UNITED
        STATES
 SECURITIES
        AND EXCHANGE
        COMMISSION
 Washington,
        DC
        20549
  FORM
        10-QSB
  [X]
        QUARTERLY REPORT PURSUANT TO
        SECTION 13 OR 15(d) OF THE SECURITIES
 EXCHANGE
        ACT OF
        1934
  For
        the
        quarterly period ended September 30, 2007
  [
        ] 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:
        33-55254-26
  POWERLINX,
        INC.
 (exact
        name of registrant as specified in its charter)
 
 NEVADA
              50-0006815(State
                  or other jurisdiction of
              (I.R.S.
                  Employerincorporation
                  or organization)
              Identification
                  No.)
 
 
 10901-A
                  Roosevelt Blvd., Suite 200, ST.PETERSBURG, FL
              33716(Address
                  of principal executive offices)
              (Zip
                  Code)
 
 (727)
        866-7440
 (Registrant's
        telephone number, including area code)
 
  Check
        whether the issuer (1) has filed all reports required to be filed by Section
        13
        or 15d of the Securities and Exchange Act of 1934 during the preceding 12
        months
        (or 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.
        [X]
        Yes [ ] No
  Indicate
        by check mark whether registrant is a shell company (as defined in Rule 12b-2
        of
        the Exchange Act). Yes [ ] No [X]
  The
        total
        number of shares outstanding of the issuer’s common stock, $0.001 par value per
        share, as of December 20, 2007 was 6,768,674.
  
  Explanatory
          Note
 
 The
          accompanying unaudited financial
          statements have not been reviewed by an independent public accountant.
          The Company plans to file an amended 10-QSB following the completed review
          of
          its quarterly financial statements by its independent auditor.
 
 This
          Quarterly Report includes forward-looking statements within the meaning
          of the
          Securities Exchange Act of 1934 (the “Exchange Act”).  These statements are
          based on management’s beliefs and assumptions, and on information currently
          available to management.  Forward-looking statements include the
          information concerning our possible or assumed future results of operations
          set
          forth under the heading “Management’s Discussion and Analysis of Financial
          Condition or Plan of Operation.”  Forward-looking statements also include
          statements in which words such as “expect,” “anticipate,” “intend,” “plan,”
“believe,” “estimate,” “consider” or similar expressions are used.
 
 Forward-looking
          statements are not guarantees of future performance.  They involve risks,
          uncertainties and assumptions.  Our future results and shareholder values
          may differ materially from those expressed in these forward-looking statements.
           Readers are cautioned not to put undue reliance on any forward-looking
          statements.
  
 POWERLINX,
        INC.
 
 INDEX
  Part
        I – FINANCIAL
        INFORMATION
  Page
                  No.Item
                1.                                Financial
                Statements.
              3Condensed
                  Financial StatementsCondensed
                  Consolidated Balance SheetsAs
                  of September 30, 2007 (unaudited) and December 31,
                  2006
              F-1Condensed
                  Consolidated Statements of OperationsFor
                  the nine months ended September 30, 2007 and 2007
                  (unaudited)
              F-2Condensed
                  Consolidated Statements of Stockholders DeficitFor
                  the Nine Months
                  ended
                  September 30, 2007(unaudited)Condensed
                  Consolidated Statements of Cash FlowsFor
                  the nine months ended September 30, 2007 and 2007
                  (unaudited)
              F-4Notes
                  to Condensed Consolidated Financial Statements
              F-6Item
                2.                                Management’s
                Discussion and Analysis or Plan of
                Operations
              3Item
                3.                                Controls
                and Procedures
              4Item
                3A
                (T).                      Controls
                and Procedures
              1010Part
                  II – OTHER INFORMATIONItem
                1.                                Legal
                Proceedings
              10Item
                2.                                Unregistered
                Sales of Equity Securities and Use of Proceeds
              11Item
                3.                                Defaults
                Upon Senior Securities
              12Item
                4.                                Submission
                of Matters to a Vote of Security Holders
              12Item
                5.                                Other
                Information
              12Item
                6.                                Exhibits
              12Signatures
              13
  
 
 PART
        I - FINANCIAL
        INFORMATION
  Item
        1. Financial
        Statements
  The
        accompanying condensed consolidated financial statements have been prepared
        in
        accordance with the instructions to Form 10-QSB pursuant to the rules and
        regulations of the Securities and Exchange Commission and, therefore, do
        not
        include all information and footnotes necessary for a complete presentation
        of
        our consolidated financial position, results of operations, cash flows, and
        stockholders' deficit in conformity with generally accepted accounting
        principles. In the opinion of management, all adjustments considered necessary
        for a fair presentation of the results of operations and financial position
        have
        been included and all such adjustments are of a normal recurring nature.
        Operating results for the nine months ended September 30, 2007 are not
        necessarily indicative of the results that can be expected for the year ending
        December 31, 2007.
  As
        used
        in this Quarterly Report on Form 10-QSB (the “Quarterly Report”), the terms
        "we", "us", "our", the “Company,” and “PowerLinx” mean PowerLinx, Inc., unless
        otherwise indicated.
  
  POWERLINX,
          INC.
 CONDENSED
          CONSOLIDATED BALANCE
          SHEETS
  September
                    30,
                
                
                December
                    31,2007
                
                
                2006(Unaudited)ASSETSCurrent
                    assets:Cash
                    and cash equivalents
                
                $
                34,132
                
                
                $
                100,679Accounts
                    receivable, net
                
                
                330,449
                
                
                
                89,721Investments
                
                
                17,756
                
                
                
                17,210Employee
                    advances
                
                
                42,266
                
                
                
                40,485Inventories
                
                
                493,147
                
                
                
                684,296Prepaid
                    expenses and other current assets
                
                
                324,244
                
                
                
                49,975Deferred
                    financing costs
                
                
                18,188
                
                
                
                74,917Total
                    current assets
                
                
                1,260,182
                
                
                
                1,057,283Intangible
                    assets, net
                
                
                285,585
                
                
                
                377,290Deposits
                
                
                18,976
                
                
                
                18,976Property
                    and equipment, net
                
                
                86,524
                
                
                
                137,638Total
                    assets
                
                $
                1,651,267
                
                
                $
                1,591,187LIABILIITIES
                    & STOCKHOLDERS' DEFICITCurrent
                    liabilities:Accounts
                    payable
                
                $
                978,676
                
                
                $
                647,009Accrued
                    expenses
                
                
                316,477
                
                
                
                164,703Accrued
                    severance payable
                
                
                15,000
                
                
                
                34,500Notes
                    payable
                
                
                905,720
                
                
                
                308,824Convertible
                    notes payable
                
                
                468,938
                
                
                
                -Liabilities
                    of discontinued operations
                
                
                46,902
                
                
                
                40,754Convertible
                    debentures
                
                
                1,397,846
                
                
                
                271,292Derivative
                    liabilities
                
                
                686,363
                
                
                
                3,206,121Total
                    current liabilities
                
                
                4,800,246
                
                
                
                4,673,203Commitments
                    and contingencies (Note 10)
                
                
                -
                
                
                
                -Stockholders'
                    deficit:Series
                    A convertible preferred stock, $1.00 par value;
                
                
                -
                
                
                
                -authorized
                    30,000,000, none issued and outstandingCommon
                    stock, $.001 par value, authorized 50,000,000
                
                
                6,567
                
                
                
                5,182shares;
                    issued (6,568,725 - 2007; 5,182,321 - 2006)outstanding
                    (6,559,253 - 2007; 5,172,849 -2006)Additional
                    paid-in capital
                
                
                27,738,634
                
                
                
                26,004,958Treasury
                    stock, at cost, 9,472 shares
                
                
                (287,757
                )
                
                
                (287,757
                )Accumulated
                    deficit
                
                
                (30,622,099
                )
                
                
                (28,804,399
                )Total
                    stockholders' deficit
                
                
                (3,164,655
                )
                
                
                (3,082,016
                )Total
                    liabilities and stockholders' deficit
                
                $
                1,651,267
                
                
                $
                1,591,187
  The
        accompanying notes are an integral part of these condensed consolidated
        financial statements.
  F-1
  POWERLINX,
        INC.
 CONDENSED
        CONSOLIDATED STATEMENTS OF
        OPERATIONS
 (Unaudited)
  Three
                    Months Ended September
                    30,
                
                
                Nine
                    Months Ended September
                    30,2007
                
                
                2006
                
                
                2007
                
                
                2006Net
                    revenue
                
                $
                573,086
                
                
                $
                1,004,564
                
                
                $
                1,322,337
                
                
                $
                1,503,980Cost
                    of goods sold
                
                
                305,809
                
                
                
                731,688
                
                
                
                710,903
                
                
                
                1,013,734Gross
                    Profit
                
                
                267,277
                
                
                
                272,876
                
                
                
                611,434
                
                
                
                490,246Operating
                    expenses:Salaries
                    and wages
                
                
                269,245
                
                
                
                306,757
                
                
                
                880,372
                
                
                
                1,020,978Professional
                    and consulting
                    fees
                
                
                316,940
                
                
                
                121,779
                
                
                
                758,277
                
                
                
                1,027,101Depreciation
                    and
                    amortization
                
                
                42,757
                
                
                
                52,818
                
                
                
                142,818
                
                
                
                214,454Research
                    and development
                
                
                157,973
                
                
                
                152,932
                
                
                
                423,039
                
                
                
                507,667Advertising
                    and promotions
                
                
                36,234
                
                
                
                22,158
                
                
                
                95,903
                
                
                
                106,558Rent
                    and utilities
                
                
                48,424
                
                
                
                29,689
                
                
                
                138,796
                
                
                
                145,263Travel
                    and entertainment
                
                
                21,587
                
                
                
                31,832
                
                
                
                88,768
                
                
                
                102,686Other
                    expenses
                
                
                95,591
                
                
                
                79,841
                
                
                
                267,458
                
                
                
                278,794Total
                    operating expenses
                
                
                988,751
                
                
                
                797,806
                
                
                
                2,795,431
                
                
                
                3,403,501Loss
                    from operations
                
                
                (721,474
                )
                
                
                (524,930
                )
                
                
                (2,183,997
                )
                
                
                (2,913,255
                )Interest
                    expense, net
                
                
                (1,081,728
                )
                
                
                (69,333
                )
                
                
                (1,956,157
                )
                
                
                (160,503
                )Other
                    income (expense), net
                
                
                (66,350
                )
                
                
                47,200
                
                
                
                (56,713
                )
                
                
                72,200Gain(loss)
                    on extinguishment of
                    debt
                
                
                -
                
                
                
                -
                
                
                
                (75,913
                )
                
                
                1,502,286Derivative
                    gain (loss)
                
                
                968,546
                
                
                
                (37,718
                )
                
                
                2,455,080
                
                
                
                2,317,969Loss
                    before discontinued
                    operations
                
                
                (901,006
                )
                
                
                (584,781
                )
                
                
                (1,817,700
                )
                
                
                (2,185,875
                )Loss
                    from discontinued
                    operations
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (16,588
                )Net
                    loss
                
                $
                (901,006
                )
                
                $
                (584,781
                )
                
                $
                (1,817,700
                )
                
                $
                (2,202,463
                )Net
                    loss per common share,
                    basic:Continuing
                    operations
                
                $
                (0.15
                )
                
                $
                (0.12
                )
                
                $
                (0.32
                )
                
                $
                (0.46
                )Discontinued
                    Operations
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -Net
                    loss per share
                
                $
                (0.15
                )
                
                $
                (0.12
                )
                
                $
                (0.32
                )
                
                $
                (0.46
                )Weighted
                    average common
                    sharesoutstanding,
                    basic
                
                
                6,118,293
                
                
                
                4,920,497
                
                
                
                5,639,316
                
                
                
                4,746,423Net
                    loss per common share,
                    diluted:Continuing
                    Operations
                
                $
                (0.15
                )
                
                $
                (0.12
                )
                
                $
                (0.32
                )
                
                $
                (0.46
                )Discontinued
                    Operations
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -Net
                    loss per share
                
                $
                (0.15
                )
                
                $
                (0.12
                )
                
                $
                (0.32
                )
                
                $
                (0.46
                )Weighted
                    average common
                    sharesoutstanding,
                    diluted:
                
                
                6,118,293
                
                
                
                5,137,467
                
                
                
                5,639,316
                
                
                
                4,745,028
  The
        accompanying notes are an integral part of these condensed consolidated
        financial statements.
   F-2
  POWERLINX,
          INC.
 Statement
          of Stockholders’
Deficit
 Nine
          Months ended September 30, 2007
  Common
                      Stock
                  
                  
                  AdditionalPaid-In
                  
                  
                  Treasury
                  
                  
                  AccumulatedShares
                  
                  
                  Amount
                  
                  
                  Capital
                  
                  
                  Stock
                  
                  
                  Deficit
                  
                  
                  TotalBalance,
                      January 1, 2007
                  
                  
                  5,182,321
                  
                  
                  $
                  5,182
                  
                  
                  $
                  26,004,958
                  
                  
                  $
                  (287,757
                  )
                  
                  $
                  (28,804,399
                  )
                  
                  $
                  (3,082,016
                  )Net
                      loss
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (1,817,700
                  )
                  
                  
                  (1,817,700
                  )Issuance
                      of stock to
                      consultantsfor
                      services
                  
                  
                  309,012
                  
                  
                  
                  309
                  
                  
                  
                  262,601
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  262,910Conversion
                      of convertible
                      debenturesto
                      common
                      stock
                  
                  
                  175,595
                  
                  
                  
                  176
                  
                  
                  
                  155,841
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  156,017Issuance
                      of  common
                      stock for theexercise
                      of common stock warrants
                  
                  
                  126,316
                  
                  
                  
                  126
                  
                  
                  
                  70,573
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  70,699Issuance
                      of stock for
                      intereston
                      convertible debentures
                  
                  
                  356,532
                  
                  
                  
                  355
                  
                  
                  
                  437,595
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  437,950Issuance
                      of stock for financing
                      fees onconvertible
                      notes payable
                  
                  
                  411,871
                  
                  
                  
                  412
                  
                  
                  
                  193,502
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  193,914Issuance
                      of common stock to
                      employeesfor
                      compensation
                  
                  
                  7,078
                  
                  
                  
                  7
                  
                  
                  
                  7,850
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  7,857Recording
                      of beneficial coversion
                      featurein
                      connection with convertible notespayable
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  605,714
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  605,714Balance,
                      September 30, 2007
                  
                  
                  6,568,725
                  
                  
                  $
                  6,567
                  
                  
                  $
                  27,738,634
                  
                  
                  $
                  (287,757
                  )
                  
                  $
                  (30,622,099
                  )
                  
                  $
                  (3,164,655
                  )
    F-3
  POWERLINX,
            INC.
 CONDENSED
            CONSOLIDATED STATEMENTS OF
            CASH FLOWS
 FOR
            THE NINE MONTHS ENDED SEPTEMBER
            30, 2007 AND 2006
 (Unaudited)
 Nine
                      Months Ended
                      September
                        30,2007
                  
                  
                  2006Cash
                      flows from operating activities:Net
                      loss
                  
                  $
                  (1,817,700
                  )
                  
                  $
                  (2,202,463
                  )Adjustments
                      to reconcile net loss to net cash flowsfrom
                      operating activities:Share-based
                      compensation
                  
                  
                  281,110
                  
                  
                  
                  408,960Amortization
                  
                  
                  91,705
                  
                  
                  
                  147,553Accretion
                      of debt discount
                  
                  
                  1,693,323
                  
                  
                  
                  161,522Loss
                      on debt extinquishment
                  
                  
                  75,913
                  
                  
                  
                  1,502,286Derivative
                      (gain) loss
                  
                  
                  (2,455,080
                  )
                  
                  
                  (2,317,969
                  )Depreciation
                  
                  
                  51,114
                  
                  
                  
                  66,901Provision
                      for bad debt
                  
                  
                  27,451
                  
                  
                  
                  41,200Effect
                      of warrant repricing
                  
                  
                  28,348CY
                      interest consolidated into loan
                  
                  
                  36,795Derivative
                      expense
                  
                  
                  (5,671
                  )Changes
                      in:Operating
                      assets
                  
                  
                  (94,624
                  )
                  
                  
                  (986,392
                  )Operating
                      liabiliites
                  
                  
                  605,392
                  
                  
                  
                  (510,457
                  )Net
                      cash flows from operating activities
                  
                  
                  (1,481,924
                  )
                  
                  
                  (3,688,859
                  )Cash
                      flows from investing activities:Purchase
                      of property and equipment
                  
                  
                  -
                  
                  
                  
                  (20,015
                  )Net
                      cash flows from investing activities
                  
                  
                  -
                  
                  
                  
                  (20,015
                  )Cash
                      flows from financing activities:Proceeds
                      from sales of common stock, netcosts
                      of $24,923
                  
                  
                  -
                  
                  
                  
                  184,145Proceeds
                      from convertible debentures, netcosts
                      of $82,000
                  
                  
                  -
                  
                  
                  
                  3,018,000Repayment
                      of related party debt
                  
                  
                  -
                  
                  
                  
                  (31,000
                  )Proceeds
                      from exercise of common stock warrants
                  
                  
                  75,790Proceeds
                      from notes payable
                  
                  
                  1,378,352
                  
                  
                  
                  375,000Repayment
                      of notes payable
                  
                  
                  (38,765
                  )
                  
                  
                  (8,824
                  )Net
                      cash flows from financing activities
                  
                  
                  1,415,377
                  
                  
                  
                  3,537,321Net
                      change in cash and cash equivalents
                  
                  
                  (66,547
                  )
                  
                  
                  (171,553
                  )Cash
                      and cash equivalents at beginning of period
                  
                  
                  34,132
                  
                  
                  
                  255,293Cash
                      and cash equivalents at end of period
                  
                  $
                  34,132
                  
                  
                  $
                  83,740
  The
          accompanying notes are an integral part of these condensed consolidated
          financial statements.
 F-4
   POWERLINX,
          INC.
 CONDENSED
          CONSOLIDATED STATEMENTS OF
          CASH FLOWS - CONTINUED
 (Unaudited)
 
 NON-CASH
          INVESTING AND FINANCING ACTIVITIES
  For
                    the nine months ended September 30,2007
                
                
                2006Issuance
                  of common stock for liabilities
                
                $
                172,959
                
                
                $
                192,129Issuance
                  of common stock for financing fees
                
                $
                -
                
                
                $
                46,055Conversion
                  of notes payable to convertible debentures
                
                $
                -
                
                
                $
                1,373,933Conversion
                  of convertible debentures to common stock
                
                $
                156,016$
                
                
                $
                -Warrants
                  reclassified as derivatives (See Note 8)
                
                $
                -
                
                
                $
                (144,780
                )Issuance
                  of common stock for interest
                
                $
                381,120
                
                
                $
                -Conversion
                  of  Series A preferred stock to common stock
                
                $
                -
                
                
                $
                22,045OTHER
                    CASH FLOW INFORMATIONCash
                  paid for income taxes
                
                $
                -
                
                
                $
                -Cash
                  paid for interest
                
                $
                -
                
                
                $
                2,733
 
 The
          accompanying notes are an integral part of these condensed consolidated
          financial statements.
 F-5
  POWERLINX,
        INC.
 NOTES
        TO CONDENSED CONSOLIDATED
        FINANCIAL STATEMENTS
 FOR
        THE NINE MONTHS ENDED SEPTEMBER
        30, 2007 AND 2006
 (UNAUDITED)
  1.
        Basis
        of presentation and significant accounting policies:
  The
        accompanying condensed consolidated financial statements have been prepared
        in
        accordance with generally accepted accounting principles for interim financial
        information and with the instructions to Form 10-QSB and Rule 10-01 of
        Regulation S-B. Accordingly, they do not contain all of the information and
        footnotes required by generally accepted accounting principles for complete
        financial statements
  In
        the
        opinion of management, the accompanying condensed consolidated financial
        statements reflect all adjustments (consisting only of normal recurring
        adjustments) considered necessary for a fair presentation of PowerLinx, Inc.'s
        (the "Company") financial position and the results of its operations and
        its
        cash flows for the nine months ended September 30, 2007 and 2006. These
        condensed consolidated financial statements should be read in conjunction
        with
        the Company's audited 2006 consolidated financial statements, including the
        notes thereto, and the other information set forth in the Company's Annual
        Report on Form 10-K, for the year ended December 31, 2006. Operating results
        for
        the nine month period ended September 30, 2007, are not necessarily indicative
        of the results that can be expected for a full fiscal year.
 
 Income
        (Loss) Per Share:
  Income
        (loss) per share (“EPS”) in is computed by dividing the net loss applicable to
        common stockholders by the weighted average common shares outstanding without
        including any potentially dilutive securities. Diluted EPS is computed by
        dividing the net loss applicable to common stockholders for the period by
        the
        weighted average common shares outstanding plus, when their effect is dilutive,
        common stock equivalents.
  Potentially
        dilutive securities, which have been excluded from the determination of diluted
        EPS because their effect would be anti-dilutive, are as follows:
  September
                    30,(unaudited)2007
                
                
                2006Shares
                    underlying convertible debentures ( Note 7)
                
                
                4,594,636
                
                
                
                4,347,141Shares
                    underlying convertible notes payable ( Note 8)
                
                
                1,404,923
                
                
                
                -Warrants
                
                
                2,466,839
                
                
                
                2,027,745Options
                
                
                134,116
                
                
                
                190,631Total
                    potentially dilutive shares excluded:
                
                
                8,600,514
                
                
                
                6,565,517
  Financial
        instruments:
 
 Financial
        instruments at September 30, 2007 and 2006 consist of cash and cash equivalents,
        accounts receivable, trade payables, accrued expenses, derivative liabilities,
        notes payable and convertible debentures. As of September 30, 2007 and 2006
        the
        fair values of cash and cash equivalents, accounts receivable, trade payables,
        accrued expenses approximated their respective carrying values, due to their
        relative current maturities. The estimated fair value of notes payable
        approximated $1,375,000 at September 30, 2007, based upon the present value
        of
        cash flows. The estimated fair value of convertible debentures approximated
        $4,600,000 at September 30, 2007, based upon the present value of cash
        flows.
 
 The
        Company generally does not use derivative financial instruments to hedge
        exposures to cash-flow risks or market-risks that may affect the fair values
        of
        its financial instruments. However, certain other financial instruments,
        such as
        warrants and embedded conversion features that are indexed to the Company’s
        common stock, are classified as liabilities when either (a) the holder possesses
        rights to net-cash settlement or (b) physical or net-share settlement is
        not
        within the control of the Company. In such instances, net-cash settlement
        is
        assumed for financial accounting and reporting, even when the terms of the
        underlying contracts do not provide for net-cash settlement. Such financial
        instruments are initially recorded at fair value and subsequently adjusted
        to
        fair value at the close of each reporting period.
 
 The
        caption Derivative Financial Instruments consists of (i) the fair values
        associated with derivative features embedded in the Convertible Debentures,
        (ii)
        the fair values of the detachable warrants issued in connection with the
        Convertible Debentures and (iii) the fair values of other warrants and
        convertible instruments where share-settlement is presumed not to be in the
        Company’s control. (See Note 8)
 
 Concentrations:
  Accounts
        receivable are concentrated in the Security and DC Transportation products
        segments and credit losses have been within management's expectations. Although
        the Company serves a large and varied group of customers, three customers
        accounted for 35% of the Company’s total net revenue, and 45% of the DC
        Transportation products segment net revenue for the nine months ended September
        30, 2007. For the nine months ended September 30, 2006, two customers accounted
        for 60% of the Company’s total net revenue. Three customers accounted for 42% of
        the DC Transportation products segment net revenue, and one customer accounted
        for 90% of the Security
  F-6
 POWERLINX,
          INC.
 NOTES
          TO CONDENSED CONSOLIDATED
          FINANCIAL STATEMENTS
 FOR
          THE NINE MONTHS ENDED SEPTEMBER
          30, 2007 AND 2006
 (UNAUDITED)
  Unrecognized
        tax benefits:
 
 The
          Company adopted the provisions of FASB Interpretation No. 48, “Accounting for
          Uncertainty in Income Taxes, an Interpretation of FASB Statement No.109” (“FIN
          48”) on January 1, 2007.  As a result of the implementation of FIN 48, the
          Company has not recognized any liability for unrecognized tax
          benefits.  The Company’s review indicates that any unrecognized tax
          benefits would not create a material liability but would merely reduce
          the net
          operating loss deferred tax asset which has been fully reserved for with
          a 100%
          valuation allowance.Management believes there should be no significant
          change in
          the total unrecognized tax benefits over the next twelve-month
          period.  It is not anticipated that any of the total unrecognized tax
          benefits, if recognized, would materially affect the effective tax
          rate.  The Company recognizes interest and penalties related to
          uncertain tax positions in income tax expense.  As of September 30, 2007,
          the Company has not accrued any interest or penalties related to uncertain
          tax
          positions.
 
 2.
        Liquidity and management's plans:
  The
        accompanying condensed consolidated financial statements have been prepared
        assuming that the Company will continue as a going concern. However, the
        Company
        has incurred losses from operations of $2,183,977 and $2,913,255 during the
        nine
        months ended September 30, 2007 and 2006, respectively. In addition, during
        those periods, the Company has used cash of $1,481,924 and $3,688,859
        respectively, in its operating activities and has a stockholders' deficit
        at
        September 30, 2007. These conditions raise substantial doubt about the Company's
        ability to continue as a going concern.
 
 The
        Company has allocated significant resources to the development of new power
        line
        technologies and products that will be available for sale and/or licensing
        during the fourth quarter of fiscal year 2007. The Company’s ability to continue
        will be dependent upon achieving profitable operations through the licensing
        and
        sales of these new technologies and products.
  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, DC Transportation, and new Audio products segments, and (iii)
        ultimately the achievement of profitable operations. During the nine months
        ended September 30, 2007, the Company secured net financing of $1,253,098
        in the
        form of short-term notes payable from its primary financial partner and other
        various accredited investors. While the proceeds of this financing did mitigate
        the Company’s liquidity difficulties for the nine months ended September 30,
        2007, additional funding will be required to fund the launch of the Company’s
        new power line products and technologies, which are now ready for release,
        and
        to fund operations. In addition to the continued effort to reduce overhead
        expenses through the streamlining of its operations, the Company plans to
        continue to borrow funds through the issuance of short-term convertible
        promissory notes until longer-term financing can be arranged. Management
        and the
        Board of Directors are currently reviewing the long-term financing options
        available to the Company based on its current strategic plan, which includes
        the
        possible restroture or conversion of the convertible payable and convertible
        debenturies.The ability of the Company to sustain its operations for a
        reasonable period without further financing cannot be assured and the condensed
        consolidated financial statements do not include any adjustments that might
        arise as a result of this uncertainty.
 
 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 power line rear vision systems and sources a full line of
        accident avoidance products for all classes of vehicles in the transportation
        industry. The products are sold to fleets, bodybuilders, distributors and
        original equipment manufacturers throughout the United States. 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:
  Nine
                    months ended September 30, 2007(unaudited)Security
                
                
                Marine
                
                
                DC
                    TransProducts
                
                
                Products
                
                
                Products
                
                
                TotalNet
                    revenue
                
                $
                149,474
                
                
                $
                156,942
                
                
                $
                1,015,921
                
                
                $
                1,322,337Cost
                    of sales
                
                $
                104,120
                
                
                $
                95,033
                
                
                $
                511,750
                
                
                $
                710,903Gross
                    profit
                
                $
                45,354
                
                
                $
                61,909
                
                
                $
                504,171
                
                
                $
                611,434Research
                    and development:
                
                $
                408,202
                
                
                $
                6,517
                
                
                $
                8,320
                
                
                $
                423,039
  F-7
 POWERLINX,
          INC.
 NOTES
          TO CONDENSED CONSOLIDATED
          FINANCIAL STATEMENTS
 FOR
          THE NINE MONTHS ENDED SEPTEMBER
          30, 2007 AND 2006
 (UNAUDITED)
  Nine
                    months ended September 30, 2006(unaudited)Security
                
                
                Marine
                
                
                DC
                    TransProducts
                
                
                Products
                
                
                Products
                
                
                TotalNet
                    revenue
                
                $
                879,001
                
                
                $
                132,983
                
                
                $
                491,996
                
                
                $
                1,503,980Cost
                    of sales
                
                $
                689,232
                
                
                $
                78,414
                
                
                $
                246,088
                
                
                $
                1,013,734Gross
                    profit
                
                $
                189,769
                
                
                $
                54,569
                
                
                $
                245,908
                
                
                $
                490,246Research
                    and development:
                
                $
                429,626
                
                
                $
                3,547
                
                
                $
                74,494
                
                
                $
                507,667
  4.
        Inventories:
  Inventories
        consisted of the following:
  September
                    30,
                
                
                December
                    31,2007
                
                
                2006Component
                    Parts
                
                $
                215,274
                
                
                $
                236,481Finished
                    Goods
                
                $
                277,873
                
                
                $
                447,815$
                493,147
                
                
                $
                684,296
  5.
        Intangible assets:
  Intangible
        assets consist of the following:
  September
                    30,2007
                
                
                December
                    31,(unaudited)
                
                
                2006Patents
                
                $
                2,318,961
                
                
                $
                2,318,961Software
                    license agreement
                
                
                461,360
                
                
                
                461,360Trademark
                
                
                93,924
                
                
                
                93,924Acumulated
                    amortization
                
                
                (2,588,660
                )
                
                
                (2,496,955
                )$
                285,585
                
                
                $
                377,290
  6.
        Notes
        Payable:
 
 The
        Company executed a promissory note on January 29, 2007 in the amount of
        $300,000. The note was due on February 28, 2007, and bears an 8% interest
        rate.
        On March 21, 2007, we executed a second promissory note in the amount of
        $200,000. The note was due on May 5, 2007, and bears an 8% interest rate.
        Interest on each of these notes was due and payable upon the maturity dates.
        On
        May 14, 2007, the Company received an additional $50,000 in cash from its
        primary finance partner, the proceeds of which are included in a note payable
        that consolidates all outstanding notes payable with this finance
        partner.  The Company issued a new consolidated unsecured note payable
        in the amount of $898,661 which includes the following; the retirement of
        the
        September 14, 2006 note payable in the principal amount of $300,000, the
        retirement of the January 29, 2007 note payable in the principal amount of
        $300,000, the retirement of the March 21, 2007 note payable in the amount
        of
        $200,000, accrued interest in the amount of $48,662 (including default rate
        interest of 18%) on the three aforementioned notes, and $50,000 in new proceeds
        received on May 14, 2007. The original maturity date of the consolidated
        note
        was July 13, 2007, but has been extended by the lender until January 31,
        2008.
        The principal and interest is due and payable upon maturity.  The note
        bears an 8% interest rate and an 18% default interest rate for all principal
        amounts outstanding beyond the maturity date.
 
 The
        Company has an unsecured non-interest bearing note with payments in the amount
        of $1,765 due and payable through October 2007.
 
 F-8
 POWERLINX,
          INC.
 NOTES
          TO CONDENSED CONSOLIDATED
          FINANCIAL STATEMENTS
 FOR
          THE NINE MONTHS ENDED SEPTEMBER
          30, 2007 AND 2006
 (UNAUDITED)
  7.
        Convertible Debentures
 
 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
        8% Convertible Debentures, due March 22, 2008 (the "Convertible Debentures")
        and
        detachable warrants to purchase 1,841,335 shares of common stock (the
        "Warrants") for proceeds of $3,100,000 and $1,373,933 of pre-existing notes
        and
        accrued interest (the "Proceeds"). Financing costs amounted to $82,000. On
        March
        23, 2006 the Company issued $4,073,933 face value of the Convertible Debentures
        for cash of $2,700,000 and the pre-existing notes. On March 27, 2006 and
        March
        29, 2006, the Company issued $250,000 and $150,000, respectively, of Convertible
        Debentures for cash.
 
 The
        Purchasers received registration rights related to the common shares underlying
        the conversion feature of the Convertible Debentures and the Warrants. The
        Registration Rights include requirements for filing, effectiveness, continued
        effectiveness and continued listing over the term of the outstanding
        instruments. The Registration Rights Agreement provides for monthly liquidating
        damages of up to 2.0% for failure to achieve or maintain effectiveness and
        listing. In addition, the Convertible Debentures provide for a mandatory
        redemption of 120% of outstanding face value for defaults under the Debenture
        and Registration Rights Agreements.
 
 8.0%
        Convertible Debentures,
        Warrants and Other Derivatives:
 
 The
        carrying value of the Company’s 8.0%, Face Value $4,473,933 Convertible
        Debentures amounted to $1,397,846 at September 30, 2007. Amortization of
        the
        debt discount, included in interest expense, amounted to approximately
        $1,142,000 for the nine months ended September 30, 2007.
 
 The
        Convertible Debenture Financings included registration rights and certain
        other
        terms and conditions related to share settlement of the embedded conversion
        features and the warrants that the Company has determined are not within
        its
        control. In addition, certain features associated with the financings, such
        as
        variable redemption rates afforded the Purchasers render the number of shares
        issuable to be indeterminate. These instruments and derivative elements are
        carried at their fair values in the accompanying condensed consolidated balance
        sheets.
  Derivative
        Liabiities:
 Derivative
        liabilities consist of the following at September 30, 2007:
 
 Embedded
                  derivative instruments
              
              $
              115,539Freestanding
                  derivatives (warrants)
              
              
              549,840Other
                  derivative financial instruments (1)
              
              
              20,984$
              686,363
 
 (1)           Other
        derivative financial instruments represent the fair values of warrants and
        other
        convertible instruments that were reclassifiedfrom stockholders’ equity when, in
        connection with the Convertible Debenture Financings, the Company determined
        that it no longerhad sufficient authorized and unissued shares to settle
        all of
        its instruments. The balance in the table above represents the fair value
        at
        September 30, 2007.
 
 The
        following tabular presentation reflects the number of common shares into
        which
        the aforementioned derivatives are indexed at September 30, 2007:
 
 Common
                  shares indexed:Embedded
                  derivative instruments
              
              
              4,594,636Freestanding
                  derivatives (warrants)
              
              
              2,346,157Other
                  derivative financial instruments
              
              
              120,6827,061,475
 
 Income
        for the nine months ended September 30, 2007 associated with adjustments
        recorded to reflect the aforementioned derivatives at fair value amounted
        to
        $2,455,080 in derivative gain.
 
 F-9
  POWERLINX,
        INC.
 NOTES
          TO CONDENSED CONSOLIDATED
          FINANCIAL STATEMENTS
 FOR
          THE NINE MONTHS ENDED SEPTEMBER
          30, 2007 AND 2006
 (UNAUDITED)
   Fair
        value considerations
        for derivative financial instruments as of September 30,
        2007:
 
 Freestanding
        derivative instruments, consisting of the Warrants and reclassified derivative
        instruments that arose from the Convertible Debenture Financing are valued
        using
        the Black-Scholes-Merton valuation methodology because that model embodies
        all
        of the relevant assumptions that address the features underlying these
        instruments. Significant assumptions included in this model as of September
        30,
        2007 are as follows:
 
 OtherInstrument
              
              Warrants
              
              
              DerivativesExercise
                  prices
              
              $
              2.375
              
              
              $
              5.00--$25.00Term
                  (years)
              
              
              3.50
              
              
              
              .67--8.25Volatility
              
              
              125.22
              %
              
              
              136.54%--155.40
              %Risk-free
                  rate
              
              
              4.35
              %
              
              
              4.35
              %
  Embedded
        derivative instruments consist of multiple individual features (conversion
        features and redemption features) that were embedded in the Convertible
        Debentures. The Company evaluated all significant features of the hybrid
        instruments and, where required under current accounting standards, bifurcated
        features for separate report classification. These features were, as
        attributable to each Debenture, aggregated into one compound derivative
        financial instrument for financial reporting purposes. These compound embedded
        derivative instruments are valued using the Flexible Monte Carlo methodology
        because that model embodies certain relevant assumptions (including, but
        not
        limited to, interest rate risk, credit risk, and Company-controlled/mandatory
        redemption features) that are necessary to value these complex
        derivatives.
 
 Significant
        terms and assumptions included in this model as of September 30, 2007 are
        as
        follows:
 
 Conversion
                  price
              
              $
              1.235Actual
                  term (years)
              
              
              2.0Equivalent
                  term (years)
              
              
              .50Equivalent
                  volatility
              
              
              142.99
              %Equivalent
                  risk-adjusted interest rate
              
              
              11.42
              %Equivalent
                  risk-adjusted yield rate
              
              
              92.62%--107.24
              %
  Equivalent
        amounts reflect the net results of multiple modeling simulations that the
        Monte
        Carlo Simulation methodology applies to underlying assumptions.
 
 In
        May
        2007, the Company converted accrued interest of approximately $428,000 to
        346,331 shares of the Company's common stock. The accrued interest consisted
        of
        approximately $340,000 of interest based on the 8% stated interest rate of
        the
        convertible debentures and additional interest of approximately $88,000 due
        to
        the holders of the debenture upon conversion to equity, pursuant to the Purchase
        Agreement. The Company recorded approximately, $300,000 to prepaid interest
        for
        the difference between interest earned and converted to common stock and
        the
        amount charged to the statement of operation based on the accretion of the
        discount (including accrued interest) using the effective interest
        method.
 
 During
        August 2007, the Board of Directors approved a repricing of the exercise
        price
        of the freestanding warrants from $2.37 to $0.60 for a one week period. Warrants
        to purchase 126,316 shares of common stock were exercised at the $0.60 price.
        The $15,700 difference in the fair value of the warrants due to the repricing
        was recorded as expense.
 
 As
        of
        September 30, 2007 and December 31, 2006, the Company was in default under
        the
        terms of the Purchase Agreement and the Debentures issued on March 22, 2006.
        The
        terms of the Purchase Agreement and the Debenture required that the Company
        generate gross profit in excess of $300,000 per month on average during the
        period from October 1, 2006 to December 31, 2006. Under the default provisions;
        upon the Company delivering an Event of Default Notice to Purchasers (Debenture
        holders) or the Purchasers becoming aware of an Event of Default, the Purchasers
        may require the Company to redeem all or any portion of their Debenture by
        delivering an “Event of Default Redemption Notice” to the Company. At that time
        the Company would be required to redeem the requested portion of the debenture
        at a redemption value calculated in accordance with the default provisions
        in
        the March 22, 2006 Securities Purchase Agreement, to be no less than 120%
        of the
        principal amount requested to be redeemed. At September 30, 2007, the Company
        had not negotiated a form of a Waiver Agreement with the Purchasers covering
        the
        Company’s inability to meet this covenant. The Company has not received an
“Event of Default Redemption Notice” from any Purchaser and is currently engaged
        in negotiating with the Purchasers in order to enter into a waiver agreement
        covering the aforementioned default.
  Because
        the Company was in default as of September 30, 2007 and December 31, 2006,
        and
        while under default, may receive an “Event of Default Redemption Notice” at any
        time; the liabilities associated with the Debentures on the accompanying
        condensed consolidated balance sheets, as presented, have been reclassified
        from
        long-term to current liabilities.
  8.
        Convertible notes payable:
 
 During
        the months of May through September of 2007, the Company borrowed $508,598
        from
        accredited investors and related parties through issuance of short-term
        convertible promissory notes.  These convertible notes are all
        unsecured, bear interest at 8% annually, and mature 30 days from their
        inception.  As of September 30, 2007, $471,598 of the face value of
        the convertible notes remained outstanding, and all but three, with a face
        value
        totaling $100,000 have had their maturity date extended until December 15,
        2007.  The three convertible notes for which the maturity dates were
        not extended were in default at September 30, 2007 (See Note 11).
  F-10
  POWERLINX,
          INC.
 NOTES
          TO CONDENSED CONSOLIDATED
          FINANCIAL STATEMENTS
 FOR
          THE NINE MONTHS ENDED SEPTEMBER
          30, 2007 AND 2006
 (UNAUDITED)
  The
        convertible notes payable were convertible at the option of the lender into
        the
        Company’s common stock at $.60 per share and 3-year warrants to purchase an
        additional 50% of the converted shares at an exercise price of $1.25 per
        share.  However; on August 17, 2007, the Board of Directors approved a
        modification of the conversion terms, for all subsequent promissory notes,
        to
        $.35 per share and 3-year warrants to purchase an additional 50% of the
        converted shares at an exercise price of $0.75 per share. As of September
        30,
        2007, the face value of convertible notes issued and outstanding under the
        modified terms was $100,598.
 
 In
        conjunction with the issuance of the convertible notes, each holder received
        the
        number of shares of restricted common stock equal to 25% of the principal
        note
        proceeds.  The Company issued 127,150 shares of the common stock with
        a fair value of $112,601_for these notes.  The convertible notes were
        recorded net of a $508,598 discount resulting from the original allocation
        of
        the fair values of the loans and the common stock issued $45,811 and the
        remaining $462,787 discount resulting from a beneficial conversion feature
        of
        these notes.  Convertible notes payable consist of the following at
        September 30, 2007:
  On
        August
        29, 2007, the Company entered into an agreement to borrow $210,000 from an
        accredited investor through the issuance of a six month convertible promissory
        note with an annual interest rate of 12%. The convertible promissory note
        is
        convertible at $0.48 per share at the option of the lender and carries piggyback
        registration rights.  The Company received net proceeds of $199,500 on
        September 6, 2007 after paying a 5% management fee, or $10,500, in accordance
        with the terms of the agreement.  The note was collateralized by a
        third party shareholder with 804,507 shares of the Company’s common
        stock.  The transaction included a “First” equity fee amounting to
        23.34% of the loan value, or $49,014 based on the closing price of the Company’s
        common stock on the day of funding, resulting in the issuance of 94,258 shares
        of restricted common stock for the first 90 days the loan is
        outstanding.  The terms of the agreement requires the payment of an
        identical “Second” equity fee if the loan remains unpaid after the 90th
        day from the date
        of funding.  The “Second” equity fee will be valued at the lower of
        the closing price of the Company’s common stock on the day of funding, or the
        average of the closing price of the Company’s common stock for the ten trading
        days prior to the 90th
        day the note is
        outstanding. In the case of the “Second” Equity fee, the agreement stipulated
        that in the event the price of the Company’s stock declines in value during the
        90 day period after issuance, then the number of shares included in the “Second”
Equity fee shall be subject to an upward adjustment. This provision has been
        accounted for as a freestanding written put liability. At September 30, 2007,
        the liability is $16,646 and is recorded in derivative liabilities in the
        consolidated balance sheets. In addition, under the terms of the agreement,
        the
        Company issued warrants with a 5 year expiration, to purchase an additional
        105,000 shares of the Company’s common stock at an exercise price of $0.65 per
        share, or 125% of the closing price of the Company’s common stock on the date of
        funding.  The warrants did not meet all of the criteria for equity
        classification and consequently have been recorded as a warrant liability
        in the
        consolidated balance sheets at September 30, 2007.
  Convertible
        notes priable consists of the following at September 30, 2007:
  Principal
                      Balance
                  
                  $
                  718,598Less
                      reductions for:Fair
                      value of common stock
                  
                  
                  (97,310
                  )Fair
                      value of beneficial conversion feature
                  
                  
                  (588,041
                  )Fair
                      value of warrants
                  
                  
                  (56,091
                  )Fair
                      value of  derivative liability
                  
                  
                  (16,928
                  )Derivative
                      loss at inception
                  
                  
                  39,772Accretion
                      of discount (interest expense)through
                      September 30, 2007
                  
                  
                  468,938Carrying
                      value at September 30, 2007:
                  
                  $
                  468,938
 F-11
  10.
        Commitments and contingencies:
 
 Material
        Commitments:
 
 On
        March
        15, 2007, the Company signed a two year Consulting Agreement (the “Agreement”)
        with a consulting company (the “Consultant”) hired to assist the Company in
        areas of strategic business planning, financial advisory, and investor and
        public relations services; and specifically to design and implement an investor
        and public relations program designed to make the investing public knowledgeable
        about the benefits of stock ownership in the Company. Under the Agreement,
        the
        Company agreed to pay the Consultant three thousand dollars ($3,000.00) per
        month, payable on the 15th of each month, commencing on the date of the
        agreement, and 440,000 shares of the Company’s common stock restricted for a
        year under Rule-144 of the Act (the “Shares”); as total and complete
        consideration for the services to be provided by the Consultant to the
        Company.  Under the Agreement, as amended, the Consultant will
        commence earning Shares on May 1, 2007, earning one-twelfth (1/12) of the
        total
        Shares to be issued under the Agreement each month, for twelve consecutive
        months. The issuance of Shares shall occur in four equal periodic installments
        over the course of twelve (12) months, on the last day of each three month
        earning period as follows; 110,000 Shares on July 31, 2007, 110,000 Shares
        on
        October 31, 2007, 110,000 on January 31, 2008, and 110,000 on April 30, 2008.
        Either party may terminate the agreement upon a sixty (60) day written
        notice.  In the event of termination, the “Termination Date” will be
        the 60th
        day after the
        written termination notice is properly delivered in accordance with the terms
        of
        the Agreement.  Any cash or Shares earned by the Consultant up to the
        Terminate Date will be pro-rated to the day, based on a 360 day calendar
        year.  During the three month period ending September 30, 2007, the
        Consultant earned 110,000 shares in accordance with the agreement. The shares
        were valued based on the closing market price of the Company’s common stock on
        the last day of each month.   The amount is included in accrued
        expenses in the accompanying September 30, 2007 condensed consolidated balance
        sheet.
 
 On
        April
        30, 2007, the Company executed an amendment to the original April 2, 2004
        lease
        agreement for office space it leases in Concord, California where its research
        and development operation resides.  The amendment extends the lease
        for an additional year, commencing May 1, 2007 through April 30,
        2008.  The total commitment due under the amendment equals $24,203,
        payable in equal monthly installments of $2,017.
 
 F-12
  The
        Company leases its office and warehouse facilities under non-cancellable
        leases.
        Minimum lease payments under the non-cancellable operating leases as of
        September 30, 2007 are as follows:
 R
                    & D Office
                
                
                CorporateLease
                
                
                Office
                    LeaseConcord,
                    CA
                
                
                St.
                    Petersburg, FL
                
                
                TotalYears
                    ending September 30,2008
                
                $
                24,203
                
                
                $
                88,271
                
                
                $
                112,4742009
                
                
                -
                
                
                
                91,699
                
                
                
                91,6992010
                
                
                -
                
                
                
                95,127
                
                
                
                95,1272011
                
                
                -
                
                
                
                49,706
                
                
                
                49,7062012
                
                
                -
                
                
                
                -
                
                
                
                -$
                24,203
                
                
                $
                324,803
                
                
                $
                349,006
  The
        Company recorded rent expense of $87,489 and $95,703 under non-cancellable
        leases for the nine months ended September 30, 2007 and 2006,
        respectively.
 
 Litigation,
        claims and assessment:
  Reed
        Elsevier,
        Inc.
 
 On
        April
        26, 2007 the Company learned that a default judgment had been entered against
        it
        on August 1, 2006 in the Circuit Court of the 6th
        Judicial Circuit
        of Pinellas County, Florida, in the amount of $20,192; to the plaintiff Reed
        Elsevier, Inc.  The obligation is associated with a commitment made in
        December of 2004, by a former officer of the Company, for floor space at
        a trade
        show in March of 2005, at which the Company did not attend.  The
        Company has retained counsel to negotiate a resolution to the matter, and
        is
        awaiting a response from the plaintiff for a meeting date.  The
        Company recorded a liability in the amount of $22,203, including post judgment
        interest, which is included in accrued expenses in the accompanying September
        30, 2007 condensed consolidated balance sheet.
  Guestlinx,
        LLC
  On
        May
        19, 2006 the Company learned that a default judgment had been entered against
        it
        on May 3, 2006 in the Superior Court of California, Orange County, in the
        amount
        of $90,561, to the plaintiff Guestlinx, LLC. The obligation is associated
        with
        the Hotel/MDU product segment, the operations of which were discontinued
        in
        April of 2005. The judgment was granted based on an action filed by Guestlinx,
        LLC on November 2, 2005. We had no prior knowledge of the action and believe
        it
        was never properly served. We retained counsel in California, and on August
        4,
        2006 were successful in having the judgment set aside for improper service.
        We
        had previously recorded a liability associated with this dispute in the amount
        of $46,352. On December 8, 2006, we negotiated a settlement and release
        agreement at a mandatory settlement conference, in the amount of $52,500.
        We
        remitted $16,250 toward the settlement amount on December 15, 2006, and the
        remaining balance of $36,250 was recorded as an accrued liability at December
        31, 2006. Under the agreement, we were required to pay the remaining
        balance by February 15, 2007, but were unable to do so. The agreement provides
        for the plaintiff to receive a stipulated judgment in the amount of $60,000
        (less amounts remitted) if we are in default of the agreement. On April 18
        2007,
        the plaintiff filed for and received the default judgment and the Company’s
        counsel is currently working with the plaintiff on a revised payment
        schedule.  The Company increased the aforementioned liability in the
        amount of $7,500 to account for the additional obligation incurred under
        the
        stipulated judgment.  The amounts are included in accrued expenses in
        the accompanying September 30, 2007 and December 31, 2006 condensed consolidated
        balance sheets.
 
 Pro-Marketing
        Inc.
 
 On
        August
        18, 2005 the Company agreed to a settlement with Pro-Marketing of Texas,
        Inc.
        relating to an alleged breach of contract from a financing transaction that
        took
        place during fiscal year 2000.  The settlement consisted of the
        issuance of 3,000 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.  Since August of 2005, the
        Company remitted payments totaling $30,000.  On October 2, 2007 the
        Company agreed to the plaintiffs Motion for Final Summary Judgment, in the
        Circuit Court for Pinellas County, in the amount of $32,597.50, which includes
        pre-judgment interest and attorney’s fees.
 
 Acu-cast
        Technologies,
        LLC
 
 On
        June
        11, 2007, Acu-cast Technologies, LLC filed a complaint against the Company
        in
        the amount of $4,437 in the County Court of Lawrence, Tennessee.  The
        liability relates to proto-types made by the plaintiff on behalf of the
        Company.  During September 2007, the Company paid $4,220 as full
        settlement for the liability.
  11.  Subsequent
        Events:
  On
        November 6, 2007, the Company’s Board of Directors approved a resolution to
        modify the conversion terms for the $471,598 of outstanding promissory notes
        (See Note 8).  All outstanding notes will be convertible, at the
        option of the lender, into restricted common stock at $.15 per share, and
        three
        year warrants to purchase an additional 50% of the converted shares at an
        exercise price of $0.45 per share.
 
 On
        November 8, 2007, the Company received a demand letter from ICON Capital
        Partners, LP, for the repayment of three short-term unsecured promissory
        notes
        totaling $100,000.  The convertible notes consisted of a $25,000 note
        issued on May 11, 2007, due June 10, 2007, and extended to August 24, 2007;
        a
        $50,000 note issued on May 30, 2007, due on July 30, 2007, and extended to
        August 29, 2007; and a $25,000 note issued on June 14, 2007, due July 13,
        2007,
        and extended to August 13, 2007.  The demand letter asked for payment
        in full of principal and interest by November 19, 2007.  As of the
        time of this filing, the notes remain outstanding and the Company is working
        with several accredited investors to obtain additional capital to repay these
        notes.
 
 Subsequent
        to December 15, 2007, the Company was in default on the remaining convertible
        notes payable with a face value of $371,598.  The maturity date was
        not extended beyond December 15, 2007 and therefore the convertible notes
        were
        in default.  As of September 30, 2007, the convertible notes payable
        are classified as current liabilities.
 
 In
        addition, subsequent to September 30, 2007, the Company borrowed and additional
        $120,900 through the issuance of a series of 30 day short-term convertible
        promissory notes to accredited investors on the same terms and conditions
        outlined above.  Subsequent to December 15, 2007, the Company was in
        default on $53,000 of these notes.  The maturity date was not extended
        beyond December 15, 2007 and therefore the convertible notes were in
        default.
 
 F-13
 
 Item
        2. Management's Discussion and
        Analysis of Financial Condition and Results of Operations.
  Cautionary
        Statement Regarding
        Forward-Looking Statements
  You
        should read the following discussion and analysis in conjunction with the
        Financial Statements and related Notes contained elsewhere in this Quarterly
        Report on Form 10-QSB (the "Report"). The information in this Report is not
        a
        complete description of our business or the risks associated with an investment
        in our common stock. We urge you to carefully review and consider the various
        disclosures made by us in this Report and in our other reports filed with
        the
        SEC, including our Annual Report on Form 10-K for the year ended December
        31,
        2006.
  The
        section entitled "Risk Factors"
        set forth in our Annual Report on Form 10-K for the year ended December 31,
        2006
        and similar types of discussions in other SEC filings discuss some of the
        important risks that may affect our business, results of operations and
        financial condition.  Some of those risks are as
        follows:
  ·
              Our
                  business depends on the protection of our intellectual property
                  and may
                  suffer if we are unable to adequately protect our intellectual
                  property.
  ·
              Our
                  stock price can be extremely
                  volatile.
  You
        should carefully consider those risks, in addition to the other information
        in
        this Report and in our other filings with the SEC, before deciding to invest
        in
        our Company or to maintain or decrease your investment.
  This
        Quarterly Report may contain forward-looking @ statements within the meaning
        of
        Section 17A of the Securities Exchange Act of 1933, as amended, and Section
        21E
        of the Securities Exchange Act, as amended. Examples of forward-looking
        statements include, but are not limited to: (a) projections of our revenues,
        capital expenditures, growth, prospects, dividends, capital structure and
        other
        financial matters; (b) statements of our plans and objectives; (c) statements
        of
        our future economic performance; (d) statements of assumptions underlying
        other
        statements and statements about us and our business relating to the future;
        and
        (e) any statements using the words "believes," "budget," "target," "goal,"
        “anticipate," “expect," "plan," "outlook," "objective," “may," “project,"
“intend," "estimate," or similar expressions. These statements are only
        predictions. These statements are not guarantees of future performance and
        are
        subject to certain risks, uncertainties and assumptions that are difficult
        to
        predict.
  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
  Our
        current products, and products and technologies under development, are based
        on
        our proprietary analog and digital power line communication technology
        (PLC).  Our PLC technology has been developed to transmit voice,
        video, audio and data either individually, or in combination. PLC transmission
        can take place over power lines, twisted pair wires and coaxial cables in
        AC and
        DC power environments, through any power grid.  We also develop,
        manufacture and market underwater video cameras, lights and accessories for
        the
        marine, commercial and consumer retail markets.
 
 Through
        fiscal year ended December 31, 2006 and the nine months ended September 30,
        2007, our power line products have been sold successfully into primarily
        two
        markets; security and transportation.  Our single analog camera,
“SecureView”, is currently being sold to The Home Shopping Network and Sam’s
        Club, and has been the primary source of revenue in this segment.  The
        Company will expand its product line in the security / video surveillance
        market
        segment in 2008 with the introduction of a multi-camera analog security system
        and a digital IP Netcam.
 
 We
        believe our new IP Netcam is a perfect way to remotely monitor either a home
        or
        small business from a different location using a PC.  The IP Netcam
        uses your home’s electrical wiring as a “digital pipeline” to deliver streaming
        video from up to 8 individual cameras around your home or
        business.  Each camera is actually a sophisticated “video server” that
        configures itself automatically within your PC. Simply plug the camera into
        any
        electrical wall outlet, plug the companion receiver into any electrical outlet,
        and connect the base to your network or cable modem. Once connected, your
        cameras are available in a secure network available only to authorized users.
        Market statistics show that the IP Camera market is expected to grow by 20%
        annually, with projected segment sales of $649 million by 2009.  We
        have found in this marketplace that internet users want to monitor their
        homes
        and businesses remotely.  In fact, 56% want remote monitoring of home
        and business webcams, 45% want to manage home security via a PC, and 47%
        want
        network cameras for home security.
 
 In
        our
        transportation products segment, in addition to power-line rear vision systems,
        we have continued to upgrade and expand our product offerings and now carry
        a
        full line of accident avoidance products including hard wired vision systems,
        DVRs, and GPS for tracking and directions.
 
 3
  For
        the
        three months ended September 30, 2007, net revenues of $573,086 decreased
        42%
        compared to net revenues for the same period ended September 30, 2006. Operating
        expenses of $988,751 for the three months ended September 30, 2007 increased
        23%
        compared to operating expenses for the same period ended September 30,
        2006.  Loss from operations of $721,474 for the three months ended
        September 30, 2007 increased 37% compared to the same period ended September
        30,
        2006.
 
 The
        primary reason for the decrease in net revenues was due to a one time
        significant sale to a large retailer in the previous comparative
        period.  The increase in operating expenses and net loss from
        operations was due primarily from stock based compensation to consultants
        for
        services provided in conjunction with the launch of our new product line
        and
        promotion of the Company within the consumer electronics industry.
 
 The
        operating results of the DC Transportation Product Segment continued to improve
        significantly compared to the prior comparative period. Net revenues in the
        transportation division increased 233%, to $447,196 for the three months
        ended
        September 30, 2007, from $134,029 for the same period ended September 30,
        2006.  The growth in this segment was driven primarily by two
        factors.  First, the industry has an extremely lengthy sales cycle,
        and the efforts made by our sale personnel during 2006 fiscal year, and targeted
        trade show participation during the same year, has resulted in the acquisition
        of new customers and distributors that have been in our sales
“pipeline”.  Second, we have continued to expand and upgrade our
        product line allowing us to gain incremental revenues from existing customers
        who may have in the past purchased certain systems and components from competing
        suppliers.
 
 As
        previously announced, we will launch a new product segment in 2007; the Audio
        Segment, with the introduction of three products which transmit audio over
        the
        power line.  In the Audio Segment, our business plan is focused on
        leveraging our proprietary technologies, and to deliver the next generation
        of
        power line communication products aimed at the wireless audio market. Our
        target
        market will be the home-based user and small office user. Our research has
        concluded that some of the fastest growing areas of the consumer market can
        benefit from our technology.  The home audio sales market will be
        approximately $6 billion in 2007, largely driven by the portable audio market.
        The portable audio market includes Apple Computer Inc.'s iPod player and
        Microsoft Corp.'s recently launched Zune player, as well as other MP3-format
        audio players. Sales of portable audio players will account for 90 percent
        of
        all audio sales in 2007, with an estimated 41 million portable audio players
        being shipped, compared to the 34 million players shipped in
        2006.  The research conclusively shows that the popularity of digital
        music stored on PC's, Mac's, Apple’s iPod®, and MP3 players has led to an
        increased demand by consumers to play stored music anywhere in their home
        or
        office.
 
 In
        the
        multi-billion dollar home theatre market, we have found that a large number
        of
        consumers have cited two main reasons of dissatisfaction with their home
        theatre
        systems: 1) there were too many wires that had to be connected to make the
        system work as advertised; and 2) many of the wires were exposed due to the
        distance of the system components from the system base.  Because of
        these two reasons, a large number of home theatre systems do not have the
        rear
        speakers hooked up at all, resulting in less than expected performance of
        the
        system. This lack of overall performance is a problem not only for consumers,
        but for manufacturers as well.
 
 1)Tune
        DogTM:
        This is an
        iPod/MP3/iPhone accessory, complete with audio speakers, which will allow
        the
        user to send music wirelessly to any room in their home from an iPod®, MP3
        player, or PC, using only existing electrical wiring.
 
 2)
        Audio EverywhereTM:
        This
        accessory is targeted at existing home entertainment systems and component
        stereo systems, and it will allow a stereo tuner to send audio through a
        home’s
        existing electrical wiring. Speakers can then be connected to the receiver
        for
        digital-quality music anywhere in the home with no additional wires, cables,
        antennas, or radio frequency (RF) equipment.
 
 3)
        Rear Speakers DIY Install
        KitTM:
        This
        accessory is targeted at new and existing home entertainment systems, with
        surround sound.  Potential licensing partners have told us that 75 to
        80% of rear surround sound speakers are either never connected or located
        on the
        front wall with the audio source because users find it to difficult hide
        the
        wires to the rear speakers.  Our Rear Speakers DIY Install KitTM
        enables the user
        to use the existing electrical wires in their home to transmit to the rear
        speakers as part of the overall home theatre experience.
 
 The
        2007
        launch of our new audio product and the 2008 launch of our new video products
        is
        the culmination of almost two years of intensive and focused research and
        development efforts and we believe these products are well branded, and well
        positioned for success in the markets we have targeted.  During
        February 2007, the complete product specifications for the audio products
        were
        sent to several potential manufacturers in Asia for quoting and we intend
        to
        begin the manufacturing of an initial production run after a manufacturer
        is
        chosen.
 
 We
        were
        able to raise additional capital during the three months ended September
        30,
        2007 through the issuance of a series of short-term promissory notes (See
        Liquidity and Capital Resources and Note 8); however, additional funding
        will be
        required to fund the launch of our new power line products and technologies,
        and
        to fund operations through June 30, 2008, or until we achieve
        profitability.  We are currently evaluating various long-term funding
        options based on our strategic plan.
  4
  RESULTS
        OF
        OPERATIONS
  See
        Note
        3 to the condensed consolidated financial statements for additional segment
        reporting.
  NINE
        MONTHS ENDED SEPTEMBER 30, 2007
        AND SEPTEMBER 30, 2006
  NET
        REVENUE: Net revenue decreased 12% from $1,503,980 for the nine months ended
        September 30, 2006 to $1,322,337 for the nine months ended September 30,
        2007.
        Marine product segment sales were $156,942 or 12% of total revenues for the
        nine
        months ended September 30, 2007 compared to $132,983, or 9% of total revenues,
        for the nine months ended September 30, 2006. Overall, marine product sales
        increased $23,959, or 18%. Security product segment sales were $149,474 or
        11%
        of total revenues for the nine months ended September 30, 2007 compared to
        $879,001, or 58% of total revenues, for the nine months ended September 30,
        2006. Overall, security product sales decreased $729,527, or 83%. DC
        Transportation product segment sales were $1,015,921, or 77% of total revenues
        for the nine months ended September 30, 2007 compared to $491,996, or 33%
        of
        total revenues for the nine months ended September 30, 2006. Overall, DC
        Transportation product sales increased $523,925, or 106%. The increase in
        net
        revenues for the marine product segment was due to a concentrated effort
        on
        internet marketing. The decrease in net revenues for the security product
        segment was because the previous year comparative quarter included a large
        one
        time sale to a large retailer.  The increase in net revenues for the
        DC transportation product segment was due to a continual expansion and upgrading
        of the product line, and the acquisition of new customers from leads developed
        by sales personnel and trade show attendances in prior periods.
  COST
        OF
        GOODS SOLD: Cost of goods sold decreased 30% from $1,013,734 for the nine
        months
        ended September 30, 2006 to $710,903 for the nine months ended September
        30,
        2007. As a percentage of net revenue, cost of goods sold decreased to 54%
        for
        the nine months ended September 30, 2007 from 67% for the nine months ended
        September 30, 2006. Cost of goods sold for the marine products segment increased
        $16,619 or 21%, from $78,414 for the nine months ended September 30, 2006
        to
        $95,033 for the same period ended in 2007. As a percentage of net revenue,
        cost
        of goods sold for the marine product segment increased from 58% for the nine
        months ended September 30, 2006 to 61% for same period ended in 2007. Cost
        of
        goods sold for the security products segment decreased $585,112 or 85%, from
        $689,232 for the nine months ended September 30, 2006 to $104,120 for the
        same
        period ended in 2007. As a percentage of revenue, cost of goods sold for
        the
        security product segment decreased from 78% for the nine months ended September
        30, 2006 to 76% for same period ended in 2007. Cost of goods sold for the
        DC
        Transportation product segment increased $265,662 or 108% from $246,088 for
        the
        nine months ended September 30, 2006 to $511,750 for the same period ended
        in
        2007. As a percentage of net revenue, cost of goods sold for the DC
        Transportation product segment remained unchanged at 50% for the nine month
        periods ending September 30, 2007 and 2006, respectively.
  The
        increase in the cost of goods sold as a percentage of net revenues for the
        marine products segment was driven primarily by increased sales to dealers
        at
        wholesale prices. The decrease in the cost of goods sold as a percentage
        of net
        revenues for the security products segment was due to an increase in the
        average
        sales prices during the period.
 
 GROSS
        PROFIT MARGIN: Gross profits on sales for the nine months ended September
        30,
        2007 amounted to $611,434 or 46% of net revenues, compared to $490,246, or
        33%
        of net revenues, for the nine months ended September 30, 2006. The marine
        products segment contributed $61,909 and $54,569 of the total gross profit
        for
        the nine months ended September 30, 2007 and 2006, respectively. The security
        products segment contributed $45,354 and $189,769 of the total gross profit
        for
        the nine months ended September 30, 2007 and 2006, respectively. The DC
        Transportation products segment contributed $504,171 and $245,908 of the
        total
        gross profit for the nine months ended September 30, 2007 and 2006,
        respectively. The gross profit percentage for the marine products segment
        decreased from 41% for the nine months ended September 30, 2006 to 39% for
        the
        nine months ended September 30, 2007. The gross profit percentage for the
        security products segment increased from 22% for the nine months ended September
        30, 2006 to 30% for the nine months ended September 30, 2007. The gross profit
        percentage for the DC Transportation products segment was unchanged for the
        nine
        month periods ending September 30, 2007 and 2006.
 
 The
        decrease in the gross profit as a percentage of net revenues for the marine
        products segment was driven primarily by increased sales to dealers at wholesale
        prices. The increase in the gross profit as a percentage of net revenues
        for the
        security products segment was due to an increase in the average sales prices
        during the period.
 
 SALARIES
        AND WAGES: Salaries and Wages decreased 14% from $1,020,978 for the nine
        months
        ended September 30, 2006 to $880,372 for the nine months ended September
        30,
        2007. The decrease was due to a general downsizing implemented by management.
        Salary and Wages is comprised of employee wages, benefits, taxes, and stock
        compensation. During the nine months ended September 30, 2007, there was
        $7,857
        in stock-based compensation issued to employees.
 
 PROFESSIONAL
        AND CONSULTING FEES: Professional and consulting fees decreased 26% from
        $1,027,101 for the nine months ended September 30, 2006 to $758,277 for the
        nine
        months ended September 30, 2007. The decrease was primarily due to a reduction
        in legal fees offset by an accrual for Board of Director compensation and
        investor relations consulting. Professional and consulting fees include fees
        paid to attorneys, accountants, Directors, and business
        consultants.  During the nine months ended September 30, 2007, stock
        based compensation expense for consultants and service providers amounted
        to
        $131,227.  In addition, a charge of $69,525 was recorded as an
        estimate of expected Board of Director compensation earned during the
        period.
 
 5
  DEPRECIATION
        AND AMORTIZATION EXPENSE: Depreciation and amortization decreased 33% from
        $214,454 for the nine months ended September 30, 2006 to $142,818 for the
        nine
        months ended September 30, 2007. The decrease was attributable to a reduction
        in
        amortization expense as certain intangible assets were fully amortized as
        of
        September 30, 2007.
 
 RESEARCH
        AND DEVELOPMENT: Research and development expense decreased 17% from $507,667
        for the nine months ended September 30, 2006, to $423,039 for the nine months
        ended September 30, 2007. The decrease was due to a reduction in engineering
        resources as the Company’s new power line products neared completion. Research
        and development costs consist of all expenditures related to the improvement
        and
        development of the Company's current product line, new product development,
        and
        engineering consulting fees associated with licensed technology. Currently,
        substantially all of our research and development costs and efforts are
        dedicated to the development of our Security (both analog and digital), and
        product segments. For the nine months ended September 30, 2007, of the total
        Research and Development expenditures, $408,202 or 96% was related to the
        security and audio products segment, $6,517 or 1.5% was related to the Marine
        products segment, and $8,320 or 2.5% 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, audio and DC transportation
        product segments for the next several years.
 
 ADVERTISING
        AND PROMOTIONS: Advertising and promotions decreased 10% from $106,558 for
        the
        nine months ended September 30, 2006 to $95,903 for the nine months ended
        September 30, 2007. The decrease was due directly to a reduction in overall
        advertising and a focus on trade show attendance. The amount also includes
        portions of postage, printing, and travel that are attributable to advertising
        and promotions.
 
 RENT
        AND
        UTILITIES: Rent and utilities decreased 4% from $145,263 for the nine months
        ended, September 30, 2006 to $138,796 for the nine months ended, September
        30,
        2007. The decrease is due to the consolidation of the Company’s office and
        warehouse facilities to new office and warehouse space effective July 1,
        2006.  The Company leases approximately 6,850 square feet of combined
        office and warehouse space in St. Petersburg, Florida, under a non-cancellable
        lease through September of 2011. The Company also leases approximately 2,400
        square feet of office space in California, under a one year lease, which
        houses
        its research and development operations.  Rent and utilities includes
        office rent, warehouse rent, storage, telephone, and utilities.
 
 TRAVEL
        AND ENTERTAINMENT EXPENSE: Travel and entertainment expense decreased 14%
        from
        $102,686 for the nine months ended September 30, 2006 to $88,768 for the
        nine
        months ended September 30, 2007. The decrease was attributed to decreased
        travel
        by employees of the DC Transportation product segment. Travel and entertainment
        expenses include normal expenses associated with traveling including, but
        not
        limited to; airfare, auto rental, parking and tolls, hotels and lodging,
        taxis,
        meals, and entertainment.
 
 OTHER
        EXPENSES: Other expenses decreased 4% from $278,794 for the nine months ended
        September 30, 2006 to $267,458 for the nine months ended September 30, 2007.
        The
        decrease was due primarily to a reduction in insurance premiums and the
        elimination of telemarketing expenditures. Other expenses include supplies,
        property taxes, insurance, financing fees, bank charges, provision for doubtful
        accounts, postage and delivery, and various other expenses that are classified
        as miscellaneous.
 
 NON-OPERATING
        INCOME (EXPENSE) ITEMS: Non-operating income (expense) decreased 50% from
        $727,380 for the nine months ended September 30, 2006 to $366,297 for the
        nine
        months ended September 30, 2007. Components of non-operating expenses are
        as
        follows:
  ·
              Interest
                  expense increased 1119% to $1,956,157 for the nine months ended
                  September
                  30, 2007 from $160,503 for the nine months ended September 30,
                  2006. The
                  current period interest expense includes $1,319,644 of amortization
                  of
                  debt discount on the Convertible Debentures, $506,326 of amortization
                  of
                  debt discount on the short-term promissory notes payable, and $85,398
                  of
                  interest associated with notes payable outstanding during the period.
                  The
                  Company records amortization using the effective interest method
                  and,
                  accordingly, interest expense associated with these debentures
                  will
                  increase as the carrying value
                  increases.
  ·
              Other
                  income (expense) decreased 179% to $(56,713) for the nine months
                  ended
                  September 30, 2007, from $72,200 for the nine months ended September
                  30,
                  2006. Current period expense is related primarily to financing
                  fees
                  incurred related to short-term financing.   Amounts also
                  include interest earned on cash balances held by the Company throughout
                  the period.
  ·
              Loss
                  of extinguishment of debt decreased 94% to $(75,913) for the nine
                  months
                  ended September 30, 2007, from $(1,502,286) for the nine months
                  ended
                  September 30, 2006. The amounts are recorded in connection with
                  our
                  debenture financing where we allocated the fair value of instruments
                  issued in connection with the financing to the proceeds and the
                  debt
                  relieved on a relative fair value basis. This calculation resulted
                  in a
                  loss on extinguishment associated with the relieved
                  indebtedness.
  ·
              Derivative
                  gain increased 6% to $2,455,080 for the nine months ended September
                  30,
                  2007, from $2,317,969 for the nine months ended September 30, 2006.
                  Derivative gain arises from fair value adjustments to our derivative
                  financial instruments. These instruments consist of freestanding
                  warrants
                  and embedded conversion features associated with the Debenture
                  offering.
                  We will continue to incur fair value adjustments to these instruments
                  until such instruments are converted, exercised or reclassified
                  to
                  stockholders' equity. Future fair value adjustments require the
                  use of
                  subjective estimates. However, the principal drive of our valuation
                  model
                  is the Company's trading common stock. Accordingly, future volatility
                  in
                  the trading market price may result in significant changes in fair
                  value
                  that are required to be recorded as adjustments in
                  income.
 
 6
  THREE
        MONTHS ENDED SEPTEMBER 30, 2007
        AND SEPTEMBER 30, 2006
  NET
        REVENUE: Net revenue decreased 43% from $1,004,564 for the three months ended
        September 30, 2006 to $573,086 for the three months ended September 30, 2007.
        Marine product segment sales were $44,444 or 8% of total revenues for the
        three
        months ended September 30, 2007 compared to $31,945, or 3% of total revenues,
        for the three months ended September 30, 2006. Overall, marine product sales
        increased $12,499, or 39%. Security product segment sales were $81,446 or
        14% of
        total revenues for the three months ended September 30, 2007 compared to
        $838,591, or 83% of total revenues, for the three months ended September
        30,
        2006. Overall, security product sales decreased $757,145, or 90%. DC
        Transportation product segment sales were $447,196, or 78% of total revenues
        for
        the three months ended September 30, 2007 compared to $134,029, or 13% of
        total
        revenues for the three months ended September 30, 2006. Overall, DC
        Transportation product sales increased $313,167, or 234%. The increase in
        net
        revenues for the marine product segment was due to a concentrated effort
        on
        internet marketing. The decrease in net revenues for the security product
        segment was because the previous year comparative quarter included a large
        one
        time sale to a large retailer.  The increase in net revenues for the
        DC transportation product segment was due to a continual expansion and upgrading
        of the product line, and the acquisition of new customers from leads developed
        by sales personnel and trade show attendances in prior periods.
  COST
        OF
        GOODS SOLD: Cost of goods sold decreased 58% from $731,688 for the three
        months
        ended September 30, 2006 to $305,809 for the three months ended September
        30,
        2007. As a percentage of net revenue, cost of goods sold decreased to 53%
        for
        the three months ended September 30, 2007 from 73% for the three months ended
        September 30, 2006. Cost of goods sold for the marine products segment increased
        $10,244 or 61%, from $16,866 for the three months ended September 30, 2006
        to
        $27,110 for the same period ended in 2007. As a percentage of net revenue,
        cost
        of goods sold for the marine product segment increased from 53% for the three
        months ended September 30, 2006 to 61% for same period ended in 2007. Cost
        of
        goods sold for the security products segment decreased $603,676 or 92%, from
        $654,824 for the three months ended September 30, 2006 to $51,148 for the
        same
        period ended in 2007. As a percentage of net revenue, cost of goods sold
        for the
        security product segment decreased from 78% for the three months ended September
        30, 2006 to 63% for same period ended in 2007. Cost of goods sold for the
        DC
        Transportation product segment increased $167,552 or 279% from $59,999 for
        the
        three months ended September 30, 2006 to $227,551 for the same period ended
        in
        2007. As a percentage of net revenue, cost of goods sold for the DC
        Transportation product segment increased from 45% for the three months ended
        September 30, 2006 to 51% for same period ended in 2007.
  The
        increase in the cost of goods sold as a percentage of net revenues for the
        marine products segment was driven primarily by increased sales to dealers
        at
        wholesale prices. The decrease in the cost of goods sold as a percentage
        of net
        revenues for the security products segment was due to an increase in the
        average
        sales prices during the period.  The increase in the cost of goods
        sold as a percentage of net revenues for the DC Transportation product segment
        was due to volume price reductions to a customer with significant purchases
        during the period.
 
 GROSS
        PROFIT MARGIN: Gross profits on sales for the three months ended September
        30,
        2007 amounted to $267,277 or 47% of net revenues, compared to $272,876 or
        27% of
        net revenues, for the three months ended September 30, 2006. The marine products
        segment contributed $17,334 and $15,079 of the total gross profit for the
        three
        months ended September 30, 2007 and 2006, respectively. The security products
        segment contributed $30,298 and $183,767 of the total gross profit for the
        three
        months ended September 30, 2007 and 2006, respectively. The DC Transportation
        products segment contributed $219,645 and $74,030 of the total gross profit
        for
        the three months ended September 30, 2007 and 2006, respectively. The gross
        profit percentage for the marine products segment decreased from 47% for
        the
        three months ended September 30, 2006 to 39% for the three months ended
        September 30, 2007. The gross profit percentage for the security products
        segment increased from 22% for the three months ended September 30, 2006
        to 37%
        for the three months ended September 30, 2007. The gross profit percentage
        for
        the DC Transportation products segment decreased from 55% for the three months
        ended September 30, 2006 to 49% for the three months ended September 30,
        2007.
 
 The
        decrease in the gross profit as a percentage of net revenues for the marine
        products segment was driven primarily by increased sales to dealers at wholesale
        prices. The increase in the gross profit as a percentage of net revenues
        for the
        security products segment was due to an increase in the average sales prices
        during the period. The decrease in the gross profit as a percentage of net
        revenues for the DC Transportation product segment was due to volume price
        reductions to a customer with significant purchases during the
        period.
 
 SALARIES
        AND WAGES: Salaries and Wages decreased 12% from $306,757 for the three months
        ended September 30, 2006 to $269,245 for the three months ended September
        30,
        2007. The decrease was due to a general downsizing implemented by management.
        Salary and Wages is comprised of employee wages, benefits, taxes, and stock
        compensation.
 
 PROFESSIONAL
        AND CONSULTING FEES: Professional and consulting fees increased 160% from
        $121,779 for the three months ended September 30, 2006 to $316,940 for the
        three
        months ended September 30, 2007. The increase was primarily due to an accrual
        for Board of Director compensation, investor relations consulting, marketing
        consulting, and business development consulting. Professional and consulting
        fees include fees paid to attorneys, accountants, Directors, and business
        consultants. During the three months ended September 30, 2007, stock based
        compensation expense for consultants and service providers amounted to
        $57,477.  In addition, a charge of $20,600 was recorded as an estimate
        of expected Board of Director compensation earned during the
        period.
  DEPRECIATION
        AND AMORTIZATION EXPENSE: Depreciation and amortization decreased 19% from
        $52,818 for the three months ended September 30, 2006 to $42,757 for the
        three
        months ended September 30, 2007. The decrease was attributable to a reduction
        in
        amortization expense as certain intangible assets were fully amortized as
        of
        September 30, 2007.
 
 7
  RESEARCH
        AND DEVELOPMENT: Research and development expense increased 3% from $152,932
        for
        the three months ended September 30, 2006, to $157,973 for the three months
        ended September 30, 2007. The increase was due to an increase in resources
        needed relating the launch of the Company’s power line audio products. Research
        and development costs consist of all expenditures related to the improvement
        and
        development of the Company's current product line, new product development,
        and
        engineering consulting fees associated with licensed technology. Currently,
        substantially all of our research and development costs and efforts are
        dedicated to the development of our Security (both analog and digital), and
        product segments. For the three months ended September 30, 2007, 100% of
        the
        total Research and Development expenditures were related to the security
        and
        audio 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,
        audio
        and DC transportation product segments for the next several years.
 
 ADVERTISING
        AND PROMOTIONS: Advertising and promotions increased 64% from $22,158 for
        the
        three months ended September 30, 2006 to $36,234 for the three months ended
        September 30, 2007. The increase was due primarily increased trade show
        attendance. The amount also includes portions of postage, printing, and travel
        that are attributable to advertising and promotions.
 
 RENT
        AND
        UTILITIES: Rent and utilities increased 63% from $29,689 for the three months
        ended, September 30, 2006 to $48,424 for the three months ended, September
        30,
        2007. The increase is due to the fact that in the prior period comparative
        quarter the Company had negotiated a three month rent abatement for which
        no
        rent expense was incurred on its corporate office lease. The Company leases
        approximately 6,850 square feet of combined office and warehouse space in
        St.
        Petersburg, Florida, under a non-cancellable lease through September of 2011.
        The Company also leases approximately 2,400 square feet of office space in
        California, under a one year lease, which houses its research and development
        operations.  Rent and utilities includes office rent, warehouse rent,
        storage, telephone, and utilities.
 
 TRAVEL
        AND ENTERTAINMENT EXPENSE: Travel and entertainment expense decreased 32%
        from
        $31,832 for the three months ended September 30, 2006 to $21,587 for the
        three
        months ended September 30, 2007. The decrease was attributed to decreased
        travel
        by employees in the DC Transportation product segment. Travel and entertainment
        expenses include normal expenses associated with traveling including, but
        not
        limited to; airfare, auto rental, parking and tolls, hotels and lodging,
        taxis,
        meals, and entertainment.
 
 OTHER
        EXPENSES: Other expenses increased 20% from $79,841 for the three months
        ended
        September 30, 2006 to $95,591 for the three months ended September 30, 2007.
        The
        increase was due to an increase in the provision for doubtful accounts. Other
        expenses include  supplies, property taxes, insurance, financing fees,
        bank charges, provision for doubtful accounts, postage and delivery, and
        various
        other expenses that are classified as miscellaneous.
 
 NON-OPERATING
        INCOME (EXPENSE) ITEMS: Non-operating income (expense) increased 69% from
        $59,851 for the three months ended September 30, 2006 to $101,117 for the
        three
        months ended September 30, 2007. Components of non-operating expenses are
        as
        follows:
  ·
              Interest
                  expense increased 1460% to $1,081,723 for the three months ended
                  September
                  30, 2007 from $69,333 for the three months ended September 30,
                  2006. The
                  current period interest expense includes $646,972 of amortization
                  of debt
                  discount on the Convertible Debenture, $399,931 of amortization
                  of debt
                  discount on various short term promissory notes and $34,820 of
                  interest
                  associated with notes payable outstanding during the period. The
                  Company
                  records amortization using the effective interest method and, accordingly,
                  interest expense associated with these debentures will increase
                  as the
                  carrying value increases.
  ·
              Other
                  income (expense) decreased 241% to $(66,350) for the three months
                  ended
                  September 30, 2007, from $47,200 for the three months ended September
                  30,
                  2006. Current period expense is related primarily to financing
                  fees
                  incurred in conjunction with short-term financing.  Amounts also
                  include interest earned on cash balances held by the Company throughout
                  the period.
  ·
              Derivative
                  gain increased 2668% to $968,546 for the three months ended September
                  30,
                  2007, from a loss of $(37,718) for the three months ended September
                  30,
                  2006. Derivative gains and losses arise from fair value adjustments
                  to our
                  derivative financial instruments. These instruments consist of
                  freestanding warrants and embedded conversion features associated
                  with the
                  Debenture offering. We will continue to incur fair value adjustments
                  to
                  these instruments until such instruments are converted, exercised
                  or
                  reclassified to stockholders' equity. Future fair value adjustments
                  require the use of subjective estimates. However, the principal
                  drive of
                  our valuation model is the Company's trading common stock. Accordingly,
                  future volatility in the trading market price may result in significant
                  changes in fair value that are required to be recorded as adjustments
                  in
                  income.
  LIQUIDITY
        AND CAPITAL
        RESOURCES
 
 The
        accompanying condensed consolidated financial statements have been prepared
        assuming that the Company will continue as a going concern. However, the
        Company
        has incurred losses from operations of $2,183,997 and $2,913,255 during the
        nine
        months ended September 30, 2007 and 2006, respectively. In addition, during
        those periods, the Company has used cash of $1,481,924 and $3,688,859
        respectively, in its operating activities and has a stockholders' deficit
        at
        September 30, 2007. These conditions raise substantial doubt about the Company's
        ability to continue as a going concern.
 
 8
  The
        Company has allocated significant resources to the development of new power
        line
        technologies and products that will be available for sale and/or licensing
        during the third or fourth quarters of fiscal year 2007. The Company’s ability
        to continue will be dependent upon achieving profitable operations through
        the
        licensing and sales of these new technologies and products.
  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, DC Transportation, and new Audio products segments, and (iii)
        ultimately the achievement of profitable operations. During the nine months
        ended September 30, 2007, the Company secured net financing of $1,253,098
        in the
        form of short-term notes payable from its primary financial partner and other
        various accredited investors. While the proceeds of this financing did mitigate
        the Company’s liquidity difficulties for the nine months ended September 30,
        2007, additional funding will be required to fund the launch of the Company’s
        new power line products and technologies, which are now ready for release,
        and
        to fund operations through June 30, 2008, or until it can achieve profitability.
        In addition to the continued effort to reduce overhead expenses through the
        streamlining of its operations, the Company plans to continue to borrow funds
        through the issuance of short-term convertible promissory notes until
        longer-term financing can be arranged. Management and the Board of Directors
        are
        currently reviewing the long-term financing options available to the Company
        based on its current strategic plan. The ability of the Company to sustain
        its
        operations for a reasonable period without further financing cannot be assured
        and the condensed consolidated financial statements do not include any
        adjustments that might arise as a result of this uncertainty.
 
 During
        the nine months ended September 30, 2007 the Company funded its losses from
        operations through the following vehicles:
 
 We
        borrowed $500,000 from our primary financial partner through the issuance
        of two
        separate unsecured promissory notes. We executed a promissory note on January
        29, 2007 in the amount of $300,000. The note was due on February 28, 2007,
        and
        bears an 8% interest rate. On March 21, 2007, we executed a second promissory
        note in the amount of $200,000. The note was due on May 5, 2007, and bears
        an 8%
        interest rate. Interest on each of these notes was due and payable upon the
        maturity dates. On May 14, 2007, the Company received an additional $50,000
        in
        cash from its primary finance partner, the proceeds of which are included
        in a
        note payable that consolidates all outstanding notes payable with this finance
        partner.  The Company issued a new consolidated note payable in the
        amount of $898,661 which includes the following: the retirement of the September
        14, 2006 note payable in the principal amount of $300,000, the retirement
        of the
        January 29, 2007 note payable in the principal amount of $300,000, the
        retirement of the March 21, 2007 note payable in the amount of $200,000,
        accrued
        interest in the amount of $48,661 (including default rate interest of 18%)
        on
        the three aforementioned notes, and $50,000 in new proceeds received on May
        14,
        2007. The note bears an 8% interest rate and an 18% default interest rate
        for
        all principal amounts outstanding beyond the maturity date. The note was
        due on
        July 13, 2007, but was extended by the lender until January 31,
        2008.
 
 We
        borrowed $508,598 from accredited investors and related parties through the
        issuance of a series of short-term 30 day promissory notes, all which bear
        an
        annual interest rate of 8%. The notes were issued during the months of May
        through September and $468,938 remained outstanding at September 30,
        2007.  $408,000 of the notes included a loan origination fee for the
        lender to be paid in restricted common stock in share amounts equaling 25%
        of
        the principal amount loaned.  The shares carry piggyback registration
        rights.  Each of the notes are convertible, at the option of the
        lender, into restricted common stock at $.60 per share, and  three
        year warrants to purchase an additional 50% of the converted shares at an
        exercise price of $1.25 per share.  $100,598 of the notes included a
        loan origination fee for the lender to be paid in restricted common stock
        in
        share amounts equaling 25% of the principal amount loaned.  The shares
        carry piggyback registration rights.  Each of the notes are
        convertible, at the option of the lender, into restricted common stock at
        $.35
        per share, and  three year warrants to purchase an additional 50% of
        the converted shares at an exercise price of $0.75 per share.  At
        September 30, 2007, no principal amounts had been converted to common stock
        and
        all lenders with notes due prior to September 30, 2007 extended the maturity
        date until December 15, 2007, except for $100,000 which is currently in default
        (See Note 8).
 
 We
        borrowed $210,000 from an accredited investor through the issuance of a six
        month convertible promissory note bearing an annual interest rate of
        12%.  The note was collateralized with the common stock of a third
        party shareholder (See Note 8).
 
 We
        received $75,790 in proceeds from the exercise of 126,316 common stock warrants
        at $.60 per share.  The warrants, issued in conjunction with the
        Company’s March 2006 Convertible Debenture financing, were issued at an exercise
        price of $2.375 per share; however, were re-priced for a limited two week
        period
        during the third quarter ended September 30, 2007 by approval of the Company’s
        Board of Directors.
  Material
        Commitments:
 
 See
        Note
        10 in the accompanying condensed consolidated financial statements.
 
 Subsequent
        Events:
  On
        November 6, 2007, the Company’s Board of Directors approved a resolution to
        modify the conversion terms for the $471,598 of outstanding promissory notes
        (See Note 8).  All outstanding notes will be convertible, at the
        option of the lender, into restricted common stock at $.15 per share, and
        three
        year warrants to purchase an additional 50% of the converted shares at an
        exercise price of $0.45 per share.
 
 9
  On
        November 8, 2007, the Company received a demand letter from ICON Capital
        Partners, LP, for the repayment of three short-term unsecured promissory
        notes
        totaling $100,000.  The convertible notes consisted of a $25,000 note
        issued on May 11, 2007, due June 10, 2007, and extended to August 24, 2007;
        a
        $50,000 note issued on May 30, 2007, due on July 30, 2007, and extended to
        August 29, 2007; and a $25,000 note issued on June 14, 2007, due July 13,
        2007,
        and extended to August 13, 2007.  The demand letter asked for payment
        in full of principal and interest by November 19, 2007.  As of the
        time of this filing, the notes remain outstanding and the Company is working
        with several accredited investors to obtain additional capital to repay these
        notes.
 
 Subsequent
        to December 15, 2007, the Company was in default on the remaining convertible
        notes payable with a face value of $371,598.  The maturity date was
        not extended beyond December 15, 2007 and therefore the convertible notes
        were
        in default.  As of September 30, 2007, the convertible notes payable
        are classified as current liabilities.
 
 In
        addition, subsequent to September 30, 2007, the Company borrowed and additional
        $120,900 through the issuance of a series of 30 day short-term convertible
        promissory notes to accredited investors on the same terms and conditions
        outlined above.  Subsequent to December 15, 2007, the Company was in
        default on $53,000 of these notes.  The maturity date was not extended
        beyond December 15, 2007 and therefore the convertible notes were in
        default.
  Item
        3. Controls
        and Procedures
 
 (a)
        Evaluation of Disclosure Controls and Procedures
  Based
        on
        an evaluation of our disclosure controls and procedures (as defined in Rules
        13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended)
        required by paragraph (b) of Rule 13a-15 or Rule 15d-15, as of September
        30,
        2007, our Chief Executive Officer and Chief Financial Officer, have concluded
        that our disclosure controls and procedures were effective in ensuring that
        information required to be disclosed by us in the reports that we file or
        submit
        under the Exchange Act is recorded, processed, summarized and reported within
        the time periods specified in the Commission's rules and forms. Our Chief
        Executive Officer and Chief Financial Officer, also concluded that, as of
        September 30, 2007, our disclosure controls and procedures were effective
        in
        ensuring that information required to be disclosed by us in the reports that
        we
        file or submit under the Exchange Act is accumulated and communicated to
        our
        management, including our Chief Executive Officer and Chief Financial Officer,
        to allow timely decisions regarding required disclosure.
  Limitations
        on the Effective of
        Controls
 
 Our
        management does not expect that our disclosure controls or our internal controls
        over financial reporting will prevent all error and fraud. A control system,
        no
        matter how well conceived and operated, can provide only reasonable, but
        no
        absolute, assurance that the objectives of a control system are met.
 Further, any control system reflects limitations on resources, and the
        benefits of a control system must be considered relative to its costs.
 These limitations also include the realities that judgments in
        decision-making can be faulty and that breakdowns can occur because of simple
        error or mistake. Additionally, controls can be circumvented by the individual
        acts of some persons, by collusion of two or more people or by management
        override of a control. A design of a control system is also based upon certain
        assumptions about potential future conditions; over time, controls may become
        inadequate because of changes in conditions, or the degree of compliance
        with
        the policies or procedures may deteriorate.  Because of the inherent
        limitations in a cost-effective control system, misstatements due to error
        or
        fraud may occur and may not be detected.
  (b)
        Changes in Internal Controls
  There
        were no changes in our internal controls over financial reporting that could
        significantly, or are reasonably likely to materially affect, our affect
        internal controls over financial reporting that occurred during the our fiscal
        quarter ended September 30, 2007.
  PART
        II OTHER INFORMATION
  Item
        1. Legal
        Proceedings
 
 Litigation,
        claims and assessment:
  Reed
        Elsevier,
        Inc.
 
 On
        April
        26, 2007 the Company learned that a default judgment had been entered against
        it
        on August 1, 2006 in the Circuit Court of the 6th
        Judicial Circuit
        of Pinellas County, Florida, in the amount of $20,192, to the plaintiff Reed
        Elsevier, Inc.  The obligation is associated with a commitment made in
        December of 2004, by a former officer of the Company, for floor space at
        a trade
        show in March of 2005, which the Company did not attend.  The Company
        has retained counsel to negotiate a resolution to the matter, and is awaiting
        a
        response from the plaintiff for a meeting date.  The Company has
        recorded a liability in the amount of $22,203, including post judgment interest,
        which is included in accrued expenses in the accompanying September 30, 2007
        condensed consolidated balance sheet.
 
 10
  Guestlinx,
        LLC
  On
        May
        19, 2006 we learned that a default judgment had been entered against us on
        May
        3, 2006 in the Superior Court of California, Orange County, in the amount
        of
        $90,561, to the plaintiff Guestlinx, LLC. The obligation is associated with
        the
        Hotel/MDU product segment, the operations of which were discontinued in April
        of
        2005. The judgment was granted based on an action filed by Guestlinx, LLC
        on
        November 2, 2005. We had no prior knowledge of the action and believe it
        was
        never properly served. We retained counsel in California, and on August 4,
        2006
        were successful in having the judgment set aside for improper service. We
        had
        previously recorded a liability associated with this dispute in the amount
        of
        $46,352. On December 8, 2006, we negotiated a settlement and release agreement
        at a mandatory settlement conference, in the amount of $52,500. We remitted
        $16,250 toward the settlement amount on December 15, 2006, and the remaining
        balance of $36,250 was recorded as an accrued liability at December 31,
        2006. Under the agreement, we were required to pay the remaining balance by
        February 15, 2007, but were unable to do so. The agreement provides for the
        plaintiff to receive a stipulated judgment in the amount of $60,000 (less
        amounts remitted) if we are in default of the agreement.  On April 18,
        2007, the plaintiff filed for and received the default judgment and the
        Company’s counsel is currently working with the plaintiff on a revised payment
        schedule.  The Company increased the aforementioned liability in the
        amount of $7,500 to account for the additional obligation incurred under
        the
        stipulated judgment.  The amounts are included in accrued expenses in
        the accompanying September 30, 2007 and December 31, 2006 condensed consolidated
        balance sheets.
  Pro-Marketing
        Inc.
 
 On
        August
        18, 2005 the Company agreed to a settlement with Pro-Marketing of Texas,
        Inc.
        relating to an alleged breach of contract from a financing transaction that
        took
        place during fiscal year 2000.  The settlement consisted of the
        issuance of 3,000 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.  Since August of 2005, the
        Company remitted payments totaling $30,000.  On October 2, 2007 the
        Company agreed to the plaintiffs Motion for Final Summary Judgment, in the
        Circuit Court for Pinellas County, in the amount of $32,597.50, which includes
        pre-judgment interest and attorney’s fees.
 
 Acu-cast
        Technologies,
        LLC
 
 On
        June
        11, 2007, Acu-cast Technologies, LLC filed a complaint against the Company
        in
        the amount of $4,437 in the County Court of Lawrence, Tennessee.  The
        liability relates to proto-types made by the plaintiff on behalf of the
        Company.  During September 2007, the Company paid $4,220 as full
        settlement for the liability.
  Item
        2. Unregistered Sales of Equity Securities
        and Use of Proceeds.
  During
        the three months ended September 30, 2007, the Company issued 110,000 shares
        of
        restricted common stock to a consultant hired to assist the Company in areas
        of
        strategic business planning, financial advisory, and investor and public
        relations services.  The shares were valued at $77,000 based on the
        closing price of the Company’s common stock on the date of the agreement (See
        Note 10).
  During
        the three months ended September 30, 2007, the Company issued 126,316 shares
        of
        common stock for the exercise of warrants associated with the Company’s 2006
        Convertible Debenture financing.  The warrants were exercised at $0.60
        per share for net proceeds of $75,790.
  During
        the three months ended September 30, 2007, the Company issued 194,500 shares
        of
        restricted common stock in conjunction with a convertible note payable
        transaction executed during the period.  The shares were valued at
        $101,140 based on the closing price of the Company’s common stock on the day of
        funding (See Note 8).
  During
        the three months ended September 30, 2007, the Company issued 15,967 shares
        of
        common stock for payment of interest due associated with the Company’s 2006
        Convertible Debentures.  The shares were valued at $12,516 based on
        the closing price of the Company’s common stock on the date of the
        agreement.
  During
        the three months ended September 30, 2007, the Company issued 119,500 shares
        of
        common stock for payment of loan fees due associated with convertible notes
        payable issued during the period.  The shares were valued at $108,113
        based on the closing price of the Company’s common stock on the date of issuance
        of each of the notes (See Note 8).
  During
        the three months ended September 30, 2007, the Company issued 31,587 shares
        of
        common stock for conversion of accounts payable related to legal services
        rendered during the period.  The shares issued converted $16,062 of
        accounts payable liability owed and were valued based on the terms of a prior
        executed retainer agreement.  The shares were registered on Form S-8
        filed with the Securities and Exchange Commission on May 8, 2007.
  11
  During
        the three months ended September 30, 2007, the Company issued 20,000 shares
        of
        common stock for conversion of accounts payable related to marketing services
        rendered during the period.  The shares issued converted $18,400 of
        accounts payable liability owed and were valued based on the closing price
        of
        the Company’s common stock on the date of issuance.  The shares were
        registered on Form S-8 filed with the Securities and Exchange Commission
        on May
        8, 2007.
  During
        the three months ended September 30, 2007, the Company issued 16,000 shares
        of
        common stock for conversion of accounts payable related to information
        technology services rendered during the period.  The shares issued
        converted $13,600 of accounts payable liability owed and were valued based
        on
        the closing price of the Company’s common stock on the date of
        issuance.  The shares were registered on Form S-8 filed with the
        Securities and Exchange Commission on May 8, 2007.
  During
        the three months ended September 30, 2007, the Company issued 18,841 shares
        of
        common stock for conversion of accounts payable related to information
        technology services rendered during the period.  The shares issued
        converted $11,305 of accounts payable liability owed and were valued based
        on
        the closing price of the Company’s common stock on the date of
        issuance.  The shares were registered on Form S-8 filed with the
        Securities and Exchange Commission on May 8, 2007.
  During
        the three months ended September 30, 2007, the Company issued 8,152 shares
        of
        common stock for conversion of accounts payable related to sales consulting
        services rendered during the period.  The shares issued converted
        $7,500 of accounts payable liability owed and were valued based on the closing
        price of the Company’s common stock on the date of issuance.  The
        shares were registered on Form S-8 filed with the Securities and Exchange
        Commission on May 8, 2007.
  During
        the three months ended September 30, 2007, the Company issued 3,913 shares
        of
        common stock for conversion of accounts payable related to marketing services
        rendered during the period.  The shares issued converted $3,600 of
        accounts payable liability owed and were valued based on the closing price
        of
        the Company’s common stock on the date of issuance.  The shares were
        registered on Form S-8 filed with the Securities and Exchange Commission
        on May
        8, 2007.
 
 Item
        3. Defaults Upon Senior
        Securities.
 
 As
        of September 30, 2007 and December
        31, 2006, the Company was in default under the terms of the Purchase Agreement
        dated March 7, 2006, and the Debentures issued on March 22, 2006 in connection
        therewithin an aggregate
        principal amount of $4,473,933. The terms of the Purchase Agreement and the
        Debenture required that the Company generate gross profit in excess of $300,000
        per month on average during the period from October 1, 2006 to December 31,
        2006. Under the default provisions, upon the Company delivering an Event
        of
        Default Notice to Purchasers (Debenture holders) or the Purchasers becoming
        aware of an Event of Default, the Purchasers may require the Company to redeem
        all or any portion of their Debentures by delivering an “Event of Default
        Redemption Notice” to the Company. At that time the Company would be required to
        redeem the requested portion of the debenture at a redemption value calculated
        in accordance with the default provisions in the March 7, 2006 Securities
        Purchase Agreement, to be no less than 120% of the principal amount requested
        to
        be redeemed. At September 30, 2007, the Company had not negotiated a form
        of a
        waiver agreement with the Purchasers covering the Company’s inability to meet
        this covenant. The Company has not received an “Event of Default Redemption
        Notice” from any Purchaser and is currently engaged in negotiating with the
        Purchasers in order to enter into a such a waiver agreement covering the
        aforementioned default.
  Because
        the Company was in default as of September 30, 2007 and December 31, 2006,
        and
        while under default, may receive an “Event of Default Redemption Notice” at any
        time, the liabilities associated with the Debentures on the accompanying
        condensed consolidated balance sheets, as presented, have been reclassified
        from
        long-term to current liabilities.
  Item
        4. Submission of Matters to a
        Vote of Security Holders.
  None.
  Item
        5. Other
        Information.
  (a)           None.
 
 (b)           No
        material changes to the procedures by which security holders may recommend
        nominees to our board of directors occurred or have been implemented since
        our
        last periodic filing, our Annual Report filed on Form 10-K for the fiscal
        year
        ended December 31, 2006.
  Item
        6.
        Exhibits
 
 Exhibit
                  No.
              Description3(i).1
              Articles
                  of Restatement of the Articles of Incorporation of PowerLinx, Inc.,
                  dated
                  February 25, 2003. (Incorporated by reference to Annual Report
                  for the
                  fiscal year ended December 31, 2001, filed with the SEC on Form
                  10KSB/A.
                  on January 16, 2003)3(i).2
              Amendment
                  to the Articles of Incorporation increasing authorized Common Stock
                  from
                  250,000,000 to shares. (Incorporated by reference to the Current
                  Report
                  filed on Form 8-K with the Securities and Exchange Commission on
                  400,000,000, March 22, 2006).3(i).3
              Amendment
                  to the Articles of Incorporation changing the Company's name from
                  Seaview
                  Video Technology, Inc. to PowerLinx, Inc. (Incorporated by reference
                  to
                  the Current Report filed on Form 8-K with the Securities and Exchange
                  Commission on March 16, 2004).3(i).4
              Certificate
                  of Amendment filed with the Secretary of State of Nevada on August
                  9,
                  2006, amending the Company’s Articles of Incorporation to increase the
                  Company’s authorized common stock from 8,000,000 to 50,000,000 shares.
                  (Incorporated by reference to the Company’s Registration Statement filed
                  on Form SB-2 with the Securities and Exchange Commission on September
                  9,
                  2006).3(ii).1
              Bylaws
                  of the Company. (Incorporated by reference to the 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
                  the Company’s Current Report filed on Form
                10-KSB
                  with the Securities and Exchange Commission on March 16,
                  2004).31.1
              Certification
                  of Michael Tomlinson, Chief Executive Officer, dated August 9,
                  2007,
                  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 August 9, 2007,
                  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 August 9,
                  2007,
                  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 August 9, 2007,
                  pursuant
                  to Rule 13(a)-14(b) of the Securities Exchange Act of 1934, as
                  amended.
                  (Filed herewith).
  12
  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.
 
 POWERLINX
                  INC.Date:
              December
                  20, 2007
              By:
              /s/
                  Michael
                  TomlinsonMichael
                  TomlinsonChief
                  Executive OfficerBy:
              /s/
                  Douglas
                  BauerDouglas
                  BauerChief
                  Financial Officer (and Acting Principal Accounting
                  Officer)
   13