UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549


                                    FORM 10-Q


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

                  For the quarterly period ended June 30, 2006

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

          For the transition period from: ____________ to ____________

                       Commission file number: 33-55254-26

                                 POWERLINX, INC.
             (exact name of registrant as specified in its charter)

                     NEVADA                                 50-0006815
                     -------                                ----------
         (State or other jurisdiction of                 (I.R.S. Employer
          incorporation or organization)                Identification No.)


       1200 66th St Street North Suite 300, ST.PETERSBURG, FL         33716
       -----------------------------------------------------         -----
                    (Address of principal executive offices)       (Zip Code)

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


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

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the
Exchange Act).

Large accelerated filer [ ]                  Accelerated filer [ ]
Non-accelerated filer [X]

Indicate by check mark whether registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
                                 Yes [ ] No [X]

The number of shares outstanding of Registrant's Common Stock, as of August 16,
                                2006: 4,888,900



                                        1

<PAGE>
<TABLE>
<CAPTION>
                                 POWERLINX, INC.


                                      INDEX


                   Part I - FINANCIAL INFORMATION                               Page No.

<S>                                                                                 <C>
Item 1.           Financial Statements.

                  Condensed Financial Statements

                  PowerLinx, Inc. Consolidated
                  Balance Sheets (Unaudited)........................................F-1

                  PowerLinx, Inc. Consolidated
                  Statements of Operations (Unaudited)..............................F-2

                  PowerLinx, Inc. Consolidated
                  Statements of Cash Flows (Unaudited)..............................F-3

                  PowerLinx, Inc. Notes to Consolidated
                  Financial Statements (Unaudited)..................................F-5


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

Item 3.           Quantitative and Qualitative Disclosures
                  About Market Risk...................................................4

Item 4.           Controls and Procedures............................................13

                           Part II. OTHER INFORMATION

Item 1.           Legal Proceedings..................................................13

Item 1A.          Risk Factors ......................................................14

Item 2.           Unregistered Sales of Equity Securities and Use of
                  Proceeds...........................................................16

Item 3.           Defaults Upon Senior Securities....................................16

Item 4.           Submission of Matters to a Vote of Security Holders................16

Item 5.           Other Information..................................................18

Item 6.           Exhibits...........................................................18

Signatures...........................................................................19
</TABLE>

                                        2

<PAGE>
                         PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

The accompanying unaudited financial statements have been prepared in accordance
with the instructions to Form 10-Q pursuant to the rules and regulations of the
Securities and Exchange Commission and, therefore, do not include all
information and footnotes necessary for a complete presentation of our financial
position, results of operations, cash flows, and stockholders' equity in
conformity with generally accepted accounting principles. In the opinion of
management, all adjustments considered necessary for a fair presentation of the
results of operations and financial position have been included and all such
adjustments are of a normal recurring nature.





                                        3
<PAGE>
<TABLE>
<CAPTION>

                                 POWERLINX, INC.
                     CONDSENSED CONSOLIDATED BALANCE SHEETS


                                                                                                June 30,          December 31,
                                                                                                  2006                2005
                                                                                               (Unaudited)          (Audited)
                                                                                             ----------------   -----------------
                                     ASSETS
Current Assets:
<S>                                                                                                <C>                 <C>
         Cash and cash equivalents                                                                 $ 627,310           $ 255,293
         Accounts receivable, net                                                                    193,796             157,221
         Employee advances                                                                            62,362              31,161
         Inventories                                                                                 768,013             589,495
         Prepaid expenses and other current assets                                                   376,476             134,519
         Deferred financing costs                                                                     80,542                   -
         Assets of discontinued operations                                                                 -              16,588
                                                                                             ----------------   -----------------
                 Total current assets                                                              2,108,499           1,184,276

Intangible assets, net                                                                               438,426             555,411
Deposits                                                                                              26,987              18,460
Property and equipment, net                                                                          169,332             203,453
                                                                                             ----------------   -----------------
                         Total assets                                                            $ 2,743,244          $1,961,600
                                                                                             ================   =================


                       LIABILITIES & STOCKHOLDERS DEFICIT
Current liabilities:
         Accounts payable                                                                          $ 609,029           $ 834,558
         Accrued expenses                                                                            180,518             467,825
         Accrued severance payable, current portion                                                   88,500             112,500
         Current maturities of notes payable                                                          19,412              22,942
         Litigation settlement                                                                             -              90,000
         Other current liabilities                                                                         -              61,070
         Liabilities of discontinued operations                                                       89,804             155,128
         Derivative liability                                                                      3,603,481            -
                                                                                             ----------------   -----------------
                 Total current liabilities                                                         4,590,744           1,744,024
Accrued severance payable, less current portion                                                            -              34,500
Notes payable, less current maturities                                                                     -           1,108,462
Convertible debentures                                                                                89,373                   -
                                                                                             ----------------   -----------------

                 Total Liabilities                                                                 4,680,117           2,886,986
                                                                                             ----------------   -----------------

Commitments and contingencies (Note 11)

Stockholders's equity (deficit)
         Series A convertible preferred stock, $1.00 par value;                                      512,685             534,730
             authorized 30,000,000 shares; shares issued 1,825,520;
             outstanding (581,408 - 2006; 606,408 -2005)
         Common stock, $.001 par value, authorized 8,000,000                                           4,850               4,408
             shares; issued (4,850,453 - 2006; 4,408,142 - 2005)
             outstanding (4,840,981 - 2006; 4,398,670 -2005)
         Additional paid-in capital                                                               25,244,497          24,616,698
         Treasury stock, at cost, 9,472 shares                                                      (287,757)           (287,757)
         Accumulated deficit                                                                     (27,411,148)        (25,793,465)
                                                                                             ----------------   -----------------
                 Total stockholders' deficit                                                      (1,936,873)           (925,386)
                                                                                             ----------------   -----------------
                         Total liabilities and stockholders' deficit                             $ 2,743,244          $1,961,600
                                                                                             ================   =================

</TABLE>
              The accompanying notes are an integral part of these
                  condensed consolidated financial statements.

                                       F-1

<PAGE>

                                 POWERLINX, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                              Three Months Ended June 30,       Six Months Ended June 30,

                                                      ------------------------------------  -------------------------------------
                                                           2006                2005               2006                2005
                                                      ----------------   -----------------  -----------------   -----------------
<S>                                                         <C>                 <C>                <C>                 <C>
Net revenue                                                 $ 287,832           $ 504,194          $ 499,416           $ 931,628
Cost of goods sold                                            154,966             352,389            282,046             667,571
                                                      ----------------   -----------------  -----------------   -----------------

                Gross Profit                                  132,866             151,805            217,370             264,057
                                                      ----------------   -----------------  -----------------   -----------------


Operating expenses:
         Salaries and wages                                   424,903             547,358            714,221             960,283
         Professional and consulting fees                     556,292             140,727            905,322             529,173
         Depreciation and amortization                         52,838             168,725            161,636             335,615
         Research and development                             222,528             149,040            354,735             320,159
         Advertising and promotions                            30,004              51,587             84,400             119,039
         Rent and utilities                                    63,567              59,041            115,574             107,186
         Travel and entertainment                              32,458              58,859             70,854             110,120
         Other expenses                                        72,413              91,221            198,953             198,663
         Restructuring expense                                      -              15,603                  -             598,286
                                                      ----------------   -----------------  -----------------   -----------------

                Total operating expenses                    1,455,003           1,282,161          2,605,695           3,278,524
                                                      ----------------   -----------------  -----------------   -----------------

Loss from operations                                       (1,322,137)         (1,130,356)        (2,388,325)         (3,014,467)

Interest expense, net                                             729             (13,041)           (66,170)            (14,099)
Gain(loss) on extinguishment of debt                                -                             (1,502,286)
Derivative gain (loss)                                      1,904,714                   -          2,355,687                   -
                                                      ----------------   -----------------  -----------------   -----------------

Income (loss) before discontinued operations                  583,306          (1,143,397)        (1,601,094)         (3,028,566)

(Loss) from discontinued operations                           (16,588)            (32,206)           (16,588)           (171,088)
                                                      ----------------   -----------------  -----------------   -----------------

Net income (loss)                                           $ 566,718         $(1,175,603)       $(1,617,682)        $(3,199,654)
                                                      ================   =================  =================   =================

Net income (loss) per common share, basic:
         Continuing Operations                                 $ 0.12             $ (0.32)           $ (0.35)            $ (0.87)
         Discontinued Operations                                  $ -             $ (0.01)               $ -             $ (0.05)
                                                      ----------------   -----------------  -----------------   -----------------
                                                               $ 0.12             $ (0.33)           $ (0.35)            $ (0.92)
Weighted average common shares
     outstanding, basic:                                    4,685,706           3,521,603          4,609,431           3,492,165

Net income (loss) per common share,
         diluted: Continuing Operations                       $ (0.12)            $ (0.32)           $ (0.35)            $ (0.87)
                  Discontinued Operations                         $ -             $ (0.01)               $ -             $ (0.05)
                                                      ----------------   -----------------  -----------------   -----------------
                                                              $ (0.12)            $ (0.33)           $ (0.35)            $ (0.92)
Weighted average common shares
     outstanding, diluted:                                  5,797,926           3,521,603          4,609,431           3,492,165

</TABLE>
             The accompanying notes are an integral part of these
                  condensed consolidated financial statements.

                                       F-2

<PAGE>
<TABLE>
<CAPTION>
                                 POWERLINX, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

                                                                                   Six Months Ended
                                                                                       June 30,
                                                                           ----------------------------------
                                                                                2006               2005
                                                                           ----------------   ---------------
Cash flows from operating activities:
<S>                                                                            <C>               <C>
      Net loss                                                                 $(1,617,682)      $(3,199,654)
      Adjustments to reconcile net loss to net cash flows
           from operating activities:
               Stock-based compensation                                            411,224           614,111
               Amortization                                                        116,985           284,534
               Accretion of debt discount                                           89,373                 -
               Loss on debt extinquishment                                       1,502,286                 -
               Derivative (gain) loss                                           (2,355,687)                -
               Depreciation                                                         44,651            51,081
               Bad debt expense                                                     31,921             2,483
           Changes in operating assets and liabilities
               Accounts receivable                                                 (68,496)         (235,697)
               Employee advances                                                   (31,201)          (13,118)
               Inventories                                                        (178,518)          478,781
               Prepaid expenses and other current assets                          (225,156)           23,575
               Assets of discontinued operation                                     16,588            96,947
               Deposits                                                             (8,527)           20,100
               Accounts payable                                                   (225,530)           91,945
               Accrued expenses                                                   (220,917)           57,595
               Accrued severance                                                   (58,500)          226,500
               Due to related parties                                                    -           (56,913)
               Deferred revenue                                                          -          (173,483)
               Liabilities of discontinued operation                               (65,324)          115,952
                                                                           ----------------   ---------------

Net cash flows from operating activities                                        (2,842,510)       (1,615,261)
                                                                           ----------------   ---------------

Cash flows from investing activities:
      Purchase of property and equipment                                           (10,530)           (2,795)
                                                                           ----------------   ---------------

Net cash flows from investing activities                                           (10,530)           (2,795)
                                                                           ----------------   ---------------

Cash flows from financing activities:
      Proceeds from sales of common stock, net
           costs of $24,923                                                        171,881         1,081,054
      Proceeds from convertible debentures, net
           costs of $82,000                                                      3,018,000                 -
      Repayment of related party debt                                              (31,000)                -
      Proceeds from notes payable                                                   75,000           400,000
      Repayment of notes payable                                                    (8,824)         (200,000)
                                                                           ----------------   ---------------
Net cash flows from financing activities                                         3,225,057         1,281,054
                                                                           ----------------   ---------------

Net change in cash and cash equivalents                                            372,017          (337,002)
Cash and cash equivalents at beginning of period                                   255,293           497,663
                                                                           ----------------   ---------------

Cash and cash equivalents at end of period                                       $ 627,310         $ 160,661
                                                                           ================   ===============


</TABLE>

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

                                       F-3
<PAGE>

                                 POWERLINX, INC.
           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
                                   (Unaudited)




                   NON-CASH INVESTING AND FINANCING ACTIVITIES

<TABLE>
<CAPTION>
                                                                           For the six months ended June 30,


                                                                                    2006                2005
                                                                             ------------------  ------------------

<S>                                                                          <C>                 <C>
Issuance of common stock for liabilities                                     $          150,069  $
                                                                             ==================  ==================

Issuance of common stock for financing fees                                  $           11,855  $
                                                                             ==================  ==================

Conversion of notes payable to convertible debentures                        $        1,373,933  $
                                                                             ==================  ==================

Conversion of  Series A preferred stock to common stock                      $           22,045  $          132,270
                                                                             ==================  ==================

                          OTHER CASH FLOWS INFORMATION

Cash paid for taxes                                                          $               -   $                -
                                                                             =================   ==================

Cash paid for interest                                                       $           2,633   $                -
                                                                             =================   ==================
</TABLE>


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

                                       F-4

<PAGE>
                                 POWERLINX, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005
                                    UNAUDITED


1.   Basis of presentation and significant accounting policies:

     The accompanying unaudited condensed consolidated financial statements have
     been prepared in accordance with generally accepted  accounting  principles
     for interim  financial  information and with the  instructions to Form 10-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
     consolidated financial statements reflect all adjustments  (consisting only
     of  normal  recurring   adjustments)   considered   necessary  for  a  fair
     presentation of PowerLinx,  Inc.'s (the "Company")  financial  position and
     the results of its  operations  and its cash flows for the six months ended
     June 30, 2006 and 2005. These unaudited  consolidated  financial statements
     should be read in  conjunction  with the Company's  audited 2005  financial
     statements,  including the notes  thereto,  and the other  information  set
     forth  therein in the  Company's  Annual Report on Form 10-K/A for the year
     ended December 31, 2005.  Operating  results for the six month period ended
     June 30, 2006,  are not  necessarily  indicative of the results that can be
     expected for a full fiscal year.

     Revenue recognition:

     Revenue is recognized  when the earnings  process is complete and the risks
     and  rewards  of  ownership  of the  product,  including  title,  have been
     transferred to the customer, which is generally considered to have occurred
     upon shipment of the product.  Shipping costs, which have been nominal, are
     billed to the  customer  and are  included as a component  of cost of goods
     sold.  Estimated  returns are provided for as  reductions  of revenue based
     upon the Company's historical return experience.

     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:

     Effective  January 1, 2006,  the Company  adopted  Statement  of  Financial
     Accounting  Standards No. 123R, "Share Based Payments" (FAS 123R) using the
     modified  prospective-transition  method.  Under  this  transition  method,
     compensation  cost in 2006  would  include  the fair  value of the  vesting
     portion of previously issued options granted prior to December 31, 2005 and
     options  granted  and vested in 2006.  Prior  period  results  would not be
     restated.

                                      F-5
<PAGE>

     The  adoption  of FAS 123R had no effect on net  income  for the six months
     ended June 30, 2006,  compared to accounting  for share based  compensation
     using the  previously  adopted  intrinsic  value  method  under APB No. 25,
     "Accounting for Stock Issued to Employees"  since there there were no stock
     options or warrants  issued or  exercised  during the six months ended June
     30,  2006.  As of June 30, 2006 the Company  had  183,553  outstanding  and
     exercisable  options with a weighted  average exercise price of $5.40 and a
     weighted average remaining contractual life of 7 years. As of June 30, 2006
     the Company had  2,027,746  outstanding  and  exercisable  warrants  with a
     weighted average  exercise price of $3.18 and a weighted average  remaining
     contractual

     Financial instruments:

     Financial  instruments  at June 30, 2006 and  December  31, 2005 consist of
     cash and cash equivalents,  accounts  receivable,  trade payables,  accrued
     expenses, derivative liabilities, notes payable and convertible debentures.
     As of June 30, 2006 and  December 31, 2005 the fair values of cash and cash
     equivalents,  accounts  receivable,  trade payables,  and accrued  expenses
     approximated  their  respective  carrying  values,  due to  their  relative
     current maturities.  The estimated fair value of notes payable approximated
     $1,300,000  December 31, 2005,  based upon the present value of cash flows.
     The estimated fair value of convertible debentures  approximated $4,081,000
     at June 30, 2006, based upon the present value of cash flows.

     The Company  generally  does not use  derivative  financial  instruments to
     hedge exposures to cash-flow risks or market-risks that may affect the fair
     values of its  financial  instruments.  However,  certain  other  financial
     instruments,  such as warrants and embedded  conversion  features  that are
     indexed to the Company's  common stock,  are classified as liabilities when
     either  (a) the  holder  possesses  rights to  net-cash  settlement  or (b)
     physical or net-share  settlement is not within the control of the Company.
     In such instances,  net-cash settlement is assumed for financial accounting
     and  reporting,  even when the  terms of the  underlying  contracts  do not
     provide for net-cash settlement.  Such financial  instruments are initially
     recorded at fair value and subsequently adjusted to fair value at the close
     of each reporting period.

     The  caption  Derivative  Financial  Instruments  consists  of (i) the fair
     values  associated  with  derivative  features  embedded in the Convertible
     Debentures,  (ii) the fair  values  of the  detachable  warrants  issued in
     connection  with the  Convertible  Debentures  and (iii) the fair values of
     other  warrants  and  convertible  instruments  where  share-settlement  is
     presumed not to be in the Company's control. (See Note 8)

     Concentrations:

     Accounts  receivable are concentrated in the Security and DC Transportation
     products   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,  and 50% of
     the DC  Transportation  Product  Segment  revenues for the six months ended
     June 30,  2006.  For the six months  ended  June 30,  2005,  two  customers
     accounted for 52% of total revenues.

     The  Company's  product  manufacturing  and assembly is dependent  upon the
     operations  of one primary  supplier.  In turn,  this supplier is dependant
     upon various  other  suppliers  for the purchase and delivery of several of
     the  components  used in the  manufacturing  and assembly of the  Company's
     products.  At June  30,  2006,  inventory  valued  at  $157,000  was  being
     warehoused  in  Taiwan,  at  the  offices  of IC  Intracom,  the  Company's
     manufacturing partner (See "Liquidity & Capital Resources"). If the Company
     should lose this supplier, there could be a disruption in the operations of
     the Company. The Company is currently pursuing an additional  manufacturing
     partner in the far east to mitigate this risk.


                                      F-6
<PAGE>

     Reclassifications:

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

2.   Liquidity and management's plans:

     The accompanying financial statements have been prepared assuming that the
     Company will continue as a going concern. However, the Company has incurred
     losses from operations of $2,388,325 and $3,014,467 during the six months
     ended June 30, 2006 and 2005, respectively. In addition, during those
     periods, the Company has used cash of $2,842,510 and $1,615,261
     respectively, in its operating activities and has a stockholders'deficit of
     $1,936,873 at June 30, 2006. 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 its existing  products in its Security and DC  Transportation
     Products  Segments,  but revenues cannot yet be considered as sufficient to
     fund operations for any sustained period of time. The Company has allocated
     significant resources to the development of new power line technologies and
     products  that will be launched in the third and fourth  quarters of fiscal
     year  2006.  The  Company's  ability to  continue  will be  dependent  upon
     achieving  profitable  operations  through the licensing and sales of these
     new technologies and products.

     The Company's  ability to continue as a going concern is dependent upon (i)
     raising additional capital to fund operations (ii) the further  development
     of the Security and DC  Transportation  Products Segment products and (iii)
     ultimately the achievement of profitable operations.  During the six months
     ended June 30, 2006,  the Company  secured  financing of  $4,473,933 in the
     form of convertible  debentures  which included  proceeds of $3,100,000 and
     the conversion of $1,373,933 of otherwise  short term existing  obligations
     to long term debt (See Note 8). While the proceeds of this  financing  will
     significantly mitigate the Company's liquidity difficulties, the ability of
     the Company to sustain  its  operations  for a  reasonable  period  without
     further  financing  cannot be  assured.  The  financial  statements  do not
     include any adjustments  that might arise as a result of this  uncertainty.
     Refer to  "Liquidity & Capital  Resources" in the  Management  Discussion &
     Analysis  section  for  additional   information  regarding  the  Company's
     liquidity.

3.   Segment information:

     The Company operates in three identifiable  industry  segments.  The Marine
     Products Segment markets and sells  underwater video cameras,  lighting and
     accessories  principally to retail sporting goods businesses throughout the
     United States. The Security Products Segment develops,  markets,  licenses,
     and sells  proprietary  power  line video  security  devices  and  consumer
     electronic  products;  to  retailers,   governmental  agencies,  commercial
     businesses,  and original  equipment  manufacturers,  throughout the United
     States.  The DC  Transportation  Products  Segment develops and sells power
     line rear and side  vision  systems  for all  classes  of  vehicles  in the
     transportation    industry   to   distributors   and   original   equipment
     manufacturers  throughout  the  United  States.  The  Company  had a fourth
     segment,  the Hotel/MDU  (Multi-dwelling  unit) Products  Segment,  but its
     operations were  discontinued in March of 2005 as part of the restructuring
     of the Company's  management and operations.  The operating results for the
     discontinued   segment  have  been  reported   separately  as  discontinued
     operations in the  consolidated  statements  of operations  for all periods
     presented (See Note 10). The Company's  facilities and other assets are not
     distinguished among the identifiable segments.  Other financial information
     about the Company's segments is as follows:
<TABLE>
<CAPTION>
                                                  Six months ended June 30, 2006

                                         Security         Marine        DC Trans
                                         Products        Products       Products          Total
<S>                                       <C>           <C>             <C>             <C>
Net revenue                               $ 40,410      $ 101,039       $ 357,967       $ 499,416
Cost of sales                             $ 34,408       $ 61,549       $ 186,089       $ 282,046
                                   ---------------------------------------------------------------
Gross profit                               $ 6,002       $ 39,490       $ 171,878       $ 217,370
Research and development:
         Stock based                           $ -            $ -             $ -             $ -
         Other                           $ 276,693        $ 3,548        $ 74,494       $ 354,735

                       Total R & D       $ 276,693        $ 3,548        $ 74,494       $ 354,735


                                      F-7
<PAGE>

                                                  Six months ended June 30, 2005

                                        Security         Marine        DC Trans
                                        Products        Products       Products          Total

Net revenue                              $ 528,638       $ 81,956       $ 321,034       $ 931,628
Cost of sales                            $ 430,901       $ 45,766       $ 190,904       $ 667,571
                                   ---------------------------------------------------------------
Gross profit                              $ 97,737       $ 36,190       $ 130,130       $ 264,057
Research and development:
         Stock based                       $ 7,681                                        $ 7,681
         Other                           $ 242,400        $ 5,726        $ 64,352       $ 312,478

                       Total R & D       $ 250,081        $ 5,726        $ 64,352       $ 320,159


4. Inventories:

     Inventories consisted of the following:

                                              June 30,         December 31,
                                         -----------------   -----------------
     2006     2005
           Raw materials                 $         432,009   $         280,360
           Finished goods                          336,004             309,135
                                         -----------------   -----------------
                                         $         768,013   $         589,495
                                         =================   =================


5. Intangible assets:

     Intangible assets consisted of the following at June 30, 2006:

                                                          DC
                                        Security         Marine      Transportation       Total

Patents                              $ 1,577,813       $ 741,148             $ -     $ 2,318,961
Software license agreement               461,360               -               -         461,360
Trademark                                 46,962               -          46,963          93,925
Acumulated amortization               (1,694,672)       (741,148)             -       (2,435,820)
                                      -----------       ---------             --      -----------
                                       $ 391,463             $ -        $ 46,963       $ 438,426
                                 ================================================================

     Intangible assets consisted of the following at December 31, 2005:


                                                                              DC
                                      Security         Marine      Transportation       Total

Patents                                $ 1,577,813       $ 741,148             $ -       $2,318,961
Software license agreement                 461,360               -               -          461,360
Trademark                                   46,962               -          46,962           93,924
Acumulated amortization                 (1,601,098)       (717,736)              -       (2,318,834)
                                   -----------------------------------------------------------------
                                         $ 485,037        $ 23,412        $ 46,962        $ 555,411
                                   =================================================================
</TABLE>
                                      F-8

6.   Notes Payable:

     All other  outstanding notes payable as of December 31, 2005 were converted
     to convertible  debentures on March 22, 2006; except for $31,000 re-paid at
     the closing (See Note 8).

7.   Accrued Severance Payable:

     During March,  2005, the Company incurred severance expenses related to the
     departure of two officers of the Company. The total amount payable amounted
     to $551,000  and is  comprised  of payments of both cash and common  stock.
     Under  the  separation  agreements,  the  Company  issued a total of 50,000
     shares of restricted common stock to the two former officers. The stock was
     valued at $275,000  or $5.50 per share,  the  closing  market  price of the
     Company's  common stock on March 31, 2005;  the date at which the liability
     was probable.  Severance costs and related legal fees have been recorded as
     restructuring  charges in the accompanying  statement of operations for the
     period ended March 31, 2005.

8.   Convertible Debentures:

     On March 16, 2006, the Company entered into a Securities Purchase Agreement
     (the "Purchase Agreement"), with several accredited investors (collectively
     the "Purchasers"),  under which the Company agreed to issue and sell to the
     Purchasers  in a private  placement up to  $4,473,933  aggregate  principal
     amount of 8% Convertible  Debentures,  due March 22, 2008 (the "Convertible
     Debentures") and detachable warrants to purchase 1,841,335 shares of common
     stock (the  "Warrants")  for  proceeds  of  $3,100,000  and  $1,373,933  of
     pre-existing  notes and accrued interest (the "Proceeds").  Financing costs
     amounted to $82,000.  On March 23, 2006 the Company issued  $4,073,933 face
     value  of the  Convertible  Debentures  for  cash  of  $2,700,000  and  the
     pre-existing  notes.  On March 27,  2006 and March 29,  2006,  the  Company
     issued $250,000 and $150,000,  respectively,  of Convertible Debentures for
     cash.

     The Purchasers  received  registration  rights related to the common shares
     underlying the  conversion  feature of the  Convertible  Debentures and the
     Warrants.   The  Registration  Rights  include   requirements  for  filing,
     effectiveness,  continued effectiveness and continued listing over the term
     of the outstanding instruments.  The Registration Rights Agreement provides
     for  monthly  liquidating  damages of up to 2.0% for  failure to achieve or
     maintain effectiveness and listing. In addition, the Convertible Debentures
     provide for a mandatory  redemption of 120% of  outstanding  face value for
     defaults under the Debenture and Registration Rights Agreements.

     8.0% Convertible Debentures, Warrants and Other Derivatives:

     The carrying value of the Company's 8.0%, Face Value $4,473,933 Convertible
     Debentures  amounted to $90,831 at June 30, 2006.  Amortization of the debt
     discount,  included  in interest  expense,  amounted to $89,373 for the six
     months ended June 30, 2006.

                                      F-9
<PAGE>
     The  Convertible  Debenture  Financings  included  registration  rights and
     certain  other  terms and  conditions  related to share  settlement  of the
     embedded  conversion  features  and  the  warrants  that  the  Company  has
     determined  are not within  its  control.  In  addition,  certain  features
     associated with the financings,  such as variable redemption rates afforded
     the Purchasers render the number of shares issuable to be indeterminate. In
     these instances, EITF 00-19 Accounting for Derivative Financial Instruments
     Indexed to, and  Potentially  Settled in, a Company's  Own Stock,  requires
     allocation  of  the  proceeds  between  the  various  instruments  and  the
     derivative   elements  carried  at  fair  values.   The  following  tabular
     presentation  reflects the  allocation  of the  proceeds on the  financings
     date:
<TABLE>
<CAPTION>
                                             March 23, 2006      March 27, 2006       March 29, 2006
                                       ------------------- -------------------- -------------------
<S>                                    <C>                 <C>                  <C>
      Embedded derivative features     $       4,853,093   $       200,648      $       95,757
      Detachable warrants                    3,953,859           180,105              96,505
      Derivative loss                        (3,392,566)         (130,753)            (42,262)
      Debt extinguishment loss               (1,340,454)         --                   --
      Convertible debentures                 --                  --                   --
                                       ------------------- -------------------- -------------------
         Total proceeds                $       4,073,933   $            250,000 $           150,000
                                       =================== ==================== ===================
</TABLE>
     Derivative  losses arose in connection  with the  allocation of proceeds to
     derivative  financial  instruments at their  respective fair values,  which
     amounts  exceed  amounts  received  by the Company in  connection  with the
     financing arrangement. The discount to the Convertible Debentures resulting
     from the  aforementioned  allocation is being  amortized  through  periodic
     charges to interest  expense  using the  effective  method.  The  following
     tabular  presentation  reflects  the  components  of  Derivative  financial
     instruments on the Company's balance sheet at June 30 2006:

        Liabilities:
        Embedded derivative instruments                  $         1,278,448
        Freestanding derivatives (warrants)                        2,259,195
        Other derivative financial instruments (1)                    65,837
                                                         -------------------
                                                         $         3,603,480
                                                         ===================

(1)  Other  derivative  financial  instruments  represent  the  fair  values  of
     warrants and other  convertible  instruments  that were  reclassified  from
     stockholders'  equity when, in connection  with the  Convertible  Debenture
     Financings,  the  Company  determined  that  it no  longer  had  sufficient
     authorized and unissued shares to settle all of its  instruments.  On March
     23, 2006, an amount of $144,781 was reclassified from stockholders'  equity
     representing the fair value of these instruments.  The balance in the table
     above represents the fair value at June 30, 2006.

     The  following  tabular  presentation  reflects the number of common shares
     into which the aforementioned derivatives are indexed at June 30, 2006:

             Common shares indexed:
               Embedded derivative instruments              $         4,347,141
               Freestanding derivatives (warrants)                    1,883,761
               Other derivative financial instruments                   143,984
                                                            -------------------
                                                            $         6,374,886
                                                            ===================

     Income  (expense)  for the six months ended June 30, 2006  associated  with
     adjustments  recorded to reflect  the  aforementioned  derivatives  at fair
     value amounted to $6,494,284.

     Fair value considerations for derivative financial instruments:

     Freestanding  derivative  instruments,   consisting  of  the  Warrants  and
     reclassified   derivative  instruments  that  arose  from  the  Convertible
     Debenture  Financing  are valued using the  Black-Scholes-Merton  valuation
     methodology  because that model  embodies  all of the relevant  assumptions
     that  address  the  features  underlying  these  instruments.   Significant
     assumptions  included  in  this  model  as of the  financing  date  were as
     follows:

                                      F-10
<PAGE>
     ------------------------------- -------------------- --------------------
                                                                  Other
             Instrument                      Warrants             Derivatives
                                      -------------------- --------------------
             Exercise prices                 $2.375               $2.50--$25.00
             Term (years)                    5.0                  1.0--10.0
             Volatility                      162.9%               104.8%--183.1%
             Risk-free rate                  3.65%                3.65%--4.88%
       ------------------------------- -------------------- --------------------

     Embedded  derivative  instruments  consist of multiple  individual features
     (conversion  features,  redemption features,  and registration rights) that
     were  embedded in the  Convertible  Debentures.  The Company  evaluated all
     significant  features of the hybrid  instruments  and, where required under
     current  accounting  standards,  bifurcated  features for  separate  report
     classification.  These features were, as  attributable  to each  Debenture,
     aggregated into one compound derivative  financial instrument for financial
     reporting  purposes.  These compound  embedded  derivative  instruments are
     valued  using the  Flexible  Monte  Carlo  methodology  because  that model
     embodies  certain  relevant  assumptions  (including,  but not  limited to,
     interest   rate  risk,   credit  risk,   and   Company-controlled/mandatory
     redemption features) that are necessary to value these complex derivatives.

     Significant  terms  and  assumptions  included  in  this  model  as of  the
     financing date are as follows:

       ------------------------------------------------------ ------------------
             Conversion price                                       $ 1.235
             Actual term (years)                                    2.0
             Equivalent term (years)                                1.6
             Equivalent volatility                                  143.69%
             Equivalent risk-adjusted interest rate                 8.28%
             Equivalent risk-adjusted yield rate                    11.39%
       ------------------------------------------------------ ------------------

     Equivalent amounts reflect the net results of multiple modeling simulations
     that  the  Monte  Carlo  Simulation   methodology   applies  to  underlying
     assumptions.

9. Stockholders' deficit:

     2006 Common Stock Issuances:

     During the six months ended June 30, 2006, the Company issued 28,400 shares
     of  restricted  common  stock for  payment  of  interest,  in lieu of cash,
     relating to various  notes  payable that were  outstanding  at December 31,
     2005. The shares were valued at $61,070,  based on the closing market price
     of the Company's common stock corresponding to the date of each note.

     During the six months ended June 30, 2006,  the Company issued 7,582 shares
     of restricted common stock in conjunction with a litigation settlement. The
     shares  were valued at $15,164,  based on the closing  market  price of the
     Company's common stock on the effective date of the agreement; December 12,
     2005.

     During the six months ended June 30, 2006, the Company issued 36,000 shares
     of common stock in conjunction  with the 2003  settlement of a class action
     law suite.  The shares were valued at $90,000  based on the closing  market
     price of the Company's common stock when the settlement was recorded during
     fiscal year 2003.

     During the six months ended June 30, 2006, the Company issued 53,529 shares
     of restricted  common stock in  conjunction  with  exercise of  outstanding
     warrants  from which it received  proceeds in the amount of  $133,824.  The
     warrants  were  re-priced and  exercisable  at $2.50 per share based on the
     approval of the Company's Board of Directors.

     During the six months  ended June 30,  2006,  the  Company  issued  174,937
     shares of  restricted  common stock in  conjunction  with a private  equity
     offering exempt from registration under 4(2) of the Securities Act of 1933,
     and Rule 506 of Regulation  D,  thereof.  The offering was priced at $1.125
     per share,  resulting in gross proceeds of $196,804 from the offering.  The
     securities underlying the offering include piggy-back registration rights.

                                      F-11
<PAGE>

     During the six months ended June 30, 2006, the Company issued 17,962 shares
     of restricted  common stock, in lieu of cash, for payment for raw materials
     inventory  and  for  rent  for  the  Company's  distribution  warehouse  in
     Clearwater,  Florida.  The  shares  were  valued at  $44,905,  based on the
     closing market price of the Company's common stock on the effective date of
     the agreement, November 30, 2005.

     During the six months ended June 30, 2006,  the Company issued 8,430 shares
     of restricted  common stock for financing fees owed in  conjunction  with a
     finder's fee  agreement  relating to the  Company's  December  2005 private
     equity placement.  The shares were valued at $11,855, based on the terms of
     the finder's fee agreement.

     During the six months ended June 30, 2006, the Company issued 10,000 shares
     of restricted common stock to employees in the form of stock  compensation.
     The shares were valued at $15,000, based on the closing market price of the
     Company's common stock on date the grant was approved.

     During the six months ended June 30, 2006, the Company issued 51,000 shares
     of restricted common stock to officers in the form of stock compensation in
     accordance  with their  employment  contracts.  The shares  were  valued at
     $86,700, based on the closing market price of the Company's common stock on
     date the grant was ratified by the Board of Directors.

     During the six months  ended June 30,  2006,  the  Company  issued  106,000
     shares of  restricted  common stock to Directors of the Company in the form
     of stock  compensation.  Of the total  shares  issued,  14,000  shares were
     issued as  compensation  for the 2006 fiscal year ended  December 31, 2006.
     The  remaining  92,000  shares were  issued as  compensation  for  services
     rendered by Directors  during the Company's  2005  restructuring  plan. The
     shares were valued at  $254,400,  based on the closing  market price of the
     Company's  common  stock on date the  grant  was  ratified  by the Board of
     Directors.


10. Discontinued Operations:

     During the quarter ended March 31, 2005,  the Company  formalized a plan to
     dispose  of  its  Hotel/MDU   products  segment.   The  plan  included  the
     termination of all employees  associated with the segment,  and the closing
     of the Company's sales office in South Carolina.  At the end of the quarter
     ended June 30,  2005,  the plan had been  implemented  and the  Company had
     secured  an  agreement   with  an  outside  party  to  sell  the  remaining
     installation and monthly service contracts.

     Operating   results  for  the  discontinued   segment  have  been  reported
     separately as  discontinued  operations in the  consolidated  statements of
     income for all  periods  presented.  Following  are the  components  of the
     amounts disclosed:

       Loss from Discontinued Operations
<TABLE>
<CAPTION>
                                                                               Period Ending

                                                              June 30,               June 30,
                                                                2006                   2005
                                                          -----------------      -----------------
<S>                                                       <C>                            <C>
Net Revenues                                              $               -              $ 360,534
Cost of Goods Sold                                                        -                342,052
                                                          -----------------      -----------------
     Gross Profit                                                         -                 18,482

Operating Expenses                                                   16,588                189,569
                                                          -----------------      -----------------
Net Loss from discontinued operations                             $ (16,588)            $ (171,088)
                                                          =================      =================


                                      F-12
<PAGE>
      Assets and Liabilities of Discontinued Operation:

                                                              June 30,           December 31,
                                                                2006                   2005
                                                          -----------------      -----------------
Total Assets related to discontinued operations
          Accounts Receivable                                           $ -               $ 16,588
                                                          =================      =================


Total Liabilities related to discontinued operations
          Accounts Payable                                        $ 89,804              $ 155,128
                                                          =================      =================
</TABLE>



11. Commitments and contingencies:

     Litigation, claims and assessment:

     Guestlinx, LLC

     On May 19,  2006 the  Company  learned  that a  default  judgment  had been
     entered  against  it on May 3, 2006 in the  Superior  Court of  California,
     Orange County, in the amount of $90,561, to the plaintiff  Guestlinx,  LLC.
     The judgment  was granted  based on an action  filed by  Guestlinx,  LLC on
     November  2, 2005.  The Company  had no prior  knowledge  of the action and
     believes it was never  properly  served.  The Company  retained  counsel in
     California, and on August 4, 2006 was successful in having the judgment set
     aside for improper service; contingent upon the Company remitting $3,000 to
     the Orange  County  Superior  Court by September  4, 2006.  The Company had
     previously recorded a liability  associated with this dispute in the amount
     of $46,352 that is currently  included in the Company's balance sheet under
     "Liabilities from Discontinued Operations".

     Satius, Inc. License Agreement

     On June 7, 2006,  the civil  action  initiated  against  the  Company  (the
     "Action") by Satius, Inc.  ("Satius"),  on August 17, 2005, in which Satius
     alleged various claims under a former license agreement (the  "Agreement"),
     entered into on December 18,  2002,  by and between  Satius and the Company
     and  subsequently  terminated by Satius on July 10, 2004,  was dismissed in
     the Court of Common Pleas of Montgomery  County,  Pennsylvania.  On June 9,
     2006,  the Company was notified by its counsel that Satius has appealed the
     dismissal.  The Company  cannot  predict  whether or not the appeal will be
     successful.

     SEC Investigation

     The  Company  has  settled the  previously  reported  investigation  by the
     Securities and Exchange Commission ("SEC") as described below.

     On  Tuesday,  June 27,  2006,  the SEC filed a civil  action in the  United
     States District Court for the District of Columbia against the Company, its
     former chief  executive  officer,  George S. Bernardich III, and its former
     secretary and treasurer,  James R. Cox. The Company  consented to the entry
     of a judgment  permanently  enjoining it from  violating  Section 10(b) and
     Rule 10b-5 of the Securities  Exchange Act of 1934 ("Exchange Act"),  which
     are general  antifraud  provisions  of the  federal  securities  laws.  The
     Company  also  consented  to being  enjoined  from  violating  the periodic
     reporting, books and records, and internal controls provisions contained in
     Exchange Act Sections 13(b)(2)(A),  13(b)(2)(B), and 15(d) and Rules 15d-1,
     15d-11, 15d-13, and 12b-20 thereunder.

     Mr. Bernardich and Mr. Cox consented to the entry of judgments  permanently
     enjoining  them from  violating  Section 10(b) of the Exchange Act and Rule
     10b-5  thereunder and aiding and abetting the Company's  alleged  reporting
     violations,  and barring  them from  serving as officers  and  directors of
     public companies for a period of ten years. The Company, Mr. Bernardich and
     Mr.  Cox  consented  to the entry of the  judgments  without  admitting  or
     denying  the  allegations  in  the  SEC's  Complaint.  Mr.  Bernardich  was
     president and chief executive offer of the Company from February 2001 until
     April 2005. He was chairman of the Company's board of directors from August
     2000 until February 2005 and remained a director of the Company until March
     2006. The Company currently has a consulting/severance arrangement with Mr.
     Bernardich.  Mr. Cox was the Company's secretary,  treasurer and a director
     from the time the  company  went  public in March 1999 until  approximately
     July  2002.  Mr.  Cox is  currently  employed  by the  Company in a product
     development capacity.

                                      F-13
<PAGE>

     The requested relief was approved by the Court on August 7, 2006.

     The  Complaint  alleged that in September  2004,  the Company  violated the
     antifraud  provisions of the federal  securities laws by issuing materially
     misleading press releases and filing materially misleading reports with the
     SEC  concerning  a purported  $23  million  sales  contract  with a defense
     contractor known as Universal General Corporation ("UGC"),  which, in fact,
     had no revenues,  no assets, and no means to satisfy any portion of its $23
     million contractual obligation to the Company.  According to the Complaint,
     the Company  performed  virtually no due diligence to determine whether UGC
     was legitimate and could meet its  contractual  obligations.  The Complaint
     states that Mr.  Bernardich was responsible for the Company's due diligence
     failures  and  for  drafting  the  Company's  materially  misleading  press
     releases and SEC filings.  The Complaint also alleges that during the first
     three  quarters of fiscal year 2000,  the Company  fraudulently  recognized
     nearly ninety percent of its reported  revenues based on fictitious  camera
     sales by initiating  consignment  arrangements  with  numerous  dealers and
     recording the consignment  order amounts as revenue before any cameras were
     manufactured,  shipped to the dealers, or sold to customers.  The Complaint
     alleges  that during this same  period,  the Company  also issued  numerous
     deceptive  press  releases  that  materially  misrepresented  the company's
     operations and offered glowing, but  unsubstantiated,  revenue and earnings
     forecasts.  The  Complaint  also  alleges  that in April 2001,  following a
     management change, the Company filed with the SEC an annual report for 2000
     containing  a  misleading  restatement  of  revenues  and other  materially
     misleading  disclosures and accounting errors.  According to the Complaint,
     the principal architect of the Company's fraudulent  activities during 2000
     was its now-deceased  former chief executive  officer,  Richard L. McBride.
     According  to the  Complaint,  among other  things,  the Company  failed to
     disclose in violation of applicable  SEC  regulations  that Mr. McBride had
     been convicted of fraud in 1998 and was serving a six-year  probation term.
     The Complaint also alleges that Mr. Cox was  responsible for certain of the
     Company's  fraud  and  reporting  violations  and Mr.  Bernardich,  who had
     replaced Mr. McBride as chief executive officer in February 2001, aided and
     abetted the Company's  reporting  violations  with respect to the Company's
     2000 annual report.

     In addition, the Company's current chief financial officer,  Douglas Bauer,
     has consented to the issuance of a  cease-and-desist  order for his role in
     causing the Company's reporting violation in connection with its April 2002
     restatement of a deferred tax asset. Mr. Bauer consented to the issuance of
     the order without admitting or denying the findings in the Order.



                                      F-14
<PAGE>
Item 2. Management's  Discussion and Analysis of Financial Condition and Results
of Operations.

Cautionary Statements

You should read the following  discussion and analysis in  conjunction  with the
Financial  Statements and related Notes contained  elsewhere in this Form 10-Q/A
("Report").  The information in this Report is not a complete description of our
business or the risks associated with an investment in our common stock. We urge
you to carefully review and consider the various  disclosures made by us in this
Report and in our other reports filed with the SEC,  including our Annual Report
on Form 10-K/A for the year ended December 31, 2005.

The section  entitled "Risk Factors" set forth in our Annual Report on Form 10-K
for the year ended  December 31, 2005 and similar types of  discussions in other
SEC filings  discuss some of the  important  risks that may affect our business,
results  of  operations  and  financial  condition.  Some of those  risks are as
follows:

*Our business  depends on the  protection of our  intellectual  property and may
suffer if we are unable to adequately protect our intellectual property.

*Our stock price can be extremely volatile.

You should carefully  consider those risks, in addition to the other information
in this Report and in our other filings with the SEC,  before deciding to invest
in our Company or to maintain or decrease your investment.

This Report may contain forward-looking statements within the meaning of Section
17A of the Securities  Exchange Act of 1933, as amended,  and Section 21E of the
Securities  Exchange  Act, as amended.  Examples of  forward-looking  statements
include,  but are not  limited  to: (a)  projections  of our  revenues,  capital
expenditures,   growth,  prospects,   dividends,  capital  structure  and  other
financial matters; (b) statements of our plans and objectives; (c) statements of
our future economic performance;  (d) statements of assumptions underlying other
statements and statements about us and our business relating to the future;  and
(e) any statements using the words  "believes,"  "budget,"  "target,"  "goal," A
anticipate," A expect,"  "plan,"  "outlook,"  "objective," A may," A project," A
intend,"  "estimate,"  or  similar   expressions.   These  statements  are  only
predictions.  These statements are not guarantees of future  performance and are
subject to certain risks,  uncertainties  and assumptions  that are difficult to
predict.

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

OVERVIEW

We develop, license, manufacture, and market products and applications developed
to transmit  voice,  video,  audio and data either  individually  or any and all
combinations  over power lines,  twisted pair wires, and coax in AC and DC power
environments.  We also manufacture and market underwater video cameras,  lights,
and  accessories for the marine  industry.  Our products are sold in both retail
and  commercial  markets.  Our  principal  products are sold in the security and
transportation industries.

Our primary  focus during the quarter ended June 30, 2006 was on the uprading of
existing power line products and  development of our new power line products due
during the 3rd and 4th quarters of 2006,  ending September 30, 2006 and December
31, 2006, respectively.

The technology for our audio product line was completed during the quarter ended
June 30, 2006.  This product line transmits  audio over the existing  electrical
lines  within a home or small  office.  The product  will be  introduced  in two
forms.  The first is an iPod/MP3  accessory,  complete with audio speakers;  and
targets  the rapid  growth  of the  iPod/MP3  player  market.  The  second is an
accessory for home entertainment systems and component stereo systems which have
an extensive installed base. Both products allow the user to connect speakers in
any room  without  running  wires  from the  audio  source  to the room with the
speakers.   The  technology  may  also  be  integrated  into  various   consumer
electronics  products like home  entertainment  systems.  It is especially  well
suited for  surround  sound  products  as it  enables  the rear  surround  sound
speakers to be connected without running wires across the room.

                                       3
<PAGE>

Consistent  with our business  plan, we intend on penetrating  targeted  markets
utilizing  both  licensing  and direct  sales  strategies;  depending  on market
structure and targeted customers in each segment. In June,  prototypes were sent
to  two  potential  licensees.  We are  currently  scheduling  presentations  to
introduce pre-production samples to major retailers during August of 2006.

Net  revenues  of  $287,832  for the three  month  period  ended  June 30,  2006
decreased  43% compared to net revenues for the same period ended June 30, 2005.
One  reason  for the  decline  was the  cancellation  of on air shows  with Home
Shopping  Network,  a customer that in past  comparative  reporting  periods has
accounted  for a significant  portion of our  SecureView  sales.  The shows were
cancelled because of declining sales performance due to HSN audience  saturation
and a restructuring that is currently taking place at HSN.  Consequently,  sales
in our DC  Transportation  products segment  accounted for 72% of total revenues
for the three  month  period  ended June 30,  2006  compared to 33% for the same
period ended June 30, 2005.

Improved  sourcing  of  components  in the DC  Transportation  Products  Segment
resulted in a gross  profit  margin of 52% for the three month period ended June
30, 2006, compared to 41% for the same period ended June 30, 2005. We anticipate
further  product  cost  reductions  in  future  periods  due  to a  decrease  in
manufacturing  costs  associated with the next  generation of  transmitters  and
receivers for the PLC systems.  In addition,  during the three months ended June
30, 2006,  we received  purchasing  commitments  from two  recreational  vehicle
manufacturers to equip select 2007 model year vehicles,  beginning in July 2006,
with our rear vision systems and accessories.

Two long on-going  legal  matters were brought to a resolution  during the three
months ended June 30, 2006. The lawsuit brought by Satius, Inc. was dismissed by
the Court of Common Pleas of Montgomery  County,  Pennsylvania  on June 7, 2006;
and the  Securities  & Exchange  Commission  investigation  of our  Company  was
settled on June 27, 2006 (See "Legal Proceedings" for more detailed  information
regarding these matters). Resolutions to both of these matters have been primary
objectives of our new management.  As a result,  we expect legal fees to decline
in future reporting periods and to fall in line with budgeted amounts.

During the three months ended June 30, 2006, the Company issued  purchase orders
to  its  overseas  supplier  totaling  $562,440  for  the  manufacturing  of the
Company's  SecureView product. The product will be delivered in August 2006. The
Company  made  advance  payments  for the  manufacturing  of this product in the
amount  of  $281,240  during  the  three  months  ended  June 30,  2006,  and an
additional  $189,800  in July and  August  of 2006.  In  addition,  the  Company
purchased,  with cash,  approximately $157,000 of critical components during the
three months ended June 30, 2006 for both existing products and for new products
expected to be ready for  manufacturing  during the 3rd and 4th  quarters  ended
September  30, 2006 and  December 31, 2006,  respectively.  These  disbursements
significantly  impacted  our cash  position  for the three months ended June 30,
2006.

Subsequent Events

As of August 11, 2006, we have received written confirmation from a customer for
the  issuance  of  purchase   orders  for  our   SecureView   product   totaling
approximately  $825,000 for shipment  during the 3rd quarter ended September 30,
2006;  and an  additional  purchase  order,  from  the same  customer,  totaling
approximately  $275,000,  for  shipment in either the 3rd or 4th  quarter  ended
September 30, 2006 and December 31, 2006, respectively; at the discretion of the
customer.  As discussed above, the product to fulfill these anticipated purchase
orders has been produced and received into  inventory  during August of 2006 and
is ready for immediate shipment.


                                       4
<PAGE>

RESULTS OF OPERATIONS

See Note 3 to the financial statements for additional segment reporting.

SIX MONTHS ENDED JUNE 30, 2006 AND JUNE 30, 2005

NET REVENUE.  Net revenue  decreased  46% from $931,628 for the six months ended
June 30, 2005 to $499,416 for the six months ended June 30, 2006. Marine product
segment  sales were  $101,039 or 20% of total  revenues for the six months ended
June 30, 2006 compared to $81,956,  or 9% of total revenues,  for the six months
ended June 30, 2005.  Overall,  marine product sales increased $19,083,  or 23%.
Security  product segment sales were $40,410 or 8% of total revenues for the six
months ended June 30, 2006 compared to $528,638,  or 57% of total revenues,  for
the six months ended June 30, 2005.  Overall,  security  product sales decreased
$488,228, or 92%. DC Transportation  product segment sales were $357,967, or 72%
of total  revenues for the six months ended June 30, 2006  compared to $321,034,
or 34% of total  revenues for the six months ended June 30,  2005.  Overall,  DC
Transportation  product  sales  increased  $36,933,  or 12%. The increase in the
marine  product  segment  sales was due to the  Company's  efforts  to  increase
internet  traffic to its marine products website . The reduction in the security
products  segment is due primarily to the  cancellation of on air sales shows on
Home Shopping  Network (HSN).  The  cancellation  of the on air shows was due to
market  saturation and a general  restructuring at HSN. The increase in revenues
for the DC  transportation  product segment was driven primarily by the addition
of new customers compared to the same period last fiscal year.

COST OF GOODS SOLD.  Cost of Goods sold  decreased 58% from $667,571 for the six
months  ended June 30, 2005 to $282,046  for the six months ended June 30, 2006.
As a percentage of net revenue,  cost of goods sold decreased to 56% for the six
months ended June 30, 2006 from 72% for the six months ended June 30, 2005. Cost
of goods sold for the marine  products  segment  increased  $15,783 or 34%, from
$45,766  for the six months  ended June 30,  2005 to $61,549 for the same period
ended in 2006. As a percentage of net revenue, cost of goods sold for the marine
product segment increased from 56% for the six months ended June 30, 2005 to 61%
for same  period  ended in 2006.  Cost of goods sold for the  security  products
segment  decreased  $396,493 or 92%, from $430,901 for the six months ended June
30,  2005 to $34,408  for the same  period  ended in 2006.  As a  percentage  of
revenue,  cost of goods sold for the security product segment increased from 82%
for the six months  ended June 30,  2005 to 85% for same  period  ended in 2006.
Cost of goods sold for the DC Transportation product segment decreased $4,815 or
3% from $190,904 for the six months ended June 30, 2005 to $186,089 for the same
period ended in 2006. As a percentage of net revenue, cost of goods sold for the
DC  Transportation  product segment  decreased from 59% for the six months ended
June 30, 2005 to 52% for same period ended in 2006.

The increase in the cost of goods sold as a  percentage  of net revenues for the
marine  products  segment  was driven  primarily  by a one time sales  promotion
during the three  months  ended June 30,  2006 for the  purpose of  accelerating
sales after the end of the regional  boat show season.  The increase in the cost
of goods sold as a percentage of net revenues for the Security  Products Segment
was due to costs  associated with the  modification  of existing  inventories to
improve  product  performance.  The  decrease  in the  cost of  goods  sold as a
percentage of net revenues for the DC Transportation  product segment was due to
improved component pricing negotiated during the period.

                                       5
<PAGE>

GROSS PROFIT  MARGIN.  Gross  profits on sales for the six months ended June 30,
2006 amounted to $217,370 or 44% of net revenues,  compared to $264,057,  or 28%
of net  revenues,  for the six months ended June 30, 2005.  The marine  products
segment  contributed  $39,490 and $36,190 of the total gross  profit for the six
months ended June 30, 2006 and 2005, respectively. The security products segment
contributed  $6,002  and  $97,737 of the total  gross  profit for the six months
ended  June 30,  2006 and 2005,  respectively.  The DC  Transportation  products
segment contributed  $171,878 and $130,130 of the total gross profit for the six
months ended June 30, 2006 and 2005,  respectively.  The gross profit percentage
for the marine products segment decreased from 44% for the six months ended June
30,  2005 to 39% for the six  months  ended  June 30,  2006.  The  gross  profit
percentage  for the security  products  segment  decreased  from 18% for the six
months ended June 30, 2005 to 15% for the six months  ended June 30,  2006.  The
gross profit  percentage for the DC  Transportation  products segment  increased
from 41% for the six months  ended June 30, 2005 to 48% for the six months ended
June 30, 2006.

The decrease in the gross profit as a percentage  of net revenues for the marine
products  segment was driven  primarily by a one time sales promotion during the
three months ended June 30, 2006 for the purpose of accelerating sales after the
end of the  regional  boat show  season.  The  decrease in the gross profit as a
percentage  of net revenues for the Security  Products  Segment was due to costs
associated  with the  modification  of existing  inventories to improve  product
performance.  The increase in the gross  profit as a percentage  of net revenues
for the DC Transportation  product segment was due to improved component pricing
negotiated during the period.

SALARIES AND WAGES.  Salaries and Wages  decreased 26% from $960,283 for the six
months  ended June 30, 2005 to $714,221  for the six months ended June 30, 2006.
The  decrease  was due to the overall  reduction in employees as a result of the
Company's  restructuring  plan  initiated in April of 2005.  Salary and Wages is
comprised of employee wages and stock compensation.  During the six months ended
June 30, 2006,  $101,700 of non-cash  stock-based  compensation  was recorded in
conjunction  with  common  stock  issued to an employee  pursuant to  employment
contract obligations.

PROFESSIONAL & CONSULTING  FEES.  Professional and consulting fees increased 71%
from  $529,173  for the six months  ended June 30, 2005 to $905,322  for the six
months ended June 30, 2006. The increase was due to legal fees  associated  with
the  defense  of the Satius law suit and the  Securities  & Exchange  Commission
investigation (See legal proceedings);  and restricted common stock compensation
for the Company's Board of Directors.  Professional  and consulting fees include
fees paid to attorneys,  accountants,  and business consultants.  During the six
months ended June 30, 2006,  $254,400 of non-cash  stock-based  compensation was
recorded,  $237,600 of which was expensed during the period, in conjunction with
common  stock  issued  to  Directors  for  fiscal  year 2006  compensation,  and
compensation for services rendered during the Company's 2005 restructuring.

DEPRECIATION AND AMORTIZATION EXPENSE.  Depreciation and amortization  decreased
52% from $335,615 for the six months ended June 30, 2005 to $161,636 for the six
months ended June 30, 2006.  The  decrease  was  attributable  to a reduction in
amortization  expense as certain  intangible  assets were fully  amortized as of
December 31, 2005.

RESEARCH &  DEVELOPMENT.  Research and  development  expense  increased 11% from
$320,159 for the six months ended June 30, 2005,  to $354,735 for the six months
ended June 30,  2006.  The  increase  was due to an increase  in contract  labor
expenditures  and component  purchases in the Company's  efforts to finalize the
development of several new products..  Research and development costs consist of
all  expenditures  related to the  improvement  and development of the Company's
current product line, new product development,  and engineering  consulting fees
associated  with  licensed  technology.  Currently,  substantially  all  of  our
research and  development  costs and efforts are dedicated to the development of
our security (both analog and digital) and DC  Transportation  product segments.
For the six months  ended June 30,  2006,  of the total  Research &  Development
expenditures,  $276,693  or 78% was  related to the  security  & audio  products
segment,  $74,494 or 21% was related to the DC Transportation  products segment,
and $3,548 or 1% was  related to the marine  products  segment.  The cost of our
research and development activities is borne directly by the Company; no amounts
are borne by our customers,  nor are any contracts for customer  funded research
and development currently anticipated. The Company plans to continue funding the
security and DC transportation product segments for the next several years.

                                       6
<PAGE>

ADVERTISING  AND  PROMOTIONS.  Advertising  and  promotions  decreased  29% from
$119,039  for the six months  ended June 30,  2005 to $84,400 for the six months
ended June 30,  2006.  The  decrease  was due  directly to a reduction  in print
advertising  for the DC  transportation  product  segment and a focus on selling
through distribution  channels rather than directly to the consumer.  The amount
also includes portions of postage, printing, and travel that are attributable to
advertising and promotions.

RENT AND  UTILITIES.  Rent and utilities  increased 8% from $107,186 for the six
months  ended June 30, 2005 to $115,574  for the six months ended June 30, 2006.
The  increase  is due to holder  over rent at 1 1/2 times the normal rate on the
corporate  office  space for the two  months  preceding  the  relocation  to new
offices.  Rent and utilities  includes  office rent,  warehouse  rent,  storage,
telephone, and utilities.

TRAVEL & ENTERTAINMENT  EXPENSE.  Travel & entertainment  expense  decreased 36%
from  $110,120  for the six months  ended June 30,  2005 to $70,854  for the six
months ended June 30, 2006. The decrease was attributed to adherence to budgeted
expenditures and an overall reduction in the number of employees  traveling as a
result of Company's  restructuring  plan  initiated  in April of 2005.  Travel &
entertainment   expenses  include  normal  expenses  associated  with  traveling
including,  but not limited to; airfare, auto rental,  parking & tolls, hotels &
lodging, taxis, meals, and entertainment.

OTHER  EXPENSES.  Other expenses were basically  unchanged from $198,663 for the
six months  ended June 30,  2005 to $198,953  for the six months  ended June 30,
2006. The decreases  from the reduction or  elimination of both temporary  labor
and telemarketing expenses associated with the operations during the 2005 fiscal
year was offset by a charge of  approximately  $31,000 to provision for doubtful
accounts.  Other expenses include travel,  supplies,  property taxes, insurance,
financing  fees,  bank  charges,  provision  for  doubtful  accounts,  postage &
delivery, and various other expenses that are classified as miscellaneous.

NON-OPERATING  INCOME (EXPENSE) ITEMS.  Non-operating income (expense) increased
from  ($14,099)  for the six months  ended June 30, 2005 to $787,231 for the six
months ended June 30, 2006. Components of non-operating expenses are as follows:

o    Interest  expense  increased to ($66,170) for the six months ended June 30,
     2006 from  ($14,099)  for the six months ended June 30,  2005.  The current
     period interest expense includes ($90,830) of amortization of debt discount
     on the Convertible Debentures, and ($19,291) in miscellaneous interest from
     previous  financing.  The Company records  amortization using the effective
     interest method and,  accordingly,  interest expense  associated with these
     debentures  will increase as the carrying  value  increases.  These expense
     amounts  were  offset by $18,951 in interest  income,  and $25,000 in other
     income.

o    Loss of  extinguishment  of  ($1,502,286)  arose  in  connection  with  our
     debenture financing where we allocated the fair value of instruments issued
     in connection with the financing to the proceeds and the debt relieved on a
     relative  fair  value  basis.  This  calculation  resulted  in  a  loss  on
     extinguishment associated with the relieved indebtedness.

o    Derivative gain, which amounted to $2,355,687 for the six months ended June
     30, 2006 arises from fair value  adjustments  to our  derivative  financial
     instruments.   These  instruments  consist  of  freestanding  warrants  and
     embedded conversion  features  associated with the Debenture  offering.  We
     will continue to incur fair value  adjustments to these  instruments  until
     such instruments are converted,  exercised or reclassified to stockholders'
     equity.  Future  fair  value  adjustments  require  the  use of  subjective
     estimates.  However,  the principal  driver of our  valuation  model is the
     Company's  trading  common  stock.  Accordingly,  future  volatility in the
     trading market price may result in  significant  changes in fair value that
     are required to be recorded as adjustments in income.

LOSS FROM DISCONTINUED  OPERATIONS.  Loss from discontinued operations decreased
90%,  from  $171,088 for the six months ended June 30, 2005,  to $16,588 for the
same period ended June 30, 2006. (See Note 10 to the financial statements.)

                                       7
<PAGE>

THREE MONTHS ENDED JUNE 30, 2006 AND MARCH 31, 2005

NET REVENUE.  Net revenue decreased 43% from $504,194 for the three months ended
June 30, 2005 to  $287,832  for the three  months  ended June 30,  2006.  Marine
product segment sales were $41,654 or 14% of total revenues for the three months
ended June 30, 2006 compared to $32,727, or 6% of total revenues,  for the three
months ended June 30, 2005.  Overall,  marine product sales increased $8,927, or
27%.  Security  product  segment sales were $30,858 or 11% of total revenues for
the three  months  ended June 30,  2006  compared to  $303,259,  or 60% of total
revenues,  for the three months ended June 30, 2005.  Overall,  security product
sales decreased $272,401,  or 90%. DC Transportation  product segment sales were
$215,320,  or 75% of total  revenues  for the three  months  ended June 30, 2006
compared to $168,208,  or 34% of total  revenues for the three months ended June
30, 2005.  Overall,  DC Transportation  product sales increased $47,112, or 28%.
The  increase  in the  marine  product  segment  sales was due to the  Company's
efforts  to  increase  internet  traffic to its marine  products  website..  The
reduction in the security  products segment is due primarily to the cancellation
of on air sales shows on Home Shopping Network (HSN). The cancellation of the on
air shows was due to market  saturation and a general  restructuring at HSN. The
increase  in  revenues  for the DC  transportation  product  segment  was driven
primarily  by the  addition  of new  customers  compared to the same period last
fiscal year.


COST OF GOODS SOLD. Cost of Goods sold decreased 56% from $352,389 for the three
months ended June 30, 2005 to $154,966 for the three months ended June 30, 2006.
As a  percentage  of net  revenue,  cost of goods sold  decreased to 54% for the
three  months  ended June 30, 2006 from 70% for the three  months ended June 30,
2005. Cost of goods sold for the marine products  segment  increased  $11,174 or
79%,  from  $14,149 for the three  months ended June 30, 2005 to $25,323 for the
same period ended in 2006.  As a percentage  of net revenue,  cost of goods sold
for the marine  product  segment  increased  from 43% for the three months ended
June 30, 2005 to 61% for same period  ended in 2006.  Cost of goods sold for the
security products segment decreased $212,176 or 89%, from $238,465 for the three
months  ended June 30, 2005 to $26,289 for the same period  ended in 2006.  As a
percentage  of  revenue,  cost of goods sold for the  security  product  segment
increased  from 79% for the three  months  ended  June 30,  2005 to 85% for same
period  ended in  2006.  Cost of goods  sold for the DC  Transportation  product
segment  increased $3,579 or 4% from $99,775 for the three months ended June 30,
2005 to  $103,354  for the same period  ended in 2006.  As a  percentage  of net
revenue, cost of goods sold for the DC Transportation  product segment decreased
from 59% for the three  months  ended June 30, 2005 to 48% for same period ended
in 2006.

The increase in the cost of goods sold as a  percentage  of net revenues for the
marine  products  segment  was driven  primarily  by a one time sales  promotion
during the three  months  ended June 30,  2006 for the  purpose of  accelerating
sales after the end of the regional  boat show season.  The increase in the cost
of goods sold as a percentage of net revenues for the Security  Products Segment
was due to costs  associated with the  modification  of existing  inventories to
improve  product  performance.  The  decrease  in the  cost of  goods  sold as a
percentage of net revenues for the DC Transportation  product segment was due to
improved component pricing negotiated during the period.

GROSS PROFIT MARGIN.  Gross profits on sales for the three months ended June 30,
2006 amounted to $132,866 or 46% of net revenues,  compared to $151,805,  or 30%
of net revenues,  for the three months ended June 30, 2005. The marine  products
segment  contributed $16,331 and $18,578 of the total gross profit for the three
months ended June 30, 2006 and 2005, respectively. The security products segment
contributed  $4,569 and $64,794 of the total gross  profit for the three  months
ended  June 30,  2006 and 2005,  respectively.  The DC  Transportation  products
segment contributed $111,966 and $68,433 of the total gross profit for the three
months ended June 30, 2006 and 2005,  respectively.  The gross profit percentage
for the marine  products  segment  decreased from 57% for the three months ended
June 30, 2005 to 39% for the three months ended June 30, 2006.  The gross profit
percentage for the security  products  segment  decreased from 21% for the three
months ended June 30, 2005 to 15% for the three months ended June 30, 2006.  The
gross profit  percentage for the DC  Transportation  products segment  increased
from 41% for the three  months  ended June 30, 2005 to 52% for the three  months
ended June 30, 2006.

                                       8
<PAGE>
The decrease in the gross profit as a percentage  of net revenues for the marine
products  segment was driven  primarily by a one time sales promotion during the
three months ended June 30, 2006 for the purpose of accelerating sales after the
end of the  regional  boat show  season.  The  decrease in the gross profit as a
percentage  of net revenues for the Security  Products  Segment was due to costs
associated  with the  modification  of existing  inventories to improve  product
performance.  The increase in the gross  profit as a percentage  of net revenues
for the DC Transportation  product segment was due to improved component pricing
negotiated during the period.

SALARIES AND WAGES. Salaries and Wages decreased 22% from $547,358 for the three
months ended June 30, 2005 to $424,903 for the three months ended June 30, 2006.
The  decrease  was due to the overall  reduction in employees as a result of the
Company's  restructuring  plan  initiated in April of 2005.  Salary and Wages is
comprised  of employee  wages and stock  compensation.  During the three  months
ended June 30, 2006, $86,700 of non-cash  stock-based  compensation was recorded
in  conjunction  with common  stock  issued to officers  pursuant to  employment
contract  obligations.  Adjusted  for the one time stock  compensation  expense,
salaries & wages for normal operations decreased 38% for the same periods ended.

PROFESSIONAL & CONSULTING FEES.  Professional and consulting fees increased 295%
from $140,727 for the three months ended June 30, 2005 to $556,292 for the three
months ended June 30, 2006. The increase was due to legal fees  associated  with
the  defense  of the Satius law suit and the  Securities  & Exchange  Commission
investigation (See legal proceedings);  and restricted common stock compensation
for the Company's Board of Directors.  Professional  and consulting fees include
fees paid to attorneys,  accountants, and business consultants. During the three
months ended June 30, 2006,  $254,400 of non-cash  stock-based  compensation was
recorded,  of which  $237,600 was expensed in the period,  in  conjunction  with
common  stock  issued  to  Directors  for  fiscal  year 2006  compensation,  and
compensation for services rendered during the Company's 2005 restructuring.

DEPRECIATION AND AMORTIZATION EXPENSE.  Depreciation and amortization  decreased
69% from  $168,725  for the three  months ended June 30, 2005 to $52,838 for the
three months ended June 30, 2006. The decrease was  attributable  to a reduction
in amortization  expense as certain intangible assets were fully amortized as of
December 31, 2005.

RESEARCH &  DEVELOPMENT.  Research and  development  expense  increased 49% from
$149,040 for the three  months  ended June 30,  2005,  to $222,528 for the three
months  ended June 30,  2006.  The  increase  was due to an increase in contract
labor expenditures and component  purchases in the Company's efforts to finalize
the development of several new products.  Research and development costs consist
of all expenditures  related to the improvement and development of the Company's
current product line, new product development,  and engineering  consulting fees
associated  with  licensed  technology.  Currently,  substantially  all  of  our
research and  development  costs and efforts are dedicated to the development of
our security (both analog and digital) and DC  Transportation  product segments.
For the three months ended June 30, 2006,  of the total  Research &  Development
expenditures,  $173,571  or 78% was  related to the  security  & audio  products
segment,  $46,729 or 21% was related to the DC Transportation  products segment,
and $2,228 or 1% was  related to the marine  products  segment.  The cost of our
research and development activities is borne directly by the Company; no amounts
are borne by our customers,  nor are any contracts for customer  funded research
and development currently anticipated. The Company plans to continue funding the
security and DC transportation product segments for the next several years.

ADVERTISING  AND  PROMOTIONS.  Advertising  and  promotions  decreased  42% from
$51,587 for the three months ended June 30, 2005 to $30,004 for the three months
ended June 30,  2006.  The  decrease  was due  directly to a reduction  in print
advertising  for the DC  transportation  product  segment and a focus on selling
through distribution  channels rather than directly to the consumer.  The amount
also includes portions of postage, printing, and travel that are attributable to
advertising and promotions.

RENT AND UTILITIES.  Rent and utilities  increased 8% from $59,041 for the three
months ended June 30, 2005 to $63,567 for the three months ended, June 30, 2006.
The  increase  is due to holder  over rent at 1 1/2 times the normal rate on the
corporate  office  space for the two  months  preceding  the  relocation  to new
offices.  Rent and utilities  includes  office rent,  warehouse  rent,  storage,
telephone, and utilities.

                                       9
<PAGE>
TRAVEL & ENTERTAINMENT  EXPENSE.  Travel & entertainment  expense  decreased 45%
from  $58,859 for the three  months ended June 30, 2005 to $32,458 for the three
months ended June 30, 2006. The decrease was attributed to adherence to budgeted
expenditures and an overall reduction in the number of employees  traveling as a
result of Company's  restructuring  plan  initiated  in April of 2005.  Travel &
entertainment   expenses  include  normal  expenses  associated  with  traveling
including,  but not limited to; airfare, auto rental,  parking & tolls, hotels &
lodging, taxis, meals, and entertainment.

OTHER EXPENSES.  Other expenses  decreased 21% from $91,221 for the three months
ended June 30, 2005 to $72,413 for the three  months  ended June 30,  2006.  The
decrease was due primarily to a reduction or elimination of both temporary labor
and  telemarketing  expenses that were associated with the operations during the
2005 fiscal year.  Other expenses  include  travel,  supplies,  property  taxes,
insurance,  financing  fees,  bank  charges,  provision  for doubtful  accounts,
postage  &  delivery,   and  various  other  expenses  that  are  classified  as
miscellaneous.

NON-OPERATING  INCOME (EXPENSE) ITEMS.  Non-operating income (expense) increased
from  ($13,041) for the three months ended June 30, 2005 to  $1,905,443  for the
three months ended June 30, 2006.  Components of  non-operating  expenses are as
follows:

o    Interest expense decreased to $729 for the three months ended June 30, 2006
     from ($13,041) for the three months ended June 30, 2005. The current period
     interest expense includes ($39,753) of amortization of debt discount on the
     Convertible  Debentures,  and ($905) of miscellaneous interest. The Company
     records amortization using the effective interest method and,  accordingly,
     interest  expense  associated  with these  debentures  will increase as the
     carrying value  increases.  These expense amounts were offset by $16,387 in
     interest income, and $25,000 in other income.

o    Derivative  gain,  which  amounted to $1,904,714 for the three months ended
     June  30,  2006  arises  from  fair  value  adjustments  to our  derivative
     financial  instruments.  These instruments consist of freestanding warrants
     and embedded conversion features associated with the Debenture offering. We
     will continue to incur fair value  adjustments to these  instruments  until
     such instruments are converted,  exercised or reclassified to stockholders'
     equity.  Future  fair  value  adjustments  require  the  use of  subjective
     estimates.  However,  the  principal  drive of our  valuation  model is the
     Company's  trading  common  stock.  Accordingly,  future  volatility in the
     trading market price may result in  significant  changes in fair value that
     are required to be recorded as adjustments in income.

LOSS FROM DISCONTINUED  OPERATIONS.  Loss from discontinued operations decreased
48%,  from $32,206 for the three months ended June 30, 2005, to $16,588 for same
period ended June 30, 2006. (See Note 10 to the financial statements.)

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
losses from operations of $2,388,325 and $3,014,467  during the six months ended
June 30, 2006 and 2005,  respectively.  In addition,  during those periods,  the
Company  has  used  cash of  $2,842,510  and  $1,1615,261  respectively,  in its
operating  activities and has a  stockholders'deficit  of $1,936,873 at June 30,
2006. 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 its  existing  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 has allocated  significant resources to the development of new power
line  technologies  and  products  that will be launched in the third and fourth
quarters  of fiscal  year  2006.  The  Company's  ability  to  continue  will be
dependent upon achieving  profitable  operations through the licensing and sales
of these new technologies and products.

                                       10
<PAGE>

The  Company's  ability to continue  as a going  concern is  dependent  upon (i)
raising  additional  capital to fund operations (ii) the further  development of
the  Security  and  DC  Transportation   Products  Segment  products  and  (iii)
ultimately the achievement of profitable operations. During the six months ended
June 30,  2006,  the Company  secured  financing  of  $4,473,933  in the form of
convertible  debentures which included proceeds of $3,100,000 and the conversion
of $1,373,933 of otherwise  short term  existing  obligations  to long term debt
(See Note 8). While the proceeds of this financing will  significantly  mitigate
the Company's liquidity difficulties,  the ability of the Company to sustain its
operations for a reasonable  period without further financing cannot be assured.
The financial  statements do not include any  adjustments  that might arise as a
result of this uncertainty.

During the six months  ended June 30,  2006 the  Company  funded its losses from
operations through the following vehicles:

o On March 16, 2006, the Company  entered into a Securities  Purchase  Agreement
(the "Purchase Agreement"),  with several accredited investors (collectively the
"Purchasers"),  under which the Company  issued and sold to the  Purchasers in a
private  placement,   $4,473,933   aggregate  principal  amount  of  convertible
debentures ("Debentures"), including $1,373,933 of existing debt being converted
into the Debentures,  and warrants to purchase common stock (the "Warrants") for
an aggregate of up to $3,100,000 (the "Proceeds"). All the closing conditions of
the Purchase  Agreement  were satisfied on March 23, 2006. On March 23, 2006 the
Company  received a portion of the Proceeds in the amount of  $2,563,572  net of
$136,428,  which was paid from the  Proceeds  as  payment  for  commissions  and
expenses and $87,428 as repayment of certain creditors  pursuant to the Purchase
Agreement.  Furthermore, on March 27, 2006, the Company received $250,000 and on
March 29, 2006 the Company received a final  disbursement of the Proceeds in the
amount of $150,000,  for a total aggregate  amount of the Proceeds of $3,100,000
disbursed  to the  Company.  The  Company  paid a portion of the  Proceeds  as a
broker's  fee with  respect to the sale of the  Debentures  and  Warrants to the
Purchasers,  and intends to use the net available proceeds for general corporate
and working capital purposes.  The Warrants may be exercised for an aggregate of
up to 94,188,063  (1,883,761 as adjusted for the March 22, 2006 1 for 50 reverse
stock split)  shares of common  stock until March 22,  2011,  at price per share
equal to $2.375 The Exercise  Price will be subject to adjustment for events and
transactions  as  stated in the  Warrant.  The  transaction  was  recorded  as a
derivative  liability  on the  Company's  balance  sheet  (See  "Note  8" to the
financial statements).

During the six months ended June 30, 2006, the Company issued purchase orders to
its overseas  supplier  totaling $562,440 for the manufacturing of the Company's
Secure View product.  The product will be delivered in August 2006.  The Company
made  advance  payments for the  manufacturing  of this product in the amount of
$281,240  during the six months ended June 30, 2006, and an additional  $189,800
in July and August of 2006.  In  addition,  the  Company  purchased,  with cash,
critical  components during the six months ended June 30, 2006 for both existing
products and for new products expected to be ready for manufacturing  during the
3rd  and  4th  quarters  ended   September  30,  2006  and  December  31,  2006,
respectively.  At June 30, 2006, this inventory was being  warehoused in Taiwan,
at the offices of IC Intracom,  the  Company's  manufacturing  partner,  and was
valued at approximately $157,000.

The  financing of overseas  manufacturing  has had a  significant  impact on the
Company's  cash  position for the six months ended June 30, 2006.  However,  the
Company  has  received  purchase  orders  for its  SecureView  product  totaling
approximately  $825,000 for shipment  during the 3rd quarter ended September 30,
2006;  and a  verbal  commitment  for  an  additional  purchase  order  totaling
approximately  $275,000  for the same product to be shipped in either the 3rd or
4th quarters ended September 30, 2006 and December 31, 2006,  respectively.  The
purchase orders carry 30 day terms.


                                       11
<PAGE>

Other than outlined above, the Company has no other 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. Quantitative and Qualitative Disclosures about Market Risk

The Company is exposed to changes in prevailing  market interest rates affecting
the return on its  investments  but does not consider  this interest rate market
risk  exposure  to  be  material  to  its  financial  condition  or  results  of
operations.  The Company invests primarily in United States Treasury instruments
with short-term  (less than one year)  maturities.  The carrying amount of these
investments approximates fair value due to the short-term maturities.  Under its
current  policies,  the Company does not use derivative  financial  instruments,
derivative  commodity  instruments or other financial  instruments to manage its
exposure to changes in interest rates or commodity prices.

Item 4.   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 June 30, 2006. 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.

                                       12
<PAGE>

                           PART II. OTHER INFORMATION


Item 1.   Legal Proceedings

Litigation, claims and assessment:

Guestlinx, LLC

On May 19, 2006 the Company  learned  that a default  judgment  had been entered
against it on May 3, 2006 in the Superior Court of California, Orange County, in
the amount of $90,561, to the plaintiff Guestlinx, LLC. The judgment was granted
based on an action filed by Guestlinx,  LLC on November 2, 2005. The Company had
no prior knowledge of the action and believes it was never properly served.  The
Company retained counsel in California,  and on August 4, 2006 was successful in
having the judgment set aside for improper service;  contingent upon the Company
remitting  $3,000 to the Orange County  Superior Court by September 4, 2006. The
Company had previously recorded a liability  associated with this dispute in the
amount of $46,352  that is currently  included in the  Company's  balance  sheet
under "Liabilities from Discontinued Operations".

Satius, Inc. License Agreement

On June 7, 2006, the civil action  initiated  against the Company (the "Action")
by Satius, Inc. ("Satius"),  on August 17, 2005, in which Satius alleged various
claims  under a former  license  agreement  (the  "Agreement"),  entered into on
December  18,  2002,  by and between  Satius and the  Company  and  subsequently
terminated  by Satius on July 10,  2004,  was  dismissed  in the Court of Common
Pleas of  Montgomery  County,  Pennsylvania.  On June 9, 2006,  the  Company was
notified by its counsel  that Satius has  appealed  the  dismissal.  The Company
cannot predict whether or not the appeal will be successful.

SEC Investigation

The Company has settled the previously reported investigation by the Securities
and Exchange Commission ("SEC") as described below.

On Tuesday,  June 27, 2006,  the SEC filed a civil  action in the United  States
District  Court for the  District of Columbia  against the  Company,  its former
chief executive officer,  George S. Bernardich III, and its former secretary and
treasurer,  James R. Cox.  The  Company  consented  to the  entry of a  judgment
permanently  enjoining  it from  violating  Section  10(b) and Rule 10b-5 of the
Securities  Exchange Act of 1934 ("Exchange  Act"),  which are general antifraud
provisions of the federal  securities  laws. The Company also consented to being
enjoined from violating the periodic reporting,  books and records, and internal
controls provisions contained in Exchange Act Sections 13(b)(2)(A), 13(b)(2)(B),
and 15(d) and Rules 15d-1, 15d-11, 15d-13, and 12b-20 thereunder.

Mr.  Bernardich  and Mr. Cox  consented  to the entry of  judgments  permanently
enjoining them from  violating  Section 10(b) of the Exchange Act and Rule 10b-5
thereunder and aiding and abetting the Company's alleged  reporting  violations,
and barring them from serving as officers and directors of public  companies for
a period of ten years. The Company,  Mr. Bernardich and Mr. Cox consented to the
entry of the judgments without admitting or denying the allegations in the SEC's
Complaint. Mr. Bernardich was president and chief executive offer of the Company
from February  2001 until April 2005. He was chairman of the Company's  board of
directors  from August 2000 until  February  2005 and remained a director of the
Company  until March  2006.  The Company  currently  has a  consulting/severance
arrangement with Mr. Bernardich. Mr. Cox was the Company's secretary,  treasurer
and  director  from  the time the  company  went  public  in  March  1999  until
approximately  July 2002.  Mr. Cox is  currently  employed  by the  Company in a
product development capacity.

                                       13
<PAGE>

The requested relief was approved by the Court on August 7, 2006.

The Complaint alleged that in September 2004, the Company violated the antifraud
provisions of the federal securities laws by issuing materially misleading press
releases and filing  materially  misleading  reports  with the SEC  concerning a
purported  $23  million  sales  contract  with a  defense  contractor  known  as
Universal  General  Corporation  ("UGC"),  which,  in fact, had no revenues,  no
assets,  and no means to  satisfy  any  portion of its $23  million  contractual
obligation to the Company.  According to the  Complaint,  the Company  performed
virtually no due  diligence to determine  whether UGC was  legitimate  and could
meet its contractual  obligations.  The Complaint states that Mr. Bernardich was
responsible  for the  Company's  due  diligence  failures  and for  drafting the
Company's  materially  misleading press releases and SEC filings.  The Complaint
also  alleges  that  during the first three  quarters  of fiscal year 2000,  the
Company  fraudulently  recognized nearly ninety percent of its reported revenues
based on fictitious  camera sales by initiating  consignment  arrangements  with
numerous  dealers and recording the consignment  order amounts as revenue before
any cameras were manufactured, shipped to the dealers, or sold to customers. The
Complaint alleges that during this same period, the Company also issued numerous
deceptive press releases that materially misrepresented the company's operations
and offered glowing,  but unsubstantiated,  revenue and earnings forecasts.  The
Complaint also alleges that in April 2001,  following a management  change,  the
Company  filed with the SEC an annual  report for 2000  containing  a misleading
restatement  of  revenues  and  other  materially  misleading   disclosures  and
accounting errors.  According to the Complaint,  the principal  architect of the
Company's  fraudulent  activities during 2000 was its now-deceased  former chief
executive officer, Richard L. McBride.  According to the Complaint,  among other
things,   the  Company  failed  to  disclose  in  violation  of  applicable  SEC
regulations that Mr. McBride had been convicted of fraud in 1998 and was serving
a  six-year  probation  term.  The  Complaint  also  alleged  that  Mr.  Cox was
responsible for certain of the Company's fraud and reporting  violations and Mr.
Bernardich,  who had replaced Mr. McBride as chief executive officer in February
2001, aided and abetted the Company's  reporting  violations with respect to the
Company's 2000 annual report.

In addition,  the Company's current chief financial officer,  Douglas Bauer, has
consented  to the issuance of a  cease-and-desist  order for his role in causing
the Company's  reporting violation in connection with its April 2002 restatement
of a deferred  tax asset.  Mr.  Bauer  consented  to the  issuance  of the order
without admitting or denying the findings in the Order.

Item 1A. Risk Factors

During the quarterly period ended June 30, 2006, the following  material changes
occurred with respect to the risk factors as previously  disclosed in our Annual
Report  on Form 10-K for the year  ended  December  31,  2005.  Please  read the
section  entitled "Risk Factors" set forth in our Annual Report on Form 10-K for
the year ended  December 31, 2005 and similar types of  discussions in other SEC
filings which discuss some of the important  risks that may affect our business,
results of operations and financial condition.

THE COMPANY HAS SETTLED THE PREVIOUSLY REPORTED  INVESTIGATION BY THE SECURITIES
AND EXCHANGE COMMISSION

The Company has settled the previously reported  investigation by the Securities
and Exchange Commission ("SEC") as described below.

On Tuesday,  June 27, 2006,  the SEC filed a civil  action in the United  States
District  Court for the  District of Columbia  against the  Company,  its former
chief executive officer,  George S. Bernardich III, and its former secretary and
treasurer,  James R. Cox.  The  Company  consented  to the  entry of a  judgment
permanently  enjoining  it from  violating  Section  10(b) and Rule 10b-5 of the
Securities  Exchange Act of 1934 ("Exchange  Act"),  which are general antifraud
provisions of the federal  securities  laws. The Company also consented to being
enjoined from violating the periodic reporting,  books and records, and internal
controls provisions contained in Exchange Act Sections 13(b)(2)(A), 13(b)(2)(B),
and 15(d) and Rules 15d-1, 15d-11, 15d-13, and 12b-20 thereunder.

                                       14
<PAGE>

Mr.  Bernardich  and Mr. Cox  consented  to the entry of  judgments  permanently
enjoining them from  violating  Section 10(b) of the Exchange Act and Rule 10b-5
thereunder and aiding and abetting the Company's alleged  reporting  violations,
and barring them from serving as officers and directors of public  companies for
a period of ten years. The Company,  Mr. Bernardich and Mr. Cox consented to the
entry of the judgments without admitting or denying the allegations in the SEC's
Complaint. Mr. Bernardich was president and chief executive offer of the Company
from February 2001 until April 2005. He was the chairman of the Company's  board
of directors from August 2000 until February 2005 and remained a director of the
Company  until March  2006.  The Company  currently  has a  consulting/severance
arrangement with Mr. Bernardich. Mr. Cox was the Company's secretary,  treasurer
and  director  from  the time the  company  went  public  in  March  1999  until
approximately  July 2002.  Mr. Cox is  currently  employed  by the  Company in a
product development capacity. The requested relief is subject to court approval.

In addition,  the Company's current chief financial officer,  Douglas Bauer, has
consented  to the issuance of a  cease-and-desist  order for his role in causing
the Company's  reporting violation in connection with its April 2002 restatement
of a deferred  tax asset.  Mr.  Bauer  consented  to the  issuance  of the order
without admitting or denying the findings in the Order.

WE ARE  AUTHORIZED  TO ISSUE "BLANK  CHECK"  PREFERRED  STOCK  WHICH,  IF ISSUED
WITHOUT STOCKHOLDERS APPROVAL, MAY ADVERSELY AFFECT THE RIGHTS OF HOLDERS OF OUR
COMMON STOCK.

Our articles of incorporation  authorize the issuance of up to 30,000,000 shares
of "blank check" preferred stock with such designations,  rights and preferences
as may be determined  from time to time by our Board of Directors.  Accordingly,
our Board of Directors is  empowered,  without  stockholder  approval,  to issue
preferred stock with dividend,  liquidation,  conversion, voting or other rights
which  would  adversely   affect  the  voting  power  or  other  rights  of  our
stockholders.  In the event of issuance,  the preferred stock could be utilized,
under certain circumstances, as a method of discouraging, delaying or preventing
a change in  control,  which  could  have the  effect of  discouraging  bids for
PowerLinx and thereby prevent  stockholders from receiving the maximum value for
their shares.  We have no present intention to issue any shares of its preferred
stock in order to discourage or delay a change of control. However, there can be
no assurance that preferred stock will not be issued at some time in the future.

THE  AVAILABILITY  OF A LARGE NUMBER OF AUTHORIZED BUT UNISSUED SHARES OF COMMON
STOCK MAY, UPON THEIR ISSUANCE, LEAD TO DILUTION OF EXISTING STOCKHOLDERS.

Pursuant  to the  approval  of the  Company's  shareholders  of the  increase in
authorized  common stock  obtained on August 8, 2006, we are authorized to issue
50,000,000  shares of common  stock,  of which as of August 16, 2006,  4,888,900
shares are issued and outstanding.  In connection with the financing arrangement
that we entered into in March 2006, we also have outstanding secured convertible
that may be  converted  into an  estimated  3,622,618  shares of common stock at
current market prices, and outstanding  warrants to purchase 1,883,761 shares of
common stock. Assuming conversion and exercise of these instruments,  we will be
left with more than 39 million  authorized  shares that remain  unissued.  These
shares  may be issued  by our Board of  Directors  without  further  stockholder
approval.  The  issuance of large  numbers of shares,  possibly at below  market
prices,  is likely to result in  substantial  dilution to the interests of other
stockholders.  In addition,  issuances of large  numbers of shares may adversely
affect the market price of our common stock.

                                       15
<PAGE>

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

On June 28, 2006, the Company issued 51,000 shares of restricted common stock to
officers in the form of stock  compensation in accordance with their  employment
contracts.  The shares were valued at $86,700, based on the closing market price
of the  Company's  common  stock on date the grant was  ratified by the Board of
Directors.

On June 28, 2006, the Company  issued 106,000 shares of restricted  common stock
to  Directors  of the  Company in the form of stock  compensation.  Of the total
shares  issued,  14,000 shares were issued as  compensation  for the 2006 fiscal
year ended  December  31,  2006.  The  remaining  92,000  shares  were issued as
compensation  for  services  rendered by  Directors  during the  Company's  2005
restructuring  plan.  The shares were valued at  $254,400,  based on the closing
market price of the Company's common stock on date the grant was ratified by the
Board of Directors.

All of our  securities  issued  in the  foregoing  transactions  were  issued in
reliance on the exemption from registration and prospectus delivery requirements
of the Act set forth in Section 3(b),  and/or Section 4(2) of the Securities Act
and the  regulations  promulgated  thereunder.  With  respect to the sale of the
Units  described  above,  the Company claims an exemption from the  registration
requirements of the Securities Act of 1933, as amended (the "Act"),  pursuant to
Section 4(2) of the Act and/or Regulation D promulgated  thereunder since, among
other things (1) the  transactions  did not involve a public  offering,  (2) the
investors were accredited investors and/or qualified  institutional  buyers, (3)
the investors had access to information  about the Company and their investment,
(4) the investors took the  securities  for  investment and not resale,  (5) the
Company took  appropriate  measures to restrict the transfer of the  securities,
(6) no  advertising  or  general  solicitation  was  employed  in  offering  the
securities,  and (7) no commissions  were paid in connection  with the placement
and/or sale of the securities.


Item 3.     Defaults Upon Senior Securities.

            Not Applicable.

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

The Company has  presented to its  shareholders  of record as of April 27, 2006,
the following  resolutions for approval which recommended by the Company's Board
of Directors.

                            ACTION BY WRITTEN CONSENT
                               IN LIEU OF MEETING
                                      OF A
                          MAJORITY OF THE SHAREHOLDERS

The undersigned, constituting a majority of the shareholders of PowerLinx, Inc.,
a Nevada corporation (the "Company"),  hereby consent to and adopt the following
resolution pursuant to the Nevada Revised Statutes:

          WHEREAS, the Board of Directors of the Company has approved and in the
opinion of the Board of Directors it is advisable  and in the best  interests of
the  Company  to  increase  the  authorized  common  stock of the  Company  from
8,000,000 shares to 50,000,000 shares; and

          WHEREAS,  as a result  of the  reverse  stock  split of the  Company's
common stock,  $0.001 par value per share (the "Common  Stock")  effective as of
March 22,  2006,  the  aggregate  number of shares of Common  Stock  covered and
issuable  under the 2003 Employee Stock Option Plan,  decreased from  12,500,000
shares to 250,000 shares.

                                       16
<PAGE>

          NOW THEREFORE IT IS


          RESOLVED,  that the Company is hereby authorized and directed to amend
and restate  Article IV of the Articles of  Incorporation  of the Company in its
entirety to read as follows:

          Article IV: "The  aggregate  number of shares which the Company  shall
have authority to issue is Eighty Million  (80,000,000)  shares of capital stock
consisting of Fifty  Million  (50,000,000)  shares of common  stock,  $0.001 par
value per share  ("Common  Stock"),  and Thirty Million  (30,000,000)  shares of
preferred stock, $0.001 par value per share ("Preferred Stock").

          The  authority  to issue the  Preferred  Stock  shall be vested in the
board of directors.  The board of directors,  without  shareholder  action,  may
amend the Company's  Articles of  Incorporation  pursuant to Section  78.195 and
Section 78.1955 of the Nevada Revised Statutes to:

          (i) create one or more series of  Preferred  Stock,  fix the number of
shares of each such series,  and designate,  in whole or part, the  preferences,
limitations,  and relative rights of the series,  all before the issuance of any
shares of that series;

          (ii) alter or revoke the preferences, limitations, and relative rights
granted to or imposed upon any wholly unissued series of Preferred Stock; or

          (iii)  increase  or  decrease  the number of shares  constituting  any
series,  the  number of shares  of which  was  originally  fixed by the board of
directors, either before or after the issuance of shares of the series, provided
that the  number may not be  decreased  below the number of shares of the series
then  outstanding,  or increased above the total number of authorized  shares of
Preferred Stock available for designation as part of the series.

          The  preferences,  limitations,  and relative  rights of the Preferred
Stock or any series of the Preferred  Stock may include,  but is not limited to,
Preferred Stock that (a) has special,  conditional or limited voting rights,  or
no right to vote; (b) is redeemable or convertible;  (c) entitles the holders to
distributions  calculated  in  any  manner,  including  dividends  that  may  be
cumulative,  non-cumulative,  or partially  cumulative;  (d) and Preferred Stock
that has  preference  over the  Common  Stock  with  respect  to  distributions,
including  dividends and distributions  upon the dissolution of the corporation.
The above-described authority of the board of directors to fix and determine may
be exercised by corporate resolution from time to time as the board of directors
sees fit."

          RESOLVED, that the Company is hereby authorized and directed to file a
Certificate  of  Amendment  with the  State of  Nevada  to give  effect  to such
increase in the Company's  authorized shares of Common Stock, which filing shall
be effective as of June 21st, 2006; and further

          RESOLVED,  that the Company is  authorized  to increase the  aggregate
number of shares of Common Stock  covered and issuable  under the 2003  Employee
Stock Option Plan from 250,000 shares to an amount of shares equal to 10% of the
authorized amount of Common Stock of the Company which the Company, at any time,
shall have authority to issue;

          RESOLVED,  that the  majority in interest of the  shareholders  of the
Company  hereby  approve the selection of Aidman,  Piser & Company,  P.A. as the
Company's  Independent Public Accountant for the fiscal year ending December 31,
2006; and further

          RESOLVED,  that the  majority in interest of the  shareholders  of the
Company hereby  nominate and reelect Jim Williams,  Martin Traber and Ted Shalek
to serve as class II  members  of the  Board of  Directors  of the  Company  and
pursuant to the Company's By-laws,  for a term expiring at the annual meeting of
shareholders  held in the third (3rd) year following the year of their election,
such election to be effective on and as of June 21st, 2006; and further

                                       17
<PAGE>

          RESOLVED,  that the officers  and  directors of the Company are hereby
authorized and directed on behalf of and in the name of the Company to take such
action,  and execute such  documents to effectuate  the  transactions  and other
matters authorized hereby.

          The action taken by this consent  shall have the same force and effect
as if taken at a meeting of shareholders of the Company, duly called.

          The   resolutions,   as  presented,   were  approved  by  shareholders
representing  a majority  of the  outstanding  shares as of the  record  date on
August 8, 2006.  The Company filed a certificate  of amendment with the State of
Nevada on August  10,  2006 to amend the  Company's  Articles  of  Incorporation
accordingly.

Item 5.     Other Information.

        None.

Item 6.     Exhibits

(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


                                       18
<PAGE>
                                   SIGNATURES


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

Dated: August 21, 2006                    POWERLINX, INC.



                                          By: /s/ MICHAEL TOMLINSON
                                          ----------------------------
                                          MICHAEL TOMLINSON


                                          Chief Executive Officer

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


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