10-K/A 1 dec31200510ksba.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A (Mark one) |X| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED: DECEMBER 31, 2005 |_| 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 0-23081 POWERLINX INC. (Exact Name of Registrant as Specified in its Charter) Nevada 50-0006815 -------------------------------- ------------------------------------ (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 1700 66th Street North, Suite 300, St. Petersburg, Florida 33710 (Address of Principal Executive Offices) (Zip Code) (727) 866-7440 (Issuer's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Exchange Act: Title of each class Name of each exchange on which registered ------------------- ---------------------------------------- None None Securities registered under Section 12(g) of the Exchange Act: Title of class Common Stock, $.001 par value Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes |_| No |X| Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes |_| No |X| Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ||_| Indicate by check mark whether the registrant is a large accelerated filer , an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one): Large Accelerate Filer |_| Accelerated Filer |_| Non-accelerated filer |X| Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X| The aggregate market value of the voting stock held by non-affiliates of the Registrant based on the last sale price reported on the OTC Bulleting Board as of April 12, 2005 was $6,691,642. As of April 14, 2006, there were outstanding 4,779,744 shares of Common Stock. 2 DOCUMENTS INCORPORATED BY REFERENCE List hereunder the following documents incorporated by reference and the part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933. The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1980). There is no annual report, proxy statement, or prospectus to incorporate by reference. FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005 INDEX PART I Page Item 1. Description of Business.......................................5 Item 1A. Risk Factors..................................................16 Item 1B. Unresolved Staff Comments.....................................20 Item 2. Description of Property.......................................21 Item 3. Legal Proceedings.............................................21 Item 4. Submission of Matters to a Vote of Security Holders...........22 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters...................................23 Item 6. Selected Financial Data.......................................26 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...........................26 Item 7A Quantitative and Qualitative Disclosures About Market Risk....34 Item 8. Financial Statements..........................................F-1 PART III Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...........................35 Item 9A. Controls and Procedures.......................................35 Item 9B. Other Information.............................................35 Item 10. Management- Officers & Directors .............................35 Item 11. Executive Compensation .......................................39 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters................41 Item 13. Certain Relationships and Related Transactions................42 Item 14. Principal Accountant Fees and Services........................42 Item 15. Exhibits, Financial Statement Schedules.......................43 Exhibits .....................................................43 Signatures....................................................44 3 CAUTIONARY STATEMENTS FOR FORWARD-LOOKING INFORMATION PowerLinx, Inc, (the "Company" or "we" or "our") has made forward-looking statements (within the meaning of the Private Securities Litigation Reform Act of 1995) in this report that are subject to risks and uncertainties, such as statements about our plans, objectives, projections, expectations, assumptions, strategies, or future events. Other written or oral statements, which constitute forward-looking statements, also may be made from time to time by or on behalf of the Company. Words such as "may," "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," "will," "should," "could," variations of such words, and similar expressions are intended to identify such forward-looking statements. Similarly, statements that describe the Company's future plans, objectives, or goals also are forward-looking statements. These statements are not guarantees of future performance and are subject to a number of risks, uncertainties, and other factors, including those discussed below and elsewhere in this report, that could cause actual results to differ materially from future results, performances, or achievements expressed or implied by such forward-looking statements. Consequently, undue reliance should not be placed on these forward-looking statements. The Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Factors that could cause actual results to differ materially from what is expressed or forecasted in such forward-looking statements include, but are not limited to: (i) the potential loss of material customers; (ii) the failure to properly manage growth; (iii) inability of the Company's products to attain broad market acceptance or increased length of the Company's sales cycle; (iv) inability of the Company to reduce selling expenses; (v) the impact of competitive products and pricing; (vi) delays in shipping the Company's new products as a result of manufacturing delays; (vii) fluctuations in quarterly operating results as a result of the size, timing and recognition of revenue from significant orders, increases in operating expenses required for product development and marketing, the timing and market acceptance of new products and product enhancements; customer order deferrals in anticipation of new products and product enhancements; the Company's success in expanding its sales and marketing programs, and general economic conditions; and (viii) inability to protect our intellectual property and other proprietary rights; (xi) dependence on key personnel. 4 PART I ITEM 1. DESCRIPTION OF BUSINESS. GENERAL DEVELOPMENT OF BUSINESS PowerLinx, Inc. is referred to throughout this report as "PowerLinx," "we" or "us." PowerLinx, Inc. ("PowerLinx" or the "Company"), was incorporated in the State of Utah in 1986 and reorganized under the laws of Nevada on December 30, 1993. OUR BUSINESS, SEGMENTS AND PRODUCTS We develop, manufacture, and market, among other devices, products and applications developed to transmit voice, video, audio and data either individually or any and all combinations over power lines, twisted pair wires and coax in AC and DC power environments, on any and all power grids. We also develop, manufacture and market underwater video cameras, lights and accessories for the marine, commercial and consumer retail markets. We are a leader in the field of power line communications products (PLC). Our analog and digital power line technology is at the core of its value proposition. These two transmission technology schemes allow us to take full advantage of a number of exciting and continually expanding market segments. These market segments currently consist of vehicle viewing systems; entertainment, networking and security products. With our expertise in analog and digital systems, we have combined our technology with our extensive sourcing expertise to provide the price competitive, quality products to the market. Our products provide the reliability, cost and ease of installation that the customers want in these market segments. This focus of reliability, cost and ease of installation provides us with a competitive advantage over its competitors. We were engaged in three product segments in 2005: o Security Products o Professional o Consumer o DC Transportation Products o Marine Products The Security Products Segment develops, manufactures, markets and sells proprietary video security network devices and consumer electronic products that utilize patented technologies, licensed and owned by the Company, to retailers, commercial businesses, dealers, distributors, and original equipment manufacturers, throughout North America. The DC Transportation Products Segment develops, manufactures, markets, and sells power line rear and side vision systems for all classes and types of vehicles in the transportation industry to fleets, dealers, distributors and original equipment manufacturers throughout North America. Our Marine Products Segment develops, manufactures, markets and sells underwater video cameras, lighting and accessories principally to dealers and distributors in recreational/professional marine and fishing markets worldwide. Our Hotel/Multiple Dwelling Unit Products Segment provides power line and wireless high speed internet access and telecommunications services to primarily hotels. 5 SECURITY PRODUCTS SEGMENT THE BUSINESS CONCEPT Electrical wiring is nearly universal, present in practically every building constructed in the past century. Within the walls of a single structure, the topology of an electrical distribution system is a network of wiring which branches into every room. The concept of Power line Communication, or PLC, was born early in the history of electrification. Scientists and engineers recognized its potential value as a channel for more than just electrical distribution. Until the arrival of transistorized circuitry, the concepts were unreachable. Once thought to be valuable only to utility companies, PLC technologies have begun to emerge in both the consumer and industrial marketplaces. Closed-circuit television video surveillance, also known as "CCTV," has been included in the security plans of businesses large and small. Most businesses purchase CCTV equipment either from a specialized CCTV contractor or as a part of a broader alarm and security package from an integrated-systems vendor. The technology has been slow to trickle down to the small business and consumer sectors, in part due to the relative complexity of installation. This is especially true in retrofit installations. While new home construction can include the cabling for CCTV as a part of the homebuilding schedule, existing construction requires substantial drilling and labor to achieve the same result. Further, once the wiring is in place, moving a camera involves the relocation of the associated wiring. Business of Issuer: Security Products Segment Through our Security Products Division, we develop, manufacture, market and sell proprietary products currently into categories within the security market. The Company defines these product lines within the security product segment as: a) Professional b) Consumer a) Business of Issuer: Professional The professionally installed monitoring products group operates on analog or digital technology which allows multiple devices to transmit a single color video signal along with simultaneous bi-directional audio and control commands. This analog product group provides a more affordable price point than that of the digital products group. The digital product group has more functions. Digital video and audio can be transmitted using Broadband Internet to remote monitoring stations; monitoring stations then "look-in" to monitored properties to verify reports from alarm systems. Professional systems may also require pan, tilt and zoom b) Business of Issuer: Consumer This product group is designed and targeted to the retail marketplace. The trademarked name, "SecureView," is currently the key brand identifier for this range of our analog monitoring products. The analog product group is currently being expanded to introduce additional form factors and functionality. The digital product group is targeting the high end sophisticated consumer who needs the greater functionality of this product group. Principal products: Security a) Professional Power Line Security Systems The professional products utilize analog technology. Anticipated for production in 3rd quarter of 2006, these products transmit color video, communicate bi-directionally, transmit audio, and control signals via power line carrier. The control signals allow devices to be turned on-off from a central control point. A typical system controls remote devices such as: an outdoor light fixture/camera; indoor and outdoor traditional look security cameras; doorbell camera-intercom; wall camera and desk camera. On-screen programming utilizing a standard television or video monitor, allows the user control of direct, sequential, or random viewing of any remote device. The system is self-configuring, and will recognize individual device ID's. The control module is a hand held remote control In addition to video monitoring, in Phase 2 and Phase 3 in 2007, the system is expected to allow for motion detection, dry contact (door, window switches), and glass-break sensors. 6 Consumer Power Line Monitoring/Security Products We have developed an analog surveillance camera utilizing the form factor of a common flood lamp. SecureView, the "power line camera in a light bulb," The light-bulb camera is currently retailing in two forms, one for indoor use and one for outdoor use. The outdoor model is weather resistant.. A transmitter/receiver set adaptation enables the end-user to connect most external video cameras to the PLC transmitting device, with the receiver-decoder "back end" unit identical to that of the light-bulb-camera system. The transmitter/receiver set adaptation and "raw-board" circuitry are available to qualified Original Equipment Manufacturers (OEMs) and Value Added Resellers (VARs) within the trade, for inclusion in their own customized product offerings. We anticipate the development of a broader suite of products to expand the functionality of the technology. We concluded that a new product design was needed to meet the demands of the retail consumer. Customer feedback dictated the need for multiple cameras, audio and on-off control features. The result will be a new power line communication product, which enables the customer to purchase, on a customized individual component basis, a complete home monitoring/security system. The new solution allows the consumer to combine a single base remote control with any combination of cameras. The remote control is designed to control up to 20 other peripherals such as floodlight and other cameras. Each of these devices can be viewed directly, in sequence, or scanned via the programmable remote controller. Initial form factor designs are expected to be completed in the 2nd quarter of 2006 to allow our sourcing team to finalize the product for tooling, dye, and prototype testing in the 3rd quarter of 2006. Packaging and final production plans are anticipated to be completed in the 3rd quarter of 2006, with the first products of this new series expected to be available to our retailers and customers by the 3rd quarter of 2006. Our anticipated consumer product line is as follows: o Analog Outdoor & Indoor Camera Systems MSRP $149.99 (est.) o Analog Transmitter/Receiver System MSRP $139.99 (est.) o Analog Wall Camera MSRP $149.99 (est.) o Analog Deluxe Desk Camera MSRP $1499.99 (est.) o Analog Remote Controller MSRP $129.99 (est.) o Analog Extra Decoders MSRP $49.99 (est.) o Analog Traditional Security Camera Look Camera MSRP $149.99(est.) Principal Markets: Security The overall security market has been listed as one of the fastest growing markets in the world. Bloor Research believes that security spending is going to grow from only $66 billion in 2001 to more than $155 billion by 2006 which translates into nearly 20% plus annual growth. (Bloor Research is acknowledged by the world's press and other industry analysts as producing some of the most authoritative work ever published on computing and business issues. In 1996 the landmark report "The Enterprise By Other Means" was published and sold over 30,000 copies and is probably the best selling IT report ever published in Europe. It is because of the accuracy and integrity of its research with its impartial conclusions that has earned Bloor Research international acclaim, and an excellent reputation among IT vendors and end users alike.) 7 a) Professional Power Line Security Systems Consumers who seek a professional installation have security needs that require functionality not found in a typical retail security product. This is a two tiered market with mass market national security firms including Sensormatic, ADT, Tyco and Brinks garnering 28% of the market and a segmented market of nearly 14,000 plus regional and local firms accounting for the remainder of the market (As referenced by USBX Advisory Services. These professionals combine products from many suppliers to engineer security solutions for homes and small businesses. b) Consumer Power Line Monitoring/Security Products The consumer market place consists of 107.7M households according to the 2004 projections of the US Census Bureau data and approximately 12M small business locations within the US according to the same data source. This consumer market place is serviced by 4 retail formats: home improvement centers; traditional hardware stores; mass retailers; and direct response through television retailers, internet and catalogs. Distribution Methods: Security a) Professional Power Line Security Systems Within the distribution hierarchy of the security products industry is a segment of systems integrators and VARs who distribute products to independent contractors and installers numbering nearly 26,000 in this highly fragmented sector as referenced in the market recap. The professional-grade products, which are based on analog power line technology, were developed to service this distribution model. PowerLinx's current strategy is to form a strategic partnership with a nationally recognized large-scale distribution entity who supplies hardware components to many of the firms in this market. b) Consumer Power Line Monitoring/Security Products PowerLinx currently sells consumer products through independent retailers, mass retailers, catalogers, internet retailers and direct response TV retailers using both in-house and external manufacturer sales representatives. With the introduction of the new suite of consumer products, the PowerLinx's strategy includes seeking a distribution partner. The products will be distributed into the four retail formats via the partner's sales and distribution infrastructure. Our current customers include: o Catalogers: SuperCircuits; Smart Home, Heartland America, o Internet Retailers; Sam Club, Target, Spy Chest o Direct Response TV: Shop at Home Network TV; (HSN)Home Shopping Network Competitive Business Conditions: Security a) Professional Power Line Security Systems There is currently no direct competition for our power line communication products in this market. While there are hundreds of individual components available to the professional integrator, installer, and value-added reseller, most of these devices require hard-wired connections. While there are some wireless systems, they tend to be unreliable and expensive to encrypt data to eliminate eavesdropping. These connections result in additional labor cost and increased installation time. In many cases, property damage is incurred during the installation, further adding to the total cost of the project. Our professional products group enables these installers, integrators, and VARs to provide the same solutions without structural modification for cabling, and virtually eliminates the risk of property damage resulting from installation. The average cost of a 3-4 camera professionally installed system is $2,000 -$3,000. b) Consumer Power Line Monitoring/Security Products Consumers within the home or small business marketplace make purchase decisions based on 3 critical product attributes. These are: first, the product must perform well within their environment; second, it must be extremely easy to install; and third, it must be affordable. Competition in the consumer marketplace exists in two areas; first, the hard- wired systems, and secondly, in the over-the-air "wireless" category. The hard-wired competitors meet 2 of the 3 key product attributes (performance and price), but are extremely difficult to install. For this reason retailers and mass merchandisers have realized that products with complex installation procedures may not "stay sold," since many do-it-yourselfers lack the technical skill necessary to successfully install the product. In the mass retail channel, many wired system "package deals" have been attempted with marginal success. The "wireless" competitors also meet 2 of the 3 critical attributes (ease of installation and price affordability), but performance is typically poor and the video signal is transmitted to anyone who has a receiver. Nevertheless, the consumer marketplace is increasingly price driven, with a flood of low-performance, low-cost products creating downward pressure on retail prices. The retail pricing for hard-wired and wireless products ranges from $49.99 to $299.99. 8 Sources and Availability: There are no known shortages of any parts or components for any of the Company's existing product or for new products that are currently in the research and development stage. INTELLECTUAL PROPERTY: SECURITY PRODUCTS SEGMENT Intellectual Property to be Protected PowerLinx has developed over 20 pieces of technology during the last two years. This technology has the potential for patient protection. The company will protect these inventions prior to manufacturing products using the technology. Intellectual Property Owned We hold exclusive rights to the following patents and trademarks relevant to the Security Products Segment: Digital US Patent No. 6,275,144 Variable Low Frequency Offset, Differential, OOK, High-Speed Power-Line Communication issued 8/14/01. US Patent No. 6,519,328 Variable Low Frequency Offset, Differential, OOK High-Speed Twisted Pair Communication Using Load Coils issued 2/11/03. US Patent No. 6,449,318 Variable Low Frequency Offset, Differential, OOK, High-Speed Twisted Pair Communication issued 9/10/02. US Patent Pending 09/843,999 Communication with Current Detection filed 4/27/01. Analog & Other FED TM SecureView (Trademark) 02-28-00 PATU Video Camera Utilizing Power Line Modulation (Patent) 05-15-00 PATD Video Camera Housing (Patent) 12-26-00 PATD Infrared Illumination Device Housing (Patent) 12-19-00 PATD Video Camera Housing (Patent) 12-26-00 PATU Vehicle Inspection Camera (Patent) 01-22-01 We were granted an exclusive unlimited license, extending through the year 2014, under an agreement in February of 2001 with Rich McBride, the founder and the inventor of the technology. The McBride estate became the licensor upon the death of Rich McBride in October of 2001. We executed a patent assignment agreement December 12, 2002, terminating the license agreement with the McBride estate, and assigning to us ownership and rights of all of the patents and pending patents. Dependence on one or a few major customers: All Security Product Categories Although we serve a large and varied group of customers, Home Shopping Network comprised 72% of Security Products Segment net revenues for the 2005 fiscal year, and 29% of our overall revenues. 9 DC TRANSPORTATION PRODUCTS SEGMENT The Business: DC Transportation The Transportation Products Division develops, manufactures, markets and sells vehicular vision systems that enhance driver awareness. These systems are distributed and sold under the trademark Zone Defense" Rearview applications of video cameras are not new in the trucking industry; it is a proven fact that the use of video cameras to fill in "blind spots" to the sides and rear of trucks will reduce the risk of damage. In the waste hauling industry, where rear vision camera systems have been used for more than a decade, insurance data shows a significant reduction in backup accidents. Until now, rear cameras have been very limited in the split frame vehicles. This is because, traditional video solutions require dedicated cables routed between the camera and the cab. Principal Products: DC Transportation Using our analog technology, video is modulated into a carrier frequency, and coupled onto the existing wiring harness of a vehicle. The signal then populates the wiring harness; enabling a receiver, located in the driving compartment, to capture and demodulate the carrier frequency. The demodulated signal is fed to a video display device and/or recording device. This functionality is sold in a variety of configurations, from single-camera rear vision systems, to multiple-camera systems with automated switching controls and DC digital video recorders. In addition to our power line products, we have added a full line of accident avoidance products to expand our presence in the markets in which we compete. These include rear vision systems using traditional hard wired technology, in various configurations, and sensors and recorders. Principal Markets: Transportation Risk management and operator safety are two of the top concerns in the transportation industry. Principal markets in the class 3 through class 8 heavy duty truck segment are: Waste haulers, local delivery, ambulances and fire trucks, school buses, and over-the-road haulers. There are roughly 364K of these vehicles produced annually, and 3.64M in service. Plus there are nearly 20.1M commercial, farm, and auto trailers attached to these vehicles according to the USDOT 2002 Highway Statistics reported each October for the previous year. The National Truck Equipment Association reported growth in the truck market at 4% annually as the market tends to mirror the overall US economic growth. According to USDOT Highway Statistics reports growth trends in trailers to be static. Recreational vehicle owners began adopting rear vision systems in Class A motor homes some years ago. However, the greater portions of RVs are towables (50% plus), which present the same challenge as tractor-trailer combinations i.e., the difficult task of connecting a coaxial cable between the tow vehicle and the trailer. There were 320,800 or $12.1B of new recreational vehicles manufactured in 2003 in the United States according to statistics reported by the Recreational Vehicle Industry Association with growth rates estimated to be 2-3% annually. In addition RVIA reports, there are more than 7.2 million registered RVs already in use in the United States today. Including the number of enthusiasts and renters, the number of RV users exceeds 30 million. Sales of 5th wheels were up 21%, with a total of 91,000 new OEM 5th wheels delivered in 2004. 10 Distribution Methods: Transportation There are two distribution methods used to service this market place: the first, direct to end-user; the second, to nationally known industry providers at the OEM, distributor, and dealer levels in the industry. In the first method, direct to end-user, the Company provides a complete system tailored to an individual fleet or manufacturer. The Company has identified key customers who collectively represent and estimated ten percent of the class 3-8 trucks registered in America. The Company is focusing its direct to end-user marketing to primary customers including the following: o Current: Ryder, Sysco, McKenzie Tank Lines, McLane Trucking Wallis Oil, Sitton Trucking, MBM Food Distributors, Fedex Custom Critical, Mercer Trucking American Tire Corp. The Company has a sales and marketing staff focusing on the 7.2M units in the recreational-vehicle segment. The customer base includes OEM's, catalogers and distributors: o Current: Forest River, Forester and Lexington Lines o Distributors: Tri Star, RDK In the second method, the Company sells its technology to OEMs, distributors and dealers at the national level which encompasses the entire 92.9M truck, 1.0M bus, and 20.1M trailer markets. In this type of application, the reseller completes the system from its inventory of products (i.e., cameras, monitors, and recorders). Current customers include: o OEM's: Kentucky Trailer Morgan and A.M. Haire (Truck body builders) Competitive Business Conditions: Transportation The vehicular environment presents unique opportunities for the deployment of PLC technology. Fleet owners and OEMs acknowledge the difficulty of adding more cables to existing wiring harnesses in tractor-trailer combinations, waste hauling vehicles, and fifth-wheel recreational vehicles. However, within the transportation industry, video monitoring is a valuable and accepted means for "filling in the blind spots" which makes turning, backing, and close quarter maneuvering significantly easier. The transportation industry and associated segments are populated with hard-wired video systems. Of the dozen-or-so companies competing, a select few are manufacturers while the balance are importers or distributors. The key companies who make up the competition and account for approximately 70% of the market are Safetyvision LLC, Intec, Inc., ASA Audiovox LLC and Clarion. Products range from highly engineered solutions for specific vertical markets, to repurposed consumer equipment. The product pricing ranges from $350 to $2,500 installed. Since they all share the common design constraint of cabling, these systems are problematic in two areas: First, the installation and ongoing maintenance costs of the dedicated cable; and second, tractor-trailers and towed recreational vehicles require a new "umbilical" cable which, is costly and maintenance-intensive. Power line Vision System(TM) technology eliminates the dedicated cable by utilizing existing DC conductors, saving on both installation and maintenance. Fleets may also retro-fit the PLVS(TM) technology to vehicles already equipped with cabled systems from other suppliers. Sources and Availability: Transportation There are no known shortages of any parts or components for any of the Company's existing products or new products that are currently in the research and development stage. Dependence on one or a few major customers: All Security Product Categories Although we serve a large and varied group of customers, two customers comprised 60% of DC Transportation Products Segment net revenues for the 2005 fiscal year, and 30% of our overall revenues. Intellectual Property: DC Transportation Products Segment We hold exclusive rights to the following trademarks relevant to the DC Transportation Products Segment: FED TM Zone Defense (Trademark) 9/13/05 FED TM Eyeball Design (Zone Def logo) 10/11/05 11 MARINE PRODUCTS SEGMENT The Business: Marine The Marine Products Segment develops, manufactures, markets and sells underwater video cameras, lighting, and accessories used in both recreational and professional capacities. Principal Products: Marine The original SeaView(TM) underwater camera (designated "Offshore Series") was introduced into the national marketplace in 1998. The flagship product was quickly followed by smaller and lighter variations ("Mini SeaView," "SuperMini") and is produced in both standard black-and-white and optional color versions throughout the model range. Complete ready-to-go systems also include a proprietary viewing hood, a TV monitor, proprietary brackets, a kit of connectors, adapters, and power supply components, and a carrying case. SeaView(TM) cameras differ from other underwater video devices due to the patented design. In 2001, PowerLinx introduced new technology under the brand name "SeaMaster(TM)," which extends the advantages of infrared to a dual-mode video chipset, capable of seamless color-to-black-and-white performance within a single camera housing. The new technology also incorporates a built-in zoom function, and offers superior low-light and low-noise response. The SeaMaster(TM) product family is positioned as a premium line and priced above the original marine product family. PowerLinx also offers the "SeaLite(TM)," a high-output DC-powered lighting device for attracting baitfish, night fishing, and general underwater illumination. PowerLinx owns four design patents which protect the product line and own federal trademarks on the Seaview(TM), Sealite(TM), and SeaMaster(TM) brand names. The full product line includes: o SeaView SeaMaster(TM) IR Color Underwater Camera System Series o SeaView BW-150 IR Underwater Camera System Series o SeaView MW-150 IR "Super-Mini" Underwater Camera System Series o SeaView SM-50 IR Underwater Camera Series o SeaView Sealite(TM) Underwater Light Series The Company offers a one-year warranty (repair/replacement) on its marine camera products. The Company also offers refurbishment services on a time and material basis, for products out of warranty. Principal Markets: Marine The PowerLinx suite of SeaView(TM) underwater video products are sold into both the recreational/professional marine and fishing markets. In the recreational marine market, typical customers are boaters, anglers, and treasure hunters. On the professional end of the market, customers include; professional law enforcement, rescue, and recovery divers; commercial fisherman, surveyors, contractors, and boatyards. Our products are also used for marine education and research, including environmental and conservation groups. Governmental entities at the local, state, and national levels also utilize underwater cameras in primarily the same applications. The recreational/professional marine markets combined were estimated at $2.03B in 2003 by the National Marine Manufacturers Association. The fishing market for 2003 as estimated by the American Sport fishing Association is $116B with nearly 44M anglers in the US. And, according to ASA, 20% of the anglers reside in California, Florida, and Texas which represents the primary saltwater markets and 14% reside in Michigan and Minnesota representing the primary freshwater market. The patented torpedo designs of PowerLinx's SeaView(TM) cameras eliminate virtually all competition in the saltwater fishing market because the design is sturdy, robust, and trollable without adding additional components the competition uses which may or may not work. Distribution Methods: Marine PowerLinx currently distributes its marine products on three levels. First, the product is sold through a traditional wholesale-distribution model utilizing a network of independent marine distributors that it has cultivated since the product lines' inception in late 1998. Second, PowerLinx has teams of independent contractors who sell directly to consumers while exhibiting at regional marine, trade, fishing, and boat shows. This strategy has proven successful in expanding the dealer network, as most dealers also attend the industry trade shows. Third, PowerLinx has established relationships with several catalogers and internet marketers that carry all or portions of the product line in their catalogue or on their websites. Until 2004, the Company pursued the mass retail market on a limited basis. A successful test with Wal-Mart ran in 2002 for the sale of its Sealite(TM) product. However, not until PowerLinx's supplier agreement was signed with China Silian (SIC) in 2003, did PowerLinx have the ability to produce the quantities of its products required to serve the mass retail market. PowerLinx plans to begin to exploit the mass retail market in the 2nd half of 2005, as it has received positive feedback from several larger retail buyers. 12 Competitive Business Conditions: Marine The underwater video market has become more competitive during the 2002-2004 time periods, as there are few barriers to entry. However, there are no dominating competitors that currently exist in the market place today. Most competitors are regional, many focusing on fresh water applications due to their geographic location. (Aquaview, Inc.) The design, quality, and ruggedness of the SeaView(TM) underwater camera line has proven itself over time, as few competitors' products can withstand the harsh conditions of the saltwater environment for which our products were designed. This has resulted in significant repeat customer purchases and has also allowed the Company to maintain its margins. The Company's three largest competitors in the underwater camera market are; Aquaview, Atlantis, and Fish-eye. SeaView is the market leader in the saltwater sector of this market again because of product design and secondly because of the Company's headquarter location. Sources and Availability: Marine There are no known shortages of components or products for the Marine Products Segment. The Company owns the molds and tools for the production of its proprietary housings and components. The Company's camera technology is based on specifications derived in-house and produced by third-party vendors. Sources for plastic raw material, the camera technology, and various component parts and system contents all are well-developed. The Company has at least one alternate source of supply for each key non-proprietary item. While technological improvements such as SeaMaster are adopted as they occur, video technology has remained relatively stable in the last several years. Ongoing research and development of new marine products continues, but the Company believes the capital needed for these efforts will not require a materially significant commitment of our assets. Intellectual Property: Marine The Company holds the exclusive rights to the following items relevant to the Marine Products Segment: FL TM SeaView (Trademark) 12-17-98 PATD Underwater Camera (Patent) 06-22-99 COPY SeaView Brochure (Copyright) 01-11-99 PATU Submersible Video Camera (Patent) 06-10-99 PATD Underwater Camera (Patent) 12-28-99 PATD Video Monitor Hood (Patent) 04-11-00 FED TM SeaLite (Trademark) 06-30-99 PATD Camera Housing (Patent) 07-25-00 FED TM SeaView (Trademark) 01-16-01 Dependence on one or a few major customers: Marine No marine products segment customer, or group of customers under common control, represented sales equal to 10% or more of consolidated net revenues for the year ended December 31, 2005. 13 SEGMENT DATA See "Note 3" to the financial statements and Management's Discussion & Analysis included elsewhere herein for financial information about out reportable segments. OTHER BUSINESS SEGMENTS We also launched an initiative through a wholly owned subsidiary, Linx Comm, LLC to build a portfolio of telecommunication products to serve specific needs of customers, especially in the hospitality market where the Company was selling power line internet connectivity products. This activity produced no sales volume during its start-up in 2004. In the 1st quarter of 2005 the Company decided that the resources and manpower devoted to this initiative could be better invested in its core technology products and, therefore, this initiative was abandoned. RECENT DEVELOPMENTS AUDIO PRODUCTS SEGMENT *(Reporting of this segment will begin during fiscal year ended December 31, 2006.) The Business Concept As stated above, electrical wiring is nearly universal, present in practically every building constructed in the past century. Within the walls of a single structure, the topology of an electrical distribution system is a network of wiring which branches into every room. The concept of Power line Communication, or PLC, was born early in the history of electrification. Scientists and engineers recognized its potential value as a channel for more than just electrical distribution. Until the arrival of transistorized circuitry, the concepts were unreachable. Once thought to be valuable only to utility companies, PLC technologies have begun to emerge in both the consumer and industrial marketplaces. Home entertainment systems have gained broad acceptance. These systems generally rely on dedicated cabling to distribute the audio to rooms in the home for listening. Installation of cabling is beyond the capability of many homeowners and is a dirty and time consuming task. It is also disruptive to the structure. Installation of cables requires drilling holes and sometimes cutting into the residential structure. Frequently cables have to be "fished" up and down inside of walls and run through the attic or basement, provided access is available. This work is frequently contracted to installers at great expense. RF Wireless systems transmit audio through the air from the audio source to remote speakers. This technology has been in existence for decades but has gained very limited acceptance due to unreliable quality. Business of Issuer: Audio Products Segment Through the PowerLinx Audio Products Division, we have developed, and will manufacture, market and sell and or license proprietary technology and products in the audio accessories segment of the home entertainment market. The Audio Product group was formed in the fall of 2003 as a result of discussions with a major manufacturer of home entertainment systems. Upon understanding PowerLinx technical capability to transmit audio over the existing electrical lines in a home or small office, this manufacturer indicated a strong an interest in licensing the technology. The manufacturer stated that approximately 75% or the rear speakers in a surround sound system are either never installed by the end user and are installed in the front of the room near the audio source. The manufacturers stated reason for this is the difficulty of installing the dedicated cabling to the rear speakers. 14 In addition to the surround sound application the manufacturer also expressed interest in being able to market a product that allows the end user to install remote speakers in any room in the home without installing dedicated cabling. PowerLinx audio technology enables both of these applications. The technology can be built into a surround sound system. The end user would simply plug the PowerLinx receiver module into a standard electrical outlet on the rear wall of the room and plug the speakers into the receiver. A PowerLinx audio transmitter can be used to transmit the audio from almost any audio device, over the existing electrical wiring in the home, to receiver units and speakers in up to 6 rooms. The PowerLinx audio works with home entertainment systems, receivers, amplifiers, iPods, MP3 players and home computers. Principal Markets: Audio Transmitter/Receiver The Home Audio Component and System Market is a primary target for our Power Line Audio Technology. Our strategy is to license our technology to OEMs for inclusion in their products. This market was $3 Billion at the manufacturing level in the USA alone in 2004. Twelve million systems were sold in 2004. Assuming an average system cost of $250, if PowerLinx can penetrate only 25% of this market (3MM units) at our target licensing fee of $4.00, the company will generate over $12MM per year in licensing revenue from power line audio in the USA alone. Twenty-four percent of U.S. online households now have digital surround sound systems. "Extremely low priced Home Theater In a Box (HTIB) systems have expanded the market and made surround sound systems broadly affordable," said Jupiter Research Senior Analyst Avi Greengart. "However, we found that 47% of consumers planning to buy surround sound systems are planning to spend $1,000 to $5,000 on home theater products over the next 12 months. Consumers have clear feature and brand preferences that vendors can address to move consumers into higher priced, more profitable products." [Jupiter Research, August 2004] The market for home theater systems has grown so large that there are over 190 manufacturers of home theater systems in China alone. [MarketResearch.com, August 2004] Home Component Audio and Home Audio System sales at the manufacturing level in the United States grew to $3 Billion, +11% vs. YAG in 2004. [Consumer Electronics Association, February 2005] Another major market is the personal music device and home computer market. The accessory market for iPods alone is over $1B per year. Speakers and docking stations account for 42% or $420MM of the total. Sales will easily soar beyond $1B in 2006. (Source St, Petersburg Times, February 27, 2006) iPods have become the audio source of choice for a substantial portion of the population. iPod users in ever greater numbers wish to listen to music from their iPod on speakers in addition to earphones. PowerLinx technology will enable an iPod user to plug their iPod into a PowerLinx Audio Transmitter and listen to the music in up to 6 rooms using PowerLinx Audio Receivers and a pairs of speakers. The PowerLinx Audio technology transmits and receives audio from MP3 players and computers as well. Most music for iPods and MP3 players is downloaded and stored on a personal computer then transferred to the iPod or MP3. Sources and Availability There are no known component shortages for the audio product. Employees As of April 14, 2006 we employ 17 people. During the year ended December 31, 2005 we employed as many as 30 employees and employed 17 people as of December 31, 2005. We also have commissioned sales arrangements with several manufacturer's Sales Representatives, all operating as independent contractors, servicing all channels of distribution 15 ITEM 1A. RISK FACTORS Risks Related to Our Business ----------------------------- WE HAVE HAD LOSSES SINCE OUR INCEPTION. WE EXPECT LOSSES TO CONTINUE IN THE FUTURE AND THERE IS A RISK WE MAY NEVER BECOME PROFITABLE. The Company has incurred operating losses, including discontinued operations, of $5,848,754, and $5,151,079 during the year ended December 31, 2005 and 2004, respectively. In addition, during that period, the Company has used cash of $3,001,236 and $4,244,961 in its operating activities, and has a net working capital deficiency of $559,748 at December 31, 2005. We expect to continue to incur significant operating expenses as we maintain our current line of power-line products and continue research and development toward new advance power-line technologies. Our operating expenses have been and are expected to continue to outpace revenues and result in significant losses in the near term. We may never be able to reduce these losses, which will require us to seek additional debt or equity financing. If such financing is available, of which there can be no assurance, you may experience significant additional dilution. OUR FAILURE TO RESPOND TO RAPID CHANGE IN THE MARKET FOR INDUCTION RADIO FREQUENCY SYSTEMS COULD CAUSE US TO LOSE REVENUE AND HARM OUR COMPETITIVE POSITION. Our future success will depend significantly on our ability to develop and market new products that keep pace with technological developments and evolving industry standards for technology that enables video, audio, and data transmission over the power line. Our delay or failure to develop or acquire technological improvements, adapt our products to technological changes or provide technology that appeals to our customers may cause us to lose customers and may prevent us from generating revenue which could ultimately cause us to cease operations. IF WE ARE UNABLE TO OBTAIN ADDITIONAL FUNDING OUR BUSINESS OPERATIONS WILL BE HARMED. We believe that our available short-term assets, investment income and recently obtained funding will be sufficient to meet our operating expenses and capital expenditures through the end of fiscal year 2006. We do not know if additional financing will be available when needed, or if it is available, if it will be available on acceptable terms. Insufficient funds may prevent us from implementing our business strategy or may require us to delay, scale back or eliminate certain contracts for the provision of our technology and products. OUR OPERATING RESULTS ARE LIKELY TO FLUCTUATE SIGNIFICANTLY. As a result of our limited operating history and the rapidly changing nature of the markets in which we compete, our quarterly and annual revenues and operating results are likely to fluctuate from period to period. These fluctuations may be caused by a number of factors, many of which are beyond our control. These factors include the following, as well as others discussed elsewhere in this section: 16 -- how and when we introduce new products and services and enhance our existing products and services; -- our ability to attract and retain new customers and satisfy our customers' demands; -- the timing and success of our brand-building and marketing campaigns; -- our ability to establish and maintain strategic relationships; -- our ability to attract, train and retain key personnel; -- the emergence and success of new and existing competition; -- varying operating costs and capital expenditures related to the expansion of our business operations and infrastructure, domestically and internationally, including the hiring of new employees; -- changes in the mix of products and services that we sell to our customers; -- costs and effects related to the acquisition of businesses or technology and related integration; and -- costs of litigation and intellectual property protection. In addition, because the market for our products and services is relatively new and rapidly changing, it is difficult to predict future financial results. For these reasons, you should not rely on period-to-period comparisons of our financial results, if any, as indications of future results. Our future operating results could fall below the expectations of public market analysts or investors and significantly reduce the market price of our common stock. Fluctuations in our operating results will likely increase the volatility of our stock price. OUR INDEPENDENT AUDITORS HAVE EXPRESSED DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN, WHICH MAY HINDER OUR ABILITY TO OBTAIN FUTURE FINANCING. In their report dated March 17, 2006, our independent auditors stated that the accompanying financial statements were prepared assuming that the Company will continue as a going concern. However, we have incurred operating losses, including discontinued operations, of $5,848,754, and $5,151,079 during the year ended December 31, 2005 and 2004, respectively. In addition, during that period, we have used cash of $3,001,236 and $4,244,961 in our operating activities. Subsequent to December 31, 2005, we did secure $3,100,000 of additional financing and converted $1,373,933 of otherwise short term obligations to long term debt. While the proceeds of this financing will significantly our liquidity difficulties, the ability of us to sustain our operations for a reasonable period without further financing cannot be assured. We continue to experience net operating losses. Our ability to continue as a going concern is subject to our ability to generate a profit and/or obtain necessary funding from outside sources, including obtaining additional funding from the sale of our securities, increasing sales or obtaining loans and grants from various financial institutions where possible. The going concern uncertainty modification in the auditor's report increases the difficulty in meeting such goals and there can be no assurances that such methods will prove successful. WE HAVE A FEW PROPRIETARY RIGHTS, THE LACK OF WHICH MAY MAKE IT EASIER FOR OUR COMPETITORS TO COMPETE AGAINST US. We attempt to protect our limited proprietary property through copyright, trademark, trade secret, nondisclosure and confidentiality measures. Such protections, however, may not preclude competitors from developing similar technologies. Any inability to adequately protect our proprietary technology could harm our ability to compete. 17 Our future success and ability to compete depends in part upon our proprietary technology and our trademarks, which we attempt to protect with a combination of patent, copyright, trademark and trade secret laws, as well as with our confidentiality procedures and contractual provisions. These legal protections afford only limited protection and are time-consuming and expensive to obtain and/or maintain. Further, despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our intellectual property. WE ARE BEING INVESTIGATED BY THE SECURITIES & EXCHANGE COMMISSION The Securities and Exchange Commission's Division of Enforcement began an investigation in January 2001 relating to the Company's financial results and common stock performance during 2000. As a result Richard McBride, former chairman, president and chief executive officer, resigned from all positions with the Company. Further, all executives involved with the allegations were replaced during 2001 and Mr. McBride passed away in October 2001. The Company has cooperated fully with the SEC, which included the testimony of former employees, Col. Larry Hoffman (retired), and Christy Mutlu. George Bernardich and current officers and employees Douglas Bauer, CFO, and J. R. Cox, former director, have also testified before the SEC. On February 12, 2004, the SEC's Staff advised the Company, through its counsel, that they intend to recommend that the SEC bring a civil injunctive action against the Company and certain of its current and former officers and/or directors. As it relates to the Company, the Staff alleges that: The Company violated Section 17(a) of the Securities Act of 1933 ("Securities Act") and Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 13a-1, 13a-11, 13a-13, and 12b-20 thereunder, and is liable for civil penalties pursuant to Section 20(d) of the Securities Act and Section 21(d)(3)(A) of the Exchange Act. The SEC's Staff, in accordance with Rule 5(c) of the Commission's Rules of Informal and Other Procedures, 17 C.F.R. ss.202.5(c), afforded the Company the opportunity to make a "Wells Submission" regarding the Staff's intended recommendations. The Company retained its counsel to prepare such a Wells Submission on behalf of the Company, its officers, and employees, as it believed that there were meritorious factual, legal and policy reasons why the Staff's recommendation should not be followed by the Commission. The "Wells Submission" documents were prepared and submitted to the Staff near the end of March of 2004. In June of 2004, counsel notified the Company that as a result of the Wells Submission, the staff may modify its recommendations to the Commission; however, the Company had no specific details as to what those modifications would be or whether they would be accepted by the commission. The Company, twice, in August and November of 2004, sent updated financial information to the Staff, at their request, but received no further correspondence regarding a proposed recommendation. If the Staff's original recommendation is accepted by the Commission and a civil injunctive action were to be subsequently filed against the Company, no decision has been made at this time as to whether the Company would vigorously defend that matter, or would seek to reach a negotiated settlement. The Staff has informally advised counsel of their belief that if they were successful in litigating this matter, a civil penalty in excess of $100,000 could be imposed against the Company. However, counsel believes that there are numerous mitigating factors which could cause this amount to be reduced, even if the Company's efforts to defend the suit were unsuccessful. Therefore it is impossible at this time to estimate the likelihood of an unfavorable outcome, or to estimate the amount of any such loss from this matter. Before any final determination was made with regard to the aforementioned investigation, the Staff notified the Company that it wanted to review additional documentation. This request pertained to a purchase contract the Company entered with Universal General Corporation, LLC (UGC), on September 17, 2004 and the subsequent shipment of products to UGC on November 15, 2004. The Company has, through its counsel, fully cooperated with this additional request, and has provided the documents and financial information sought. In addition, certain current and former officers and employees have provided testimony and/or interviews to the Staff with regard to UGC. The Company has been advised by the Staff that the investigations of both items are complete, and the Company anticipates that the Commission will render a decision in this matter in the relatively near future. 18 RISKS RELATING TO OUR CURRENT FINANCING AGREEMENT: THERE ARE A LARGE NUMBER OF SHARES UNDERLYING OUR CONVERTIBLE DEBENTURES DUE MAY 22, 2008, AND WARRANTS THAT MAY BE AVAILABLE FOR FUTURE SALE AND THE SALE OF THESE SHARES MAY DEPRESS THE MARKET PRICE OF OUR COMMON STOCK. As of April 12, 2006, we had 4,779,744 shares of common stock issued and outstanding, and outstanding options and warrants to purchase additional 300,104 shares of common stock. Pursuant to the private offering entered into on March 16, 2006, there is up to 3,622,618 shares of common stock underlying the convertible debentures purchased and up to 1,883,761 shares of common stock underlying warrants which may be available for future sale (collectively the "Shares"). The sale of these Shares may depress the market price of our common stock. RISKS RELATED TO OUR COMMON STOCK: OUR HISTORIC STOCK PRICE HAS BEEN VOLATILE AND THE FUTURE MARKET PRICE FOR OUR COMMON STOCK MAY CONTINUE TO BE VOLATILE. FURTHER, THE LIMITED MARKET FOR OUR SHARES WILL MAKE OUR PRICE MORE VOLATILE. THIS MAY MAKE IT DIFFICULT FOR YOU TO SELL OUR COMMON STOCK FOR A POSITIVE RETURN ON YOUR INVESTMENT. The public market for our common stock has historically been very volatile. Since we changed the focus of our business from marine products to power line communication (plc) products on December 31, 2001 and through the fiscal year ended December 31, 2005, the market price for our common stock has ranged from $1.35 to $0.03. Any future market price for our shares may continue to be very volatile. This price volatility may make it more difficult for you to sell shares when you want at prices you find attractive. We do not know of any one particular factor that has caused volatility in our stock price. However, the stock market in general has experienced extreme price and volume fluctuations that often are unrelated or disproportionate to the operating performance of companies. Broad market factors and the investing public's negative perception of our business may reduce our stock price, regardless of our operating performance. Market fluctuations and volatility, as well as general economic, market and political conditions, could reduce our market price. As a result, this may make it difficult or impossible for you to sell our common stock for a positive return on your investment. OUR COMMON STOCK IS SUBJECT TO THE "PENNY STOCK" RULES OF THE SEC AND THE TRADING MARKET IN OUR SECURITIES IS LIMITED, WHICH MAKES TRANSACTIONS IN OUR STOCK CUMBERSOME AND MAY REDUCE THE VALUE OF AN INVESTMENT IN OUR STOCK. The Securities and Exchange Commission has adopted Rule 15g-9 which establishes the definition of a "penny stock," for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require: o that a broker or dealer approve a person's account for transactions in penny stocks; and o the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased. In order to approve a person's account for transactions in penny stocks, the broker or dealer must: o obtain financial information and investment experience objectives of the person; and o make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks. The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prepared by the Commission relating to the penny stock market, which, in highlight form: o sets forth the basis on which the broker or dealer made the suitability determination; and o that the broker or dealer received a signed, written agreement from the investor prior to the transaction. Generally, brokers may be less willing to execute transactions in securities subject to the "penny stock" rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock. 19 Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. USE OF PROCEEDS This prospectus relates to shares of our common stock that may be offered and sold from time to time by the selling stockholders. We will not receive any proceeds from the sale of shares of common stock in this offering. WE HAVE NOT PAID CASH DIVIDENDS IN THE PAST AND DO NOT EXPECT TO PAY CASH DIVIDENDS IN THE FUTURE. ANY RETURN ON INVESTMENT MAY BE LIMITED TO THE VALUE OF OUR STOCK. We have never paid cash dividends on our stock and do not anticipate paying cash dividends on our stock in the foreseeable future. The payment of cash dividends on our stock will depend on our earnings, financial condition and other business and economic factors affecting us at such time as the board of directors may consider relevant. If we do not pay cash dividends, our stock may be less valuable because a return on your investment will only occur if our stock price appreciates. 20 ITEM 2. DESCRIPTION OF PROPERTY. Since mid-December 2004 our corporate facility has been located in St. Petersburg, Florida, and consists of approximately 7,652 square feet of executive office space at a base monthly rental fee of $8,290. We signed a 39 month lease on December 14, 2004. The lease contained a early termination clause which we executed on October 22, 2005. We will be moving our corporate headquarters during May of 2006. The decision to execute the early termination provision was to enable the Company to downsize to a smaller and less expensive facility to meet budgetary requirements. The current office space was not being fully utilized due the reduction of employees as a result of the implementation of our restructuring plan completed in the 2nd quarter of 2005. We also leased space in Myrtle Beach, South Carolina where our Hotel and Multiple Dwelling Unit business was located prior to discontinuing this business unit. This lease was for a 12 month period ending May 31, 2005 at the rate of $2,200 per month. The lease was terminated on May 31, 2005. We also lease space in Clearwater, Florida, on a month-to-month basis, for its Distribution and Warranty & Repair Center. The monthly rent is $1,275. We also lease space in Concord, California, to house our Research and Development operations. This lease is for a three year period beginning May 1, 2004, and ending April 30, 2007. The monthly rent is $1877.05. ITEM 3. LEGAL PROCEEDINGS. Litigation, claims and assessment: Satius, Inc License Agreement On August 12th, 2005 we were served with a complaint filed in the Court of Common Pleas, Montgomery County, Pennsylvania. The action was filed by Satius, Inc. The suit alleges breach of contract involving a Licensing Agreement with Satius dated December 18, 2003 that relates to certain of the Company's analog power products. This same licensing agreement was terminated by Satius on July 10, 2004. The suit remains in the discovery phase and as of the filing of this document, a hearing to dismiss the case is currently scheduled for May 3, 2006. No hearing is currently scheduled for the motion for preliminary injunction. The Company and its management believe that they are not in violation of the terminated license agreement and intend to defend the law suit vigorously. However, there can be no assurance that the Company will prevail on the merits of the case. Litigation of this matter will be expensive and will divert time and financial resources away from the Company's business. In addition, an unfavorable outcome in this matter would result in substantial harm and possibly severe damage to the Company. Pro-Marketing of Texas The Company was a defendant in a lawsuit filed by Pro-Marketing of Texas, Inc. in the Circuit Court of Pinellas County, Florida. The suit alleged breach of contract relating to a payment of a convertible debenture, with a maximum potential exposure of $100,000 plus interests costs and attorneys fees. The Company contested the claim from the outset, however, in and effort to limit legal fees associated with the action, on August 18, 2005, the Company agreed to a settlement. The settlement consisted of the issuance of 150,000 shares of restricted common stock, and cash payments totaling $60,000 to be disbursed in an amount of $2,500 per month for a period of two years, commencing on August 18, 2005. 21 SEC Investigation The Securities and Exchange Commission's Division of Enforcement began an investigation in January 2001 relating to the Company's financial results and common stock performance during 2000. As a result Richard McBride, former chairman, president and chief executive officer, resigned from all positions with the Company. Further, all executives involved with the allegations were replaced during 2001 and Mr. McBride passed away in October 2001. The Company has cooperated fully with the SEC, which included the testimony of former employees, Col. Larry Hoffman (retired), and Christy Mutlu. George Bernardich and current officers and employees Douglas Bauer, CFO, and J. R. Cox, former director, have also testified before the SEC. On February 12, 2004, the SEC's Staff advised the Company, through its counsel, that they intend to recommend that the SEC bring a civil injunctive action against the Company and certain of its current and former officers and/or directors. As it relates to the Company, the Staff alleges that: The Company violated Section 17(a) of the Securities Act of 1933 ("Securities Act") and Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 13a-1, 13a-11, 13a-13, and 12b-20 thereunder, and is liable for civil penalties pursuant to Section 20(d) of the Securities Act and Section 21(d)(3)(A) of the Exchange Act. The SEC's Staff, in accordance with Rule 5(c) of the Commission's Rules of Informal and Other Procedures, 17 C.F.R. ss.202.5(c), afforded the Company the opportunity to make a "Wells Submission" regarding the Staff's intended recommendations. The Company retained its counsel to prepare such a Wells Submission on behalf of the Company, its officers, and employees, as it believed that there were meritorious factual, legal and policy reasons why the Staff's recommendation should not be followed by the Commission. The "Wells Submission" documents were prepared and submitted to the Staff near the end of March of 2004. In June of 2004, counsel notified the Company that as a result of the Wells Submission, the staff may modify its recommendations to the Commission; however, the Company had no specific details as to what those modifications would be or whether they would be accepted by the commission. The Company, twice, in August and November of 2004, sent updated financial information to the Staff, at their request, but received no further correspondence regarding a proposed recommendation. If the Staff's original recommendation is accepted by the Commission and a civil injunctive action were to be subsequently filed against the Company, no decision has been made at this time as to whether the Company would vigorously defend that matter, or would seek to reach a negotiated settlement. The Staff has informally advised counsel of their belief that if they were successful in litigating this matter, a civil penalty in excess of $100,000 could be imposed against the Company. However, counsel believes that there are numerous mitigating factors which could cause this amount to be reduced, even if the Company's efforts to defend the suit were unsuccessful. Therefore it is impossible at this time to estimate the likelihood of an unfavorable outcome, or to estimate the amount of any such loss from this matter. Before any final determination was made with regard to the aforementioned investigation, the Staff notified the Company that it wanted to review additional documentation. This request pertained to a purchase contract the Company entered with Universal General Corporation, LLC (UGC), on September 17, 2004 and the subsequent shipment of products to UGC on November 15, 2004. The Company has, through its counsel, fully cooperated with this additional request, and has provided the documents and financial information sought. In addition, certain current and former officers and employees have provided testimony and/or interviews to the Staff with regard to UGC. The Company has been advised by the Staff that the investigations of both items are complete, and the Company anticipates that the Commission will render a decision in this matter in the relatively near future. ITEM 4. SUBMISSION FOR MATTERS TO A VOTE OF SECURITY HOLDERS. On June 20, 2005, The Board of Directors resolved to adopt pursuant to sections 78.320 and 78.390 of the Nevada Revised Statutes to amend the Company's certificate of incorporation to increase the authorized amount of capital stock from 260,000,000 shares to 430,000,000 shares, and to elect Myles Gould and Brad Gould to the Board of Directors, under Class I and for a term expiring at the annual meeting of shareholders held in the third (3rd) year following the year of their election; in accordance with the Company's bylaws. These resolutions were passed by a majority vote of the Company's shareholders based on a record date of May 25, 2005, and on November 11, 2005 the Company amended the 4th Article of Incorporation with the state of Nevada. 22 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. On March 22, 2006, the Company effectuated a 1 for 50 reverse stock split of its common stock, and our common stock then commenced trading on the OTC Bulletin Board under the new symbol "PWNX". Prior to the reverse stock split and as a result of changing our name to PowerLinx, Inc. on December 10, 2003 we were quoted on the OTC Bulletin Board under the symbol "PWLX". Prior to December 2003, our common stock was quoted on the OTC Bulletin Board under the symbol "SEVU". For the periods indicated, the following table sets forth the high and low bid prices per share of common stock. These prices represent inter-dealer quotations without retail markup, markdown, or commission and may not necessarily represent actual transactions. Low ($) High ($) ------- -------- 2005 First Quarter .09 .26 Second Quarter .06 .12 Third Quarter .06 .10 Fourth Quarter .03 .07 2004 First Quarter .17 .40 Second Quarter .16 .26 Third Quarter .12 .38 Fourth Quarter .19 .31 Holders As of April 14, 2006 we had approximately 6,800 holders of our common stock. The number of record holders was determined from the records of our transfer agent and from requested DTC reports that included beneficial owners of common stock whose shares are held in the names of various security brokers, dealers, and registered clearing agencies. The transfer agent of our common stock is Island Stock Transfer, Inc., located at 100 Second Avenue South, 300N, St. Petersburg, Florida 33701. Dividends We have never declared or paid any cash dividends on our common stock. We do not anticipate paying any cash dividends to stockholders in the foreseeable future. In addition, any future determination to pay cash dividends will be at the discretion of the Board of Directors and will be dependent upon our financial condition, results of operations, capital requirements, and such other factors as the Board of Directors deem relevant. Securities authorized for issuance under equity compensation plans Equity Compensation Plan Information

23 This 2003 Stock Option Plan is intended to attract and retain the best available personnel for positions with PowerLinx, Inc. or any of its subsidiary corporations (collectively, the "Company"), and to provide additional incentive to such employees and others to exert their maximum efforts toward the success of the Company. The above aims will be effectuated through the granting of certain stock options. Under the Plan, options may be granted which are intended to qualify as Incentive Stock Options ("ISOs") under Section 422 of the Internal Revenue Code of 1986 (the "Code") or which are not ("Non-ISOs") intended to qualify as Incentive Stock Options there under. The plan is administered by the Board of Directors, or by a committee appointed by the Board of Directors that must include at least two members of the Board. Options may be granted to key employees, officers, directors, or consultants of the Company as determined by the Board of Directors. ISO's may be granted, consistent with the other terms of the Plan, to an individual who owns (within the meaning of Sections 422(b)(6) and 424(d) of the Code), more that ten (10%) percent of the total combined voting power or value of all classes of stock of the Company or a subsidiary corporation (any such person, a "Principal Stockholder") only if, at the time such ISO is granted, the purchase price of the Common Shares subject to the ISO is an amount which equals or exceeds one hundred ten percent (110%) of the fair market value of such Common Shares, and such ISO by its terms is not exercisable more than five (5) years after it is granted. A director or an officer of the Company who is not also an employee of the Company, and consultants to the Company shall be eligible to receive Non-ISOs but shall not be eligible to receive ISOs. To the extent that the grant of an Option results in the aggregate fair market value (determined at the time of grant) of the Common Shares (or other capital stock of the Company or any subsidiary) with respect to which Incentive Stock Options are exercisable for the first time by an Optionee during any calendar year (under all plans of the Company and subsidiary corporation) to exceed $100,000, such Options shall be treated as a Non-ISO. The provisions of this subparagraph (e) of Paragraph 4 shall be construed and applied in accordance with Section 422(d) of the Code and the regulations, if any, promulgated there under. The term of each option granted under the plan shall be determined by the Board of Directors consistent with the provisions of the plan, including the following: o The purchase price of the Common Shares subject to each ISO shall not be less than the fair market value (or in the case of the grant of an ISO to a Principal Stockholder, not less that 110% of fair market value) of such Common Shares at the time such Option is granted o The purchase price of the Common Shares subject to each Non-ISO shall not be less than 85% of the fair market value of such Common Shares at the time such Option is granted o The dates on which each Option (or portion thereof) shall be exercisable and the conditions precedent to such exercise o The expiration of each Option When an optionee's relationship or employment with the Company is terminated, the unexercised options may expire immediately or up to 12 months after termination depending on the reasons for termination as outlined in the plan. The aggregate number and class of shares as to which Options may be granted under the Plan, the number and class shares covered by each outstanding Option and the exercise price per share thereof (but not the total price), and all such Options, shall each be proportionately adjusted for any increase decrease in the number of issued Common Shares resulting from split-up spin-off or consolidation of shares or any like Capital adjustment or the payment of any stock dividend. Upon a merger, consolidation, acquisition of property or stock, separation, reorganization (other than a merger or reorganization of the Company in which the holders of Common Shares immediately prior to the merger or reorganization have the same proportionate ownership of Common Shares in the surviving corporation immediately after the merger or reorganization) or liquidation of the Company, as a result of which the stockholders of the Company receive cash, stock or other property in exchange for their Common Shares, any Option granted hereunder shall terminate, but, provided that the Optionee shall have the right immediately prior to any such merger, consolidation, acquisition of property or stock, separation, reorganization or liquidation to exercise his Option in whole or in part whether or not the vesting requirements set forth in the stock option agreement have been satisfied. The Plan (but not Options previously granted under the Plan) shall terminate ten (10) years from the earlier of the date of its adoption by the Board of Directors or the date on which the Plan is approved by the affirmative vote of the holders of a majority of the outstanding shares of capital stock of the Company entitled to vote thereon, and no Option shall be granted after termination of the Plan. The Plan may at any time be terminated and from time to time be modified or amended by the affirmative vote of the holders of a majority of the outstanding shares of the capital stock of the Company present, or represented, and entitled to vote at a meeting duly held in accordance with the applicable laws of the State of Nevada. Recent Issuances of Unregistered Securities On February 1, 2005, the Company issued 250,000 shares of restricted common stock to an employee in accordance with his employment contract. The shares were valued at $45,000, based on the closing market price of the Company's common stock on the date of issuance. The amount was fully expensed during the period ended March 31, 2005. On March 31, 2005, the Company issued 700,000 shares of restricted common stock to the members of the Board of Directors in accordance with the Board of Directors compensation resolution approved on October 15, 2003. The value of the compensation was $77,000, based on the closing market price of the Company's common stock on the date of issuance. The cost is being amortized over the fiscal year 2005 beginning January 1, 2005 and ending December 31, 2005. On March 31, 2005, the Company issued 300,000 shares of restricted common stock to the Company's interim Chief Executive Officer, Mark Meagher. Mr. Meagher was originally hired by the Company's Board of Directors as a consultant and 50,000 shares were issued pursuant to his consulting agreement effective February 10, 2005. The shares were valued at $6,500, based on the closing market price of the Company's common stock on the effective date of the agreement. The remaining 250,000 shares were issued pursuant to Mr. Meagher's interim employment agreement effective March 4, 2005. The shares were valued at $30,000, based on the closing market price of the Company's common stock on the effective date of the employment agreement. During the three month period ended September 30, 2005, the Company received net proceeds of $1,161,289 from the sale of common stock through a private equity offering exempt from registration under 4(2) of the Securities Act of 1933, and Rule 506 of Regulation D, thereof. The offering was priced at $.063 per share, resulting in the issuance of 20,542,325 shares of common stock. In addition, investors received warrants to purchase additional 4,108,465 shares of common stock, exercisable at $.25 per share, with five year expiration. The securities underlying the offering included registration rights. (See note 8 to the financial statements). On May 17, 2005, the Company issued 2,600,000 shares of restricted common stock, valued at $211,500, to employees as part of the restructuring of management and employee employment contracts. The shares for each issuance were valued at the closing market price of the Company's common stock on the day the shares were earned or the day the issuance was granted. The entire amount was expensed during the quarter ended September 30, 2005. Of the total, 50,000 shares were valued at $.22 per share; 200,000 shares were valued at $.18 per share; and 2,350,000 were valued at $.07 per share. 24 On May 17, 2005, the Company issued 2,748,268 shares of restricted common stock, valued at $293,861, in conjunction with severance agreements for former officers and employees of the Company. 2,500,000 shares were issued to two former officers in accordance with negotiated severance agreements approved by the Company's Board of Directors. The shares were valued at $275,000, or $.11 per share, based on the closing market price of the Company's stock on the date the agreements were approved. An accrual for the entire amount was recorded during the quarter ended March 31, 2005 and was fully expensed during the same period and classified as restructuring expense. The remaining 248,268 shares, valued at $18,861, were issued to former employees in accordance with their separation agreements. The former employees were assigned to operational segments that were discontinued by the Company during the 1st quarter ended March 31, 2005, and therefore, the total expense was recorded during the 2nd quarter ended September 30, 2005, in the Discontinued Operations classification in accordance with the Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." On May 17, 2005, the Company issued 100,000 shares of restricted common stock, valued at $8,000, or $.08 per share, as payment of interest owed on a note payable issued on February 18, 2005, in accordance with the terms of the note ( see note 6 to the financial statements). The shares were valued at the closing market price of the Company's common stock on the date the note was repaid. On August 3, 2005, the Company issued 100,000 shares of restricted common stock, valued at $7,000, or $.07 per share, to the Company's former interim Chief Executive Officer, Mark Meagher. Mr. Meagher received these shares as compensation for extending his consulting agreement for an additional 45 days. The shares were valued at the closing market price of the Company's common stock on the date they were granted. On August 17, 2005, the Company issued 150,000 shares of restricted common stock to an entity in conjunction with the settlement of a law suit. (See note 10 to the financial statements). The shares were valued at $10,500, based on the closing market price of the Company's common stock on the date of issuance. The amount was fully expensed during the period ended December 31, 2005. On November 2, 2005, the Company issued 4,200,000 shares of common stock to class participants in conjunction with the settlement of a class action law suit in May of 2003 (See Note 8 "Litigation Settlement"). On January 17, 2006, the Company issued 1,800,000 shares of common stock to plaintiffs various attorneys in conjunction with the settlement of a class action law suit in May of 2003 (See Note 8 "Litigation Settlement"). On January 17, 2006, the Company issued 1,100,000 shares of restricted common stock to lenders as payment of financing fees, in lieu of cash, in accordance with the note payable terms (See Note 9 "Notes Payable"). On February 22, 2006, the Company issued 20,651,411 shares of common stock in conjunction with a private equity offering for the sale of common stock exempt from registration under 4(2) of the Securities Act of 1933, and Rule 506 of Regulation D, thereof. The offering was priced at $.0225 per share, and the Company received gross proceeds, before issuance costs of $464,657. On March 7, 2006, the Company issued 500,000 shares of restricted common stock to employees for compensation. The stock was valued at $18,000, or $.03 per share, based on the closing market price of the Company's common stock on the date of grant; December 16, 2005. On March 16, 2006, the Company entered into a Securities Purchase Agreement (the "Purchase Agreement"), with several accredited investors (collectively the "Purchasers"), under which the Company agreed to issue and sell to the Purchasers in a private placement up to $4,473,933 aggregate principal amount of convertible debentures ("Debentures"), including $1,373,933 of existing debt being converted into the Debentures, and warrants to purchase common stock (the "Warrants") for an aggregate of up to $3,100,000 (the "Proceeds"). All the closing conditions have been satisfied on March 23, 2006, and as a result of several disbursements pursuant to the Purchase Agreement, the Company received a total aggregate amount of the Proceeds of $3,100,000 disbursed to the Company, net of certain expenses. All of the above offerings and sales were deemed to be exempt under rule 506 of Regulation D and/or Section 4(2) of the Securities Act of 1933, as amended. No advertising or general solicitation was employed in offering the securities. The offerings and sales were made to a limited number of persons, all of whom were accredited investors, business associates of Index Oil and Gas Inc. or executive officers of Index Oil and Gas Inc., and transfer was restricted by Index Oil and Gas Inc. in accordance with the requirements of the Securities Act of 1933. In addition to representations by the above-referenced persons, we have made independent determinations that all of the above-referenced persons were accredited or sophisticated investors, and that they were capable of analyzing the merits and risks of their investment, and that they understood the speculative nature of their investment. Furthermore, all of the above-referenced persons were provided with access to our Securities and Exchange Commission filings. 25 ITEM 6. SELECTED FINANCIAL DATA The following selected consolidated financial data should be read in conjunction with our consolidated financial statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Annual Report on Form 10-K. The statements of operations data for the twelve months ended December 31, 2005, 2004 and 2003 and the balance sheet data at December 31, 2005 and 2004 are derived from our audited financial statements which are included elsewhere in this Form 10-K. The statement of operations data for the year ended December 31, 2001 and the balance sheet data at December 31, 2002 and 2001 are derived from our audited financial statements which are not included in this Form 10-K. The historical results are not necessarily indicative of results to be expected for future periods. The following information is presented in thousands, except per share data.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Some of the information in this report contains forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by forward-looking words such as "may," "expect," "anticipate," "believe," "estimate" and "continue," or similar words. You should read statements that contain these words carefully because they: o discuss our future expectations; o contain projections of our future results of operations or of our financial condition; and o state other "forward-looking" information We believe it is important to communicate our expectations. However, there may be events in the future that we are not able to accurately predict or over which we have no control. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors. OVERVIEW We develop, license, manufacture, and market products and applications developed to transmit voice, video, audio and data either individually or any and all combinations over power lines, twisted pair wires, and coax in AC and DC power environments. We also manufacture and market underwater video cameras, lights, and accessories for the marine industry. Our products are sold in both retail and commercial markets. Our principal products are sold in the security and transportation industries. Our 2005 fiscal year ending December 31, was one of significant change for our Company. As reported one year ago in our annual report on Form 10-KSB for our year ending December 31, 2004; the Company initiated, under the initial direction of our Board of Directors, a significant restructuring plan beginning in March of 2005, that encompassed changes in management, business operations and strategic direction. Upon the resignation of our Chief Executive Officer and our President & Chief Operating Officer, the Board hired an independent management consultant to review our operational focus, allocation of financial and staffing resources, and organizational structure. After a 30 day engagement and submission of his recommendations; he was retained by the Board as the interim Chief Executive Officer until the Board could conclude its search for a new executive officer. On May 17, 2005, the Board appointed Michael Tomlinson as our new Chief Executive Officer. Mike joined PowerLinx in February of 2004, and brings a successful track record along with extensive sales, marketing, product development, business reengineering and general management experience, having served over 25 years with HavaTampa Cigar, Lenox Brands, PepsiCo (18 yrs.) and Proctor and Gamble. Mike held the office of Vice-President or Senior Vice-President with these companies for 16 years. 26 Another significant addition to our management team was the hiring of Roger Roy as Vice President of Consumer Sales and Marketing. Roger has a successful career in marketing consumer products to companies such as Wal-Mart, Sam's Club and many other leading retailers where we seek to sell PowerLinx products. Led by our re-organized team, the primary objectives of our restructuring plan were to reduce expenses, focus resources on our core power line technology, and make strategic changes in our business model that would take advantage of licensing and outsourcing opportunities. As a result, we closed three business units during the second quarter of 2005, to better focus resources against PowerLinx power line communications technology. We closed the Hotel/MDU integrator/installer business, eliminated the government sector sales department and shut down its telemarketing operation. These units made up our Hotel/MDU Products Segment and the operating results for the discontinued segment have been reported separately as discontinued operations in the consolidated statements of operations for all periods presented. We also narrowed our 2005/2006 research and development effort and are focusing on products that work within homes and small offices, where the power grid is much less complex. The lesser complexity in these structures requires less engineering to create marketable technology and suitable products. This focus is consistent with our strategy, as revised during the restructuring, to focus on uses of the company's technology that are the fastest to market yet appeal to large markets with correspondingly greater revenue opportunities. In addition, we have reengineered this department creating project plans and timelines for each technology and product in the pipeline. This effort has resulted in the acceleration of moving work through the pipeline and provided confidence that we will have new technology and products to the market in the 3rd and 4th quarters of 2006. These estimated release dates are based on the most recent project plan timelines and risks associated with engineering new technology and certain external influences, such as regulatory approvals or component availability, have been factored in but may shorten or lengthen time to market by several weeks. To remain consistent with our plan to focus resources on developing power line communication technology and products, and reduce expenses, we have outsourced our manufacturing to IC Intracom and they have delivered the first shipment of goods manufactured in Asia. In addition, we revised our expenditure budgets during the 2nd quarter of 2005 with the goal of reducing expenses on a run rate of $1 million annually. Although we were burdened with $600,000 of restructuring costs for the year ended December 31, 2005, and elevated salary expenses during the 1st and 2nd quarters of 2005 until the downsizing was completed, our operating expenses for the year ended December 31, 2005 increased by only 5% over the same period ended in 2004. More significant is that we reduced the amount of cash used in our operating activities by $1.2 million for the year ended December 31, 2005 compared to the same period ended for 2004. Net revenues increased 26% from $1,010,520 for the year ended December 31, 2004 to $1,271,046 for the year ended December 31, 2005. The year was highlighted by record sales to Home Shopping Network in our Security Products Segment and significant growth in revenues in our DC Transportation Products segment. Revenues in the DC transportation products segment increased 108% from $306,472 for the period ended December 31, 2004 to $636,903 for the period ended December 31, 2005. We made several advancements in this product segment relating to product additions and customer acquisitions, including the adoption of "Zone Defense" as the Company's rear vision product line brand name; and have secured the federal trademarks. In addition, we expanded our marketing approach to position our DC Transportation products segment as a complete rear vision and accident avoidance business rather than a power line only business. A major component of this positioning was the addition to our product line a suite of six new "hard wired" systems to compliment our PLC technology, along with video recorders and sensor technology. Some of our customer fleets have a wide variety of vehicle types. The customers wish to use both power line and hard wired technologies. Despite that in management's opinion that we successfully met all the objectives of our restructuring plan, we remained undercapitalized for a large portion of the year. We were forced to conserve cash, especially in the 4th quarter, while spending a significant amount of management's resources in an effort to raise the appropriate amount of capital to execute our business plan. These circumstances negatively impacted us in several other areas. We lost out on new customer acquisitions and revenue opportunities due to a concern by these entities as to the viability of our Company; and had a difficult time financing the proper inventory levels which led to significantly reduced revenues during the 4th quarter ended December 31, 2005. More importantly, we were forced to scale back on our Research & Development engineering efforts which extended out the completion dates of our new product by a couple of months. 27 Subsequent Events However, working with institutional investors since October of 2005, we were able to secure the proper amount of capital to allow us to execute our business plan. On March 16, 2006 we entered into a Securities Purchase Agreement with several institutions and accredited investors, under which we agreed to issue and sell to the Purchasers in a private placement up to $4,473,933 aggregate principal amount of convertible debentures, including $1,373,933 of existing debt being converted into the Debentures, and warrants to purchase common stock for an aggregate of up to $3,100,000 in proceeds. All the conditions for closing have been met and we had received all proceeds from the transaction as of March 29, 2006. For a more detailed description of the terms and conditions, see Note 17 , or refer to the Company's current reports filed on Form 8-K with the Securities and Exchange Commission on March 22, 2006 and April 7, 2006. Results of Operations Segment Information

28 RESULTS OF OPERATIONS Reclassifications: Certain reclassifications have been made to prior year balances to conform to the current year presentation, including reclassifications for discontinued operations (See Note 16 to the financial statements). See Note 3 to the financial statements for additional segment reporting. YEAR ENDED DECEMBER 31, 2005 AND DECEMBER 31, 2004 NET REVENUE. Net revenue increased 26% from $1,010,520 for the year ended December 31, 2004 to $1,271,046 for the year ended December 31, 2005. Marine product segment sales were $128,221 or 10% of total revenues for the year ended December 31, 2005 compared to $211,650, or 21% of total revenues, for the year ended December 31, 2004. Overall, marine product sales decreased $83,429, or 39%. Security product segment sales were $505,922 or 40% of total revenues for the year ended December 31, 2005 compared to $492,398, or 49% of total revenues, for the year ended December 31, 2004. Overall, security product sales increased $13,524, or 3%. DC Transportation product segment sales were $636,903, or 50% of total revenues for the year ended December 31, 2005 compared to $306,472, or 30% of total revenues for the year ended December 31, 2004. Overall, DC Transportation product sales increased $330,431, or 108%. The decrease in the marine product segment sales was due to a reduction in the number of regional boat shows, and the sales volume at these shows, at which the Company participated in the period ended December 31, 2005. The growth in the security products segment is due primarily to the increase in sales volume from on air sales on Home Shopping Network. The increase in revenues for the DC transportation product segment was due primarily to aggressive selling efforts and customer acceptance that the Company will have a long-term presence in the industry moving forward The sales cycle for our rear vision products appears to be 6 months to one year due to the capital investment required by customers to equip entire fleets, and the requirement for field testing. COST OF GOODS SOLD. Cost of Goods sold increased 49% from $623,260 for the year ended December 31, 2004 to $926,412 for the year ended December 31, 2005. As a percentage of net revenue, cost of goods sold increased to 73% for the year ended December 31, 2005 from 62% for the year ended December 31, 2004. Cost of goods sold for the marine products segment decreased $12,859 or 12%, from $107,485 for the year ended December 31, 2004 to $94,626 for the same period ended in 2005. As a percentage of net revenue, cost of goods sold for the marine product segment increased from 51% for the year ended December 31, 2004 to 74% for same period ended in 2005. Cost of goods sold for the security products segment increased $72,539 or 19%, from $377,105 for the year ended December 31, 2004 to $449,644 for the same period ended in 2005. As a percentage of net revenue, cost of goods sold for the security product segment increased from 77% for the year ended December 31, 2004 to 89% for same period ended in 2005. Cost of goods sold for the DC Transportation product segment increased $243,472 or 176% from $138,670 for the year ended December 31, 2004 to $382,142 for the same period ended in 2005. As a percentage of net revenue, cost of goods sold for the DC Transportation product segment increased from 45% for the year ended December 31, 2004 to 60% for same period ended in 2005. The increase in the cost of goods sold as a percentage of net revenues for the marine products segment was driven primarily by product mix. The increase in the cost of goods sold as a percentage of net revenues for the security products segment was driven primarily by pricing concessions made to Home Shopping Network to improve on air product sales volumes, and product returns which are a standard occurrence in their business model. The increase in the cost of goods sold as a percentage of net revenues for the DC Transportation product segment was due to the implementation of a distributor pricing structure in lieu of direct sale pricing. 29 GROSS PROFIT MARGIN. Gross profits on sales for the year ended December 31, 2005 amounted to $344,634 or 27% of net revenues, compared to $387,260, or 38% of net revenues, for the year ended December 31, 2004. The marine products segment contributed $33,595 and $104,165 of the total gross profit for the year ended December 31, 2005 and 2004, respectively. The security products segment contributed $56,278 and $115,293 of the total gross profit for the year ended December 31, 2005 and 2004, respectively. The DC Transportation products segment contributed $254,761 and $167,802 of the total gross profit for the year ended December 31, 2005 and 2004, respectively. The gross profit percentage for the marine products segment decreased from 49% for the year ended December 31, 2004 to 26% for the year ended December 31, 2005. The gross profit percentage for the security products segment decreased from 23% for the year ended December 31, 2004 to 11% for the year ended December 31, 2005. The gross profit percentage for the DC Transportation products segment decreased from 55% for the year ended December 31, 2004 to 40% for the year ended December 31, 2005. The decrease in the gross profit as a percentage of net revenues for the marine products segment was driven primarily by product mix. The decrease in the gross profit as a percentage of net revenues for the security products segment was driven primarily by pricing concessions made to Home Shopping Network to improve on air product sales volumes, and product returns which are a standard occurrence in their business model. The decrease in the gross profit as a percentage of net revenues for the DC Transportation product segment was due to the implementation of a distributor pricing structure in lieu of direct sale pricing. SALARIES AND WAGES. Salaries and Wages increased 18% from $1,379,377 for the year ended December 31, 2004 to $1,631,967 for the year ended December 31, 2005. The increase was due to two factors. First, the Company implemented a restructuring plan during the first quarter ended March 31, 2005 that resulted in a significant decrease in the number of employees who had been hired prior to the end of the fiscal year ended December 31, 2004. The restructuring plan was not completed until May of 2005, resulting in significantly higher salary and wage costs during the first four months of 2005. Second, during the year ended December 31, 2005, non-cash stock based compensation of $286,500 was recorded for the issuance of common stock to employees in conjunction with previous and restructured employment contracts. Salary and Wages is comprised of employee wages and stock compensation. PROFESSIONAL & CONSULTING FEES. Professional and consulting fees decreased 6% from $1,081,749 for the year ended December 31, 2004 to $1,022,118 for the year ended December 31, 2005. The decrease was due to a decrease in legal fees from attorneys handling the Company's matters with the Securities & Exchange Commission and the Company's management restructuring. However, this decrease was offset by account fees incurred for the preparation of the Company's tax returns. Professional and consulting fees include fees paid to attorneys, accountants, and business consultants. During the year ended December 31, 2005, non-cash stock based compensation of $77,000 was recognized in conjunction with common shares issued to members of the Company's Board of Directors as compensation for the current year. DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization increased 2% from $653,391 for the year ended December 31, 2004 to $666,124 for the year ended December 31, 2005. The increase was attributable to the purchase of patents in January 2004 and the signing of two software license agreements, on December 31, 2003 and August 4, 2004 with On2 Technologies, Inc. for the use of its proprietary CODEC software for enhancing the video transmission in the Company's new digital power-line products. 30 RESEARCH & DEVELOPMENT. Research and development expense increased 4% from $620,717 for the year ended December 31, 2004, to $647,827 for the year ended December 31, 2005. The increase was attributable to increased funding for the development of the Company's new analog and digital consumer security systems. Research and development costs consist of all expenditures related to the improvement and development of the Company's current product line and new product development. Currently, substantially all of our research and development costs and efforts are dedicated to the development of our security (both analog and digital) and DC Transportation product segments. For the year ended December 31, 2005, of the total Research & Development expenditures, $612,682 or 95% was related to the security products segment, $35,145 or 5% was related to the DC Transportation products segment. The cost of our research and development activities is borne directly by the Company; no amounts are borne by our customers, nor are any contracts for customer funded research and development currently anticipated. The Company plans to continue funding the security and DC transportation product segments for the next several years. ADVERTISING AND PROMOTIONS. Advertising and promotions decreased 31% from $254,065 for the year ended December 31, 2004 to $174,501 for the year ended December 31, 2005. The decrease was due directly to a decrease in print advertising for the DC transportation product segment. The amount also includes portions of postage, printing, and travel that are attributable to advertising and promotions. RENT AND UTILITIES. Rent and utilities increased 29% from $156,079 for the twelve months ended, December 31, 2004 to $201,033 for the twelve months ended, December 31, 2005. The increase is due to the Company's expansion of its corporate office space and warehouse space in Florida. Rent and utilities includes office rent, warehouse rent, storage, telephone, and utilities. TRAVEL & ENTERTAINMENT EXPENSE. Travel & entertainment expense decreased 26% from $280,681 for the year ended December 31, 2004 to $208,667 for the year ended December 31, 2005. The decrease was attributed to the Company's restructuring plan implemented in the 1st quarter of 2005, which involved budgeting, a general downsizing of the sales staff, and the elimination of commuting travel associated with a former officer. Travel & entertainment expenses include normal expenses associated with traveling including, but not limited to; airfare, auto rental, parking & tolls, hotels & lodging, taxis, meals, and entertainment. ROYALTIES EXPENSE. Royalties' expense decreased 100% from $225,000 for the year ended December 31, 2004 to $-0- for the year ended December 31, 2005. The elimination of royalty expense relates to the termination of a licensing agreement which had previously required minimum royalty payments (See Note 12 to the financial statements). OTHER EXPENSES. Other expenses decreased 39% from $598,359 for the year ended December 31, 2004 to $366,500 for the year ended December 31, 2005. The decrease was due primarily to reductions in telemarketing and temporary labor expenses. Other expenses include tele-marketing, supplies, property taxes, insurance, financing fees, bank charges, temporary labor and various other expenses that are classified as miscellaneous. RESTRUCTURING CHARGES. Restructuring charges amounted to $598,286. The charges were attributable to severance expenses related to the departure of two officers of the Company during the quarter ended March 31, 2005. The amount also includes $37,073 in legal fees associated with those separation agreements, and $10,213 in consulting fees and travel expenses paid to a consultant hired to oversee the restructuring plan. The severance expenses include cash payments of $276,000 to be paid over a 24 month period commencing in April 2005, and the issuance of 2.5 million shares of the Company's common stock, valued at $275,000 as of March 31, 2005 (See Note 7 to the financial statements). 31 LIQUIDITY & CAPITAL RESOURCES The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. However, the Company has incurred operating losses, including discontinued operations, of $5,848,754, and $5,151,079 during the year ended December 31, 2005 and 2004, respectively. In addition, during that period, the Company has used cash of $3,001,236 and $4,244,961 in its operating activities. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The Company has devoted significant efforts in the further development and marketing of products in its Security and DC Transportation Products Segments, which, while now showing improved revenues, cannot yet be considered as sufficient to fund operations for any sustained period of time. The Company's ability to continue as a going concern is dependent upon (i) raising additional capital to fund operations (ii) the further development of the Security and DC Transportation Products Segment products and (iii) ultimately the achievement of profitable operations. During the year ended December 31, 2005, the Company raised $1,390,000 from issuance of various separate notes payable, $1,362,357 from the sale of common stock, and $133,824 from the exercise of warrants. Subsequent to December 31, 2005, the Company did secure $3,100,000 of additional financing and converted $1,373,933 of otherwise short term obligations to long term debt (See Note 17). While the proceeds of this financing will significantly mitigate the Company's liquidity difficulties, the ability of the Company to sustain its operations for a reasonable period without further financing cannot be assured. The financial statements do not include any adjustments that might arise as a result of this uncertainty. During the year ended December 31, 2005 the Company funded its losses from operations through the following vehicles: o On February 18, 2005, the Company executed a 30 day note payable with an individual in the amount of $200,000. Under the terms, the lender received 100,000 shares of the Company's restricted stock, along with registration rights, in lieu of any cash interest payments. The Company repaid $100,000 of the note prior to the March 17, 2005 due date, and the lender extended the due date on the remaining principal until April 16, 2005. The Company repaid the note in full during April 2005. o On March 7, 2005, the Company executed a 90 day note payable with an institution in the amount of $200,000. The note bears an annual interest rate of 8% and was due on June 5, 2005. Subsequently, the lender has extended the due date of the note to December 31, 2005. The note is collateralized by the Company's finished goods and raw material inventory held at its Clearwater, Florida distribution center. The Company has received notification from the lender that it desires to convert the note to common stock at a price to be negotiated upon the due date of the note (See Note 9 "Notes Payable"). o During the three month period ended June 30, 2005, the Company received net proceeds of $1,161,289 from the sale of common stock through a private equity offering exempt from registration under 4(2) of the Securities Act of 1933, and Rule 506 of Regulation D, thereof. The offering was priced at $.063 per share, resulting in the issuance of 20,542,325 shares of common stock. In addition, investors received warrants to purchase additional 4,108,465 shares of common stock, exercisable at $.25 per share, with five year expiration. The securities underlying the offering included registration rights. (See note 11 "Stockholders Equity). o On August 16, 2005, the Company executed a 90 day note payable with an institution in the amount of $400,000. The note bears an annual interest rate of 8% and was due on November 14, 2005. Subsequently, the lender extended the due date of the note to December 31, 2005. The note is collateralized by the Company's finished goods and raw material inventory held at its Clearwater, Florida distribution center. The Company has received notification from the lender that it desires to convert the note to common stock at a price to be negotiated upon the due date of the note (See Note 9 "Notes Payable"). o During the three month period ended December 31, 2005, the Company received net proceeds of $249,103 from the sale of common stock through a private equity offering exempt from registration under 4(2) of the Securities Act of 1933, and Rule 506 of Regulation D, thereof. The offering was priced at $.0225 per share, resulting in the issuance of 11,904,581 shares of common stock. The securities underlying the offering included registration rights. (See note 11 "Stockholders Equity). 32 o On October 7, 2005, the Company received proceeds of $200,000 by executing a 90 day unsecured note payable with an accredited investor. In lieu of cash for interest, the lender will receive 320,000 shares of restricted common stock, and a cash payment of $25,000, both due upon the expiration date of the note (See Note 9 "Notes Payable"). o On November 11, 2005, the Company received proceeds of $133,824 for the exercise 2,676,471 of warrants for shares of common stock, at $.05 per share, by an institution. As approved by the Board of Directors, the warrants were re-priced from and exercise price of $.50 per share to $.05 per share. o On November 23, 2005, the Company received proceeds of $75,000 by executing three separate 45 day unsecured notes payable with a Director of the Company, and two of his family members. In lieu of cash for interest, each lender will receive four shares of restricted common stock for each dollar loaned. The notes are convertible to common stock at the discretion of the lender (See Note 9 "Notes Payable"). o On December 21, 2005, the Company received proceeds of $200,000 by executing three separate 45 day unsecured notes payable with various institutions and accredited investors. In lieu of cash for interest, each lender will receive four shares of restricted common stock for each dollar loaned. The notes are convertible to common stock at the discretion of the lender (See Note 9 "Notes Payable"). o On December 23, 2005, the Company executed a 45 day note payable with an institution in the amount of $190,000. The note bears an annual interest rate of 8% and was due on February 4, 2006. The note is collateralized by the Company's finished goods and raw material inventory held at its Clearwater, Florida distribution center. The Company has received notification from the lender that it desires to convert the note to common stock at a price to be negotiated upon the due date of the note (See Note 9 "Notes Payable"). Material Commitments The Company has no material commitments for the purchase of raw materials or components. The Company issues purchase orders for these items for the purposes of fulfilling customer orders and maintaining reasonable levels of inventory. The Company currently has no material commitments for capital expenditures. Critical Accounting Policies: The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. We evaluate our estimates and judgments on an on-going basis. We base our estimates on historical experience and on assumptions that we believe to be reasonable under the circumstances. Our experience and assumptions form the basis for our judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may vary from what we anticipate and different assumptions or estimates about the future could change our reported results. We believe the following accounting policies are the most critical to us, in that they are important to the portrayal of our financial statements and they require our most difficult, subjective or complex judgments in the preparation of our financial statements: 33 Revenue Recognition: The Company defers revenue recognition on transactions if any of the following exist: persuasive evidence of an arrangement does not exist, title has not transferred, product payment is contingent upon performance of installation or service obligations, the price is not fixed or determinable, or payment is not reasonably assured. The Company accrues a provision for estimated returns concurrent with revenue recognition. Inventory Reserves: The Company values inventories at the lower of cost or market. Under certain market conditions, estimates and judgments regarding the valuation of inventory is employed by management to value inventory properly. Employee stock-based compensation: The Company accounts for compensation costs associated with stock options issued to employees under the provisions of Accounting Principles Board Opinion No. 25 ("APB 25") whereby compensation is recognized to the extent the market price of the underlying stock at the date of grant exceeds the exercise price of the option granted. Stock-based compensation to non-employees is accounted for using the fair-value based method prescribed by Financial Accounting Standard No. 123 ("FAS 123"). The fair-value based method requires management to make estimates regarding the expected life of the options and warrants. Impairment of Long-Lived Assets: In assessing the recoverability of the Company's long-lived assets, the Company must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. If these estimates or their related assumptions change in the future, the Company may be required to record impairment charges for these assets. Recent Accounting Pronouncements: See "Note 14" to the attached financial statements. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not Applicable ITEM 8. FINANCIAL STATEMENTS. The full text of our audited consolidated financial statements as of December 31, 2005 and 2004 and for the fiscal years ended December 31, 2005, 2004 and 2003, begins on page F-1 of this Annual Report on Form 10-K. 34 POWERLINX, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Consolidated financial statements and footnotes: Report of Aidman, Piser & Company, P.A. F-2 Consolidated balance sheets as of December 31, 2005 and 2004 F-3 Consolidated statements of operations, years ended December 31, 2005, 2004 and 2003 F-4 Consolidated statements of stockholders' equity (deficit), years ended December 31, 2005, 2004 and 2003 F-5 Consolidated statements of cash flows, years ended December 31, 2005, 2004 and 2003 F-11 Notes to consolidated financial statements F-13 F-1 Report of Independent Registered Public Accounting Firm The Board of Directors PowerLinx, Inc. We have audited the accompanying consolidated balance sheets of PowerLinx, Inc. as of December 31, 2005 and 2004, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for each of the years in the three year period ended December 31, 2005. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our 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. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of PowerLinx, Inc. as of December 31, 2005 and 2004 and the consolidated results of its operations and its cash flows for each of the years in the three year period ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 2 to the consolidated financial statements, the Company has incurred recurring losses and has used significant cash in its operating activities. As a result, the Company has negative working capital and a stockholders' deficit at December 31, 2005. These conditions raise substantial doubt about the Company's ability to continue as a going concern for a reasonable period. Management's plans in regard to these matters are also discussed in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ Aidman, Piser & Company, P.A. Tampa, Florida March 17, 2006, except for Note 16, as to which the date is March 29, 2006 F-2 POWERLINX, INC. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2005 AND 2004

See notes to consolidated financial statements. F-3 POWERLINX, INC. CONSOLIDATED STATEMENTS OF OPERATIONS

See notes to consolidated financial statements. F-4 POWERLINX, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY YEAR ENDED DECEMBER 31, 2003

See notes to consolidated financial statements. F-5 POWERLINX, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY YEAR ENDED DECEMBER 31, 2003

See notes to consolidated financial statements. F-7 POWERLINX, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY YEAR ENDED DECEMBER 31, 2004

See notes to consolidated financial statements. F-9 POWERLINX, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY YEAR ENDED DECEMBER 31, 2005

See notes to consolidated financial statements. F-10 POWERLINX, INC CONSOLIDATED STATEMENTS OF CASH FLOWS

See notes to consolidated financial statements. F-11 POWERLINX, INC CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) NONCASH INVESTING AND FINANCING ACTIVITIES

See notes to consolidated financial statements. F-12 POWERLINX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003 1. Business and organization: PowerLinx, Inc. ("PowerLinx" or the "Company"), a Utah Corporation, is engaged in three product segments. The Marine Products Segment markets and sells underwater video cameras, lighting and accessories principally to retail sporting goods businesses throughout the United States. The Security Products Segment develops, markets, licenses, and sells proprietary power line video security devices and consumer electronic products to retailers, governmental agencies, commercial businesses, and original equipment manufacturers, throughout the United States. The DC Transportation Products Segment develops and sells power line rear and side vision systems for all classes of vehicles in the transportation industry to distributors and original equipment manufacturers throughout the United States. A fourth business segment, the Hotel/MDU (Multi-dwelling unit) Products Segment was discontinued in March of 2005 (See Note 15-Discontinued Operations). 2. Liquidity and management's plans and significant accounting policies: Liquidity and management's plans: The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. However, the Company has incurred operating losses, including discontinued operations, of $5,848,754, and $5,151,079 during the years ended December 31, 2005 and 2004, respectively. In addition, during those periods, the Company has used cash of $3,001,236 and $4,244,961, respectively in its operating activities. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The Company has devoted significant efforts in the further development and marketing of products in its Security and DC Transportation Products Segments, which, while now showing improved revenues, cannot yet be considered sufficient to fund operations for any sustained period of time. The Company's ability to continue as a going concern is dependent upon (i) raising additional capital to fund operations (ii) the further development of the Security and DC Transportation Products Segment products and (iii) ultimately the achievement of profitable operations. During the year ended December 31, 2005, the Company raised $1,390,000 from issuance of various separate notes payable, $1,362,357 from the sale of common stock, and $133,824 from the exercise of warrants. Subsequent to December 31, 2005, the Company did secure $3,100,000 of additional financing and converted $1,373,933 of otherwise short term obligations to common stock (See Note 17). While the proceeds of this financing will significantly mitigate the Company's liquidity difficulties, the ability of the Company to sustain its operations for a reasonable period without further financing cannot be assured. The financial statements do not include any adjustments that might arise as a result of this uncertainty. See Item 7 of this Annual Report on Form 10-K, (Overview) for management's plans regarding operations in 2006. Significant Accounting Policies: Principles of consolidation: The accompanying consolidated financial statements include the accounts of the Company and its consolidated subsidiary. All intercompany accounts have been eliminated in the preparation of the consolidated financial statements. Revenue recognition: Revenue is recognized when the earnings process is complete and the risks and rewards of ownership of the product, including title, have been transferred to the customer, which is generally considered to have occurred upon delivery of the product to the customer's premises. Shipping costs, which have been nominal, are billed to the customer and are included as a component of cost of goods sold. Returns are provided for as reductions of revenue based upon the Company's historical return experience. F-13 2. Liquidity and management's plans and significant accounting policies (continued): Cash and cash equivalents: The Company considers all highly liquid instruments with original maturities of three months or less to be cash equivalents for financial statement purposes. Cash on deposit exceeds federally insured limits of $100,000 per financial institution. Accounts receivable and allowance for doubtful accounts: Accounts receivable are customer obligations due under normal trade terms for products sold to distributors and retail customers. The Company performs continuing credit evaluations of customers' financial condition, but does not require collateral. Management reviews accounts receivable on a monthly basis to determine if any receivables will potentially be uncollectible. Any accounts receivable balances that are determined to be uncollectible are written off to bad debt expense. The allowance for doubtful accounts contains a general accrual for remaining possible bad debts. The allowance for doubtful accounts at December 31, 2005 and 2004 were $105,189 and $86,429 respectively. Based on the information available, management believes that the allowance for doubtful accounts as of December 31, 2005 is adequate. However, actual write-offs might exceed the recorded allowance. Inventories: Inventories consist principally of component parts and finished goods held for resale and are stated at the lower of cost or market. Inventory costs are determined using the first-in, first-out (FIFO) method. Property and equipment: Property and equipment are stated at cost. Depreciation on property and equipment is calculated on the straight-line method over the estimated useful lives of the assets ranging from five to ten years. Maintenance and repairs are charged to expense as incurred. Intangible assets: Intangible assets are stated at cost and consist of purchased technology licenses; trademarks and incremental costs to acquire patents on internally developed technologies (also see research and development, below). Amortization is calculated on the straight-line method over estimated useful lives of the technologies, not to exceed legal or contractual provisions. Currently the intangible assets are being amortized over estimated useful lives of five years with the exception of trademarks which have indeterminate useful lives. The Company evaluates each reporting period whether the events and circumstances continue to support an indefinite life for trademarks. Additionally, the carrying value of trademarks is reviewed for impairment annually or whenever events or changes in circumstances indicate that the historical cost-carrying value may no longer be appropriate. This review is performed in the same manner as that performed on long-lived assets (see below). Impairment of long-lived assets: The Company reviews the carrying value of its long-lived assets whenever events or changes in circumstances indicate that the historical cost-carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of the asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the estimated future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset's carrying value and its fair value. F-14 2. Liquidity and management's plans and significant accounting policies (continued): Financial instruments: Financial instruments consist of cash and cash equivalents, accounts receivable, and trade payables and notes payable. As of December 31, 2005 the fair values of these instruments approximated their respective carrying values, with the exception of notes payable. The estimated fair value of notes payable approximated $1,300,000 at December 31, 2005. Concentrations: Accounts receivable are concentrated in the security products industry and credit losses have been within management's expectations. Although the Company serves a large and varied group of customers, one customer accounted for 29% of total revenue for the year ended December 31, 2005. The Company's product assembly is dependent upon the operations of two primary labor suppliers, one of which is outside the United States. At December 31, 2005, approximately $4,500 of the Company's inventory was held off-site at these locations. If the Company should lose these suppliers of assembly servicing there could be a disruption in the operations of the Company. The Company is in the process of securing alternative sources of these services. Stock-based compensation: Compensation expense related to the grant of equity instruments and stock-based awards to employees are accounted for using the intrinsic method in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees and related interpretations. Stock based compensation arrangements involving non-employees are accounted for using the fair value methodology under Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation. The Black-Scholes option pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. The Company accounts for unregistered common stock issued for services or asset acquisitions at the fair value of the stock issued based upon quoted market prices of the Company's trading common stock. The following table reflects supplemental financial information related to stock-based employee compensation, as required by Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure

2. Liquidity and management's plans and significant accounting policies (continued): The above table reflects the unaudited pro forma effects on net loss and loss per common share had the Company applied the fair value measurement method to its employee stock-based compensation. The Black Scholes fair value model was used for this purpose. The estimated time to expiration was estimated at the full term of the options; volatility was estimated to be102%; and the risk free rate of return was 4%. In all instances, the Company used trading market values on the grant date for the fair value of the common shares. Research and development: Expenditures related to the development of new products and processes, including significant improvements to existing products, are expensed as incurred. Advertising and promotions: Advertising is expensed as incurred. Costs associated with public displays, billboards and other advertising mediums that have an extended period of value to the Company are amortized over the term or duration of the related advertisement. Income taxes: Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in the tax rate is recognized in income in the period that includes the enactment date of the rate change. A valuation allowance is established when it is more likely than not that some or all of the deferred tax assets will not be realized. Segment information: The Company accounts for its three reportable segments using the management approach, which focuses on disclosing financial information that the Company's Chief Decision Making Officer ("CDMO") uses to make decisions about the Company's operating matters. The three reportable segments utilize the Company's operating assets equally. Therefore, information about assets and depreciation is excluded from the segment information used by management and provided in Note 3, below. Loss per common share: Loss per common share is computed using (i) as the numerator, the net loss, adjusted for preferred stock dividends and (ii) as the denominator, the weighted-average number of common shares and dilutive common equivalent shares outstanding during the period. Dilutive common equivalent shares consist of options and warrants, if applicable, using the treasury stock method and convertible preferred stock, if applicable, using the if-converted method. See Note 13. During March 2006, the Board of Directors approved a 1 for 50 reverse common stock split. All share and per share amounts have been retroactively restated in the accompanying financial statements. F-15 2. Liquidity and management's plans and significant accounting policies (continued): 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 certain reported amounts and disclosures. The most significant and critical estimates are management's estimate of sales returns, which are based upon historical return experience, and the carrying value of net deferred tax assets, which are fully reserved in light of cumulative recent losses. Actual results could ultimately differ from those estimates. 3. Segment information: The Company operates in three identifiable industry segments. The Marine Products Segment markets and sells underwater video cameras, lighting and accessories principally to retail sporting goods businesses throughout the United States. The Security Products Segment develops, markets, licenses, and sells proprietary power line video security devices and consumer electronic products; to retailers, governmental agencies, commercial businesses, and original equipment manufacturers, throughout the United States. The DC Transportation Products Segment develops and sells power line rear and side vision systems for all classes of vehicles in the transportation industry to distributors and original equipment manufacturers throughout the United States. The Company had a fourth segment, the Hotel/MDU (Multi-dwelling unit) Products Segment, but its operations were discontinued in March of 2005 as part of the restructuring of the Company's management and operations. The operating results for the discontinued segment have been reported separately as discontinued operations in the consolidated statements of operations for all periods presented. The Company's facilities and other assets are not distinguished among the identifiable segments. Other financial information about the Company's segments is as follows:

3. Segment information (continued):

4. Inventories: Inventories consist of the following as of December 31: 2005 2004 ------------------ ------------------ Component parts $ 280,360 $ 428,512 Finished goods 309,135 524,075 Total $ 589,495 $ 952,587 ================== ================== F-16 5. Intangible assets: During 2004, the Company issued 2,224,000 shares of restricted common stock for a software licensing agreement with On2 Technologies, Inc. The software acquired in this agreement will be incorporated in the Company's digital PLC products. The transaction was valued at $311,360, or $.14 per share; the closing market price of the Company's stock on the date the agreement was executed. The license is being amortized over its estimated useful life of five years. The Chief Executive Officer of On2 Technologies Inc., Douglas McIntyre, is also a member of the PowerLinx, Inc Board of Directors. The securities underlying the offering were subsequently registered on Form SB-2 with the Securities & Exchange Commission. The registration statement was filed on October 15, 2004 and became effective on October 29, 2004. During 2004, the Company issued 441,176 shares of restricted common stock in conjunction with the purchase of patents. The restricted common stock issued was valued based upon the previous closing market price prior to the date of the purchase agreement. The patents are being amortized over estimated useful lives of five years. During 2004, the Company issued 750,000, 500,000, 150,000 and 468,750 shares of restricted common stock in conjunction with a licensing agreement, distributorship agreement, trademark purchase and software license agreement, respectively. The restricted common stock issued was valued based upon the trading market prices on the dates of issuance, or $37,500, $25,000, $84,000 and $150,000, respectively, in the aggregate. The fair value of the licensing rights, distributorship agreement, trademark purchase and software license agreement were capitalized as intangible assets. The licensing agreement and software license agreement are being amortized over their estimated useful lives of five years. The distributorship agreement was no longer in effect at December 31, 2004 and as a result, was fully amortized in 2004. The trademark purchase has an indeterminate life and as such, is not amortized. The Company recorded amortization expense of $483,121, $55,947 and $30,000 in connection with patents, licensing rights, and distributorship agreements, respectively, for the year ended December 31, 2005. Intangible assets consist of the following at December 31, 2005 and 2004:

F-17 5. Intangible assets (continued):

7. Accrued Severance Payable: During March, 2005, the Company incurred severance expenses related to the departure of two officers of the Company. The total amount payable amounts to $551,000 and is comprised of payments of both cash and common stock. Under the separation agreements, the Company issued a total of 2.5 million shares of restricted common stock to the two former officers. The stock was valued at $275,000 or $.11 per share, the closing market price of the Company's common stock on March 31, 2005; the date at which the liability was probable. Cash payments totaling $276,000 will be paid to the two former officers over a two year period; $129,000 of which was paid during 2005, $112,500 due in 2006, and $34,500 due in 2007. Severance costs and related legal fees have been recorded as restructuring charges in the accompanying 2005 statement of operations. F-18 8. Litigation Settlement In fiscal year 2003, the Company recorded a liability in the amount of $300,000 in conjunction with the settlement of a class action law suit in May of 2003. The settlement called for the Company to issue 6,000,000 million shares of common stock to the class participants. The liability was valued based on the closing price of the Company's common stock at the time of settlement, or $.05 per share. On November 2, 2005, the Company issued 4, 200,000 shares to the class participants valued at $210,000. The remaining 1,800,000 shares of common stock, valued at $90,000 will be issued to the various plaintiffs counsel in early 2006. 9. Notes Payable Notes payable consist of the following at December 31,:

(1) These notes are convertible into common stock (at the option of the holder) at $.0225 per dollar of debt or a lower amount which equals the price per share at which the Company sells stock to third parties prior to maturity of the debt. (2) The proceeds of the notes were allocated between the debt and common stock to be issued (recorded as $61,070 other current liabilities in the accompanying 2005 balance sheet) based on their relative fair value. The intrinsic value of the beneficial conversion option was then calculated based upon the effective conversion price of the debt. The debt discount resulting from both the common stock to be issued and the beneficial conversion options are amortized as interest expense over the remaining life of the debt. (3) These notes were issued to replace previously existing notes payable and have been accounted for as debt extinguishments. As such, the new notes have been recorded at their fair values which resulted in an extinguishment loss of $275,000 in 2005. (4) During March 2006, the holders of these notes converted them into common stock. AS such, these notes have been classified as long-term liabilities in the accompanying 2005 balance sheet. 10. Income taxes: No provision or benefit for income taxes was required during the years ended December 31, 2005 and 2004 because the tax effects of operating losses and other temporary differences between the book and tax bases of assets and liabilities during those periods were offset by valuation allowances in the same amounts. A reconciliation of statutory federal income tax rate with the Company's effective income tax rate for the year ended as of December 31, 2005 and 2004 is as follows:

As of December 31, 2005, the Company has net operating loss carryforwards of approximately $10,200,000 that are available to offset future taxable income. Under Section 382 and 383 of the Internal Revenue Code, if an ownership change occurs with respect to a "loss corporation", as defined, there are annual limitations on the amount of the net operating loss and other deductions which are available to the company. Due to the stock transactions that the Company has engaged in recently, the Company believes that the use of the net operating losses shown as deferred assets will be significantly limited. F-19 11. Stockholders' equity: Preferred stock: The Company has 30,000,000 shares of authorized preferred stock. Effective September 30, 2003, the Company designated 5,000,000 shares of authorized preferred stock as Series A Convertible Preferred Stock. There were no shares outstanding as of December 31, 2004. The Series A Convertible Preferred Stock has a liquidation preference of $1.00 per share and is non-voting. It is convertible into common stock only upon registration of the underlying common shares into which the preferred stock can be converted. The conversion rate is variable. During the first year following issuance, and assuming the registration described earlier, the preferred stock is convertible into the number of common shares that result from dividing the par value by the average market price of the common stock for a period of five days. Commencing the month following the first year of issuance, and again assuming the registration, the conversion methodology provides for a market discount of 20%, increasing 1% monthly thereafter, up to 130%. 2005 Common Stock Issuances: During the year ended December 31, 2005 the Company issued common stock as follows:

(1) These transactions were valued based upon the trading price of the Company's stock on the dates of the respective transactions. 2004 Equity Unit Issuance: On March 31, 2004, the Company issued 228,190 units (the "equity units") for sale to accredited investors at a price of $8.00 per equity unit. Each equity unit consists of (i) 8 shares of Series A Convertible Preferred Stock; (ii) 2 shares of the Company's common stock; and (iii) three common stock purchase warrants. Each warrant is exercisable until May 15, 2006, at a price of $0.50. Proceeds from the equity unit offering were allocated to the common stock, the Series A Convertible Preferred Stock and the common stock purchase warrants based on their relative fair values. The fair value of the common stock was based on the market price per share on the date the offering was completed (the "measurement date"). The fair value of the preferred stock was based on the number of shares of common stock to be received upon conversion at the common stock market share price on the measurement date. The fair value of the warrants was determined using the Black-Scholes pricing model with the following inputs: exercise price of $0.50, market price of $0.19, days to expiration of 783, volatility of 193%, and an interest rate of 4%. F-20 11. Stockholders' equity (continued): 944,912 preferred shares were converted to 3,779,648 shares of common stock for the year ended December 31, 2004 (See "2004 Common Stock Issuances) and 640,608 preferred shares were converted to 1,096,800 common shares for the year ended December 31, 2005. 2004 Common Stock Issuances: During the year ended December 31, 2004, the Company issued 3,779,648 shares of free trading common stock for the conversion of 944,912 shares of the Company's preferred A stock, as a result of conversion notices received by the Company, from holders, on September 20, 2004. The conversion rate, in accordance with the terms and provisions of the offering was $.25 per share. During the year ended December 31, 2004, 232,500 shares of the Company's restricted common stock were sold through a private equity placement exempt from registration under Section 4(2) of the Securities Act of 1933, and Rule 506 of Regulation D, thereof. The placement was open to select officers, employees, representatives of the Company, and accredited investors for the purchase of restricted common stock. The Company received total proceeds from the offering of $23,250 in 2003. The $3,250 stock subscription receivable at December 31, 2003 was from a 2003 private placement and it was paid in full as of December 31, 2004. During the year ended December 31, 2004, the Company issued 1,025,000 shares of restricted common stock to directors as compensation for services. The restricted common stock, which was fully vested upon issuance, was valued based upon the trading market prices on the dates of issuance, or $205,000 in the aggregate. During the year ended December 31, 2004, the Company issued 932,000 shares of free trading common stock to professional research and development consultants relating to the development of the Company's security and hotel/MDU connectivity products. The common stock was valued based upon the closing market price on the date of issuance, or $177,080. $123,595 was recognized as Research & Development expense for the year ended December 31, 2004, while the remaining $53,485 is being amortized over the lives of the various agreements. During the year ended December 31, 2004, the Company issued 250,000 shares of restricted common stock for development and design services relating to the Company's security products. The common stock was valued based upon the closing market price on the date of issuance, or $47,500. The entire amount was recognized as Research & Development expense for the year ended December 31, 2004. During the year ended December 31, 2004, the Company issued 223,897 shares of free trading common stock to professional research and development consultants under an agreement to license certain patented technology. The common stock was valued based upon the trading market price on the date of issuance, or $75,000 which was recognized as royalties' expense in connection with the issuance. During the year ended December 31, 2004, the Company issued 441,176 shares of restricted common stock in conjunction with the purchase of patents. The restricted common stock issued was valued based upon quoted market prices prior to the date of the purchase agreement. The patents are being amortized over estimated useful lives of five years. During the year ended December 31, 2004, the Company issued 94,354 shares of restricted common stock for the conversion of $18,139 of liabilities; and 85,000 shares of restricted common stock, valued at $15,300, for the pre-payment of one years rent, commencing May 15, 2004, for the warehouse space the Company occupies for its distribution center. The restricted common stock issued was valued based upon the closing market price of the Company's common stock on the date of issuance. F-21 Company's common stock on the date of issuance. 11. Stockholders' equity (continued): During the year ended December 31, 2004, the Company issued 272,500 shares of restricted common stock for financing fees relating to short-term loans made to the Company in June of 2004. The shares were valued using quoted market prices on the dates issued. During the year ended December 31, 2004, the Company sold an aggregate of 12,831,373 shares of common stock to accredited investors for an aggregate purchase price of $1,636,000, or $.1275 per share. In addition, warrants to purchase an additional 1,924,707 shares of common stock were issued in conjunction with the offering. The warrants have an exercise price of $.50 per share and expire on June 30, 2009. This offering and sale was deemed to be exempt under Rule 506 of Regulation D and Section 4(2) of the Securities Act. The securities underlying the offering were subsequently registered on Form SB-2 with the Securities & Exchange Commission. The registration statement was filed on October 15, 2004 and became effective on October 29, 2004. During the year ended December 31, 2004, the Company issued 100,000 share of restricted common stock to employees for employment signing bonuses. The transaction was valued at the closing market price of the Company's stock on the date of grant, or $15,500. During the year ended December 31, 2004, the Company issued 187,500 shares of restricted common stock to two Company Director's as compensation for raising capital for the Company through private equity placements. The transaction was valued at the closing market price of the Company's stock on the date of grant, or $31,875. The securities underlying the offering were subsequently registered on Form SB-2 with the Securities & Exchange Commission. The registration statement was filed on October 15, 2004 and became effective on October 29, 2004. During the year ended December 31, 2004, the Company issued 39,544 shares of restricted common stock to investors and employees for the conversion of $5,378 of accrued interest relating to the Company's convertible preferred stock offering. During the year ended December 31, 2004, the Company sold an aggregate of 8,163,889 shares of common stock to accredited investors for an aggregate purchase price of $1,102,125, or $.135 per share. In addition, warrants to purchase an additional 1,224,583 shares of common stock were issued in conjunction with the offering. The warrants have an exercise price of $.50 per share and expire on June 30, 2009. This offering and sale was deemed to be exempt under Rule 506 of Regulation D and Section 4(2) of the Securities Act. The securities underlying the offering were subsequently registered on Form SB-2 with the Securities & Exchange Commission. The registration statement was filed on October 15, 2004 and became effective on October 29, 2004. During the year ended December 31, 2004, the Company sold an aggregate of 4,675,000 shares of common stock to accredited investors for an aggregate purchase price of $818,125, or $.175 per share. In addition, warrants to purchase an additional 701,250 shares of common stock were issued in conjunction with the offering. The warrants have an exercise price of $.50 per share and expire on June 30, 2009. This offering and sale was deemed to be exempt under Rule 506 of Regulation D and Section 4(2) of the Securities Act. The securities underlying the offering were subsequently registered on Form SB-2 with the Securities & Exchange Commission. The registration statement was filed on October 15, 2004 and became effective on October 29, 2004. During the year ended December 31, 2004, the Company issued 794,483 shares of restricted common stock for the conversion of 960,000 $.05 per share warrants issued in conjunction with the Company's convertible debenture financing in May, June, and July of 2003. The holder invoked a cashless exercise provision and therefore the Company received no cash proceeds in the transaction, but rather reduced the number of shares issued by 165,517 in accordance with the cashless exercise provision. F-22 11. Stockholders' equity (continued): During the year ended December 31, 2004, the Company issued 2,224,000 shares of restricted common stock in conjunction with the acquisition of a software license agreement with On2 Technologies, Inc. The transaction was valued at $311,360. The securities underlying the offering were subsequently registered on Form SB-2 with the Securities & Exchange Commission. The registration statement was filed on October 15, 2004 and became effective on October 29, 2004. Compensation expense of $29,422 and $94,407 for the year ended December 31, 2004 and 2003, respectively, was recognized in relation to amortization of unearned restricted stock compensation relating to common shares issued to consultants as compensation in previous years. 2003 Common Stock Issuances: During 2003, 35,776,906 shares of the Company's restricted common stock were sold through various private equity placements exempt from registration under Section 4(2) of the Securities Act of 1933, and Rule 506 of Regulation D, thereof. The placements were open to select officers, employees, representatives of the Company, and accredited investors for the purchase of restricted common stock. The Company received proceeds from the offerings of $2,018,618 as of December 31, 2003. During 2003, 5,162,662 shares of the Company's free trading common stock were sold in connection with a consulting services agreement. The Company received $190,045 in proceeds, and recognized $33,537 in consulting expense related to this issuance, which is included in stock-based compensation expense. During 2003, the Company issued 167,000 shares of restricted common stock to employees and directors as compensation for services. The restricted common stock, which was fully vested upon issuance, was valued based upon the trading market prices on the dates of issuance, or $17,100 in the aggregate. During 2003, the Company issued 45,718,151 shares of free trading common stock in accordance with several conversion notices received by the Company from the holders of the Company's 12% convertible debentures. The shares issued were valued in accordance with the Securities Purchase Agreement dated September 20, 2002, which approximates a 50% discount to the market price. The average share price for all of the conversions was $0.02 per share, or $1,000,000 in the aggregate. During 2003, the Company issued 3,000,000 shares of free trading common stock in accordance with several stock warrant exercise agreements received by the Company from the holders of the Company's stock purchase warrants.. The shares issued were valued at the exercise price of $0.10 per share, or $300,000 in the aggregate, in accordance with the Stock Purchase Warrants dated September 20, 2002. During 2003, the Company issued 4,698,500 shares of free trading common stock to professional research and development consultants as compensation for consulting services and royalties. The restricted common stock issued was valued based upon the trading market prices on the dates of issuance, or $240,817 (including the $33,537, above) in the aggregate. Additionally, $117,237 of compensation expense was recognized in relation to amortization of unearned restricted stock compensation relating to common shares issued to consultants as compensation in previous years. F-23 11. Stockholders' equity (continued): On May 19, 2003, the Company entered into three separate consulting agreements wherein the Company granted 4,200,000 shares of restricted common stock to consultants as compensation for consulting services. 1,025,000 of these shares were issued immediately upon registration of the shares on Form S-8 to begin the first phase of the services to be provided. These shares are included in the 4,698,500 shares in the preceding paragraph. Subsequent issuances of shares, up to the total amount outlined in the agreements, will be issued at the Company's discretion, based on performance, as defined by the Company, over a period not to exceed one year. The restricted common stock issued was valued based upon the trading market prices on the dates of issuance, or $41,000 in the aggregate, which amount is included in the $240,817 in the preceding paragraph. This amount was recognized as stock-based compensation during the second quarter of 2003. During 2003, the Company issued 2,068,750 shares of restricted common stock in conjunction with a licensing agreement, distributorship agreement, and trademark. Common stock Warrants: During the year ended December 31, 2005, the Company issued warrants to purchase 4,108,465 shares of common stock, in connection with the sale of unregistered securities in a private equity offering. The warrants, issued in April of 2005, have a three-year term and an exercise price of $.025 per share. In addition, in November of 2005, the Company's leading institutional investor exercised 2,676,471 warrants at $.05 per share. The warrants were originally priced at $.50 per share but were re-priced by the Board of Directors for this transaction only. The following table sets forth activity of the warrants for the years ended December 31, 2005, 2004 and 2003

F-24 11. Stockholders' equity (continued): Options granted to employees: No options were granted to employees during the year ended December 31, 2005. The Company granted 689,355 stock options to employees during the year ended December 31, 2004. The stock options have a term of 10 years and exercise prices were equal to the closing market price on the day granted. All stock options issued in 2004 vest over a two year period, 50% in each year. In addition, the Company granted 140,000 stock options to directors. The stock options have terms of 5 years, 50% of which vested on the date of grant, and 50% on the one year anniversary from the date of grant. Exercise prices were equal to the closing market price on the day of grant. The Company granted 7,422,635 stock options to employees during the year ended December 31, 2003. Stock options have terms of 10 years and exercise prices were equal to the closing market price on the day granted. All stock options issued in 2003 were fully vested on the date of grant. The following table reflects stock option activity:

F-25 12. Commitments and contingencies: Litigation, claims and assessment: Satius, Inc License Agreement On August 12th, 2005 the Company was served with a complaint filed in the Court of Common Pleas, Montgomery County, Pennsylvania. The action was filed by Satius, Inc. The suit alleges breach of contract involving a Licensing Agreement with Satius dated December 18, 2003 that relates to certain of the Company's analog power products. This same licensing agreement was terminated by Satius on July 10, 2004. The suit remains in the discovery phase and as of the filing of this document, a hearing to dismiss the case is currently scheduled for May 3, 2006. No hearing is currently scheduled for the motion for preliminary injunction. The Company and its management believe that they are not in violation of the terminated license agreement and intend to defend the law suit vigorously. However, there can be no assurance that the Company will prevail on the merits of the case. Litigation of this matter will be expensive and will divert time and financial resources away from the Company's business. In addition, an unfavorable outcome in this matter would result in substantial harm and possibly severe damage to the Company. Pro-Marketing of Texas The Company was a defendant in a lawsuit filed by Pro-Marketing of Texas, Inc. in the Circuit Court of Pinellas County, Florida. The suit alleged breach of contract relating to a payment of a convertible debenture, with a maximum potential exposure of $100,000 plus interests costs and attorneys fees. The Company contested the claim from the outset, however, in and effort to limit legal fees associated with the action, on August 18, 2005, the Company agreed to a settlement. The settlement consisted of the issuance of 150,000 shares of restricted common stock, and cash payments totaling $60,000 to be disbursed in an amount of $2,500 per month for a period of two years, commencing on August 18, 2005. Diversified Personnel In September 2005, the Company became a defendant in a law suit filed by Diversified Personnel in an attempt to recover approximately $8,500 in outstanding invoices related to the Company's use of temporary labor in the Company's research & development office in California prior to the restructuring of the Company in March and April of 2005. The plaintiff received a judgment in December 2005, and the Company is paying the outstanding balance in installments. SEC Investigation The Securities and Exchange Commission's Division of Enforcement began an investigation in January 2001 relating to the Company's financial results and common stock performance during 2000. As a result Richard McBride, former chairman, president and chief executive officer, resigned from all positions with the Company. Further, all executives involved with the allegations were replaced during 2001 and Mr. McBride passed away in October 2001. The Company has cooperated fully with the SEC, which included the testimony of former employees, Col. Larry Hoffman (retired), and Christy Mutlu. George Bernardich and current officers and employees Douglas Bauer, CFO, and J. R. Cox, former director, have also testified before the SEC. On February 12, 2004, the SEC's Staff advised the Company, through its counsel, that they intend to recommend that the SEC bring a civil injunctive action against the Company and certain of its current and former officers and/or directors. As it relates to the Company, the Staff alleges that: The Company violated Section 17(a) of the Securities Act of 1933 ("Securities Act") and Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 13a-1, 13a-11, 13a-13, and 12b-20 thereunder, and is liable for civil penalties pursuant to Section 20(d) of the Securities Act and Section 21(d)(3)(A) of the Exchange Act. The SEC's Staff, in accordance with Rule 5(c) of the Commission's Rules of Informal and Other Procedures, 17 C.F.R. ss.202.5(c), afforded the Company the opportunity to make a F-26 12. Commitments and contingencies (continued): Litigation, claims and assessment (continued): "Wells Submission" regarding the Staff's intended recommendations. The Company retained its counsel to prepare such a Wells Submission on behalf of the Company, its officers, and employees, as it believed that there were meritorious factual, legal and policy reasons why the Staff's recommendation should not be followed by the Commission. The "Wells Submission" documents were prepared and submitted to the Staff near the end of March of 2004. In June of 2004, counsel notified the Company that as a result of the Wells Submission, the staff may modify its recommendations to the Commission; however, the Company had no specific details as to what those modifications would be or whether they would be accepted by the commission. The Company, twice, in August and November of 2004, sent updated financial information to the Staff, at their request, but received no further correspondence regarding a proposed recommendation. If the Staff's original recommendation is accepted by the Commission and a civil injunctive action were to be subsequently filed against the Company, no decision has been made at this time as to whether the Company would vigorously defend that matter, or would seek to reach a negotiated settlement. The Staff has informally advised counsel of their belief that if they were successful in litigating this matter, a civil penalty in excess of $100,000 could be imposed against the Company. However, counsel believes that there are numerous mitigating factors which could cause this amount to be reduced, even if the Company's efforts to defend the suit were unsuccessful. Therefore it is impossible at this time to estimate the likelihood of an unfavorable outcome, or to estimate the amount of any such loss from this matter. Before any final determination was made with regard to the aforementioned investigation, the Staff notified the Company that it wanted to review additional documentation. This request pertained to a purchase contract the Company entered with Universal General Corporation, LLC (UGC), on September 17, 2004 and the subsequent shipment of products to UGC on November 15, 2004. The Company has, through its counsel, fully cooperated with this additional request, and has provided the documents and financial information sought. In addition, certain current and former officers and employees have provided testimony and/or interviews to the Staff with regard to UGC. The Company has been advised by the Staff that the investigations of both items are complete, and the Company anticipates that the Commission will render a decision in this matter in the relatively near future. 13. Earnings per common share computations:

13. Earnings per common share computations: The table above excludes 141,984 warrants, 158,120 stock options to purchase common stock and 422,222 shares into which notes payable are convertible as such items would have an anti-dilutive effect on earnings per share of 2005. F-27 14. Recent accounting standards: In November 2004, the FASB issued SFAS No. 151, INVENTORY COSTS The statement amends Accounting Research Bulletin ("ARB") No. 43, "Inventory Pricing," to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material. ARB No. 43 previously stated that these costs must be "so abnormal as to require treatment as current-period charges." SFAS No. 151 requires that those items be recognized as current-period charges regardless of whether they meet the criterion of "so abnormal." In addition, this statement requires that allocation of fixed production overhead to the costs of conversion be based on the normal capacity of the production facilities. The statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005, with earlier application permitted for fiscal years beginning after the issue date of the statement. The adoption of SFAS No. 151 is not expected to have any significant impact on the Company's current financial condition or results of operations. In December 2004, the FASB issued SFAS No. 153, EXCHANGES OF NONMONETARY ASSETS - AN AMENDMENT OF APB NO. 29 ACCOUNTING FOR NONMONETARY TRANSACTONS, which is based on the opinion that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. SFAS No. 153 amends Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception of nonmonetary assets whose results are not expected to significantly change the future cash flows of the entity. The adoption of SFAS No. 153 is not expected to have any impact on the Company's current financial condition or results of operations. In December 2004, the FASB revised its SFAS No. 123 ("SFAS No. 123R"), SHARE-BASED PAYMENTS. The revision establishes standards for the accounting of transactions in which an entity exchanges its equity instruments for goods or services, particularly transactions in which an entity obtains employee services in share-based payment transactions. The revised statement requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost is to be recognized over the period during which the employee is required to provide service in exchange for the award. The provisions of the revised statement are effective for financial statements issued for the first interim or annual reporting period beginning after December 15, 2005, with early adoption encouraged. The Company is currently evaluating the effects of adoption of this standard in the first quarter of 2006. In February 2006, the FASB issued Statement of Financial Accounting Standard (SFAS) No. 155 (SFAS No. 155), ACCOUNTING FOR CERTAIN HYBRID FINANCIAL INSTRUMENTS--AN AMENDMENT OF FASB STATEMENTS NO. 133 AND 140, to simplify and make more consistent the accounting for certain financial instruments. Specifically, SFAS No. 155 amends SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, to permit fair value remeasurement for any hybrid financial instrument with an embedded derivative that otherwise would require bifurcation, provided that the whole instrument is accounted for on a fair value basis. Prior to fair value measurement, however, interests in securitized financial assets must be evaluated to identify interests containing embedded derivatives requiring bifurcation. The amendments to SFAS No. 133 also clarify that interest-only and principal-only strips are not subject to the requirements of the SFAS, and that concentrations of credit risk in the 10 form of subordination are not embedded derivatives. Finally, SFAS No. 155 amends SFAS No. 140, ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS, to allow a qualifying special-purpose entity (SPE) to hold a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. F-28 14. Recent accounting standards (continued): SFAS No. 155 applies to all financial instruments acquired or issued after the beginning of an entity's first fiscal year that begins after September 15, 2006, with earlier application allowed. The Company does not anticipate that the adoption of this statement to have a material impact on its consolidated financial statements. 15. Discontinued Operations: During the quarter ended March 31, 2005, the Company formalized a plan to dispose of its Hotel/MDU products segment. The plan included the termination of all employees associated with the segment, and the closing of the Company's sales office in South Carolina. At the end of the quarter ended June 30, 2005, the plan had been implemented and the Company had secured an agreement with an outside party to sell the remaining installation and monthly service contracts. Operating results for the discontinued segment have been reported separately as discontinued operations in the consolidated statements of income for all periods presented. Following are the components of the amounts disclosed: Assets and Liabilities of Discontinued Operation

17. Subsequent events: On March 16, 2006, the Company entered into a Securities Purchase Agreement (the "Purchase Agreement"), with several accredited investors (collectively the "Purchasers"), under which the Company agreed to issue and sell to the Purchasers in a private placement up to $4,473,933 aggregate principal amount of convertible debentures ("Debentures"), including $1,373,933 of existing debt being converted into the Debentures, and warrants to purchase common stock (the "Warrants") for an aggregate of up to $3,100,000 (the "Proceeds"). All the closing conditions have been satisfied on March 23, 2006. On March 23, 2006 the Company received a portion of the Proceeds in the amount of $2,563,572 net of $136,428, which was paid from the Proceeds as payment for commissions and expenses and $87,428 as repayment of certain creditors pursuant to the Purchase Agreement. Furthermore, on March 27, 2006, the Company received $250,000 and on March 29, 2006 the Company received a final disbursement of the Proceeds in the amount of $150,000, for a total aggregate amount of the Proceeds of $3,100,000 disbursed to the Company. The Company intends to pay a portion of the Proceeds as a broker's fee with respect to the sale of the Debentures and Warrants to the Purchasers, and to use the net available proceeds for general corporate and working capital purposes. A full description of the terms and conditions of the transaction, including the offering documents, was filed with the Securities & Exchange Commission on Form 8K on March 22, 2006. F-30 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANT ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. ITEM 9A. CONTROLS AND PROCEDURES. As of December 31, 2005, an evaluation was performed by the then Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our Chief Executive Officer and Chief Accounting Officer concluded that our disclosure controls and procedures were effective as of December 31, 2005. There have been no significant changes in our internal controls or in other factors that could significantly affect internal controls subsequent to December 31, 2005. ITEM 9B. OTHER INFORMATION. None. ITEM 10. MANAGEMENT -OFFICERS & DIRECTORS. The name, age, office, and principal occupation of the executive officers and directors of PowerLinx and certain information relating to their business experience are set forth below:

* Dr. Brad M. Gould is the son of Myles J. Gould. 1. Mr. Tomlinson was appointed Chief Executive Officer on May 17, 2005. He was appointed to the Board of Directors on March 6, 2005; in accordance with the Company By-laws. 2. Mr. Edwards and Mr. Sanchez were appointed to the Board of Directors, by the residing Board of Directors, effective November 1, 2003; in accordance with the Company By-laws. 3. Mr. Traber and Mr. Williams were appointed to the Board of Directors, by the residing Board of Directors, effective November 1, 2003; in accordance with the Company By-laws. 4. Mr. Shalek was appointed to the Board of Directors on March 6, 2006; in accordance with the Company By-laws. He also serves as Chairman of the Audit Committee. 5. Mr. Bernardich and Mr. Ambler resigned from the Company on April 13, 2005. 6. On February 4, 2005, Mr. Bernardich resigned as Chairman of the Board and James Williams was voted Chairman by unanimous vote of the Board of Directors. 7. Mr. McIntyre was appointed to the Board of Directors, by the residing Board of Directors, effective March 1, 2004; in accordance with the Company By-laws. He voluntarily resigned from the Board of Directors on March 3, 2006. 8. Mr. Bernardich voluntarily resigned from the Board of Directors on March 6, 2006. 35 Directors are elected or appointed to serve until the next annual meeting and until their successors are elected and qualified. Officers are appointed to serve for one year until the meeting of the Board of Directors following the annual meeting of stockholders and until their successors have been elected and qualified. MICHAEL TOMLINSON Mr. Tomlinson joined PowerLinx in February 2004, and is currently our Chief Executive Officer, effective May 17, 2005. He received a BBA in both Marketing and Management from the University of Memphis in 1975. Mike has extensive sales, marketing, product development, Business Reengineering and general management experience, having served over 25 years with HavaTampa Cigar, Lenox Brands, PepsiCo (18 yrs.) and Proctor and Gamble. Mike held the office of Vice-President or Senior Vice-President with these companies for 16 years. For the years prior immediately prior to joining PowerLinx, in 2004, he capitalized on his career experiences as a Business Reengineering Consultant with Benchmark Associates. DOUGLAS A. BAUER Mr. Bauer joined us in March of 2001. He received a bachelor's degree in Accounting from Miami University, Ohio in 1985, and spent an additional year at Miami's European Center in Luxembourg studying international economics and political science. He spent three years with Price Waterhouse in the audit division of its Atlanta office before moving on to Guardian Industries, a worldwide glass manufacturer and fabricator, where he took the position of operations manager for two newly acquired fabrication businesses. Prior to joining PowerLinx, Mr. Bauer was a partner in Flowers Direct and eFlowers.com, and served three years as its COO and CFO. In addition to Chief Financial Officer, Mr. Bauer has served as Secretary-Treasurer of PowerLinx since July, 1, 2002. MYLES J. GOULD Mr. Gould has been a Director of us since April 1999, and his current term as a Director will continue until the annual meeting of 2004. Mr. Gould has been involved in the development of real estate projects for more than 30 years. His firm, Gould & Company, is based in Atlanta, Georgia. Mr. Gould has developed over 2000 acres for diverse applications including shopping centers, office complexes, and multiple- and single-occupancy residential developments. He has spoken on many occasions on the subject of apartment-to-condominium conversions. Mr. Gould formerly served as a Director for Modular Systems, Inc., a factory-assembled housing company. DR. BRADFORD M. GOULD Dr. Gould has been a Director of us since April 1999, and his current term as a Director will continue until annual meeting of 2004. Dr. Gould received a Bachelor's Degree in Marine Science and Biology from the University of Miami in 1992. He earned his Master's Degree from the University of Hawaii from 1992 through 1995, identifying pollutants and their sources in Manmala Bay, Honolulu. After attending the Medical College of Georgia from 1995 to 1999, he entered the residency program at St. Vincent's Hospital, Jacksonville, Florida. Dr. Gould is currently in the Residency Family Practice Program at Greenville Memorial Hospital in South Carolina. 36 MARTIN A. TRABER Mr. Traber is a partner in the Tampa office of Foley & Lardner. A member of the firm's Business Law Department and Transactional & Securities Practice Group, he focuses on corporate securities and public company practice. Formerly a partner in the 500-attorney Cleveland, Ohio, firm of Arter & Hadden, he served 10 years on the firm's Management Committee (including a term as chief executive) and was national chairman of both the Business and Corporate Department and of the Marketing and Business Development Committee. Mr. Traber has practiced in corporate finance and securities law for over 30 years. His areas of emphasis include representation of companies in public and private securities offerings, roll-ups, and mergers and acquisitions. He represents several public and privately-held technology clients. Mr. Traber served as an associate professor of law at Cleveland State University School of Law, where he developed and taught a course on financing. He graduated magna cum laude and first in his class from Indiana University School of Law in 1970, where he was an associate editor of the Law Review. JAMES A. WILLIAMS Mr. Williams joined the Board as a Director in December 2003 and became Chairman of the Board in February 2005. Mr. Williams is currently President & CEO of Gold Toe Brands, Inc. and Chairman of the Board of Maidenform Worldwide. He also serves on the Board of Cluett American Group and has served on the Boards of Bibb Corporation, Esprit de Corp., and Ithaca Corporation. He is considered an expert in retailing and marketing and has thirty plus years of extensive experience in product sourcing, manufacturing, distribution, financing, and corporate organization and governance. He also serves on the Boards of many professional organizations which include The Hosiery Association (Past Chairman), The Fashion Association (Executive Board & Past Chairman), North Carolina Textile Foundation, and The Educational Foundation for The Fashion Institute of Technology. WILLIAM B. EDWARDS Mr. Edwards is currently President of K & M Associates LP, a leading fashion accessory house based in Providence, Rhode Island and is considered an expert in mass retailing and marketing through retailers. He has served as President & COO of Revco, D. S.. Inc., President & CEO of F & M Distributors, President & Owner of Xpect Discount Stores, President & COO of Milor/Solo Inc., Vice-President of Mattel and Vice-President at W.T. Grant Company. In addition, he is President and Founder of the privately held consulting company W.B.E., Inc. which specializes in strategic planning, development and installation of business re-engineering, new product development, marketing, marketing management, distribution and channel development and selection, development of business plans and financing of plans. His clients have included American Greetings, Allison Reed Group, Prospect Street Investments Management, U. S. Mint, Rexall Sundown and many more. In addition, Mr. Edwards is, or has been a member of several boards which have included Office Max, Revco, and Talon Group to name a few. FRANCISCO SANCHEZ Mr. Sanchez is currently the Managing Director of Cambridge Negotiation Strategies (CNS) where he has worked with corporations and governments worldwide on complex transactions, labor-management negotiations, litigation settlement, negotiation strategy, alliance management, facilitation and training. He holds a Masters Degree in Public Administration from the Harvard University, John F. Kennedy School of Government. In 1999, he became a Special Assistant to the President of the United States working in the Office of the Special Envoy for the Americas. In the White House he worked with the National Security Council, the State Department and the U.S. Trade Representative on Western Hemisphere economic integration and the promotion of democracy. President Clinton later appointed Mr. Sanchez as U.S. Assistant Secretary of Transportation where he developed aviation policy and oversaw international negotiations. Prior to his work in the federal government and before joining CNS, he practiced corporate and administrative law with the firm of Steel, Hector and Davis in Miami, Florida. Before practicing law, he served in the administration of former Florida Governor (now U.S. Senator) Bob Graham, as the first director of the state's Caribbean Basin Initiative Program. 37 THADDEUS J. SHALEK Mr. Shalek is currently CEO and CFO of Vertical Health Solutions in Oldsmar, Florida. Previously he served as President of Shalek and Associates, CPA's Inc. of Independence, Ohio. Shalek and Associates provided accounting and consulting services to small and medium sized corporations and other entities. Ted was an Instructor in Business and Taxation at Cuyahoga Community College of Cleveland, Ohio. He has also been a Partner in McManamon, Shalek and Co. CPAs and Tax Manager at Coopers & Lybrand (now Price, Waterhouse, Coopers.) Ted has served on numerous boards. He holds his Certified Public Accountant, Certified Public Valuation, and National Association on Security Dealers Series 7 Licenses; and is an Arbitrator for the NASD. COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers and persons who beneficially own more than ten percent of a registered class of our equity securities to file with the SEC initial reports of ownership and reports of change in ownership of common stock and other equity securities of our Company. Officers, directors and greater than ten percent stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. To our knowledge, the following persons have failed to file, on a timely basis, the identified reports required by Section 16(a) of the Exchange Act, as of December 31, 2005:

CODE OF ETHICS The Company has adopted its Code of Ethics and Business Conduct for Officers, Directors and Employees that applies to all of the officers, directors and employees of the Company. A copy of our code of ethics may be found as Exhibit 99.3 to the Annual Report filed on Form 10-KSB with the Securities and Exchange Commission on April 15, 2005 or it can be found on our website at www.power-linx.com. 38 ITEM 11. EXECUTIVE COMPENSATION. The following tables set forth certain information regarding the Company's CEO and each of its most highly-compensated executive officers whose total annual salary and bonus for the fiscal year ending December 31, 2005, 2004 and 2003 exceeded $100,000: SUMMARY COMPENSATION TABLE

Calculations exclude standard group-insurance benefits applied equally to all salaried employees, pursuant to Item 402 of Regulation S-K. 1. Mr. Mike Tomlinson joined the Company in February of 2004. As part of a restructuring of the Company's management, Mr. Tomlinson received 700,000 shares of restricted common stock valued at $71,000. On May 17, 2005, Mr. Tomlinson was appointed Chief Executive Officer by the Company's Board of Directors. In September of 2005, Mr. Tomlinson executed a three year employment contract providing for a $45,000 bonus in 2005, and an agreement for a common stock grant of 1,300,000 shares. Prior to that time he was not an executive officer. During 2005, Mr. Tomlinson used $16,875 of his 2005 bonus to repay the Company for a 2004 advance made prior to his becoming and officer of the Company. The remaining portion of his 2005 bonus was accrued at December 31, 2005. 2. Mr. Douglas Bauer joined the Company in March of 2001 as Chief Financial Officer but did not begin salary compensation until January 2002. In 2003, Mr. Bauer received 2,119,145 in stock options in lieu of salary. In 2004, in addition to his cash bonus, Mr. Bauer received 208,057 stock options as outlined in his executive employment agreement. The remaining portion of his 2003 bonus, valued at $67,504, was paid in equity units consisting of 67,504 shares of Series A convertible preferred stock and 16,876 shares of restricted stock. In April of 2005, as part of a restructuring of the Company's management, Mr. Bauer received 1,250,000 shares of restricted common stock valued at $87,500. In September 2005, Mr. Bauer signed a new three year employment agreement providing for a $45,000 bonus in 2005, and an agreement for a common stock grant of 1,250,000 shares . During 2005, Mr. Bauer received, in cash, the remaining portion of his 2004 bonus in the amount of $10,860, and $14,665 toward his 2005 bonus. The remaining portion of his 2005 bonus was accrued at December 31, 2005. 3. Mr. Mark Meagher was hired by the Company's Board of Directors, on March 7, 2005, as a consultant to oversee the Company's restructuring plan; and later was appointed by the Board as interim President and Chief Executive Officer. During his tenure with the Company through June of 2005, Mr. Meagher received 400,000 shares of restricted common stock, carrying registration rights, valued at $43,500. 4. Mr. George Bernardich joined us as COO in November of 2000. He was promoted to Chairman, President, and CEO on February 21, 2001. In 2003, Mr. Bernardich received 2,210,745 in stock options in lieu of salary. In 2004, in addition to his cash bonus, Mr. Bernardich received 221,014 stock options as outlined in his executive employment agreement. In addition, Mr. Bernardich received $10,614 in cash as payment for a portion of his 2003 bonus accrued at December 31, 2003. The remaining portion of his 2003 bonus, valued at $96,000, was paid in equity units consisting of 96,000 shares of Series A convertible preferred stock and 24,000 shares of restricted stock. Mr. Bernardich resigned his position as an officer of the Company on April 12, 2005 and received 1,500,000 shares of restricted common stock, valued at $165,000, as part of his severance package (See Note 7 "Accrued Severance Payable"). 5. Mr. Michael Ambler joined us in late February of 2001 as COO, but did not begin salary compensation until December of 2001. In 2003, Mr. Ambler received 2,119,145 in stock options in lieu of salary for 2002. In 2004, in addition to his cash bonus, Mr. Ambler received 208,057 stock options as outlined in his executive employment agreement. In addition, Mr. Ambler received the remaining portion of his 2003 bonus, as accrued at December 31, 2003, and valued at $19,504, in equity units consisting of 19,504 shares of Series A convertible preferred stock and 4,876 shares of restricted stock. Mr. Ambler resigned his position as an officer of the Company on April 12, 2005 and received 1,000,000 shares of restricted common stock, valued at $110,000, as part of his severance package (See Note 7 "Accrued Severance Payable"). 39 Upon the restructuring of the Company and its management in early 2005, all officers and employees executed either new employment agreements or a restructuring of their compensation package. Compensation under these new agreements and plans did not provide for the use of stock options, under the Company's stock option plan, as a form of compensation during 2005; and accordingly, no options were granted during the fiscal year ended December 31, 2005. Options/SARs Grants During Last Fiscal Year The following table provides information related to options granted to our named executive officers during the fiscal year ended December 31, 2005 Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Value The following table sets forth the individual grants of stock options for each of the below named executive officers, during the fiscal year ended December 31, 2005. No stock options were granted or exercised during the fiscal year ended December 31, 2005. Individual Grants ------------- % of Total Number of Total Options Securities Granted to Exercise Underlying Employees in Price Expiration Name Options Fiscal Year per Share Date ----------------- ----------- ------------- ------------- ------------- Michael Tomlinson - - - - Douglas Bauer - - - - George S. Bernardich, III (1) - - - - Michael Ambler (2) - - - - (1) Mr. Bernardich resigned his position as an officer of the Company on April 12, 2005. (2) Mr. Ambler resigned his position as an officer of the Company on April 12, 2005. The following table sets forth the aggregate stock option exercises and fiscal year-end option values for each of the above named executive officers, as of the fiscal year ended December 31, 2005. No stock options were exercised as of June 8, 2006. Number of Securities Exercise Value Shares Underlying Unexercised of Unexercised Acquired Options as of Dec. Options at below on Value 31,2006; Exercisable/ date Exercisable/ Name Exercise Realized Unexercisable Unexercisable ------------------ -------- -------- --------------------- ----------------- ($1.65 on 6/13/06) Michael Tomlinson 0 0 0 0 Douglas Bauer 0 0 49,437 / 0 $81,571 / 0 George S. Bernardich, III (1) 0 0 51,619 / 0 $85,171 / 0 Michael Ambler (2) 0 0 49,437 / 0 $81,571 / 0 (1) Mr. Bernardich resigned his position as an officer of the Company on April 12, 2005. (2) Mr. Ambler resigned his position as an officer of the Company on April 12, 2005. 40 Directors Compensation During fiscal year 2005, Directors and Committee Members received a total of 700,000 shares of restricted common stock, valued at $77,000, as compensation for fiscal year ended December 31, 2005. Officers of the Company, who also serve as Directors, are not eligible for Directors compensation. For 2005, Directors' compensation was as follows in accordance with the October 15, 2003 Board resolution:

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. Securities authorized for issuance under equity compensation plans

2003 Stock Option Plan The 2003 Stock Option Plan (the "Plan") was created on February 12, 2003 and filed as an Exhibit to Form S-8 on said date. The Plan is intended to attract and retain the best available personnel for positions with PowerLinx, Inc. or any of its subsidiary corporations (collectively, the "Company"), and to provide additional incentive to such employees and others to exert their maximum efforts toward the success of the Company. The above aims will be effectuated through the granting of certain stock options. Under the Plan, options may be granted which are intended to qualify as Incentive Stock Options ("ISOs") under Section 422 of the Internal Revenue Code of 1986 (the "Code") or which are not ("Non-ISOs") intended to qualify as Incentive Stock Options there under. The Plan is administered by the Board of Directors of the Company. Securities Ownership of Management and Certain Beneficial Owners. The following table sets forth certain information regarding beneficial ownership of our common stock as of June 13, 2006 (i) by each person who is known by us to beneficially own more than 5% of our common stock; (ii) by each of our officers and directors; and (iii) by all of our officers and directors as a group. Each person's address is c/o PowerLinx, Inc., 1700 66th Street. Suite 300, St. Petersburg, FL 33710.

* Beneficial ownership set forth above reflects the 1-50 reverse stock split of the Company's common stock which occurred on March 22, 2006. ** Beneficial ownership set forth above is less than 1% and reflects the 1-50 reverse stock split of the Company's common stock which occurred on March 22, 2006. 1. Beneficial Ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock subject to options or warrants currently exercisable or convertible, or exercisable or convertible within 60 days of June 13, 2006 are deemed outstanding for computing the percentage of the person holding such option or warrant but are not deemed outstanding for computing the percentage of any other person. 2. Beneficial ownership consists entirely of common stock. 3. Includes 45,089 shares of common stock, and 49,437 stock options. 4. Includes 5,500 shares of common stock and 400 stock options. 5. Includes 25,000 shares of common stock and 400 stock options. 6. Includes 29,685 shares of common stock, 400 stock options, and 2,128 warrants. 7. Includes 49,218 shares of common stock, 400 stock options, and 1,000 warrants. 8. Includes 9,748 shares of common stock, and 400 stock options 41 9. Includes 14,843 shares of common stock, 400 stock options, and 1,402 warrants. 10. Includes 202,429 shares of common stock issuable upon conversion of convertible debentures based on the conversion price of $1.235 per share and 161,944 shares of common stock exercisable at $1.54 per share issuable upon exercise of the warrants issued in connection with the private financing transaction entered into on March 16, 2006. 11. Includes 1,340,027 shares of common stock issuable upon conversion of convertible debentures based on the conversion price of $1.235 per share and 696,814 shares of common stock exercisable at $1.54 per share issuable upon exercise of the warrants issued in connection with the private financing transaction entered into on March 16, 2006. 12. Includes 1,214,575 shares of common stock issuable upon conversion of convertible debentures based on the conversion price of $1.235 per share and 631,579 shares of common stock exercisable at $1.54 per share issuable upon exercise of the warrants issued in connection with the private financing transaction entered into on March 16, 2006. 13. Sofaer Capital Global Fund's address is: c/o Citgo Trustees (Cayman) Limited, Regatta Officer Park, West Bay Road, Grand Cayman E9. 14. Vatas (Belgique) SA's address is: P.O. Box 550, CH-1211, Geneva V8 70. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. On November 23, 2005, the Company received proceeds of $75,000 by executing three separate 45 day unsecured notes payable with Myles Gould, a Director of the Company, and two of his family members. In lieu of cash for interest, each lender will receive four shares of restricted common stock for each dollar loaned. The notes are convertible to common stock at the discretion of the lender (See Note 9 "Notes Payable"). ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES. Audit Tax All Audit Related Related Other Fees Fees Fees Fees --------- -------- -------- -------- 2004 $ 108,947 $ - $17,900 $ - 2005 $ 95,680 $ - $14,600 $ - 42 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES. (a) 1. The following financial statements for PowerLinx, Inc. are filed as a part of this report: Consolidated Balance Sheets-- December 31, 2005 and 2004 Consolidated Statements of Operations--Years ended December 31, 2005, 2004 and 2003 Consolidated Statements of Shareholders' (deficit) Equity--Years ended December 31, 2005, 2004 and 2003 Consolidated Statements of Cash Flows--Years ended December 31, 2005, 2004 and 2003 2. Notes to Consolidated Financial Statements Schedules are omitted because of the absence of conditions under which they are required or because the information is included in the financial statements or notes thereto. 3. The following instruments and documents are included as exhibits to this report. 3(i)1 Amendment to the Articles of Incorporation increasing authorized Common Stock from 250,000,000 to shares. (Incorporated by reference to current report filed on Form 8-K with the Securities and Exchange Commission on 400,000,000, March 22, 2006). 3(i)2 Amendment to the Articles of Incorporation changing the Company's name from Seaview Video Technology, Inc. to PowerLinx, Inc. (Incorporated by reference to current report filed on Form 8-K with the Securities and Exchange Commission on March 16, 2004). 3(ii)1 Bylaws of the Company. (Incorporated by reference to annual report filed on Form 10-KSB with the Securities and Exchange Commission on April 15, 2005). 4.1 Certificate of designation of Series A Preferred Stock. (Incorporated by reference to our current report filed on Form 10KSB with the Securities and Exchange Commission on March 16, 2004). 10.1 Form of Securities Purchase Agreement dated as of March 7, 2006. (Incorporated by reference to current report filed on Form 8-K with the Securities and Exchange Commission on March 22, 2006). 10.2 Form of Warrant issued March 22, 2006 (Incorporated by reference to current report filed on Form 8-K with the Securities and Exchange Commission on March 22, 2006). 10.3 Form of Debenture issued March 22, 2006 (Incorporated by reference to current report filed on Form 8-K with the Securities and Exchange Commission on March 22, 2006). 10.4 Form of Registration Rights Agreement dated as of March 22, 2006 (Incorporated by reference to current report filed on Form 8-K with the Securities and Exchange Commission on March 22, 2006). 10.5 Form of Security Agreement dated March 7, 2006 (Incorporated by reference to current report filed on Form 8-K with the Securities and Exchange Commission on March 22, 2006). 10.6 Form of Collateral Agency Agreement dated March 7, 2006 (Incorporated by reference to current report filed on Form 8-K with the Securities and Exchange Commission on March 22, 2006). 10.7 Form of Copyright Security Agreement dated March 7, 2006 (Incorporated by reference to current report filed on Form 8-K with the Securities and Exchange Commission on March 22, 2006). 10.8 Form of Patent and Trademark Security Agreement dated March 7, 2006 (Incorporated by reference to current report filed on Form 8-K with the Securities and Exchange Commission on March 22, 2006). 10.9+ Employment agreement by and between Michael Tomlinson and the Company, dated September 23, 2005. (Filed herewith). 10.10+ Employment agreement by and between Douglas Bauer and the Company, dated September 23, 2005. (Filed herewith). 43 14.1 Code of Ethics. (Incorporated by reference to annual report filed on Form 10-KSB with the Securities and Exchange Commission on March 16, 2004). 21.1 List of Subsidiaries. (Filed herewith). 31.1 Certification of Michael Tomlinson, Chief Executive Officer, dated June 20, 2006, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended. (Filed herewith). 31.2 Certification of Douglas Bauer, Chief Financial Officer, dated June 20, 2006, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended. (Filed herewith). 32.1 Statement of Michael Tomlinson, Chief Executive Officer, dated June 20, 2006, pursuant to Rule 13(a)-14(b) of the Securities Exchange Act of 1934, as amended. (Filed herewith). 32.2 Statement of Douglas Bauer, Chief Financial Officer, dated June 20, 2006, pursuant to Rule 13(a)-14(b) of the Securities Exchange Act of 1934, as amended. (Filed herewith). + Identifies management contracts or compensation plans or arrangements required to be filed as an exhibit hereto. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 13th day of April 2006 (Registrant) POWERLINX, INC By /s/ Michael Tomlinson --------------------------- Michael Tomlinson, Chief Executive Officer June 20, 2006 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By /S/ Michael Tomlinson --------------------- Michael Tomlinson, Chief Executive Officer, Director June 20, 2006 By /S/ Douglas Bauer ----------------- Douglas Bauer, Chief Financial Officer June 20, 2006 By /S/ Miles Gould ---------------- Miles Gould, Director June 20, 2006 44 By /S/ Brad Gould ---------------- Brad Gould, Director June 20, 2006 By /S/ Martin A. Traber --------------------- Martin A. Traber, Director June 20, 2006 By /S/ James A. Williams ----------------------- James A. Williams, Chairman & Director June 20, 2006 By /S/ William B. Edwards ----------------------- William B. Edwards, Director June 20, 2006 By /S/ Francisco Sanchez ---------------------- Francisco Sanchez, Director June 20, 2006 By /S/ Ted Shalek ---------------- Ted Shalek, Director and Chairman, Audit Committee June 20, 2006 45

POWERLINX INC 10-K/A