SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C.  20549
                                  ____________

                                   FORM 10-KSB

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

                   For the fiscal year ended December 31, 2006

                                       OR

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

          For the transition period from -__________ to ___________

                        Commission file number:  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  Regula-tion  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.  ____


The  issuer's  revenues  for  the  latest  fiscal  year  were  $12,135,000.


At  March  23,  2007,  the  aggregate  market  value of the voting stock held by
non-affiliates  of  the  Registrant  was approximately $2,162,000 based upon the
closing  price  of  such  securities on the OTC Bulletin Board on that date.  At
March  23,  2007,  the  Registrant  had outstanding 120,743,804 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 30 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.


EQUITY  TRANSACTIONS

On  April  19,  2004,  Dialoc ID Holdings B.V. ("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.

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 was 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 a distributor in North and South America
     for 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  Brookfield  Technology  Fund  ("Brookfield"),  an  alternative
investment  fund  established  by Brookfield Asset Management (formerly known as
Brascan  Technology Fund and Brascan Asset  Management, respectively), to invest
in  early  stage,  technology-based  companies  with  high  growth  potential.

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,
represented  the  total  cash  received  by  Sentry directly and indirectly as a
result  of  the  Checkpoint  lawsuit.

Mr.  Murdoch,  directly  or indirectly through his ownership of Saburah, owns or
controls  51.2%  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, 2006,
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 2006, 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 1,375 stores in 49 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  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,  Navarre,  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.  SmartTrack 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  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.

At  December  31,  2006, the approximate number of EAS Systems sold or leased by
Sentry  and  its  predecessors  exceeded  26,800.

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  users  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.


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

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.


BOOKINGS

Of  Sentry's  bookings  for  the  year ended December 31, 2006, approximately 60
percent  were  attributable to EAS, 36 percent to SentryVision  and 4 percent to
CCTV.  For  the  year  ended  December  31,  2005, approximately 55 percent were
attributable  to  EAS,  31 percent to SentryVision  and 14 percent to CCTV.  For
the  year ended December 31, 2004, approximately 42 percent were attributable to
EAS,  32  percent  to  SentryVision  and  26  percent  to  CCTV.


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 2006, no single customer accounted for more than 10% of
total  revenues.  In  2005,  Goody's  Family Clothing accounted for 10% of total
revenues.  In  2004, Lowe's Home Centers accounted for 30% 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. 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 2006, 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
----------------
We  have 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,  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 2006, we
increased  the  number  of  direct  salespersons  to  11,  whose  efforts  were
supplemented  through  three  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  system  integrators and distributors including Honeywell,
ADT,  Chubb,  Intrepid,  BSC  and  Repromatic.

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 both 2006 and 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  2006.  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,  2006, 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  2006,  Sentry  placed  in service 131 SentryVision  systems and 480 CCTV
cameras, as compared to 150 SentryVision  systems and 1,180 CCTV cameras in 2005
and  229  SentryVision  systems  and  2,626  CCTV  cameras  in  2004.

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.
Knoscape  RF  systems are universal in that they can detect both 2 MHz hard tags
and 8 MHz labels. Sentry 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.

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 the primary 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, 2006 and 2005, Sentry placed in service 432
and 450 EAS systems, respectively.  In addition in 2006 and 2005, we sold 51 and
23  QuickCheck  patron  self  check  book  borrowing  systems  to  libraries.


BACKLOG

Our  backlog  of  orders was approximately $1.4 million at December 31, 2006, as
compared  to  approximately  $1.2 million at December 31, 2005 and approximately
$2.2  million at December 31, 2004.  We anticipate that substantially all of the
backlog  present  as  of  December  31, 2006 will be delivered within 12 months.


SEASONAL  ASPECTS  OF  THE  BUSINESS

Our  current  video  product  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. We have now established a network of
qualified  contractors  that  perform  most  of  our  SentryVision  and  CCTV
installations.  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
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.

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, 2006, Sentry Technology Corporation had 5 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,
2006,  2005  and 2004 approximately $0.8 million, $0.9 million and $0.8 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 2006 incorporated improvements in preset
accuracy,  operational  improvements  for  better  user  control  and additional
on-board  diagnostics.  New  camera  control  protocols for SmartTrack were also
developed  and  implemented.

Additional  projects  included  revisions  to  EAS  products.

RF  systems  developments  included  prototypes  for  new  customer  installable
systems.  In  addition,  we  focused  our  efforts on software updates on Ranger
systems  and  the  development  of  a new and more cost efficient alarm console.

Developments to EM systems included the mechanical design of a second-generation
"WAM2"  Library  system  and  a  "WAM2"  tuning  board  prototype.

QuickCheck  system  developments  included  continuing cost reductions in system
components  and software upgrades to improve product capabilities and functions.
In  addition, we developed software to incorporate a new ultrasonic item counter
and the introduced the new "ADR1" Deactivator/Reactivator for library materials.

At  our  Custom Security label making subsidiary, we developed new processes for
the  manufacturing  of  EM  labels  and  a  new  book label using amorphous wire
material.  In  addition,  we  continued  research on conversion methods for RFID
labels  and  the  design  of  new  RFID  portals.


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,  2006,  the Company and its subsidiaries employed 71 full-time
employees, of whom 13 were employed in administrative and clerical capacities, 5
in  engineering,  research  and  development, 23 in production and manufacturing
support,  14 in sales and marketing and 16 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
("Bi-County")  brought an action against the Company in the Supreme Court of New
York,  County of Suffolk, for the recovery of a real estate brokerage commission
in  the  amount  of  approximately  $250,000  relating  to  the  termination  of
Bi-County's lease on its former Hauppauge facility. We believe there is no merit
to  this  claim  and  the Company is vigorously defending such action. As of the
date  of this letter, plaintiff Bi-County's motion for summary judgment, as well
as  the  Company's  cross-motion,  has been denied and the Company is awaiting a
date  for trial. The Company is asserting that Bi-County is not entitled to such
commission.

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, 2006, there were no
matters  submitted  to  a  vote  of  the  Company's security holders through the
solicitation  of  proxies  or  otherwise.

<PAGE>

                                     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:

<TABLE>
<CAPTION>
<S>                                              <C>    <C>
                                                 High   Low
                                                 -----  -----
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                                   0.12   0.11
 Third Quarter                                    0.10   0.04
 Fourth Quarter                                   0.07   0.05

2007
 First Quarter  (through March 23, 2007)         $0.07  $0.05

</TABLE>


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


(b)     Holders  of  Common  Stock.

As  of March 23, 2007, the Company had 120,743,804 shares of Common Stock issued
and  outstanding,  which  were  held  by  approximately  355  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 [3.p.] "Significant
Accounting  Policies,  Stock-Based  Compensation,"  and  Note [14], "Stock Based
Compensation."


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 Note [12] of the Financial Statements of this Form 10-KSB.


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

The  table  below  sets forth selected consolidated historical financial data of
the  Company  for  the years ended December 31, 2002, 2003, 2004, 2005 and 2006.
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,                                     2002      2003      2004     2005      2006
                                                          --------  --------  -------  --------  --------
Selected Statement of Operations Data:
-------------------------------------

Total revenues                                            $14,704   $13,243   $16,863  $13,570   $12,135
Cost of sales                                               7,382     5,179     6,351    5,960     5,374
Customer service expenses                                   4,240     3,977     4,175    2,654     2,209
Selling, general and administrative
    expenses                                                5,287     3,809     4,840    5,348     5,296
Income (loss) before income taxes and minority interest    (3,356)   (1,049)      253   (1,581)   (2,055)

Extraordinary item - Gain on extinguishment of debt             -       738         -        -         -
Net income (loss)                                          (3,356)      181        31   (1,690)   (2,304)
Net income (loss) per common share:
   Basic and diluted                                        (0.05)     0.00      0.00    (0.01)    (0.02)



As of December 31,                                           2002      2003      2004     2005      2006
                                                          --------  --------  -------  --------  --------
Selected Balance Sheet Data:
---------------------------

Working capital.                                          $  (768)  $  (285)  $ 4,545  $ 3,037   $ 1,276
Total assets.                                               7,992     4,093    12,247    9,395     8,834
Property, plant and equipment, net.                         2,563       209       689      637       609
Obligations under capital leases.                           2,652        18        13        7        11
Convertible debentures                                          -         -     1,862    1,904     1,945
Minority interest                                               -         -     1,045    1,140     1,237
Total common stockholders' equity (deficit)                  (451)     (125)    4,345    2,698       648

</TABLE>


Results  of  Operations

Year Ended December 31, 2006 Compared with Year Ended December 31, 2005

Consolidated revenues were 11% lower in the year ended December 31, 2006 than in
the  year ended December 31, 2005.  Our backlog of orders was approximately $1.4
million  at  December  31,  2006,  as  compared to approximately $1.2 million at
December  31, 2005.  We anticipate that substantially all of the backlog present
as  of December 31, 2006 will be delivered within 12 months.  Total revenues for
the  periods  presented  are  broken  out  as  follows:

<TABLE>
<CAPTION>

<S>                                            <C>       <C>       <C>
                                                                      %
                                                  2006    2005     Change
                                                 ------  ------    ------
                                                 (in thousands)

Electronic Article Surveillance (EAS)           $ 6,813  $ 6,490      5
Closed Circuit Television (CCTV)                    590    1,670    (65)
SentryVision                                      2,809    2,971     (5)
                                                -------  -------    ----
Total sales                                      10,212   11,131     (8)
Service, maintenance and installation             1,923    2,439    (21)
                                                -------  -------    ----
Total revenues                                  $12,135  $13,570    (11)
                                                =======  =======    ----
</TABLE>


North  American  revenues  represented $10.1 million or 83% of total revenues in
2006  compared  to  $11.6  million  or  83%  of  total  revenues in 2005.  Total
international  sales were $2.0 million in 2006 compared to $1.9 million in 2005.
Our  sales to our international dealers and distributors are denominated in U.S.
dollars,  therefore  the  strengthening of the Euro and other foreign currencies
against  the U.S. dollar in 2006 had no significant impact on reported revenues.
The  most  significant  impact  on  total  revenues on a comparative basis was a
reduction  in  revenues  from  our two largest customers, Lowe's and Goody's, by
approximately  $1.8  million  in  2006  compared  to  2005.

We  had  significant  growth  in  EAS sales in the North American library sector
principally  due  to  higher  sales  of  our  QuickCheck  patron  self  check
book-borrowing  systems.  In addition, we increased EAS sales by $0.5 million to
library  dealers  in  South  America  and  Mexico  in  2006  compared  to  2005.
International  EAS  sales  were  $0.7 million and $0.6 million in 2006 and 2005,
respectively.   However,  these  gains were offset by decreases in EAS equipment
and  label  sales to North American retail customers.  The reduction in CCTV and
sales  in  2006  as  compared to 2005 was principally a result of lower sales to
Lowe's  and  Goody's.   North  American SentryVision(R) sales decreased by  $0.2
million to $1.5 million in 2006 compared to $1.7 million in 2005.  International
sales  of  SentryVision(R)  represented  $1.3  million  in  both  2006 and 2005.

Service and maintenance revenues were substantially lower in 2006 as compared to
2005 principally as a result of cancellation of the Lowe's maintenance contract.
Installation  revenues  were lower in 2006 as compared to 2005 due to lower CCTV
and  SentryVision(R)  sales.

Cost  of  sales was 53% of sales in 2006 compared to 54% in 2005.  The reduction
in  percentage  is partially a result of the change in product mix, particularly
from  the  reduction  in sales of lower margined conventional CCTV products.  We
continued  to  see strong domestic margin improvements in 2006 on the SmartTrack
and  QuickCheck  product  lines as a result of our outsourcing of manufacturing.
However,  our  comparative  margins  on international SmartTrack sales have been
reduced  in  2006,  due  to  competitive  pressures. We also experienced reduced
selling  prices on EAS equipment to international dealers, particularly in South
America  and  Mexico, which was offset partially by increased margins at our 51%
owned  labeling  subsidiary.

The  decrease  in  customer  service  expenses  in 2006, as compared to 2005, 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 1% lower in 2006 as compared
to  2005.  The  decreases  in  expenses  in  2006  are  principally  a result of
administrative  cost  reductions  including  reduced  headcount, lower legal and
insurance  costs,  as well as a reduction in the foreign exchange losses.  These
were  partially  offset by increases in sales personnel and increased funding of
sales  and  marketing  programs.

Research  and  development costs remained approximately the same at 7% and 6% of
total  revenues  in  2006  and  2005,  respectively.

Total  interest  and  financing  costs  were  higher in 2006 compared to 2005 by
$140,000.  The  increase  is  partially result of higher interest rates on short
term  borrowings  under  the  credit facilities, as well as additional financing
costs  related  to  the  loan  guarantees  provided  by the Company's directors.

The  income  tax  provision was $145,000 in 2006 and $49,000 in 2005. The income
tax  expense  in both periods principally results from the taxable income of our
Canadian  subsidiaries,  which  cannot  be offset by Sentry's net operating loss
carryforwards.

As  a  result  of the foregoing, we had net loss of $2,304,000 in the year ended
December  31,  2006,  as  compared  to  net loss of $1,690,000 in the year ended
December  31,  2005.


Liquidity  and  Capital  Resources

At  December  31,  2006, we had cash and short term investments of $0.6 million,
working  capital of $1.3 million, total assets of $8.8 million and stockholders'
equity  of  $0.6  million.  Our  net  cash used in operating activities was $1.1
million.  Cash  was  principally  used  to finance increases in inventory levels
purchased  in  anticipation  of higher sales activity levels. This was offset by
cash generated from reductions in accounts receivable resulting from the decline
in  revenues as well as an increase in accounts payable and accrued liabilities.

Our  investing  activities  in  2006 provided short term investments of $138,000
offset  by $112,000 for the purchase of manufacturing equipment at our 51% owned
labeling  plant.  There  are  no  significant  projected  capital  expenditure
requirements  anticipated  in the near term, however, the level of spending will
be  dependent upon various factors, including growth of the business and general
economic  conditions.

We generated $992,000 in net cash from financing activities in 2006 through an
increase  in  borrowings  under  our credit facilities, which are described more
fully  below.  Borrowing  availability  under  the  Royal Bank of Canada ("RBC")
credit  facility  had  previously  been  based upon the level of receivables and
inventory,  which declined in 2006.  The increased availability under the credit
facility  was  principally  related  to  the  loan  guarantees  provided  by our
directors.

     In  November  2006, the Company and certain of its subsidiaries amended its
secured  credit  facility  with RBC by converting the facility to a demand loan,
increasing  the interest rate and eliminating financial covenants.  In addition,
during  the  year,  the  maximum  borrowings  under the facility were reduced to
Canadian $3.6 million (U.S. $3.1 million).  However, RBC increased the borrowing
base formula by Canadian $1.0 million (U.S. $858,000) in exchange for additional
security  provided  by  two  of the Company's directors in the second quarter of
2006.  Borrowings under the facility 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
(6.0%  at  December  31,  2006),  plus  2.75%  per annum.  Borrowings under this
facility  are  secured  by  substantially  all  of  the Company's assets.  As of
December  31,  2006,  the  Company had borrowings of $2.6 million, which was the
maximum  available under the facility.  The outstanding balance of the loan from
the  RBC  as  of March 16, 2007 exceeds the maximum amount of funds available to
the Company based on the formula included in the Royal Bank loan agreement, and
accordingly,  the  Company  is in violation of the terms of that agreement.  RBC
has been made aware of the violation and has agreed to waive the violation until
April 30, 2007.

At the end of the second quarter of 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. $858,000) 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
received  fully  vested, two year warrants to purchase approximately 2.9 million
shares  of  the Company's common stock, at an exercise price of $0.10 per share.
The  fair  value of these warrants of $120,000 was determined in accordance with
SFAS  No. 123R "Share-Based Payment" and beginning in June 2006 is being written
off  over the period of the guarantee, which is one year.  During the year ended
December  31,  2006, $70,000 has been recorded in interest and financing expense
related  to  these  warrants  and  $50,000  will  be  expensed  in  2007.

In  addition,  in  December  2006,  the Company entered into a secured revolving
credit  agreement  with  Tradition Capital Bank.  From December 15, 2006 through
the  expiration  of  the facility on June 15, 2007, the Company may draw up to a
maximum  of  $550,000  under  the  facility.  Interest  is  payable at a rate of
Tradition  Capital  Bank  prime  rate  (8.25% at December 31, 2006), plus 1% per
annum.  Borrowings  under  this facility are secured by substantially all of the
Company's  assets  in  a second position to RBC.  In addition, the loan is fully
secured  by  the  personal  guarantees  of  Mr.  Murdoch  and  Mr.  Furst.   In
consideration  of these guarantees, Mr. Murdoch and Mr. Furst will receive a fee
of  $14,000,  to  be  shared  between them, paid in 6 equal monthly installments
beginning  in  December  2006.  As additional consideration, they received fully
vested,  two  year  warrants to purchase approximately 5.2 million shares of the
Company's  common  stock,  at  an  exercise price of $0.053 per share.  The fair
value  of  these  warrants of $91,000 was determined in accordance with SFAS No.
123R  "Share-Based  Payment" and beginning in December 2006 is being written off
over  the  period  of the guarantee, which is six months.  During the year ended
December  31,  2006,  $8,000 has been recorded in interest and financing expense
related  to  these  warrants  and  $83,000  will  be  expensed  in  2007.

     We  will  require  positive  cash flows from operations to meet our working
capital  needs  over  the  next twelve months. Sentry's revenues declined and we
incurred  operating  losses  in  2006 and 2005. Borrowing availability under the
Company's principal credit facility at RBC has traditionally been based upon the
level  of  receivables  and  inventory, which declined in 2006. This limited our
ability  to  secure additional bank financing without the personal guarantees of
Sentry's directors, which expire in the second quarter of 2007. In addition, the
outstanding  balance  of  the loan from the RBC as of March 16, 2007 exceeds the
maximum  amount  of funds available to the Company based on the formula included
in  the  Royal Bank loan agreement, and accordingly, the Company is in violation
of the terms of that agreement. RBC has been made aware of the violation and has
agreed  to  waive the violation until April 30, 2007. Further, a majority of the
Company's  cash  is held at the 51% owned subsidiary. The Company has instituted
certain  plans  to  increase  its  revenue  base  as  well as preserve its cash,
including  significant  cost  cutting  measures  in 2007 and inventory reduction
initiatives.  We  made  a  substantial  investment  in  the  sales and marketing
infrastructure  during  the 2006 and anticipated a substantial increase in sales
particularly  in  the  SentryVision(R) SmartTrack product line which has not yet
occurred. While we believe that we have developed solid sales leads with some of
the  world's largest retailers, we continued to see delays in receipt of current
orders,  which  caused  us  to  operate in a cash flow deficit for the year, and
there  can  be  no  assurance that such leads will result in orders, or that any
such  orders will provide revenues sufficient to meet our working capital needs.

We  anticipate  revenue  growth in new and existing markets.  We are striving to
continue  to  improve our gross margins and control our selling expenses and our
general  and  administrative expenses.  There can be no assurance, however, that
changes in our plans or other events affecting our operations will not result in
accelerated  or  unexpected  cash requirements, or that we will be successful in
achieving  positive  cash  flow  from operations or obtaining adequate financing
through  our  credit  facility.  Our  future  cash  requirements are expected to
depend  on  numerous  factors, including, but not limited to: (i) the ability to
generate  positive  cash  flow  from  operations;  (ii)  the  ability  to  raise
additional  capital  or  obtain  additional  financing;  and  (iii)  economic
conditions.  In  the event that sufficient positive cash flow from operations is
not  generated,  we  will seek additional financing to satisfy current operating
cash  flow  deficiencies.  There  can  be no assurance, however, that additional
financing  will  be  available on terms that are satisfactory to the Company, or
that any such financing will be sufficient to provide the full amount of funding
necessary.

The table below summarizes aggregate maturities contractual obligations as of
December 31, 2006.

<TABLE>
<CAPTION>

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

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

Operating leases        $           747     $      308     $  428   $   11   $      -
Capital leases                       13              4          5        4          -
Notes payable                        36             36          -        -          -
Convertible debentures            2,000              -      2,000        -          -
                        ---------------     ----------     ------   ------   --------
Total                   $         2,796     $      348     $2,433   $   15   $      -
                        ===============     ==========     ======   ======   ========
</TABLE>



Recent  Accounting  Pronouncements

In  September  2006,  the  SEC  issued  Staff  Accounting  Bulletin  No.  108,
"Considering  the  Effects  of  Prior  Year  Misstatements  when  Quantifying
Misstatements  in  Current  Year  Financial  Statements"  ("SAB  108").  SAB 108
provides  guidance  on  how  prior  year  misstatements  should  be  taken  into
consideration  when  quantifying  misstatements  in  current  year  financial
statements  for  purposes  of  determining  whether the current year's financial
statements  are  materially misstated. SAB 108 permits registrants to record the
cumulative  effect  of  initial adoption by recording the necessary "correcting"
adjustments to the carrying values of assets and liabilities as of the beginning
of  that  year with the offsetting adjustment recorded to the opening balance of
retained  earnings  only if material under the dual method. SAB 108 is effective
for  fiscal years ending on or after November 15, 2006. The Company has assessed
the  effect  of  adopting this guidance and has determined that there will be no
impact  on  the  Company's  consolidated  financial  statements.

In  September  2006,  the  Financial  Accounting Standards Board ("FASB") issued
Statement  of  Financial  Accounting  Standards  ("SFAS")  No.  157, "Fair Value
Measurements,"  which  is  effective  for  calendar year companies on January 1,
2008.  The  Statement  defines fair value, establishes a framework for measuring
fair  value  in  accordance  with  Generally Accepted Accounting Principles, and
expands  disclosures  about  fair value measurements. The Statement codifies the
definition of fair value as the price that would be received to sell an asset or
paid  to  transfer  a  liability  in  an  orderly  transaction  between  market
participants  at the measurement date. The standard clarifies the principle that
fair value should be based on the assumptions market participants would use when
pricing  the  asset  or  liability  and  establishes a fair value hierarchy that
prioritizes  the  information  used to develop those assumptions. The Company is
currently  assessing  the  potential  impacts  of  implementing  this  standard.

In  September  2006, the FASB issued Statement of Financial Accounting Standards
No.  158,  "Employers'  Accounting  for  Defined  Benefit  Pension  and  Other
Postretirement  Plans  - an amendment of FASB Statements No. 87, 88, 106 and 132
(R)"  ("SFAS 158"). SFAS 158 requires an employer to recognize the funded status
of  a  defined  benefit  postretirement  plan  as  an  asset or liability in its
statement  of  financial position and to recognize changes in that funded status
in  the year in which the changes occur through comprehensive income. The funded
status  of a benefit plan is defined as the difference between the fair value of
the plan assets and the plans benefit obligation. For a pension plan the benefit
obligation  is the projected benefit obligation and for any other postretirement
benefit  plan, such as a retiree health care plan, the benefit obligation is the
accumulated  postretirement benefit obligation. SFAS 158 requires an employer to
recognize  as  a  component of other comprehensive income, net of tax, the gains
and  losses  and prior service costs or credits that arise during the period but
that  are not recognized as components of net periodic benefit costs pursuant to
SFAS  87  "Employers'  Accounting  for  Pensions."  SFAS  158  also  requires an
employer  to measure the funded status of a plan as of the date of its year-end.
Additional  footnote  disclosure  is  also required about certain effects on net
periodic  benefit cost for the next year that arise from the delayed recognition
of  gains  or  losses,  prior  service costs or credits, and transition asset or
obligation.  Except  for  the  year-end  measurement  requirement,  SFAS  158 is
effective  for the year ending December 31, 2006. The adoption of this Statement
in  2006 did not have a material impact on the financial condition or results of
operations  of  the  Company.

In July 2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty
in  Income  Taxes - an interpretation of FASB No. 109" ("FIN 48"), effective for
fiscal  years  beginning  after  December  15, 2006.  FIN 48 requires a two-step
approach  to determine how to recognize tax benefits in the financial statements
where recognition and measurement of a tax benefit must be evaluated separately.
A  tax  benefit  will  be  recognized  only if it meets a "more-likely-than-not"
recognition  threshold.  For  tax  positions  that  meet this threshold, the tax
benefit recognized is based on the largest amount of tax benefit that is greater
than  50  percent  likely  of  being  realized upon ultimate settlement with the
taxing  authority.  The  Company  is currently evaluating the impact of adopting
FIN  48,  and  has  not  yet determined the significance of this new rule to our
overall  results  of  operations,  cash  flows  or  financial  position.

In  March  2006,  the  FASB  issued  Statement 156, "Accounting for Servicing of
Financial  Assets  - an amendment of FASB Statement No. 140," ("SFAS 156") which
amends SFAS 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments  of  Liabilities."  In a significant change to current guidance,
SFAS  No.  156  permits  an  entity to choose either of the following subsequent
measurement methods for each class of separately recognized servicing assets and
servicing  liabilities:  (1)  Amortization  Method or (2) Fair Value Measurement
Method.  SFAS  No.  156  is  effective  as of the beginning of an entity's first
fiscal  year  that  begins  after  September 15, 2006.  The Company is currently
reviewing  the  effect, if any, the proposed guidance will have on its financial
statements.

In  February  2006,  the  FASB issued Statement No. 155, "Accounting for Certain
Hybrid  Financial Instruments - an amendment of FASB Statements No. 133 and 140"
("SFAS 155").  This Statement permits fair value of remeasurement for any hybrid
financial  instrument  that contains an embedded derivative that otherwise would
require  bifurcation;  clarifies  which  interest-only strips and principal-only
strips  are  not  subject  to  the requirements of SFAS No. 133, "Accounting for
Derivative  Instruments  and  Hedging  Activities"; establishes a requirement to
evaluate  interests  in  securitized financial assets to identify interests that
are  freestanding  derivatives  or  that  are  hybrid financial instruments that
contain  an  embedded  derivative  requiring  bifurcation;  clarifies  that
concentrations  of  credit  risk  in  the form of subordination are not embedded
derivatives;  and  amended SFAS No. 140, "Accounting for Transfers and Servicing
of  Financial  Assets  and  Extinguishments  of  Liabilities",  to eliminate the
prohibition  on  a  qualifying  special-purpose entity from holding a derivative
financial  instrument  that pertains to a beneficial interest other than another
derivative  financial  instrument.  SFAS  No. 155 is effective for all financial
instruments  acquired,  issued,  or subject to a remeasurement (new basis) event
occurring after the beginning of an entity's first fiscal year that begins after
September  15, 2006.  The Company is currently reviewing the effect, if any, the
proposed  guidance  will  have  on  its  financial  statements.


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


                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------


                     YEARS ENDED DECEMBER 31, 2006 AND 2005
                     --------------------------------------



                                    CONTENTS
                                    --------

                                                                      Page
                                                                      ----

     Report  of  Independent  Registered  Public  Accounting  Firm     25

     Consolidated  Balance  Sheets                                     26

     Consolidated  Statements  of  Operations                          27

     Consolidated  Statements  of  Stockholders'  Equity               28

     Consolidated  Statements  of  Cash  Flows                         29

     Notes  to  Consolidated  Financial  Statements                 30  -  43



<PAGE>



             Report of Independent Registered Public Accounting Firm
             -------------------------------------------------------


To  the  Board  of  Directors  and  Stockholders  of
Sentry  Technology  Corporation  and  Subsidiaries


     We  have  audited  the  accompanying  consolidated balance sheets of Sentry
Technology Corporation and Subsidiaries as of December 31, 2006 and 2005 and the
related  consolidated  statements  of  operations, stockholders' equity and cash
flows  for  each  of  the  years in the two year period ended December 31, 2006.
These  financial  statements are the responsibility of the Company's management.
Our  responsibility is to express an opinion on these financial statements based
on  our  audits.

     We  conducted  our  audits  in  accordance with the 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 our audits
provide  a  reasonable  basis  for  our  opinion.

     In  our  opinion,  the  consolidated financial statements referred to above
present  fairly,  in  all  material  respects,  the financial position of Sentry
Technology Corporation and Subsidiaries as of December 31, 2006 and 2005 and the
results  of  its  operations and its cash flows for each of the years in the two
year  period  ended  December  31, 2006 in conformity with accounting principles
generally  accepted  in  the  United  States  of  America.

     The  accompanying  consolidated  financial  statements  have  been prepared
assuming  that  the  Company  will continue as a going concern.  As discussed in
Note  2  to  the  consolidated  financial  statements,  the Company has suffered
recurring  losses  from  operations,  reduced  levels  of  revenue and decreased
consolidated  financial  position  as a result of not meeting its business plan,
which raises substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2.  The
consolidated  financial  statements  do  not  include any adjustments that might
result  from  the  outcome  of  this  uncertainty.


                                                  /s/  SF  Partnership,  LLP
                                                  CHARTERED  ACCOUNTANTS

Toronto,  Canada

March  16,  2007

<PAGE>


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



<TABLE>
<CAPTION>
                                                                                     December 31,
<S>                                                                          <C>             <C>
                                                                                   2006         2005
                                                                                   ----         ----
                          ASSETS
                          ------
Current Assets:
 Cash and cash equivalents                                                   $         360   $    445
       Short-term investments                                                          259        397
 Accounts receivable, net of allowance for doubtful accounts
   of $160 and $141, respectively                                                    2,251      2,762
 Inventory                                                                           3,005      2,709
 Prepaid expenses and other assets                                                     306        318
                                                                             --------------  ---------
Total current assets                                                                 6,181      6,631
PROPERTY AND EQUIPMENT, net                                                            609        637
GOODWILL                                                                             1,564      1,564
OTHER ASSETS                                                                           480        563
                                                                             --------------  ---------
          TOTAL ASSETS                                                       $       8,834   $  9,395
                                                                             ==============  =========

               LIABILITIES AND STOCKHOLDERS' EQUITY
               ------------------------------------
Current Liabilities:
 Bank indebtedness, demand loan and revolving line of credit                 $       3,030   $  2,039
 Accounts payable                                                                      609        489
 Accrued liabilities                                                                 1,078        925
 Obligations under capital leases - current portion                                      3          6
 Deferred income                                                                       185        135
                                                                             --------------  ---------
Total current liabilities                                                            4,905      3,594

OBLIGATIONS UNDER CAPITAL LEASES, less current portion                                   8          1
DEFERRED TAX LIABILITY                                                                  91         58
CONVERTIBLE DEBENTURE                                                                1,945      1,904
                                                                             --------------  ---------
Total liabilities                                                                    6,949      5,557

MINORITY INTEREST                                                                    1,237      1,140

COMMITMENTS AND CONTINGENCIES (Note 11)
STOCKHOLDERS' EQUITY:
 Preferred stock, $0.001 par value; authorized 10,000 (2005 - 10,000)
       shares, none issued and outstanding
 Common stock, $0.001 par value; authorized 160,000 (2005 - 160,000)
       shares; issued and outstanding 120,744 and 120,629
       shares, respectively                                                            121        121
 Additional paid-in capital                                                         49,037     48,783
 Accumulated deficit                                                               (48,712)   (46,408)
 Accumulated other comprehensive income                                                202        202
                                                                             --------------  ---------
Total stockholders' equity                                                             648      2,698
                                                                             --------------  ---------
          TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                         $       8,834   $  9,395
                                                                             ==============  =========
</TABLE>


The accompanying notes are an integral part of these 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,
                                                          ------------------------
                                                           2006               2005
                                                          ------             ------
<S>                                                       <C>               <C>
REVENUES:
 Sales                                                    $  10,212         $ 11,131
 Service, installation and other revenues                     1,923            2,439
                                                          ----------        ---------
                                                             12,135           13,570
                                                          ----------        ---------
COST OF SALES AND EXPENSES:
 Cost of sales                                                5,374            5,960
 Customer service expenses                                    2,209            2,654
 Selling, general and administrative expenses                 5,296            5,348
 Research and development                                       838              856
                                                          ----------        ---------
                                                             13,717           14,818
                                                          ----------        ---------
OPERATING LOSS                                               (1,582)          (1,248)
INTEREST AND FINANCING EXPENSE, net                             473              333
                                                          ----------        ---------
LOSS BEFORE INCOME TAXES AND MINORITY INTEREST               (2,055)          (1,581)
INCOME TAX EXPENSE                                              145               49
                                                          ----------        ---------
LOSS BEFORE MINORITY INTEREST                                (2,200)          (1,630)
MINORITY INTEREST                                              (104)             (60)
                                                          ----------        ---------
NET LOSS                                                  $  (2,304)        $ (1,690)
                                                          ==========        =========

LOSS PER SHARE
     Basic and diluted                                    $   (0.02)        $  (0.01)
                                                          ==========        =========

WEIGHTED AVERAGE NUMBER OF COMMON SHARES
     OUTSTANDING
     Basic and diluted                                      120,716          120,594
                                                          ==========        =========

</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

<PAGE>


                          SENTRY TECHNOLOGY CORPORATION
                          -----------------------------
                                AND SUBSIDIARIES
                                ----------------
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                 -----------------------------------------------
                                 (In Thousands)
                     YEARS ENDED DECEMBER 31, 2006 AND 2005
                     --------------------------------------

<TABLE>
<CAPTION>

<S>                                                  <C>           <C>       <C>           <C>              <C>
                                                                                                             Accumulated
                                                                              Additional                       Other
                                                           Common Stock        Paid-in       Accumulated    Comprehensive
                                                        Shares      Amount     Capital         Deficit          Income
                                                     ------------  --------  ------------  ---------------  ------------

BALANCE, January 1, 2005                                  120,549  $    121  $     48,779  $      (44,718)  $        163
Net loss for the period                                         -         -             -          (1,690)             -
Exercise of stock options for cash                             80         -             4               -              -
Equity adjustment from foreign currency translation             -         -             -               -             39
                                                     ------------  --------  ------------  ---------------  ------------
BALANCE, December 31, 2005                                120,629  $    121  $     48,783  $      (46,408)  $        202
                                                     ============  ========  ============  ===============  ============



BALANCE, January 1, 2006                                  120,629  $    121  $     48,783  $      (46,408)  $        202
Net loss for the period                                         -         -             -          (2,304)             -
Exercise of stock options for cash                            115         -             7               -              -
Stock-based compensation                                        -         -            35               -              -
Warrants issued                                                 -         -           212               -              -
Equity adjustment from foreign currency translation             -         -             -               -              -
                                                     ------------  --------  ------------  ---------------  ------------

BALANCE, December 31, 2006                                120,744  $    121  $     49,037  $      (48,712)  $        202
                                                     ============  ========  ============  ===============  ============


<S>                                                  <C>              <C>
                                                         Total
                                                     Stockholders'    Comprehensive
                                                        Equity           Income
                                                       (Deficit)         (Loss)
                                                     ---------------  ---------------

BALANCE, January 1, 2005                             $        4,345
Net loss for the period                                      (1,690)  $       (1,690)
Exercise of stock options for cash                                4
Equity adjustment from foreign currency translation              39               39
                                                     ---------------  ---------------
BALANCE, December 31, 2005                           $        2,698   $       (1,651)
                                                     ===============  ===============



BALANCE, January 1, 2006                             $        2,698
Net loss for the period                                      (2,304)  $       (2,304)
Exercise of stock options for cash                                7
Stock-based compensation                                         35                -
Warrants issued                                                 212                -
Equity adjustment from foreign currency translation               -                -
                                                     ---------------  ---------------

BALANCE, December 31, 2006                           $          648   $       (2,304)
                                                     ===============  ===============
</TABLE>

The accompanying notes are an integral part of these 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>
                                                                                                2006                  2005
                                                                                             ---------             ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net loss                                                                                    $ (2,304)             $ (1,690)
 Adjustments to reconcile net loss to net cash
   (used in) provided by operating activities:
      Depreciation                                                                                150                   154
      Amortization of intangibles and other assets                                                188                   135
      Deferred income taxes                                                                        33                    19
      Non-cash consideration                                                                      168                    59
      Minority interest in net income of consolidated subsidiary                                   97                    95
 Changes in operating assets and liabilities:
      Accounts receivable                                                                         511                   777
      Inventory                                                                                  (296)                  605
      Prepaid expenses and other assets                                                            12                   207
      Accounts payable                                                                            120                  (310)
      Accrued liabilities                                                                         153                  (220)
      Deferred income                                                                              50                   (34)
                                                                                             --------              ---------
 Net cash used in operating activities                                                         (1,118)                 (203)
                                                                                             --------              ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Changes in short-term investments                                                               138                   (69)
  Purchases of property and equipment                                                            (112)                 (102)
  Intangibles                                                                                      15                   (25)
                                                                                             --------              ---------
  Net cash provided by (used in) investing activities                                              41                  (196)
                                                                                             --------              ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Net borrowing on the demand loan and revolving line of credit                                   991                   220
  Repayment of notes payable                                                                      ---                  (189)
  Repayment of term loan                                                                          ---                  (821)
  Repayment of obligations under capital leases                                                    (6)                   (7)
  Proceeds of sale of stock, net                                                                    7                     4
                                                                                             --------              ---------
  Net cash provided by (used in) financing activities                                             992                  (793)
                                                                                             --------              ---------

DECREASE IN CASH AND CASH EQUIVALENTS                                                             (85)               (1,192)
CASH AND CASH EQUIVALENTS, beginning of year                                                      445                 1,637
                                                                                             --------              ---------
CASH AND CASH EQUIVALENTS, end of year                                                       $    360              $    445
                                                                                             ========              =========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Cash paid during the year for:
  Interest                                                                                   $    348              $    302
                                                                                             ========              =========
  Income taxes                                                                               $      8              $     99
                                                                                             ========              =========

In the year, the Company issued warrants valued at $211,000 to officers and directors
to purchase common shares of the Company (Note 7).
</TABLE>


The accompanying notes are an integral part of these consolidated financial
statements


<PAGE>


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

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

                     YEARS ENDED DECEMBER 31, 2006 AND 2005
                     --------------------------------------


1.     Operations  and  Organization:
       -----------------------------

     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 40 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.


2.     Going  Concern:
       --------------

     The  accompanying  consolidated  financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America  with the assumption that the Company will be able to realize its assets
and  discharge  its  liabilities  in  the  normal  course  of  business.

The  Company  has  incurred  operating  losses,  reduced  levels of revenues and
decreased  financial position as a result of not meeting its business plan.  The
Company  had  losses of $2.3 million for the year ended December 31, 2006 and as
at  December  31, 2006, the Company had an accumulated deficit of $48.7 million.
The  Company's  continuation as a going concern is uncertain.  Management's plan
is  to continue raising additional funds through future equity or debt financing
until  it  achieves profitable operations.  Although the Company plans to pursue
additional financing, there can be no assurance that the Company will be able to
secure  financing  when  needed  or  obtain  such  on  terms satisfactory to the
Company,  if at all.  The Company's continuation as a going concern depends upon
its  ability  to  raise  funds  and  achieve  and sustain profitable operations.

The  accompanying  consolidated  financial  statements  do  not  include  any
adjustments  to  reflect  the  possible future effects on the recoverability and
classification  of  assets or the amounts and classification of liabilities that
may  result  from  the  inability of the Company to continue as a going concern.


3.     Significant  Accounting  Policies:
       ---------------------------------

     a.     Principles  of  consolidation
            -----------------------------

          The  consolidated  financial  statements  include  the accounts of the
Company  and  its  wholly  owned (Sentry Technology Canada Inc. and Knogo Caribe
Inc.)  and  majority  owned (Custom Security Industries Inc.) subsidiaries.  All
intercompany  balances and transactions have been eliminated upon consolidation.

     b.     Revenue  recognition
            --------------------

          The  Company  recognizes  revenue on the sale of security devices 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  services  are  performed and
maintenance  revenues  are  recognized ratably over the service contract period.

          Included  in  accounts  receivable  at  December 31, 2006 and 2005 are
unbilled  accounts  receivable  of  $97,000  and  $36,000,  respectively.

     c.     Deferred  income
            ----------------

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

     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.     Short-term  investments
            -----------------------

          Short-term  investments include highly liquid investments with initial
maturity of between three and twelve months.  Included in short-term investments
in  2006 and 2005 is $85,000 and $84,000, respectively, of restricted funds used
as  collateral  on  Banker  Acceptances.

     f.     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.

     g.     Inventory
            ---------

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

     h.     Product  warranty
            -----------------

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

     i.     Depreciation
            ------------

          Depreciation  of  property  and  equipment  is  provided for using the
straight-line  method  over  their  related  estimated  useful  lives.

     j.     Other  assets
            -------------

          Other  assets  consist  of  deferred  charges  relating  to  credit
facilities,  patents and other intangibles (including trade secrets and customer
relationships).  Costs  relating to credit facilities are deferred over the term
of the related debt.  Amortization of debt issuance cost is included in selling,
general  and  administrative  expenses  and interest expense in the consolidated
statement  of  operations.

          Cost  and expenses incurred in obtaining patents and other intangibles
are  amortized over the remaining life of the patents and other intangibles, not
exceeding  17  years,  on  a  straight-line  basis.

     k.     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 and Other Intangible
Assets",  goodwill  is  not  amortized  but  reviewed  annually  for impairment.

     l.     Comprehensive Income (Loss)
            ---------------------------

The Company accounts for comprehensive income (loss) in accordance with SFAS No.
130,  "Reporting
Comprehensive  Income" ("SFAS No. 130").  SFAS No. 130 establishes standards for
reporting  and presentation of comprehensive income (loss) and its components in
a full set of financial statements.  Comprehensive income (loss) is presented in
the  statements of stockholders' equity, and consists of net earnings (loss) and
unrealized  gains  (losses) on available for sale marketable securities; foreign
currency translation adjustments and changes in market value of future contracts
that  qualify  as  a  hedge;  and  negative  equity  adjustments  recognized  in
accordance with SFAS No. 87 "Employers' Accounting for Pensions".   SFAS No. 130
requires  only  additional  disclosures in the financial statements and does not
affect  the  Company's  financial  position  or  results  of  operations.

     m.     Impairment  of  long-lived  assets
            ----------------------------------

          The  Company  reviews  its  long-lived  assets for impairment whenever
events  or  changes  in circumstances indicate that the carrying amount of these
assets may not be fully recoverable in accordance with SFAS No. 144, "Accounting
for  Impairment  or Disposal of Long-Lived Assets."  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.

     n.     Financial  instruments
            ----------------------

          Unless otherwise noted, it is management's opinion that the Company is
not  exposed  to significant interest, currency or credit risks arising from the
financial instruments.  The fair value of the financial instruments approximates
their  carrying  values,  unless  otherwise  noted.

     o.     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.

     p.     Stock-based  compensation
            -------------------------

          Effective  January 1, 2006, the Company adopted the provisions of SFAS
No.  123(R),  "Share-Based  Payment",  and related interpretations, or "SFAS No.
123(R)",  to account for stock-based compensation using the modified prospective
transition method and therefore will not restate our prior period results.  SFAS
No.  123(R)  supersedes  Accounting  Principles  Board  ("APB")  Opinion No. 25,
"Accounting  for Stock Issued to Employees", or APB No. 25, and revises guidance
in  SFAS  No.  123,  "Accounting for Stock-Based Compensation", or SFAS No. 123.
Among  other  things,  SFAS  No.  123(R)  requires  that compensation expense be
recognized in the financial statements for share-based awards based on the grant
date  fair  value  of  those awards.  The modified prospective transition method
applies  to (a) unvested stock options under the 1997 Stock Incentive Plan based
on  the  grant  date  fair  value  estimated  in  accordance  with the pro forma
provisions  of  SFAS  No.  123,  and  (b)  any  new  share-based  awards granted
subsequent to December 31, 2005, based on the grant-date fair value estimated in
accordance  with  the  provisions of SFAS No. 123(R).  Additionally, stock-based
compensation  expense  includes  an  estimate for pre-vesting forfeitures and is
recognized  over  the requisite service periods of the awards on a straight-line
basis,  which  is  generally  commensurate  with  the  vesting  term.

          SFAS  No.  123(R) requires the benefits associated with tax deductions
in  excess  of  recognized  compensation cost to be reported as a financing cash
flow rather than as an operating cash flow as previously required.  In 2006, the
Company  did  not record any excess tax benefit generated from option exercises.

          Prior  to  January  1,  2006,  the  Company  accounted for stock-based
compensation  plans  in  accordance with APB No. 25 and related interpretations.
Accordingly,  compensation  expense for a stock option grant was recognized only
if  the exercise price was less than the market value of the common stock on the
grant  date.  Prior  to  the  adoption of SFAS No. 123(R), as required under the
disclosure  provisions  of  SFAS  No.  123, as amended, the Company provided pro
forma  net income (loss) and earnings (loss) per common share for each period as
if  the  Company  had  applied  the  fair  value  method  to measure stock-based
compensation  expense.

          The  following  table  illustrates the effect on net loss and earnings
per  common  share  as  if  the Company applied the fair value method to measure
stock  based compensation, which is more fully described in Note 14, as required
under  the  disclosure  provisions  of  SFAS  No.  123(R):

<TABLE>
<CAPTION>
<S>                                                            <C>
                                                                      2005
                                                               ------------------
                                                                 (In thousands,
                                                                   except per
                                                                   share data)
Net loss:
    As reported                                                  $   (1,690)
    Add stock-based compensation expensed in determination of
       net loss as reported, net of related tax effect                  ---
    Less stock-based compensation expense determined
       under the fair value method for all awards, net of
       related tax effects                                              (27)
                                                                 -------------
    Pro forma                                                    $   (1,717)
                                                                 =============

Net loss per share:
    As reported                                                  $    (0.01)
                                                                 =============
    Pro forma                                                    $    (0.01)
                                                                 =============
</TABLE>


     q.     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 Stockholders' Equity and are excluded from net income.
Foreign exchange transaction gains (losses) are included in selling, general and
administrative expenses and amounted to approximately $42,000 and $(133,000) for
the  years  ended  December  31,  2006  and  2005,  respectively.

     r.     Shipping  and  handling  costs
            ------------------------------

          Shipping  and  handling  costs  are  included  in selling, general and
administrative expenses and approximated $322,000 and $233,000 in 2006 and 2005,
respectively.

     s.     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.

     t.     Asset  retirement  obligations
            ------------------------------

The  Company  accounts  for asset retirement obligations in accordance with SFAS
No.  143, "Accounting for Asset Retirement Obligations", which requires that the
fair  value  of an asset retirement obligation be recorded as a liability in the
period  in  which  a  company  incurs  the  obligation.

     u.     Reclassifications
            -----------------

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

     v.     Recent  accounting  pronouncements
            ----------------------------------

     In  February  2007, the FASB issued SFAS No. 159, "The Fair Value of Option
for  Financial  Assets and Liabilities" ("SFAS No. 159"), which permits entities
to measure many financial instruments and certain other items at fair value that
are  not currently required to be measured at fair value. An entity would report
unrealized  gains  and  losses on items for which the fair value option has been
elected  in  earnings  at  each  subsequent  reporting date. The objective is to
improve  financial  reporting  by  providing  entities  with  the opportunity to
mitigate  volatility in reported earnings caused by measuring related assets and
liabilities  differently  without  having  to  apply  complex  hedge  accounting
provisions. The decision about whether to elect the fair value option is applied
instrument  by  instrument,  with a few exceptions; the decision is irrevocable;
and it is applied only to entire instruments and not to portions of instruments.
The  statement  requires  disclosures  that  facilitate  comparisons (a) between
entities  that  choose  different  measurement attributes for similar assets and
liabilities  and  (b) between assets and liabilities in the financial statements
of  an  entity  that selects different measurement attributes for similar assets
and  liabilities.  SFAS No. 159 is effective for financial statements issued for
fiscal  years  beginning after November 15, 2007. Early adoption is permitted as
of  the  beginning  of a fiscal year that begins on or before November 15, 2007,
provided  the  entity also elects to apply the provisions of SFAS No. 157, "Fair
Value  Measurement".  Upon  implementation, an entity shall report the effect of
the  first  remeasurement to fair value as a cumulative-effect adjustment to the
opening  balance  of retained earnings. Since the provisions of SFAS No. 159 are
applied  prospectively,  any  potential  impact  will  depend on the instruments
selected  for  fair  value  measurement  at  the  time  of  implementation.

          In  September  2006, the Securities Exchange Commission ("SEC") issued
Staff  Accounting  Bulletin  No.  108,  "Considering  the  Effects of Prior Year
Misstatements  when  Quantifying  Misstatements  in  Current  Year  Financial
Statements"  ("SAB  108").  SAB  108  provides  guidance  on  how  prior  year
misstatements  should be taken into consideration when quantifying misstatements
in  current  year  financial  statements for purposes of determining whether the
current  year's  financial  statements are materially misstated. SAB 108 permits
registrants to record the cumulative effect of initial adoption by recording the
necessary  "correcting"  adjustments  to  the  carrying  values  of  assets  and
liabilities  as  of  the  beginning  of that year with the offsetting adjustment
recorded  to the opening balance of retained earnings only if material under the
dual  method.  SAB 108 is effective for fiscal years ending on or after November
15,  2006. The Company has assessed the effect of adopting this guidance and has
determined  that there will be no impact on the Company's consolidated financial
statements.

          In  September  2006,  the  FASB  issued  SFAS  No.  157,  "Fair  Value
Measurements,"  which  is  effective  for  calendar year companies on January 1,
2008.  The  Statement  defines fair value, establishes a framework for measuring
fair  value  in  accordance  with  Generally Accepted Accounting Principles, and
expands  disclosures  about  fair value measurements. The Statement codifies the
definition of fair value as the price that would be received to sell an asset or
paid  to  transfer  a  liability  in  an  orderly  transaction  between  market
participants  at the measurement date. The standard clarifies the principle that
fair value should be based on the assumptions market participants would use when
pricing  the  asset  or  liability  and  establishes a fair value hierarchy that
prioritizes  the  information  used to develop those assumptions. The Company is
currently  assessing  the  potential  impacts  of  implementing  this  standard.

          In  September  2006, the FASB issued Statement of Financial Accounting
Standards  No. 158, "Employers' Accounting for Defined Benefit Pension and Other
Postretirement  Plans  - an amendment of FASB Statements No. 87, 88, 106 and 132
(R)"  ("SFAS 158"). SFAS 158 requires an employer to recognize the funded status
of  a  defined  benefit  postretirement  plan  as  an  asset or liability in its
statement  of  financial position and to recognize changes in that funded status
in  the year in which the changes occur through comprehensive income. The funded
status  of a benefit plan is defined as the difference between the fair value of
the plan assets and the plans benefit obligation. For a pension plan the benefit
obligation  is the projected benefit obligation and for any other postretirement
benefit  plan, such as a retiree health care plan, the benefit obligation is the
accumulated  postretirement benefit obligation. SFAS 158 requires an employer to
recognize  as  a  component of other comprehensive income, net of tax, the gains
and  losses  and prior service costs or credits that arise during the period but
that  are not recognized as components of net periodic benefit costs pursuant to
SFAS  87  "Employers'  Accounting  for  Pensions."  SFAS  158  also  requires an
employer  to measure the funded status of a plan as of the date of its year-end.
Additional  footnote  disclosure  is  also required about certain effects on net
periodic  benefit cost for the next year that arise from the delayed recognition
of  gains  or  losses,  prior  service costs or credits, and transition asset or
obligation.  Except  for  the  year-end  measurement  requirement,  SFAS  158 is
effective  for the year ending December 31, 2006. The adoption of this Statement
in  2006 did not have a material impact on the financial condition or results of
operations  of  the  Company.

          In  July  2006, the FASB issued Interpretation No. 48, "Accounting for
Uncertainty  in  Income  Taxes  - an interpretation of FASB No. 109" ("FIN 48"),
effective for fiscal years beginning after December 15, 2006.  FIN 48 requires a
two-step  approach  to  determine how to recognize tax benefits in the financial
statements  where recognition and measurement of a tax benefit must be evaluated
separately.  A  tax  benefit  will  be  recognized  only  if  it  meets  a
"more-likely-than-not"  recognition threshold.  For tax positions that meet this
threshold,  the  tax  benefit  recognized  is based on the largest amount of tax
benefit  that  is greater than 50 percent likely of being realized upon ultimate
settlement  with  the taxing authority.  The Company is currently evaluating the
impact  of  adopting FIN 48, and has not yet determined the significance of this
new rule to our overall results of operations, cash flows or financial position.

          In  March  2006,  the  FASB  issued  Statement  156,  "Accounting  for
Servicing  of Financial Assets - an amendment of FASB Statement No. 140," ("SFAS
156")  which  amends  SFAS  140,  "Accounting  for  Transfers  and  Servicing of
Financial  Assets  and Extinguishments of Liabilities."  In a significant change
to  current  guidance,  SFAS  No.  156 permits an entity to choose either of the
following subsequent measurement methods for each class of separately recognized
servicing  assets and servicing liabilities: (1) Amortization Method or (2) Fair
Value  Measurement  Method.  SFAS No. 156 is effective as of the beginning of an
entity's first fiscal year that begins after September 15, 2006.  The Company is
currently  reviewing  the effect, if any, the proposed guidance will have on its
financial  statements.

          In  February  2006, the FASB issued Statement No. 155, "Accounting for
Certain  Hybrid  Financial Instruments - an amendment of FASB Statements No. 133
and  140"  ("SFAS 155").  This Statement permits fair value of remeasurement for
any  hybrid  financial  instrument  that  contains  an  embedded derivative that
otherwise  would  require  bifurcation; clarifies which interest-only strips and
principal-only  strips  are  not  subject  to  the requirements of SFAS No. 133,
"Accounting  for  Derivative  Instruments and Hedging Activities"; establishes a
requirement  to  evaluate  interests in securitized financial assets to identify
interests  that  are  freestanding  derivatives  or  that  are  hybrid financial
instruments that contain an embedded derivative requiring bifurcation; clarifies
that concentrations of credit risk in the form of subordination are not embedded
derivatives;  and  amended SFAS No. 140, "Accounting for Transfers and Servicing
of  Financial  Assets  and  Extinguishments  of  Liabilities",  to eliminate the
prohibition  on  a  qualifying  special-purpose entity from holding a derivative
financial  instrument  that pertains to a beneficial interest other than another
derivative  financial  instrument.  SFAS  No. 155 is effective for all financial
instruments  acquired,  issued,  or subject to a remeasurement (new basis) event
occurring after the beginning of an entity's first fiscal year that begins after
September  15, 2006.  The Company is currently reviewing the effect, if any, the
proposed  guidance  will  have  on  its  financial  statements.



4.     Inventory:
       ---------
<TABLE>
<CAPTION>


<S>                                            <C>           <C>
Inventory consists of the following:                December 31,
                                               --------------------
                                                 2006        2005
                                               --------------------
                                                  (In thousands)
                                               --------------------
Raw materials                                  $   938      $ 1,101
Work-in-process                                    233          279
Finished goods                                   1,834        1,329
                                               $ 3,005      $ 2,709
                                               ========     ========
</TABLE>


     The  components  of  inventory  shown  are  net  of reserves for excess and
obsolete  inventory  totaling  $1,285,000 and $1,304,000 as of December 31, 2006
and  2005,  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          2006         2005
                                                         ---------    ---------
                                                             (In thousands)
                                                         ----------------------

Machinery and equipment                      3 - 10      $   2,451    $  2,362
Furniture, fixtures and office equipment     3 - 10          2,376       2,360
Leasehold improvements                       3 - 5              92          92
                                                             4,919       4,814
                                                         ----------   ---------
Less accumulated depreciation                                4,310       4,177
                                                         $     609    $    637
                                                         ==========   =========
</TABLE>


     Net  property  and  equipment  located  in Canada approximated $553,000 and
$578,000  in  2006  and  2005. Depreciation expense on property and equipment in
2006  and  2005  totaled  $150,000  and  $154,000,  respectively.


6.     Other  Assets:
       -------------
<TABLE>
<CAPTION>
<S>                                              <C>              <C>
Other assets consist of the following:                 December 31,
                                                 2006             2005
                                               --------         --------
                                                    (In thousands)
                                               -------------------------
Deferred charges                              $    156          $  118
Intangibles, net                                   311             432
Other                                               13              13
                                              $    480          $  563
                                              =========         ========
</TABLE>

     Amortization  expense on intangibles in 2006 and 2005 totaled $144,000
and  $81,000,  respectively.

<PAGE>

7.     Bank  Indebtedness,  Demand  Loan,  Revolving  Line  of  Credit:
       ---------------------------------------------------------------
<TABLE>
<CAPTION>
<S>                                                 <C>              <C>
Balances under credit facilities consist
   of the following:                                       December 31,
                                                           ============
                                                        2006          2005
                                                        ----          ----
                                                          (In thousands)
                                                          --------------
Royal Bank of Canada  - Bank indebtedness           $     36         $   ---
Royal Bank of Canada  - Demand  loan                   2,519           2,039
Tradition Capital Bank - Revolving line of credit        475             ---
                                                    --------         -------
                                                    $  3,030         $ 2,039
                                                    ========         =======

</TABLE>


a)     Royal  Bank  of  Canada
       -----------------------

     In  November  2006, the Company and certain of its subsidiaries amended its
secured  credit  facility  with  Royal  Bank of Canada ("RBC") by converting the
facility  to  a  demand  loan,  increasing  the  interest  rate  and eliminating
financial  covenants. In addition, during the year, the maximum borrowings under
the  demand  loan  were  reduced  to  Canadian $3.6 million (U.S. $3.1 million).
However, RBC increased the borrowing base formula by Canadian $1.0 million (U.S.
$858,000)  in  exchange for additional security provided by two of the Company's
directors  in  the  second quarter of 2006. Borrowings under the demand loan are
subject  to  certain  limitations  based  on  a  percentage of eligible accounts
receivable  and  inventory as defined in the agreement. Interest is payable at a
rate  of  RBC's  prime  rate  (6.0% at December 31, 2006), plus 2.75% per annum.
Borrowings  under  this  demand  loan  are  secured  by substantially all of the
Company's  assets.  As  of December 31, 2006, the Company had borrowings of $2.6
million,  which was the maximum available under the demand loan. The outstanding
balance of the loan from the RBC as of March 16, 2007 exceeds the maximum amount
of  funds  available  to  the Company based on the formula included in the Royal
Bank  loan  agreement, and accordingly, the Company is in violation of the terms
of  that  agreement.  RBC has been made aware of the violation and has agreed to
waive  the  violation  until  April  30,  2007.

     At  the  end  of  the  second  quarter of 2006, Mr. Murdoch, Sentry's Chief
Executive  Officer  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.  $858,000)  in exchange for RBC 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 received fully vested, two year warrants to
purchase  approximately  2.9 million common shares of the Company at an exercise
price  of  $0.10  per  share.  The  fair value of these warrants of $120,000 was
determined  in accordance with SFAS No. 123R "Share-Based Payment" and beginning
in  June 2006 is being taken into income over the period of the guarantee, which
is one year.  During the year ended December 31, 2006, $70,000 has been recorded
in  interest and financing expense related to these warrants and $50,000 will be
expensed  in  2007.


b)     Tradition  Capital  Bank
       ------------------------

In  December 2006, the Company entered into a secured revolving credit agreement
with  Tradition  Capital Bank.  From December 15, 2006 through the expiration of
the  facility on June 15, 2007, the Company may draw up to a maximum of $550,000
under  the  facility.  Interest is payable at the Tradition Capital Bank's prime
rate  (8.25%  at  December  31,  2006), plus 1% per annum. Borrowings under this
facility  are  secured  by substantially all of the Company's assets in a second
position  to  RBC.  In  addition,  the facility is fully secured by the personal
guarantees of Mr. Murdoch and Mr. Furst.   In consideration of these guarantees,
Mr.  Murdoch  and  Mr. Furst will receive a fee of $14,000, to be shared between
them,  paid  in  6  equal  monthly  installments beginning in December 2006.  As
additional  consideration,  they  received  fully  vested,  two year warrants to
purchase  approximately  5.2 million shares of the Company's common stock, at an
exercise price of $0.053 per share.  The fair value of these warrants of $91,000
was  determined  in  accordance  with  SFAS  No.  123R "Share-Based Payment" and
beginning  in  December  2006  is being taken into income over the period of the
guarantee, which is six months.  During the year ended December 31, 2006, $8,000
has  been  recorded  in interest and financing expense related to these warrants
and  $83,000  will  be  expensed  in  2007.

<PAGE>


8.     Accrued  Liabilities:
<TABLE>
<CAPTION>
<S>                                                    <C>              <C>
Accrued liabilities consist of the following:                December 31,
                                                       =======================
                                                          2006         2005
                                                         ------       ------
                                                           (In thousands)
                                                       -----------------------

Accrued salaries, employee benefits and payroll taxes  $    297       $  260
Other accrued liabilities                                   781          665
                                                       ---------      -------
                                                       $  1,078       $  925
                                                       =========      =======
</TABLE>



9.     Income  Taxes:
       --------------

     The  reconciliation between total tax expense and the expected U.S. Federal
income  tax  is  as  follows:
<TABLE>
<CAPTION>
<S>                                           <C>              <C>
                                                 2006             2005
                                                    (In thousands)
                                                 ---------------------

Expected tax benefit at 40%                   $  (838)         $  (537)
Add:
 Non-deductible expenses                           52               13
 U.S. losses producing no tax benefit             786              524
 Foreign tax provisions                           145               49
                                              --------         --------
                                              $   145          $    49
                                              ========         ========
</TABLE>


     As  of  December 31, 2006, the Company had net operating loss carryforwards
of  approximately  $36  million,  which  expire  through  the  year  2027.  The
utilization  of these net operating loss carryforwards will likely be subject to
substantial annual limitations imposed by the Internal Revenue Code Section 382.


     The  following  is  a  list  by  year  of  the  expiring net operating loss
carryforwards:

<TABLE>
<CAPTION>
                      December 31,
                    ===============
<S>                 <C>
                          2006
                     (In thousands)
                    ---------------
2007                $           286
2008                            861
2009                            776
2010                          1,714
2011                          4,963
Thereafter                   27,400
                    $        36,000
                    ---------------
</TABLE>



<PAGE>

     Significant components of deferred tax assets (liabilities) at December 31,
2006  and  2005  are  comprised  of:
<TABLE>
<CAPTION>

<S>                                   <C>                  <C>
                                      Deferred Tax Assets (Liabilities)
                                          2006                2005
                                      ------------        -------------
                                               (In thousands)
                                      ---------------------------------
Assets:
 Accounts receivable                  $     44             $    52
 Inventory                                 513                 514
 Stock-based compensation                   14                 ---
 Accrued liabilities                        91                 100
 Property and equipment                    431                 425
 Net operating loss carryforwards       14,768              13,876
                                      ---------            --------
 Gross deferred tax assets              15,861              14,967
 Less: valuation allowance              15,754              14,923
                                      ---------            --------
    Deferred tax assets                    107                  44
Liabilities:
 Property and equipment                    (87)                (83)
   Intangible assets                       (83)                ---
   Other                                   (28)                (19)
                                      ---------            --------
   Gross deferred tax liabilities         (198)               (102)

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

 Deferred tax liability               $    (91)            $   (58)
                                      =========            ========
</TABLE>


     The  increase  in  the  valuation allowance for the year ended December 31,
2006  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 the asset will not be
realized  in  the  foreseeable  future.

     The  $145,000  and  $49,000  income  tax  provisions  for  2006  and  2005,
respectively,  are  principally  attributable  to  foreign  taxes  on  Canadian
operations.


10.     Convertible  Debenture:
        -----------------------

On  April  30,  2004,  Sentry  entered  into  a  $2,000,000  secured convertible
debenture  with  Brookfield  Technology  Fund  ("Brookfield"),  an  alternative
investment  fund  established  by Brookfield Asset Management (formerly known as
Brascan  Technology  Fund and Brascan Asset Management, respectively), to invest
in  early  stage,  technology-based  companies  with  high  growth  potential.


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  common shares of Sentry,
     priced  at  $0.15  per  share,  exercisable  anytime  up to April 30, 2008.

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


     The  convertible  debenture  is secured by a general security interest over
all  the  assets  and  properties  of  Sentry.  The amount is subordinate to the
existing  RBC  demand  loan.

     The  proceeds  of  the financing, to be used primarily for working capital,
were  initially allocated between the convertible debenture ($1,835,000) and the
warrants  ($165,000)  based  on  their respective fair values in accordance with
Emerging  Issues  Task  Force (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 convertible debenture. No beneficial conversion feature has been
recognized  under  the  term  of  the  convertible  debenture.

     Certain  other  warrants  to  purchase  425,000  common shares of Sentry 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  acquired 100% of ID Security
Systems  Canada,  Inc. and ID Systems USA Inc. ("ID Systems"). Effective January
1, 2005, the name of the acquired subsidiaries were changed to Sentry Technology
Canada  Inc.  and  Sentry  Technology  USA  Inc.  On August 9, 2006, the Company
executed  a  plan  of  merger between the Company and Sentry Technology USA Inc.
Effective  December  31,  2005,  the Company remained the surviving corporation.

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


11.     Commitments  and  Contingencies:
        -------------------------------

     a.     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 2006 and 2005 was
$316,000  and $283,000 per year, respectively. Minimum annual rental commitments
are  $307,000  in  2007,  $260,000 in 2008, $168,000 in 2009, $8,000 in 2010 and
$4,000  in  2011.

     b.     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  2006  or  2005.

     c.     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 $249,000.  Also, the president of the Company's 51% owned
subsidiary,  Custom  Security Industries Inc., is entitled to receive 10% of its
pretax  profits.

     d.     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
the Company's 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.


<PAGE>


12.  Related  Party  Transactions:
     -----------------------------

     Related parties include directors and officers and companies controlled by
the directors and officers of the Company.

     Transactions between related parties are in the normal course of operations
and  are  measured  at the exchange amount, which is the amount of consideration
established  and  agreed  to  by  the  related  parties.

     Included  in  accounts payable is $0 for 2006 (2005 - $26,000) and included
in  accrued  liabilities  for  2006  is  $31,000 (2005 - $23,000) due to related
parties.


13.     Earnings  Per  Share:
        ---------------------

        The  earnings  per  share calculations (basic and diluted) at December
31,  2006  and  2005 are based upon the weighted average number of common shares
outstanding  during  each  period.  There  were  no  reconciling  items  in  the
numerator or denominator of the earnings per share calculations in either of the
periods presented.  Options to purchase 2,145,500 and 2,431,524 shares of common
stock with a weighted average exercise price of $0.16 and $0.35 were outstanding
at  December  31,  2006  and  2005,  respectively,  but were not included in the
computation  of  diluted  net  loss  per  share  because  their  effect would be
antidilutive.  Convertible debentures and warrants were also not included in the
weighted  average  number  of  shares  outstanding because their effect would be
antidilutive.


14.    Stock-Based  Compensation:
       --------------------------

a)     Stock  Options
       --------------

          The  Company's  1997  Stock  Incentive  Plan  of  Sentry  Technology
Corporation  (the  "1997  Plan"),  which  is  shareholder  approved, permits the
granting of common share options and shares to its employees for up to 6,369,365
shares  of  common stock as stock-based compensation and 3,512,238 common shares
were  available  for  grant as of December 31, 2006.  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 non-qualified 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, 2006, 2,145,500 common shares were
reserved  for  issuance  in  connection  with the exercise of stock options.  No
incentive  awards  shall  be granted under the 1997 Plan after January 14, 2007.

     Cash received from exercise of options during the periods were $7,000 in
2006 and $4,000 in 2005.

     The assumptions used for the specified reporting periods and resulting
estimates of weighted average fair value per share of options granted during
those periods were as follows:


<TABLE>
<CAPTION>

<S>                          <C>               <C>
                               Years Ended December 31,
                               2006                2005
                              --------------------------

Risk-free interest rate         4.46%              4.0%
Expected dividend yield            0%                0%
Expected lives               2 - 3 years       2 - 5 years
Expected volatility              100%              123%
</TABLE>

<PAGE>

     The following table represents the Company's stock options granted,
forfeited or expired and exercised during the year ended December 31, 2006 and
2005:

<TABLE>
<CAPTION>
<S>                                 <C>            <C>        <C>            <C>
                                                               Weighted
                                     Number of     Weighted    Average       Aggregate
                                      Shares       Average     Remaining     Intrinsic
                                     Subject to    Exercise   Contractual      Value
                                     Issuance       Price        Term         ($000)
                                    -----------    ---------  -----------    ---------

Outstanding at January 1, 2005       1,275,316     $    0.63
Granted                              1,525,000          0.10
Exercised                              (80,000)         0.05
Forfeited or expired                  (288,792)         0.34
                                    -----------    ---------
Outstanding at December 31, 2005     2,431,524     $    0.35
Granted                                650,000          0.10
Exercised                             (115,000)         0.06                     6
Forfeited or expired                  (821,024)         0.69
                                    -----------    ---------
Outstanding at December 31, 2006     2,145,500     $    0.16      7.9 years      0
                                    ===========    =========    ===========   ======

Exercisable at December 31, 2006       845,000     $    0.26      6.5 years      0
                                    ===========    =========    ===========   ======
</TABLE>


     The  aggregate  intrinsic value of options has been shown as $0 because the
weighted  average exercise price of the price of the outstanding and exercisable
option  shares exceeded the year end market price of the Company's common stock.

     The compensation cost recognized in income for stock-based compensation was
$35,000  for  2006  and  none  for  2005.

     As  of  December  31,  2006,  there  was  $81,000  of  total  unrecognized
compensation  cost,  net of estimated forfeitures, related to all unvested stock
options,  which  is  expected to be recognized over a weighted average period of
approximately  3.2  years.

     The  weighted  average  grant date fair value of options granted during the
year  was  $0.06  in  2006  and  $0.08  in  2005.

     The  following  is  a  summary  of  stock  options as of December 31, 2006:

<TABLE>
<CAPTION>
<S>                           <C>          <C>               <C>                   <C>               <C>
                                           Options Outstanding                           Options Exercisable
                              -----------------------------------------------      -------------------------------
                                                                                                     Weighted-
                                              Weighted-      Weighted-average                         average
                               Number of       average           Exercise            Number of        Exercise
Range of Exercise Prices        Options     Remaining Life         Price              Options          Price
-------------------------     ----------    --------------   -----------------      ------------    -------------

$0.05 to $0.15                 2,047,500          8.2           $  0.09               747,500         $  0.09
$0.31 to $0.62                    53,000          2.1              0.60                53,000            0.60
$2.00 to $3.00                    45,000          0.5              2.55                45,000            2.55
                               ---------         ----           -------              --------         -------
$0.05 to $3.00                 2,145,500          7.9           $  0.16               845,500         $  0.26
                               =========         ====           =======              ========         =======

</TABLE>

     At  December  31,  2006,  options  for  3,512,238  common  shares were
available  for  future  grants.


b)     Warrants
       --------

          Sentry  currently  has  outstanding  warrants  for  13,788,680 (2005 -
5,725,000)  common  shares  issued  in  connection  with  various  financing
arrangements.  The  warrants  have  exercise  prices ranging from $0.05 to $0.20
(2005 - $0.15 to $0.20) and expire from April 29, 2007 through January 21, 2009.


15.     Major  Customers  and  Credit  Concentrations:
        ---------------------------------------------

     The  Company  grants  credit to customers who are principally in the retail
industry  and  libraries.  During  2005,  revenues from one customer represented
approximately  10% of total revenues.  No other customer accounted for more than
10%  of  total  revenues  in  2006  and  2005.

     Canadian  revenues approximated $3,050,000 and $2,756,000 in 2006 and 2005,
respectively.


16.     Revenues  by  Product  Line:
        ---------------------------

<TABLE>
<CAPTION>

<S>                                        <C>              <C>

Revenues by product line are as follows:          December 31,
                                           -------------------------
                                                2006       2005
                                                ----       ----
                                                (In thousands)
                                           -------------------------

Electronic Article Surveillance (EAS)      $    6,813    $   6,490
Closed Circuit Television (CCTV)                  590        1,670
SentryVision (R)                                2,809        2,971
Service, installation and other revenues        1,923        2,439
                                           -----------   ----------
Total revenues                             $   12,135    $  13,570
                                           ===========   ==========
</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 53, 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 54, 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  56,  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      53      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.


Peter  J. Mundy         50      Our former Vice President-Finance and Chief
                                Financial Officer.  Mr.  Mundy  also served 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.  The employment
                                contract  of  Peter  J. Mundy, Vice President
                                and Chief Financial Officer,  terminated  on
                                December  31,  2006.  In  furtherance of the
                                Company's ongoing cost reduction efforts,
                                Mr. Mundy's contract was not renewed.
                                Commencing January 1, 2007, Mr. Mundy will
                                perform certain services for the Company under a
                                six  month  consulting arrangement pursuant to
                                which he has agreed to provide up to  seven
                                hours  of  services  per  week.


Joseph  Ryan            57      Our former Vice President - Sales and Marketing
                                from January  2006.  Mr. Ryan was President of
                                Ionic Fusion, a nanotechnology startup from 2003
                                until  2006.  Prior thereto, Mr. Ryan was
                                Executive Administrator of the  Non Profit
                                Faith Based, Christ Fellowship and Place of Hope
                                from 1999 until 2003.  From 1978 until 1999
                                Mr. Ryan was with Sensormatic Electronics in
                                various capacities  as  Vice  President  of
                                Marketing,  Vice  President  of  Business
                                Development, Executive in Charge of the Olympic
                                Games, Sr. Vice President Global Source  Tagging
                                and  Chairman of Sensor ID, Sensormatic's RFID
                                division.  Mr. Ryan's employment terminated  as
                                of  January  31,  2007.


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, the Company believes that during the fiscal year ended
December  31,  2006,  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 5 on January 15, 2007 with the SEC, for the granting of
warrants for 1,150,000 shares of the Company's common stock at an exercise price
of  $0.10  per  share,  which was granted on April 28, 2006 and for the grant of
warrants for 2,594,340 shares of the Company's common stock at an exercise price
of  $0.053  per  share,  which  was  granted  on December 15, 2006; and Peter L.
Murdoch,  the  Company's  President,  CEO  and member of the Board, filed a late
report  on Form 5 on January 13, 2007 with the SEC, for the granting of warrants
for 1,725,000 shares of the Company's common stock at an exercise price of $0.10
per share, which was granted on April 28, 2006 and for the grant of warrants for
2,594,340  shares  of  the Company's common stock at an exercise price of $0.053
per  share,  which  was  granted  on  December  15,  2006.


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.
----------------------------------
<TABLE>
<CAPTION>
<S>                               <C>    <C>        <C>     <C>      <C>      <C>             <C>              <C>            <C>
                                                                                              Non-Qualified
                                                                               Non-Equity        Deferred       All
                                                            Stock    Option   Incentive Plan   Compensation    Other
                                         Salary     Bonus   Awards   Awards   Compensation       Earnings    Compensation     Total
Name & Principal Position         Year     ($)       ($)      ($)      ($)        ($)              ($)           ($)           ($)

Peter L. Murdoch,
President &                       2005   178,275       -      -         -          -               -             -           178,275
 CEO(1)                           2006   181,145       -      -         -          -               -             -           181,145

Peter J. Mundy,                   2005   136,013       -      -         -          -               -             -           136,013
 VP - CFO (2)                     2006   140,664       -      -         -          -               -           21,370 (3)    162,032

Joseph Ryan, Jr.,                 2006   137,500       -      -      32,881(4)     -               -             -           170,381
 VP - Sales & Marketing (4)

</TABLE>


1)   Mr. Murdoch  received  no  salary increase in 2006. A portion of his pay is
     designated  in Canadian dollars, which translated into higher US dollars in
     2006  when  compared  to  2005.

(2)  The employment  contract  of  Peter  J.  Mundy,  Vice  President  and Chief
     Financial  Officer,  terminated on December 31, 2006. In furtherance of the
     Company's  ongoing  cost  reduction  efforts,  Mr. Mundy's contract was not
     renewed.  Commencing  January  1,  2007,  Mr.  Mundy  will  perform certain
     services  for the Company under a six month consulting arrangement pursuant
     to  which  he has agreed to provide up to seven hours of services per week.

(3)  Represents  accrued  vacation  paid  upon  contract  termination.

(4)  Mr. Ryan was hired January 31, 2006. Effective January 31, 2007, Mr. Ryan's
     employment  was  terminated.

(5)  SFAS 123R expense equaled $32,881.


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

On  January  31, 2006, we granted an option to purchase 500,000 shares to Joseph
Ryan  at an exercise price of $0.10 per share, which was the market price on the
date  of  grant.  The  shares  vest  ratably  over  a  three  year  period.


Outstanding Equity Awards at 2006 Fiscal Year End

The  following  table  sets  forth  for each of the persons named in the Summary
Compensation  Table  the  number of options exercised during 2006 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, 2006, both
exercisable  and  unexercisable,  and the value of such options as of that date.


<TABLE>
<CAPTION>

<S>              <C>            <C>           <C>             <C>         <C>         <C>          <C>        <C>         <C>
                                      Option Awards                                                   Stock Awards
                 -------------------------------------------------------------------  ----------------------------------------------

                                                                                                                          Equity
                                                                                                                         Incentive
                                                                                                            Equity         Plan
                                                                                                            Incentive     Awards:
                                                                                                            Plan         Market or
                                                                                                            Awards:       Payout
                                               Equity                                                       Number of     Value of
                                              Incentive                                           Market    Unearned     Unearned
                                 Number       Plan Awards:                            Number     Value of   Shares,       Shares,
                   Number          of         Number of                              of Shares   Shares or  Units or     Units or
                     of         Securities    Securities                             or Units    Units of   Other          Other
                  Securities    Underlying    Underlying                             of Stock     Stock     Rights         Rights
                  Underlying    Unexercised   Unexercised    Option       Option     that have   that have  that have    that have
                  Options (#)   Options (#)    Unearned      Exercise    Expiration    not         not      not vested   not vested
Name              Exercisable   Unexercisable  Options (#)   Price (#)     Date       vested      vested    (#)          ($)
(a)                  (b)            (c)           (d)          (e)         (f)         (g)         (h)         (i)          (j)

Peter L. Murdoch      -              -             -            -           -           -           -           -            -

Peter J. Mundy        -              -             -            -           -           -           -           -            -

Joseph Ryan           -           500,000          -         $ 0.10      1/31/2009      -           -           -            -
</TABLE>



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  $181,000,  in  2006 and $178,000 in 2005.

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.

Mr.  Mundy  was compensated pursuant to a written employment agreement providing
for  his  base  salary.  The employment agreement was not renewed as of December
31,  2006.  Accordingly, Mr. Mundy will receive severance pay an amount equal to
50% of his base pay in effect immediately prior to his expiration of the term of
employment,  payable  monthly,  for  a period of one year after such expiration.


Compensation  of  Directors

<TABLE>
<CAPTION>
<S>                     <C>                <C>         <C>           <C>             <C>               <C>                <C>
                                                                      Non-Equity       Nonqualified
                                                                      Incentive         Deferred
                        Fees Earned                                     Plan         Compensation
Name                      or Paid          Stock        Option        Compensation       Earnings         All Other
                        in Cash ($)        Awards ($)   Awards ($)        ($)              ($)         Compensation ($)   Total ($)
(a)                        (b)               (c)          (d)             (e)              (f)             (g)             (h)

All Non-employee     $5,000 annual plus                50,000 annually
 Board Members          meeting fees          -        at Fair Market      -                -               -               -
                                                       Value on Date
                                                       of Grant,
                                                       Immediately
                                                          Vested

</TABLE>

Mr.  Murdoch,  who  is  also  our  full-time  employee  receives  no  additional
compensation  for  his  service  as  a  Director.  Each  Director and Brookfield
Technology  Fund, in its capacity as an Observer, received an annual retainer of
$5,000  for  2006.

In  addition,  each non-employee Director is eligible to participate in our 1997
Stock  Incentive  Plan.   In May 2006, Mr. Furst, Mr. Granoff and the Brookfield
Technology  Fund  each  received options to purchase 50,000 shares of our common
stock  at  exercise prices of $0.10 per share, which was the market price on the
date  of  grant.  The  options  were exercisable immediately and expire after 10
years.

<PAGE>

                               [GRAPHIC OMITED]

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

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

                                    12/31/02     12/31/03     12/31/04     12/31/05     12/31/06
                                   -------------------------------------------------------------
Sentry Technology Corporation      $   100      $   675       $  925       $   455      $  290
S&P 600 Small Cap Index            $   100      $   138       $  167       $   178      $  203
S&P Elec. Equip. Index             $   100      $   169       $  155       $   157      $  156

</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
March  23,  2007, 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 March 23, 2007, 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)
c/o  Saburah Investments Inc.
37 Voyager Court North
Toronto, Ontario M9W 4Y2                                            64,034,436 (2)        51.2%

Robert D. Furst, Jr.                                                20,955,054 (3)        16.8%
c/o Alternative Strategies Advisors LLC
601 Carlson Parkway, Suite 610
Minnetonka, MN 55305

Joan E. Miller                                                         219,500 (4)            *

Jonathan G. Granoff                                                    190,000 (5)            *

All Sentry Directors and executive officers as a group (4 persons)  85,398,990 (6)         65.9%
</TABLE>

*     Less than one percent

1)   Based on  120,743,804  shares  of  common stock outstanding as of March 23,
     2007. 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 and 4,319,340 shares of common stock
     issuable  upon the exercise of stock warrants exercisable within 60 days of
     the  date  hereof.

3)   Includes  4,198,340  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 147,000 shares of common stock issuable upon the exercise of stock
     options  exercisable  within  60  days  from  the  date  hereof.

5)   Includes  130,000  shares  of common stock exercisable upon the exercise of
     stock  options  exercisable  within  60  days  from  the  date  hereof.

6)   Includes  8,794,680  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
-----------------------------------------------------------

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.  In  consideration  of these guarantees, Mr. Murdoch and Mr. Furst
are  receiving  a  fee  of  $43,000, to be shared between them, paid in 12 equal
monthly  installments.  As additional consideration, they received fully vested,
two  year warrants to purchase approximately 2.9 million shares of the Company's
common  stock, at an exercise price of $0.10 per share.  The fair value of these
warrants  of  $120,000  was  determined  in  accordance  with  SFAS  No.  123R
"Share-Based  Payment"  and beginning in June 2006 is being written off over the
period  of the guarantee, which is one year.  During the year ended December 31,
2006,  $70,000  has  been  recorded in interest and financing expense related to
these  warrants  and  $50,000  will  be  expensed  in  2007.

In  addition,  in  December  2006,  Mr.  Murdoch and Mr. Furst agreed to provide
personal  guarantees to Tradition Capital Bank in the amount of U.S. $550,000 in
exchange  for  the bank providing a new revolving credit facility to the Company
in  the  same amount.  In consideration of these guarantees, Mr. Murdoch and Mr.
Furst are receiving a fee of $14,000, to be shared between them, paid in 6 equal
monthly  installments  beginning in December 2006.  As additional consideration,
they  received  fully  vested,  two  year warrants to purchase approximately 5.2
million shares of the Company's common stock, at an exercise price of $0.053 per
share.  The fair value of these warrants of $91,000 was determined in accordance
with SFAS No. 123R "Share-Based Payment" and beginning in December 2006 is being
written  off  over the period of the guarantee, which is six months.  During the
year ended December 31, 2006, $8,000 has been recorded in interest and financing
expense  related  to  these  warrants  and  $83,000  will  be  expensed in 2007.


Item  13.  EXHIBITS
-------------------

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. Incorporated by reference to Exhibit 2.2
     to  the  Company's  annual  report  on  Form  10-KSB  for  fiscal  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. Incorporated by reference to Exhibit 2.3 to the
     Company's  annual  report  on  Form  10-KSB  for  fiscal  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.  Incorporated  by  reference  to  Exhibit 3.1 to the Company's annual
     report  on  Form  10-KSB  for  fiscal  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.  Incorporated  by reference to Exhibit 3.2 to the Company's
     annual  report  on  Form  10-KSB  for  fiscal  2005.

3.3  Amended  and  Restated  Bylaws of the Company. Incorporated by reference to
     Exhibit  3.3 to the Company's annual report on Form 10-KSB for fiscal 2005.

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  4.2  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
     4.3  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 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.

10.4 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.

10.5 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.

10.6 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.

10.7 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.

10.8 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.

10.9 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.

10.10 Amendment  to  Credit  Facility Letter Agreement between Sentry Technology
     Canada  Inc.  and Royal Bank of Canada dated January 23, 2006. Incorporated
     by reference to Exhibit 10.14 to the Company's annual report on Form 10-KSB
     for  fiscal  2005.

10.11 Credit Facility Letter Agreement between Sentry Technology Canada Inc. and
     Royal  Bank  of  Canada  dated  May  15, 2006. Incorporated by reference to
     Exhibit  10.1  to  the  Company's Current Report on Form 8-K, dated May 31,
     2006.

10.12 Amendment  to  Credit  Facility Letter Agreement between Sentry Technology
     Canada  Inc.  and  Royal  Bank  of  Canada  dated  November  27,  2006.

10.13 Revolving  Credit  Agreement  between  Tradition  Capital  Bank and Sentry
     Technology  Corporation, dated December 15, 2006. Incorporated by reference
     to Exhibit 10.1 to the Company's Current Report on Form 8-K, dated December
     19,  2006.

14   Code of  Ethics.  Incorporated  by reference to Exhibit 14 to the Company's
     annual  report  on  Form  10-KSB  for  fiscal  2005.

21   Subsidiaries of the Company. Incorporated by reference to Exhibit 21 to the
     Company's  annual  report  on  Form  10-KSB  for  fiscal  2005.

23.1 Consent  of  SF  Partnership,  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 Principal 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  Principal  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.



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 2006 and 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 by SF
Partnership, LLP in 2006 and 2005 were $78,000 and $65,000, respectively, net of
expenses.  In  2004,  the  amount paid to Holtz Rubenstein, LLP, our predecessor
auditors,  was  $104,000,  net  of  expenses.

Audit-Related  Fees

There  were no other fees for 2006 and $2,000 for 2005 billed by SF Partnership,
LLP  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 accountants during the last
two  fiscal  years  for  products  and  services  provided.

<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/  Joan  E.  Miller
                                                   ---------------------
                                                   Joan  E.  Miller
                                                   Vice  President-Finance,
                                                   Principal  Financial  Officer
                                                   and  Treasurer


Dated:  March  23,  2007


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/  Joan  E.  Miller                 Vice  President-Finance,
---------------------                 Principal Financial and Accounting Officer
Joan  E.  Miller                      and  Treasurer


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



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





Dated:  March  23,  2007


<PAGE>


EXHIBIT  INDEX
--------------

10.12 Amendment to Credit Facility Letter Agreement between Sentry Technology
      Canada  Inc.  and  Royal  Bank  of  Canada  dated  November  27,  2006.

23.1  Consent  of  SF  Partnership,  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 Principal 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  Principal  Financial  Officer Pursuant to 18
      U.S.C. Section 1350 Adopted Pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002.  ***