of the United Kingdom. From
      1968 to 1990, he was the President and Chairman of McLeod Young Weir
      International, a brokerage firm until it was acquired by Scotia Capital Markets.
      From 1962 to 1979, he was employed by McCleod Young Weir Ltd in Toronto, and
      was
      a director and member of its executive committee from 1964 to 1989. From 1981
      to
      1990, he was a Member of the New York Stock Exchange. Mr. Farrill received
      a
      B.A. decree in political science and economics from the University of Toronto
      in
      1951.





**Thomas
      J. Hopwood -Director**





**Mr.
      Hopwood-** is
      the
      owner and founder of Executive Advice and since 1994, he has provided strategic
      and tactical consulting services to global and regional marketing companies
      in
      the USA and United Kingdom. Mr. Hopwood has extensive consulting experience
      with
      global trading companies and with a major Public Utility company. From 1982
      to
      1994 Mr. Hopwood was employed by Continental Emsco Co., the Drilling Equipment
      Division of LTV Energy Products. He served as Executive Vice President of
      Continental Emsco Co. and was responsible for developing and marketing new
      products while building sales and manufacturing alliances in China. Mr. Hopwood
      also served as Product Manager of various product groups for
      International  -51-
 *Table
            of Contents*


Harvester
      Company, by whom he was employed from 1969 through 1982. Mr. Hopwood graduated
      in 1969 from Monmouth College, West Long Branch, New Jersey with a BA degree
      in
      History.





**Joey
      Jung - Vice President and Chief Technology Officer**





Mr.
      Jung
      became Chief Technology Officer of Power Technology on November 21, 2004. From
      June of 2000 to November 2004, he was employed as a Senior Research Scientist
      specializing in battery and fuel cell technology by Vizon SciTec Inc. (formerly
      BC Research Inc.) in Vancouver, Canada. From 1997 through 2000 he was employed
      as a Graduate Research Assistant in the Chemical Engineering Department at
      the
      University of British Columbia in Vancouver, Canada. From 1995 to 1996, he
      was
      the lead teaching assistant of the Department of Chemical Engineering, Chinese
      Culture University, Taipei, Taiwan. Mr. Jung graduated from Chinese Culture
      University with a B.Sc. degree in chemical engineering specialized in 1994,
      and
      in 2000 graduated from the University of British Columbia with a M.A.Sc. degree
      in Chemical Engineering specializing in electrochemical engineering. Mr. Jung
      is
      fluent in English, and in both the Mandarin and Cantonese Chinese dialects.
      On
      October 30, 2004, Power Technology entered into an employment agreement with
      Mr.
      Jung to retain Mr. Jung as an executive through November 21, 2006. On February
      26, 2007, we executed an Employment Agreement with Joey Jung to retain Mr.
      Jung
      as an executive through November 30, 2008. Mr. Jung is a co-inventor of Power
      Technology's battery technology and is primarily responsible for Power
      Technology's research and product development.





**BOARD
      OF DIRECTORS AND ITS COMMITTEES**





During
      the fiscal year ended January 31, 2007 the Board of Directors had one meeting
      in
      person and 12 telephonic meetings. The Board of Directors took action at Board
      meetings or by unanimous written consent 12 times during that period. Mr. Walter
      is our only Director who is also an Officer. Our Board of Directors currently
      has an Audit Committee which is comprised of independent directors Thomas J
      Hopwood and F. Bryson Farrill and a Stock Plan Committee **** which
      is
      comprised of Bernard J. Walter and independent director Thomas J Hopwood. The
      Audit Committee does not have a designated Financial Expert.





Security
      Holders Recommendations to Board of Directors





We
      do not
      currently have a process for security holders to send communications to the
      Board of Directors. However, we welcome comments and questions from our
      shareholders. Shareholders can direct communications to our Chief Executive
      Officer, Bernard J. Walter, at our executive offices, 7101 Highway 71 WEST,
      Suite 200, Austin, Texas 78735. While we appreciate all comments from
      shareholders, we may not be able to individually respond to all communications.
      We attempt to address shareholder questions and concerns in our press releases
      and documents filed with the SEC so that all shareholders have access to
      information about us at the same time. Mr. Walter collects and evaluates all
      shareholder communications. If the communication is directed to the Board of
      Directors generally or to a specific director, Mr. Walter will disseminate
      the
      communications to the appropriate party at the next scheduled Board of Directors
      meeting. If the communication requires a more urgent response, Mr. Walter will
      direct that communication to the appropriate executive officer. All
      communications addressed to our directors and executive officers will be
      reviewed by those parties unless the communication is clearly
      frivolous.


-52-
 *Table
            of Contents*




COMPLIANCE
      WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT





Section
      16(a) of the Exchange Act requires the Company's executive officers and
      directors, and persons who beneficially own more than ten percent of the
      Company's equity securities, to file reports of ownership and changes in
      ownership with the Securities and Exchange Commission. Officers, directors
      and
      greater than ten percent shareholders are required by SEC regulation to furnish
      the Company with copies of all Section 16(a) forms they file.




Based
      on
      its review of the copies of such forms received by it, the Company believes
      that
      during the year ended January 31, 2007, all such filing requirements applicable
      to its officers and directors and any ten percent holder were complied with,
      except that Mr. Lee A. Balak, Mr. F. Bryson Farrill, Mr. Hugo P. Pomrehn, Mr.
      Bernard J Walter and Mr. Joey Jung were each late in the filing of a Form 3
      or
      Form 4 report during the fiscal year ended January 31, 2007.





CODE
      OF
      ETHICS





Effective
      February 23, 2006, the Board of Directors adopted a Code of Ethics for our
      directors, officers and employees. A copy of our Code of Ethics was as Exhibit
      14.1 to our Form 10-KSB.  filed
      with the SEC on June 6, 2005 .





ITEM
      10.EXECUTIVE
      COMPENSATION





The
      following table sets forth certain compensation information for the following
      individuals for the two most recently completed fiscal years ended January
      31,
      2007. No other compensation was paid to our named executive officers other
      than
      the compensation set forth below.





**Summary
      Compensation Table**





Name
                and Principal Position
              
              (a)
            Fiscal
              Year
              Ending
              
              (b)
            Salary
              ($)
              
              
              (c)
            Bonus
              ($)
              
              
              (d)
            Stock
                Awards
              ($)
              
              (e)
            Option
                Awards
              ($)
              
              (f)
            Non-Equity
                Incentive Plan Compensation
              ($)
              (g)
            Nonqualified
                Deferred Compensation Earnings
              ($)
              (h)
            All
                other compensation
              ($)
              
              (i)
            Total
              ($)
              
              
              (j)Bernard
                J. Walter,**(1)**
              Chairman,
                CEO and President
            2007
              
              2006
            $128,000**(3)**
              
              $133,713
            0
            $
                127,966**(5)**
              
              $62,020
                (6)
            0
              
              0
            0
              
              0
            0
              
              0
            0
            $255,966
              
              $195,733Joey
                Jung**(2)**
              Vice
                President and Chief Technology Officer
            2007
              
              2006
            $60,185**(4)**
              
              $77,952
            0
              
              0
            0
              
              0
            0
              
              $0
            0
              
              0
            0
              
              0
            0
              
              0
            $60,185




Notes
      to
      Summary Compensation Table:





(1)
            Mr.
                Walter became Chairman of our Board of Directors, President and Chief
                Executive Officer effective July 1, 2004. Mr. Walter entered into
                an
                employment agreement with the Company in July of 2004 which provides
                for a
                base salary for 2004 of $90,000, $120,000 for 2005, and $180,000
                per annum
                for 2006 through 2009.


(2)
            Mr.
                Jung was appointed Vice President and Chief Technology Officer in
                November
                2004. Mr Jung entered


-53-
 *Table
          of Contents*


into
      an
      employment agreement through November 21, 2006. which calls for a base salary
      of
      $68,525 per year with an annual increase of no less than 10% of Base Salary
      each
      year of employment On February 26, 2007, we executed an Employment Agreement
      with Mr Jung to retain Mr. Jung through November 30, 2008. We agreed to pay
      Mr.
      Jung $120,000 (Canadian) (base Salary) which at current conversion rate is
      US$
      108,384 from December 1, 2006 through November 30, 2007 and $132,000 (Canadian)
      which at current conversion rate is US$ 119,233 (base Salary) from December
      1,
      2007 through November 30, 2008.


(3)
            Does
                not include $64,000 which was due but not paid.


(4)
            Does
                not include $24,173 which was due but not paid.


(5)
            Mr.
                Walter was entitled to receive 1,126,698 shares of our restricted
                common
                stock as compensation for the fiscal year ended January 31, 2007,
                which
                were valued at $127,966 which was the fair market value of free trading
                share as of the date upon which Mr. Water was entitled to have the
                shares
                issued. These shares have not been issued to Mr.
                Walter.


(6)
            Mr.
                Walter received 721,165 shares of our restricted common stock as
                compensation for the fiscal year ended January 31, 2006, which were
                valued
                at $62,020 which was the fair market value of free trading share
                as of the
                date of issuance.





EMPLOYMENT
      AGREEMENTS





We
      entered into an Employment Agreement with Mr. Bernard J. Walter effective July
      1, 2004, which terminates on December 31, 2009, and may be extended by Power
      Technology annually thereafter. The Employment Agreement with Mr. Walter
      provides for a base salary for 2004 of $90,000, $120,000 for 2005, and $180,000
      per annum for 2006 through 2009, with annual increases of five per cent or
      greater if set by the compensation committee of Power Technology. The Employment
      Agreement with Mr. Walter also provides for incentive bonuses based upon
      performance criteria to be determined at the beginning of each year for each
      applicable annual period by the compensation committee. Mr. Walter became
      entitled to receive 7.5% of the outstanding shares of Power Technology. His
      shares of common stock are to be non-dilutive and are not subject to any reverse
      stock split of the common stock of Power Technology. As of January 31, 2007,
      Mr.
      Walter owned 10,162,180, shares of the restricted common stock of Power
      Technology which were restricted from sale for a period of three years from
      July
      1, 2004. Mr. Walter was entitled to be issued 1,094,266 additional shares of
      restricted common stock pursuant to his Employment Agreement but those shares
      have not yet been issued. The Employment Agreement also has customary provisions
      regarding an automobile allowance, participation in benefits plans, life
      insurance and other terms.





On
      October 30, 2004, Power Technology entered into an employment agreement with
      Joey Jung to retain him as an executive through November 21, 2006. Pursuant
      to
      the terms of the Employment Agreement, we agreed to pay Mr. Jung $68,525 as
      a
      base salary and to increase his pay by no less than 10% of Base Salary each
      year
      of employment. Mr. Jung was granted a stock option to acquire 1,000, shares
      of
      our common stock at a price of one half of one cent, $0.005. On February 26,
      2007, we executed an Employment Agreement with Joey Jung to retain Mr. Jung
      as
      an executive through November 30, 2008. We agreed to pay Mr. Jung $120,000
      (Canadian) (base Salary) from December 1, 2006 through November 30, 2007 and
      $132,000 (Canadian) (base Salary) from December 1, 2007 through November 30,
      2008 and to increase his pay by no less than 10% of Base Salary each year of
      employment. On April 2, 2007, upon the effectiveness of the filing of the Form
      S-8 Registration Statement for the Company’s 2007 Stock Option, SAR, and Stock
      Bonus Plan, Mr. Jung was entitled to a stock option to acquire 1,000,000 shares
      of our common stock at a price of one half of one cent, (US $0.005) per share,
      pursuant to the terms of the Plan.


-54-
 *Table
            of Contents*




**Outstanding
      Equity Awards at Fiscal Year End**




**OPTION
              AWARDS**
            **STOCK
                AWARDS**Name
              
              
              
              
              
              
              (a)
            Number
                of Securities Underlying Unexercised Options (#) Exercisable
              
              (b)
            Number
                of Securities Underlying Unexercised Options (#)
                Unexercisable
              
              (c)
            Equity
                Incentive Plan Awards: Number of Securities Underlying Unexercised
                Unearned Options
              (#)
              
              (d)
            Option
                Exercise Price ($)
              
              
              
              (e)
            Option
                Expiration Date
              
              
              
              (e)
            Number
                of Shares or Units of Stock that have not Vested (#)
              
              
              (g)
            Market
                Value of Shares or Units of Stock that have not Vested
              ($)
              
              (h)
            Equity
                Incentive Plan Awards: Number of Unearned Shares, Units or Other
                Rights
                that have not Vested
              ($)
              
              (i)
            Equity
                Incentive Plan Awards: Market or Payout Value of Unearned Shares,
                Units or
                Other Rights that have not Vested
              ($)
              
              (j)Bernard
                J. Walter
            0
            0
            0
            0
            0
            0
            0
            0
            0Joey
                Jung
            100,000
              450,000
              450,000
              1,000,000
            0
              0
              0
              0
            0
              0
              0
              0
            $.005
              $.005
              $.005
              $.005
            11/22/2009
              11/26/2009
              11/26/2009
              11/26/2009
            0
              0
              0
              0
            
            0
              0
              0
              0
            0
              0
              0
              0





**DIRECTOR
      COMPENSATION**





For
      the
      year ending January 31, 2007, the Board of Directors approved compensation
      of
      $9,000 cash to independent board members Hugo Pomrehn and Thomas J. Hopwood,
      each of whom served as a director for six months and compensation of $18,000
      cash to independent board member F. Bryson Farrill for his services for the
      year
      ending January 31, 2007





Name
              
              
              
              (a)
            Fees
                Earned or Paid in Cash
              ($)
              
              
              (b)
            Stock
                Awards
              ($)
              
              
              
              (c)
            Option
                Awards
              ($)
              
              
              
              (d)
            Non-Equity
                Incentive Plan Compensation
              ($)
              
              
              (e)
            Nonqualified
                Deferred Compensation Earnings
              ($)
              
              (f)
            All
                Other Compensation
              ($)
              
              
              
              (g)
            Total
              ($)
              
              
              
              
              (h)F.
                Bryson Farrill
            27,00
            9,000
            0
            0
            0
            0
            36,000Hugo
                Pomrehn
            9,000
            9,000
            0
            0
            0
            0
            18,000Thomas
                J Hopwood
            18,000
            9,000
            0
            0
            0
            0
            18,000




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





The
      following table sets forth certain information at May 1, 2007 with respect
      to
      the beneficial ownership of shares of common stock by (i) each person known
      to
      us who owns beneficially more than 5% of the outstanding shares of common stock,
      (ii) each of our Directors, (iii) each of our Executive Officers, and (iv)
      all
      of our Executive Officers and Directors as a group. Unless otherwise indicated,
      each stockholder has sole voting and investment power with respect to
      the


-55-
 *Table
          of Contents*


shares
      shown. As of May 1, 2007, we had 160,861,563 shares of common stock issued
      and
      outstanding.





Title
                of class
            Name
                and address of
              beneficial
                owner
            Number
                of Shares of Class Beneficially Owned
            Percentage
                of Shares
              Beneficially
                Owned(1)Common
                Stock
            Bernard
                J. Walter
              Chairman,
                President and CEO
              109
                North Post Oak Lane
              Suite
                422
              Houston,
                Texas 77024
            12,303,327(2)
            7.5%Common
                Stock
            F.
                Bryson Farrill
              Director
              77
                Verplank Avenue
              Stanford,
                Connecticut 06902
            1,596,500(3)
            0.97%Common
                Stock
            Thomas
                J. Hopwood
              Director
              8
                Greenway Plaza Ste # 614
              Houston,
                Texas 77046
            445,833(4)
            0.290%Common
                Stock
            Joey
                Jung
              Vice
                President/Technology
              6685
                Berkeley Street
              Vancouver,
                B.C.
              V5S
                2J5 Canada
            2,150,000(5)
            0.153%Common
                Stock
            All
                Officers and Directors as a group (total of 4)
            16,723,077(6)
            10.85%Common
                Stock
            Lee
                A. Balak
              15
                Ocean View Road
              Lions
                Bay, BC
              V0N
                2E0 Canada
            23,157,483
            14.30%Common
                Stock
            Cornell
                Capital Partners, L.P.
              101
                Hudson Street
              Suite
                3700
              Jersey
                City, New Jersey 07302
            171,473,985.(7)
            52.34%





(1)
            Except
                as otherwise noted, it is believed by Power Technology that all persons
                have full voting and investment power with respect to the shares
                indicated. Under the rules of the Securities and Exchange Commission,
                a
                person (or group of persons) is deemed to be a "beneficial owner"
                of a
                security if he or she, directly or indirectly, has or shares the
                power to
                vote or to direct the voting of such security, or the power to dispose
                of
                or to direct the disposition of such security. Accordingly, more
                than one
                person may be deemed to be a beneficial owner of the same security.
                A
                person is also deemed to be a beneficial owner of any security which
                that
                person has the right to acquire within 60 days, such as options or
                warrants to purchase the common stock of Power Technology.


(2)
            Includes
                2,141,147shares to which Mr. Walter is entitled to be issued to him
                pursuant to his Employment Agreement but which have not yet been
                issued.


(3)
            Includes
                112,500 shares to which Mr. Farrill is entitled to be issued to him
                as
                Director’s compensation but which have not yet been
                issued.


(4)
            Includes
                112,500 shares to which Mr. Hopwood is entitled to be issued to him
                as
                Director’s compensation but which have not yet been issued.


(5)
            Includes
                2,000,000 options to purchase shares of our common stock.


(6)
            Includes
                2,141,147shares to which Mr. Walter is entitled to be issued to him
                pursuant to his Employment Agreement but which have not yet been
                issued,
                112,500 shares to which Mr. Farrill is entitled to be issued to him
                as
                Director’s compensation but which have not yet been issued, 112,500 shares
                to which Hopwood is entitled to be issued to him as Director’s
                compensation but which have not yet been issued and Mr, Jung’s 2,000,000
                options to purchase shares of our common stock .


(7)
            Includes
                20,904,875 shares of our common stock underling warrants, and 144,827,443
                shares of our common stock underlying convertible debentures held
                by
                Cornell Capital Partners, L.P. The Debenture provide that the number
                of
                shares of our common stock that may be issued by us or acquired by
                Cornell
                upon conversion of the Debenture shall not exceed 4.99% of the total
                number of the issued and outstanding shares of our common
                stock.




-56-
 *Table
          of Contents*




ITEM
      12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.





Except
      as
      described below, none of the following persons has any direct or indirect
      material interest in any transaction to which we were or are a party since
      the
      beginning of our last Fiscal Year, or in any proposed transaction to which
      we
      propose to be a party:





(A)
            any
                of our directors or executive
                officers;





(B)
            any
                nominee for election as one of our
                directors;





(C)
            any
                person who is known by us to beneficially own, directly or indirectly,
                shares carrying more than 5% of the voting rights attached to our
                common
                stock; or





(D)
            any
                member of the immediate family (including spouse, parents, children,
                siblings and in-laws) of any of the foregoing persons named in paragraph
                (A), (B) or (C) above.





During
      the year ended January 31, 2007, Hugo P. Pomrehn, a former director, was issued
      60,000 shares of the restricted common stock of Power Technology and was paid
      $9,000 cash, as director's fees.





During
      the year ended January 31, 2007, F. Bryson Farrill a director, was issued 60,000
      shares of the restricted common stock of Power Technology and was paid $9,000
      cash, as director's fees.





During
      the year ended January 31, 2007, Bernard J. Walter, a Director, the Chief
      Executive Officer, President, Treasurer and Secretary of Power Technology,
      pursuant to an Employment Agreement, received stock grants and was entitled
      to
      be issued 1,094,266 shares of our restricted common stock. These shares are
      restricted from sale for a period of three years from July 1, 2004 and are
      to be
      non-dilutive and are not subject to any reverse stock split of the common stock
      of Power Technology.





On
      April
      20, 2006, Hugo P. Pomrehn, who was at that time one of our directors, exercised
      a warrant and purchased, at $0.06 per share, 500,000 shares of restricted common
      stock of Power Technology.





On
      December 12, 2006, Bernard J. Walter, a Director, the Chief Executive Officer,
      President, Treasurer and Secretary of the Company loaned the Company $3,000.
      The
      loan was unsecured, due on demand, and bears no interest.




On
      December 15, 2006, Bernard J. Walter, a Director, the Chief Executive Officer,
      President, Treasurer and Secretary of the Company loaned the Company $1,500.
      The
      loan was unsecured, due on demand, and bears no interest.


-57-
 *Table
            of Contents*




On
      December 15, 2006, Bernard J. Walter, a Director, the Chief Executive Officer,
      President, Treasurer and Secretary of the Company loaned the Company $ 6,000.
      The loan was unsecured, due on demand, and bears no interest.




On
      January 31, 2007, we executed a Secured Promissory Note with CSI Business
      Finance, Inc. (“CSI”) in the amount of $165,000. The Note matures on June 30,
      2007. Bernard J. Walter, a Director, the Chief Executive Officer, President,
      Treasurer and Secretary of the Company, executed a Stock Pledge Agreement with
      CSI pursuant to which he pledged 9,971,604 shares of our common stock held
      by
      him to secure payment of the loan.





**Director
      Independence**





Two
      of
      our Board of Directors are independent Directors pursuant to the standards
      applicable to Regulation S-B. Mr. Farrill and Mr. Hopwood are the independent
      Board members




ITEM
      13. EXHIBITS.





10.1
            Employment
                Agreement with Bernard J. Walter dated July 1, 2004 (Incorporated
                herein
                by reference to our Form 8-K filing on July 13,
                2004)





10.2
            Employment
                Agreement with Joey Jung dated October 30, 2004 (incorporate herein
                by
                reference to our Form 10-QSB for the period ending October 31, 2004
                filed
                on December 21, 2005)





10.3
            Consulting
                Services Contract with Trilogy and Associates, Inc. dated February
                25,
                2004 (Filed as Exhibit 99 to the Issuer’s Form S-8 filing on March 1, 2004
                and incorporated herein by
                reference)





10.4
            Agreement
                with Clearvision, Inc. dated February 1, 2005 (filed as Exhibit 10.4
                to
                our Form 10KSB for the fiscal year ending January 31,
                2006.)





10.5
            Addendum
                to Consulting Agreement with SeaWay Trading, Inc. dated June 11,
                2004
                (filed as Exhibit 10.5 to our Form 10KSB for the fiscal year ending
                January 31, 2006.)





10.6
            Agreement
                with SeaWay Trading, Inc. dated August 18, 2004 (filed as Exhibit
                10.6 to
                our Form 10KSB for the fiscal year ending January 31,
                2006.)





10.7
            Stock
                Option Agreement with Joey C. Jung dated December 30, 2005 (filed
                as
                Exhibit 10.7 to our Form 10KSB for the fiscal year ending January
                31,
                2006.)





10.8
            Stock
                Option Agreement with Joey C. Jung dated December 30, 2005 (filed
                as
                Exhibit 10.8 to our Form 10KSB for the fiscal year ending January
                31,
                2006.)





10.9
            Employment
                Agreement with Joey C. Jung dated December 30, 2005 (filed as Exhibit
                10.9
                to our Form 10KSB for the fiscal year ending January 31,
                2006.)





10.10
            Consulting
                Services Agreement with Timothy J. Connolly dated January 1, 2006
                (filed
                as Exhibit 10.10 to our Form 10KSB for the fiscal year ending January
                31,
                2006.)


-58-
 *Table
          of Contents*




10.11
            Consulting
                Services Agreement Amendment with Timothy J. Connolly dated February
                10,
                2006 (filed as Exhibit 10.11 to our Form 10KSB for the fiscal year
                ending
                January 31, 2006.)





10.12
            Asset
                Purchase Agreement dated April 11, 2006 (filed as Exhibit 10.1 to
                our Form
                8-K filing on May 8, 2006.)





10.13
            Assignment,
                Assumption, Modification and Extension of Promissory Note with Sentry
                Power Systems, LLC dated May 16, 2006 (filed as Exhibit 10.1 to our
                Form
                8-K filing on May 22, 2006.)




10.14
            Lock-Up
                and Redemption Agreement with Sentry Power Systems, LLC dated May
                16, 2006
                (filed as Exhibit 10.2 to our Form 8-K filing on May 22, 2006.)




10.15
            Consulting
                Services Agreement with Timothy J. Connolly dated February 23, 2007
                (filed
                herewith)





10.16
            Consulting
                Services Agreement with Princeton Research, Inc. dated April 9, 2007
                (filed herewith)





10.17
            CSI
                Business Finance, Inc. Note Extension letter
                agreement dated May 15, 2007 (filed as Exhibit 10.1 to our Form 8K
                filing
                on May 18, 2007)




14.1
            Code
                of Ethics (filed as Exhibit 14.1 to our Form 10KSB for the fiscal
                year
                ending January 31, 2006.)


23.1
              Consent
                  of Malone & Bailey, PC.
 
 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.
 
 32.1
              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.




99.1
            Stock
                Option with Timothy Connolly dated February 21, 2006 (filed as Exhibit
                10.11 to our Form 10KSB for the fiscal year ending January 31,
                2006)





99.2
            Stock
                Option with Timothy Connolly dated February 21, 2007 (filed
                herewith).





ITEM
      14. PRINCIPAL ACCOUNTANTS FEES AND SERVICES




The
      following table sets forth the aggregate fees paid or accrued for professional
      services rendered by Malone & Bailey, P.C. for the audit of our annual
      financial statements for fiscal year 2007 and fiscal year 2006 and the aggregate
      fees paid or accrued for audit-related services and all other services rendered
      by Malone & Bailey, P.C. for fiscal years 2007 and 2006.




2007
            
            2006Audit
                fees
            
            $
            40,900
            
            $
            22,500Audit-related
                fees
            
            
            -0-
            
            
            -0-Tax
                fees
            
            
            -0-
            
            
            -0-All
                other fees
            
            
            -0-
            
            
            -0-Total
            
            $
            40,900
            
            $
            22,500





-59-
 *Table
            of Contents*




The
      category of “Audit fees” includes fees for our annual audit, quarterly reviews
      and services rendered in connection with regulatory filings with the SEC, such
      as the issuance of comfort letters and consents.




The
      category of “Audit-related fees” includes employee benefit plan audits, internal
      control reviews and accounting consultation.




The
      category of “Tax fees” includes consultation related to corporate development
      activities.




All
      above
      audit services, audit-related services and tax services were pre-approved by
      the
      Board of Directors, which concluded that the provision of such services by
      Malone & Bailey, P.C. was compatible with the maintenance of that firm’s
      independence in the conduct of its auditing functions.


-60-
 *Table
          of Contents*




SIGNATURES





In
      accordance with the requirements of Section 13 of 15(d) of the Exchange Act,
      the
      Registrant has caused this report to be signed on its behalf by the undersigned,
      thereunto duly authorized, on June 11, 2007.





Power
      Technology, Inc.






/s/
      Bernard J. Walter


By:
      Bernard J. Walter


Director,
      President, Chief Executive Officer,


Chief
      Financial Officer, Principal Accounting Officer
      and Treasurer








Pursuant
      to the requirements of the Exchange Act, this report has been signed below
      by
      the following persons in the capacities and on the dates indicated:





Signature
            
            Title
            
            Date/s/
                Bernard J. Walter
            
            Director,
                President, Chief Executive Officer,
            
            June
                11, 2007Bernard
                J. Walter
            
            Chief
                Financial Officer,Principal
                Financial Officer and Treasurer/s/
                Thomas J. Hopwood
            
            Director
            
            June
                11, 2007Thomas
                J Hopwood/s/
                F. Bryson Farrill
            
            Director
            
            June
                11, 2007F.
                Bryson Farrill


-61-