SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C.  20549
                                  ____________

                                  FORM 10-KSB

 X   ANNUAL  REPORT  PURSUANT  TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
---  ACT OF 1934


                   For the fiscal year ended December 31, 2005

                                       OR

     TRANSITION  REPORT  PURSUANT  TO  SECTION  13  OR  15(d)  OF THE SECURITIES
---  EXCHANGE ACT OF 1934


     For  the  transition  period  from  __________  to  ___________

                          Commission  file  number:  1-12727
                                  _________________

                          SENTRY TECHNOLOGY CORPORATION

         (Exact  name  of  the  Registrant  as  specified  in  its  charter)

                 Delaware                                96-11-3231714
         ----------------------                         ---------------
     (State  or  other  jurisdiction of                 (I.R.S. Employer
     incorporation  or organization)                   Identification No.)


                  1881  Lakeland  Avenue,  Ronkonkoma,  NY  11779
                  -----------------------------------------------
              (Address  of  principal  executive  offices)  (Zip  Code)

     Registrant's  telephone  number,  including  area  code:  (631)  739-2000
                                                               ---------------



                    (Former address, if changed since last report)

       Securities registered pursuant to Section 12(b) of the Act:  None.


           Securities registered pursuant to Section 12(g) of the Act:

                              Title of each class:
                              --------------------

                          Common Stock, $.001 par value


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

Indicate  by  check mark if disclosure of delinquent filers pursuant to Item 405
of  Regulation  S-B  is not contained herein, and will not be contained, to the
best  of  the  Registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in  Part III of this Form 10-KSB or any
amendment  to  this  Form  10-KSB. ____

<PAGE>

The  issuer's  revenues  for  the  latest  fiscal  year  were  $13,570,000.

At  April  12,  2006,  the  aggregate  market  value of the voting stock held by
non-affiliates  of  the  Registrant  was approximately $5,375,000 based upon the
closing  price  of  such  securities on the OTC Bulletin Board on that date.  At
April  12,  2006,  the  Registrant  had outstanding 120,728,804 shares of Common
Stock.

Documents  Incorporated  by  Reference
--------------------------------------

None.

<PAGE>
                                      ------
                                      PART I
                                      ------
Item  1.   BUSINESS
-------------------

GENERAL

Sentry  Technology  Corporation  ("Sentry")  is  engaged  in  the  design, sale,
installation  and  servicing  of  a  complete  line  of Radio Frequency (RF) and
Electro-Magnetic  (EM)  electronic article surveillance (EAS) systems and Closed
Circuit  Television  (CCTV)  solutions.  The  CCTV  product  line  features  the
proprietary  SentryVision  SmartTrack  patented  traveling  surveillance system.
The  Company's  products are used by retailers to deter shoplifting and internal
theft  and  by  industrial  and  institutional  customers  to protect assets and
people.

Sentry  was  incorporated  in  Delaware in 1996.  Its corporate predecessors had
been  in  business for more than 38 years.  Sentry was formed in connection with
the  February  1997  merger of Knogo North America Inc., a Delaware corporation,
and  Video  Sentry  Corporation,  a  Minnesota  corporation.  As a result of the
merger,  we  became  the  parent  corporation  of  two  wholly-owned  Delaware
subsidiaries:  Knogo  North  America Inc. ("Knogo") and Video Sentry Corporation
("Video"). This series of transactions is referred to herein collectively as the
"Initial  Merger."

Knogo  was  engaged in the design, manufacture, sale, installation and servicing
of  a  complete  line  of  electronic article surveillance equipment.  Knogo was
incorporated in Delaware in October 1996. Its corporate predecessors had been in
business  for  more  than  30  years.

Video  designed,  manufactured,  marketed, installed and serviced a programmable
traveling  closed  circuit  television  surveillance system that delivers a high
quality  video  picture  which is used in a wide variety of applications.  Video
also  acted  as  a  system  integrator  for  conventional  CCTV products that it
marketed,  installed  and serviced.  Video's predecessor was founded in 1990 and
made  its  first  sales in 1992.  Video was merged into Knogo as of December 31,
2000.

On  April  30, 2004, Sentry acquired all the outstanding common stock and Series
"A"  preference  shares  of  ID  Security  Systems  Canada,  Inc.,  an  Ontario
corporation,  and  all  the outstanding capital stock of ID Systems USA, Inc., a
Pennsylvania corporation, (collectively "ID Systems").  The acquisition expanded
our  product  offering  to  include proximity Access Control and Radio Frequency
Identification  (RFID) solutions.  Effective January 1, 2005, ID Systems changed
the  name  of  ID Security Systems Canada Inc. and ID Systems USA Inc. to Sentry
Technology  Canada  Inc.  and  Sentry Technology USA Inc., (collectively "Sentry
Canada").

On  March  22,  2005,  Sentry was merged into its subsidiary Knogo pursuant to a
plan  of  merger  in  which Knogo was the surviving corporation.  The merger was
effective  for  accounting purposes on January 1, 2005.  Pursuant to the Plan of
Merger,  Knogo  changed  its  name  to  Sentry  Technology  Corporation.


RECENT  DEVELOPMENTS

Over  the  last  several years, our largest shareholder, Dialoc ID Holdings B.V.
("Dialoc")  was  not  able  to provide us with additional financial support.  On
April  19,  2004,  Dialoc  sold  39,066,927  Sentry  common shares (representing
approximately  46%  of  the  total issued and outstanding shares of Sentry) to a
group of investors.  Of the group, Saburah Investments Inc. ("Saburah") acquired
22,758,155  shares,  Mr.  Robert  Furst 14,554,386 shares and Dr. Morton Roseman
1,754,386  shares.  Mr. Peter Murdoch, President, CEO and Director of Sentry, is
the  owner of Saburah.  Mr. Furst is a long-standing member of Sentry's Board of
Directors.  As  a  result  of  this  transaction,  Messers  Angel  and  de Nood,
Principals  of  Dialoc,  resigned  from  Sentry's  Board  of  Directors.

In  addition  to  the  purchase of Sentry's common shares, Saburah also acquired
100%  of  ID  Security  Systems Canada, Inc. and ID Systems USA, Inc.  The price
paid  to Dialoc by Saburah and Murdoch for Sentry and ID Systems shares in cash,
debt  assumption and other consideration was approximately $3.6 million plus the
surrender  of  Murdoch's  15% interest in Dialoc.  Saburah also agreed to make a
payment  to  Dialoc  in  the  future equal to approximately 6% of any payment it
received  from  Checkpoint Systems Inc. ("Checkpoint") resulting from litigation
brought  by  ID  Canada  against  Checkpoint.

On  April  30, 2004, Sentry purchased from Saburah Investments, Inc., an Ontario
corporation,  all  of  the  outstanding  common shares and Series "A" preference
shares  of  ID Security Systems Canada, Inc., an Ontario corporation, and all of
the  outstanding  capital  stock  of  ID  Systems  USA,  Inc.,  a  Pennsylvania
corporation.  ID  Systems is a Toronto based company engaged in anti-shoplifting
technology,  security  labeling,  radio  frequency identification (RFID), access
control  and  library  security.  Sentry  acquired  ID  Systems  from Saburah in
exchange  for  30,000,000  Sentry common shares. The price paid per Sentry share
for  the  securities of ID Systems was valued at approximately $0.11.  A special
committee  of  Sentry's  Board  of  Directors received an opinion from Corporate
Valuation  Services  confirming  that  the  price paid for the acquisition of ID
Systems  was fair from the point of view of Sentry shareholders.  As part of the
purchase  agreement,  the  proceeds of the ID Systems litigation settlement were
distributed to the former ID Systems' shareholders.  Sentry's Board of Directors
and  shareholders  owning  a  majority  of  Sentry  common  stock  approved  the
acquisition  of  ID  Systems.

Other benefits flowing to Sentry/ID Systems via the purchase of ID Systems are
as follows:

-     ID Systems and Sentry continue as the exclusive distributor in North and
South America for a period of five years for all Dialoc products including
Laserfuse radio frequency security labels and all RFID products.
-     Dialoc became a distributor in Europe and Asia of labels manufactured by
ID Systems' security label manufacturing subsidiary, Custom Security Industries
Inc. ("CSI").
-     CSI acquired the right to purchase Laserfuse raw material for processing
into finished security labels in its Toronto plant in order to reduce the cost
of production.
-     CSI acquired the option to purchase a non-exclusive license to manufacture
complete Laserfuse security labels for a period of 10 years subject to the
payment of $500,000 and a running royalty of $0.001 per label.
-     Dialoc will continue to be a dealer for Sentry products in Europe and
Asia.

On  April  30,  2004,  Sentry  entered  into  a  $2,000,000  secured convertible
debenture  with  Brascan  Technology Fund ("Brascan"), an alternative investment
fund  established  by  Brascan  Asset  Management,  to  invest  in  early stage,
technology-based companies with high growth potential.  Effective November 2005,
the  entities  changed  their respective names to Brookfield Technology Fund and
Brookfield  Asset  Management,  (collectively  referred  to  as,  "Brookfield").

Key  terms  of  the  transaction  are  as  follows:

-     Four  year  term.
-     Interest rate of 8%.
-     Redeemable at Sentry's option after 18 months.
-     Conversion price equal to the market price, at time of conversion, less a
      discount of 30% with a maximum conversion price of $0.12 per share.
-     Conversion is at the option of Brookfield when market share price is equal
      to or greater than $0.17 per share or with the approval of Sentry's Board
      of Directors when the market share price is less than $0.17 per share.
-     Sentry will provide most favored pricing to all Brookfield affiliates and
      expects to be a supplier of security and identification products to the
      Brookfield affiliates.
-     Brookfield was issued warrants for 5,000,000 shares of Sentry common
      stock, priced at $0.15 per share, exercisable anytime until April 30,
      2008.
-     Brookfield is entitled to one seat on Sentry's Board of Directors or will
      participate as an observer.

The  Debenture is secured by a general security interest over all the assets and
properties  of  Sentry.  The  amount  is  subordinate  to  the  existing  credit
facilities.  Sentry  acquired  ID  Systems  as  a  condition  of  the financing.

On August 1, 2004, ID Systems and Checkpoint entered into a settlement agreement
effective  July  30,  2004,  pursuant  to  which Checkpoint agreed to pay $19.95
million  in  full  and  final  settlement  of  claims  covered  by the antitrust
litigation.  Payment  in  full  was received on August 5, 2004. As provided when
Sentry  purchased ID Systems, the proceeds of the settlement were distributed to
former  shareholders  of  ID  Systems,  after  payment  of  litigation  fees and
expenses.  The  agreement  includes  mutual  releases  between  the  parties for
complaints  arising  from  activities prior to the date of the agreement, except
for  any  contractual obligations and any future claims for patent, copyright or
trademark  infringement.  The  agreement  is  not  an  acknowledgement  of  any
wrongdoing  or  liability  by  either party. A Stipulation of Dismissal has been
filed  with  the  Third  Circuit  Court of Appeals to finally conclude the legal
proceedings.  During  the  third  quarter  of  2004, Sentry and its subsidiaries
received  $753,000 through the repayment of debt incurred by Dialoc prior to the
ID  Systems  acquisition  and  reimbursement  of  litigation  expenses.

While  Sentry  did  not obtain an interest in the litigation settlement, Saburah
and  Sentry  agreed  that  Sentry  might  require Saburah to purchase additional
Sentry common shares equal to approximately 4.5% of any amount received  (net of
legal fees and expenses) from Checkpoint.  The price per share was set at 80% of
the  previous  20  days  trading  average  prior  to  the  announcement  of  the
settlement.  Our  Board  of Directors has exercised this option and based on the
settlement  amount,  Sentry sold to Saburah approximately 4.8 million shares for
$641,000  on  November  5,  2004.  These  transactions,  totaling  $1.4 million,
represent  the  total cash flowing to Sentry directly and indirectly as a result
of  the  Checkpoint  lawsuit.

Mr.  Murdoch,  directly  or indirectly through his ownership of Saburah, owns or
controls  49.5%  of  the  outstanding  common  stock  of  Sentry.


THE  SENTRYVISION  SYSTEM

SentryVision  refers  to  our  family of proprietary traveling CCTV surveillance
systems.  Over  the years, Sentry has developed various generations of traveling
CCTV  surveillance  systems  including  the  H-System,  OH-System,  the original
SentryVision  and  currently  the  improved  SmartTrack  system.

All  versions  of  the  product  consist of a camera carriage unit, a continuous
track  enclosed  with  tinted or mirrored glass enclosure and electronic control
equipment.  The  carriage unit moves within the enclosure and carries one or two
PTZ  CCTV  cameras,  electronic  transmission  components  and motor drives. The
carriage  track  and  enclosure are designed to custom lengths for more complete
viewing.  The  carriage  unit  transmits  video  and  control  signals  from the
camera(s)  through  two  copper  conductors  running  inside  the enclosure to a
receiver  unit  located  at one end of the carriage track. The copper conductors
also  carry  power  to  the  camera  carriage, eliminating the need for power or
communication cables. From the receiver unit, the video signals are relayed to a
central monitoring location by wire or fiber optics, where a system operator can
position  or  move  the  camera  carriage to obtain the best vantage point while
viewing  and  recording  the  continuous, live video pictures. The system design
supports  conventional  peripheral  devices,  such  as  analog  and  digital
videocassette  recorders,  alarm  inputs,  fixed  cameras,  PTZ  dome  cameras,
switches/multiplexers,  voice intercom systems, panic buttons and remote viewing
capability  using  dedicated  phone  lines  or  internet  technology.

Unlike  our  previous products, our SentryVision  SmartTrack system features one
or  two  state-of-the-art  pan,  tilt  and  zoom ("PTZ") domes providing for 360
unobstructed  views  to  eliminate  most  blind  spots. Additionally, SmartTrack
utilizes sophisticated software that provides six tours and up to 60 presets per
camera  carriage  to allow programmable viewing and recording with or without an
operator.  The  improvements made to the carriage make the new SmartTrack system
the  fastest and most reliable traveling CCTV surveillance system in the history
of SentryVision  product offerings. SmartTrack is our premier product, replacing
all  previous  generations  of  SentryVision  products.

SentryVision  is  designed  to  provide enhanced loss prevention surveillance in
retail  stores  and  distribution  centers  as well as to provide monitoring and
deterrence of illegal and unsafe activities in a variety of other locations such
as  parking garages, correctional facilities, warehouses, transportation centers
and  public  transit  terminals.  SentryVision  may  also be employed in a broad
range  of  operational  and  process  monitoring  applications  in  commercial
manufacturing and industrial settings. SentryVision  is now installed in four of
the  top five and six of the top ten Global Retailers.  As of December 31, 2005,
SentryVision  systems  had been installed at the following customer locations in
North America: Lowe's Home Centers, Target Stores, Mills Fleet Farm, Winn Dixie,
Federal  Express,  Cabellas, Fred Meyer, Symbol Technologies, Menards, UPS, J.C.
Penney,  Canadian  Tire,  Reno Depot, Estee Lauder, Kohl's Department Stores and
Disney  Direct Marketing.  In addition, during 2005, the Company's international
distributors  installed  SentryVision  systems  in customer locations throughout
Western  and Eastern Europe, Latin America and Asia. Our international customers
include  ASDA  Wal-Mart,  Carrefour,  Auchan,  Cora, Castorama, B & Q, Tesco and
Coop.  We believe that, by providing expanded surveillance coverage and enhanced
flexibility to select the locations watched, SentryVision  has enabled customers
to  significantly  reduce inventory shrinkage, increase theft apprehension rates
and  improve  safety  and  security.  Based  on  the price of its system and the
experience  of  Sentry's  customers  to  date,  we  believe  SentryVision  is  a
cost-effective  solution,  which  can  improve  the operations of our customers.

Sentry  sold  its  first  systems  in  1992  for  installation in parking garage
security  surveillance applications, but quickly moved its market focus into the
retail  sector.  In  this sector, we have identified a number of specific market
segments  for  which  SentryVision  is  well  suited  for  loss  prevention
surveillance,  including  home  centers,  mass merchandise chains, supermarkets,
hypermarkets  and  drug stores, as well as related distribution centers. The key
application  is  inventory  loss  prevention  in  the  stores,  stock  rooms and
distribution  centers.

SentryVision  is typically installed in large retail stores which use a checkout
area  at  the  front  of  the  store and product display configurations and high
merchandise shelving which form rows and aisles. Sentry specializes in designing
system  applications which are customized to fit a customer's specific needs and
which  integrate  the  customer's  existing surveillance equipment (PTZ dome and
fixed-mount  cameras) with SentryVision .   The flexibility of the system allows
the  customer to specify target-coverage areas ranging from stock rooms to total
store  coverage  and  focus  on  shoplifting,  employee  theft  or  performance
evaluation of client personnel. Typically, SentryVision  has been installed near
the  ceiling  between the rows of cash registers and the ends of the merchandise
aisles.  This  allows  the  retailer  to  easily  observe both the cash handling
activities  of cashiers in the checkout area and customer activities between the
merchandise  rows, despite the presence of hanging signs and other obstructions.
The  entire sales floor can be monitored efficiently by focusing up and down the
aisles and by moving the carriage horizontally from aisle to aisle, or from cash
register  to  cash  register.  In addition, with the use of camera pan, tilt and
zoom  lens features, activities in each area can be monitored in greater detail.
Results from Sentry's current installations indicate significant improvements in
detecting  shoplifting  and  employee  theft.

Retailers  have  also  integrated  SentryVision  with  "front  end"  packages of
conventional  CCTV  cameras,  dedicated to monitoring the registers and allowing
users  to  locate  the  traveling  camera  track  where  the maximum coverage of
in-store  traffic  can be monitored. The SentryVision  system is today generally
sold  in  conjunction  with  conventional CCTV applications. Customers using the
SentryVision  system  have  reported  significant  reductions  in  theft-related
inventory  shrinkage.

Our  SentryVision  Mobile  allows the user to view and control video images from
the  SmartTrack  traveling  CCTV  system  using  a mobile hand held computer and
wireless  communication  network.  The  earlier  generation SentryVision  Mobile
product  operated  on a wireless Personal Digital Assist (PDA) using Windows CE.
The  new  version  now  runs on the latest, tablet style wireless computer under
Windows  XP  and  is  significantly  faster  than  the  earlier PDA version. The
increased  speed  and  computing power offered by the tablet gives the user real
time  video viewing. Customers are no longer required to sit in front of a video
console  to  manage the SmartTrack system.  The SentryVision  Mobile solution is
being  used  to  manage operations and security in large distribution centers in
the  United  States.

SentryVision  Server  is  an  IP  addressable  digital video server, which gives
users  the  ability  to capture, stream, view and store video images using a web
browser  with  the  reliability of the Linux OS.  The SentryVision  Server comes
with  software that allows multiple users to simultaneously connect to a variety
of SentryVision  DVMS (Digital Video Management System) via LAN - across TCIP/IP
networks.  The  system  uses a Windows-based application for configuration and a
browser-based client for remote viewing of live and recorded video for quick and
easy  investigation  of  security  issues,  as  well  as  policies and procedure
compliance.

Retail  Market  Applications
----------------------------
-  Home  Centers. Sentry has installed systems in the home center segment of the
retail  market.  This  market  has  by  far  been  the  greatest  market for the
SmartTrack  systems.  Typical  of  our  customers in this market are Lowe's Home
Centers,  with  more  than 1,234 stores in 46 states, and Mills Fleet Farm, a 30
store  regional  hardware, home supply and discount retail chain. Both companies
required  systems  for  total  floor coverage. We applied different solutions to
this  common  problem in each case. Lowe's Home Centers chose to integrate track
cameras  with  PTZ dome and fixed-mount cameras, while Mills Fleet Farm chose to
use  only  the  track  camera  system.

-  Mass Merchandise Chains. Sentry has installed systems for customers including
Sears,  Navy Exchange, Walgreens and Target Stores. The targeted coverage varies
extensively  in  these  installations  from  only  stock  rooms  to  total store
coverage.  The  equipment  package  provided  in  each  case  varies  with  the
application  and  location  of  the  need.

-  Supermarkets. Sentry has installed systems in supermarket customers including
Kroger,  Marsh,  Cub Foods, Winn-Dixie and Fiesta Mart. The targeted coverage in
most  of  these  installations  has  been  the  entire  retail  space.

Industrial  Market  Applications
--------------------------------
-  Distribution  Centers.  Sentry also provides loss prevention surveillance for
distribution  centers  and  warehouses,  and has installed systems for retailers
including  TJ  Maxx,  Big  Lots,  Home  Depot,  Kohl's Department Stores, Target
Stores,  Ingram  Micro,  Navarro,  Wendy's,  Mastronardi Produce, Borders Group,
Disney Direct Marketing, Barnes & Noble, Robinsons-May, Ross, Saks, Guess, Tower
Records,  Big  Dog,  Food  Lion,  Roundy's,  the  Gap,  Bealls  and J.C. Penney.
Traveling through a facility from an overhead position, the SentryVision  system
can monitor activities occurring between the stacked rows of cartons or lines of
hanging  garments.  The system can also move a surveillance camera into position
to  monitor  shipping and receiving docks and parked delivery trucks. To achieve
surveillance  capabilities  equivalent  to  those of the SentryVision  system, a
conventional  PTZ  dome  system  or  fixed-mount  CCTV  camera  would have to be
installed at every desired vantage point, requiring numerous cameras, additional
equipment  and  wiring  and  increased  installation  and  operating  costs.

-  Manufacturing  and  Transportation  Facilities.  So  far SentryVision  use in
factories  has  been  limited,  but  the  benefits  of  continuous  tracking  of
industrial  operations and processes indicate future growth potential. Continued
expansion  of the SentryVision  dealer program is expected to generate increased
installations in factories manufacturing electronics, pharmaceuticals, computers
and  other  high  value  products  and  in  various  wholesale  distribution and
transportation  facilities.  Express  package  and  other  high  throughput
distribution  facilities  are also good prospects for a continuous tracking CCTV
system  for  theft prevention. Installations include Watkins Motor Lines, Symbol
Technologies,  AT&T  Wireless,  Federal  Express,  UPS,  Wyeth-Ayerst  Labs, USF
Logistics  and Thompson Electronics.  In Cape Town, South Africa, The Metro Rail
Network  has  installed  10  tracks  at  several  terminal  stations  to monitor
passengers at the junction of bus, railway and taxi services.  Smart Track is an
integral  part  of  an overall crime prevention and deterrence program including
central  management  of  all  video  devices  over  a  network.

-  Internet  Data Centers. Sentry markets SentryVision  systems to Internet data
centers  (IDC's).  Most  IDC's are full service business internet providers with
state-of-the-art  systems  that  host,  monitor  and  maintain  mission-critical
web-sites,  e-commerce  platforms  and business applications for small to medium
sized  businesses.  SentryVision  systems  are used to heighten security through
remote  video  monitoring.  Installations  include  Dallas  Exchange, TIAA-CREF,
Savvis  and  The  Discovery  Channel.

Institutional  Market  Applications
-----------------------------------
-  Corrections  and Government Institutions. SentryVision  has been installed in
correctional  facilities  in  Michigan,  New  Mexico and Illinois, with reported
safety  benefits  of continuous coverage in dormitory, recreation and visitation
areas.  SentryVision  installations  have  also  been  completed  in  various
government  agencies  including  the  Federal Reserve Bank, U.S. Postal Service,
Central  Intelligence  Agency  and  U.S.  Immigration  Service.


CONVENTIONAL  CCTV  SYSTEMS

Conventional  CCTV is cost effective in many applications and is the most widely
used  loss  prevention  system  in North America. Conventional CCTV uses all the
basic  components  of  the  video surveillance industry including fixed and dome
cameras,  digital  video recorders, VCR's, monitors, switchers, multiplexers and
controllers.  As  all  of  this  equipment is manufactured for Sentry by outside
vendors,  we  can  provide  our  customers  with  state-of-the-art equipment for
specific applications at favorable costs. We believe that, while less profitable
than  SentryVision  and  traditional  EAS products, the CCTV products complement
our  other  surveillance  systems  and provide retailers with further protection
against  internal  theft  and  external shoplifting activities. CCTV systems can
also  be  electronically  connected to EAS systems, causing a video record to be
generated  when  a  theft  alarm  is  triggered.

While  we  believe  that  conventional  CCTV and SentryVision  are complementary
security  solutions,  many companies have traditionally viewed them as competing
solutions  and  have selected between conventional CCTV systems and SentryVision
systems  for  their  security  solutions.

Remote  video transmission and digital recording are continuing growth areas for
Sentry.  These  systems  allow  customers to monitor remote sites using existing
communication  lines  and  a PC-based system. Video camera images are stored and
manipulated  digitally,  substituting  the  PC  for the VCR and multiplexer, and
eliminating  the  videotape. Sentry markets digital video recording and a remote
video  transmission  unit developed by third-party vendors including GE Security
and  TeleWatch.

We  continue  to  expand  conventional  CCTV  installations  in  industrial  and
institutional  facilities.  Significant installations have been made for express
package  companies,  including Federal Express, United Parcel Service, Emery Air
Freight  and  Airborne  Express.  The use of CCTV surveillance also continues to
grow  in  both  new and existing correctional facilities and Sentry now has CCTV
installations  in  both  state  and  county  facilities.

The  school  market  is  another  CCTV  segment.  Successful  installations were
completed  with  reported  benefits  including  decreased vandalism and improved
safety.  In  schools,  conventional CCTV is an extremely cost effective security
option  with Digital Recording and Remote Video Transmission becoming attractive
options  for  large  school  districts.

Our  largest  single  school  CCTV  installation was at the Norristown (PA) High
School  with 111 cameras, using digital recording and fiber optic cabling. It is
an  advanced,  cost  effective  system  with  video  from  all cameras instantly
accessible  on  their  network.


EAS  SYSTEMS

EAS  systems  consist  of  detection devices that are triggered when articles or
persons  tagged  with reusable tags or disposable labels, (referred to as tags),
pass  through the detection device. The EAS systems that Sentry manufactures are
based upon three distinct technologies. One, the Radio Frequency ("Knoscape RF")
System,  uses  medium radio frequency transmissions in the two to nine megahertz
range.  Second,  the "Ranger " system uses ultra-high frequency radio signals in
the 902 megahertz and 928 megahertz bands. Third, the Electromagnetic ("Knoscape
MM ") system uses very low frequency electromagnetic signals in the range of 218
hertz  to  nine  kilohertz.

The  principal  application  of  Sentry's  products  is  to  detect  and  deter
shoplifting  and  employee theft in supermarket, department, discount, specialty
and  various  other  types of retail stores including bookstores, video, liquor,
drug,  shoe,  sporting goods and other stores. The use of these products reduces
inventory  shrinkage  by  deterring  shoplifting,  increases  sales potential by
permitting  the  more open display of greater quantities of merchandise, reduces
surveillance  responsibilities  of  sales  and  other  store personnel and, as a
result,  increases  profitability  for  the  retailer. In addition, Sentry's EAS
systems  are  used  in  non-retail  establishments to detect and deter theft, in
office  buildings  to  control the loss of office equipment and other assets, in
nursing  homes  and  hospitals  for  both asset and patient protection, and in a
variety  of  other  applications.

The North and South American market for retail EAS systems and tags is estimated
by  industry  sources  in  excess of $500 million and is growing at an estimated
rate  of  8  percent  per  year.

At  December  31,  2005, the approximate number of EAS Systems sold or leased by
Sentry  and  its  predecessors  exceeded  26,400.

Radio  Frequency  and  Ranger  Detection  Systems

Sentry  manufactures  and  distributes  the  Knoscape  RF  system, the principal
application  of  which  is to detect and deter shoplifting and employee theft of
clothing  and  hard goods in retail establishments. Sentry also manufactures and
distributes  the  Ranger  system,  which  the Company believes is a particularly
useful  and  cost  efficient EAS system for high fashion retail stores with wide
mall-type  exit areas that ordinarily would require multiple Knoscape RF systems
for  adequate  protection.  The  Knoscape RF and Ranger systems consist of radio
signal  transmission  and  monitoring  equipment installed at exits of protected
areas, such as doorways, elevator entrances and escalator ramps. The devices are
generally  located  in  panels or pedestals anchored to the floor for a vertical
arrangement  or  mounted  in  or  suspended  from the ceiling (Silver Cloud) and
mounted  in or on the floor in a horizontal arrangement. The panels or pedestals
are  designed to harmonize with the decor of the store. The monitoring equipment
is  activated  by  tags containing electronic circuitry, attached to merchandise
transported through the monitored zone. The circuitry in the tag interferes with
the  radio signals transmitted through the monitoring system, thereby triggering
alarms,  flashing lights or indicators at a central control point, or triggering
the  transmission  of an alarm directly to the security authorities. By means of
multiple  installations of horizontal Knoscape RF systems or installation of one
or  more  Ranger systems, the Company's products have the ability to protect any
size  entrance  or  exit.

Non-deactivatable reusable tags are manufactured in a variety of sizes and types
and  are attached directly to the articles to be protected by means of specially
designed  fastener  assemblies.  A clerk at the checkout desk removes a reusable
tag  from the protected article by use of a decoupling device specially designed
to  facilitate  the removal of the fastener assemblies with a minimum of effort.
Removal  of  the  tag  without  a  decoupler  is very difficult and unauthorized
removal  will  usually damage the protected article and thereby reduce its value
to  a  shoplifter.  Optional  reminder  stations  automatically remind the store
clerk, by means of audiovisual indicators, to remove the tag when the article is
placed  on  the  cashier's  desk.

Disposable  labels can be applied to products either by placing them directly on
the  outside  packaging  of  the  item  or  hidden  within  the  product  by the
manufacturer. These labels can be deactivated, at the checkout desk, through the
use  of  a  deactivation  device.

Knoscape  RF  and  Ranger  systems generally have an economic useful life of six
years  (although  many  of  Sentry's  systems  have  been  operating  for longer
periods),  have  a  negligible  false  alarm  rate and are adaptable to meet the
diversified  article  surveillance  needs  of  individual  retailers.

Electromagnetic  Detection  Systems

The  primary  application of Knoscape MM systems is to detect and deter theft in
"hard  goods"  applications  such  as  supermarkets,  bookstores  and  in  other
specialty  stores  such as video, drug, liquor, shoe, record and sporting goods.

Knoscape  MM  systems  use  detection  monitors  that  are  activated  by
electromagnetically  sensitized strips. The MM targets are typically attached to
the  articles  to  be  protected  and  are easily camouflaged on a wide array of
products.  The  detection monitors used by the Knoscape MM systems are installed
at  three  to  five foot intervals at the exits of protected areas. The magnetic
targets  can  be supplied in many forms and are attractively priced, making them
suitable  for  a variety of retail applications. In addition, the MM targets can
be manufactured to be activated and deactivated repeatedly while attached to the
articles  to be protected. Accurate deactivation is also very important when the
item  to  be protected is a personal accessory that will be carried by its owner
from  place  to  place, such as pocket books, pens, lipstick, shoes, camera film
and  cameras.

The  Knoscape  MM  system  offers  retailers  several  features not available in
Knoscape  RF  and  Ranger  systems.  Since  the target is very small, relatively
inexpensive  and  may  be  inserted at the point of manufacture or packaging, it
provides  retailers  with  a  great  deal  of  flexibility  and is practical for
permanent  attachment  to  a  wide  variety  of  hard  goods,  especially  low
profit-margin  products.  The  target  can  be  automatically  deactivated  at
check-out, eliminating the risk of triggering alarms when merchandise leaves the
store  and  saving  sales  personnel  valuable  time.  Since  the targets can be
incorporated  directly  into  a  price  tag  or  the  article  itself,  they are
convenient  to  use.


PATRON  SELF  CHECK  BOOK  BORROWING  SYSTEMS

Libraries  worldwide  are  struggling to reduce operating costs by applying cost
effective  technology  solutions.  The  Sentry QuickCheck patron self check book
borrowing  system  offers  an  ideal solution to gain an increasing share of the
estimated $100 million library security market in North America.  The QuickCheck
system  is  RFID  ready  and  provides  for user access to circulation software,
automatic  security  strip  deactivation, automatic return ticket printing, user
access  to  book  renewals,  multi-lingual software interface and on-screen user
instructions.  QuickCheck  systems  have been installed in Omaha Public Library,
Supreme  Court  of  Canada,  Harris  County  Public  Library,  Burlington Public
Library,  Vancouver  Public  Library,  Ottawa  Public Library, McGill University
Library  and  Calgary  Public  Library.


RADIO  FREQUENCY  IDENTIFICATION  (RFID)

RFID  is  a wireless electronic data collection system that uses radio frequency
signals to identify and track objects using readers and tiny integrated circuits
in  label  format.  Applications include library management, warehousing, parcel
tracking,  inventory  control, asset protection and supply chain management.  We
are  in  the  initial  stages of introducing ISO standard, RFID labels, tags and
readers  for  library  management  and  upgrades  to its access control systems.


PRODUCT  AUTHENTICATION

Product  Authentication  is  a  specific  use technology, identifying fraudulent
documentation  and/or  "knock-off"  products.  With  our  patented,  application
specific  electromagnetic label imbedded in an object, an EM reader will quickly
determine  the  authenticity of the item.  We anticipate introducing products to
address  this  need.


DIALOC  ID  SECURITY  PRODUCTS

Under  a  five-year  license agreement, ending in March 2009, we also distribute
EAS  systems  manufactured  by  Dialoc  ID.  The 9000-P 8.2 MHz system, which is
housed  in  slender,  self-contained  Plexiglas  panels, provides retailers with
clear  lines  of  sight  at  the  front  end  along with the durability of solid
Plexiglas.  The  panels  can  be  custom  printed  with  the retailer's logo for
enhanced  image  and  trade  name awareness. The system's electronics, which are
built-in  to  the  base  of  the Plexiglas antenna, provide detection of 8.2 MHz
labels  and  hard  tags  in  aisles  up  to six feet wide. The 9000 PL system is
offered  in both single and dual aisle configurations and is compatible with all
existing  8.2  MHz  tags and checkout accessories.  In addition, through Sentry,
Dialoc  ID  anticipates  it  may introduce LaserFuse, a new RF label technology,
which  will  be  compatible  with,  and an alternative to, the labels offered by
Checkpoint  Systems,  Inc.


BOOKINGS

Of  Sentry's  bookings  for  the  year ended December 31, 2005, approximately 31
percent were attributable to SentryVision , 14 percent to CCTV and 55 percent to
EAS. Of Sentry's bookings for the year ended December 31, 2004, approximately 32
percent were attributable to SentryVision , 26 percent to CCTV and 42 percent to
EAS.  For  the  year  ended  December  31,  2003,  approximately 52 percent were
attributable  to  SentryVision,  30  percent  to  CCTV,  18  percent  to  EAS.


MAJOR  CUSTOMERS

Although the composition of our largest customers has changed from year to year,
a  significant portion of our revenues has been attributable to a limited number
of  major customers. In 2005, Goody's Family Clothing accounted for 10% of total
revenues.  In  2004  and  2003,  Lowe's  Home Centers accounted for 30% and 44%,
respectively,  of total revenues.  In January 2005, Lowe's Home Centers notified
us  that  they  would  not  be renewing their annual maintenance contract, which
represented $0.9 million of our revenues in 2004.  The maintenance contract also
contributed  towards  the  selection  of vendors for replacement and add-on CCTV
business  in  new  and existing Lowe's locations.  As a result of this decision,
Revenues  from  Lowe's  Home Centers decreased from $5.0 million in 2004 to $1.0
million  in  2005.  We anticipate that future revenues from Lowe's will continue
to  decline  on  a  comparable  basis.  While  we believe that one or more major
customers  could account for a significant portion of our sales for at least the
next two years, we anticipate that our customer base will continue to expand and
that  in  the  future  we  will  be  less  dependent  on  major  customers.


PRODUCTION

SentryVision  and  CCTV  Products
---------------------------------

By the end of 2005, Sentry had outsourced substantially all of its manufacturing
operations.  Although  we are not dependent upon any particular supplier, Sentry
has made an investment in material and training with selected sub-contractors to
supply  major  portions  of  our  SmartTrack  system.  Most  system  parts  are
"off-the-shelf"  components,  and  other  materials  and  system  components are
designed  by  Sentry  and manufactured to Sentry's specifications.  Some minimal
final  assembly  operations  are  conducted  at  the  Company's  facilities  in
Ronkonkoma,  New  York.  System  components  and  parts include cameras, circuit
boards,  electric motors and a variety of machined parts. Each finished assembly
undergoes  a  quality  assurance  check  by  Sentry  prior to its shipment to an
installation  site.  All SentryVision  carriage assemblies are tested and burned
in for 24 hours, resulting in approximately 3,000 travel and PTZ cycles prior to
quality  assurance  sign off.  Sentry is not required under any state or federal
environmental  law  or  regulations  to  obtain  related  licenses or permits in
connection  with  its  manufacturing  and  assembly  operations.

EAS  Products
-------------

Sentry  produces at our facilities in Ronkonkoma, New York, or purchases through
suppliers,  its  RF,  Ranger,  and  MM  systems, or their components. Production
consists  of  final  assembly operations of electronic and mechanical components
that  Sentry  purchases  from  various  suppliers. Independent contractors using
existing  molds and tooling produce plastic cases and antenna coils for the tags
to Sentry's specifications. Sentry is not dependent on any one supplier or group
of  suppliers  of  components  for  its  systems.

Our  policy  is  to maintain our inventory at a level that is sufficient to meet
projected  demand  for  its  products.  We do not anticipate any difficulties in
continuing  to obtain suitable components for our products at competitive prices
in  sufficient  quantities  as  and  when  needed.

Security  Labels
----------------
As a result of the acquisition of ID Systems in 2004, we obtained a 51% interest
in  Custom  Securities  Industries Inc. ("CSI"), an Ontario company.  Since it's
founding  in 1988, CSI has established a worldwide reputation for innovation and
excellence  in  the  Electronic  Article Surveillance (EAS) Industry.  Extensive
experience and know how in the leading EAS technologies, combined with expertise
in  converting,  in  house  development  of  proprietary products and the use of
specially  designed  converting  equipment, enables CSI to offer custom tailored
solutions  with  a  rapid  turn  around  time.

Over the years, CSI has acquired a wide range of knowledge and developed its own
trade  secrets  and  manufacturing  procedures  to ensure competitive pricing, a
broad range of high quality products, and the ability to supply products in both
small  and  large  volumes.

CSI  offers  EAS  products compatible with Radio Frequency (RF), Electromagnetic
(EM),  and  Accousto-Magnetic  (AM)  technologies.  Whatever  the  particular
application,  from standard EM pressure sensitive labels to sequentially printed
barcode labels, products are available.  Recently CSI has also introduced Source
Tagging  Solutions  for  the Radio Frequency and Accousto-Magnetic technologies.
These  products are successfully meeting the needs of retailers in the hardware,
auto  aftermarket,  food and general merchandise categories.  CSI specializes in
custom  solutions  for  hard  to  tag  items.

Long term associations with leading suppliers of EAS sensor materials, films and
papers,  pressure  sensitive  materials  and adhesives enables CSI to handle the
most  demanding of label product needs with either standard or custom solutions.
CSI  offers  a  wide selection of labels and fashion tags. Our products are made
with  high  performance  materials,  such  as extremely low coercivity amorphous
alloys  and  ultra  stable  deactivation  ribbon.

CSI's  manufacturing  equipment  incorporates  computer  and control technology,
including  PLC's,  Motion  Controllers,  Servo  Motors,  many different types of
position  and movement sensors, along with a very large inventory of specialized
tooling  and  dies.

Besides  providing  security  labels  to  Sentry and ID Systems, CSI's customers
include  Tyco,  Checkpoint,  Dialoc  ID,  KMA  and  Retailers  Advantage.


MARKETING

We  market  our  SentryVision  and  conventional CCTV Systems through the direct
efforts  of  salespersons located in select metropolitan areas across the United
States  and  Canada,  as well as through dealers/system integrators. In 2005, we
increased  the number of direct salespersons from four to 11, whose efforts were
supplemented  through  six  in-house  sales  support staff and independent sales
representatives.  We  have  centralized  our  sales  management  in  our Toronto
office.  We also market our EAS products to smaller local and regional retailers
through  selected  dealers  and  distributors.  Sales  are made into the library
market  on  both  a  direct  basis  as  well  as  through  catalogs and dealers.

We market our products primarily through participation in trade shows, placement
of  ads  in  trade  publications,  direct mailings and through telemarketing. In
addition,  these  efforts  are  augmented  through  our  Website, which provides
enhanced  product  and  market  oriented information. Internationally, we market
SentryVision  through  large  system  integrators  and  distributors  including
Honeywell,  ADT,  Chubb,  Intrepid  and  BSC.

SentryVision  and  CCTV  Products
---------------------------------

To  date,  most  SentryVision  and conventional CCTV Systems have been sold on a
direct  sale  basis.  Typical  billing  arrangements  for  SentryVision  systems
involve  invoicing 50% of total sale upon shipment of the product and 50% on the
completion  of  the  installation.

While  most  of  the current SentryVision  and conventional CCTV sales have been
made to home centers, retail chains and distribution centers, our marketing plan
for  Sentry  also  emphasized a dealer program for institutional, industrial and
international  prospects.

We also market SentryVision  through qualified security dealers and integrators.
Much  of  the  industrial  and  institutional SentryVision  / CCTV prospects are
serviced  by  local  security  companies who design and install integrated CCTV,
access  control  and alarm systems. By working with these companies, we expected
to be able to reach a far larger number of SentryVision  prospects and penetrate
the  market  more  rapidly.  The  program  has  generated interest through trade
advertising,  direct  mail  and  trade show participation.  In 2005, our largest
domestic  dealer  was  Tyco's  ADT  Security division.  Domestic dealers did not
generate significant SentryVision  installations in industrial and institutional
facilities  in 2004. Prior sales were made through ADT, STG, Siemans, Mosler and
Security  Link.

In  addition,  we  market  SentryVision  internationally  using  independent
distributors  on  both an exclusive and nonexclusive basis. We sell our products
to  independent  distributors at prices below those charged to end-users because
distributors  typically  make  volume  purchases  and assume marketing, customer
training, installation, servicing and financing responsibilities. As of December
31,  2005, we have distributors in Canada, UK, France, Mexico, Belgium, Holland,
Italy,  Poland,  Singapore,  Russia, Spain, Brazil, Argentina, Hungary, Romania,
Taiwan,  Lebanon,  Australia,  Japan,  South Africa, South Korea, Israel and the
United  Arab  Emirates.

During  2005,  Sentry placed in service 150 SentryVision  systems and 1,180 CCTV
cameras,  as  compared  to  229  SentryVision  systems and 2,626 CCTV cameras in
2004,  and  197  SentryVision  systems  and  2,996  CCTV  cameras  in  2003.

EAS  Products
-------------

Sentry EAS systems are principally marketed on a direct sales basis. In the case
of  the  Knoscape MM systems, detection targets, which are sold to the customer,
are permanently attached to the item to be protected. Therefore, as the customer
replenishes  its  inventory, additional targets will be required for those items
to  be protected. We also market a more expensive, removable, reusable detection
tag  for  use  with the Knoscape MM systems on certain products such as clothing
and  other  soft  goods.

RF  and Ranger systems continue to be used by apparel and department stores that
have  wide  exit  areas and a desire for deterrence based on reusable hard tags.
Both  the  Silver  Cloud  and Knoscape RF systems are universal in that they can
detect both 2 MHz hard tags and 8 MHz labels.  Knogo also markets an 8MHz P-2000
RF  system  designed for both hard and soft good customers. The P-2000 system is
economical  and  self-installable  by  the  customer.

Supermarkets,  bookstores,  video  stores  and  specialty  stores  remain  good
prospects  for  MM  systems due to the small size and low cost of Micro-Magnetic
strips.  Knoscape  MM  Systems  feature updated digital electronics. Knoscape MM
Systems  detect virtually all manufacturers' magnetic strips and can universally
replace  older  magnetic  strip  systems  manufactured  by  various EAS vendors.

The library market continues to be a substantial market for magnetic technology.
We  were subject to an agreement not to compete against 3M for sales and service
of  EAS  Systems  in  the  library  market,  which  expired  in  March  2004.

During  the years ended December 31, 2005 and 2004, Sentry placed in service 450
and  202  EAS systems, respectively.  In addition in 2005, we sold 23 QuickCheck
patron  self  check  systems  to  libraries.


BACKLOG

Our  backlog  of  orders was approximately $1.2 million at December 31, 2005, as
compared  to  approximately  $2.2 million at December 31, 2004 and approximately
$3.2  million  at  December 31, 2003.  We have experienced a trend, particularly
with  our  major  customers, of receiving fewer long-term blanket orders than in
the  past.  We  anticipate  that  substantially all of the backlog present as of
December  31,  2005  will  be  delivered  within  12  months.


SEASONAL  ASPECTS  OF  THE  BUSINESS

Our  current  customers  are  primarily  dependent  on  retail  sales, which are
seasonal  and  subject to significant fluctuations and are difficult to predict.


SERVICE

Installation  services  are performed by our personnel and by carefully screened
and  supervised  subcontractors  as well as authorized dealers and distributors.
Repair  and  maintenance  services are performed primarily by our personnel. All
products  sold are covered by a warranty period, generally, one year.  After the
warranty  period,  we  offer  our  customers  the  option  of  entering  into  a
maintenance contract with the Company or paying for service on a per call basis.

Installations of SentryVision  systems typically take from three days to several
weeks  and  involve  mounting  the  enclosures,  installing the controller unit,
installing the carriage assembly, and connecting control and transmission cables
to the central monitoring location. Items such as high voltage power termination
wiring  are  typically  the  responsibility  of  the  end  user.

The  use of subcontractors supervised by Company employees proved cost effective
with  no  apparent  sacrifice in quality. A network of qualified contractors was
established.  The  loss  of  the Lowe's maintenance contract in the beginning of
2005, lead to a reduction of technician headcount to 14.  In 2005, we released 9
employees  and  retained  only  our  most  technically  skilled  employees.  Our
technical  staff  now  focuses  on  EAS,  SentryVision  and  CCTV  service  and
maintenance and we rely on our well-established partner network for installation
work.  The model remains cost-effective and allows us to scale our efforts up or
down  as  business  requires  without  the risk of a fixed cost structure.  This
strategy  has  resulted in significant cost savings.  In addition, we retain our
reputation for technical expertise within the industry.  We anticipate that this
level  of  coverage  will be adequate, coupled with our maturing Service Partner
Network,  to  service  our  customer  base.

Our  Design  Center  personnel continued to screen all service requests over the
telephone,  avoiding  costly  service  calls.  In  addition,  careful  screening
allowed  us  to  ship  replacement  parts in advance of the technician's arrival
increasing  our  ability  to  complete  calls  in  a  single  visit.


COMPETITION

We  operate  in  a  highly competitive market with many companies engaged in the
business of furnishing security services designed to protect against shoplifting
and  theft.  In addition to EAS systems using the concept of tagged merchandise,
such  security services use, among other things, conventional PTZ dome and fixed
mount  CCTV systems, traveling CCTV systems, mirrors, guards, private detectives
and  combinations  of  the foregoing. We compete principally on the basis of the
nature  and  quality  of its products and services and the adaptability of these
products  to  meet  specific  customer  needs  and  price  requirements.

To  our  knowledge,  there  are several other companies that market, directly or
through  distributors,  conventional  closed  circuit  video  systems and/or EAS
equipment  to  retail  stores,  of  which  Sensormatic  (acquired  by Tyco/ADT),
Checkpoint  Systems,  Inc.,  GE  Security, Pelco Manufacturing, Inc., Panasonic,
Inc. and Honeywell are the Company's principal competitors. Outside the U.S., we
are  aware  of other companies that market other types of traveling CCTV systems
including  Lextar  Technologies, Ltd. in Australia, T.E.B., Sensormatic and DETI
in  France  and  Moving Cameras Ltd. in the UK. Some of our competitors have far
greater  financial  resources,  more  experienced  marketing organizations and a
greater  number  of  employees  than  the  Company.


PATENTS  AND  OTHER  INTELLECTUAL  PROPERTY

Although  patent  protection  is  advantageous to Sentry, we do not consider any
single patent or patent license we own or hold to be material to our operations.
We  believe  that  our  competitive  position  ultimately  will  depend  on  our
experience,  know-how  and  proprietary data, engineering, marketing and service
capabilities  and  business  reputation,  all  of which are outside the scope of
patent  protection.

SentryVision
------------

Sentry  has  a  United  States  patent covering the cable-free transmission of a
video  signal  to and from the carriage. This technology prevents degradation of
the  video  signal, which can result from the movement of and prolonged friction
caused  by  the  carriage.  Three  additional  U.S.  patents  were  received for
improvements  made  to the original technology, which has been incorporated into
the SmartTrack product. Sentry also has received a corresponding European patent
and  eleven  foreign  country  patents.  We  intend to seek patent protection on
specific  aspects of the SentryVision  system, as well as for certain aspects of
new  systems  which  may be developed for Sentry. There can be no assurance that
any  patents  applied for will be issued, or that the patents currently held, or
new  patents,  if  issued,  will  be  valid  if  contested  or  will provide any
significant  competitive  advantage  to  Sentry.

We are not aware of any infringement of patents or intellectual property held by
third  parties. However, if Sentry is determined to have infringed on the rights
of  others,  Sentry  may be required to obtain licenses from such other parties.
There  can  be  no  assurance  that the persons or organizations holding desired
technology  would grant licenses at all or, if licenses were available, that the
terms of such licenses would be acceptable to the Company. In addition, we could
be  required  to  expend  significant  resources  to  develop  non-infringing
technology.

Sentry  has  also  relied  on the registration of trademarks and trade names, as
well  as on trade secret laws and confidentiality agreements with its employees.
While  we  intend to continue to seek to protect Sentry's proprietary technology
and  developments  through  patents,  trademark registration and confidentiality
agreements, we do not rely on such protection to establish and maintain Sentry's
position  in  the  marketplace. Management believes that improvement of Sentry's
existing  products,  reliance  upon  trade secrets and on unpatented proprietary
know-how,  and  the  development  of new products will be as important as patent
protection  in  establishing  and  maintaining  a  competitive  advantage.

EAS  Products
-------------

Sentry  has  21  United  States  and Canadian patents and one patent application
relating  to  (i)  the  method  and  apparatus  for the detection of movement of
articles  and persons and accessory equipment employed by Sentry in its Knoscape
RF,  Ranger  and Knoscape MM systems, (ii) various specific improvements used in
the  Knoscape  RF,  Ranger  and Knoscape MM systems and (iii) various electrical
theft detection methods, apparatus and improvements not presently used in any of
Sentry's  EAS  systems.


<PAGE>

Product  Authentication
-----------------------

Sentry's  Custom  Security  Industry  subsidiary  has  two United States patents
related  to  a product authentication.  One patent is for a system that measures
certain  magnetic  properties of a marker with an electronic reader utilizing an
electromagnetic  search  field  and  the  second  patent  is for a unique reader
suitable  for  this  system.

RESEARCH  AND  DEVELOPMENT

As of December 31, 2005, Sentry Technology Corporation had 8 full time employees
engaged  in research, engineering, product development and design.  In addition,
the  Company  may  retain  consultants  to  assist  in specific areas related to
research, engineering and product development.  For the years ended December 31,
2005,  2004 and 2003, approximately $0.9 million, $0.8 million and $0.7 million,
respectively,  was  expended  on  Company-sponsored  research.

The  SmartTrack  System  continued  to  benefit from product improvement efforts
focused  on  adding  features  and  reducing  the cost of manufactured products.
Continued  software  developments  during  2005  resulted  in  improved  user
interfaces,  additional support for industry protocols, and allowed the use of a
wider  range  of  camera options.  Also in 2005, we commenced work with a design
firm  for  the  development  of  the  next  generation  SmartTrack  system.

Additional  projects  included  revisions  to  EAS  products.

EM  product  offerings  were enhanced through development of a new antenna panel
called  WAM, which was released in 2005.  The design incorporates a contemporary
furniture  style that compliments a wide variety of environments.  Technological
advances  in  the  design simplify the installation process and result in a more
reliable  system.

In  addition,  internal  development in RF Systems focused on cost reductions in
the  swept  RF  wrap  desk and improvements to our customer installable systems.


REGULATION

Because Sentry's EAS and CCTV systems use radio transmission and electromagnetic
wave  principles,  such  systems  are  subject  to  regulation  by  the  Federal
Communications Commission ("FCC") under the Communications Act of 1934. In those
instances  where it has been required, certification of such products by the FCC
has  been  obtained. As we develop new products, application will be made to the
FCC for certification or licensing when required. No assurance can be given that
such  certification  or  licensing  will  be  obtained or that current rules and
regulations  of  the  FCC  will  not  be  changed  in  an  adverse  manner.

Our  business  plan  calls for the sale and use of Sentry's products in domestic
markets  and,  where  consistent  with contractual obligations, in international
markets.  Sentry's  products  may  be  subject  to  regulation  by  governmental
authorities  in  various  countries  having  jurisdiction  over  electronic  and
communication  use.  We  intend  to  apply  for certification of our products to
comply  with the requirements under the regulations of the countries in which we
plan  to  market our products. No assurance can be given that such certification
will  be  obtained  or that current rules and regulations in such countries will
not  be  changed  in  a  manner  adverse  to  Sentry.

We  believe  we  are in material compliance with applicable United States, state
and  local  laws  and regulations relating to the protection of the environment.


EMPLOYEES

At  December  31,  2005,  the Company and its subsidiaries employed 83 full-time
employees, of whom 17 were employed in administrative and clerical capacities, 8
in  engineering,  research  and  development, 25 in production and manufacturing
support,  16 in sales and marketing and 17 in customer service and support. None
of  our  employees  are  employed  pursuant to collective bargaining agreements.


Item  2.  PROPERTIES
--------------------

Our  principal  executive,  administrative offices, research and development and
distribution  facilities are located in Ronkonkoma, New York, in a 20,000 square
foot  facility  leased  by  the  Company.   In  addition,  we  maintain a sales,
administrative and distribution office in a leased 7,400 square foot facility in
Toronto,  Ontario.  Our  CSI  subsidiary leases facilities for manufacturing and
distribution  totaling  7,000  square  feet  located  in  Thornhill,  Ontario.


Item  3.  LEGAL  PROCEEDINGS
----------------------------

In August 2004, Bi-County Park Associates, Inc. d/b/a Ashlind Properties brought
an  action  against  us in the Supreme Court of New York, County of Suffolk, for
the  recovery  of  a  real estate brokerage commission in the amount of $250,000
relating  to  the termination of its lease on its former Hauppauge facility.  We
are  still  in the discovery stages related to this action.  We believe there is
no  merit  to  this  claim  and  we  are  actively  defending  such  action.

Although  we  are  involved  in  ordinary,  routine litigation incidental to our
business,  we  are  not  presently  a  party  to any other legal proceeding, the
adverse  determination  of which, either individually or in the aggregate, would
be  expected  to  have  a  material  adverse affect on the Company's business or
financial  condition.


Item  4.  SUBMISSION  OF  MATTERS  TO  A  VOTE  OF  SECURITY  HOLDERS
---------------------------------------------------------------------

During  the fourth quarter of fiscal year ended December 31, 2005, there were no
matters  submitted  to  a  vote  of  the  Company's security holders through the
solicitation  of  proxies  or  otherwise.



                                     PART II
                                     -------

Item  5. MARKET FOR THE  COMPANY'S  COMMON  EQUITY  AND  RELATED  STOCKHOLDER
------------------------------------------------------------------------------
MATTERS
-------

(a)     Price  Range  of  Common  Stock.

The  following  table  sets  forth,  for the periods indicated, the high and low
sales  prices  per  share  of  common  stock:


                                                  High        Low
                                                  ----        ---
2004
      First Quarter                           $   0.25     $  0.12
      Second Quarter                              0.29        0.14
      Third Quarter                               0.18        0.10
      Fourth Quarter                              0.19        0.09

2005
      First Quarter                           $   0.24     $  0.15
      Second Quarter                              0.16        0.10
      Third Quarter                               0.13        0.09
      Fourth Quarter                              0.15        0.09

2006
      First  Quarter                          $   0.15     $  0.08
      Second Quarter (through April 12, 2006) $   0.12     $  0.11



The  Company's  Common Stock is quoted on the OTC Bulletin Board ("OTCBB") under
the  symbol  SKVY.

(b)     Holders  of  Common  Stock.

As  of April 12, 2006, the Company had 120,728,804 shares of Common Stock issued
and  outstanding,  which  were  held  by  approximately  359  holders of record.

(c)     Dividends.

The  payment  of  future dividends will be a business decision to be made by the
Board  of  Directors  of  Sentry  from  time-to-time  based  upon the results of
operations and financial condition of Sentry and such other factors as the Board
of  Directors  considers  relevant.  Sentry has not paid, and does not presently
intend  to  pay  or  consider  the  payment of, any cash dividends on the Common
Stock.  In  addition,  covenants in the Company's credit agreements prohibit the
Company  from  paying  cash  dividends  without  the  consent  of  the  lenders.

(d)     Securities  Authorized  for  Issuance  Under  Equity Compensation Plans.

For  a description of the Company's equity securities authorized for issuance as
described in Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation,"  see  Notes  to  our Financial Statements, Note 1.o. "Significant
Accounting  Policies,  Stock-Based  Compensation,"  and  Note  9,  "Common
Shareholders'  Equity."


Item  6.     MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF  FINANCIAL  CONDITION
--------     -----------------------------------------------------------------
             AND  RESULTS  OF  OPERATIONS
             ----------------------------

Critical Accounting Policies

Management's  discussion  and  analysis of its financial position and results of
operations are based upon the Company's consolidated financial statements, which
have  been  prepared in accordance with accounting principles generally accepted
in  the United States of America.  The preparation of these financial statements
requires  management  to  make  estimates and judgments that affect the reported
amounts  of assets, liabilities, revenues and expenses and related disclosure of
contingent  assets  and  liabilities.  Actual  results  could  differ from those
estimates.  Management  believes that the critical accounting policies and areas
that  require  the  most  significant  judgments and estimates to be used in the
preparation  of the consolidated financial statements are allowance for doubtful
accounts,  inventory  obsolescence  and  accrued  warranty.

Allowance  for  Doubtful Accounts -- We maintain an allowance for doubtful trade
accounts  receivable  for  estimated  losses resulting from the inability of our
customers  to  make  required payments. In determining collectibility, we review
available  customer  financial  statement  information, credit rating reports as
well  as other external documents and public filings. When it is deemed probable
that  a  specific customer account is uncollectible, that balance is included in
the  reserve calculation. Actual results could differ from these estimates under
different  assumptions.

Inventory  Obsolescence --We write down our inventory for estimated obsolescence
or  unmarketable inventory equal to the difference between the cost of inventory
and  the  estimated  market value based upon assumptions about future demand and
market  conditions.  If  actual  future  demand  or  market  conditions are less
favorable  than  those  we  project,  additional  inventory  write-downs  may be
required.

Impairment of long-lived assets -- We review our long-lived assets, property and
equipment,  intangible assets, goodwill and other assets for impairment whenever
events  or  changes  in circumstances indicate that the carrying amount of these
assets  may not be fully recoverable.  Impairment is measured at fair value.  If
impairment  indicators  exist,  we  determine whether the projected undiscounted
cash  flows  will be sufficient to cover the carrying value of such assets. This
requires  us  to make significant judgments about the expected future cash flows
of  the asset group. The future cash flows are dependent on general and economic
conditions  and  are  subject  to  change.

Accrued Warranty -- We provide for the estimated cost of product warranty at the
time  revenue  is  recognized.  We  calculate  the  reserve utilizing historical
product  failure  rates  and service repair costs by product family. These rates
are reviewed and adjusted periodically. We utilize judgment for estimating these
costs  and  adjust  our  estimates  as  actual  results  become  available.

Revenue  Recognition  --  We  offer  our security devices for sale or lease.  We
recognize  revenue  when  installation  is  complete  or  other  post-shipment
obligations have been satisfied.  For those products not requiring installation,
or  if installation costs are not material, the Company recognizes revenues upon
shipment.  Service  revenues are recognized when earned and maintenance revenues
are  recognized  ratably  over  the  service  contract  period.

Related Party Transactions -- Details of related party transactions are included
in  Item  12  and  in  Notes  2  and 12 of the Financial Statements of this Form
10-KSB.

<PAGE>

Selected  Financial  Data
-------------------------

The  table  below  sets forth selected consolidated historical financial data of
the  Company  for  the years ended December 31, 2001, 2002, 2003, 2004 and 2005.
The  selected  consolidated  historical  financial  data  should  be  read  in
conjunction  with  the Consolidated Financial Statements of the Company included
in  Item  7.

<TABLE>
<CAPTION>

                                                                        (Amounts in thousands except for per share data)

<S>                                                                      <C>       <C>       <C>       <C>      <C>
Years Ended December 31,                                                    2001      2002      2003      2004     2005
                                                                         --------  --------  --------  -------  --------
Selected Statement of Operations Data:
-------------------------------------
Total revenues                                                           $17,299   $14,704   $13,243   $16,863  $13,570
Cost of sales                                                              8,879     7,382     5,179     6,351    5,960
Customer service expenses                                                  4,361     4,240     3,977     4,175    2,654
Selling, general and administrative
    expenses                                                               5,773     5,287     3,809     4,840    5,348
Restructuring and impairment
    charges                                                                    -         -         -         -        -
Income (loss) before income taxes                                         (2,911)   (3,356)   (1,049)      253   (1,581)

Extraordinary item - Gain on extinguishment of debt                            -         -       738         -        -

Cumulative effect of change in accounting principal                            -         -         -         -        -
Net income (loss)                                                         (2,911)   (3,356)      181        31   (1,690)
Preferred stock dividends                                                     25         -         -         -        -

Return to common shareholders from redemption of preferred stock     .    27,198         -         -         -        -
Net income (loss) available to
   common shareholders                                                    24,262    (3,356)      181        31   (1,690)
Net income (loss) per common share:
   Basic                                                                    0.40     (0.05)     0.00      0.00    (0.01)
   Diluted                                                                  0.39     (0.05)     0.00      0.00    (0.01)

As of December 31,

Selected Balance Sheet Data:                                                2001      2002      2003      2004     2005
                                                                         --------  --------  --------  -------  --------
Working capital    .                                                     $ 2,235   $  (768)  $  (285)  $ 4,545  $ 3,037
Total assets    .                                                         11,561     7,992     4,093    12,247    9,395
Property, plant and equipment, net   .                                     2,962     2,563       209       689      637
Obligations under capital leases   .                                       2,751     2,652        18        13        7
Convertible debentures                                                         -         -         -     1,862    1,904
Minority interest                                                              -         -         -     1,045    1,140
Total common shareholders' equity (deficit)                                2,891      (451)     (125)    4,345    2,698

</TABLE>

<PAGE>


Results  of  Operations

Year Ended December 31, 2005 Compared with Year Ended December 31, 2004

On  April  30,  2004, Sentry purchased from Saburah Investments, Inc. all of the
outstanding  common  shares  and  Series  "A"  preference  shares of ID Security
Systems  Canada,  Inc.,  and  all of the outstanding capital stock of ID Systems
USA,  Inc. (collectively,  "ID Systems").  ID Systems is a Toronto based company
engaged  in  anti-shoplifting  technology,  security  labeling,  radio frequency
identification  (RFID),  access  control and library security.  Our consolidated
statements  of  operations  include the revenues and expenses of ID Systems from
May  1,  2004.  Effective  January  1,  2005,  ID Systems changed the name of ID
Security Systems Canada Inc. and ID Systems USA Inc. to Sentry Technology Canada
Inc.  and  Sentry  Technology  USA  Inc.,  (collectively  "Sentry  Canada").

Consolidated revenues were 20% lower in the year ended December 31, 2005 than in
the  year  ended  December  31,  2004.  Sentry  Canada's revenues for the twelve
months  ended  December  31,  2005  represented  $5.6  million of total revenues
compared with $4.1 million of total revenues for the eight month period included
in  the  year  ended December 31, 2004.  Our backlog of orders was approximately
$1.2  million at December 31, 2005, as compared to approximately $2.2 million at
December  31,  2004.  We  have  experienced a trend, particularly with our major
customers,  of  receiving  fewer  long-term blanket orders than in the past.  We
anticipate that substantially all of the backlog present as of December 31, 2005
will  be  delivered  within 12 months.  Total revenues for the periods presented
are  broken  out  as  follows:


                                                                    %
                                     2005            2004         Change
                                     ----            ----         ------
                                       (in  thousands)
EAS                               $  6,490       $  5,358           21
CCTV                                 1,670          3,272          (49)
SentryVision                         2,971          3,852          (23)
                                     -----          -----          ----
Total  sales                        11,131         12,482          (11)
Service, installation and other      2,439          4,381          (44)
                                     -----          -----          ----
Total  revenues                   $ 13,570       $ 16,863          (20)
                                  ========       ========          ====


The  increase  in  EAS sales is primarily attributable to Sentry Canada's sales,
which  represented $5.3 million of EAS sales in 2005 compared to $3.8 million in
2004.  In January 2005, we were notified by Lowe's Home Center, historically our
largest customer, that they would not be renewing their maintenance contract for
2005.  While the annual value of the maintenance contract was approximately $0.9
million,  it  contributed  towards  the selection of vendors for replacement and
add-on CCTV business in new and existing Lowe's locations. As a result, revenues
from  Lowe's  decreased  from  $5.0 million in 2004 to $1.0 million in 2005.  As
Lowe's purchased both CCTV and SentryVision products this reduction affected the
reported  sales  in  both  categories.  We  anticipate  that  this decision will
continue to result in a decrease in future revenues from Lowe's on a comparative
basis.  We  have  added  new  sales  representatives and new customers that have
somewhat  offset  the  loss of Lowe's sales in 2005.  As a result, we anticipate
that  our  business  will  be more balanced and will be less reliant on a single
large  customer  for  future  success.

Sales  to our international dealers and distributors represented $1.3 million of
total  SentryVision  sales  in  2005  as  compared to $1.6 million in 2004.  Our
sales  of  SentryVision  products  to our international dealers and distributors
are  denominated in U.S. dollars, therefore the strengthening of the U.S. dollar
against  the  Euro  in  2005  had  no  significant  impact on reported revenues.

Both  service  and  installation  revenues  were significantly lower in the 2005
periods, as compared to the same periods of 2004, due to lower domestic sales of
CCTV  and  SentryVision  systems.  Even  though  EAS  sales  increased,  the
installation  revenues  associated  with EAS systems are lower than for CCTV and
SentryVision  sales.  Maintenance revenues were also lower primarily as a result
of  cancellation  of  the  Lowe's  maintenance  contract.

Sales  reps  and  international  distributors have been added to the sales group
plus  new print ads and trade show attendance will assist in improving our sales
results.  In  addition,  our  flagship  SmartTrack  traveling  camera system and
proprietary library security and information systems require little maintenance,
which  has  helped  both  to  reduce  service  costs and allow our sales reps to
develop  new  business  as  a  result  of  strong references from many satisfied
national  and international customers.  In January 2006, we received orders from
J.C.  Penney  and  Target for installation of SentryVision  SmartTrack traveling
camera  systems  in  five distribution centers.  Both customers are among the 10
largest  retailers in America and are repeat users of our flagship products with
budgets  allocated for the acquisition of additional SmartTrack systems in 2006.

Cost  of sales was 54% of sales in 2005 compared to 51% in 2004.  We continue to
see  strong domestic margin improvements in 2005 on the SmartTrack product lines
as  a  result  of  our  outsourcing  of manufacturing.  However, our comparative
margins  on  international  SmartTrack  sales  have been reduced in 2005, due to
competitive  pressures. Sentry Canada's sales increased as a percentage of total
sales in 2005, compared to 2004.  As a percentage of sales, Sentry Canada's cost
of sales are higher than Sentry's historical costs as a portion of its sales are
made  through  dealers and distributors that carry lower margins than sales made
direct  to  end  users.  In  addition,  lower production volume at our 51% owned
labeling  subsidiary  resulted  in  higher  overhead  and a higher cost of sales
percentage  in  first  half  of  2005.

The  decrease  in  customer  service  expenses  in  2005,  as  compared 2004, is
primarily a result of a decrease in the number of customer service employees and
increased use of outside service contractors in order to better manage our total
net  customer  service  costs  during  fluctuations  in  activity levels between
periods.

Selling, general and administrative expenses were 10% higher in 2005 as compared
to 2004.  The increase in such expenses, on a comparable basis, is principally a
result  of  higher  sales  and  marketing  expenses  and higher foreign exchange
losses.  The  increase  in  such expenses 2005 is principally a result of twelve
full  months  of Sentry Canada expenses in 2005, compared to eight months in the
2004  period.  Included  in  selling,  general  and administrative expenses were
foreign  exchange  losses  (gains)  of  $133,000 in 2005, compared to $79,000 in
2004.  The  change  in  the  foreign currency exposure is a result of the global
credit facility entered into in the second quarter of 2005, which is denominated
in  Canadian  dollars.  We  are currently working with our lender to develop the
most  efficient  hedging  strategies  to  mitigate  this  exposure.

We  have  made  certain administrative expense reductions to help compensate for
the  reduction  in  Lowe's  business.  In  October  2005,  we  consolidated  our
accounting  and  distribution  functions  from  our Toronto, Ontario facility to
Ronkonkoma, NY resulting in the elimination of duplicate functions while further
streamlining  operations.  At  the same time, we have increased funding of sales
and  marketing  programs, which we expect will continue to increase our business
with new and existing customers.  Four new sales persons were hired in 2005 with
substantial  industry  experience.  In  addition,  we recently hired a new VP of
Sales  and  Marketing,  with  prior  experience  with  our  industry's  largest
competitor,  to  lead  the  growing  team of sales professionals and to focus on
establishing  the  Sentry  brand  name  as  a  market  leader.  Many  new  sales
opportunities are being developed that we anticipate will have a positive impact
on  future  revenues.  New  programs  include  a  marketing  campaign to promote
SentryVision  to  Homeland Security and the appointment of a new distributor for
the Brazilian market to sell EAS products to the library market and SentryVision
systems  to  all  customers.

Research  and  development  costs  increased  3%  in  2005,  compared  to  2004,
principally as a result of the inclusion of twelve months of research efforts of
Sentry  Canada  in  2005,  compared  to  eight  months  in  2004.

Total  interest  and  financing costs were lower in 2005, compared to 2004, as a
result  of lower average bank debt and lower interest rates under the new credit
agreement  as well as a result of the elimination of costly financing associated
with  purchase  order  financing  included  in  the  first  half  of  2004.

The  income tax provision of $ 49,000 in 2005, and $140,000 in 2004, principally
results  from  taxable  income  of  our ID Systems subsidiaries, which cannot be
offset  by  Sentry's  net  operating  loss  carryforwards.

As  a  result  of the foregoing, we had net loss of $1,690,000 in the year ended
December  31,  2005,  as  compared  to  net  income of $31,000 in the year ended
December  31,  2004.


Year Ended December 31, 2004 Compared with Year Ended December 31, 2003

Our  consolidated  statements of operations include the revenues and expenses of
Sentry  Canada  from  May  1,  2004.

Consolidated  revenues  were 27% higher in the year ended December 31, 2004 than
in  the  year  ended  December  31,  2003 Sentry Canada's revenues for the eight
months  period  ended  December  31,  2004  represented  $4.1  million  of total
revenues.  The  backlog  of  orders,  which  we  expect to deliver within twelve
months,  decreased  to  $2.2  million  at  December 31, 2004 as compared to $3.2
million  at  December  31,  2003.  We  believe  this  is due in part to a trend,
particularly  from  our  major  customers,  of  awarding fewer long-term blanket
orders  than  in  the past.  Total revenues for the periods presented are broken
out  as  follows:


                                                                  %
                                     2004            2003         Change
                                     ----            ----         ------
                                       (in  thousands)
EAS                              $   5,358       $  1,914          180
CCTV                                 3,272          3,699          (12)
SentryVision                         3,852          3,133           23
                                     -----          -----           --
Total  sales                        12,482          8,746           43
Service, installation and other      4,381          4,497           (3)
                                     -----          -----           --
Total  revenues                  $  16,863       $ 13,243           27
                                 =========       ========           ==


The  increase  in  sales  of  EAS  products  in  2004 was attributable to Sentry
Canada's  sales,  which  represented  $3.8  million  of  the  total.   Sentry's
historical  comparative  sales  of  EAS systems and tags decreased in 2004.  The
decrease in CCTV revenues is primarily a result of lower sales to two customers.
We had sales of $0.6 million in 2003 to Home Depot, which did not repeat in 2004
and  we  lost  $0.5 million in revenues in 2004 from a significant customer that
decided  to  source  their  purchases  from the CCTV manufacturer.  SentryVision
sales  increased  both  domestically  and  internationally.  Sales  to  our
international  dealers  and  distributors  represented  $1.6  million  of  total
SentryVision  sales  in  2004 as compared to $1.2 million in 2003.  Our sales of
SentryVision  products  to  our  international  dealers  and  distributors  are
denominated in U.S. dollars, therefore the strengthening of the Euro against the
U.S.  dollar  had  no significant impact on revenues.  Service, installation and
other  revenues decreased 2004 primarily as a result of lower CCTV installations
than  in  2003.  Even though EAS sales increased substantially, the installation
revenues associated with EAS systems are significantly lower than those for CCTV
and  SentryVision  sales.  In addition, Lowe's negotiated a lower rate per store
for  the  maintenance contract in 2004 than in 2003.  Total revenues from Lowe's
Home  Centers  represented  $5.0  million in 2004 as compared to $5.8 million in
2003.  Of  the  $0.8  million  decrease,  $0.6  million  was  a  reduction  in
SentryVision  sales and $0.2 million was a reduction in service and installation
income.


Cost of sales was 51% of sales in 2004, compared to 59% in 2003.  We continue to
see  margin  improvements  as  a  result  of  the outsourcing of all significant
manufacturing  operations,  which  we  began  in the second quarter of 2003. The
decrease  in  the  cost  of  sales  percentage  in  2004  as compared to 2003 is
primarily  the result of the elimination of the charge to cost of sales of under
absorbed  fixed  overhead costs due to the termination of in-house manufacturing
and  the  move  to  a  smaller  facility.  As  a  percentage of sales, the costs
associated  with  Sentry  Canada's  sales  were  slightly  higher  than Sentry's
historical  costs as a higher portion of their sales are made through dealer and
distributors  which  carry  lower  margins  than sales made direct to end users.



Our  customer service expenses increased by 5% in 2004, as compared to 2003.  Of
the increase 4% was due to the Sentry Canada acquisition.  In 2004, we decreased
the  number  of  customer  service  employees  and  increased the use of outside
service  contractors  in  order  to  manage our total net customer service costs
during  fluctuations  in  activity levels between periods.  However, our efforts
were  hampered  somewhat  by our inability to maintain a proper level of service
parts  during  the  first six months of 2004, due to inadequate trade credit and
financial  resources,  which  resulted  in  inefficiencies.


Selling,  general  and  administrative  expenses  were  27%  higher in 2004 when
compared  to  2003.  While  our  historical  costs  decreased as a result of our
restructuring  in  2003,  our acquisition of Sentry Canada added $1.1 million in
selling,  general  and administrative expenses during the eight months they were
included  in  the  2004  results.


The  increase  in research and development costs in 2004, when compared to 2003,
is  also  primarily  a  result  of  the  Sentry  Canada  acquisition.

As  a  result of the restructuring of operations, the increase in sales activity
levels  and  the  acquisition  of  Sentry Canada, we were able to show operating
income  of $0.7 million in 2004 as compared to an operating loss of $0.4 million
in  2003.

Total interest and financing costs decreased by $259,000 in 2004, as compared to
2003.  Bank interest expense increased by $39,000 in 2004, due to higher average
borrowings  and  slightly  higher  interest rates under our revolving credit and
term  loan  facility with CIT and the Sentry Canada credit facility with Bank of
Montreal.  Interest  under  capital leases decreased by $156,000, as a result of
the  cancellation of the sale and leaseback agreement on our former headquarters
facility.  While  interest  and  financing  costs  related  to  the  Brookfield
Technology  financing  added $151,000 in 2004, we were able to eliminate, in the
second  half  of 2004, the costly financing costs associated with purchase order
financing,  resulting  in  a  savings  of  $293,000  for  the  entire  year.

During  2003,  we  entered  into  settlements  with certain vendors for past due
obligations  which resulted in a gain of approximately $526,000 (net of $351,000
income  taxes),  which  represents the difference between the amounts due before
the  settlement  and the total amount payable, including the value of the common
stock,  as a result of the settlement.  In addition, on July 9, 2003, we entered
into  a  settlement agreement with our former landlord regarding the termination
of its long-term capital and operating leases for our facility in Hauppauge, New
York.  We  recognized  an extraordinary gain of $212,000 (net of $141,000 income
taxes)  in  2003,  representing  the  difference between the carrying amounts of
outstanding  obligations to the landlord less the net book value of the property
on  the  date  of  the  settlement.

The  income  tax  provision of $140,000 in 2004 principally results from taxable
income of our Sentry Canada subsidiaries, which cannot be offset by Sentry's net
operating  loss  carryforwards.  The $492,000 income tax provision recognized on
the  extraordinary  gains  in  2003 was offset by equivalent income tax benefits
generated  from  the  2003  loss  from  operations  and  the  utilization of net
operating  loss  carryforwards.

As  a  result  of  the foregoing, we had net income of $31,000 in the year ended
December  31,  2004 as compared to $181,000 in the year ended December 31, 2003.

Liquidity  and  Capital  Resources

At  December  31,  2005,  we  had  cash of $0.8 million, working capital of $3.0
million,  total assets of $9.4 million and shareholders' equity of $2.7 million.
While  we  had  a  loss  of $1.7 million in 2005, our net cash used in operating
activities  was  only  $242,000.  This was a result of lower amounts of accounts
receivable  partially as a result of better collections efforts as well as lower
sales  volume.  We  have  also  eliminated  the  use of expensive purchase order
financing  to  fund  inventory  purchases  and  we are continuing to reestablish
credit  with  new  and  existing  vendors.

We  utilized $0.8 million in financing activities through a pay down of balances
under  our previous credit facilities.  Availability under the credit facilities
is  principally  based  on  the  level  of  our receivables and inventory, which
declined  in  2005.  Net reductions in our credit facilities were funded through
the  use  of  existing  cash.

On  May 13, 2005, the Company and certain of its subsidiaries entered into a new
secured credit facility with Royal Bank of Canada ("RBC") for maximum borrowings
of up to Canadian $4.5 million (U.S. $3.9 million), which are subject to certain
limitations  based  on  a  percentage  of  eligible  accounts  receivable  and
inventories  as  defined in the agreement.  Interest is payable at a rate of RBC
prime  rate (5.0% at December 31, 2005), plus 1.25% per annum.  Borrowings under
this  facility  are  secured by substantially all of the Company's assets.  This
new  facility  replaced  the  Company's former revolving credit agreement in the
United  States and its overdraft lending and term loan agreement in Canada.  The
consolidation of our credit facilities is another step in our efforts to improve
operating  efficiencies  and  to further reduce our costs of financing.  The new
facility  also  provides  for  limited financing of certain foreign receivables,
which  may  provide additional future availability over the previous facilities.
As  of  December  31, 2005, we had borrowings of approximately $2.0 million with
RBC  and  had  excess  borrowing capacity of $0.5 million.  As of the end of the
third  and  fourth  quarters  of  2005,  the  Company  failed to meet one of its
financial covenants under the Royal Bank agreement.  Subsequent to year end, the
Company  received  from RBC a tolerance of default and waiver of the covenant as
of those dates. In addition, on January 23, 2006, the agreement was amended with
regard  to  certain  financial  and  reporting  covenants  and the interest rate
increased  to  RBC  prime  rate  plus  1.75%.


We  will  require  liquidity  and  working  capital  to  finance  increases  in
receivables  and  inventory  associated  with sales growth, payments to past due
vendors  and,  to a lesser extent, for capital expenditures.  We had no material
capital  expenditure or purchase commitments, other than the Dialoc distribution
agreement,  as of December 31, 2005.  Sentry's revenues declined and we incurred
an  operating  loss  in 2005.  This trend continued through the first quarter of
2006 and substantially reduced the Company's available cash reserves and limited
our  ability  to  secure  additional  bank financing. The Company has instituted
certain  plans  to  increase  its  revenue  base  as  well as preserve its cash,
including  cost  cutting  measures  and inventory reduction initiatives.  We are
presently in the final stages of negotiations with RBC, our lender, to amend our
credit  agreement  by  further  modifying  certain  financial  covenants  and by
extending  the  term of the agreement through April 2007.  Mr. Murdoch, Sentry's
CEO  and  Director  and  Mr.  Furst, a Sentry Director, have agreed to provide a
personal  guarantee  to RBC in the amount of Canadian $1 million (U.S. $860,000)
in  exchange  for  the  bank  providing  increased availability under its credit
facility  to  the  Company  by  the  same  amount.  In  consideration  of  these
guarantees,  Mr.  Murdoch  and  Mr.  Furst  will receive a fee of $43,000, to be
shared  between  them,  paid  in  12  equal monthly installments.  As additional
consideration,  they  will  receive  fully vested, two year warrants to purchase
between  2.9 million and 3.8 million shares of the Company's common stock, at an
exercise  price  ranging  between  $0.075  and  $0.10  per share, dependent upon
certain  stock  market  conditions.  The  fair  value  of these warrants will be
recorded  in  accordance  with SFAS No. 123R "Share-Based Payment" in the second
quarter  of 2006 and will be written off over the period of the guarantee. After
conversations  with  RBC,  management  believes  that  these  amendments will be
approved  in  the near future.  Based upon the achievement of its plans, as well
as  the  additional  borrowing  availability  as  a  result  of  the  Directors
guaranties,  the  Company believes that it will have sufficient cash to meet its
anticipated  operating costs, capital expenditures and debt service requirements
for  at  least  the  next  twelve  months.


On  March  28,  2005,  our  Board of Directors and a majority of the outstanding
shareholders  approved  an  increase in the authorized number of Sentry's common
shares  from  140,000,000  to  160,000,000,  principally  in  order  to meet the
requirements  of  the  Brookfield  Technology  Fund  investment.

The table below summarizes aggregate maturities contractual obligations as of
December 31, 2005.

                                       Less
Contractual                            than       1-3       4-5       After 5
Obligations                 Total     1 Year     Years     Years       Years
-----------                 -----     ------     -----     -----      -------
                                              (In Thousands)

Operating leases           $ 1,009     $ 285     $  533    $ 191     $      -

Capital leases                   8         7          1        -            -
Notes payable & term loans      91        91          -        -            -
Convertible debentures       2,000         -      2,000        -            -
                           -------     -----     ------    -----     --------
               Total       $ 3,108     $ 383     $2,534    $ 191     $      -
                           =======     =====     ======    =====     ========


<PAGE>


Recent  Accounting  Pronouncements

In  November  2004,  the  Financial  Accounting  Standards Board ("FASB") issued
Statement  of Financial Accounting Standards ("SFAS") No. 151, "Inventory Costs,
an  amendment  of  ARB No. 43, Chapter 4". This statement amends the guidance in
ARB  No.  43,  Chapter  4,  "Inventory  Pricing"  to  clarify the accounting for
abnormal  amounts  of idle facility expense, freight, handling costs, and wasted
material  (spoilage).  SFAS  No.  151 requires that those items be recognized as
current  period charges. In addition, this statement requires that allocation of
fixed  production  overheads  to  costs  of  conversion be based upon the normal
capacity  of  the  production  facilities.  The  provisions  of SFAS No. 151 are
effective  for inventory costs incurred in fiscal years beginning after June 15,
2005.  The  Company  is  currently  evaluating the impact of SFAS No. 151 on its
consolidated  financial  statements.

In  December  2004,  the  FASB  issued  SFAS No. 153, "Exchanges of Non-monetary
Assets, an amendment of APB Opinion No. 29". SFAS No. 153 replaces the exception
from  fair value measurement in APB Opinion No. 29 for non-monetary exchanges of
similar  productive  assets with a general exception from fair value measurement
for  exchanges  of  non-monetary assets that do not have commercial substance. A
non-monetary  exchange  has commercial substance if the future cash flows of the
entity  are  expected  to change significantly as a result of the exchange. SFAS
No.  153 is to be applied prospectively, and is effective for non-monetary asset
exchanges  occurring  in fiscal periods after the December 2004 issuance of SFAS
No.  153.  The  Company  does  not  believe the adoption of SFAS No. 153 will be
significant  to  the  overall  results  of  operations  or  financial  position.

In  December  2004,  the  FASB  issued SFAS No. 123 (revised 2004), "Share-Based
Payment"  ("SFAS  No.  123R"). SFAS No. 123R requires the Company to measure the
cost  of  employee  services  received  in  exchange  for  an  award  of  equity
instruments  based  on  the  grant-date fair value of the award. The cost of the
employee  services  is  recognized  as compensation cost over the period that an
employee  provides  service  in  exchange  for  the  award.  Beginning  with the
Company's  first  quarter of fiscal year 2006, it will be required to adopt SFAS
123(R),  and  will  recognize  share-based  compensation costs in its results of
operations.  The Company currently provides pro forma disclosures under SFAS 123
reflecting  the  effects  of  share-based  compensation  costs on its results of
operations  in  Note 8 to consolidated financial statements.   Although such pro
forma  effects of applying SFAS 123 may be indicative of the effects of adopting
SFAS  123(R),  the  provisions  of these two statements differ in some important
respects.  The  actual  effects  of  adopting  SFAS  123(R) will be dependent on
numerous  factors  including, but not limited to, levels of share-based payments
granted  in the future and the timing thereof; the valuation model chosen by the
Company  to  value  stock-based  awards;  the assumed award forfeiture rate; the
accounting  policies adopted concerning the method of recognizing the fair value
of awards over the service period; and the transition method chosen for adopting
SFAS  123(R),  which  permits  public  companies to adopt its requirements using
various methods, including the "modified prospective application method" and the
"modified  retrospective  application  method."  The Company plans to adopt SFAS
123(R)  using  the  modified prospective application method. The Company expects
that  the  adoption  of SFAS 123(R) may have a material impact on its results of
operations  subsequent  to  adoption.

SFAS  No.  123R  will  be  effective  January 1, 2006 for the Company and may be
adopted  using a modified prospective method or a modified retrospective method.
Although  the  Company  has  not yet completed an analysis to quantify the exact
impact  the  new  standard  will  have  on its future financial performance, the
disclosures  in  Note 8 provide detail as to the Company's financial performance
as  if  the  Company  had  applied  the  fair value-based method and recognition
provisions  of SFAS No. 123R to stock-based employee compensation to the current
reporting  periods.

In  March  2005,  the  FASB  issued  FASB  Staff  Position  ("FSP") No. 46(R)-5,
"Implicit  Variable  Interests under FASB Interpretation No. ("FIN") 46 (revised
December  2003), Consolidation of Variable Interest Entities" ("FSP FIN 46R-5").
FSP  FIN  46R-5 provides guidance for a reporting enterprise on whether it holds
an  implicit  variable  interest  in  Variable  Interest  Entities  ("VIEs")  or
potential  VIEs  when  specific  conditions  exist. This FSP is effective in the
first  period  beginning  after  March 3, 2005 in accordance with the transition
provisions  of  FIN  46  (revised  December  2003),  "Consolidation  of Variable
Interest  Entities  -  an Interpretation of Accounting Research Bulletin No. 51"
("FIN  46R"). The Company has determined that the adoption of FSP FIN 46R-5 will
not  have  an  impact  on  its  results  of  operations  and financial position.


In  March  2005,  the  FASB  issued  Interpretation  No.  47,  "Accounting  for
Conditional  Asset  Retirement Obligations" ("FIN 47"), which will result in (1)
more  consistent  recognition  of  liabilities  relating  to  asset  retirement
obligations, (2) more information about expected future cash outflows associated
with those obligations, and (3) more information about investments in long-lived
assets  because  additional asset retirement costs will be recognized as part of
the  carrying amounts of the assets. FIN 47 clarifies that the term "conditional
asset  retirement  obligation"  as  used  in SFAS No. 143, "Accounting for Asset
Retirement  Obligations",  refers  to  a  legal  obligation  to perform an asset
retirement  activity  in  which  the  timing  and/or  method  of  settlement are
conditional  on  a future event that may or may not be within the control of the
entity. The obligation to perform the asset retirement activity is unconditional
even  though  uncertainty  exists  about the timing and/or method of settlement.
Uncertainty  about the timing and/or method of settlement of a conditional asset
retirement  obligation  should be factored into the measurement of the liability
when  sufficient  information exists. FIN 47 also clarifies when an entity would
have  sufficient  information  to reasonably estimate the fair value of an asset
retirement obligation. FIN 47 is effective no later than the end of fiscal years
ending  after  December  15, 2005. The adoption of FIN 47 in 2005 did not have a
material  impact  on  the  financial  position  or  results of operations of the
Company.

In  May  2005,  the  FASB  issued  SFAS  No.  154, "Accounting Changes and Error
Corrections",  which replaces APB Opinion No. 20, "Accounting Changes", and SFAS
No.  3,  "Reporting  Accounting  Changes  in  Interim  Financial Statements - An
Amendment  of  APB  Opinion  No.  28".  SFAS  No.  154  provides guidance on the
accounting  for  and  reporting  of  changes  in accounting principles and error
corrections.  SFAS  No.  154  requires retrospective application to prior period
financial  statements  of  voluntary changes in accounting principle and changes
required by new accounting standards when the standard does not include specific
transition  provisions,  unless  it is impracticable to do so. SFAS No. 154 also
requires  certain  disclosures  for  restatements due to correction of an error.
SFAS  No. 154 is effective for accounting changes and corrections of errors made
in fiscal years beginning after December 15, 2005, and is required to be adopted
by  the  Company as of January 1, 2006. The impact that the adoption of SFAS No.
154  will  have  on  the Company's results of operations and financial condition
will  depend  on  the nature of future accounting changes adopted by the Company
and  the  nature  of  transitional  guidance  provided  in  future  accounting
pronouncements.


Inflation

The Company does not consider inflation to have a material impact on the results
of  operations.


Cautionary  Statement  Regarding  Forward-Looking  Statements

The  "Management's Discussion and Analysis of Financial Condition and Results of
Operations"  and  other  sections  of  this Annual Report on Form 10-KSB contain
"forward-looking  statements"  (as  defined in the Private Securities Litigation
Reform  Act  of  1995  or  the  "PSLRA") that are based on current expectations,
estimates  and  projections about the industry in which the Company operates, as
well  as  management's  beliefs  and  assumptions.  Words  such  as  "expects,"
"anticipates"  and  "believes"  and  variations  of  such  words  and  similar
expressions  generally indicate that a statement is forward-looking. The Company
wishes  to  take  advantage  of  the  "safe  harbor"  provisions of the PSLRA by
cautioning  readers  that many important factors discussed herein, among others,
may  cause the Company's results of operations to differ from those expressed in
the  forward-looking  statements.  These factors include:  (i) the risk that any
delay or cancellation of orders from one or more of Sentry's major customers may
have  a  material  adverse effect on the Company's financial condition; (ii) the
risk  that  anticipated  growth  in the demand for the Company's products in the
retail,  commercial and industrial sectors will not develop as expected, whether
due  to  competitive  pressures in these markets or to any other failure to gain
market  acceptance  of  the  Company's products; (iii) the risk that anticipated
revenue  growth through the domestic and international dealers programs does not
develop  as  expected;  (iv)  the  risk that the Company may not find sufficient
qualified Service Partners to provide future installation services; (v) the risk
that  the  Company  will not be able to retain key personnel; (vi) the risk that
the  borrowing  availability under our credit facilities will not be adequate to
meet  the  Company's  growth  requirements;  and (vii) the risk arising from the
large  market  position  and  greater  financial and other resources of Sentry's
principal  competitors,  as  described  under  "Item  1.  Business-Competition."

<PAGE>


Item  7.     FINANCIAL  STATEMENTS
--------     ---------------------


                          SENTRY TECHNOLOGY CORPORATION
                          -----------------------------
                                AND SUBSIDIARIES
                                ----------------

                        CONSOLIDATED FINANCIAL STATEMENTS
                        ---------------------------------


                  YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
                  --------------------------------------------



                                    CONTENTS
                                    --------

                                                                          Page
                                                                          ----



     Reports  of  Independent  Registered  Public  Accounting  Firms     28 - 29

     CONSOLIDATED FINANCIAL STATEMENTS:

     Balance  sheets                                                       30

     Statements  of  operations                                            31

     Statements  of  shareholders'  equity                                 32

     Statements  of  cash  flows                                           33

     Notes  to  financial  statements                                  34  -  48




<PAGE>
                                     ------





<PAGE>



             Report of Independent Registered Public Accounting Firm





To  the  Board  of  Directors  and  Stockholders  of
Sentry  Technology  Corporation


     We  have  audited  the  accompanying  consolidated  balance sheet of Sentry
Technology  Corporation  as  at  December  31, 2005 and the related consolidated
statements  of operations, shareholders' equity and cash flows for the year then
ended.  These  consolidated  financial  statements are the responsibility of the
Company's  management.  Our  responsibility  is  to  express an opinion on these
consolidated  financial  statements  based  on  our  audit.

     We  conducted  our  audits  in  accordance with the standards of the Public
Company  Accounting  Oversight  Board  (United States).  These standards require
that  we plan and perform the audit to obtain reasonable assurance about whether
the  consolidated  financial  statements  are free of material misstatement.  An
audit  includes  examining, on a test basis, evidence supporting the amounts and
disclosures  in  the  consolidated financial statements.  An audit also includes
assessing  the  accounting  principles  used  and  significant estimates made by
management,  as  well as evaluating the overall consolidated financial statement
presentation.  We believe our audit provides a reasonable basis for our opinion.

     In  our  opinion,  such consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Sentry  Technology  Corporation  as  at December 31, 2005 and the results of its
consolidated  operations,  shareholders' equity and cash flows for the year then
ended  in conformity with accounting principles generally accepted in the United
States  of  America.

     The  consolidated  financial statements of Sentry Technology Corporation as
of December 31, 2004 and 2003, were audited by other auditors whose report dated
March  29,  2005,  expressed  an  unqualified  opinion  on  those  statements.



                                                  /s/  SF  Partnership,  LLP
                                                  CHARTERED  ACCOUNTANTS

TORONTO,  CANADA

March  16,  2006



<PAGE>






             Report of Independent Registered Public Accounting Firm


To  the  Board  of  Directors  and  Stockholders  of
Sentry  Technology  Corporation
Ronkonkoma,  New  York


We have audited the accompanying consolidated balance sheet of Sentry Technology
Corporation  and  subsidiaries  (the  "Company") as of December 31, 2004 and the
related  consolidated  statements  of  operations, shareholders' equity and cash
flows  for  each  of the two years in the period ended December 31, 2004.  These
financial  statements  are  the responsibility of the Company's management.  Our
responsibility is to express an opinion on the consolidated financial statements
based  on  our  audits.

We  conducted  our  audits  in  accordance with auditing standards of the Public
Company  Accounting  Oversight  Board  (United States).  Those standards require
that  we plan and perform the audit 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,  such consolidated financial statements present fairly, in all
material  respects,  the financial position of Sentry Technology Corporation and
subsidiaries  as  of  December  31, 2004 and the results of their operations and
their cash flows for each of the two years in the period ended December 31, 2004
in  conformity  with  U.S.  generally  accepted  accounting  principles.


/s/  Holtz  Rubenstein  Reminick  LLP


Melville,  New  York
March  29,  2005



<PAGE>


                          SENTRY TECHNOLOGY CORPORATION
                          -----------------------------
                                AND SUBSIDIARIES
                                ----------------
                           CONSOLIDATED BALANCE SHEETS
                           ---------------------------
                    (In Thousands, Except Par Value Amounts)


<TABLE>
<CAPTION>
                                                                            December 31,
                                                                    ----------------------------
<S>                                                                 <C>             <C>
                                                                             2005          2004

                                                                    --------------  ------------
ASSETS
------------------------------------------------------------------  --------------  ------------

Current Assets:
 Cash and cash equivalents                                          $         842   $     1,965
 Accounts receivable, less allowance for doubtful accounts
   of $141 and $338, respectively                                           2,762         3,500
 Inventories                                                                2,709         3,314
 Prepaid expenses and other current assets                                    318           525
                                                                    --------------  ------------
Total current assets                                                        6,631         9,304
PROPERTY AND EQUIPMENT, net                                                   637           689
GOODWILL                                                                    1,564         1,564
OTHER ASSETS                                                                  563           690
                                                                    --------------  ------------
                                                                    $       9,395   $    12,247
                                                                    ==============  ============

LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------------------------------------
Current Liabilities:
 Revolving line of credit and term loan                             $       2,039   $     2,640
 Accounts payable                                                             489           799
 Accrued liabilities                                                          925         1,146
 Obligations under capital leases - current portion                             6             5
 Deferred income                                                              135           169
                                                                    --------------  ------------
Total current liabilities                                                   3,594         4,759

NOTES PAYABLE                                                                 ---           189
OBLIGATIONS UNDER CAPITAL LEASES, less current portion                          1             8
DEFERRED TAX LIABILITY                                                         58            39
CONVERTIBLE DEBENTURES                                                      1,904         1,862
MINORITY INTEREST                                                           1,140         1,045
                                                                    --------------  ------------
Total liabilities                                                           6,697         7,902

COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
 Common stock, $0.001 par value; authorized 160,000 and
   140,000 shares, respectively; issued and outstanding
   120,629 and 120,549 shares, respectively                                   121           121
 Additional paid-in capital                                                48,783        48,779
 Accumulated deficit                                                      (46,408)      (44,718)
      Equity adjustment from foreign currency conversion                      202           163
                                                                    --------------  ------------
Total shareholders' equity                                                  2,698         4,345
                                                                    --------------  ------------
                                                                    $       9,395   $    12,247
                                                                    ==============  ============
</TABLE>
                 See notes to consolidated financial statements


<PAGE>

                          SENTRY TECHNOLOGY CORPORATION
                          -----------------------------
                                AND SUBSIDIARIES
                                ----------------
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      -------------------------------------
                    (In Thousands, Except Per Share Amounts)

<TABLE> <CAPTION>

                                                                    Years Ended December 31,
                                                 ------------------------------------------------------
                                                            2005                 2004          2003

                                                 ------------------------------------------------------
<S>                                              <C>                         <C>           <C>

REVENUES:
 Sales                                           $                  11,131   $    12,482   $     8,746
 Service, installation and other revenues                            2,439         4,381         4,497
                                                 --------------------------  ------------  ------------
                                                                    13,570        16,863        13,243
                                                 --------------------------  ------------  ------------
COST AND EXPENSES:
 Cost of sales                                                       5,960         6,351         5,179
 Customer service expenses                                           2,654         4,175         3,977
 Selling, general and administrative expenses                        5,348         4,840         3,809
 Research and development                                              856           832           656
                                                 --------------------------  ------------  ------------
                                                                    14,818        16,198        13,621
                                                 --------------------------  ------------  ------------
OPERATING INCOME (LOSS)                                             (1,248)          665          (378)
INTEREST AND FINANCING EXPENSE, net                                    333           412           671
                                                 --------------------------  ------------  ------------
INCOME (LOSS) BEFORE INCOME TAXES, MINORITY
 INTEREST AND EXTRAORDINARY ITEM                                    (1,581)          253        (1,049)
INCOME TAX EXPENSE (BENEFIT)                                            49           140          (492)
                                                 --------------------------  ------------  ------------
INCOME (LOSS) BEFORE MINORITY INTEREST AND
       EXTRAORDINARY ITEM                                           (1,630)          113          (557)
MINORITY INTEREST                                                      (60)          (82)          ---
                                                 --------------------------  ------------  ------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM                             (1,690)           31          (557)
EXTRAORDINARY ITEM - Gain on extinguishment of
  debt, net of $492 income taxes                                       ---           ---           738
                                                 --------------------------  ------------  ------------
NET INCOME (LOSS)                                $                  (1,690)  $        31   $       181
                                                 ==========================  ============  ============
BASIC INCOME (LOSS) PER COMMON SHARE:
 Income (loss) before extraordinary item         $                   (0.01)  $      0.00   $     (0.01)
 Extraordinary item                                                   0.00          0.00          0.01
                                                 --------------------------  ------------  ------------
 Net income (loss)                               $                   (0.01)  $      0.00   $      0.00
                                                 ==========================  ============  ============

WEIGHTED AVERAGE BASIC COMMON SHARES                               120,594       106,532        84,153
                                                 ==========================  ============  ============


</TABLE>

See notes to consolidated financial statements



<PAGE>


                                         SENTRY TECHNOLOGY CORPORATION
                                         -----------------------------
                                                AND SUBSIDIARIES
                                                ----------------
                                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                 -----------------------------------------------
                                                     (In Thousands)
                                   YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
                                   --------------------------------------------


<TABLE>
<CAPTION>

<S>                                                   <C>            <C>       <C>           <C>        <C>
                                                                                                           Note
                                                                               Additional                Receivable
                                                            Common Stock        Paid-in     Accumulated    from
                                                      Shares         Amount     Capital       Deficit    Shareholder

                                                     -------------  --------  ------------  ---------  ---------------

BALANCE, January 1, 2003                                    78,044   $     78  $     44,521  $(44,930)  $         (120)
Net income                                                       -          -             -       181                -

Settlement of debt and lease obligations                     3,193          3           137         -                -
Net proceeds from common stock issued to Dialoc              4,517          5             -         -                -
Exercise of stock options                                        2          -             -         -                -
                                                      -------------  --------  ------------  ---------  ---------------
BALANCE, December 31, 2003                                  85,756         86        44,658   (44,749)            (120)

Net income                                                       -          -             -        31                -
Repayment of note receivable from shareholder                    -          -             -         -              120
Issuance of warrants                                             -          -           215         -                -
Acquisition of ID Systems                                   30,000         30         3,270         -                -
Net proceeds from common stock sold to Saburah               4,795          5           636         -                -
Retired stock                                                   (5)         -             -         -                -
Exercise of stock options                                        3          -             -         -                -
Equity adjustment from foreign currency translation              -          -             -         -                -

Comprehensive income                                             -          -             -         -                -
                                                      -------------  --------  ------------  ---------  ---------------
BALANCE, December 31, 2004                                 120,549        121        48,779   (44,718)               -

Net loss                                                         -          -             -    (1,690)               -
Exercise of stock options                                       80          -             4         -                -
Equity adjustment from foreign currency translation              -          -             -         -                -

Comprehensive loss                                               -          -             -         -                -
                                                      -------------  --------  ------------  ---------  ---------------

BALANCE, December 31, 2005                                 120,629   $    121  $     48,783  $(46,408)  $            -
                                                      =============  ========  ============  =========  ===============

<S>                                                   <C>            <C>              <C>

                                                      Accumulated      Total
                                                         Other       Shareholders'    Comprehensive
                                                      Comprehensive    Equity             Income
                                                         Income       (Deficit)           (Loss)
                                                      -------------  ---------------  ---------------

BALANCE, January 1, 2003                              $           -  $         (451)
Net income                                                        -             181   $          181
                                                                                      ===============
Settlement of debt and lease obligations                          -             140
Net proceeds from common stock issued to Dialoc                   -               5
Exercise of stock options                                         -               -
                                                      -------------  ---------------
BALANCE, December 31, 2003                                        -            (125)

Net income                                                        -              31   $           31
Repayment of note receivable from shareholder                     -             120
Issuance of warrants                                              -             215
Acquisition of ID Systems                                         -           3,300
Net proceeds from common stock sold to Saburah                    -             641
Retired stock                                                     -               -
Exercise of stock options                                         -               -
Equity adjustment from foreign currency translation             163             163              163
                                                                                      ---------------
Comprehensive income                                              -               -   $          194
                                                      -------------  ---------------  ===============
BALANCE, December 31, 2004                                      163           4,345

Net loss                                                          -          (1,690)  $       (1,690)
Exercise of stock options                                         -               4
Equity adjustment from foreign currency translation              39              39               39
                                                                                      ---------------
Comprehensive loss                                                -               -   $       (1,651)
                                                      -------------  ---------------  ===============

BALANCE, December 31, 2005                            $         202  $        2,698
                                                      =============  ===============
</TABLE>

                 See notes to consolidated financial statements

<PAGE>
                                               SENTRY TECHNOLOGY CORPORATION
                                               -----------------------------
                                                     AND SUBSIDIARIES
                                                     ----------------
                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                                           -------------------------------------
                                                      (In Thousands)

<TABLE>
<CAPTION>
                                                                                  Years Ended December 31,
                                                                                  ------------------------
<S>                                                                       <C>         <C>           <C>

                                                                               2005          2004          2003
                                                                          ----------  ------------  ------------

CASH FLOWS FROM OPERATING ACTIVITIES:
 Net income (loss)                                                        $  (1,690)  $        31   $       181
 Adjustments to reconcile net income (loss) to net cash
   (used in) provided by operating activities:
   Depreciation                                                                 154           183           262
   Amortization of intangibles and other assets                                 135           179            90
   Provision for bad debts                                                        1           (14)          (16)
 Deferred income taxes                                                           19            39           ---
             Non-cash consideration                                              59            63           ---
             Minority interest in net income of consolidated subsidiary          95           208           ---
   Extraordinary gain on extinguishments of debt                                ---           ---        (1,230)
 Changes in operating assets and liabilities:
   Accounts receivable                                                          737          (823)            6
   Inventories                                                                  605          (196)        1,290
   Prepaid expenses and other assets                                            207           143          (129)
   Accounts payable and accrued liabilities                                    (530)         (557)           65
   Deferred income                                                              (34)         (102)         (123)
                                                                          ----------  ------------  ------------
 Net cash (used in) provided by operating activities                           (242)         (846)          396
                                                                          ----------  ------------  ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
 Purchases of property and equipment                                           (102)         (205)          (81)
      Intangibles                                                               (25)          (92)          (16)
      Net cash provided by the acquisition of ID Systems                        ---            31           ---
                                                                          ----------  ------------  ------------
 Net cash used in investing activities                                         (127)         (266)          (97)
                                                                          ----------  ------------  ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
 Net borrowing (payments) on the revolving line of credit                       220           329        (1,372)
 Proceeds of notes payable                                                      ---           ---           247
 Repayment of notes payable                                                    (189)          (58)          ---
 Proceeds of term loan                                                          ---           ---           845
 Repayment of term loan                                                        (821)         (203)          (25)
      Proceeds of bridge loan                                                   ---           100           ---
      Repayment of bridge loan                                                  ---          (100)          ---
      Proceeds of convertible debenture and warrants                            ---         2,000           ---
 Repayment of obligations under capital leases                                   (7)           (5)          (55)
 Proceeds of sale of stock, net                                                   4           641             5
                                                                          ----------  ------------  ------------
 Net cash provided by (used in) financing activities                           (793)        2,704          (355)
                                                                          ----------  ------------  ------------

EFFECT OF EXCHANGE RATE CHANGES                                                  39           163           ---
                                                                          ----------  ------------  ------------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                             (1,123)        1,755           (56)
CASH AND CASH EQUIVALENTS, beginning of year                                  1,965           210           266
                                                                          ----------  ------------  ------------
CASH AND CASH EQUIVALENTS, end of year                                    $     842   $     1,965   $       210
                                                                          ==========  ============  ============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 Cash paid during the year for:
 Interest                                                                 $     302   $       341   $       676
                                                                          ==========  ============  ============
      Income taxes                                                        $      83   $        72   $       ---
                                                                          ==========  ============  ============
</TABLE>
                      See notes to consolidated statements


<PAGE>

                          SENTRY TECHNOLOGY CORPORATION
                          -----------------------------
                                AND SUBSIDIARIES
                                ----------------

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------


                  YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
                 ----------------------------------------------


1.     SIGNIFICANT  ACCOUNTING  POLICIES:
       ---------------------------------

     a.     Business
            --------

     Sentry  Technology  Corporation  ("Sentry"  or  the  "Company"), a publicly
traded Delaware Corporation, was established on February 12, 1997. Its corporate
predecessors had been in business for more than 39 years. The Company is engaged
in  the  design,  manufacture, distribution, installation and service of systems
designed  to be used by retailers to deter shoplifting and internal theft and by
industrial  and  institutional  customers  to  protect  assets  and  people.

     b.     Principles  of  consolidation
            -----------------------------

          The  consolidated  financial  statements  include  the accounts of the
Company  and its wholly owned and majority owned subsidiaries.  All intercompany
balances  and  transactions  have  been  eliminated  in  consolidation.

     c.     Revenue  recognition
            --------------------

          The  Company  offers  its security devices for sale or lease.  For the
years  ended  December  31, 2005, 2004 and 2003, leases of security devices were
not  material.

          The  Company recognizes revenue when installation is complete or other
post-shipment obligations have been satisfied.  For those products not requiring
installation  or  if installation costs are not material, the Company recognizes
revenues  upon  shipment.

          Service  revenues  are recognized when earned and maintenance revenues
are  recognized  ratably  over  the  service  contract  period.

          Included  in  accounts  receivable  at  December 31, 2005 and 2004 are
unbilled  accounts  receivable  of  $36,000  and  $129,000,  respectively.

     d.     Cash  and  cash  equivalents
            ----------------------------

          The  Company  considers  all  highly liquid temporary investments with
original  maturities of less than ninety days to be cash equivalents.  Temporary
cash investments are placed with high credit quality financial institutions.  At
times, the Company's cash deposits with any one financial institution may exceed
federally  insured  limits.

     e.     Allowance  for  doubtful  accounts
            ----------------------------------

          Losses  from  uncollectible accounts are provided for by utilizing the
allowance  for  doubtful  accounts  method  based  upon management's estimate of
uncollectible  amounts.  Management  specifically  analyzed accounts receivable
and  analyzes  potential  bad debts, customer concentrations, credit worthiness,
current  economic  trends  and changes in customer payment terms when evaluating
the  allowance  for  doubtful  accounts.


<PAGE>

     f.     Inventories
            -----------

          Inventories  are  stated  at  the  lower  of cost (first-in, first-out
method)  or  market.

     g.     Product  warranty
            -----------------

          Provisions  for  estimated  expenses related to product warranties are
made  at  the  time  products  are  sold.  These estimates are established using
historical  information  on  the nature, frequency, and average cost of warranty
claims.

     h.     Depreciation  and  amortization
            -------------------------------

          Depreciation  of  security devices on lease and property and equipment
is  provided  for  using  the  straight-line method over their related estimated
useful  lives.  Security  devices on lease generally have estimated useful lives
of  six  years,  except the cost of security devices related to operating leases
with  purchase  options  are  depreciated  over  the  life  of  the  lease.

     i.     Patents  and  other  intangibles
            --------------------------------

          Cost and expenses incurred in obtaining patents are amortized over the
remaining life of the patents, not exceeding 17 years, on a straight-line basis.
Costs  assigned  to  other  intangibles,  including  trade secrets, distribution
agreements  and  customer  relationships, are being amortized on a straight line
basis  over  their  estimated  useful  lives of 5 to 15 years.  Estimated annual
amortization  expense  for the next five succeeding fiscal years will range from
$76,000  in  2006  to  $9,000  in  2010.

     j.     Goodwill
            --------

Goodwill  represents  the  excess of acquisition cost over the fair value of net
assets  acquired  in  business  combinations.  In  accordance  with Statement of
Financial  Accounting  Standards  (SFAS)  No. 142, goodwill is not amortized but
reviewed  annually  for  impairment.

     k.     Impairment  of  long-lived  assets
            ----------------------------------

     The  Company  reviews  its  long-lived  assets,  property  and  equipment,
intangible  assets,  goodwill and other assets for impairment whenever events or
changes  in  circumstances indicate that the carrying amount of these assets may
not  be fully recoverable. To determine recoverability of its long-lived assets,
the  Company  evaluates the probability that future undiscounted net cash flows,
without  interest  charges, will be less than the carrying amount of the assets.
Impairment is measured at fair value. The Company completed its annual review of
impairment  and  determined  that  long-lived  assets  were  not  impaired.


     l.     Fair  value  of  financial  instruments
            ---------------------------------------

          It  is  management's belief that the carrying amounts of the Company's
financial instruments (cash and cash equivalents, accounts receivable, revolving
line  of  credit,  accounts  payable  and  obligations  under  capital  leases)
approximate  their  fair  value  at  December 31, 2005 and 2004 due to the short
maturity  of  these  instruments  or  due  to  the  terms  of  such  instruments
approximating instruments with similar terms currently available to the Company.

     m.     Deferred  income
            ----------------

          Deferred  income  consists  of rentals related to operating leases and
maintenance  contracts  billed  or  paid  in  advance.

<PAGE>

     n.     Income  taxes
            -------------

          The  Company  accounts for income taxes under SFAS No. 109, Accounting
for  Income  Taxes,  which requires an asset and liability approach to financial
accounting  and reporting for income taxes.  Deferred tax assets and liabilities
are determined based on differences between financial reporting and tax bases of
assets  and  liabilities,  and are measured using the enacted tax rates and laws
that  will  be  in  effect  when  the  differences  are  expected  to  reverse.

     o.     Stock-based  compensation
            -------------------------

     The  Company  accounts  for  stock-based  awards  to  employees  using  the
intrinsic  value  method  in accordance with Accounting Principles Board Opinion
No.  25,  "Accounting  for  Stock  Issued  to  Employees."

     SFAS  No.  123,  Accounting  for  Stock-Based  Compensation,  requires  the
disclosure  of  pro  forma  net  income  and  earnings per share had the Company
adopted  the  fair value method as of the beginning of 1995. Under SFAS No. 123,
the  fair value of stock-based awards to employees is calculated through the use
of option pricing models, even though such models were developed to estimate the
fair  value  of  freely  tradable,  fully  transferable  options without vesting
restrictions,  which  significantly  differ  from  the  Company's  stock options
awards. These models also require subjective assumptions, including future stock
price  volatility  and  expected  time  to  exercise,  which  greatly affect the
calculated values. No options were granted in 2004 or 2003. The weighted average
fair  value  of  the  options  granted  for  the year ended December 31, 2005 is
estimated  at  $0.08,  using  the  Black-Scholes  option  pricing model with the
following  weighted  average  assumptions:  expected  life  of  4.7 years; stock
volatility,  123%;  risk  free interest rates, 4.0%, and no dividends during the
expected  term.  The  Company's  calculations  are  based  on  a multiple option
valuation approach and forfeitures are recognized as they occur. If the computed
fair values had been amortized to expense over the vesting period of the awards,
pro  forma  net  income  attributed  to  common  shareholders would have been as
follows:



                                  2005            2004               2003
                                 -------          ------             ------
                                    (In thousands, except per share data)

Net income (loss):
    As reported               $  (1,690)        $    31           $    181
    Less stock based
    compensation expense
    determined under the fair
    value method for all
    awards, net of related
    tax effects                     (27)            (12)               (74)
                              -----------       ---------         ----------
    Pro forma                 $  (1,717)        $    19           $    107

Net income (loss) per share:
    As reported               $   (0.01)        $  0.00           $   0.00
    Pro forma                     (0.01)           0.00               0.00



     p.     Foreign  currency  translation
            ------------------------------

     The  functional  currency  of  the  Company's foreign entities is the local
currency.  The  translation of foreign currencies into U.S. dollars is performed
for  balance  sheet  accounts  using the exchange rates in effect at the balance
sheet  dates  and  for  revenue  and  expense  accounts using a weighted average
exchange  rate  during  the  year.  The  gains  or  losses  resulting  from  the
translation  are  included  in  Accumulated  Other  Comprehensive  Income in the
Consolidated Statement of Shareholders' Equity and are excluded from net income.
Foreign exchange transaction gains (losses) are included in selling,
general  and  administrative  expenses and amounted to approximately $(133,000),
$(79,000)  and  $12,000  for  the  years ended December 31, 2005, 2004 and 2003,
respectively.



     q.     Shipping  and  handling  costs
            ------------------------------

          Shipping  and  handling  costs  are  included  in selling, general and
administrative  expenses  and  approximated  $233,000,  $251,000 and $215,000 in
2005,  2004  and  2003,  respectively.

     r.     Use  of  estimates
            ------------------

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

     s.     Reclassifications
            -----------------

          Certain  prior  year  balances  have  been  reclassified to conform to
current  year  classifications.

     t.     Recent  accounting  pronouncements
            ----------------------------------

          In  November  2004,  the Financial Accounting Standards Board ("FASB")
issued  Statement of Financial Accounting Standards ("SFAS") No. 151, "Inventory
Costs,  an  amendment  of  ARB  No.  43,  Chapter  4". This statement amends the
guidance in ARB No. 43, Chapter 4, "Inventory Pricing" to clarify the accounting
for  abnormal  amounts  of  idle  facility expense, freight, handling costs, and
wasted material (spoilage). SFAS No. 151 requires that those items be recognized
as  current period charges. In addition, this statement requires that allocation
of  fixed  production  overheads to costs of conversion be based upon the normal
capacity  of  the  production  facilities.  The  provisions  of SFAS No. 151 are
effective  for inventory costs incurred in fiscal years beginning after June 15,
2005.  The  Company  is  currently  evaluating the impact of SFAS No. 151 on its
consolidated  financial  statements.

          In  December  2004,  the  FASB  issued  SFAS  No.  153,  "Exchanges of
Non-monetary  Assets, an amendment of APB Opinion No. 29". SFAS No. 153 replaces
the exception from fair value measurement in APB Opinion No. 29 for non-monetary
exchanges  of similar productive assets with a general exception from fair value
measurement  for  exchanges  of  non-monetary assets that do not have commercial
substance.  A  non-monetary exchange has commercial substance if the future cash
flows  of  the  entity  are  expected to change significantly as a result of the
exchange.  SFAS  No.  153  is  to be applied prospectively, and is effective for
non-monetary asset exchanges occurring in fiscal periods after the December 2004
issuance  of SFAS No. 153. The Company does not believe the adoption of SFAS No.
153  will  be  significant  to  the  overall  results of operations or financial
position.

          In  December  2004,  the  FASB  issued  SFAS  No.  123 (revised 2004),
"Share-Based  Payment"  ("SFAS No. 123R"). SFAS No. 123R requires the Company to
measure  the  cost  of  employee  services  received in exchange for an award of
equity  instruments based on the grant-date fair value of the award. The cost of
the employee services is recognized as compensation cost over the period that an
employee  provides  service  in  exchange  for  the  award.  Beginning  with the
Company's  first  quarter of fiscal year 2006, it will be required to adopt SFAS
123(R),  and  will  recognize  share-based  compensation costs in its results of
operations.  The Company currently provides pro forma disclosures under SFAS 123
reflecting  the  effects  of  share-based  compensation  costs on its results of
operations  in  Note 8 to consolidated financial statements.   Although such pro
forma  effects of applying SFAS 123 may be indicative of the effects of adopting
SFAS  123(R),  the  provisions  of these two statements differ in some important
respects.  The  actual  effects  of  adopting  SFAS  123(R) will be dependent on
numerous  factors  including, but not limited to, levels of share-based payments
granted  in the future and the timing thereof; the valuation model chosen by the
Company  to  value  stock-based  awards;  the assumed award forfeiture rate; the
accounting  policies adopted concerning the method of recognizing the fair value
of awards over the service period; and the transition method chosen for adopting
SFAS  123(R),  which  permits  public  companies to adopt its requirements using
various methods, including the "modified prospective application method" and the
"modified  retrospective  application  method."  The Company plans to adopt SFAS
123(R)  using  the  modified prospective application method. The Company expects
that  the  adoption  of SFAS 123(R) may have a material impact on its results of
operations  subsequent  to  adoption.

          In  March  2005,  the  FASB  issued  FASB  Staff  Position ("FSP") No.
46(R)-5,  "Implicit  Variable Interests under FASB Interpretation No. ("FIN") 46
(revised  December 2003), Consolidation of Variable Interest Entities" ("FSP FIN
46R-5").  FSP  FIN 46R-5 provides guidance for a reporting enterprise on whether
it holds an implicit variable interest in Variable Interest Entities ("VIEs") or
potential  VIEs  when  specific  conditions  exist. This FSP is effective in the
first  period  beginning  after  March 3, 2005 in accordance with the transition
provisions  of  FIN  46  (revised  December  2003),  "Consolidation  of Variable
Interest  Entities  -  an Interpretation of Accounting Research Bulletin No. 51"
("FIN  46R"). The Company has determined that the adoption of FSP FIN 46R-5 will
not  have  an  impact  on  its  results  of  operations  and financial position.


     In  March  2005,  the  FASB  issued  Interpretation No. 47, "Accounting for
Conditional  Asset  Retirement Obligations" ("FIN 47"), which will result in (1)
more  consistent  recognition  of  liabilities  relating  to  asset  retirement
obligations, (2) more information about expected future cash outflows associated
with those obligations, and (3) more information about investments in long-lived
assets  because  additional asset retirement costs will be recognized as part of
the  carrying amounts of the assets. FIN 47 clarifies that the term "conditional
asset  retirement  obligation"  as  used  in SFAS No. 143, "Accounting for Asset
Retirement  Obligations",  refers  to  a  legal  obligation  to perform an asset
retirement  activity  in  which  the  timing  and/or  method  of  settlement are
conditional  on  a future event that may or may not be within the control of the
entity. The obligation to perform the asset retirement activity is unconditional
even  though  uncertainty  exists  about the timing and/or method of settlement.
Uncertainty  about the timing and/or method of settlement of a conditional asset
retirement  obligation  should be factored into the measurement of the liability
when  sufficient  information exists. FIN 47 also clarifies when an entity would
have  sufficient  information  to reasonably estimate the fair value of an asset
retirement obligation. FIN 47 is effective no later than the end of fiscal years
ending  after  December  15, 2005. The adoption of FIN 47 in 2005 did not have a
material  impact  on  the  financial  position  or  results of operations of the
Company.

          In  May  2005,  the  FASB issued SFAS No. 154, "Accounting Changes and
Error Corrections", which replaces APB Opinion No. 20, "Accounting Changes", and
SFAS  No.  3, "Reporting Accounting Changes in Interim Financial Statements - An
Amendment  of  APB  Opinion  No.  28".  SFAS  No.  154  provides guidance on the
accounting  for  and  reporting  of  changes  in accounting principles and error
corrections.  SFAS  No.  154  requires retrospective application to prior period
financial  statements  of  voluntary changes in accounting principle and changes
required by new accounting standards when the standard does not include specific
transition  provisions,  unless  it is impracticable to do so. SFAS No. 154 also
requires  certain  disclosures  for  restatements due to correction of an error.
SFAS  No. 154 is effective for accounting changes and corrections of errors made
in fiscal years beginning after December 15, 2005, and is required to be adopted
by  the  Company as of January 1, 2006. The impact that the adoption of SFAS No.
154  will  have  on  the Company's results of operations and financial condition
will  depend  on  the nature of future accounting changes adopted by the Company
and  the  nature  of  transitional  guidance  provided  in  future  accounting
pronouncements.



2.     CAPITAL  TRANSACTIONS  AND  ID  SYSTEMS  ACQUISITION:
       -----------------------------------------------------

     Our  largest  shareholder  had  been Dialoc ID Holdings B.V. ("Dialoc"). On
April  19,  2004,  Dialoc  sold  39,066,927  Sentry  common shares (representing
approximately  46%  of the total issued and outstanding common shares of Sentry)
to  a  group  of  investors.  Of the group, Saburah Investments Inc. ("Saburah")
acquired  22,758,155  shares,  Mr. Robert Furst 14,554,386 shares and Dr. Morton
Roseman  1,754,386  shares.  Mr.  Peter  Murdoch, President, CEO and Director of
Sentry, is the owner of Saburah. Mr. Furst is a long-standing member of Sentry's
Board  of Directors. As a result of this transaction, Messers Angel and de Nood,
Principals  of  Dialoc,  resigned  from  Sentry's  Board  of  Directors.

In  addition  to  the  purchase of Sentry's common shares, Saburah also acquired
100% of ID Security Systems Canada, Inc. and ID Systems USA Inc. ("ID Systems").
The price paid to Dialoc by Saburah and Murdoch for Sentry and ID Systems shares
in  cash, debt assumption and other consideration was approximately $3.6 million
plus  the surrender of Murdoch's 15% interest in Dialoc.  Saburah also agreed to
make  a payment to Dialoc in the future equal to approximately 6% of any payment
it  receives  from  Checkpoint  Systems  Inc.  ("Checkpoint")  resulting  from
litigation  brought  by  ID  Canada  against  Checkpoint.

On  April  30, 2004, Sentry purchased from Saburah Investments, Inc., an Ontario
corporation,  all  of  the  outstanding  common shares and Series "A" preference
shares  of  ID  Security Systems Canada Inc., an Ontario corporation, and all of
the  outstanding  capital  stock  of  ID  Systems  USA,  Inc.,  a  Pennsylvania
corporation  (collectively,  "ID  Systems").  Effective  January  1,  2005,  the
names of the acquired subsidiaries were changed to Sentry Technology Canada Inc.
and Sentry Technology USA Inc.  ID Systems is a Toronto based company engaged in
anti-shoplifting  technology,  security labeling, radio frequency identification
("RFID"), access  control and library security.  Sentry acquired ID Systems from
Saburah  in  exchange  for  30,000,000  Sentry common shares. The price paid per
Sentry share for the securities of ID Systems was valued at approximately $0.11.
A  special  committee  of  Sentry's  Board of Directors received an opinion from
Corporate  Valuation Services confirming that the price paid for the acquisition
of  ID  Systems was fair from the point of view of Sentry shareholders.  As part
of  the purchase agreement, the proceeds of the ID Systems litigation settlement
will be distributed to the former ID Systems' shareholders.  However Saburah and
Sentry have agreed that Sentry may require Saburah to purchase additional Sentry
common  shares  under  certain  circumstances.  Sentry's  Board of Directors and
shareholders  owning  a majority of Sentry common stock approved the acquisition
of  ID  Systems.

     Other benefits flowing to Sentry/ID Systems via the purchase of ID Systems
are as follows:

-     ID  Systems  and Sentry continue as the exclusive distributor in North and
South  America  for  a  period  of  five years for all Dialoc products including
Laserfuse  radio  frequency  security  labels  and  all  RFID  products.

-     Dialoc became a distributor in Europe and Asia of labels manufactured by
ID Systems' security label manufacturing subsidiary, Custom Security Industries
Inc. ("CSI").

-     CSI acquired the right to purchase Laserfuse raw material for processing
into finished security labels in its Toronto plant in order to reduce the cost
of production.

-     CSI acquired the option to purchase a non-exclusive license to manufacture
complete Laserfuse security labels for a period of 10 years subject to the
payment of $500,000 and a running royalty of $0.001 per label.

-     Dialoc will continue to be a dealer for Sentry products in Europe and
Asia.


The purchase price of the ID Systems acquisition was as follows:


                                                             (in thousands)
     Value of Sentry Technology Corporation common stock     $     3,300
     Transaction costs                                                88
                                                             ------------
     Total purchase price                                    $     3,388
                                                             ============



Under  the  purchase  method of accounting, the total purchase price as detailed
above  was  allocated  to  ID System's net tangible assets and intangible assets
based  on  their  fair  values  as  of  April  30,  2004, which were as follows:

                                                             (in thousands)
     Cash                                                     $     119
     Accounts receivable                                          1,181
     Inventories                                                  1,263
     Prepaid expenses and other current assets                      754
     Property and equipment                                         458
     Deferred charges                                                69
     Bank debt                                                     (998)
     Accounts payable and accrued liabilities                      (449)
     Other liabilities                                             (843)
                                                              ----------
     Net tangible assets                                          1,554
     Goodwill and other intangibles                               1,834
                                                              ----------
     Total purchase price                                     $   3,388
                                                              ==========


     Other intangible assets acquired ($270,000) included trade secrets
($150,000 - 10 year life), patents ($60,000 - 15 year life) and customer
relationships ($60,000 - 5 year life).

     On  an  ongoing  basis,  Sentry will evaluate the carrying value versus the
discounted  cash  benefit  expected  to  be realized from the performance of the
underlying  operations  and  adjust  for  any  impairment in value. Based on the
Company's  annual  review,  there  was  no  impairment  as of December 31, 2005.

     The accompanying consolidated statements of operations include the revenues
and expenses of ID Systems from May 1, 2004.

     The following supplemental pro forma information illustrates the effects of
the acquisition on the historical operating results for the years ended December
31,  2004 and  2003, as if the acquisition had occurred at the beginning of each
respective  period:


                                               2004          2003
                                                  ----          ----
                                          (In thousands, except per share data)
                                      -------------------------------------

Revenues                                       $  18,128       $  19,566
Income  (loss)  before  extraordinary  item    $     (92)      $    (130) *
Net  income  (loss)                            $     (92)      $     608  *
Net  income  (loss)  per  share                $   (0.00)      $    0.01


*  The  income  (loss)  before extraordinary item in the year ended December 31,
2003  includes  an income tax benefit of $492,000 resulting from the utilization
of  net  operating  loss  carryforwards.  Net  income  in 2003 includes both the
income  tax  benefit  and  the  extraordinary  gains  of  $738,000  from  the
extinguishment  of  debt.


3.     CONVERTIBLE  DEBENTURE:
       ----------------------

     On  April  30,  2004,  Sentry entered into a $2,000,000 secured convertible
debenture  with  Brascan  Technology Fund ("Brascan"), an alternative investment
fund  established  by  Brascan  Asset  Management,  to  invest  in  early stage,
technology-based companies with high growth potential.  Effective November 2005,
the  entities  changed  their respective names to Brookfield Technology Fund and
Brookfield  Asset  Management,  (collectively  referred  to  as,  "Brookfield").

Key  terms  of the transaction are as follows:
- Four-year term.

- Interest rate of 8%.

- Redeemable at Sentry's option after 18 months.

- Conversion price equal to  the  market  price,  at  time  of  conversion, less
a discount of 30% with a maximum  conversion  price  of $0.12 per share.

- Conversion is at the option of Brookfield  when  market share price is equal
to or greater than $0.17 per share or with the approval of Sentry's Board of
Directors when the market share price is less than $0.17 per share.

- Sentry will provide most favored pricing to all Brookfield  affiliates  and
expects  to  be  a  supplier  of  security  and identification  products  to
the Brookfield affiliates.

- Brookfield was issued warrants for 5,000,000 shares of Sentry common stock,
priced at $0.15 per share, exercisable  anytime within the next four years.

- Brookfield is entitled to one seat  on  Sentry's  Board  of  Directors or will
participate as an observer.

     The Debenture is secured by a general security interest over all the assets
and  properties  of Sentry. The amount is subordinate to the existing Royal Bank
of Canada credit  facilities.

     The  proceeds  of  the financing, to be used primarily for working capital,
were  initially  allocated  between  the debenture ($1,835,000) and the warrants
($165,000)  based  on their respective fair values in accordance with EITF 00-27
("Application of Issue 98-5 to Certain Convertible Instruments"). The difference
between the face value of the debenture and the allocated value is being charged
to  interest  and  financing  expenses  over  the  term  of  the  debenture.

     Certain other warrants to purchase 425,000 shares of Sentry common stock at
exercise prices ranging from $0.18 to $0.20 per share were issued in conjunction
with  the  convertible debenture. The warrants are exercisable over one to three
years. The fair value of these warrants ($49,000) is being charged to operations
over  the  life  of  the  warrants.

     As  a  condition  of  the  financing,  Sentry  also  acquired  ID  Systems.

     Sentry's  Board  of  Directors and shareholders owning a majority of Sentry
common  stock  approved  the  transaction  with  Brookfield.


4.     INVENTORY:
       ---------

<TABLE>
<CAPTION>
Inventories consist of the following:

                         December 31,
<S>              <C>                <C>

                            2005       2004
                 ----------------------------
                        (In thousands)

                ----------------------------
Raw materials    $         1,101    $   1,206
Work-in-process              279          292
Finished goods             1,329        1,816
                 ---------------       ------
                 $         2,709       $3,314
                 ===============       ======
</TABLE>


          The  components  of inventory shown are net of reserves for excess and
obsolete  inventory  totaling  $1,261,000 and $1,528,000 as of December 31, 2004
and  2003,  respectively.


5.     PROPERTY  AND  EQUIPMENT:
       ------------------------

     Property  and  equipment  are stated at cost and are summarized as follows:
<TABLE>
<CAPTION>
<S>                                       <C>         <C>              <C>


                                          Estimated
                                          Useful Lives      December 31,
                                          Years         2005          2004
                                                      -----------------------
                                                           (In thousands)
                                                      -----------------------

Machinery and equipment                    3 - 10     $    2,362   $   2,270
Furniture, fixtures and office equipment   3 - 10          2,360       2,349
Leasehold improvements                     3 - 10             92          89
                                                      -----------  ----------
                                                           4,814       4,708
Less accumulated depreciation                              4,177       4,019
                                                      -----------  ----------
                                                      $      637   $     689
                                                      ===========  ==========
</TABLE>


          Net property and equipment located in Canada approximated $578,000 and
$585,000  in  2005  and 2004.  Depreciation expense on property and equipment in
2005,  2004  and  2003  totaled  $154,000,  $139,000 and $261,000, respectively.


6.     ACCRUED  LIABILITIES:
       --------------------

<TABLE>
<CAPTION>
                                                              December 31,


Accrued liabilities consist of the following:               2005       2004
                                                       ------------------------
                                                             (In thousands)
                                                       ------------------------

<S>                                                    <C>              <C>
Accrued salaries, employee benefits and payroll taxes  $      260    $    333
Other accrued liabilities                                     665         813
                                                       -----------   ---------
                                                       $      925    $  1,146
                                                       ===========   =========
</TABLE>


<PAGE>


7.     CREDIT  FACILITIES:
       ------------------

<TABLE>
<CAPTION>

Balances under credit facilities                            December 31,
consist of the following:                            =======================

                                                         2005         2004
                                                     -----------------------
                                                          (In thousands)

                                                    -----------------------
<S>                                                  <C>            <C>
Royal Bank of Canada                                 $   2,039      $   ---
The CIT Group/Business Credit Inc. revolving credit        ---        1,769
Bank of Montreal overdraft lending                         ---          734
Bank of Montreal non-revolving demand                      ---          137
                                                     ---------      -------

                                                     $   2,039      $ 2,640
                                                     =========      =======
</TABLE>



          On  May  13, 2005, the Company and certain of its subsidiaries entered
into a new secured credit facility with Royal Bank of Canada ("RBC") for maximum
borrowings of up to Canadian $4.5 million (U.S. $3.9 million), which are subject
to certain limitations based on a percentage of eligible accounts receivable and
inventories as defined in the agreement.  Interest is payable at a rate of Royal
Bank  of  Canada  prime  rate (5.0% at December 31, 2005), plus 1.25% per annum.
Borrowings under this facility are secured by substantially all of the Company's
assets.  This  new  facility  replaced  the  Company's  former  revolving credit
agreement in the United States and its overdraft lending and term loan agreement
in  Canada.  As  of December 31, 2005, the Company had excess borrowing capacity
of  approximately  $0.5 million.

     As  of the end of the third and fourth quarters of 2005, the Company failed
to  meet  one  of its financial covenants under the RBC agreement. Subsequent to
year end, the Company received from RBC a tolerance of default and waiver of the
covenant  as of those dates. In addition, on January 23, 2006, the agreement was
amended  with  regard  to  certain  financial  and  reporting  covenants and the
interest  rate  increased  to  RBC  prime  rate  plus  1.75%.

          The  Company is presently in the final stages of negotiations with RBC
to  amend  the credit agreement by further modifying certain financial covenants
and  by  extending  the  term of the agreement through April 2007.  In addition,
while  the  maximum  borrowing  under  the  facility  would remain the same, the
Company  has  requested  that  RBC  increase  the  borrowing availability to the
Company  by  Canadian  $1.0  million  (U.S. $860,000) in exchange for additional
security  provided  by two of the Company's directors.  After conversations with
RBC,  management  believes  that  these  amendments will be approved in the near
future.




8.     OBLIGATIONS UNDER CAPITAL AND OPERATING LEASES:
       ----------------------------------------------

       a.     Capital  leases
              ---------------

          The  Company  currently  leases  office equipment under non-cancelable
capital  leases  with  minimum  annual  rental commitments of $7,000 in 2006 and
$1,000  in  2007.

       b.     Operating  leases
              -----------------

          The Company leases certain administrative and manufacturing facilities
and equipment under non-cancelable operating leases that expire at various dates
through  2009.  Rent expense related to operating leases for 2005, 2004 and 2003
was $283,000, $234,000 and 103,000 per year, respectively. Minimum annual rental
commitments  are  $285,000  in  2006,  $283,000  in  2007,  $250,000 in 2008 and
$190,000  in  2009.


9.     COMMON  SHAREHOLDERS'  EQUITY:
       -----------------------------

       a.     Earnings  Per  Share  ("EPS")
              -----------------------------

     Basic  EPS  is  determined  by  using the weighted average number of common
shares  outstanding during each period. Diluted EPS further assumes the issuance
of  common  shares for all dilutive potential common shares outstanding. Options
to  purchase  2,431,524,  1,275,316  and  1,581,924  shares of common stock were
outstanding  at  the  end  of  2005,  2004  and 2003, respectively, but were not
included  in  the computation of diluted net loss per share because their effect
would  be  antidilutive  or  immaterial.


       b.     Stock  options
              --------------

          In February 1997, the Company adopted the 1997 Stock Incentive Plan of
Sentry  Technology  Corporation  (the  "1997  Plan").  The  1997  Plan initially
provided  for  grants  up  to 2,250,000 options to purchase the Company's common
stock.  Under  the  antidilution provisions of the 1997 Plan, as a result of the
preferred  stock redemption in January 2001, the shares available for grant were
increased  by  1,719,365 shares.  In March 2001, the Board of Directors approved
an  additional  increase  of 3,600,000.  In April 2004, in order to meet certain
criteria for the Brookfield financing, the Board of Directors reduced the number
of  shares available for grant by 5,200,000.  In August 2005, as a result of the
increase in total authorized shares, the Board of Directors increased the number
of  shares  available  for  grant  by 4,000,000.  The stock option committee may
grant  awards  to  eligible  employees  in the form of stock options, restricted
stock  awards, phantom stock awards or stock appreciation rights.  Stock options
may  be  granted as incentive stock options or nonqualified stock options.  Such
options  normally  become exercisable at a rate of 20% per year over a five-year
period  and  expire  ten  years  from  the  date of grant.  However, the Saburah
investment constituted a change in control under the 1997 Plan, resulting in the
immediate  vesting  of  all shares issued prior to May 1, 2004.  All outstanding
stock  options  are issued at not less than the fair value of the related common
stock  at the date of grant.  At December 31, 2005, 2,431,524 common shares were
reserved  for  issuance  in  connection  with  the  exercise  of  stock options.

          Stock  option transactions for the years ended December 31, 2005, 2004
and  2003  are  as  follows:

<TABLE>
<CAPTION>
<S>                                      <C>            <C>

                                         Weighted       Average
                                          Number        Exercise
                                         of Shares       Price

Balance, January 1, 2003                 3,341,292      $    0.69

Granted                                       -               -
Exercised                                   (2,000)          0.05
Canceled                                (1,757,368)          0.79
                                       -----------      ---------
Balance, December 31, 2003               1,581,924           0.57

Granted                                       -               -
Exercised                                   (3,000)          0.05
Canceled                                  (303,608)          0.35
                                       -----------      ---------
Balance, December 31, 2004               1,275,316           0.63

Granted                                  1,525,000           0.10
Exercised                                  (80,000)          0.05
Canceled                                  (288,792)          0.34
                                       -----------      ---------

Balance, December 31, 2005               2,431,524      $    0.35
                                       -----------      ---------
</TABLE>




       Significant option groups outstanding at December 31, 2005 and related
option  price  and  life  information  were  as  follows:

<TABLE>
<CAPTION>
<S>                <C>            <C>          <C>
                                  Weighted
                                  Average
                                  Remaining
Range of           Number         Contractual  Number
Exercise Price     Outstanding    Life         Exercisable
---------------   ------------    -----------  -----------

0.05 - 0.15       1,907,500         8.24        682,500
0.31 - 0.62         127,500         3.06        127,500
1.05 - 3.00         396,524         0.61        396,524
                  ----------       ------     ----------

                  2,431,524         6.73      1,206,524
</TABLE>



          At  December  31,  2005, options to purchase an aggregate of 1,206,524
common  shares  were  vested  and  currently  exercisable  at a weighted average
exercise  price  of  $0.61 expiring through 2015.  At December 31, 2005, options
for  3,341,214  common  shares  were  available  for  future  grants.

     As  discussed  in  Note  1, the Company accounts for its stock-based awards
using  the intrinsic value method in accordance with Accounting Principles Board
Opinion  No.  25,  ("Accounting  for  Stock  Issued to Employees and its related
interpretations").  Accordingly,  as  all  options have been granted at exercise
prices  equal to fair market value on the date of grant, no compensation expense
has been recognized in the financial statements for employee stock arrangements.

     c.     Warrants
            --------

          Sentry  currently has outstanding warrants for 6,725,000 common shares
issued  in  connection  with  various financing arrangements.  The warrants have
exercise  prices  ranging  from  $0.15  to  $0.20 and expire from April 29, 2007
through  January  21,  2009.


10.     INCOME  TAXES:
        -------------

        The  reconciliation  between  total  tax expense and the expected U.S.
Federal  income  tax  is  as  follows:
<TABLE>
<CAPTION>
<S>                                                    <C>         <C>          <C>

                                                        2005       2004        2003
                                                      ---------------------------------
                                                           (In thousands)
                                                     ---------------------------------

Expected tax provision (benefit) at 34%                $ (537)     $  86        $ (357)
Add:
 Nondeductible expenses                                    13         16            16
 U.S. losses producing no tax benefit                     524          6             -
 Use of net operating loss carry forwards to
       offset tax on extraordinary item                     -          -          (151)

 Foreign tax provision                                     49         32             -

                                                       -------     ------       -------
                                                       $   49      $ 140        $ (492)
</TABLE>

          As  of  December  31,  2005,  the  Company  had  net  operating  loss
carryforwards  of approximately $34 million, which expire through the year 2025.
The utilization of these net operating loss carryforwards will likely be subject
to  substantial  annual limitations imposed by the Internal Revenue Code Section
382.


          Significant  components  of  deferred  tax  assets  (liabilities)  at
December  31,  2005  and  2004  are  comprised  of:

<TABLE>
<CAPTION>

<S>                                       <C>                  <C>
                                       Deferred Tax Assets (Liabilities)
                                               2005              2004
                                          -------------     ---------------
                                                   (In thousands)
                                          ---------------------------------
Assets:
 Accounts receivable                      $       52           $   112
 Inventories                                     514               639
 Accrued liabilities                             100                98
 Property and equipment                          425               353
 Net operating loss carryforwards             13,876            13,078
                                          -----------          --------
 Gross deferred tax assets                    14,967            14,280
 Less valuation allowance                     14,936            14,268
                                          -----------          --------
     Deferred tax assets                          31                12

Liabilities:
 Property and equipment                          (83)              (51)
   Other                                         (19)               --
                                          -----------          --------
   Gross deferred tax liabilities               (102)              (51)
   Less valuation allowance                       13                --
                                          -----------          --------
     Deferred tax liabilities                    (89)              (51)

                                          -----------          --------

 Net deferred tax liability               $      (58)          $   (39)
                                          -----------          --------

</TABLE>

The  increase  in the valuation allowance for the years ended December 31, 2005,
and  2004,  was  primarily  attributable  to  the increase in net operating loss
carryforwards.  A valuation allowance has been recorded against the net deferred
tax  assets,  because  it  is  more  likely than not that such asset will not be
realized  in  the  foreseeable  future.

     The  $49,000  and  $142,000  income  tax  provisions  for  2005,  and 2004,
respectively,  is  principally  attributable  to  foreign  taxes  on  Canadian
operations.  The $492,000 income tax benefit for 2003 represents the utilization
of  that  period's  loss  from  operations  against  the  tax  provision  on the
extraordinary  gain  from  debt  extinguishment.


11.     EXTRAORDINARY  ITEM  -  GAIN  ON  THE  EXTINGUISHMENT  OF  DEBT:
        ---------------------------------------------------------------

     During  2003,  the  Company  entered  into a settlement with certain of its
vendors  for  past  due  obligations.  Under  the  terms of the settlement, each
participating  vendor received a note for approximately 10% of their balance due
and  two shares of Sentry common stock for each dollar owed in full satisfaction
of  their  outstanding  balances,  which  approximated  $1,092,000.  The  notes,
approximating  $112,000, are non-interest bearing and are payable in three equal
installments  on  January 15, 2004, 2005, and 2006.  The 2,193,263 shares issued
in  connection with this settlement were valued at approximately $105,000, based
on  the market value of the stock at the time of the settlement.  As a result of
this  transaction,  the  Company  realized  an extraordinary gain of $877,000 in
2003,  representing the difference between the amounts due before the settlement
and  the  total  amount  payable,  including the value of the common stock, as a
result  of  the  settlement.  The  Company made the first and second annual note
payments.  The  third  payment  due  January  2006  is  currently  on  hold.

     On  July  9,  2003,  Sentry  entered  into  a settlement agreement with its
landlord regarding the termination of its long-term capital and operating leases
for  its  facility in Hauppauge, New York. Under terms of the settlement, Sentry
was  released  from  its  current  and  future  liabilities  under the leases in
exchange  for  a  $250,000, 8% note, payable in 36 equal monthly installments of
$7,834,  including  interest,  commencing  November 1, 2003. In addition, Sentry
issued  the  landlord 1,000,000 shares of common stock, for which the fair value
of  the  stock  ($33,000)  was  determined using the closing price as of July 9,
2003.  Sentry  was  also  obligated  to  pay  rent of $16,000 per month until it
vacated  the  premises  on  September 30, 2003. The Company recognized a gain of
$353,000  in  2003,  representing the difference between the carrying amounts of
outstanding  obligations to the landlord less the net book value of the property
on  the  date of the settlement. As a result of the Brookfield financing, Sentry
was obligated to prepay an amount of $50,000 against the note in May 2004, which
resulted  in  a  reduction  in  the  remaining  monthly  payments  to  $5,932.

     As  of October 1, 2003, Sentry moved its corporate offices and distribution
center  to  a  20,000  square foot facility in Ronkonkoma, New York. The Company
entered  into a three-year lease with an option to renew for an additional three
year  period.  The  current annual rent is $148,600. Sentry presently expects to
exercise the renewal option as of October 1, 2006, at which time the annual rent
for  the  next  three  years  will  increase  to $160,000, 165,000 and $170,000,
respectively.

     The  $492,000  income tax provision recognized in 2003 on the extraordinary
gains  was  offset  by  an  equivalent  income  tax  benefit generated from that
periods'  loss  from  operations  and  the  utilization  of  net  operating loss
carryforwards.


12.     RELATED  PARTY  TRANSACTIONS:
        ----------------------------

          On  January  22,  2004, Robert Furst, a Sentry Director, made a bridge
loan  to  the  Company in the amount of $100,000.  The interest rate on the loan
was  15%  per  annum  and  the  loan  was  due  on or before April 30, 2004.  As
additional  consideration for the loan, Mr. Furst received a warrant to purchase
300,000  shares  of Sentry common stock at a price of $0.17 per share, which was
the  market price on the date of grant (valued at $3,000 and charged to interest
and  financing  expenses).  The  warrant expires January 21, 2009.  The note was
repaid  in  full  on  April  30,  2004.

     On  August  1,  2004, ID Systems and Checkpoint Systems Inc. entered into a
settlement  agreement  effective  July  30,  2004,  pursuant to which Checkpoint
agreed  to  pay $19.95 million in full and final settlement of claims covered by
an  antitrust  litigation.  Payment  in  full was received on August 5, 2004. As
provided  when  Sentry purchased ID Systems, the proceeds of the settlement were
distributed  to  former  shareholders of ID Systems, after payment of litigation
fees  and  expenses.  The agreement includes mutual releases between the parties
for  complaints  arising  from  activities  prior  to the date of the agreement,
except  for  any  contractual  obligations  and  any  future  claims for patent,
copyright or trademark infringement.  The agreement is not an acknowledgement of
any  wrongdoing  or  liability  by  either party. A Stipulation of Dismissal was
filed  with  the  Third  Circuit  Court of Appeals to finally conclude the legal
proceedings.  During  the  third  quarter  of  2004, Sentry and its subsidiaries
received  $753,000 through the repayment of debt incurred by Dialoc prior to the
ID  Systems  acquisition  and  reimbursement  of  litigation  expenses.

     While  Sentry  did  not  obtain  an  interest in the litigation settlement,
Saburah  and  Sentry  agreed  that  Sentry  might  require  Saburah  to purchase
additional  Sentry  common  shares  equal  to  approximately  4.5% of any amount
received  (net of legal fees and expenses) from Checkpoint.  The price per share
was set at 80% of the previous 20 days trading average prior to the announcement
of  the  settlement.  Our Board of Directors has exercised this option and based
on  the  settlement  amount,  Sentry  sold  to Saburah approximately 4.8 million
shares  for  $641,000  on  November  5, 2004.  These transactions, totaling $1.4
million, represent the total cash flowing to Sentry directly and indirectly as a
result  of  the  Checkpoint  lawsuit.

     In  April  2006,  Mr.  Murdoch,  Sentry's CEO and Director and Mr. Furst, a
Sentry  Director,  agreed  to provide a personal guarantee to RBC, the Company's
lender, in the amount of Canadian $1 million (U.S. $860,000) in exchange for the
bank  providing  increased availability under its credit facility to the Company
by  the  same amount.  In consideration of these guarantees, Mr. Murdoch and Mr.
Furst will receive a fee of $43,000, to be shared between them, paid in 12 equal
monthly  installments.  As  additional  consideration,  they  will receive fully
vested, two year warrants to purchase between 2.9 million and 3.8 million shares
of  the  Company's common stock, at an exercise price ranging between $0.075 and
$0.10 per share, dependent upon certain stock market conditions.  The fair value
of these warrants will be recorded in accordance with SFAS No. 123R "Share-Based
Payment"  in  the second quarter of 2006 and will be written off over the period
of  the  guarantee.




13.     COMMITMENTS  AND  CONTINGENCIES:
        -------------------------------

     a.     401(k)  Plan
            ------------

          In January 1997, the Company adopted the Sentry Technology Corporation
Retirement  Savings  401(k)  Plan  (the  "Plan").  The  Plan  permits  eligible
employees  to make voluntary contributions to a trust, up to a maximum of 35% of
compensation,  subject  to  certain  limitations.  The  Company  may  elect  to
contribute  a  matching  contribution  equal  to  a designated percentage of the
eligible  employee's deferral election.  The Company may also make discretionary
contributions,  subject  to  certain  conditions,  as  defined  in the Plan.  No
Company  contributions  were  made  in  2005,  2004  or  2003.

     b.     Employment  agreements
            ----------------------

          The  Company  and  several  key  executives  entered  into  employment
agreements  with  remaining  terms of one year for which the Company will have a
minimum  commitment of $423,000.  Also, the president of the Company's 51% owned
subsidiary,  Custom  Security Industries Inc., is entitled to receive 10% of its
pretax  profits.


<PAGE>
     c.     Litigation
            ----------

     In  August  2004,  Bi-County Park Associates, Inc. d/b/a Ashlind Properties
brought  an  action  against  the  Company  for  the  recovery  of a real estate
brokerage  commission  in  the amount of $250,000 relating to the termination of
its  lease  on  its  former Hauppauge facility.  Management believes there is no
merit  to  this  claim  and  is  actively  defending  such  action.

     The  Company  is a party to litigation matters and claims, which are normal
in  the  course  of  its  operations.  While  the results of such litigation and
claims  cannot  be  predicted with certainty, management believes that the final
outcome  of  such  matters  will  not  have  a  materially adverse effect on the
Company's consolidated financial position, results of operations and cash flows.

     d.  Distribution  Agreements
         ------------------------

On  March  31, 2004, the Company entered into a five-year distribution agreement
with  Dialoc  under which the Company must purchase a minimum of $1.1 million of
Dialoc's  products  each  year.


14.     MAJOR  CUSTOMERS  AND  CREDIT  CONCENTRATIONS:
        ---------------------------------------------

          The  Company  grants  credit  to  customers who are principally in the
retail  industry  and libraries.  During 2005, revenues from Goody's represented
approximately 10% of total revenues.  During 2004 and 2003, revenues from Lowe's
Home  Center  represented  approximately  30%  and  44%  of  total  revenues,
respectively.  No  other  customer accounted for more than 10% of total revenues
in 2005,  2004  and  2003.

          In  January  2005,  Lowe's Home Centers notified the Company that they
would  not  be  renewing  their  annual  maintenance contract, which represented
$850,000  of revenues in 2004.  The annual maintenance contract had an impact on
the  selection  of  vendors for replacement and add-on CCTV business in existing
Lowe's  locations.  The  Company anticipates that this decision will result in a
substantial  decrease  in  future  revenues  from Lowe's on a comparative basis.

          Canadian  revenues approximated $2,756,000, $2,322,000 and $247,000 in
2005,  2004  and  2003,  respectively.


15.     REVENUE  BY  PRODUCT  LINE:
        --------------------------

<TABLE>
<CAPTION>
<S>                                       <C>         <C>          <C>

Revenues by product line are
as follows:                                  2005        2004         2003

                                          ----------   ---------   ----------
                                                     (In thousands)
                                          -----------------------------------

EAS                                       $   6,490   $ 5,358      $ 1,914
CCTV                                          1,670     3,272        3,699
Sentry Vision                                 2,971     3,852        3,133
Service, installation and other revenues      2,439     4,381        4,497
                                          ---------   --------     --------

Total revenues                            $  13,570   $16,863      $13,243
                                          =========   ========     ========
</TABLE>


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

None.

ITEM 8A.  CONTROLS AND PROCEDURES
---------------------------------

As  of  the  end  of the period covered by this report, our Company conducted an
evaluation,  under  the  supervision  and  with  the  participation of our Chief
Executive  Officer  and  Chief Financial Officer, of our disclosure controls and
procedures  (as  defined  in Rules 13a-15(e) of the Exchange Act). Based on this
evaluation,  our  Chief  Executive Officer and Chief Financial Officer concluded
that  our  Company's  disclosure controls and procedures are effective to ensure
that  information  required  to  be  disclosed  by us in reports that we file or
submit  under  the  Exchange Act is recorded, processed, summarized and reported
within  the  time  periods specified in Securities and Exchange Commission rules
and  forms.

There  was  no  change  in  our  internal  controls,  which  are included within
disclosure  controls  and  procedures, during our most recently completed fiscal
quarter  that  has  materially  affected,  or is reasonably likely to materially
affect,  our  internal  controls.






                                   PART III
                                   --------


ITEM  9.     DIRECTORS  AND  EXECUTIVE  OFFICERS  OF  THE  REGISTRANT.
--------     ---------------------------------------------------------

DIRECTORS

The following sets forth information regarding the persons serving as Directors
of Sentry:

PETER  L.  MURDOCH,  age 52, has been the President and Chief Executive Officer,
Director  and  Chairman  of  the  Board  since January 8, 2001.  Mr. Murdoch has
extensive  experience in the retail security industry as well as in the sales of
technology-based  products.  He  was  Managing  Director  and  President  of  ID
Security  Systems Canada, Inc. since its inception in 1987 until its acquisition
by  Sentry.  From  1997  through  2004,  he  served  as member of the management
committee  of Dialoc ID.  Prior to joining ID Security Systems Canada, Inc., Mr.
Murdoch was Vice President of Sales for Catalyst International Business Systems.
He  is  an  economics  graduate  from  the  University  of Western Ontario.  Mr.
Murdoch's  term  as  a  Director  expires  at  the  next  Annual  Meeting.


ROBERT D. FURST, JR., age 53, has been a Director of Sentry Technology since its
inception.  Prior  thereto  he  was  a Director of Video Sentry Corporation, our
predecessor,  from  January  1993  until  February 1997.  He was Chairman of the
Board  of  Video  Sentry  from July 1996 and Chief Executive Officer from August
1996  until  February  1997.  Mr.  Furst was one of the original shareholders of
Video  Sentry.  He  is  also  a  founder  and  managing principal of Alternative
Strategy  Advisers LLC, an alternative investment management firm.  Mr. Furst is
a member of the Chicago Board of Trade and has been a securities and commodities
trader  since 1980. Mr. Furst is a continuing director on the Board of Directors
after  the  completion  of  the  Dialoc  ID  Investment.  Mr.  Furst's term as a
Director  expires  at  the  next  Annual  Meeting.

JONATHAN  G.  GRANOFF,  age  55,  has been a Director of Sentry Technology since
January  8,  2001.  Mr.  Granoff was appointed to the Board of Directors when it
was  expanded  from  five  to seven members. Mr. Granoff is the President of the
Global Security Institute and United Nations representative for Lawyers Alliance
for  World  Security.  He  is  also  Chairman  of  the  American Bar Association
Committee on Arms Control and Disarmament.  Mr. Granoff has been in the practice
of  law  since  1979.  Formerly  Mr.  Granoff served at Nutri Systems Inc. as an
attorney  and Director of Franchising.  Mr. Granoff's term as a Director expires
at  the  next  Annual  Meeting.


EXECUTIVE OFFICERS

The  following sets forth information regarding the persons serving as executive
officers  of  the  Company:


NAME                  AGE      OFFICE
----                  ---      ------
Peter  L.  Murdoch    52       President and Chief Executive Officer

Our President and Chief Executive Officer since January 8, 2001. Mr. Murdoch has
extensive  experience in the retail security industry as well as in the sales of
technology-based  products.  He  was  Managing  Director  of ID Security Systems
Canada,  Inc.  since  its  inception in 1987. Beginning in 1997 he has served as
member  of  the  management committee of Dialoc ID. Prior to joining ID Security
Systems  Canada,  Inc.,  Mr.  Murdoch  was  Vice President of Sales for Catalyst
International  Business Systems. He is an economics graduate from the University
of  Western  Ontario.

NAME                   AGE      OFFICE
----                   ---      ------
Peter  J.  Mundy       49       Vice President-Finance and
                                Chief Financial Officer

Our Vice President-Finance and Chief Financial Officer. Mr. Mundy also serves as
our  Secretary  and  Treasurer.  Mr.  Mundy  was Vice President - Finance, Chief
Financial  Officer,  Secretary  and  Treasurer  of Knogo North America Inc. from
December  1994.  Prior  thereto,  Mr.  Mundy  served  as  an  officer  of  Knogo
Corporation  where  he  was  Vice President - Corporate Controller from May 1994
and,  prior  to  such  time, Corporate Controller and Controller since 1982. Mr.
Mundy  is  a  Certified  Public  Accountant.


<PAGE>

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section  16(a)  of  the  Securities  Exchange  Act  of 1934 (the "Exchange Act")
requires  the Company's officers, Directors and persons who own more than 10% of
a  registered  class  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 Stockholders are required by
Securities  and  Exchange  Commission  regulations  to  furnish the Company with
copies  of  all  such  reports  they  file.


Based  solely  on a review of the copies of reports furnished to the Company, or
written representations that no Forms 5 were required, the Company believes that
during  the  fiscal  year  ended  December  31,  2005,  all Section 16(a) filing
requirements  applicable to its officers, Directors and greater than ten-percent
beneficial  owners  were  complied with, except the following.  Robert D. Furst,
Jr.,  a  member  of the Board, filed a late report on Form 4 on January 28, 2005
with  the  SEC,  for the sale of 400,000 shares of the Company's common stock at
prices ranging from $0.225 per share to $0.26 per share, which sales occurred on
January  25,  2005.


AUDIT COMMITTEE FINANCIAL EXPERT

We  do  not have a separate audit committee and therefore the Board of Directors
in  its  entirety  functions as the audit committee.  We have at least one audit
committee  financial expert serving on our Board of Directors, Mr. Robert Furst.

CODE  OF  ETHICS

We  have  adopted a written Code of Ethics that applies to all of our directors,
officers and employees. A copy of our Code of Ethics is available on our website
at  www.sentrytechnology.com  and  print copies are available to any shareholder
that  requests  a copy. Any amendment to the Code of Ethics or any waiver of the
Code  of  Ethics  will  be  disclosed on our website at www.sentrytechnology.com
promptly  following  the  date  of  such  amendment  or  waiver.


ITEM  10.  EXECUTIVE  COMPENSATION.
----------------------------------

SUMMARY  COMPENSATION  TABLE

The following table summarizes the compensation for our fiscal years ended
December 31, 2005 of our Chief Executive Officer and Chief Financial Officer:

<TABLE>
<CAPTION>

                                                            LONG-TERM              ALL OTHER
                               ANNUAL COMPENSATION        COMPENSATION           COMPENSATION
                               --------------------       -------------       ----------------
<S>                      <C>   <C>           <C>       <C>                    <C>

NAME AND                                               SECURITIES UNDERLYING
PRINCIPAL POSITION       YEAR  SALARY        BONUS          OPTIONS (#)
-----------------------  ----  --------------------    ---------------------  ----------------
Peter L. Murdoch         2005  $178,275         -              -                     -
President and CEO        2004   237,962 (1)     -              -                     -
                         2003    50,000         -              -                     -

Peter J. Mundy           2005   136,013         -              -                     -
Vice President - CFO,    2004   131,160         -              -                     -
Secretary and Treasurer  2003   131,160         -              -                     -
</TABLE>



(1)     Includes amounts paid by ID Systems in 2004 and $62,500 of Sentry salary
deferred from 2002.

As to various items of personal benefits, we have concluded that the aggregate
amount of such benefits with respect to each individual does not exceed the
lesser of $50,000 or 10% of the annual salary and bonus reported in the table
for such individual.


OPTIONS GRANTED IN LAST FISCAL YEAR

No options were granted to executive officers in 2005.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES

The  following  table  sets  forth  for each of the persons named in the Summary
Compensation  Table  the  number of options exercised during 2005 and the amount
realized  by  each  such  officer.  In  addition,  the table shows the number of
options  that  the  named  executive  officer held as of December 31, 2004, both
exercisable  (E) and unexercisable (U), and the value of such options as of that
date.

<TABLE>
<CAPTION>

                                                  NUMBER OF UNEXERCISED    VALUE OF UNEXERCISED IN
                                                  OPTIONS AT YEAR-END        THE MONEY OPTIONS AT
                                                         (#)                     YEAR END ($)
                        SHARES
                     ACQUIRED ON      VALUE          EXERCISABLE/                EXERCISABLE/
NAME                 EXERCISE (#)  REALIZED ($)      UNEXERCISABLE               UNEXERCISABLE
----------------     ------------  ------------   ----------------------   -----------------------
<S>                  <C>           <C>                <C>                      <C>
Peter L. Murdoch      -             -                  E          -             E            -
                                                       U          -             U            -

Peter J. Mundy        -             -                  E      444,632           E         $3,900
                                                       U          -             U            -
</TABLE>


COMPENSATION  OF  DIRECTORS

Directors  who  are  also  our  full-time  employees  receive  no  additional
compensation  for  their  services  as  Directors.  Each Director and Brookfield
Technology  Fund, in its capacity as an Observer, received an annual retainer of
$5,000  for  2005.

In  addition,  each non-employee Director is eligible to participate in our 1997
Stock Incentive Plan.   In March 2005, Mr. Furst, Mr. Granoff and the Brookfield
Technology  Fund  each  received options to purchase 50,000 shares of our common
stock at an exercise price of $0.15 per share, which was the market price on the
date  of  grant.  The  options  were exercisable immediately and expire after 10
years.  No  options  were  awarded  to  Directors  during  2004  and  2003.


EMPLOYMENT AGREEMENTS AND COMPENSATION OF EXECUTIVE OFFICERS; CHANGE OF CONTROL
ARRANGEMENTS

The  Board set Peter L. Murdoch's compensation, in the capacity of President, at
an  annual  salary  of  approximately  $178,000,  in  2005, $175,000 in 2004 and
$50,000  in  2003.

Our  Board  of  Directors  approves the compensation paid to our other executive
officers,  approving  or  disapproving the recommendation of the Chief Executive
Officer.  The  Board  of  Directors  also  determines  the  amount of shares and
exercise prices for any stock option grants under our 1997 Stock Incentive Plan,
and  the  amount  of  our  matching contribution percentage under our Retirement
Savings  401(k)  Plan,  respectively.

Currently,  Mr.  Mundy is compensated pursuant to a written employment agreement
providing  for  his  base  salary.  This  agreement  provides  for annual salary
increases  intended to maintain his base salary against increases in the cost of
living  as  measured by the United States Department of Labor.  Mr. Mundy waived
these  increases  for the years 2003 and 2004.  The employment agreement for Mr.
Mundy  renews  automatically on May 1 for one-year terms.  His annual salary for
2006  is  presently  $140,664.

The  employment  agreement  for  Mr.  Mundy also provides that in the event of a
change in control, the term of his employment will be automatically extended for
a  period  of one year, following the date of such change in control.  Following
such  change  in  control,  Mr.  Mundy  will  have  the  right  to terminate his
employment  for  good reason, as defined, while continuing to receive the salary
and bonus otherwise payable thereunder for the remainder of the employment term.
Additionally, the employment agreement provides that in the event of a change in
control  all  options held by Mr. Mundy, whether or not then vested, would fully
vest.  If  the  change in control was not approved by a majority of the Existing
Directors (as defined in our Certificate of Incorporation), he would be entitled
to receive, for each option for which the exercise price is less than the market
price  of  our  common  stock, cash in cancellation of such options in an amount
equal  to  such  difference.


<PAGE>
                               [GRAPHIC OMITED]

<TABLE>
<CAPTION>
                                                  PERFORMANCE CHART
                                                  -----------------

<S>                                <C>          <C>          <C>          <C>          <C>

                                    12/31/01     12/31/02     12/31/03     12/31/04     12/31/05
                                   -------------------------------------------------------------
Sentry Technology Corporation      $   100      $    13      $   90       $   123      $   61
S&P 600 Small Cap Index            $   100      $    85      $  116       $   142      $  151
S&P Elec. Equip. Index             $   100      $    48      $   81       $    75      $   75

</TABLE>


<PAGE>


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

The  following  table sets forth the beneficial ownership of our common stock at
April  12,  2006, as to each (i) beneficial owner of five percent or more of the
common  stock, (ii) Sentry Director, (iii) executive officer of Sentry, and (iv)
all Directors and executive officers as a group.  On April 12, 2006, 120,728,804
shares  of  common  stock  were  outstanding  .



<TABLE>
<CAPTION>
<S>                                                                 <C>             <C>

NAME AND ADDRESS OF BENEFICIAL OWNERS
--------------------------------------------------
                                                                    SHARES OF       PERCENT
DIRECTORS AND EXECUTIVE OFFICERS                                    COMMON STOCK    OF CLASS (1)
--------------------------------------------------                  ------------    ------------

Peter L. Murdoch (5)                                                59,715,096 (2)       49.5%
c/o  Saburah Investments Inc.
37 Voyager Court North
Toronto, Ontario M9W 4Y2

Robert D. Furst, Jr.                                                16,368,714 (3)       13.5%
c/o Alternative Strategies Advisors LLC
601 Carlson Parkway, Suite 610
Minnetonka, MN 55305

Peter J. Mundy                                                         449,069 (4)          *
Jonathan G. Granoff                                                    140,000 (5)          *
All Sentry Directors and executive officers as a group (4 persons)  76,664,776 (6)       63.1%
</TABLE>
___________________
*     Less than one percent

1)     Based  on  120,728,804 shares of common stock outstanding as of April 12,
2006.  Each  figure  showing  the  percentage of outstanding shares beneficially
owned  has  been  calculated  by treating as outstanding and owned the shares of
common stock that could be purchased by the indicated person within 60 days upon
the  exercise  of  stock  options.

2)     Includes 57,553,596 shares of common stock held by Saburah Investments
Inc. of which Mr. Murdoch is the 100% owner.

3)     Includes 404,000 shares of common stock issuable upon the exercise of
stock options or warrants exercisable within 60 days of the date hereof.  Mr.
Furst also holds a warrant to purchase 2,500,000 common shares from Saburah
investments Inc., which are excluded from the shares owned.  Shares subject to
this warrant will be issued from shares currently owned by Saburah.

4)     Includes  245,000  shares  of  common stock issuable upon the exercise of
stock  options  exercisable  within  60  days  from  the  date  hereof.

5)     Includes 80,000 shares of common stock exercisable upon the exercise of
stock options exercisable within 60 days from the date hereof.

6)     Includes 729,000 shares of common stock issuable upon the exercise of
stock options and warrants exercisable within 60 days from the date hereof.


<PAGE>
------

ITEM  12.CERTAIN  RELATIONSHIPS  AND  RELATED  TRANSACTIONS
-----------------------------------------------------------

On  January 22, 2004, Robert Furst, a Sentry Director, made a bridge loan to the
Company  in  the  amount of $100,000.  The interest rate on the loan was 15% per
annum  and  the  loan  was  due  on  or  before  April  30, 2004.  As additional
consideration  for  the  loan,  Mr. Furst received a warrant to purchase 300,000
shares  of  Sentry  common  stock  at  a price of $0.17 per share, which was the
market  price on the date of grant (valued at $3,000 and charged to interest and
financing expenses).  The warrant expires January 21, 2009.  The note was repaid
in  full  on  April  30,  2004.

On  August  1,  2004,  ID  Systems  and  Checkpoint  Systems Inc. entered into a
settlement  agreement  effective  July  30,  2004,  pursuant to which Checkpoint
agreed  to  pay $19.95 million in full and final settlement of claims covered by
an  antitrust  litigation.  Payment  in  full was received on August 5, 2004. As
provided  when  Sentry purchased ID Systems, the proceeds of the settlement were
distributed  to  former  shareholders of ID Systems, after payment of litigation
fees  and  expenses.  The agreement includes mutual releases between the parties
for  complaints  arising  from  activities  prior  to the date of the agreement,
except  for  any  contractual  obligations  and  any  future  claims for patent,
copyright or trademark infringement.  The agreement is not an acknowledgement of
any  wrongdoing  or  liability  by  either party. A Stipulation of Dismissal was
filed  with  the  Third  Circuit  Court of Appeals to finally conclude the legal
proceedings.  During  the  third  quarter  of  2004, Sentry and its subsidiaries
received  $753,000 through the repayment of debt incurred by Dialoc prior to the
ID  Systems  acquisition  and  reimbursement  of  litigation  expenses.

While  Sentry  did  not obtain an interest in the litigation settlement, Saburah
and  Sentry  agreed  that  Sentry  might  require Saburah to purchase additional
Sentry common shares equal to approximately 4.5% of any amount received  (net of
legal fees and expenses) from Checkpoint.  The price per share was set at 80% of
the  previous  20  days  trading  average  prior  to  the  announcement  of  the
settlement.  Our  Board  of Directors has exercised this option and based on the
settlement  amount,  Sentry sold to Saburah approximately 4.8 million shares for
$641,000  on  November  5,  2004.  These  transactions,  totaling  $1.4 million,
represent  the  total cash flowing to Sentry directly and indirectly as a result
of  the  Checkpoint  lawsuit.


In  April  2006,  Mr. Murdoch, Sentry's CEO and Director and Mr. Furst, a Sentry
Director, agreed to provide personal guarantees to RBC, the Company's lender, in
the  amount  of  Canadian  $1  million  (U.S. $860,000) in exchange for the bank
providing increased availability under its credit facility to the Company by the
same amount.  For these guarantees, Mr. Murdoch and Mr. Furst will receive a fee
of  $43,000  to  be paid in 12 equal monthly installments, and fully vested, two
year  warrants  for between 2.9 million and 3.8 million common shares, dependent
upon  certain stock market conditions.  The fair value of these warrants will be
recorded  in  accordance  with SFAS No. 123R "Share-Based Payment" in the second
quarter  of  2006  and  will  be  written  off over the period of the guarantee.




ITEM 13.  EXHIBITS  AND  REPORTS  ON  FORM  8-K
------------------------------------------------


2.1     Amended  and  Restated  Agreement and Plan of Reorganization and Merger,
dated  as  of  November  27,  1996  among  Video Sentry Corporation, Knogo North
America  Inc.,  Sentry  Technology  Corporation,  Viking  Merger Corp. and Strip
Merger  Corp.,  as  amended by Amendment No. 1 to Amended and Restated Agreement
and  Plan  of  Reorganization  and  Merger,  dated  as  of  January  10,  1997.
Incorporated  by reference to Exhibit 2.1 to Company's Registration Statement on
Form  S-4  (No.  333-20135).

2.2     Plan  of  Merger,  merging  Sentry  Technology  Corporation,  a Delaware
corporation  into Knogo North America, Inc., a Delaware corporation, to  be
effective  as  of January 1, 2005.

2.3    Certificate of Merger, merging Sentry Technology Corporation, a Delaware
corporation  into  Knogo  North America, Inc., a Delaware corporation, effective
date January 1, 2005, as filed with the Delaware Secretary of State on April 26,
2005.

2.4     Stock  Purchase  Agreement,  dated April 29, 2004, by and between Sentry
Technology  Corporation and Saburah Investments, Inc.  Incorporated by reference
to  Exhibit  2.1  to  Company's  Current Report on Form 8-K dated July 14, 2004.

3.1     Amended  and  Restated Certificate of Incorporation of Sentry Technology
Corporation,  as  filed  with the Delaware Secretary of State on April 26, 2005.

3.2     Certificate  of  Amendment  of  Certificate  of  Incorporation of Sentry
Technology Corporation, as filed with the Delaware Secretary of State on May 27,
2005.

3.3     Amended  and  Restated Bylaws of the Company.

4.1     Convertible Debenture, dated April 30, 2004, issued by Sentry Technology
Corporation  to  Brascan  Technology  Fund,  Inc.  Incorporated  by reference to
Exhibit  2.1  to  Company's  Current  Report  on  Form  8-K dated July 14, 2004.

4.2     Warrant  Certificate,  dated April 30, 2004, issued by Sentry Technology
Corporation  to  Brascan  Technology  Fund,  Inc.  Incorporated  by reference to
Exhibit  2.1  to  Company's  Current  Report  on  Form  8-K dated July 14, 2004.

4.3     Stakeholders Rights Agreement, dated April 30, 2004, by and among Sentry
Technology  Corporation,  Peter Murdoch, Robert Furst, Saburah Investments Inc.,
and  Brascan  Technology  Fund Inc.  Incorporated by reference to Exhibit 2.1 to
Company's  Current  Report  on  Form  8-K  dated  July  14,  2004.

10.1     1997  Stock  Incentive Plan.  Incorporated by reference to Exhibit 10.5
to  the  Company's  Registration  Statement  on  Form  S-4  (No.  333-20135).

10.2     Retirement  Savings  401(k) Plan.  Incorporated by reference to Exhibit
10.6  to  the  Company's  Registration  Statement  on  Form S-4 (No. 333-20135).

10.3     Employment  Agreement,  dated  as  of  February  12,  1997, between the
Company  and  Peter  J. Mundy.  Incorporated by reference to Exhibit 10.2 to the
Company's  Registration  Statement  on  Form  S-4  (No.  333-20135).

10.4     Contribution  and Divestiture Agreement dated December 29, 1994 between
Knogo  Corporation  and  Knogo  North America Inc.  Incorporated by reference to
Exhibit  10.8  to  the  Company's  annual  report  on Form 10-K for fiscal 1997.

10.5     License Agreement dated December 29, 1994 between Knogo Corporation and
Knogo  North  America  Inc.  Incorporated  by  reference  to Exhibit 10.9 to the
Company's  annual  report  on  Form  10-K  for  fiscal  1997.

10.6     Stipulation  of  Settlement  and  Lease Termination dated July 29, 2003
between  Knogo  North    America Inc. and NOG (NY) QRS 12-23, Inc.  Incorporated
by  reference  to  Exhibit  10.34 to the Company's Quarterly Report on Form 10-Q
dated  November  4,  2003.

10.7     Distribution  Agreement,  dated  January  8,  2001,  between Sentry and
Dialoc  ID,  incorporated  by  reference  to  Exhibit  B  of Exhibit 10.1 to the
Company's  Current  Report  on  Form  8-K,  dated  August  10,  2000.

10.8     Lease  Agreement  dated  September  16,  2003 between Sentry Technology
Corporation  and  G  &  J    Lakeland Realty Corp.  Incorporated by reference to
Exhibit 10.34 to the Company's Quarterly Report on Form 10-QSB dated November 4,
2003.

10.9     Forbearance  Agreement  between The CIT Group/Business Credit, Inc. and
Knogo  North America Inc., dated December 8, 2003.  Incorporated by reference to
Exhibit  10.36  to  the  Company's annual report on Form 10-KSB for fiscal 2003.

10.10     Amendment to Forbearance Agreement and Financing Agreement between The
CIT Group/Business Credit, Inc. and Knogo North America Inc., dated December 30,
2004.  Incorporated by reference to Exhibit 10.37 to the Company's annual report
on  Form  10-KSB  for  fiscal  2004.

10.11    Credit Facility Letter Agreement between Sentry Technology Canada Inc.
and  Royal  Bank  of  Canada dated April 19, 2005.  Incorporated by reference to
Exhibit  10.1  to  the Company's Current Report on Form 8-K, dated May 18, 2005.

10.12    Amendment  to  Credit  Facility  Letter  Agreement  between  Sentry
Technology  Canada  Inc.  and  Royal  Bank  of  Canada  dated  May  12,  2005.
Incorporated  by  reference  to  Exhibit 10.2 to the Company's Current Report on
Form  8-K,  dated  May  18,  2005.

10.13    Postponement  and  Subordination Agreement between Brascan Technology
Fund, Royal Bank of Canada and Sentry Technology Canada Inc. dated May 12, 2005.
Incorporated  by  reference  to  Exhibit 10.3 to the Company's Current Report on
Form  8-K,  dated  May  18,  2005.

10.14    Amendment  to  Credit  Facility  Letter  Agreement  between  Sentry
Technology  Canada  Inc.  and  Royal  Bank  of  Canada  dated  January 23, 2006.

14       Code  of  Ethics.

21       Subsidiaries  of the Company.

23.1     Consent  of  SF  Partnership,  LLP.



23.2     Consent of Holtz Rubenstein Reminick LLP.


31.1     Certification by the Chief Executive Officer Pursuant to Section 302 of
the  Sarbanes-Oxley  Act  of  2002.

31.2     Certification by the Chief Financial Officer Pursuant to Section 302 of
the  Sarbanes-Oxley  Act  of  2002.

32.1     Certification  by  the  Chief  Executive  Officer Pursuant to 18 U.S.C.
Section  1350  Adopted  Pursuant  to  Section  906  of the Sarbanes-Oxley Act of
2002.***

32.2     Certification  by  the  Chief  Financial  Officer Pursuant to 18 U.S.C.
Section  1350  Adopted  Pursuant  to  Section  906  of the Sarbanes-Oxley Act of
2002.***

***     In  accordance  with Item 601(b)(32)(ii) of Regulation S-B, this exhibit
shall not be deemed "filed" for the purposes of Section 18 of the Securities and
Exchange  Act of 1934 or otherwise subject to the liability of that section, nor
shall  it be deemed incorporated by reference in any filing under the Securities
Act  of  1933  or  the  Securities  Exchange  Act  of  1934.

(b)     Reports  on  Form  8-K.

There  were  no  Forms  8-K filed by the registrant during the fourth quarter of
2005.



<PAGE>
------

ITEM  14.PRINCIPAL  ACCOUNTANTS  FEES  AND  SERVICES
----------------------------------------------------

The  Company's  board  of  directors  reviews and approves audit and permissible
non-audit services performed by its independent accountants, as well as the fees
charged  for  such  services.  In  its  review of non-audit service fees and its
appointment of SF Partnership, LLP as the Company's independent accountants, the
board  of  directors  considered  whether  the  provision  of  such  services is
compatible with maintaining independence. The board of directors approved all of
the  services  provided  and  fees charged  by  SF  Partnership,  LLP  in  2005.

AUDIT  FEES

The  aggregate  fees  billed  by  for professional services for the audit of the
annual  financial  statements  of  the  Company and the reviews of the financial
statements  included  in  the Company's quarterly reports on Form 10-QSB in 2005
were  $65,000 by SF Partnership, LLP. In 2005, 2004 and 2003 the amounts paid to
Holtz  Rubenstein Reminick LLP, our predecessor auditors, were $15,000, $104,000
and  $58,000,  respectively,  net  of  expenses.

AUDIT-RELATED  FEES

There  were  $2,000  of  other  fees  billed  by SF Partnership, LLP in 2005 and
$33,000 and $9,000 of other fees billed by Holtz Rubenstein Reminick during 2004
and  2003, respectively, for assurance and related services that were reasonably
related  to  the  performance  of the audit or review of the Company's financial
statements  and  not  reported  under  "Audit  Fees"  above.

TAX  FEES

There  were no other fees billed by our independent auditors during the last two
fiscal  years  for  tax  compliance.

ALL  OTHER  FEES

There  were no other fees billed by our independent auditors during the last two
fiscal  years  for  products  and  services  provided.

Holtz  Rubenstein  Reminick  LLP  had served as the Company's independent public
accountants since December 30, 2002.  Holtz Rubenstein Reminick LLP 's report on
the  Company's  consolidated  financial  statements  for  the fiscal years ended
December  31,  2004 and 2003 did not contain an adverse opinion or disclaimer of
opinion,  nor  was  such  report  qualified or modified as to uncertainty, audit
scope  or  accounting  principles.

During  the year ended December 31, 2004, and the interim period ended August 1,
2005,  there  were  no  disagreements  between  the Company and Holtz Rubenstein
Reminick  LLP  on  any  matter  of accounting principles or practices, financial
statement  disclosure,  or auditing scope or procedure which, if not resolved to
Holtz  Rubenstein  Reminick  LLP  's  satisfaction, would have caused it to make
reference  to  the subject matter in connection with its report on the Company's
consolidated  financial  statements  for such year; and there were no reportable
events  as  defined  in  Item  304(a)(1)(v)  of  Regulation  S-B.

During  the year ended December 31, 2004, and the interim period ended August 1,
2005,  the Company did not consult SF Partnership LLP with respect to either (i)
the  application  of  accounting  principles  to a specified transaction, either
completed  or  proposed,  or the type of audit opinion that might be rendered on
the  Company's  consolidated  financial  statements, or (ii) any matter that was
either  the  subject of a disagreement, within the meaning of Item 304(a)(1)(iv)
of  Regulation  S-B,  or any "reportable event," as that term is defined in Item
304(a)(1)(v)  of  Regulation  S-B.


<PAGE>

SIGNATURES:
-----------

     Pursuant  to  the  requirements  of  Section  13 or 15(d) of the Securities
Exchange  Act  of  1934, the Company has duly caused this report to be signed on
its  behalf  by  the  undersigned,  thereunto  duly  authorized.

SENTRY  TECHNOLOGY  CORPORATION


By:     /s/  Peter  J.  Mundy
        ---------------------
        Peter  J.  Mundy
        Vice  President-Finance,
        Chief  Financial  Officer,
        Secretary  and  Treasurer



Dated:  May 30,  2006


Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual
Report  on  Form  10-KSB  has  been signed below by the following persons in the
capacities  and  on  the  date  indicated.

Signature     Title
---------     -----

/s/  Peter  L.  Murdoch          Chief  Executive  Officer  and  Director
-----------------------
Peter  L.  Murdoch


/s/  Peter  J.  Mundy            Vice  President-Finance,
---------------------            Chief Financial and Accounting Officer
Peter  J.  Mundy                 Secretary  and  Treasurer


/s/  Robert  D.  Furst,  Jr.     Director
----------------------------
Robert  D.  Furst,  Jr.


/s/  Jonathan  G.  Granoff       Director
--------------------------
Jonathan  G.  Granoff




Dated:  May 30,  2006



<PAGE>


EXHIBIT  INDEX


2.2     Plan  of  Merger,  merging  Sentry  Technology  Corporation,  a Delaware
corporation  into Knogo North America, Inc., a Delaware corporation, to  be
effective  as  of January 1, 2005.

2.3     Certificate of Merger, merging Sentry Technology Corporation, a Delaware
corporation  into  Knogo  North America, Inc., a Delaware corporation, effective
date January 1, 2005, as filed with the Delaware Secretary of State on April 26,
2005.

3.1     Amended  and  Restated Certificate of Incorporation of Sentry Technology
Corporation,  as  filed  with the Delaware Secretary of State on April 26, 2005.

3.2     Certificate  of  Amendment  of  Certificate  of  Incorporation of Sentry
Technology Corporation, as filed with the Delaware Secretary of State on May 27,
2005.

3.3     Amended and Restated Bylaws of the Company.

10.14   Amendment  to  Credit  Facility  Letter  Agreement  between  Sentry
Technology  Canada  Inc.  and  Royal  Bank  of  Canada  dated  January 23, 2006.

14      Code  of  Ethics.

21      Subsidiaries  of  the  Company

23.1    Consent  of  SF  Partnership,  LLP.



23.2    Consent of Holtz Rubenstein Reminick LLP.


31.1    Certification by the Chief Executive Officer Pursuant to Section 302 of
the  Sarbanes-Oxley  Act  of  2002.

31.2    Certification by the Chief Financial Officer Pursuant to Section 302 of
the  Sarbanes-Oxley  Act  of  2002.

32.1    Certification  by  the  Chief  Executive  Officer Pursuant to 18 U.S.C.
Section  1350 Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
***

32.2    Certification  by  the  Chief  Financial  Officer Pursuant to 18 U.S.C.
Section  1350 Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
***