SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549


                                   FORM 10-QSB


                X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15d
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                For the quarterly period ended September 30, 2004

                 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15d
                     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          (IRS Employer
            incorporation or organization)        Identification No.)

                                 POWERLINX, INC.
                              200 MADONNA BOULEVARD
                             ST.PETERSBURG, FL 33701

                                 (727) 866-7440
              (Registrant's telephone number, including area code)


(Former name, former address and former fiscal year, if changed since last
report)

Indicate by check mark whether the registrant (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




APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practical date.

Total number of shares of Common Stock, as of November 15, 2004: 172,004,804

TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (check one):      [ ] Yes [X] No


<PAGE>
                                 POWERLINX, INC.


                                      INDEX



Part I.  FINANCIAL INFORMATION                                          Page No.


         Item 1. Financial Statements

                        Powerlinx, Inc. Condensed
                        Balance Sheets.......................................F-1

                        Powerlinx, Inc. Condensed
                        Statements of Operations (Unaudited).................F-2

                        Powerlinx, Inc.
                        Statement of Stockholders'
                        Equity (Deficit)...............................F-3 - F-4

                        Powerlinx, Inc. Condensed
                        Statements of Cash Flows (Unaudited)...........F-5 - F-6

                        Powerlinx, Inc. Notes to
                        Condensed Financial Statements September 30,
                        2004 and 2003 (Unaudited)............................F-7

         Item 2. Management's Discussion and Analysis or Plan
                 of Operations.................................................3

         Item 3. Controls and Procedures......................................13

Part II. OTHER INFORMATION

         Item 1. Legal Proceedings............................................17

         Item 2. Changes in Securities and use of Proceeds....................18

         Item 3. Defaults Upon Senior Securities..............................20

         Item 4. Submission of Matters to a Vote of Security Holders..........20

         Item 5. Other Information............................................20

         Item 6. Exhibits and Reports on Form 8-K.............................20

Signatures....................................................................22





                                       2
<PAGE>
PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements


                                 POWERLINX, INC.
                            CONDENSED BALANCE SHEETS
                 AS OF SEPTEMBER 30, 2004 AND DECEMBER 31, 2003
<TABLE>
<CAPTION>

                                     ASSETS
                                                                    September 30,
                                                                        2004        December 31,
                                                                    (Unaudited)        2003
                                                                   -------------   -------------
<S>                                                                <C>             <C>
Current assets:
   Cash and cash equivalents ...................................   $  1,615,898    $    160,157
   Accounts receivable, net of allowance for doubtful accounts
     of $31,071 in 2004 and $29,510 in 2003 ....................        413,925         201,853
   Due from related parties ....................................        168,534          20,000
   Inventories .................................................        701,873         557,947
   Prepaid expenses and other current assets ...................        189,038          19,079
                                                                   -------------   -------------
     Total current assets ......................................      3,089,268         959,036

Intangible assets, net .........................................      1,291,121       1,213,430
Property and equipment, net ....................................        282,449         325,160
                                                                   -------------   -------------
     Total assets ..............................................   $  4,662,838    $  2,497,626
                                                                   =============   =============
                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Accounts payable ............................................   $    540,570    $    557,524
   Accrued liabilities .........................................        112,802         447,381
   Deferred revenue ............................................         43,677          86,600
   Litigation settlement .......................................        300,000         300,000
                                                                   -------------   -------------
     Total current liabilities .................................        997,049       1,391,505
                                                                   -------------   -------------
Stockholders' equity:
    Series A convertible preferred stock, $1.00 par value;
     authorized 10,000,000 shares; 1,825,520 shares issued,
     and 1,211,016 outstanding .................................      1,067,872
   Common stock, $.001 par value, 250,000,000 shares authorized;
     issued (169,050,182 - 2004; 135,837,887 - 2003)
     outstanding ( 168,576,607 - 2004; 135,364,312 -2003) ......        169,050         135,837
   Additional paid-in capital ..................................     21,261,362      15,834,345
   Treasury stock, at cost, 473,575 shares .....................       (287,757)       (287,757)
   Unearned restricted stock compensation ......................          (--)          (29,422)
   Stock subscription receivable ...............................       (315,625)         (3,250)
   Equity units subscribed .....................................           --           250,000
   Accumulated deficit .........................................    (18,229,113)    (14,793,632)
                                                                   -------------   -------------
   Total stockholders' equity ..................................      3,665,789       1,106,121
                                                                   -------------   -------------
     Total liabilities and stockholders' equity ................   $  4,662,838    $  2,497,626
                                                                   =============   =============
</TABLE>
   The accompanying notes are an integral part of these financial statements.

                                      F-1

<PAGE>

                                 POWERLINX, INC.
                       CONDENSED STATEMENTS OF OPERATIONS
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
<TABLE>
<CAPTION>

                                              Three Months Ended              Nine Months Ended
                                                September 30,                    September 30,
                                             2004           2003             2004             2003
                                      --------------   --------------   --------------   --------------
<S>                                   <C>              <C>              <C>              <C>
Net revenue .......................   $     196,538    $     422,219    $   1,107,450    $   1,043,184
Cost of goods sold ................         129,912          311,427          688,444          780,399
                                      --------------   --------------   --------------   --------------
           Gross profit ...........          66,626          110,792          419,006          262,785
                                      --------------   --------------   --------------   --------------
Operating expenses:
   Salaries and wages .............         350,410          183,137          928,696          624,000
   Professional and consulting fees         274,260          130,632          739,651          410,600
   Depreciation and amortization ..         163,289          132,044          461,801          391,616
   Research and development .......         304,525           40,559          481,755           96,700
   Advertising and promotions .....          31,490           29,210           84,012           94,951
   Rent and utilities .............          48,748           32,402          114,450           80,769
Provision for doubtful accounts ...          24,660             --             34,660             --
   Postage and delivery ...........          19,180           50,620           71,206          127,764
   Royalty expense ................          75,000           60,000          225,000          150,000
   Financing fees .................         140,676             --            264,782             --
   Litigation settlement ..........            --               --               --            (16,250)
   Other expenses .................         195,573          114,915          419,299          241,265
                                      --------------   --------------   --------------   --------------
       Total operating expenses ...       1,627,811          773,519        3,825,312        2,201,415
                                      --------------   --------------   --------------   --------------
Loss from operations ..............      (1,561,185)        (662,727)      (3,406,306)      (1,938,630)

Other income (expense):
   Interest expense ...............              11         (399,568)         (29,175)      (1,000,379)
Other .............................           (--)             (--)             (--)           (54,406)

Loss before taxes .................      (1,561,174)      (1,062,295)      (3,435,481)      (2,993,415)

Income tax expense ................            --               --               --               --
                                      --------------   --------------   --------------   --------------
Net loss ..........................   ($  1,561,174)   ($  1,062,295)   ($  3,435,481)   ($  2,993,415)
                                      ==============   ==============   ==============   ==============
Basic and diluted net loss per
   common share ...................            (.01)            (.01)            (.02)            (.05)

Basic and diluted weighted
   average shares outstanding .....     150,257,756       96,923,467      141,661,721       61,587,693
</TABLE>
   The accompanying notes are an integral part of these financial statements.

                                      F-2
<PAGE>
                                 POWERLINX, INC
                   STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>

                                                                                              Unearned
                                                          Common     Additional              Restricted
                                              Common       Stock     Paid-In      Treasury     Stock
                                              Stock     ($.001 par)  Capital       Stock     Compensation
                                            ----------- ----------- ------------  ---------- -------------
<S>                                         <C>            <C>       <C>          <C>        <C>
Balances, January 1, 2004                   135,837,887    $135,837  $15,834,345  $(287,757) $ (29,422)

Net loss
Stock subscriptions receivable                                         1,590,625
Issuance of stock for patents                   441,176         441      149,559
Issuance of warrants  for patents                                          9,925
Issuance of stock for cashless
  exercise of warrants                          794,483         794         (794)
Issuance of stock to consultants              1,182,000       1,182      223,398
Issuance of stock to directors                1,212,500       1,213      235,662
Issuance of stock due for liability
  due to related party                          392,157         392       49,608
Issuance of stock to employees                  100,000         100       15,400
Issuance of stock for royalties                 223,897         224       74,776
Issuance of stock for liabilities               443,934         444       68,901
Sales of common stock                        23,283,752      23,283    1,892,342
Issuance of stock and warrants under
  Equity Unit Offering                          456,380         456      269,071
Conversion of Series A Preferred
  Shares to common stock                      2,458,016       2,458      539,410
Issuance of stock for software
  license                                     2,224,000       2,224      309,136
Adjustment                                                        2           (2)
Amortization of unearned
  restricted stock compensation                                                                 29,422
                                            ----------- ----------- ------------  ---------- -------------
Balances, September
  30, 2004                                  169,050,182    $169,050  $21,261,362  $(287,757) $       -
                                            =========== =========== ============  ========== =============
</TABLE>
   The accompanying notes are an integral part of these financial statements.

                                      F-3
<PAGE>

                                 POWERLINX, INC
             STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) (continued)
<TABLE>
<CAPTION>

                                                                                   Series A
                                             Stock         Equity                Convertible
                                          Subscription     Units     Accumulated  Preferred
                                           Receivable    Subscribed   Deficit       Stock         Total
                                           ------------  ---------- ------------- ----------- -------------
<S>                                        <C>           <C>       <C>            <C>          <C>
Balances, January 1, 2004                   $  (3,250)    $ 250,000 $(14,793,632)  $        -   $1,106,121

Net loss                                                              (3,435,481)               (3,435,481)
Stock subscriptions receivable               (315,625)                                           1,275,000
Issuance of stock for patents                                                                      150,000
Issuance of warrants for patents                                                                     9,925
Issuance of stock for cashless
  exercise of warrants                                                                                   -
Issuance of stock to consultants                                                                   224,580
Issuance of stock to directors                                                                     236,875
Issuance of stock due for liability
  due to related party                                                                              50,000
Issuance of stock to employees                                                                      15,500
Issuance of stock for royalties                                                                     75,000
Issuance of stock for liabilities                                                                   69,345
Sales of common stock                           3,250                                            1,918,875
Issuance of stock and warrants under
  Equity Unit Offering                                     (250,000)                1,609,740    1,629,267
Conversion of Series A Preferred
  Shares to common stock                                                             (541,868)
Issuance of stock for software
  license                                                                                          311,360
Adjustment                                                                                               -
Amortization of unearned
  restricted stock compensation                                                                     29,422
                                           ------------  ---------- ------------- ----------- -------------
Balances, September
  30, 2004                                  $(315,625)    $       - $(18,229,113) $1,067,872  $  3,665,789
                                           ============  ========== ============= =========== =============
</TABLE>
   The accompanying notes are an integral part of these financial statements.

                                      F-4
<PAGE>

                                 POWERLINX, INC.
                        CONDENSED STATEMENT OF CASHFLOWS
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                          Nine Months Ended
                                                                            September 30,
                                                                     ---------------------------
                                                                         2004           2003
                                                                     ------------   ------------
<S>                                                                  <C>            <C>
Cash flows from operating activities:
   Net loss ..........................................               ($3,435,481)   ($2,993,415)
   Adjustments to reconcile net loss to net cash flows
     from operating activities:
       Depreciation ..................................                    68,207         47,150
       Amortization ..................................                   393,594        344,466
       Accretion of debt discount ....................                      --          748,551
       Stock-based compensation expenses .............                   635,124        223,517
       Changes in operating assets and liabilities:
         Accounts receivable trade ...................                  (212,072)      (252,571)
         Due from related parties ....................                  (148,534)          --
         Inventories .................................                  (143,926)      (141,006)
         Prepaid expenses and other current assets ...                  (169,959)       (73,309)
         Accounts payable ............................                    33,261       (251,216)
         Accrued liabilities .........................                   (54,929)           943
         Deferred revenue ............................                   (42,943)        58,281
                                                                     ------------   ------------
Net cash flows from operating activities .............                (3,077,638)    (2,288,609)
                                                                     ------------   ------------
Cash flows from investing activities:
   Purchases of property and equipment ...............                   (25,496)       (13,231)
                                                                     ------------   ------------
Net cash flows from investing activities .............                   (25,496)       (13,231)
                                                                     ------------   ------------
Cash flows from financing activities:
   Proceeds from sale of equity units ................                 1,315,000           --
   Proceeds from stock subscription receivable .......                     3,250           --
   Proceeds from sales of common stock & warrants ....                 3,190,625      1,960,663
   Proceeds from convertible debentures ..............                      --          516,774
   Repayments of related debt ........................                  (100,000)       (98,655)
   Proceeds from factoring receivables ...............                                   86,500
   Purchase of treasury stock ........................                                  (10,000)
   Proceeds from notes payable- related parties ......                   150,000
   Proceeds from notes payable .......................                                   37,000
   Repayments of notes payable .......................                                  (67,000)
                                                                     ------------   ------------
Net cash flows from financing activities .............                 4,558,875      2,425,282
                                                                     ------------   ------------
Net change in cash and cash equivalents ..............                 1,455,741        123,442
Cash and cash equivalents at beginning of year .......                   160,157          5,364
                                                                     ------------   ------------
Cash and cash equivalents at end of period ...........               $ 1,615,898    $   128,806
                                                                     ============   ============
</TABLE>
   The accompanying notes are an integral part of these financial statements.

                                      F-5
<PAGE>

                                 POWERLINX, INC.
                        CONDENSED STATEMENT OF CASHFLOWS
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
                                   (Unaudited)
<TABLE>
<CAPTION>
                   NONCASH INVESTING AND FINANCING ACTIVITIES
                                                                           Nine Months Ended
                                                                             September 30,
                                                                    --------------------------------
                                                                        2004                2003

                                                                    -------------        -------------
<S>                                                                 <C>                  <C>
Conversion of vendor debt to equity units                           $      50,215        $           -
                                                                    =============        =============
Conversion of accrued payroll to equity units                       $     239,520        $           -
                                                                    =============        =============
Conversion of equity units subscribed to equity
   units issued                                                     $     250,000        $           -
                                                                    =============        =============
Issuance of common stock for patents                                $     150,000        $           -
                                                                    =============        =============
Issuance of warrants for trademark                                  $       9,925        $           -
                                                                    =============        =============
Conversion of convertible debentures to common stock                $           -        $     134,000
                                                                    =============        =============
Issuance of common stock for licensing rights                       $     311,360        $      37,500
                                                                    =============        =============
Issuance of common stock in connection
  with distributorship agreement                                    $           -        $      25,000
                                                                    =============        =============
Issuance of common stock for financing fees                         $           -        $      28,000
                                                                    =============        =============
Deferred finance costs funded through proceeds from
   convertible debentures                                           $           -        $      47,500
                                                                    =============        =============
Conversion of accounts payable into common shares                   $           -        $         600
                                                                    =============        =============
Issuance of common stock for liabilities                            $      40,130        $           -
                                                                    =============        =============
Conversion of amount due to related
   parties to common stock                                          $      50,000        $           -
                                                                    =============        =============
</TABLE>
   The accompanying notes are an integral part of these financial statements.

                                      F-6
<PAGE>
                                 POWERLINX, INC.
                        CONDENSED STATEMENT OF CASHFLOWS
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
                                   (Unaudited)

1.   Basis of presentation and significant accounting policies:

     The  accompanying   unaudited  condensed  financial  statements  have  been
     prepared in accordance with generally  accepted  accounting  principles for
     interim  financial  information and with the  instructions to Form 10-Q and
     Rule 10-01 of Regulation S-X.  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  unaudited  condensed
     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, 2004
     and 2003. These unaudited condensed financial  statements should be read in
     conjunction with the Company's audited 2003 financial statements, including
     the notes  thereto,  and the other  information  set forth  therein  in the
     Company's  Annual  Report on Form  10-KSB for the year ended  December  31,
     2003. Operating results for the nine month period ended September 30, 2004,
     are not  necessarily  indicative  of the results that can be expected for a
     full fiscal year.

     Revenue recognition:

     Sales revenue is recognized  when the earnings  process is complete and the
     risks and rewards of ownership of the product,  including title,  have been
     transferred to the customer, which is generally considered to have occurred
     upon delivery of the product to the customer's  premises.  Shipping  costs,
     which have been  nominal,  are billed to the customer and are included as a
     component of cost of goods sold.  Returns are provided for as reductions of
     revenue recorded based upon the Company's historical return experience. Any
     related deferred revenue  represents  sales  transactions  where all of the
     conditions necessary for revenue recognition have not been met.

     Fee revenue is recognized over the life of the respective  agreements.  The
     related deferred revenue represents fees received for which the revenue has
     not been earned.

     Stock based compensation:

     Compensation  expense  related  to the  grant  of  equity  instruments  and
     stock-based  awards to  employees  are  accounted  for using the  intrinsic
     method in  accordance  with  Accounting  Principles  Board  Opinion No. 25,
     Accounting for Stock Issued to





                                       F-7
<PAGE>
                                 POWERLINX, INC.
                        CONDENSED STATEMENT OF CASHFLOWS
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
                                   (Unaudited)

1.   Basis of presentation and significant accounting policies (continued):

     Stock based compensation (continued):

     Employees   and   related   interpretations.   Stock   based   compensation
     arrangements involving non-employees are accounted for using the fair value
     methodology under Financial  Accounting  Standards No. 123,  Accounting for
     Stock-Based Compensation.

     The Black-Scholes  option pricing model was developed for use in estimating
     the fair value of traded options that have no vesting  restrictions and are
     fully transferable.  In addition, option valuation models require the input
     of  highly  subjective  assumptions  including  the  expected  stock  price
     volatility.   Because   the   Company's   employee   stock   options   have
     characteristics  significantly  different from those of traded options, and
     because changes in the subjective input  assumptions can materially  affect
     the fair value estimate,  in management's  opinion,  the existing models do
     not necessarily  provide a reliable single measure of the fair value of its
     employee stock options.  The Company accounts for unregistered common stock
     issued for services or asset  acquisitions  at the estimated  fair value of
     the stock  issued.  Fair value is  determined  based  substantially  on the
     average cash price of recent  sales of the  Company's  unregistered  common
     stock.

     The following table reflects supplemental  financial information related to
     stock-based  employee  compensation,  as required by Statement of Financial
     Accounting  Standards No. 148,  Accounting for  Stock-Based  Compensation -
     Transition and Disclosure:
<TABLE>
<CAPTION>

                                                                                   September 30,       September 30,
                                                                                       2004                2003
                                                                                       ----                ----
<S>                                                                             <C>                <C>
       Net loss, as reported                                                    ($     3,435,481)  ($      2,993,415)
                                                                                =================  ==================
       Stock-based compensation, as reported                                     $        -         $         -
                                                                                =================  ==================
       Stock-based compensation under fair value method                          $        -         $         -
                                                                                =================  ==================
       Pro-forma net loss under fair value method                               ($     3,435,481)  ($      2,993,415)
                                                                                =================  ==================

       Net loss per share, as reported                                          ($           .02)  ($            .05)
                                                                                =================  ==================
       Pro-forma net loss per share under fair value method                     ($           .02)  ($            .05)

                                                                                =================  ==================
</TABLE>
     Concentrations:

     Accounts  receivable are concentrated in the security products industry and
     credit  losses have been within  management's  expectations.  Although  the
     Company  serves a large and  varied  group of  customers,  three  customers
     accounted for 36% of total revenue for the nine months ended  September 30,
     2004,  while two customers  accounted for 32% of total revenue for the nine
     months ended September 30, 2003.





                                       F-8
<PAGE>
                                 POWERLINX, INC.
                        CONDENSED STATEMENT OF CASHFLOWS
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
                                   (Unaudited)

1.   Basis of presentation and significant accounting policies (continued):

     Concentrations (continued):

     The  Company's  product  assembly is dependent  upon the  operations of two
     primary  labor  suppliers,  one of which is outside the United  States.  At
     September 30, 2004 and December 31, 2003 approximately $35,608 and $81,000,
     respectively  of  the  Company's  inventory  was  held  off-site  at  these
     locations. If the Company should lose these suppliers of assembly servicing
     there could be a disruption in the  operations of the Company.  The Company
     is in the process of securing alternative sources of these services.

     Reclassifications

     Certain  reclassifications have been made to prior year balances to conform
     to the current year presentation.

2.   Liquidity and management's plans:

     The accompanying condensed financial statements have been prepared assuming
     that the Company will continue as a going concern. However, the Company has
     incurred net losses of  $3,435,481  and  $2,993,415  during the nine months
     ended September 30, 2004 and 2003, respectively.  In addition, during those
     quarters,  the Company has used cash of  $3,077,638  and  $2,288,609 in its
     operating  activities.  These conditions raise  substantial doubt about the
     Company's ability to continue as a going concern.

     The Company has devoted  significant efforts in the further development and
     marketing  of  products  in its  Security  and DC  Transportation  Products
     Segments,  which,  while  now  showing  improved  revenues  cannot  yet  be
     considered  as sufficient to fund  operations  for any sustained  period of
     time.

     The Company's  ability to continue as a going concern may be dependent upon
     (i)  raising  additional  capital  to  fund  operations  (ii)  the  further
     development  of products in the  Security  and DC  Transportation  Products
     Segments and (iii)  ultimately the  achievement  of profitable  operations.
     During the year ended  December 31, 2003,  the Company  generated  net cash
     flows of $3,238,832 from financing  activities,  consisting mainly of sales
     of common stock and the issuance of convertible debt securities.

     Additionally,  during the nine months ended September 30, 2004, the Company
     generated net cash flows of $4,558,875 from financing  activities primarily
     through  sales of common stock and equity units (see Note 9). There can be
     no assurance that additional financing can be obtained on



                                       F-9
<PAGE>
                                 POWERLINX, INC.
                        CONDENSED STATEMENT OF CASHFLOWS
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
                                   (Unaudited)

2.   Liquidity and management's plans (continued)

     conditions considered by management to be reasonable and appropriate, if at
     all. The  financial  statements do not include any  adjustments  that might
     arise as a result of this uncertainty.

3.   Segment information:

     Since  September 30, 2003,  the Company has operated in three  identifiable
     industry  segments.  The  Company  introduced  the  Hotel/MDU  Connectivity
     Products  Segment  in the  second  quarter of 2004.  The  Company's  Marine
     Products Segment is engaged in the sale of underwater video cameras, lights
     and accessories, principally to retail sporting goods businesses throughout
     the United States.  The Company's  Security  Products Segment is engaged in
     the  development and sale of video security  systems to retail,  commercial
     and governmental  entities  throughout the United States.  The Company's DC
     Transportation  Products  Segment is engaged in the development and sale of
     powerline  rear and side vision  systems for all classes of vehicles in the
     transportation    industry   to   distributors   and   original   equipment
     manufacturers   throughout  the  United  States.  The  Company's  Hotel/MDU
     Connectivity  Products Segment is engaged in the marketing and installation
     of broadband Internet connectivity  equipment in hotels,  business campuses
     and other business infrastructure.  For the nine months ended September 30,
     2004,  three  customers  comprised  36% of total net  revenues,  but no one
     customer  comprised  over 13% of net revenues  individually.  The Company's
     facilities and other assets are,  generally,  not  distinguished  among the
     identifiable  segments.  Other  financial  information  about the Company's
     segments  for the  nine  months  ended  September  30,  2004 and 2003 is as
     follows:

<TABLE>
<CAPTION>

                                                                       2004
                                                                                     Hotel/MDU
                                    Security          Marine         DC Trans      Connectivity
                                    Products         Products        Products        Products          Total

<S>                               <C>              <C>             <C>             <C>             <C>
Net revenue                       $    453,185     $    161,249    $    257,058    $    235,958    $  1,107,450
Cost of sales                     $    335,169           81,277    $    116,434    $    155,564    $    688,444
Gross profit                      $    118,016           79,972    $    140,624    $     80,394    $    419,006
Research and development:
         Stock based              $    106,084                -    $          -    $     57,095    $    163,179
         Other                    $    277,660     $          -    $     27,668    $     13,248    $    318,576

</TABLE>






                                      F-10
<PAGE>
                                 POWERLINX, INC.
                        CONDENSED STATEMENT OF CASHFLOWS
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
                                   (Unaudited)

3.   Segment information (continued):

<TABLE>
<CAPTION>

                                                                        2003
                                                                                      Hotel/MDU
                                     Security          Marine         DC Trans      Connectivity
                                     Products         Products        Products        Products          Total

<S>                               <C>              <C>             <C>             <C>             <C>
Net revenue                       $    546,671     $    274,737    $    221,776    $          -    $  1,043,184
Cost of sales                     $    574,392     $    133,122    $     72,884    $          -    $    780,399
Gross profit                      $    (27,721)    $    141,615    $    148,892    $          -    $    262,785
Research and development:
         Stock based              $     20,000     $          -    $      5,520    $          -    $     25,520
         Other                    $     14,220     $          -    $     56,960    $          -    $     71,180
</TABLE>

4.   Factored accounts receivable:

     During the third  quarter of 2002,  the  Company  entered  into an accounts
     receivable  financing  facility  under  which cash  collections  on certain
     eligible accounts receivable are assigned to a financial institution. Under
     this  arrangement,  eligible  customers make their payments directly to the
     financial  institution.  Upon receipt of payment, the financial institution
     remits the balance of the factored account,  less its fees, to the Company.
     During the nine months  ended  September  30,  2003,  the Company  received
     aggregate proceeds of $86,500 under the factoring  arrangement,  related to
     gross factored  accounts  receivable of $93,500.  The Company is accounting
     for this accounts receivable  factoring  arrangement as a secured borrowing
     pursuant  to SFAS No.  140,  Accounting  for  Transfers  and  Servicing  of
     Financial Assets and Extinguishments of Liabilities.  The Company's assets,
     including accounts receivable,  inventory and property and equipment secure
     the agreement.  The related service charge is reflected in interest expense
     in the period that the accounts receivable are transferred.  Factoring fees
     of  approximately  $2,000  were  incurred  during  the  nine  months  ended
     September 30, 2003.  There were only nominal factored  accounts  receivable
     outstanding as of September 30, 2003.

5.   Inventories:

     Inventories consisted of the following:

                                       F-11
<PAGE>
                                 POWERLINX, INC.
                        CONDENSED STATEMENT OF CASHFLOWS
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
                                   (Unaudited)



                                            September 30,       December 31,
                                                2004               2003
                                            ------------        ------------
           Raw materials                    $    343,230        $    323,547
           Finished goods                        358,643             234,400
                                            ------------        ------------
                                            $    701,873        $    557,947
                                            ============        ============

6.   Intangible assets:

     During the nine months ended September 30, 2004, the Company issued 441,176
     shares of  restricted  common  stock in  conjunction  with the  purchase of
     patents.  The  restricted  common  stock  issued was valued  based upon the
     previous 20 day  average  closing  price prior to the date of the  purchase
     agreement.  The fair value of the patents  was  capitalized  as  intangible
     assets and is being amortized over estimated useful lives of five years.

     During the nine  months  ended  September  30,  2004,  the  Company  issued
     2,224,000  shares  of  restricted  common  stock for a  software  licensing
     agreement  with  On2  Technologies,  Inc.  The  software  acquired  in this
     agreement will be incorporated in the Company's  digital PLC products.  The
     transaction was valued at $311,360,  or $.14 per share;  the closing market
     price of the Company's  stock on the date the  agreement was executed.  The
     license is being  amortized  over its estimated  useful life of five years.
     The Chief Executive Officer of On2 Technologies Inc., Douglas Mclntyre,  is
     also a member of the  Powerlinx,  Inc Board of  Directors.  The  securities
     underlying the offering were subsequently  registered on Form SB-2 with the
     Securities & Exchange Commission. The registration was filed on October 15,
     2004 and became effective on October 29, 2004.

     During the nine months ended September 30, 2003, the Company issued 750,000
     and  500,000  shares  of  restricted  common  stock in  conjunction  with a
     licensing  agreement and a  distributorship  agreement,  respectively.  The
     restricted  common stock  issued was valued  based upon the trading  market
     prices on the dates of issuance, or $37,500 and $25,000,  respectively,  in
     the   aggregate.   The  fair  value  of  the   licensing   rights  and  the
     distributorship  agreement were  capitalized  as intangible  assets and are
     being amortized over their estimated useful lives of five years.

     The  Company  recorded   amortization  expense  of  $355,090  and  $38,504,
     respectively,  in connection with patents and licensing rights for the nine
     months ended September 30, 2004.

     Intangible assets consist of the following at September 30, 2004:
<TABLE>
<CAPTION>

                                                                         DC            Hotel/MDU
                                    Security          Marine       Transportation    Connectivity        Total

<S>                               <C>              <C>                   <C>                  <C>       <C>
Patents                           $ 1,577,813      $   741,148               -                 -     $ 2,318,961
Licensing rights                       37,500                -               -                 -          37,500
Software license agreement            461,360                -               -                 -         461,360
Trademark                              46,963                -          46,962                 -          93,925
</TABLE>

                                      F-12
<PAGE>
                                 POWERLINX, INC.
                        CONDENSED STATEMENT OF CASHFLOWS
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
                                   (Unaudited)
<TABLE>
<CAPTION>

Less accumulated

<S>                                <C>                 <C>                <C>               <C>       <C>
     amortization                  (1,089,400)        (531,225)              -                 -      (1,620,625)
                                 ---------------      ---------         ------              ----      -----------
                                  $ 1,034,236      $   209,923    $     46,962                 -     $ 1,291,121

</TABLE>

     Estimated future amortization is as follows:

         Year ending September 30, 2004
         ------------------------------
                2005                            $     576,560
                2006                                  297,323
                2007                                  129,772
                2008                                  124,147
                2009                                   69,393
                                                -------------
                                                $   1,197,195
                                                =============


7.   Notes Payable, related parties:

     During the nine months  ended  September  30,  2004,  the Company  borrowed
     $150,000 in the form of three $50,000 short-term notes payable from members
     of the Company's Board of Directors and their immediate families. The notes
     were due 45 days from the date of issuance.  As of September 30, 2004,  the
     notes had been repaid in full.


8.   Convertible debentures:

     2002 Securities Purchase Agreement:

     On  September  20,  2002  (Commitment  Date),  the Company  entered  into a
     Securities Purchase Agreement that provided for the issuance of convertible
     notes payable up to an aggregate  face value of $1,000,000  and warrants to
     acquire up to an aggregate  3,000,000 shares of the Company's common stock.
     The agreement provided for the funding of the notes in three traunches,  of
     which the first two,  amounting to $350,000  each with  1,050,000  warrants
     each  were  issued  on  September   20,  2002  and   September   30,  2002,
     respectively.  Each  traunch  matures on the one year  anniversary  date of
     issuance,  assuming no conversion or  prepayment.  On February 7, 2003, the
     remaining  traunch  ($300,000 in convertible  notes and warrants to acquire
     900,000 shares of common stock) was funded upon the effective  registration
     of the common  shares  underlying  the debt and warrants.  The  convertible
     notes  bear  interest  at 12% and are  payable in one year from the date of
     issuance; interest is payable quarterly.



                                       F-13
<PAGE>
                                 POWERLINX, INC.
                        CONDENSED STATEMENT OF CASHFLOWS
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
                                   (Unaudited)


     The convertible  notes were  convertible into shares of common stock solely
     at the creditor's option at a conversion rate amounting to the lower of (i)
     $0.075 or (ii) 50%

8.   Convertible debentures (continued):

     of the  average  of the  three  lowest  intraday  trading  prices  for  the
     Company's  common stock for the 20 trading days before the conversion date.
     On the Commitment  Date,  the Company's  closing market value was $0.13 and
     the three lowest intraday trading prices for the 20 trading days before the
     Commitment Date were all $0.12;  thus the conversion rate on the Commitment
     Date  amounted  to $0.06 per  common  share.  The  warrants,  which have an
     exercise  price of $0.10 and a  three-year  term,  were fully issued on the
     Commitment Date.

     The effective interest rate on the convertible notes payable issued in 2002
     amounted  to 126%,  assuming  that the  notes  are  held to  maturity.  The
     effective  interest rate results from the  amortization of discounts to the
     face value of the  convertible  notes payable,  amortization  of debt issue
     costs  and the  contractual  interest  rate  over the term of the  notes as
     follows:

                                                 Amount              Percent
                                               -----------          ----------
       Discounts to face value:
         Beneficial conversion feature         $   583,000               83.0%
         Allocation to warrants                    117,000               18.0%
                                               -----------          ----------
                                                   700,000              100.1%

       Other interest expense:
         Amortization of debt costs                 88,000               13.0%
         Contractual interest rate                  84,000               12.0%
                                               -----------          ----------
                                               $   420,600              126.0%
                                               ===========          ==========

     During February 2003, the Company  allocated the proceeds received from the
     third and final  traunch of  convertible  notes and  warrants  between  the
     securities  based  upon  their  relative  fair  values.  Fair value for the
     warrants was determined  using the  Black-Scholes  pricing model;  the face
     value of the notes was  considered by management to equal their  respective
     fair  values.  As a result of this  allocation,  approximately  $9,800  was
     recorded for the warrants as paid in capital in the month of February.  The
     assumptions  used to determine fair value under the  Black-Scholes  pricing
     model included an exercise price of $1.00,  market price of $0.05,  term of
     1,080 days,  volatility  of 50%,  and  interest  rate of 16%.  There was no
     beneficial conversion feature related to the third traunch of financing.

     During the nine months ended September 30, 2003, $210,000 of the face value
     of these debentures was converted into 11,639,027 shares of common stock at
     a conversion  price of between  $0.015 and $0.026.  The shares  issued were



                                      F-14
<PAGE>
                                 POWERLINX, INC.
                        CONDENSED STATEMENT OF CASHFLOWS
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
                                   (Unaudited)


     valued in accordance with the Securities Purchase Agreement dated September
     20, 2002, which approximates a 50% discount to market price.

     2003 Securities Purchase Agreement:

     On May 9, 2003  (Commitment  Date),  the Company  entered into a Securities
     Purchase  Agreement  that  provided for the issuance of  convertible  notes
     payable up to an  aggregate  face value of $440,000 and warrants to acquire
     up to an aggregate  1,320,000  shares of the Company's  common  stock.  The
     agreement provided for the funding of the notes in five traunches, of which
     the first two,  amounting to $260,000 with 520,000  warrants were issued on
     May 9, 2003 and June 3, 2003,  respectively.  Each  traunch  matures on the
     one-year   anniversary   date  of  issuance,   assuming  no  conversion  or
     prepayment. On July 1, 2003, the third traunch of the May 10, 2003

     Securities Purchase Agreement ($60,000 in convertible notes and warrants to
     acquire 180,000 shares of common stock) was funded. Each traunch matures on
     the one year  anniversary  date of  issuance,  The  convertible  notes bear
     interest  at 12% and are  payable  in one year  from the date of  issuance;
     interest is payable quarterly.

     The convertible notes are convertible into shares of common stock solely at
     the  creditor's  option at a conversion  rate amounting to the lower of (i)
     $0.05 or (ii) 50% of the  average  of the  three  lowest  intraday  trading
     prices for the  Company's  common  stock for the 20 trading days before the
     conversion date. On the Commitment Date, the Company's closing market value
     was $0.06 and the three lowest  intraday  trading prices for the 20 trading
     days before the  Commitment  Date  averaged  $0.03 and $0.037 and $0.03 for
     Traunch 1, Traunch 2 and Traunch 3, respectively;  thus the conversion rate
     on the  Commitment  Date amounted to $0.015,  $0.0185 and $0.015 per common
     share, respectively. The warrants, which have an exercise price of $0.5 and
     a three-year  term,  were fully issued upon the funding of each  respective
     traunch.

     During May, June and July 2003, the Company allocated the proceeds received
     from the first three  traunches of convertible  notes and warrants  between
     the securities  based upon their  relative fair values.  Fair value for the
     warrants was determined  using the  Black-Scholes  pricing model;  the face
     value of the notes was  considered by management to equal their  respective
     fair  values.  As a result of this  allocation,  approximately  $22,100 and
     $2,600 was recorded  for the warrants as paid-in  capital in the second and
     third quarters of 2003,  respectively.  The  assumptions  used to determine
     fair value under the Black-Scholes pricing model included an exercise price
     of $0.05,  market  price of $0.06 and  $0.04,  respectively,  term of 1,080
     days, volatility of 50%, and interest rate of 12%. In addition, the Company
     allocated the remaining  proceeds of the convertible  notes to the embedded
     beneficial  conversion  feature  represented  by the excess that the market
     value of the common stock on the  commitment  date exceeded the  conversion
     rate.  The debt has been accreted  towards its face value through  periodic
     charges to interest  expense over the  outstanding  term of the  underlying
     notes.

                                       F-15
<PAGE>
     The  effective  interest rate on the first three  traunches of  convertible
     notes payable from the May 9, 2003 Securities Purchase Agreement amounts to
     131.4%,  assuming  that the  notes  are  held to  maturity.  The  effective
     interest rate results from the  amortization of discounts to the face value
     of the convertible notes payable,  amortization of debt issue costs and the
     contractual interest rate over the term of the notes as follows:

                                                   Amount              Percent
       Discounts to face value:
         Beneficial conversion feature         $   295,300               92.3%
         Allocation to warrants                     24,700                7.7%
                                               -----------          ----------
                                                   320,000              100.0%

       Other interest expense:
         Amortization of debt costs                 62,200               19.4%
         Contractual interest rate                  38,400               12.0%
                                               -----------          ----------
                                               $   420,600              131.4%
                                               ===========          ==========

     Cumulative amortization of the beneficial conversion feature and debt issue
     costs  during  the  year  ended  December  31,  2003  for the 2002 and 2003
     Securities Transactions amounted to $526,000 and $63,000, respectively.

     During 2003, $1,000,000 of the face value of these debentures was converted
     into  45,748,151  shares of common stock at a  conversion  price of between
     $0.015 and $0.538.  The shares  issued were valued in  accordance  with the
     Securities  Purchase Agreement dated September 20, 2002, which approximates
     a 50% discount to market price.

     On August 26, 2003, the Company repaid the remaining $320,000 face value of
     these  debentures.  In  connection  therewith,  the Company  paid $9,800 in
     interest and $148,000 in pre-payment  penalty fees. The Company effectively
     terminated the agreement  during August 2003, and  accordingly,  funding of
     the remaining two traunches is no longer required.


9.   Stockholders' equity:

     Series A Convertible Preferred Stock:

     Effective  September 30, 2003, the Company  designated  5,000,000 shares of
     authorized preferred stock as Series A Convertible Preferred Stock. There

                                       F-16
<PAGE>
                                 POWERLINX, INC.
                        CONDENSED STATEMENT OF CASHFLOWS
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
                                   (Unaudited)


     were  no  shares  outstanding  as  of  December  31,  2003.  The  Series  A
     Convertible Preferred Stock has a liquidation preference of $1.00 per share
     and  is  non-voting.   It  is  convertible  into  common  stock  only  upon
     registration of the underlying common shares into which the preferred stock
     can be converted.  The conversion  rate is variable.  During the first year
     following issuance,  and assuming the registration  described earlier,  the
     preferred stock is convertible into the number of common shares that result
     from dividing the par value by the average market price of the common stock
     for a period of five days. Commencing the month following the first year of
     issuance,  and again assuming the registration,  the conversion methodology
     provides for a market discount of 20%, increasing 1% monthly thereafter, up
     to 130%.

     2004 Equity Unit Issuance:

     On March 31, 2004, the Company  issued  228,190 units (the "equity  units")
     for sale to accredited  investors at a price of $8.00 per equity unit. Each
     equity  unit  consists  of (i) 8 shares of Series A  Convertible  Preferred
     Stock;  (ii) 2 shares of the Company's common stock; and (iii) three common
     stock purchase warrants. Each warrant is exercisable until May 15, 2006, at
     a price of $0.50.  Proceeds from the equity unit offering were allocated to
     the common stock,  the Series A Convertible  Preferred Stock and the common
     stock purchase warrants based on their relative fair values. The fair value
     of the common stock was based on the market price per share on the date the
     offering was  completed  (the  "measurement  date").  The fair value of the
     preferred  stock  was based on the  number of shares of common  stock to be
     received  upon  conversion  at the common  stock  market share price on the
     measurement  date. The fair value of the warrants was determined  using the
     Black-Scholes  pricing model with the following  inputs:  exercise price of
     $0.50,  market price of $0.19,  days to  expiration  of 783,  volatility of
     193%, and an interest rate of 4%.

     As of September 30, 2004,  the Company had received  conversion  notices to
     convert all of the Series A convertible  preferred stock to common stock at
     the floor price of $.25 per common  share.  614,504  preferred  shares were
     converted  to  2,458,016  shares of common  stock for the nine months ended
     September 30, 2004 (See "2004 Common Stock Issuances).


     2004 Common Stock Issuances:

     During the nine months ended September 30, 2004, the Company issued 456,380
     shares of common stock in  connection  with the equity unit  issuance  (see
     above).

     During the nine months  ended  September  30, 2004,  232,500  shares of the
     Company's  restricted  common  stock  were sold  through  a private  equity
     placement exempt from registration under Section 4(2) of the Securities Act
     of 1933,  and Rule 506 of Regulation D, thereof.  The placement was open to



                                      F-17
<PAGE>
                                 POWERLINX, INC.
                        CONDENSED STATEMENT OF CASHFLOWS
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
                                   (Unaudited)


     select officers, employees,  representatives of the Company, and accredited
     investors for the purchase of restricted common stock. The Company received
     total  proceeds  from the  offering  of $23,250 in 2003.  The $3,250  stock
     subscription  receivable  at  December  31,  2003 was  from a 2003  private
     placement and it was paid in full as of September 30, 2004.

     During the nine  months  ended  September  30,  2004,  the  Company  issued
     1,025,000  shares of restricted  common stock to directors as  compensation
     for services.  The  restricted  common  stock,  which was fully vested upon
     issuance,  was valued based upon the trading  market prices on the dates of
     issuance, or $205,000 in the aggregate.

     During the nine months ended September 30, 2004, the Company issued 932,000
     shares  of  free  trading  common  stock  to   professional   research  and
     development  consultants  relating  to the  development  of  the  Company's
     security and hotel/MDU  connectivity  products. The common stock was valued
     based upon the closing  market price on the date of issuance,  or $177,080.
     $123,595  was  recognized  as Research &  Development  expense for the nine
     months ended  September  30,  2004,  while the  remaining  $53,485 is being
     amortized over the lives of the various agreements.

     During the nine months ended September 30, 2004, the Company issued 250,000
     shares of restricted  common stock to TSK Design Group, LLC for development
     and design services relating to the Company's security products. The common
     stock  was  valued  based  upon  the  closing  market  price on the date of
     issuance,  or $47,500.  $39,585 was  recognized  as Research &  Development
     expense for the nine months ended  September 30, 2004,  while the remaining
     $7,915 is being amortized over the remaining life of the six month project.

     During the nine months ended September 30, 2004, the Company issued 223,897
     shares  of  free  trading  common  stock  to   professional   research  and
     development  consultants  under an  agreement to license  certain  patented
     technology. The common stock was valued based upon the trading market price
     on the date of issuance,  or $75,000  which was  recognized  as  royalties'
     expense in connection with the issuance.

     During the nine months ended September 30, 2004, the Company issued 441,176
     shares of  restricted  common  stock in  conjunction  with the  purchase of
     patents.  The  restricted  common  stock  issued was valued  based upon the
     previous 20 day  average  closing  price prior to the date of the  purchase
     agreement.  The fair value of the patents  was  capitalized  as  intangible
     assets and is being amortized over estimated useful lives of five years.

     During the nine months ended  September 30, 2004, the Company issued 73,235
     shares  of  restricted  common  stock  for the  conversion  of  $13,915  of
     liabilities;  and  85,000  shares of  restricted  common  stock,  valued at
     $15,300, for the pre-payment of one years rent, commencing May 15, 2004,

                                      F-18
<PAGE>
                                 POWERLINX, INC.
                        CONDENSED STATEMENT OF CASHFLOWS
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
                                   (Unaudited)


     for the warehouse space the Company occupies for its  distribution  center.
     The restricted common stock issued was valued based upon the closing market
     price of the Company's common stock on the date of issuance.

     During the nine months ended September 30, 2004, the Company issued 272,500
     shares of restricted common stock for financing fees relating to short-term
     loans made to the Company in June of 2004.

     During the nine months  ended  September  30,  2004,  the  Company  sold to
     accredited  investors an aggregate of 12,831,373 shares of common stock for
     an  aggregate  purchase  price of  $1,636,000,  or  $.1275  per  share.  In
     addition,  warrants to purchase an  additional  1,924,707  shares of common
     stock were issued in  conjunction  with the offering.  The warrants have an
     exercise price of $.50 per share and expire on June 30, 2009. This offering
     and sale was deemed to be exempt under Rule 506 of Regulation D and Section
     4(2) of the  Securities  Act. The  securities  underlying the offering were
     subsequently  registered  on Form  SB-2  with  the  Securities  &  Exchange
     Commission.  The  registration  was filed on  October  15,  2004 and became
     effective on October 29, 2004.

     During the nine months ended September 30, 2004, the Company issued 100,000
     share of  restricted  common  stock to  employees  for  employment  signing
     bonuses.  The  transaction  was valued at the closing  market  price of the
     Company's stock on the date of grant, or $15,500.

     During the nine months ended September 30, 2004, the Company issued 187,500
     shares of restricted common stock to two Company Director's as compensation
     for raising capital for the Company through private equity placements.  The
     transaction  was valued at the closing market price of the Company's  stock
     on the date of grant,  or $31,875.  The securities  underlying the offering
     were  subsequently  registered on Form SB-2 with the  Securities & Exchange
     Commission.  The  registration  was filed on  October  15,  2004 and became
     effective on October 29, 2004.

     During the nine months ended  September 30, 2004, the Company issued 13,199
     shares of restricted common stock to investors for the conversion of $1,795
     of accrued interest relating to the Company's  convertible  preferred stock
     offering.

     During the nine months  ended  September  30,  2004,  the  Company  sold to
     accredited  investors an aggregate of 6,312,037  shares of common stock for
     an aggregate  purchase price of $852,125,  or $.135 per share. In addition,
     warrants to  purchase an  additional  946,806  shares of common  stock were
     issued in  conjunction  with the  offering.  The warrants  have an exercise
     price of $.50 per share and expire on June 30, 2009. This offering and sale
     was deemed to be exempt under Rule 506 of  Regulation D and Section 4(2) of
     the   Securities   Act.  The   securities   underlying  the  offering  were
     subsequently  registered  on Form  SB-2  with  the  Securities  &  Exchange
     Commission.  The  registration  was filed on  October  15,  2004 and became
     effective on October 29, 2004.

     During the nine months  ended  September  30,  2004,  the  Company  sold to
     accredited  investors an aggregate of 4,300,000  shares of common stock for
     an aggregate  purchase price of $752,500,  or $.175 per share. In addition,
     warrants to  purchase an  additional  645,000  shares of common  stock were
     issued in  conjunction  with the  offering.  The warrants  have an exercise
     price of $.50 per share and expire on June 30, 2009. This offering and sale
     was deemed to be exempt under Rule 506 of  Regulation D and Section 4(2) of
     the   Securities   Act.  The   securities   underlying  the  offering  were
     subsequently  registered  on Form  SB-2  with  the  Securities  &  Exchange

                                      F-19
<PAGE>
                                 POWERLINX, INC.
                        CONDENSED STATEMENT OF CASHFLOWS
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
                                   (Unaudited)


     Commission.  The  registration  was filed on  October  15,  2004 and became
     effective on October 29, 2004.

     During the nine months ended September 30, 2004, the Company issued 794,483
     shares of  restricted  common stock for the  conversion of 960,000 $.05 per
     share  warrants  issued  in  conjunction  with  the  Company's  convertible
     debenture  financing in May,  June,  and July of 2003. The holder invoked a
     cashless  exercise  provision and  therefore  the Company  received no cash
     proceeds in the transaction, but rather reduced the number of shares issued
     by 165,517 in accordance with the cashless exercise provision.

     During the nine  months  ended  September  30,  2004,  the  Company  issued
     2,224,000  shares  of  restricted  common  stock  in  conjunction  with the
     acquisition of a software license agreement with On2 Technologies, Inc. The
     transaction  was  valued at  $311,360.The  Chief  Executive  Officer of On2
     Technologies Inc, Douglas McIntyre, is also a member of the Pawerlinx,  Inc
     Board  of  Directors.   The   securities   underlying   the  offering  were
     subsequently  registered  on Form  SB-2  with  the  Securities  &  Exchange
     Commission.  The  registration  was filed on  October  15,  2004 and became
     effective on October 29, 2004.

     During the nine  months  ended  September  30,  2004,  the  Company  issued
     2,458,016 shares of free trading common stock for the conversion of 614,504
     shares  of the  Company's  preferred  A stock,  as a result  of  conversion
     notices received by the Company,  from holders,  on September 20, 2004. The
     conversion  rate,  in  accordance  with the  terms  and  provisions  of the
     offering was $.25 per share.

     Compensation  expense of $29,422  and  $94,407  for the nine  months  ended
     September 30, 2004 and 2003,  respectively,  was  recognized in relation to
     amortization of unearned  restricted stock compensation  relating to common
     shares issued to consultants as compensation in previous years.

     2003 Transactions:

     During the nine months  ended  September  30, 2003,  125,000  shares of the
     Company's  restricted  common  stock  were sold  through  a private  equity
     placement exempt from registration under Section 4(2) of the Securities Act



                                      F-20
<PAGE>
                                 POWERLINX, INC.
                        CONDENSED STATEMENT OF CASHFLOWS
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
                                   (Unaudited)


     of 1933,  and Rule 506 of Regulation D, thereof.  The placement was open to
     select officers, employees,  representatives of the Company, and accredited
     investors  for the purchase of restricted  common stock.  Proceeds from the
     offering amounted to $6,500.

     During the nine months ended  September 30, 2003, the Company issued 42,000
     shares  of   restricted   common  stock  to  employees   and  directors  as
     compensation  for services.  The restricted  common stock,  which was fully
     vested upon  issuance,  was valued based upon the trading  market prices on
     the dates of issuance, or $2,100 in the aggregate.

     During the nine months ended  September 30, 2003,  5,162,662  shares of the
     Company's  free  trading  common  stock  were  sold  in  connection  with a
     consulting  services  agreement.  The Company received $190,045 in proceeds
     and recognized $33,537 in consulting expense related to this issuance.

     During the nine  months  ended  September  30,  2003,  the  Company  issued
     4,511,000 shares of free trading common stock to professional  research and
     development   consultants  as  compensation  for  consulting  services  and
     royalties.  The  restricted  common  stock issued was valued based upon the
     trading  market  prices  on the  dates  of  issuance,  or  $187,280  in the
     aggregate.  Additionally, $94,407 of compensation expense was recognized in
     relation to amortization of unearned restricted stock compensation relating
     to common shares issued to consultants as compensation in previous years.

     During the nine months ended September 30, 2003, the Company issued 750,000
     and  500,000  shares  of  restricted  common  stock in  conjunction  with a
     licensing  agreement and a  distributorship  agreement,  respectively.  The
     restricted  common stock  issued was valued  based upon the trading  market
     prices on the dates of issuance, or $37,500 and $25,000,  respectively,  in
     the   aggregate.   The  fair  value  of  the   licensing   rights  and  the
     distributorship  agreement were  capitalized  as intangible  assets and are
     being  amortized  over their  estimated  useful  lives of five  years.  The
     Company recorded  amortization expense of $1,875 and $1,250,  respectively,
     in connection with these licensing rights and the distributorship agreement
     for the nine months ended September 30, 2003.

     During the nine months ended September 30, 2003, the Company issued 704,350
     shares of  restricted  common stock to investors for  financing  fees.  The
     common stock was valued based upon the trading  market  prices on the dates
     of issuance, or $42,092 in the aggregate.

     On May 19,  2003,  the  Company  entered  into  three  separate  consulting
     agreements  wherein  the Company  granted  4,200,000  shares of  restricted
     common  stock to  consultants  as  compensation  for  consulting  services.
     1,025,000 of these shares were issued  immediately upon registration of the
     shares on Form S-8 to begin the first phase of the services to be provided.



                                      F-21
<PAGE>
                                 POWERLINX, INC.
                        CONDENSED STATEMENT OF CASHFLOWS
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
                                   (Unaudited)


     Subsequent  issuances  of shares,  up to the total  amount  outlined in the
     agreements,   will  be  issued  at  the  Company's  discretion,   based  on
     performance,  as  defined by the  Company,  over a period not to exceed one
     year. The restricted  common stock issued was valued based upon the trading
     market prices on the dates of issuance,  or $41,000 in the aggregate.  This
     amount was recognized as stock-based compensation during the second quarter
     of 2003.

     During the nine months ended September 30, 2003,  35,776,905  shares of the
     Company's  restricted common stock were sold through various private equity
     placements  exempt from  registration  under Section 4(2) of the Securities
     Act of 1933,  and Rule 506 of Regulation D, thereof.  The  placements  were
     open to select officers,  employees,  representatives  of the Company,  and
     accredited  investors  for the purchase of  restricted  common  stock.  The
     Company had issued  31,471,905  of these shares and received  proceeds from
     the  offerings of  $1,765,081  as of  September  30,  2003.  The  remaining
     4,305,000  shares were issued in the fourth  quarter of 2003. The remaining
     $240,500 of proceeds was also received in the fourth quarter of 2003.

     During the nine  months  ended  September  30,  2003,  the  Company  issued
     45,718,151  shares of free trading common stock in accordance  with several
     conversion  notices  received  by  the  Company  from  the  holders  of the
     Company's  12%  convertible  debentures.  The shares  issued were valued in
     accordance with the Securities Purchase Agreement dated September 20, 2002,
     which  approximates  a 50% discount to the market price.  The average share
     price for all of the  conversions was $0.02 per share, or $1,000,000 in the
     aggregate.

     During the third quarter of 2003,  the Company issued  1,050,000  shares of
     free trading common stock in accordance with several stock warrant exercise
     agreements  received by the Company from the holders of the Company's stock
     purchase  warrants.  The shares issued were valued at the exercise price of
     $0.10 per share, or $105,000 in the aggregate, in accordance with the Stock
     Purchase Warrants dated September 20, 2002.

          Total  stock-based  compensation  cost  recognized for the nine months
     ended September 30, 2004 and 2003 is as follows:

                                             2004               2003
                                           ---------          ---------
     Employee and directors                $ 252,375          $   2,100
     Consultants                             224,580             77,010
     Royalties                                75,000             50,000
     Financing fees                           53,747                  -
     Unearned Stock Compensation              29,422             94,407
                                           ---------          ---------
                                           $ 635,124          $ 223,517
                                           =========          =========



                                      F-22
<PAGE>
                                 POWERLINX, INC.
                        CONDENSED STATEMENT OF CASHFLOWS
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
                                   (Unaudited)


     Common stock Warrants:

     During the period ended  September 30, 2004, the Company issued warrants to
     purchase 50,000 shares of common stock, in conjunction with the purchase of
     the  Powerlinx  trademark.  The warrants have a three year term and have an
     exercise price of $.20 per share.

     During the period ended  September 30, 2004, the Company issued warrants to
     purchase  200,000 shares of common stock in conjunction with a research and
     development  agreement.  The  warrants  have a ten  year  term  and have an
     exercise price of $.20 per share.

     During the years  ended  December  31, 2003 and 2002,  the  Company  issued
     warrants  to  purchase  1,860,000  and  2,100,000  shares of common  stock,
     respectively,  in connection  with the sale of the  Convertible  Debentures
     described  in  Note  8.  The  warrants  have  three-year  terms  and can be
     exercised at prices  between $0.05 and $0.10.  3,000,000  million  warrants
     were  exercised  in  September  and  October  of 2003 at  $.10  per  share,
     generating  $300,000 in proceeds for the  Company.  The  remaining  960,000
     warrants were exercised on September 27, 2004 at $.05 per share. The holder
     invoked a cashless exercise provision and therefore the Company received no
     cash proceeds in the  transaction,  but rather reduced the number of shares
     issued by 165,517 in accordance with the cashless exercise provision.


     Options granted to employees:

     The Company granted  7,422,635  stock options to employees  during the year
     ended December 31, 2003.  Stock options have terms of 10 years and exercise
     prices were equal to the closing market price on the day granted. All stock
     options  issued in 2003 were fully vested on the date of grant.  There were
     7,076,635  options  outstanding  at  September  30,  2004 having a weighted
     average exercise price of $0.05. There were no options exercised during the
     nine months ended September 30, 2004.

10.  Due from related parties:

     Included in the amount is a $20,000 note  receivable from a loan made to an
     officer in 2001,  and  advances  of $48,000 to an officer  made  solely for
     business  purposes.   In  addition,   the  Company  has  short  term  notes
     receivables due from employees in the amounts of $31,115 and $55,000.

11.  Commitments and contingencies:

     License agreement and royalties:

                                      F-23
<PAGE>
                                 POWERLINX, INC.
                        CONDENSED STATEMENT OF CASHFLOWS
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
                                   (Unaudited)

     In December  2002,  the Company  entered  into a licensing  agreement  with
     Satius,  Inc. (formerly  VideoCom,  Inc. and Wire21 Inc.) for its powerline
     technologies,  which are  utilized in the  SecureView  product  line.  This
     agreement  replaces the original license  agreement entered into in October
     1999 in its entirety.  The agreement is effective through the expiration of
     the patents licensed in the agreement (through October 2012). The agreement
     obligates the Company to pay royalties  equal to between $1 and $3 per unit
     of  licensed  products  sold,  with  minimum  annual  royalties  of between
     $240,000 and $480,000. Expense of $225,000 and $150,000 for the nine months
     ended September 30, 2004 and 2003,  respectively was recognized relating to
     this  agreement.  Additionally,  during 2003,  the Company  issued  750,000
     shares of the Company's  common stock in  connection  with this license and
     recorded an  intangible  asset for the  estimated  fair value of the shares
     ($37,500),  which is being amortized over 5 years.  Amortization charged to
     operations  in relation to these  licensing  rights was $5,625 for the nine
     months ended September 30, 2004 and 2003.

     Non-exclusive finder's agreements:

     The Company entered into three  non-exclusive  finder's  agreements whereby
     the finders  introduce  potential  investors to the Company.  In return for
     these services the Company pays 5% of gross Offering proceeds received from
     introductions  made  that  result  in  investment  in  the  Company.  As of
     September 30, 2004,  the finders had been paid cash amounts  connected with
     the equity unit offering.  In addition,  according to the  agreements,  the
     finders were to receive  warrants to purchase  shares of common stock equal
     to 5% of the gross  Offering  proceeds  raised by the finder divided by the
     exercise price of the warrants.  The exercise price is equal to 120% of the
     5 day  average  prior to  closing,  not to exceed  $0.50 per  share.  As of
     September  30, 2004,  the Company had issued,  to the finders,  warrants to
     purchase  305,556 shares of common stock at an exercise price of $0.225 per
     share.  The warrants were valued at $53,747 and were recorded as an expense
     as of September 30, 2004.

     Service agreement:

     The Company  entered into an  agreement  on March 1, 2004 for  professional
     services  including  but not limited to investor  relations  and  financial
     media relations. The agreement calls for a cash payment, issuance of equity
     units  under the equity  unit  offering  (see Note 9) valued at $21,000 and
     50,000 shares of the Company's restricted common stock deliverable 180 days
     after the signing of the agreement. Term of the agreement is seven months.

     Litigation, claims and assessment:

     Class Action Lawsuit

                                      F-24
<PAGE>
                                 POWERLINX, INC.
                        CONDENSED STATEMENT OF CASHFLOWS
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
                                   (Unaudited)


     The Company was a defendant in a consolidated class action lawsuit that was
     pending in the United  States  District  Court for the Middle  District  of
     Florida against the Company and Richard McBride, the Company's former chief
     executive  officer.  Commencing in May 2001,  five nearly  identical  class
     action  lawsuits were filed  against the Company and McBride,  and, on July
     24, 2001, those lawsuits were consolidated. In the five initial complaints,
     the plaintiffs  thereto  claimed  violations of Sections 10(b) and 20(a) of
     the Securities Exchange Act of 1934 and Rule 10b-5 promulgated  thereunder.
     In the five initial  complaints,  the plaintiffs to those actions  alleged,
     among other things, that from March 30, 2000 to March 19, 2001, the Company
     and McBride  misstated  sales and revenue  figures;  improperly  recognized
     revenues;  misrepresented  the nature and  extent of the  Company's  dealer
     network; falsely touted purported sales contracts and agreements with large
     retailers;  misrepresented the Company's ability to manufacture, or to have
     manufactured,  its products; and misrepresented the Company's likelihood of
     achieving  certain  publicly  announced  sales  targets.  The  consolidated
     amended class action complaint was filed in December 2001. As amended,  the
     consolidated  complaint seeks compensatory and other damages, and costs and
     expenses  associated  with the litigation and now also seeks relief against
     James Cox, former  director,  on the same grounds as the claims against the
     Company and McBride.

     In February  2002,  the Company filed a motion to dismiss.  The  plaintiffs
     responded  to the motion to dismiss in early April 2002.  On May 17,  2002,
     the parties reached an agreement in principle,  in the form of a Memorandum
     of  Understanding,  to settle the class action lawsuit.  In the settlement,
     the  Company  will issue  6,000,000  shares  our common  stock to the class
     participants.

     During the 2nd and 3rd  quarters of 2002,  the Company and the  plaintiffs'
     counsel  agreed  to  prepare  and  execute  a  definitive   Stipulation  of
     Settlement  and jointly  seek  preliminary  and final Court  approval.  The
     Settlement would be conditional  upon receiving final judicial  approval of
     the Stipulation, among other things.

     At the end of the  Company's  2nd fiscal  quarter of 2002,  management  had
     determined that the impending settlement was highly probable.  Accordingly,
     the Company accrued for the cost of the settlement by recording a liability
     of  $1,200,000,  this was equal to the  current  fair  market  value of the
     settlement  shares at June 30, 2002, plus an estimated amount for expenses.
     On  December  17,  2002,  the Joint  Motion  for  Preliminary  Approval  of
     Settlement  and the Amended  Stipulation  of Settlement  was filed with the
     United  States  District  Court of Florida,  and  approved by the  residing
     justice. There were no significant amendments to the nature or terms of the
     Stipulation as outlined above. The actual liability,  based on the value of
     the  Company's  stock as December 17, 2002,  was $300,000 plus an estimated
     $125,000 in legal fees.  The Company  recorded its revised  estimate of the
     liability in the fourth  quarter and has disclosed this 2002 fourth quarter
     adjustment in the financial statements.

                                      F-25
<PAGE>
                                 POWERLINX, INC.
                        CONDENSED STATEMENT OF CASHFLOWS
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
                                   (Unaudited)


11.  Commitments and contingencies (continued):

     Litigation, claims and assessment (continued):

     On May 2, 2003,  the  United  States  District  Court of  Florida,  through
     issuance of its Order and Final Judgment, approved the settlement.

     Pro-Marketing of Texas

     The Company is a defendant in a lawsuit  filed by  Pro-Marketing  of Texas,
     Inc. in the Circuit  Court of Pinellas  County,  Florida.  The suit alleges
     breach of contract relating to a payment of a convertible debenture, with a
     maximum  potential  exposure of $100,000 plus interests costs and attorneys
     fees. The Company intends to vigorously  contest the claim. As of September
     30, 2004,  the matter is in the stage of  discovery  and it is too early to
     determine the ultimate  outcome.  Accordingly,  no liability,  if any, that
     might result from the  resolution  of this matter has been  recorded in the
     financial statements.

     Notice of Satius, Inc License Termination

     The Company has received written correspondence from Satius, Inc., licensor
     of certain analog technologies used by the Company, terminating its license
     agreement  with the  Company due to alleged  deficiencies.  The Company has
     forwarded the  correspondence to its legal counsel for review and response.
     It is uncertain  at this time what the  ultimate  outcome will be (See also
     Item 6 (b) Reports on Form 8-K).


     SEC Investigation

     The Securities and Exchange  Commission's  Division of Enforcement began an
     investigation in January 2001 relating to our financial  results and common
     stock  performance  during  2000.  As  a  result  Richard  McBride,  former
     chairman,   president  and  chief  executive  officer,  resigned  from  all
     positions  with the Company.  Further,  all  executives  involved  with the
     allegations  were  replaced  during  2001 and Mr.  McBride  passed  away in
     October 2001. We have  cooperated  fully with the SEC,  which  included the
     testimony of former employees,  Col. Larry Hoffman  (retired),  and Christy
     Mutlu.   Current  officers  and  employees   Douglas  Bauer,   CFO,  George
     Bernardich, CEO, and J. R. Cox, former director, have also testified before
     the SEC.

     On February 12,  2004,  the SEC's staff  advised the  Company,  through its
     counsel,  that  they  intend  to  recommend  that  the  SEC  bring  a civil
     injunctive action against the Company and certain of its current and former
     officers and/or directors.  As it relates to the Company, the Staff alleges
     that the  Company  violated  Section  17(a) of the  Securities  Act of 1933
     ("Securities Act") and Sections 10(b), 13(a), 13(b)(2)(A),  and 13(b)(2)(B)
     of the Securities  Exchange Act of 1934  ("Exchange  Act") and Rules 10b-5,
     13a-1,  13a-11,  13a-13,  and  12b-20  thereunder,  and is liable for civil
     penalties  pursuant  to Section  20(d) of the  Securities  Act and  Section
     21(d)(3)(A) of the Exchange Act.

     The SEC's Staff, in accordance with Rule 5(c) of the Commission's  Rules of
     Informal and Other  Procedures,  17 C.F.R.  ss.202.5(c),  have afforded the
     Company the opportunity to make a "Wells Submission"  regarding the Staff's
     intended  recommendations.  The Company  retained  its  current  counsel to
     complete  the Wells  Submission  which it submitted to the SEC on March 15,



                                      F-26
<PAGE>
                                 POWERLINX, INC.
                        CONDENSED STATEMENT OF CASHFLOWS
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
                                   (Unaudited)


     2004, on behalf of Powerlinx,  Inc., Douglas Bauer, George Bernardich,  and
     James  R.  Cox.  The  Compnay  and its  counsel  believes  that  there  are
     meritorious   factual,   legal  and   policy   reasons   why  the   Staff's
     recommendation should not be followed by the Commission.

     Counsel has notified the Company that as a result of the Wells  Submission,
     the staff may modify its  recommendations to the Commission;  however,  the
     Company has no specific details as to what those  modifications  will be or
     whether they would be accepted by the commission.  The Company is currently
     waiting for the SEC for further correspondence on the matter.

     If the Staff's present recommendation were submitted to the commission, and
     were accepted by the Commission;  and a civil injunctive  action were to be
     subsequently  filed against the Company,  no decision has been made at this
     time as to whether the Company  would  vigorously  defend that  matter,  or
     would  seek to reach a  negotiated  settlement.  The Staff  has  informally
     advised  counsel of their belief that if they were successful in litigating
     this matter, a civil penalty in excess of $100,000 could be imposed against
     the Company.  However,  counsel believes that there are numerous mitigating
     factors, which could cause this amount to be reduced, even if the Company's
     efforts to defend the suit were unsuccessful. Therefore it is impossible at
     this time to estimate  the  likelihood  of an  unfavorable  outcome,  or to
     estimate  the  amount of any such loss from this  matter.  Accordingly,  no
     liability,  if any that might result from the resolution of this matter has
     been recorded in the financial statements.

                                      F-27
<PAGE>
Item 2.   Management's Discussion and Analysis of Financial Condition and
          Results of Operations

          Some of the information in this report contains forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by forward-looking words such as "may," "expect," "anticipate,"
"believe," "estimate" and "continue," or similar words. You should read
statements that contain these words carefully because they:

     o    discuss our future expectations;
     o    contain projections of our future results of operations or of our
          financial condition; and
     o    state other "forward-looking" information

          We believe it is important to communicate our expectations. However,
there may be events in the future that we are not able to accurately predict or
over which we have no control. Our actual results and the timing of certain
events could differ materially from those anticipated in these forward-looking
statements as a result of certain factors.

OVERVIEW

For the three months ended September 30,2004, the Company reported its first
quarterly comparative sales loss in the last nine quarters. However, annual
sales growth remains positive and future sales growth is expected to return as a
result of recent contracts along with several noteworthy achievements in the
Company's quest to execute its business plan which is focused on growth,
profitability, and technological innovation. For the trailing twelve months net
revenue has increased +16,8% and gross profit has increased +170.5%. The
quarterly results were significantly affected by the six weeks of hurricane
weather in Florida which directly affected both internal sales operations and
the operations of many of our customers. Significant air time for some of our
security products was lost through evacuation and other asset protection
activities by some of our direct television retailers causing reduced inventory
sell-through of product purchased late in the 2nd quarter. The Company is also
transitioning the consumer security product line to the PLVS Plus(TM) home
monitoring suite of products from the single Secure View(TM) "camera in a light
bulb". In the transportation division, the prospective customers continue to
validate the strong appeal of using video safety systems for loss savings in the
trucking industry. However, action on closing of these proposals are being
delayed and/or postponed for a number of reasons which the Company believes is
not related to the product pricing or performance. As with security products,
some localized Florida installations were delayed due to the hurricane activity
in the state. In addition, our current and potential customers are experiencing
budgetary limitations as a result of the effects of new overtime laws for
drivers and the increase in fuel prices. However, continued revenue growth from
the hospitality and MDU division offset some of the declines experienced in
other divisions.

Net Revenue decreased (53.5) % for the three months ended September 30,2004
compared to the three months ended September 30,2003.

Gross profit decreased (39.9) % for the three months ended September 30,2004
compared to the three months ended September 30,2003. As a percent of net
revenue, gross profit improved by 8 percentage points to 34% versus 26% for the
comparative three month period It continues the effects of an improved cost
structure generated from the Company's overseas sourcing. The Company has
continued expanding the sourcing of its products beyond China to include Hong
Kong, Taiwan, and Korea. The ability to source product overseas should continue
to be a major strength of the Company in an effort to improve gross profit
margins in future reporting periods.

During the quarter ended September 30, 2004, the Company was able to continue to
improve its balance sheet with the completion of private placements to certain
institutional investors, accredited investors, and directors. The private
placements totaled $3.5M, including warrants that would bring an additional
$1.9M of capital, if exercised. The securities underlying the private placements
were subsequently registered on a Form SB-2 with the Securities & Exchange
Commission. The registration was filed on October 15, 2004 and became effective
on October 21, 2004. (See Note 10 to the financial statements). The Company
intends to use the to: expand our sales force internally and externally, launch



                                       3
<PAGE>
and market the new SecureView(R) PLVS Plus home monitoring system, complete
commercialization of digital powerline products, expand direct television
marketing, increase advertising and marketing expenditures in appropriate
markets and product segments, begin the process of certifications to allow
distribution in international markets. In addition funds will also be used to
fulfill the recent purchase contract for our digital powerline surveillance
systems which will require inventory acquisition, product and technical support,
and various general and administrative expenses.

The Company's patented power-line SecureView(TM) "Camera in a light bulb"
continues to be the primary product sold in the consumer market of our security
segment until the Company completes the transition to the PLVS Plus home
monitoring suite of products. The product is aired on a regular basis on Shop At
Home Network, LLC and Home Shopping Network. While the Company increased the
scheduled airings as a result of continued increases in revenue per minute
results, a large DRTV partner was forced to temporarily relocate operations
outside of Florida due to the hurricane weather. Consequently, scheduled
SecureView airings were canceled which impacted sell through and delayed orders
forecasted to be received in the 3rd quarter. The Company expects airings to
return to normal levels and or increase in the 4th quarter and beyond. The
airings maintain Secure View's initial success in the direct television
retailing arena and the exposure should provide a continuing opportunity to
educate consumers on the advantages of SecureView and power-line technology in
general. To further enhance the Company's direct television marketing program,
the Company engaged the services of Bob Circosta, a legend in Direct Response
Retailing, as Spokesperson and On-Air talent for our powerline home monitoring
products. Mr. Circosta's addition to this sales and distribution channel adds
credibility and will help maximize continued sales growth. Mr. Circosta is
currently President of Bob Circosta Communications Inc, the leader in Direct
Response Retailing, on-air talent training, motivational speaking and sales
training. Ed McMahon, Vanna White, Frankie Avalon and other savvy, international
celebrities' credit Bob with sharpening their abilities to power sell. Top-tier
corporations like Guthy-Renker, HSN and TRISTAR Products also have turned to Bob
to energize sales and profits. His unique approach has likewise been the subject
of NBC's DATELINE and ABC's Good Morning America. Bob helped create the home
shopping craze and served as Home Shopping Network's Vice President of Sales and
Vice President of Sales Training and Development. In addition, SecureView
continues to be sold via Internet and catalog retailers.

The Company continued development of its new mid-ware security solution for the
SOHO (Small Office Home Office) market in the quarter. This product, the PLVS
Plus Pro System(TM) and PLVS Plus System(TM) will focus on the
multi-camera/alarm/recording market which according to market research expects
products priced lower than one thousand dollars for a 3-4 node system. This
product will start at a basic system price of approximately $149.00 and will
allow the customer to purchase component system devices such as baby monitors,
sensors, alarms, and outdoor video cameras with recording capabilities all
priced from $49.00 - $199.00. This product will be focused on two levels of
application; the home DIY installation and the professionally installed systems.
The professionally installed system will come with many enhanced settings,
connectivity solutions, and attachment devices while the home DIY installed
units will focus on ease of installation. Prototype testing of the PLVS Plus
System and presentations to OEDs began in the quarter. Testing results and
additional product feature requests from OEDs resulted in additional product
refinements by the product development engineers. As a result the Company
anticipates having products samples available in the 4th quarter with initial
production available in the 1st quarter 2005. During the quarter, the Company
has been actively presenting the prototype PLVS Plus System demonstrations to
customers and OED partners on both the national and international levels. The
response has been positive and the Company is in active negotiation with many of
these clients to contract distribution in both the consumer and professional
security market segments. The Company believes we can secure a contract after
the final product samples have been provided for final testing and certification
by the client.


                                       4
<PAGE>
As previously discussed in the Company's 2003 10-KSB, the Company has
successfully completed the installation and deployment of its first digital
security system. This system comprises 21 total cameras, both fixed and
pan-tilt-zoom (PTZ), operating over power line, twisted pair, and coaxial
wiring. The monitoring-control-storage component allows the user to
simultaneously view, record, and control each of the 21 cameras. The systems
capacity allows storage of up to 30 days of digital recording for each camera.
To move the project forward, the customer has requested that the Company
collaborate with their current digital security provider to provide an interface
to the hard wire digital systems currently deployed to allow for seamless
installations and to eliminate the need for loss prevention personnel training
on new viewing software. The software development to accomplish this
specification continued in the quarter and the 3rd party provider for the
customer has begun the necessary hardware changes to accommodate the Company's
digital security system. In addition, the Company continued its research and
development of digital products to incorporate coding and decoding (codec)
technology licensed from On2 Technologies Inc. utilizing the license agreement
completed and announced in the fourth quarter of 2003. The Company further
defined several strategic initiatives aimed at the surveillance, security, and
video-on-demand (VOD) markets. All of these products will use PowerLinx's
patented technology for sending audio and video over power lines, twisted pair
wires, and coaxial cable in AC and DC environments on any power grid. This
technology is expected to be paired with On2's revolutionary VP6 codec and
TrueCast software. The VOD offering will enable set-top boxes in hotels and
multiple dwelling units that are equipped with PowerLinx transceivers to stream
VP6 video from remote TrueCast Servers. This will permit customers to set up VOD
without rewiring buildings for dedicated Ethernet connectivity. Rewiring costs
are often the largest capital expense for setting up such entertainment systems
in large buildings. For the commercial surveillance and security markets, On2's
VP6 codec will be used to compress, store, and serve video from PowerLinx
Digital security cameras. PowerLinx technology will allow the compressed video
to be sent, via the power lines, to a PC for viewing and recording. This product
will be aimed at the OEM security market. The last initiative will encompass the
PLVS Plus System(TM).

The Company executed a purchase agreement with Universal General Corporation
(UGC) to purchase the Company's patented digital powerline surveillance systems.
The contract calls for the purchase of 10,000 digital powerline surveillance
base systems with the ability to purchase as needed add-on digital powerline
cameras based on UGC's installation site needs. The digital powerline base
systems are offered in three grades of camera quality which include a Company
produced camera and two other outsourced cameras. UGC will determine the camera
grade required based on the specifications for the respective installation
sites. Initially, UGC informed the Company the base systems will be deployed in
various classified applications for several markets. The base system will
include encoder servers, encryption capabilities and viewing software. Depending
on the final mix of the digital powerline cameras ordered, the total value of
the purchase contract may range from $23M to $47M over the next three years
covered by the agreement. To date, the Company has shipped 20 systems against
the contract which include all three grades of cameras contracted. Further, UGC
has provided specifications for other more sophisticated cameras which may be
procured by the Company for future substitution into the system which may have a
positive affect on the overall value of the contract. The Company has also begun
discussions for development of product/project solutions for other UGC contracts
and projects. The current complete contract may be found in the Form 8-K filing
dated September 23, 2004.

Further, the Company enlisted the services of LaunchPower, www.launchpower.com,
to supplement our sales and marketing efforts in the government sector.
LaunchPower joins our government relations agency, Alcalde & Fay, in bringing
the Company powerline product solutions to the forefront in this very important
market segment for the Company. LaunchPower's President & CEO, Col. (Retired)
James Opfer, and his team expect to focus on selling digital powerline security
systems while building awareness for our PLVS safety systems and connectivity
products which all use patented powerline technologies. LauchPower has developed



                                       5
<PAGE>
a successful  track record  helping  leading  edge  technology  firms to deliver
solutions to meet government commercial and defense security needs. In addition,
The Company has hired Stephen I. Mushahwar who was  instrumental in securing the
UGC  contract,  as Vice  President of  Government  Sales to oversee and lead the
Company in this market segment.

Sales and installations of the Company's PowerLine Vision Systems (PLVS) (TM)
experienced a slowdown during the quarter ended September 30, 2004. The product
continues to be extremely reliable as the Company is not aware of any failures
in any Company installed systems to date and loss savings have been significant
as there has not been a back-up accident reported to the Company on any vehicle
with a PLVS system installed since the initial installations began in September
2003. Initially, as communicated in previous filings, truck fleets including
Ryder, Sysco Foods, McKenzie Tank Lines, and McLane Trucking purchased and
installed test units for evaluation of performance and property loss savings. Of
these fleets, Ryder and Sysco have ordered and installed additional units while
the remaining fleets and new customers continue to purchase and evaluate the
systems. In addition to Ryder and Sysco, the Company now has approximately 26
fleet customers who have purchased and installed systems which include McLean
Trucking, US Foods, E-One, McKinsey, Integris, and Perdue. The Company believes
the slowdown in sales is temporary as the Company continues to increase customer
contacts with the addition of new sales force members' nationwide and continued
lead generation by Winn Technologies, Inc. The expansion of the sales force has
resulted in an increase in the number of proposals presented nationwide from six
in the 2nd quarter to sixty in the 3rd quarter representing several million
dollars in potential future sales. The prospective customers continue to
validate the strong appeal of using video safety systems for loss savings in the
trucking industry. However, action on closing of these proposals are being
delayed and/or postponed for a number of reasons which the Company believes is
not related to the product pricing or performance. In the third quarter, some
localized Florida installations were delayed due to the hurricane activity in
the state. In addition, our current and potential customers are experiencing
budgetary limitations as a result of the effects of new overtime laws for
drivers and the increase in fuel prices. The Company is working on several
leasing options which may be able to meet our customer's budgetary constraints.
The Company continues expanded selling efforts in the recreational vehicle
market. Forest River, Inc. currently offers the PLVS systems as an option on two
of their 2005 Class B/C models and Americamp has now added the PLVS System as an
option for their products in 2005. Airstream began pre-wiring connectors for the
PLVS System on all 2005 trailers and providing Company information and product
marketing materials in the customer manuals and dealer information. The Company
added 14 new dealers bringing the total to approximately 26 dealers nationwide.
The PLVS system continues to be sold through the following RV wholesale
distributors: Aralax (Canada), Stagparkway, WinnTron Technologies, and
RadarBusters. Alcalde & Fay, the Company's government relations firm continues
to work on the implementation of a formal study of the rear vision safety
solution. The Company is also seeking preferred vendor status with several
fleets along with continuing sales development with OEM's, distributors and
dealers.

The Company launched its Hotel and Multiple Dwelling Unit business segment in
May 2004 with the announcement of the strategic alliance agreement with Choice
Hotels International, one of the largest hotel franchise companies in the world
with more than 5,000 hotels, inns, all-suite hotels and resorts open and under
development in 44 countries under the Comfort Inn, Comfort Suites, Quality,
Clarion, Sleep Inn, Rodeway Inn, Econo Lodge and MainStay Suites brand names.
The Business: High Speed Internet Access (HSIA) & Video On Demand (VOD) delivery
systems for Hotels and Multi Dwelling Units (MDU's) market. The Company has
developed and designed High Speed Internet Access (HSIA) & Video On Demand (VOD)
delivery systems for the Hospitality and Multi Dwelling Units (MDU) markets
which utilize powerline communications (PLC), Cat 3 & Cat 5 ADSL, wireless along
with hybrids and combinations of these technologies. The Company also expects to
develop a coaxial cable application for our products later this year. The
Company has installed systems in thirty-six properties through the 3rd quarter.



                                       6
<PAGE>
These properties not only include Choice Hotel brands but Holiday Inn, Holiday
Inn Express, Best Western, Hampton Inn, Ramada Inn and others. The high speed
internet mandate for Choice Hotels International properties was distributed to
their franchisees for Comfort Suites, Clarion and Sleep Inn in mid-August.
Choice Hotels International followed the mandate with their internal marketing
campaign which the Company complemented via mail and fax sales efforts and
tele-marketing by Winn Technology Group, Inc. Further, the Company attended four
regional Choice Hotels International supplier and services trade shows during
the quarter. In addition, the Company ran promotional advertising in the ECRM
Newsletter, Primary Source Magazine, Choice Times and Choice Buys.com to promote
HSIA. The Company secures an installation and service contract with a deposit
from the customer. Once the ISP provider has installed the specified high-speed
internet connection, the Company completes the installation and bills the
customer for the remainder of the installation fees. The Company currently has
approximately 30 properties contracted in the queue for final installation.

The Company also continues to hire associates primarily in sales and engineering
to support future sales growth and expanding research and development projects.
A key addition to the engineering team included the hiring of Marvin D. Scaff as
Director of Software & Information Technology. Mr. Scaff brings extensive
experience and expertise to the Company and is well respected in the industry.
He has been very involved in the development of the Company's new home
monitoring systems and new digital security systems. He joins our current
Director of Digital Engineering, Steven R. Rumbaugh in leading our product
engineering group. Mr. Scaff is a software entrepreneur and technologist. In his
25 years of experience, Scaff has served as a founder, chief executive officer
and chief technology officer. Scaff has shipped six 1.0 products, and played a
significant role in several successful companies.

The Company has chosen to present additional financial information regarding the
Company's financial condition and results of operations. As the Company's
results of operations as presented under Generally Accepted Accounting
Principles (GAAP) include material non-cash expenses, the Company has provided a
pro-forma statement that adds back these expenses to present a pro-forma net
loss that reconciles to its GAAP presentation. Given the net losses that have
been reported in current and prior reporting periods, and the Company's use of
cash to support operations, the Company believes this information will be useful
to current and potential investors.
<TABLE>
<CAPTION>


                                                     Three months ended                        Nine months ended
                                                        September 30,                            September 30,
                                               2004                   2003                    2004             2003

<S>                                             <C>                    <C>                    <C>               <C>
Reported net loss                       $   (1,561,174)        $   (1,062,295)        $   (3,435,481)   $   (2,993,415)

Add:
     Depreciation                       $       24,338         $       15,972         $       68,206    $       47,150
     Amortization                       $      138,950         $      114,822         $      393,594    $      344,466
                                        $            -         $            -         $            -    $            -
     Taxes

Net loss before interest, taxes,
  depreciation & amortization           $   (1,397,886)        $     (931,501)        $   (2,973,681)   $   (2,601,799)

Add stock-based compensation:           $       47,465         $      123,497         $      635,214    $      223,517

Pro forma net loss                      $   (1,350,421)        $     (808,004)        $   (2,338,467)   $   (2,378,282)

</TABLE>



                                       7
<PAGE>
SUBSEQUENT EVENTS

The Company has received written correspondence from Satius, Inc., licensor of
certain analog technologies used by the Company, terminating its license
agreement with the Company due to alleged deficiencies. The Company has
forwarded the correspondence to its legal counsel for review and response. (See
also Item 6 (b) Reports on Form 8-K.

Other achievements following the 3rd Quarter ended September 30, 2004:

     o    The Company launched a wholly owned subsidiary LinxComm, LLC.
          LinxComm, through agreements with various Local Exchange Carriers and
          Competitive Local Exchange Carriers, expects to build a portfolio of
          Telecommunications products that will meet the specific needs of our
          customers especially in the hospitality market where The Company
          currently sells powerline internet connectivity products. LinxComm
          allows PowerLinx to provide a one-stop shopping service to hotel and
          multiple dwelling unit property by providing telecom, internal
          broadband connectivity, digital video-on-demand, and powerline
          security products and services.

     o    The Company enlisted the services of Asymmetric Communications, Ltd.,
          to provide product certification services and to develop distribution
          channels in the European Union. The Company intends to develop
          international markets following the successful launch of the United
          States version of SecureView family of products for home monitoring
          systems, PLVS Plus, followed by the other product lines. To prepare to
          launch this product range within the European and other markets, the
          Company is required to ensure that the products meet the needs of the
          EU and to obtain the mandatory CE approvals and marks along with other
          approvals for counties outside of the EU and USA.

     o    The Company enlisted WinTron Technologies, www.wintrontech.com, to
          market and distribute PowerLinx security and transportation vision
          systems. Initially, WinTron will offer the SecureView(TM), "camera in
          a light bulb" and PowerLine Vision Systems(TM) (PLVS) to its
          customers.



RESULTS OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 2004 AND SEPTEMBER 30, 2003

NET REVENUE. Net revenue increased 6% from $1,043,184 for the nine months ended
September 30, 2003 to $1,107,450 for the nine months ended September 30, 2004.
Marine product segment sales were $161,249 or 15% of total revenues for the nine
months ended September 30, 2004 compared to $274,737, or 26% of total revenues,
for the nine months ended September 30, 2003. Overall, marine product sales
decreased $113,488, or 41%. Security product segment sales were $453,185 or 41%
of total revenues for the nine months ended September 30, 2004 compared to
$546,671, or 52% of total revenues, for the nine months ended September 30,
2003. Overall, security product sales decreased $93,486, or 17%. DC
Transportation product segment sales were $257,058, or 23% of total revenues for
the nine months ended September 30, 2004 compared to $221,776, or 21% of total
revenues for the nine months ended September 30, 2003. Overall, DC
Transportation product sales increased $35,282, or 16%. Hotel & MDU Connectivity
product segment sales were $235,958, or 21% of total revenues for the nine
months ended September 30, 2004. The Hotel & MDU Connectivity product segment is



                                       8
<PAGE>
a new segment, with initial revenues recorded during the quarter ended June 30,
2004, therefore, no comparison to prior periods can be made. The decrease in the
marine product segment sales was due to a reduction in the number of regional
boat shows at which the Company participated in the period ended September 30,
2004 as the Company has focused its resources on its power line products. The
decrease in revenues for the security products segment was directly attributable
to the postponement of 3rd Quarter ended September 30, 2004 shipments due to the
severely adverse weather conditions in Florida during the period. The weather
conditions also affected DC transportation product shipments and installations,
although revenues increased slightly from the prior period.


COST OF GOODS SOLD. Cost of Goods sold decreased 12% from $780,399 (including
inventory write-down) for the nine months ended September 30, 2003 to $688,444
for the nine months ended September 30, 2004. As a percentage of net revenue,
cost of goods sold decreased to 62% for the nine months ended September 30, 2004
from 75% (including inventory write-down) for the nine months ended September
30, 2003. Cost of goods sold for the marine products segment decreased $51,845
or 39%, from $133,122 for the nine months ended September 30, 2003 to $81,277
for the same period ended in 2004. As a percentage of net revenue, cost of goods
sold for the marine product segment increased from 48% for the nine months ended
September 30, 2003 to 50% for same period ended in 2004. Cost of goods sold for
the security products segment decreased $239,223 or 42%, from $574,392
(including inventory write-down) for the nine months ended September 30, 2003 to
$335,169 for the same period ended in 2004. As a percentage of revenue, cost of
goods sold for the security product segment decreased from 105% (including
inventory write-down) for the nine months ended September 30, 2003 to 74% for
same period ended in 2004. Cost of goods sold for the DC Transportation product
segment increased $43,550 or 60% from $72,884 for the nine months ended
September 30, 2003 to $116,434 for the same period ended in 2004. As a
percentage of net revenue, cost of goods sold for the DC Transportation product
segment increased from 33% for the nine months ended September 30, 2003 to 45%
for same period ended in 2004. Cost of goods sold for the Hotel & MDU
Connectivity product segment was $155,564, or 66% as a percentage of net
revenues, for the nine months ended September 30, 2004. The Hotel & MDU
Connectivity product segment is a new segment, with initial revenues recorded
during the quarter ended June 30, 2004, therefore, no comparison to prior
periods can be made.

The increase in the cost of goods sold as a percentage of net revenues for the
marine products segment was driven primarily by the product mix sold during the
period. The decrease in the cost of goods sold as a percentage of net revenues
for the security products segment was driven primarily by the reduction of raw
material and component costs, as the Company's higher cost domestic inventory
was liquidated by year ended December 31, 2003. The increase in the cost of
goods sold as a percentage of net revenues for the DC Transportation product
segment was due to management's decision to implement a volume discount pricing
structure.

GROSS PROFIT MARGIN. Gross profits on sales for the nine months ended September
30, 2004 amounted to $419,006, or 38% of net revenues, compared to
$262,785(including inventory write-down), or 25% of net revenues, for the nine
months ended September 30, 2003. The marine products segment contributed $79,972
and $141,615 of the total gross profit for the nine months ended September 30,
2004 and 2003, respectively. The security products segment contributed $118,016
and $(27,721) (including inventory write-down) of the total gross profit for the
nine months ended September 30, 2004 and 2003, respectively. The DC
Transportation product segment contributed $140,624 and $148,892 of the total
gross profit for the nine months ended September 30, 2004 and 2003,
respectively. The Hotel & MDU Connectivity product segment contributed $80,394
of the total gross profit for the nine months ended September 30, 2004. The
Hotel & MDU Connectivity product segment is a new segment, with initial revenues
recorded during the quarter ended June 30, 2004, therefore, no comparison to
prior periods can be made. The gross profit percentage for the marine products



                                        9
<PAGE>
segment decreased from 52% for the nine months ended September 30, 2003 to 50%
for the nine months ended September 30, 2004. The gross profit percentage for
the security products segment increased from (5)%(including inventory
write-down)for the nine months ended September 30, 2003 to 26% for the nine
months ended September 30, 2004. The gross profit percentage for the DC
Transportation products segment decreased from 67% for the nine months ended
September 30, 2003 to 55% for the nine months ended September 30, 2004. The
gross profit for the Hotel & MDU Connectivity product segment was 34%.

The decrease in the gross profit as a percentage of net revenues for the marine
products segment was driven primarily by the product mix sold during the period.
The increase in the gross profit as a percentage of net revenues for the
security products segment was driven primarily by the reduction of raw material
and component costs, as the Company's higher cost domestic inventory was
liquidated by year ended December 31, 2003. The decrease in the gross profit as
a percentage of net revenues for the DC Transportation product segment was due
to management's decision to implement a volume discount pricing structure.


SALARIES AND WAGES. Salaries and Wages increased 49% from $624,000 for the nine
months ended September 30, 2003 to $928,696 for the nine months ended September
30, 2004. The increase was due to the continued hiring of additional sales
associates for the DC Transportation division and for the new Hotel & MDU
Connectivity division. Salary and Wages is comprised of employee wages and stock
compensation. During the nine months ended September 30, 2004 salaries and wages
included $15,500 in stock based compensation.

PROFESSIONAL FEES. Professional and consulting fees increased 80% from $410,600
for the nine months ended September 30, 2003 to $739,651 for the nine months
ended September 30, 2004. The increase was due the hiring of a lobbying group
related to the promotion of the Company's DC Transportation products, consulting
fees for government sector sales leads for the Company's security products,
consulting fees associated with the improvement of the Company's IT
infrastructure, fees for the Company's investor relations firm, attorneys fees
associated with the filing of Company registration statements for both its
convertible preferred and common stock equity offerings, and compensation to the
Company's Board of Directors. Professional and consulting fees include fees paid
to attorneys, accountants, and business consultants. During the nine months
ended September 30, 2004, professional fees included $211,880 of non-cash stock
based compensation.

DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization increased
18% from $391,616 for the nine months ended September 30, 2003 to $461,801 for
the nine months ended September 30, 2004. The increase is attributable to the
amortization of a new software license acquired on December 31, 2003 & August 5,
2004, and the acquisition of intellectual property relating to the Company's
digital technology on January 20, 2004 (See Note 6 to the financial statements
for complete discussion).

RESEARCH & DEVELOPMENT. Research and development expense increased 398% from
$96,700 for the nine months ended September 30, 2003, to $481,755 for the nine
months ended September 30, 2004. The increase was attributable to increased
funding for the development of the Company's new PLVS+ consumer and commercial
digital security systems, technological upgrades to the Company's PLC
rear-vision systems, and continued development of the Company's high speed
connectivity product for the Hotel/MDU Connectivity products segment. 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 the Company's research and development costs and efforts
are dedicated to the development of the security (both analog and digital), DC
Transportation, and Hotel & MDU Connectivity product segments. For the nine
months ended September 30, 2004, of the total Research & Development
expenditures, $383,744 or 80% was for development in the security product


                                       10
<PAGE>
segment, $27,668 or 6% for development in the DC Transportation product segment,
and $70,343, or 14% for development in the Hotel & MDU Connectivity product
segment. The cost of the Company's research and development activities is borne
directly by the Company; no amounts are borne by our customers, nor are any
contracts for customer funded research and development currently anticipated.
The Company plans to continue funding the security and DC transportation product
segments for the next several years. For the nine months ended September 30,
2004, research and development expense included $163,179 in non-cash based stock
compensation.

ADVERTISING AND PROMOTION. Advertising and promotions decreased 12% from $94,951
for the nine months ended, September 30, 2003 to $84,012 for the nine months
ended, September 30, 2004. The decrease was due directly to a reduction in trade
show attendance in both the marine and security product segments. The amount
also includes portions of postage, printing, and travel that are attributable to
advertising and promotions. The Company expects advertising and promotions
expense to increase in future financial periods.

RENT AND UTILITIES. Rent and utilities increased 42% from $80,769 for the nine
months ended, September 30, 2003 to $114,450 for the nine months ended,
September 30, 2004. The increase is due to the addition of leased office space
in California and South Carolina as discussed below. The Company leases
approximately 2,600 square feet in Tierra Verde, Florida that serves as its
corporate headquarters. The lease is currently on a month to month basis which
began on July 1, 2003 after the original one year lease expired. The Company
also leases space in Clearwater, Florida, for its distribution and warranty &
repair center. On May 15, 2004, the Company signed a one year lease and prepaid
the rent for the entire year through the issuance of 85,000 shares of restricted
common stock (See note 9 to the financial statements. On April 1, 2004 he
Company signed a one year lease for office space in Pleasant Hill, California to
house its Research & Development staff. On May 1, 2004, the Company signed a one
year lease for office space in Myrtle Beach, South Carolina to house its sales
staff for the Company's Hotels & MDU Connectivity division. Rent and utilities
includes office rent, warehouse rent, storage, telephone, and utilities.

POSTAGE & DELIVERY EXPENSE. Postage & delivery expense decreased 44% from
$127,764 for the nine months ended September 30, 2003 to $71,206 for the nine
months ended September 30, 2004. The decrease was attributed to a reduction in
expedited freight charges and an increase in the volume of product sold under
FOB Clearwater, FL terms. Freight & delivery expenses include packaging
supplies, postage, and freight costs associated with both administrative and
distribution functions.

ROYALTIES EXPENSE. Royalties' expense increased 50% from $150,000 for the nine
months ended September 30, 2003 to $225,000 for the nine months ended September
30, 2004. The increase is a result of a scheduled increase in minimum royalty
fees associated with the Company's license agreement with Satius, Inc. Royalties
expense includes royalty payments made to licensors under contractual license
agreements for the use of intellectual property.

FINANCING FEES EXPENSE. Financing fees expense was $264,782 for the nine months
ended September 30, 2004. Financing fees was not used as an expense
classification in prior reporting periods. Financing fees are associated with
commissions paid, and warrants issued, to brokers or lenders in conjunction with
the Company's convertible preferred and common stock private equity offerings,
and loan arrangements (See Note 9 to the financial statements).

OTHER EXPENSES. Other expenses increased 74% from $241,265 for the nine months
ended September 30, 2003 to $419,299 for the nine months ended September 30,
2004. The increase was due to three factors. First, travel expenses increased
due to the additional sales staff added during the fiscal period and
management's travel to China and Korea for research & development and supplier
arrangements. Second, the Company incurred additional insurance premiums with
the addition of a directors & officers policy acquired in November of 2003.
Third, the Company outsourced customer service and sales lead generation to a
local call center. Other expenses include travel, supplies, property taxes,
insurance, bank charges, temporary labor, outsourced labor, and various other
expenses that are classified as miscellaneous.


                                       11
<PAGE>
THREE MONTHS ENDED SEPTEMBER 30, 2004 AND SEPTEMBER 30, 2003

NET REVENUE. Net revenue decreased 53% from $422,219 for the three months ended
September 30, 2003 to $196,538 for the three months ended September 30, 2004.
Marine product segment sales were $21,546 or 11% of total revenues for the three
months ended September 30, 2004 compared to $66,675, or 16% of total revenues,
for the three months ended September 30, 2003. Overall, marine product sales
decreased $45,129, or 68%. Security product segment sales were $44,640 or 23% of
total revenues for the three months ended September 30, 2004 compared to
$284,231, or 67% of total revenues, for the three months ended September 30,
2003. Overall, security product sales decreased $239,591, or 84%. DC
Transportation product segment sales were $19,765, or 10% of total revenues for
the three months ended September 30, 2004 compared to $71,313, or 17% of total
revenues for the three months ended September 30, 2003. Overall, DC
Transportation product segment sales decreased $51,548, or 72%. Hotel & MDU
Connectivity product segment sales were $110,587, or 56% of total revenues for
the three months ended September 30, 2004. The Hotel & MDU Connectivity product
segment is a new segment, with initial revenues recorded during the quarter
ended June 30, 2004, therefore, no comparison to prior periods can be made. The
decrease in the marine product segment sales was due to a reduction in the
number of regional boat shows at which the Company participated in the period
ended September 30, 2004 as the Company has focused its resources on its power
line products. The decrease in revenues for both the security products segment
and the DC transportation products segment was directly attributable to the
postponement of 3rd Quarter ended September 30, 2004 shipments due to the
severely adverse weather conditions in Florida during the period. In addition,
the sales plan for the DC transportation division focused mainly on large
commercial fleets for which the sale cycle is longer due to capital expenditure
approval processes for various potential customers.

COST OF GOODS SOLD. Cost of Goods sold decreased 58% from $311,427 (including
inventory write-down) for the three months ended September 30, 2003 to $129,912
for the three months ended September 30, 2004. As a percentage of net revenue,
cost of goods sold decreased to 66% for the three months ended September 30,
2004 from 74% (including inventory write-down) for the three months ended
September 30, 2003. Cost of goods sold for the marine products segment decreased
$24,135 or 68%, from $35,338 for the three months ended September 30, 2003 to
$11,203 for the same period ended in 2004. As a percentage of net revenue, cost
of goods sold for the marine product segment decreased from 53% for the three
months ended September 30, 2003 to 52% for same period ended in 2004. Cost of
goods sold for the security products segment decreased $227,594 or 86%, from
$263,584 (including inventory write-down) for the three months ended September
30, 2003 to $35,990 for the same period ended in 2004. As a percentage of
revenue, cost of goods sold for the security product segment decreased from 93%
(including inventory write-down) for the three months ended September 30, 2003
to 81% for same period ended in 2004. Cost of goods sold for the DC
Transportation product segment decreased $3,018 or 24% from $12,505 for the
three months ended September 30, 2003 to $9,487 for the same period ended in
2004. As a percentage of net revenue, cost of goods sold for the DC
Transportation product segment increased from 18% for the three months ended
September 30, 2003 to 48% for same period ended in 2004. Cost of goods sold for
the Hotel & MDU Connectivity product segment was $73,232, and 66% as a
percentage of net revenues, for the three months ended September 30, 2004. The
Hotel & MDU Connectivity product segment is a new segment, with initial revenues
recorded during the quarter ended June 30, 2004, therefore, no comparison to
prior periods can be made.


The decrease in the cost of goods sold as a percentage of net revenues for the
marine products segment was driven primarily by the product mix sold during the



                                       12
<PAGE>
period. The decrease in the cost of goods sold as a percentage of net revenues
for the security products segment was driven primarily by the reduction of raw
material and component costs, as the Company's higher cost domestic inventory
was liquidated by year ended December 31, 2003. The increase in the cost of
goods sold as a percentage of net revenues for the DC Transportation product
segment was due to management's decision to implement a volume discount pricing
structure.

GROSS PROFIT MARGIN. Gross profit on sales for the three months ended September
30, 2004 amounted to $66,626, or 34% of net revenues, compared to
$110,792(including inventory write-down), or 26% of net revenues, for the three
months ended September 30, 2003. The marine products segment contributed $10,343
and $31,337 of the total gross profit for the three months ended September 30,
2004 and 2003, respectively. The security products segment contributed $8,560
and $20,647 (including inventory write-down) of the total gross profit for the
three months ended September 30, 2004 and 2003, respectively. The DC
Transportation products segment contributed $10,278 and $58,808 of the total
gross profit for the three months ended September 30, 2004 and 2003,
respectively. The Hotel & MDU Connectivity product segment contributed $37,355
of the total gross profit for the three months ended September 30, 2004. The
Hotel & MDU Connectivity product segment is a new segment, with initial revenues
recorded during the quarter ended June 30, 2004, therefore, no comparison to
prior periods can be made. The gross profit percentage for the marine products
segment increased from 47% for the three months ended September 30, 2003 to 48%
for the three months ended September 30, 2004. The gross profit percentage for
the security products segment increased from 7%(including inventory
write-down)for the three months ended September 30, 2003 to 19% for the three
months ended September 30, 2004. The gross profit percentage for the DC
Transportation products segment decreased from 82% for the three months ended
September 30, 2003 to 52% for the three months ended September 30, 2004. The
gross profit percentage for the Hotel & MDU Connectivity product segment was
34%.

The increase in the gross profit as a percentage of net revenues for the marine
products segment was driven primarily by the product mix sold during the period.
The increase in the gross profit as a percentage of net revenues for the
security products segment was driven primarily by the reduction of raw material
and component costs, as the Company's higher cost domestic inventory was
liquidated by year ended December 31, 2003. The decrease in the gross profit as
a percentage of net revenues for the DC Transportation product segment was due
to management's decision to implement a volume discount pricing structure.

SALARIES AND WAGES. Salaries and Wages increased 91% from $183,137 for the three
months ended September 30, 2003 to $350,410 for the three months ended September
30, 2004. The increase was due to two factors. The increase was due to the
continued hiring of additional sales associates for the DC Transportation
division and for the new Hotel & MDU Connectivity division. Salary and Wages is
comprised of employee wages and stock compensation. During the three months
ended September 30, 2004 salaries and wages included $15,500 in stock based
compensation.

PROFESSIONAL FEES. Professional and consulting fees increased 110% from $130,632
for the three months ended September 30, 2003 to $274,260 for the three months
ended September 30, 2004. The increase was due the hiring of a lobbying group
related to the promotion of the Company's DC Transportation products, consulting
fees for government sector sales leads for the Company's security products,
consulting fees associated with the improvement of the Company's IT
infrastructure, fees for the Company's investor relations firm, attorneys fees
associated with the filing of Company registration statements for both its
convertible preferred and common stock equity offerings, and compensation to the
Company's Board of Directors. Professional and consulting fees include fees paid
to attorneys, accountants, and business consultants. During the three months



                                       13
<PAGE>
ended September 30, 2004, professional fees included $51,250 of non-cash stock
based compensation.

DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization increased
24% from $132,044 for the three months ended September 30, 2003 to $163,289 for
the three months ended September 30, 2004. The increase is attributable to the
amortization of a new software license acquired on December 31, 2003 & August 5,
2004, and the acquisition of intellectual property relating to the Company's
digital technology on January 20, 2004 (See Note 6 to the financial statements
for complete discussion).

RESEARCH & DEVELOPMENT. Research and development expense increased 651% from
$40,559 for the three months ended September 30, 2003, to $304,525 for the three
months ended September 30, 2004. The increase was attributable to increased
funding for the development of the Company's new PLVS+ consumer and commercial
digital security systems, technological upgrades to the Company's PLC
rear-vision systems, and continued development of the Company's high speed
connectivity product for the Hotel/MDU Connectivity products segment. 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 the Company's research and development costs and efforts
are dedicated to the development of the security (both analog and digital), DC
Transportation, and Hotel & MDU Connectivity product segments. For the three
months ended September 30, 2004, of the total Research & Development
expenditures, $238,999 or 78% was for development in the security product
segment, $20,168 or 7% for development in the DC Transportation product segment,
and $45,359, or 15% for development in the Hotel & MDU Connectivity product
segment. The cost of the Company's research and development activities is borne
directly by the Company; no amounts are borne by our customers, nor are any
contracts for customer funded research and development currently anticipated.
The Company plans to continue funding the security and DC transportation product
segments for the next several years. For the three months ended September 30,
2004, research and development expense included $89,110 in non-cash based stock
compensation.

ADVERTISING AND PROMOTION. Advertising and promotions increased 8% from $29,210
for the three months ended, September 30, 2003 to $31,490 for the three months
ended, September 30, 2004. The increase was due directly to advertising costs
promoting the DC Transportation products segment. The amount also includes
portions of postage, printing, and travel that are attributable to advertising
and promotions. The Company expects advertising and promotions expense to
increase in future financial periods.

RENT AND UTILITIES. Rent and utilities increased 50% from $32,402 for the three
months ended, September 30, 2003 to $48,748 for the three months ended,
September 30, 2004. The increase is due to the addition of leased office space
in California and South Carolina as discussed below. The Company leases
approximately 2,600 square feet in Tierra Verde, Florida that serves as its
corporate headquarters. The lease is currently on a month to month basis which
began on July 1, 2003 after the original one year lease expired. The Company
also leases space in Clearwater, Florida for its distribution and warranty &
repair center. On May 15, 2004, the Company signed a one year lease and prepaid
the rent for the entire year through the issuance of 85,000 shares of restricted
common stock (See note 9 to the financial statements. On April 1, 2004 he
Company signed a one year lease for office space in Pleasant Hill, California to
house its Research & Development staff. On May 1, 2004, the Company signed a one
year lease for office space in Myrtle Beach, South Carolina to house its sales
staff for the Company's Hotels & MDU Connectivity division. Rent and utilities
includes office rent, warehouse rent, storage, telephone, and utilities.

POSTAGE & DELIVERY EXPENSE. Postage & delivery expense decreased 62% from
$50,620 for the three months ended September 30, 2003 to $19,180 for the three
months ended September 30, 2004. The decrease was attributed to a reduction in



                                       14
<PAGE>
expedited freight charges and an increase in the volume of product sold under
FOB Clearwater, FL terms. Freight & delivery expenses include packaging
supplies, postage, and freight costs associated with both administrative and
distribution functions.

ROYALTIES EXPENSE. Royalties' expense increased 25% from $60,000 for the three
months ended September 30, 2003 to $75,000 for the three months ended September
30, 2004. The increase is a result of a scheduled increase in minimum royalty
fees associated with the Company's license agreement with Satius, Inc. Royalties
expense includes royalty payments made to licensors under contractual license
agreements for the use of intellectual property.

FINANCING FEES EXPENSE. Financing fees expense was $140,676 for the three months
ended September 30, 2004. Financing fees was not used as an expense
classification in prior reporting periods. Financing fees are associated with
commissions paid, and warrants issued, to brokers or lenders in conjunction with
the Company's convertible preferred and common stock private equity offerings,
and loan arrangements (See Note 9 to the financial statements).


OTHER EXPENSES. Other expenses increased 70% from $114,915 for the three months
ended September 30, 2003 to $195,573 for the three months ended September 30,
2004. The increase was due to three factors. First, travel expenses increased
due to the additional sales staff added during the fiscal period and
management's travel to China and Korea for research & development and supplier
arrangements. Second, the Company incurred additional insurance premiums with
the addition of a directors & officers policy acquired in November of 2003.
Third, the Company outsourced customer service and sales lead generation to a
local call center. Other expenses include travel, supplies, property taxes,
insurance, bank charges, temporary labor, outsourced labor, and various other
expenses that are classified as miscellaneous.


LIQUIDITY & CAPITAL RESOURCES

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. However, the Company has incurred net
losses of $3,435,481 and $2,993,415 during the nine months ended September 30,
2004 and 2003, respectively. In addition, during those periods, the Company has
used cash of $3,077,638 and $2,288,609, respectively, in its operating
activities. These conditions raise substantial doubt about the Company's ability
to continue as a going concern.

The Company has devoted significant efforts in the further development and
marketing of products in its Security Products Segment, which, while now showing
improved revenues cannot yet be characterized as sufficient to fund operations
for any period of time.

The Company's ability to continue as a going concern may be dependent upon (i)
raising additional capital to fund operations (ii) the further development of
the Security, DC Transportation, and Hotel/MDU Connectivity Products Segment
products and (iii) ultimately the achievement of profitable operations. During
the nine months ended September 30, 2004, the Company raised $1,315,000 from the
sale of convertible preferred securities and $3,240,625 from the sale of common
stock through private equity placements. There can be no assurance that
additional financing can be obtained on conditions considered by management to
be reasonable and appropriate, if at all. The financial statements do not
include any adjustments that might arise as a result of this uncertainty.

During the nine months ended September 30, 2004 the Company funded its losses
from operations through the following vehicles:

                                       15
<PAGE>
     o    The receipt of $1,315,000 in proceeds through a convertible preferred
          private equity offering exempt from registration under Section 4(2) of
          the Securities Act of 1933, and Rule 506 of Regulation D, thereof. The
          private placement was conducted as a "Unit Offering" with each $8.00
          Unit consisting of 8 shares of Series A Convertible Preferred stock, 2
          shares of restricted common stock and a warrant to purchase an
          additional 3 shares of common stock at $.50 per share. In addition to
          a 6% coupon per share, the Series A Convertible Preferred stock has a
          $1.00 per share value which may be converted to shares of common stock
          at a variable rate but not less than $.25 or 4 shares of common stock.
          The securities underlying the offering were subsequently registered on
          Form SB-2 with the Securities & Exchange Commission. The registration
          was filed on March 30, 2004 and became effective on April 9, 2004 (See
          note 9 to the financial statements).

     o    The receipt of $3,240,625 in proceeds through private equity offerings
          exempt from registration under 4(2) of the Securities Act of 1933, and
          Rule 506 of Regulation D, thereof. The private placement consisted of
          three separate offerings at $.1275, $.1350, and $.1750 per share. In
          addition, investors received warrants to purchase additional shares of
          common stock in the Company exercisable at $.50 per share, with five
          year expiration. The securities underlying the offering were
          subsequently registered on Form SB-2 with the Securities & Exchange
          Commission. The registration was filed on October 15, 2004 and became
          effective on October 29, 2004 (See note 9 to the financial
          statements).


The Company has no material commitments for the purchase of raw materials or
components. The Company issues purchase orders for these items for the purposes
of fulfilling customer orders and maintaining reasonable levels of inventory.


Item 3.   CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in the Company's Exchange Act
reports is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms, and that such information is accumulated
and communicated to the Company's management, including its Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure based closely on the definition of "disclosure
controls and procedures" in Rule 13a-14(c). In designing and evaluating the
disclosure controls and procedures, management recognized that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.

An evaluation was carried out under the supervision and with the participation
of our management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rule 13a-14(c) under the Securities
Exchange Act of 1934) as of September 30, 2004. Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that the design
and operation of these disclosure controls and procedures were effective. No
significant changes were made in our internal controls or in other factors that
could significantly affect these controls subsequent to the date of their
evaluation.


                                       16
<PAGE>
PART II.    OTHER INFORMATION

Item 1.   Legal Proceedings

Litigation, claims and assessment:

On October 28, 2002, the Company is a defendant in a lawsuit filed by
Pro-Marketing of Texas, Inc. in the Circuit Court of Pinellas County, Florida.
The suit alleges breach of contract relating to a payment of a convertible
debenture, with a maximum potential exposure of $100,000 plus interests costs
and attorneys fees. The Company intends to vigorously contest the claim. As of
September 30, 2004, the matter is in the stage of discovery and it is too early
to determine the ultimate outcome.

The Securities and Exchange Commission's Division of Enforcement began an
investigation in January 2001 relating to our financial results and common stock
performance during 2000. As a result Richard McBride, former chairman, president
and chief executive officer, resigned from all positions with the Company.
Further, all executives involved with the allegations were replaced during 2001
and Mr. McBride passed away in October 2001. We have cooperated fully with the
SEC, which included the testimony of former employees, Col. Larry Hoffman
(retired), and Christy Mutlu. Current officers and employees Douglas Bauer, CFO,
George Bernardich, CEO, and J. R. Cox, former director, have also testified
before the SEC.

On February 12, 2004, the SEC's staff advised the Company, through its counsel,
that they intend to recommend that the SEC bring a civil injunctive action
against the Company and certain of its current and former officers and/or
directors. As it relates to the Company, the Staff alleges that:

         The Company violated Section 17(a) of the Securities Act of 1933
         ("Securities Act") and Sections 10(b), 13(a), 13(b)(2)(A), and
         13(b)(2)(B) of the Securities Exchange Act of 1934 ("Exchange Act") and
         Rules 10b-5, 13a-1, 13a-11, 13a-13, and 12b-20 thereunder, and is
         liable for civil penalties pursuant to Section 20(d) of the Securities
         Act and Section 21(d)(3)(A) of the Exchange Act.

The SEC's Staff, in accordance with Rule 5(c) of the Commission's Rules of
Informal and Other Procedures, 17 C.F.R. ss.202.5(c), have afforded the Company
the opportunity to make a "Wells Submission" regarding the Staff's intended
recommendations. The Company retained its current counsel to complete the Wells
Submission which it submitted to the SEC on March 15, 2004, on behalf of
Powerlinx, Inc., Douglas Bauer, George Bernardich, and James R. Cox. The Compnay
and its counsel believes that there are meritorious factual, legal and policy
reasons why the Staff's recommendation should not be followed by the Commission.

Counsel has notified the Company that as a result of the Wells Submission, the
staff may modify its recommendations to the Commission; however, the Company has
no specific details as to what those modifications will be or whether they would
be accepted by the commission. The Company is currently waiting for the SEC for
further correspondence on the matter.

If the Staff's present recommendation were submitted to the commission, and were
accepted by the Commission; and a civil injunctive action were to be
subsequently filed against the Company, no decision has been made at this time
as to whether the Company would vigorously defend that matter, or would seek to
reach a negotiated settlement. The Staff has informally advised counsel of their
belief that if they were successful in litigating this matter, a civil penalty
in excess of $100,000 could be imposed against the Company. However, counsel
believes that there are numerous mitigating factors, which could cause this



                                       17
<PAGE>
amount to be reduced, even if the Company's efforts to defend the suit were
unsuccessful. Therefore it is impossible at this time to estimate the likelihood
of an unfavorable outcome, or to estimate the amount of any such loss from this
matter. Accordingly, no liability, if any that might result from the resolution
of this matter has been recorded in the financial statements.


Item 2.   Changes in Securities and Use of Proceeds.

On January 20, 2004, the Company issued 441,176 shares of restricted common
stock for the acquisition of four patents solidifying the Company's digital
power line technology. The transaction was based on a 20 day average closing
price of the Company's common stock and was valued at $150,000 (See note 9 to
the financial statements). This sale was exempt under Section 4(2) of the
Securities Act of 1933. No advertising or general solicitation was employed in
offering the securities. Except as otherwise noted, the investors were
sophisticated investors and transfer was restricted by Powerlinx, Inc. in
accordance with the requirements of the Securities Act of 1933. In addition the
investors were provided with access to our Securities and Exchange Commission
filings

On February 26, 2004, the Company issued 900,000 shares of restricted common
stock to the members of the Board of Directors in accordance with the Board of
Directors compensation resolution approved on October 15, 2003. The value of the
compensation was $180,000, based on the closing market price of the Company's
common stock on the date of issuance. The cost is being amortized over the life
of each Board members term, which is one year. (See note 9 to the financial
statements). This sale was exempt under Section 4(2) of the Securities Act of
1933.

During the nine months ended September 30, 2004, 232,500 shares of the Company's
restricted common stock were sold through a private equity placement exempt from
registration under Section 4(2) of the Securities Act of 1933, and Rule 506 of
Regulation D, thereof. The placement was open to select officers, employees,
representatives of the Company, and accredited investors for the purchase of
restricted common stock. The Company received total proceeds from the offering
of $23,250 in 2003. The $3,250 stock subscription receivable at December 31,
2003 was from a 2003 private placement and it was paid in full as of September
30, 2004.

On March 31, 2004, the Company issued 456,380 shares of common stock to
accredited investors in connection with the equity unit issuance (see Note 9 to
the financial statements).

On April 6, 2004, the Company issued 125,000 shares of restricted common stock
to a new member of the Board of Directors in accordance with the Board of
Directors compensation resolution approved on October 15, 2003. The value of the
compensation was $25,000, based on the closing market price of the Company's
common stock on the date of issuance. The cost is being amortized over the life
of each Board members term, which is one year. (See note 9 to the financial
statements). This sale was exempt under Section 4(2) of the Securities Act of
1933.

On April 6, 2004 the Company issued 85,000 shares of restricted common stock,
valued at $15,300, as pre-payment for one year of rent, commencing on May 15,
2004, for the warehouse space that the Company leases for its distribution
center in Clearwater, Florida. The transaction was valued based on the closing
market price of the Company's common stock on the date of issuance.

On May 25, 2004 the Company issued 73,325 shares of restricted common stock as
payment for $13,915 of liabilities owed by the Company.

                                       18
<PAGE>
On May 28, 2004, the Company issued 932,000 shares of free trading common stock
to professional research and development consultants relating to the development
of the Company's security and hotel/MDU connectivity products. The common stock
was valued based upon the closing market price on the date of issuance, or
$177,080. The shares were register on a Form S-8 registration statement filed
with the Securities & Exchange Commission on May 28, 2004.

On June 1, 2004, the Company issued 250,000 shares of restricted common stock to
TSK Design Group, LLC for development and design services relating to the
Company's security products. The common stock was valued based upon the closing
market price on the date of contract approval (May 4, 2004), or $47,500.

On August 5, 2004, the Company issued 272,500 shares of restricted common stock
for financing fees relating to short-term loans made to the Company in June of
2004.

On August 16, 2004, the Company sold to accredited investors an aggregate of
12,831,373 shares of common stock for an aggregate purchase price of $1,636,000.
In addition, warrants to purchase an additional 1,924,707 shares of common stock
were issued in conjunction with the offering. The warrants have an exercise
price of $.50 per share and expire on June 30, 2009. This offering and sale was
deemed to be exempt under Rule 506 of Regulation D and Section 4(2) of the
Securities Act. The securities underlying the offering were subsequently
registered on Form SB-2 with the Securities & Exchange Commission. The
registration was filed on October 15, 2004 and became effective on October 29,
2004 (See note 9 to the financial statements).

On August 23, 2004, the Company issued 100,000 share of restricted common stock
to employees for employment signing bonuses. The transaction was valued at the
closing market price of the Company's stock on the date of grant, or $15,500.

On August 23, 2004, the Company issued 187,500 shares of restricted common stock
to two Company Director's as compensation for raising capital for the Company
through private equity placements. The transaction was valued at the closing
market price of the Company's stock on the date of grant, or $31,875.

On August 23, 2004 the Company issued 13,199 shares of restricted common stock
to investors for the conversion of $1,795 of accrued interest relating to the
Company's convertible preferred stock offering.

On September 10, 2004, the Company sold to accredited investors an aggregate of
6,312,037 shares of common stock for an aggregate purchase price of $852,125. In
addition, warrants to purchase an additional 946,806 shares of common stock were
issued in conjunction with the offering. The warrants have an exercise price of
$.50 per share and expire on June 30, 2009. This offering and sale was deemed to
be exempt under Rule 506 of Regulation D and Section 4(2) of the Securities Act.
The securities underlying the offering were subsequently registered on Form SB-2
with the Securities & Exchange Commission. The registration was filed on October
15, 2004 and became effective on October 29, 2004 (See note 9 to the financial
statements).

On September 17, 2004, the Company sold to accredited investors an aggregate of
4,300,000 shares of common stock for an aggregate purchase price of $752,500. In
addition, warrants to purchase an additional 645,000 shares of common stock were
issued in conjunction with the offering. The warrants have an exercise price of
$.50 per share and expire on June 30, 2009. This offering and sale was deemed to
be exempt under Rule 506 of Regulation D and Section 4(2) of the Securities Act.
The securities underlying the offering were subsequently registered on Form SB-2
with the Securities & Exchange Commission. The registration was filed on October
15, 2004 and became effective on October 29, 2004 (See note 9 to the financial
statements).

On September 30, 2004 the Company issued 794,483 shares of restricted common



                                       19
<PAGE>
stock for the conversion of 960,000 $.05 per share warrants issued in
conjunction with the Company's convertible debenture financing in May, June, and
July of 2003. The holder invoked a cashless exercise provision and therefore the
Company received no cash proceeds in the transaction, but rather reduced the
number of shares issued by 165,517 in accordance with the cashless exercise
provision.

On September 30, 2004, the Company issued 2,224,000 shares of restricted common
stock in conjunction with the acquisition of a software license agreement with
On2 Technologies, Inc. The transaction was valued at $311,360.The Chief
Executive Officer of On2 Technologies Inc, Douglas McIntyre, is also a member of
the Pawerlinx, Inc Board of Directors.

On September 30, 2004, the Company issued 2,458,016 shares of free trading
common stock for the conversion of 614,504 shares of the Company's preferred A
stock, as a result of conversion notices received by the Company, from holders,
on September 20, 2004. The conversion rate, in accordance with the terms and
provisions of the offering (See note 9 to the financial statements) was $.25 per
share.


Item 3.     Defaults Upon Senior Securities.

            Not Applicable.

Item 4.     Submission of Matters to a Vote of Security Holders.

            None

Item 5.     Other Information


Item 6.     Exhibits and Reports of Form 8-K


       (a)  Exhibits:

            31.1 Certification by Chief Financial Officer pursuant to Sarbanes
                 -Oxley Section 302.

            31.2 Certification by Chief Executive Officer pursuant to Sarbanes
                 -Oxley Section 302.

            32.1 Certification by Chief Financial Officer pursuant to 18 U.S. C.
                 Section 1350

            32.2 Certification by Chief Executive Officer pursuant to 18 U.S. C.
                 Section 1350

       (b)  Reports on Form 8-K


            ------------------------------- ------------------------------------
            DATE OF REPORT                       ITEM REPORTED ON
            ------------------------------- ------------------------------------
            September 23, 2004              On September 20, 2004, the Company
                                            executed a Purchase Agreement with
                                            Universal General Corporation
                                            ("UGC"). UGC agreed to purchase a
                                            minimum of 10,000 PowerLinx Digital
                                            PowerLine Security System products
                                            over a three year period for a
                                            guaranteed minimum purchase price
                                            of an aggregate of $23,000,000.

                                            The term of the agreement is 3 years
                                            and each party may terminate the
                                            agreement upon breach of the
                                            contractual obligations.
            ------------------------------- ------------------------------------


                                       20
<PAGE>
            ------------------------------- ------------------------------------
            DATE OF REPORT                       ITEM REPORTED ON
            ------------------------------- ------------------------------------

            October 26, 2004                The Company has received written
                                            correspondence from Satius, Inc.,
                                            licensor of certain analog
                                            technologies used by the Company,
                                            terminating its license agreement
                                            with the Company due to alleged
                                            deficiencies. The Company has
                                            forwarded the correspondence to its
                                            legal counsel for review and
                                            response.
            ------------------------------- ------------------------------------




                                       21
<PAGE>
                                   SIGNATURES


     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of St.
Petersburg, State of Florida on November 15, 2004.


                  POWERLINX, INC.




                  By: /s/ GEORGE S. BERNARDICH, III
                          -------------------------
                          GEORGE S. BERNARDICH, III
                          Chief Executive Officer

                  By: /s/ DOUGLAS BAUER
                          -----------------------
                          DOUGLAS BAUER
                          Chief Financial Officer