UNITED
      STATES


SECURITIES
      AND EXCHANGE
      COMMISSION


Washington,
      DC
      20549




FORM
      10-QSB/A




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


EXCHANGE
      ACT OF
      1934




For
      the
      quarterly period ended September 30, 2007




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


EXCHANGE
      ACT OF
      1934




For
      the
      transition period from: ____________ to ____________




Commission
      file number:
      33-55254-26




POWERLINX,
      INC.


(exact
      name of registrant as specified in its charter)





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








10901-A
                Roosevelt Blvd., Suite 200, ST.PETERSBURG, FL
            33716(Address
                of principal executive offices)
            (Zip
                Code)





(727)
      866-7440


(Registrant's
      telephone number, including area code)







Check
      whether the issuer (1) has filed all reports required to be filed by Section
      13
      or 15d of the Securities and Exchange Act of 1934 during the preceding 12 months
      (or such shorter period that the registrant was required to file such reports),
      and (2) has been subject to such filing requirements for the past 90 days.
      [X]
      Yes [ ] No




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




The
      total
      number of shares outstanding of the issuer’s common stock, $0.001 par value per
      share, as of December 20, 2007 was 6,768,674.









POWERLINX,
      INC.





INDEX




Part
      I – FINANCIAL
      INFORMATION




Page
                  No.Item
                1.                                Financial
                Statements.
              3Condensed
                  Financial Statements
              F-1Condensed
                  Consolidated Balance SheetsAs
                  of September 30, 2007 (unaudited) and December 31,
                  2006
              F-1Condensed
                  Consolidated Statements of OperationsFor
                  the Nine Months ended September 30, 2007 and 2006
                  (unaudited)
              F-2Condensed
                  Consolidated Statement of Stockholder's DeficitFor
                  the Nine Months
                  ended
                  September 30, 2007(unaudited)
              F-3Condensed
                  Consolidated Statements of Cash FlowsFor
                  the Nine Months ended September 30, 2007 and 2006
                  (unaudited)
              F-4Notes
                  to Condensed Consolidated Financial Statements
              F-6Item
                2.                                Management’s
                Discussion and Analysis or Plan of
                Operations
              3Item
                3.                                Controls
                and Procedures
              10Item
                3A
                (T).                      Controls
                and Procedures
              10Part
                  II – OTHER INFORMATION
              10Item
                1.                                Legal
                Proceedings
              10Item
                2.                                Unregistered
                Sales of Equity Securities and Use of Proceeds
              11Item
                3.                                Defaults
                Upon Senior Securities
              12Item
                4.                                Submission
                of Matters to a Vote of Security Holders
              12Item
                5.                                Other
                Information
              12Item
                6.                                Exhibits
              12Signatures
              13










PART
      I - FINANCIAL
      INFORMATION




Item
      1. Financial
      Statements




The
      accompanying condensed consolidated financial statements have been prepared
      in
      accordance with the instructions to Form 10-QSB pursuant to the rules and
      regulations of the Securities and Exchange Commission and, therefore, do not
      include all information and footnotes necessary for a complete presentation
      of
      our consolidated financial position, results of operations, cash flows, and
      stockholders' deficit in conformity with generally accepted accounting
      principles. In the opinion of management, all adjustments considered necessary
      for a fair presentation of the results of operations and financial position
      have
      been included and all such adjustments are of a normal recurring nature.
      Operating results for the nine months ended September 30, 2007 are not
      necessarily indicative of the results that can be expected for the year ending
      December 31, 2007.




As
      used
      in this Quarterly Report on Form 10-QSB (the “Quarterly Report”), the terms
      "we", "us", "our", the “Company,” and “PowerLinx” mean PowerLinx, Inc., unless
      otherwise indicated.









POWERLINX,
        INC.
 CONDENSED
        CONSOLIDATED BALANCE
        SHEETS




September
                    30,
                
                
                December
                    31,2007
                
                
                2006(Unaudited)ASSETSCurrent
                    assets:Cash
                    and cash equivalents
                
                $
                34,132
                
                
                $
                100,679Accounts
                    receivable, net
                
                
                330,449
                
                
                
                89,721Investments
                
                
                17,756
                
                
                
                17,210Employee
                    advances
                
                
                42,266
                
                
                
                40,485Inventories
                
                
                493,147
                
                
                
                684,296Prepaid
                    expenses and other current assets
                
                
                324,244
                
                
                
                49,975Deferred
                    financing costs, net
                
                
                18,188
                
                
                
                74,917Total
                    current assets
                
                
                1,260,182
                
                
                
                1,057,283Intangible
                    assets, net
                
                
                285,585
                
                
                
                377,290Deposits
                
                
                18,976
                
                
                
                18,976Property
                    and equipment, net
                
                
                86,524
                
                
                
                137,638Total
                    assets
                
                $
                1,651,267
                
                
                $
                1,591,187LIABILIITIES
                    & STOCKHOLDERS' DEFICITCurrent
                    liabilities:Accounts
                    payable
                
                $
                978,676
                
                
                $
                647,009Accrued
                    expenses
                
                
                316,477
                
                
                
                164,703Accrued
                    severance payable
                
                
                15,000
                
                
                
                34,500Notes
                    payable
                
                
                905,720
                
                
                
                308,824Convertible
                    notes payable
                
                
                468,938
                
                
                
                -Liabilities
                    of discontinued operations
                
                
                46,902
                
                
                
                40,754Convertible
                    debentures
                
                
                1,397,846
                
                
                
                271,292Derivative
                    liabilities
                
                
                686,363
                
                
                
                3,206,121Total
                    current liabilities
                
                
                4,815,922
                
                
                
                4,673,203Commitments
                    and contingencies (Note 10)
                
                
                -
                
                
                
                -Stockholders'
                    deficit:Series
                    A convertible preferred stock, $1.00 par value;
                
                
                -
                
                
                
                -authorized
                    30,000,000, none issued and outstandingCommon
                    stock, $.001 par value, authorized 50,000,000
                
                
                6,567
                
                
                
                5,182shares;
                    issued (6,568,725 - 2007; 5,182,321 - 2006)outstanding
                    (6,559,253 - 2007; 5,172,849 -2006)Additional
                    paid-in capital
                
                
                27,738,634
                
                
                
                26,004,958Treasury
                    stock, at cost, 9,472 shares
                
                
                (287,757
                )
                
                
                (287,757
                )Accumulated
                    deficit
                
                
                (30,622,099
                )
                
                
                (28,804,399
                )Total
                    stockholders' deficit
                
                
                (3,164,655
                )
                
                
                (3,082,016
                )Total
                    liabilities and stockholders' deficit
                
                $
                1,651,267
                
                
                $
                1,591,187




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




F-1




POWERLINX,
      INC.


CONDENSED
      CONSOLIDATED STATEMENTS OF
      OPERATIONS


(Unaudited)






Three
                    Months Ended September
                    30,
                
                
                Nine
                    Months Ended September
                    30,2007
                
                
                2006
                
                
                2007
                
                
                2006Net
                    revenue
                
                $
                573,086
                
                
                $
                1,004,564
                
                
                $
                1,322,337
                
                
                $
                1,503,980Cost
                    of goods
                    sold
                
                
                305,809
                
                
                
                731,688
                
                
                
                710,903
                
                
                
                1,013,734Gross
                    Profit
                
                
                267,277
                
                
                
                272,876
                
                
                
                611,434
                
                
                
                490,246Operating
                    expenses:Salaries
                    and
                    wages
                
                
                269,245
                
                
                
                306,757
                
                
                
                880,372
                
                
                
                1,020,978Professional
                    and consulting
                    fees
                
                
                316,940
                
                
                
                121,779
                
                
                
                758,277
                
                
                
                1,027,101Depreciation
                    and
                    amortization
                
                
                42,757
                
                
                
                52,818
                
                
                
                142,818
                
                
                
                214,454Research
                    and
                    development
                
                
                157,973
                
                
                
                152,932
                
                
                
                423,039
                
                
                
                507,667Advertising
                    and
                    promotions
                
                
                36,234
                
                
                
                22,158
                
                
                
                95,903
                
                
                
                106,558Rent
                    and
                    utilities
                
                
                48,424
                
                
                
                29,689
                
                
                
                138,796
                
                
                
                145,263Travel
                    and
                    entertainment
                
                
                21,587
                
                
                
                31,832
                
                
                
                88,768
                
                
                
                102,686Other
                    expenses
                
                
                95,591
                
                
                
                79,841
                
                
                
                267,458
                
                
                
                278,794Total
                    operating
                    expenses
                
                
                988,751
                
                
                
                797,806
                
                
                
                2,795,431
                
                
                
                3,403,501Loss
                    from
                    operations
                
                
                (721,474
                )
                
                
                (524,930
                )
                
                
                (2,183,997
                )
                
                
                (2,913,255
                )Interest
                    expense,
                    net
                
                
                (1,081,728
                )
                
                
                (69,333
                )
                
                
                (1,956,157
                )
                
                
                (160,503
                )Other
                    income (expense),
                    net
                
                
                (66,350
                )
                
                
                47,200
                
                
                
                (56,713
                )
                
                
                72,200Gain(loss)
                    on extinguishment of
                    debt
                
                
                -
                
                
                
                -
                
                
                
                (75,913
                )
                
                
                (1,502,286
                )Derivative
                    gain
                    (loss)
                
                
                968,546
                
                
                
                (37,718
                )
                
                
                2,455,080
                
                
                
                2,317,969Loss
                    before discontinued
                    operations
                
                
                (901,006
                )
                
                
                (584,781
                )
                
                
                (1,817,700
                )
                
                
                (2,185,875
                )Loss
                    from discontinued
                    operations
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (16,588
                )Net
                    loss
                
                $
                (901,006
                )
                
                $
                (584,781
                )
                
                $
                (1,817,700
                )
                
                $
                (2,202,463
                )Net
                    loss per common share,
                    basic:Continuing
                    operations
                
                $
                (0.15
                )
                
                $
                (0.12
                )
                
                $
                (0.32
                )
                
                $
                (0.46
                )Discontinued
                    Operations
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -Net
                    loss per
                    share
                
                $
                (0.15
                )
                
                $
                (0.12
                )
                
                $
                (0.32
                )
                
                $
                (0.46
                )Weighted
                    average common
                    sharesoutstanding,
                    basic:
                
                
                6,118,293
                
                
                
                4,872,712
                
                
                
                5,639,316
                
                
                
                4,746,423Net
                    loss per common share,
                    diluted:Continuing
                    Operations
                
                $
                (0.15
                )
                
                $
                (0.15
                )
                
                $
                (0.32
                )
                
                $
                (0.46
                )Discontinued
                    Operations
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -Net
                    loss per
                    share
                
                $
                (0.15
                )
                
                $
                (0.15
                )
                
                $
                (0.32
                )
                
                $
                (0.46
                )Weighted
                    average common
                    sharesoutstanding,
                    diluted:
                
                
                6,118,293
                
                
                
                5,089,682
                
                
                
                5,639,316
                
                
                
                4,745,028






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






F-2




POWERLINX,
        INC.
 Condensed Consolidated
        Statement
        of Stockholders’ Deficit
 Nine
        Months ended September 30, 2007
   Common
                      Stock
                  
                  
                  AdditionalPaid-In
                  
                  
                  Treasury
                  
                  
                  AccumulatedShares
                  
                  
                  Amount
                  
                  
                  Capital
                  
                  
                  Stock
                  
                  
                  Deficit
                  
                  
                  TotalBalance,
                      January 1, 2007
                  
                  
                  5,182,321
                  
                  
                  $
                  5,182
                  
                  
                  $
                  26,004,958
                  
                  
                  $
                  (287,757
                  )
                  
                  $
                  (28,804,399
                  )
                  
                  $
                  (3,082,016
                  )Net
                      loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (1,817,700
                  )
                  
                  
                  (1,817,700
                  )Issuance
                      of stock to consultantsfor
                      services
                  
                  
                  309,012
                  
                  
                  
                  309
                  
                  
                  
                  262,601
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  262,910Conversion
                      of convertible debenturesto
                      common stock
                  
                  
                  175,595
                  
                  
                  
                  176
                  
                  
                  
                  155,841
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  156,017Issuance
                      of  common stock for the exerciseof
                      common stock warrants
                  
                  
                  126,316
                  
                  
                  
                  126
                  
                  
                  
                  70,573
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  70,699Issuance
                      of stock for intereston
                      convertible debentures
                  
                  
                  356,532
                  
                  
                  
                  355
                  
                  
                  
                  437,595
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  437,950Issuance
                      of stock for financing fees onconvertible
                      notes payable
                  
                  
                  411,871
                  
                  
                  
                  412
                  
                  
                  
                  193,502
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  193,914Issuance
                      of common stock to employeesfor
                      compensation
                  
                  
                  7,078
                  
                  
                  
                  7
                  
                  
                  
                  7,850
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  7,857Recording
                      of beneficial coversion featurein
                      connection with convertible notespayable
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  605,714
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  605,714Balance,
                      September 30, 2007
                  
                  
                  6,568,725
                  
                  
                  $
                  6,567
                  
                  
                  $
                  27,738,634
                  
                  
                  $
                  (287,757
                  )
                  
                  $
                  (30,622,099
                  )
                  
                  $
                  (3,164,655
                  )


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


F-3




POWERLINX,
          INC.
 CONDENSED
          CONSOLIDATED STATEMENTS OF
          CASH FLOWS
 FOR
          THE NINE MONTHS ENDED SEPTEMBER
          30, 2007 AND 2006
 (Unaudited)
 Nine
                        Months EndedSeptember
                        30,2007
                    
                    
                    2006Cash
                        flows from operating activities:Net
                        loss
                    
                    $
                    (1,817,700
                    )
                    
                    $
                    (2,202,463
                    )Adjustments
                        to reconcile net loss to net cash flowsfrom
                        operating activities:Share-based
                        compensation
                    
                    
                    270,497
                    
                    
                    
                    408,960Amortization
                    
                    
                    91,705
                    
                    
                    
                    147,553Accretion
                        of debt discount
                    
                    
                    1,593,732
                    
                    
                    
                    161,522Loss
                        on debt extinquishment
                    
                    
                    75,913
                    
                    
                    
                    1,502,286Derivative
                        (gain) loss
                    
                    
                    (2,455,080
                    )
                    
                    
                    (2,317,969
                    )Depreciation
                    
                    
                    51,114
                    
                    
                    
                    66,901Financing
                        fees expense paid in common stock
                    
                    
                    193,914Interest
                        expense paid in common stock
                    
                    
                    437,951Provision
                        for bad debt
                    
                    
                    27,451
                    
                    
                    
                    41,200Changes
                        in:Operating
                        assets
                    
                    
                    (101,756
                    )
                    
                    
                    (986,392
                    )Operating
                        liabiliites
                    
                    
                    470,089
                    
                    
                    
                    (510,457
                    )Net
                        cash flows from operating activities
                    
                    
                    (1,162,170
                    )
                    
                    
                    (3,688,859
                    )Cash
                        flows from investing activities:Purchase
                        of property and equipment
                    
                    
                    -
                    
                    
                    
                    (20,015
                    )Net
                        cash flows from investing activities
                    
                    
                    -
                    
                    
                    
                    (20,015
                    )Cash
                        flows from financing activities:Proceeds
                        from sales of common stock, netcosts
                        of $24,923
                    
                    
                    -
                    
                    
                    
                    184,145Proceeds
                        from convertible debentures, netcosts
                        of $82,000
                    
                    
                    -
                    
                    
                    
                    3,018,000Repayment
                        of related party debt
                    
                    
                    -
                    
                    
                    
                    (31,000
                    )Proceeds
                        from exercise of common stock warrants
                    
                    
                    75,790Proceeds
                        from notes payable
                    
                    
                    1,058,598
                    
                    
                    
                    375,000Repayment
                        of notes payable
                    
                    
                    (38,765
                    )
                    
                    
                    (8,824
                    )Net
                        cash flows from financing activities
                    
                    
                    1,095,623
                    
                    
                    
                    3,537,321Net
                        change in cash and cash equivalents
                    
                    
                    (66,547
                    )
                    
                    
                    (171,553
                    )Cash
                        and cash equivalents at beginning of period
                    
                    
                    100,679
                    
                    
                    
                    255,293Cash
                        and cash equivalents at end of period
                    
                    $
                    34,132
                    
                    
                    $
                    83,740
 The
        accompanying notes are an integral part of these condensed consolidated
        financial statements.


F-4




POWERLINX,
        INC.
 CONDENSED
          CONSOLIDATED STATEMENTS OF
          CASH FLOWS - CONTINUED
 (Unaudited)
 
 NON-CASH
        INVESTING AND FINANCING ACTIVITIES
  For
                    the nine months ended September 30,2007
                
                
                2006Issuance
                  of common stock for liabilities
                
                $
                -
                
                
                $
                192,129Issuance
                  of common stock for financing fees
                
                $
                -
                
                
                $
                46,055Conversion
                  of notes payable to convertible debentures
                
                $
                -
                
                
                $
                1,373,933Conversion
                  of convertible debentures to common stock
                
                $
                156,016
                
                
                $
                -Warrants
                  reclassified as derivatives (See Note 8)
                
                $
                -
                
                
                $
                (144,780
                )Conversion
                  of  Series A preferred stock to common stock
                
                $
                -
                
                
                $
                22,045OTHER
                    CASH FLOW INFORMATIONCash
                  paid for income taxes
                
                $
                -
                
                
                $
                -Cash
                  paid for interest
                
                $
                -
                
                
                $
                2,733
 
 The
        accompanying notes are an integral part of these condensed consolidated
        financial statements.
 F-5




POWERLINX,
      INC.


NOTES
      TO CONDENSED CONSOLIDATED
      FINANCIAL STATEMENTS


FOR
      THE NINE MONTHS ENDED SEPTEMBER
      30, 2007 AND 2006


(UNAUDITED)




1.
      Basis
      of presentation and significant accounting policies:




The
      accompanying condensed consolidated financial statements have been prepared
      in
      accordance with generally accepted accounting principles for interim financial
      information and with the instructions to Form 10-QSB and Rule 10-01 of
      Regulation S-B. Accordingly, they do not contain all of the information and
      footnotes required by generally accepted accounting principles for complete
      financial statements




In
      the
      opinion of management, the accompanying condensed consolidated financial
      statements reflect all adjustments (consisting only of normal recurring
      adjustments) considered necessary for a fair presentation of PowerLinx, Inc.'s
      (the "Company") financial position and the results of its operations and its
      cash flows for the nine months ended September 30, 2007 and 2006. These
      condensed consolidated financial statements should be read in conjunction with
      the Company's audited 2006 consolidated financial statements, including the
      notes thereto, and the other information set forth in the Company's Annual
      Report on Form 10-K, for the year ended December 31, 2006. Operating results
      for
      the nine month period ended September 30, 2007, are not necessarily indicative
      of the results that can be expected for a full fiscal year.





Income
      (Loss) Per Share:




Income
      (loss) per share (“EPS”) in is computed by dividing the net loss applicable to
      common stockholders by the weighted average common shares outstanding without
      including any potentially dilutive securities. Diluted EPS is computed by
      dividing the net loss applicable to common stockholders for the period by the
      weighted average common shares outstanding plus, when their effect is dilutive,
      common stock equivalents.




Potentially
      dilutive securities, which have been excluded from the determination of diluted
      EPS because their effect would be anti-dilutive, are as follows:




September
                  30,(unaudited)2007
              
              
              2006Shares
                  underlying convertible debentures ( Note 7)
              
              
              4,594,636
              
              
              
              4,347,141Shares
                  underlying convertible notes payable ( Note 8)
              
              
              1,404,923
              
              
              
              -Warrants
              
              
              2,466,839
              
              
              
              2,027,745Options
              
              
              134,116
              
              
              
              190,631Total
                  potentially dilutive shares excluded:
              
              
              8,600,514
              
              
              
              6,565,517




Financial
      instruments:





Financial
      instruments at September 30, 2007 and 2006 consist of cash and cash equivalents,
      accounts receivable, trade payables, accrued expenses, derivative liabilities,
      notes payable and convertible debentures. As of September 30, 2007 and 2006
      the
      fair values of cash and cash equivalents, accounts receivable, trade payables,
      accrued expenses approximated their respective carrying values, due to their
      relative current maturities. The estimated fair value of notes payable
      approximated $1,375,000 at September 30, 2007, based upon the present value
      of
      cash flows. The estimated fair value of convertible debentures approximated
      $4,600,000 at September 30, 2007, based upon the present value of cash
      flows.





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





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





Concentrations:




Accounts
      receivable are concentrated in the Security and DC Transportation products
      segments and credit losses have been within management's expectations. Although
      the Company serves a large and varied group of customers, three customers
      accounted for 35% of the Company’s total net revenue, and 45% of the DC
      Transportation products segment net revenue for the nine months ended September
      30, 2007. For the nine months ended September 30, 2006, two customers accounted
      for 60% of the Company’s total net revenue. Three customers accounted for 42% of
      the DC Transportation products segment net revenue, and one customer accounted
      for 90% of the Security




F-6


POWERLINX,
        INC.
 NOTES
        TO CONDENSED CONSOLIDATED
        FINANCIAL STATEMENTS
 FOR
        THE NINE MONTHS ENDED SEPTEMBER
        30, 2007 AND 2006
 (UNAUDITED)




Unrecognized
      tax benefits:





The
        Company adopted the provisions of FASB Interpretation No. 48, “Accounting for
        Uncertainty in Income Taxes, an Interpretation of FASB Statement No.109” (“FIN
        48”) on January 1, 2007.  As a result of the implementation of FIN 48, the
        Company has not recognized any liability for unrecognized tax
        benefits.  The Company’s review indicates that any unrecognized tax
        benefits would not create a material liability but would merely reduce the
        net
        operating loss deferred tax asset which has been fully reserved for with
        a 100%
        valuation allowance.Management believes there should be no significant change
        in
        the total unrecognized tax benefits over the next twelve-month
        period.  It is not anticipated that any of the total unrecognized tax
        benefits, if recognized, would materially affect the effective tax
        rate.  The Company recognizes interest and penalties related to
        uncertain tax positions in income tax expense.  As of September 30, 2007,
        the Company has not accrued any interest or penalties related to uncertain
        tax
        positions.





2.
      Liquidity and management's plans:




The
        accompanying condensed consolidated financial statements have been prepared
        assuming that the Company will continue as a going concern. However, the
        Company
        has incurred losses from operations of $2,183,997 and $2,913,255 during the
        nine
        months ended September 30, 2007 and 2006, respectively. In addition, during
        those periods, the Company has used cash of $1,162,170 and $3,688,859
        respectively, in its operating activities and has a stockholders' deficit
        at
        September 30, 2007. These conditions raise substantial doubt about the Company's
        ability to continue as a going concern.





The
          Company has allocated significant resources to the development of new power
          line
          technologies and products that will be available for sale and/or licensing.
          The
          power-line Audio products will be available for sale and/or licensing during
          the
          fourth quarter of 2007. The products utilizing the Company’s power-line video
          technology, both analog and digital, will be available for sale and/or
          licensing
          during the first half of fiscal year 2008. The Company’s ability to continue
          will be dependent upon achieving profitable operations through the licensing
          and
          sales of these new technologies and products.
  The
          Company’s ability to continue as a going concern is dependent upon (i) raising
          additional capital to fund operations (ii) the further development of the
          Security, DC Transportation, and new Audio products segments, and (iii)
          ultimately the achievement of profitable operations. During the nine months
          ended September 30, 2007, the Company secured net financing of $1,253,098
          in the
          form of short-term notes payable from its primary financial partner and
          short-term convertible promissory notes with various accredited investors.
          While
          the proceeds of this financing did mitigate the Company’s liquidity difficulties
          for the nine months ended September 30, 2007, additional funding will be
          required to fund the launch of the Company’s new power line products and
          technologies, which are now ready for release, to pay the approximate $2.7
          million of notes payable which are currently due, and to fund
          operations.  In addition to the continued effort to reduce overhead
          expenses through the streamlining of its operations, the Company plans
          to
          continue to borrow funds through the issuance of short-term convertible
          promissory notes until longer-term financing can be arranged. Subsequent
          to
          September 30, 2007, the Company has received gross proceeds of $120,900
          through
          the issuance of such notes. Management and the Board of Directors are currently
          reviewing the financing options available to the Company based on its current
          strategic plan, which may require the restructuring or conversion of convertible
          notes payable and convertible debentures. Management is currently in discussions
          with several investors regarding both short-term and long-term financing
          opportunities; however, the Company has received no formal investment offers
          or
          terms sheets at this time. The ability of the Company to sustain its operations
          for a reasonable period without further financing cannot be assured and
          the
          condensed consolidated financial statements do not include any adjustments
          that
          might arise as a result of this uncertainty.


3.
      Segment information:





The
      Company operates in three identifiable industry segments. The Marine Products
      Segment markets and sells underwater video cameras, lighting and accessories
      principally to retail sporting goods businesses throughout the United States.
      The Security Products Segment develops, markets, licenses, and sells proprietary
      power line video security devices and consumer electronic products; to
      retailers, governmental agencies, commercial businesses, and original equipment
      manufacturers, throughout the United States. The DC Transportation Products
      Segment develops power line rear vision systems and sources a full line of
      accident avoidance products for all classes of vehicles in the transportation
      industry. The products are sold to fleets, bodybuilders, distributors and
      original equipment manufacturers throughout the United States. The Company's
      facilities and other assets are not distinguished among the identifiable
      segments. Other financial information about the Company's segments is as
      follows:




Nine
                  months ended September 30, 2007(unaudited)Security
              
              
              Marine
              
              
              DC
                  TransProducts
              
              
              Products
              
              
              Products
              
              
              TotalNet
                  revenue
              
              $
              149,474
              
              
              $
              156,942
              
              
              $
              1,015,921
              
              
              $
              1,322,337Cost
                  of sales
              
              $
              104,120
              
              
              $
              95,033
              
              
              $
              511,750
              
              
              $
              710,903Gross
                  profit
              
              $
              45,354
              
              
              $
              61,909
              
              
              $
              504,171
              
              
              $
              611,434Research
                  and development:
              
              $
              408,202
              
              
              $
              6,517
              
              
              $
              8,320
              
              
              $
              423,039




F-7


POWERLINX,
        INC.
 NOTES
        TO CONDENSED CONSOLIDATED
        FINANCIAL STATEMENTS
 FOR
        THE NINE MONTHS ENDED SEPTEMBER
        30, 2007 AND 2006
 (UNAUDITED)




Nine
                  months ended September 30, 2006(unaudited)Security
              
              
              Marine
              
              
              DC
                  TransProducts
              
              
              Products
              
              
              Products
              
              
              TotalNet
                  revenue
              
              $
              879,001
              
              
              $
              132,983
              
              
              $
              491,996
              
              
              $
              1,503,980Cost
                  of sales
              
              $
              689,232
              
              
              $
              78,414
              
              
              $
              246,088
              
              
              $
              1,013,734Gross
                  profit
              
              $
              189,769
              
              
              $
              54,569
              
              
              $
              245,908
              
              
              $
              490,246Research
                  and development:
              
              $
              429,626
              
              
              $
              3,547
              
              
              $
              74,494
              
              
              $
              507,667




4.
      Inventories:




Inventories
      consisted of the following:




September
                    30,
                
                
                December
                    31,2007
                
                
                2006Component
                    Parts
                
                $
                215,274
                
                
                $
                236,481Finished
                    Goods
                
                
                277,873
                
                
                
                447,815$
                493,147
                
                
                $
                684,296




5.
      Intangible assets:




Intangible
      assets consist of the following:




September
                  30,2007
              
              
              December
                  31,(unaudited)
              
              
              2006Patents
              
              $
              2,318,961
              
              
              $
              2,318,961Software
                  license agreement
              
              
              461,360
              
              
              
              461,360Trademark
              
              
              93,924
              
              
              
              93,924Acumulated
                  amortization
              
              
              (2,588,660
              )
              
              
              (2,496,955
              )$
              285,585
              
              
              $
              377,290




6.
      Notes
      Payable:





The
      Company executed a promissory note on January 29, 2007 in the amount of
      $300,000. The note was due on February 28, 2007, and bears an 8% interest rate.
      On March 21, 2007, we executed a second promissory note in the amount of
      $200,000. The note was due on May 5, 2007, and bears an 8% interest rate.
      Interest on each of these notes was due and payable upon the maturity dates.
      On
      May 14, 2007, the Company received an additional $50,000 in cash from its
      primary finance partner, the proceeds of which are included in a note payable
      that consolidates all outstanding notes payable with this finance
      partner.  The Company issued a new consolidated unsecured note payable
      in the amount of $898,661 which includes the following; the retirement of the
      September 14, 2006 note payable in the principal amount of $300,000, the
      retirement of the January 29, 2007 note payable in the principal amount of
      $300,000, the retirement of the March 21, 2007 note payable in the amount of
      $200,000, accrued interest in the amount of $48,662 (including default rate
      interest of 18%) on the three aforementioned notes, and $50,000 in new proceeds
      received on May 14, 2007. The original maturity date of the consolidated note
      was July 13, 2007, but has been extended by the lender until January 31, 2008.
      The principal and interest is due and payable upon maturity.  The note
      bears an 8% interest rate and an 18% default interest rate for all principal
      amounts outstanding beyond the maturity date.





The
      Company has an unsecured non-interest bearing note with payments in the amount
      of $1,765 due and payable through October 2007.





F-8


POWERLINX,
        INC.
 NOTES
        TO CONDENSED CONSOLIDATED
        FINANCIAL STATEMENTS
 FOR
        THE NINE MONTHS ENDED SEPTEMBER
        30, 2007 AND 2006
 (UNAUDITED)




7.
      Convertible Debentures





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





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





8.0%
      Convertible Debentures,
      Warrants and Other Derivatives:





The
      carrying value of the Company’s 8.0%, Face Value $4,473,933 Convertible
      Debentures amounted to $1,397,846 at September 30, 2007. Amortization of the
      debt discount, included in interest expense, amounted to approximately
      $1,175,000 for the nine months ended September 30, 2007.





The
      Convertible Debenture Financings included registration rights and certain other
      terms and conditions related to share settlement of the embedded conversion
      features and the warrants that the Company has determined are not within its
      control. In addition, certain features associated with the financings, such
      as
      variable redemption rates afforded the Purchasers render the number of shares
      issuable to be indeterminate. These instruments and derivative elements are
      carried at their fair values in the accompanying condensed consolidated balance
      sheets.




Derivative
      Liabiities:




Derivative
      liabilities consist of the following at September 30, 2007:





Embedded
                derivative instruments
            
            $
            115,539Freestanding
                derivatives (warrants)
            
            
            549,840Other
                derivative financial instruments (1)
            
            
            20,984$
            686,363





(1)           Other
      derivative financial instruments represent the fair values of warrants and
      other
      convertible instruments that were reclassifiedfrom stockholders’ equity when, in
      connection with the Convertible Debenture Financings, the Company determined
      that it no longerhad sufficient authorized and unissued shares to settle all
      of
      its instruments. The balance in the table above represents the fair value at
      September 30, 2007.





The
      following tabular presentation reflects the number of common shares into which
      the aforementioned derivatives are indexed at September 30, 2007:





Common
                shares indexed:Embedded
                derivative instruments
            
            
            4,594,636Freestanding
                derivatives (warrants)
            
            
            2,346,157Other
                derivative financial instruments
            
            
            120,6827,061,475





Income
      for the nine months ended September 30, 2007 associated with adjustments
      recorded to reflect the aforementioned derivatives at fair value amounted to
      $2,455,080 in derivative gain.





F-9




POWERLINX,
      INC.


NOTES
        TO CONDENSED CONSOLIDATED
        FINANCIAL STATEMENTS
 FOR
        THE NINE MONTHS ENDED SEPTEMBER
        30, 2007 AND 2006
 (UNAUDITED)






Fair
      value considerations
      for derivative financial instruments as of September 30,
      2007:





Freestanding
      derivative instruments, consisting of the Warrants and reclassified derivative
      instruments that arose from the Convertible Debenture Financing are valued
      using
      the Black-Scholes-Merton valuation methodology because that model embodies
      all
      of the relevant assumptions that address the features underlying these
      instruments. Significant assumptions included in this model as of September
      30,
      2007 are as follows:





OtherInstrument
            
            Warrants
            
            
            DerivativesExercise
                prices
            
            $
            2.375
            
            
            $
            5.00--$25.00Term
                (years)
            
            
            3.50
            
            
            
            .67--8.25Volatility
            
            
            125.22
            %
            
            
            136.54%--155.40
            %Risk-free
                rate
            
            
            4.35
            %
            
            
            4.35
            %




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





Significant
      terms and assumptions included in this model as of September 30, 2007 are as
      follows:





Conversion
                price
            
            $
            1.235Actual
                term (years)
            
            
            2.0Equivalent
                term (years)
            
            
            .50Equivalent
                volatility
            
            
            142.99
            %Equivalent
                risk-adjusted interest rate
            
            
            11.42
            %Equivalent
                risk-adjusted yield rate
            
            
            92.62%--107.24
            %




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





In
      May
      2007, the Company converted accrued interest of approximately $428,000 to
      346,331 shares of the Company's common stock. The accrued interest consisted
      of
      approximately $340,000 of interest based on the 8% stated interest rate of
      the
      convertible debentures and additional interest of approximately $88,000 due
      to
      the holders of the debenture upon conversion to equity, pursuant to the Purchase
      Agreement. The Company recorded approximately, $300,000 to prepaid interest
      for
      the difference between interest earned and converted to common stock and the
      amount charged to the statement of operation based on the accretion of the
      discount (including accrued interest) using the effective interest
      method.





During
      August 2007, the Board of Directors approved a repricing of the exercise price
      of the freestanding warrants from $2.37 to $0.60 for a one week period. Warrants
      to purchase 126,316 shares of common stock were exercised at the $0.60 price.
      The $15,700 difference in the fair value of the warrants due to the repricing
      was recorded as expense.





As
      of
      September 30, 2007 and December 31, 2006, the Company was in default under
      the
      terms of the Purchase Agreement and the Debentures issued on March 22, 2006.
      The
      terms of the Purchase Agreement and the Debenture required that the Company
      generate gross profit in excess of $300,000 per month on average during the
      period from October 1, 2006 to December 31, 2006. Under the default provisions;
      upon the Company delivering an Event of Default Notice to Purchasers (Debenture
      holders) or the Purchasers becoming aware of an Event of Default, the Purchasers
      may require the Company to redeem all or any portion of their Debenture by
      delivering an “Event of Default Redemption Notice” to the Company. At that time
      the Company would be required to redeem the requested portion of the debenture
      at a redemption value calculated in accordance with the default provisions
      in
      the March 22, 2006 Securities Purchase Agreement, to be no less than 120% of
      the
      principal amount requested to be redeemed. At September 30, 2007, the Company
      had not negotiated a form of a Waiver Agreement with the Purchasers covering
      the
      Company’s inability to meet this covenant. The Company has not received an
“Event of Default Redemption Notice” from any Purchaser and is currently engaged
      in negotiating with the Purchasers in order to enter into a waiver agreement
      covering the aforementioned default.




Because
      the Company was in default as of September 30, 2007 and December 31, 2006,
      and
      while under default, may receive an “Event of Default Redemption Notice” at any
      time; the liabilities associated with the Debentures on the accompanying
      condensed consolidated balance sheets, as presented, have been reclassified
      from
      long-term to current liabilities.




8.
      Convertible notes payable:





During
        the months of May through September of 2007, the Company borrowed $508,598
        from
        accredited investors and related parties through issuance of short-term
        convertible promissory notes.  These convertible notes are all
        unsecured, bear interest at 8% annually, and mature 30 days from their
        inception.  As of September 30, 2007, $471,598 of the face value of
        the convertible notes remained outstanding, and all but three, with a face
        value
        totaling $100,000 have had their maturity date extended until December 15,
        2007.  The three convertible notes for which the maturity dates were
        not extended were in default at September 30, 2007 (See Note 10). As of December
        20, 2007, all convertible notes payable are due and the Company has not obtained
        waivers from the note holders, and therefore are considered in
        default.




F-10




POWERLINX,
        INC.
 NOTES
        TO CONDENSED CONSOLIDATED
        FINANCIAL STATEMENTS
 FOR
        THE NINE MONTHS ENDED SEPTEMBER
        30, 2007 AND 2006
 (UNAUDITED)




The
        convertible notes payable are convertible at the option of the lender into
        the
        Company’s common stock at $.60 per share and 3-year warrants to purchase an
        additional 50% of the converted shares at an exercise price of $1.25 per
        share.  However; on August 17, 2007, the Board of Directors approved a
        modification of the conversion terms, for all subsequent promissory notes,
        to
        $.35 per share and 3-year warrants to purchase an additional 50% of the
        converted shares at an exercise price of $0.75 per share. As of September
        30,
        2007, the face value of convertible notes issued and outstanding under the
        modified terms was $100,598.





In
      conjunction with the issuance of the convertible notes, each holder received
      the
      number of shares of restricted common stock equal to 25% of the principal note
      proceeds.  The Company issued 127,150 shares of the common stock with
      a fair value of $112,601 for these notes.  The convertible notes were
      recorded net of a $508,598 discount resulting from the original allocation
      of
      the fair values of the loans and the common stock issued of $45,811 and the
      remaining $462,787 discount resulting from a beneficial conversion feature
      of
      these notes.




On
      August
      29, 2007, the Company entered into an agreement to borrow $210,000 from an
      accredited investor through the issuance of a six month convertible promissory
      note with an annual interest rate of 12%. The convertible promissory note is
      convertible at $0.48 per share at the option of the lender and carries piggyback
      registration rights.  The Company received net proceeds of $199,500 on
      September 6, 2007 after paying a 5% management fee, or $10,500, in accordance
      with the terms of the agreement.  The note was collateralized by a
      third party shareholder with 804,507 shares of the Company’s common
      stock.  The transaction included a “First” equity fee amounting to
      23.34% of the loan value, or $49,014 based on the closing price of the Company’s
      common stock on the day of funding, resulting in the issuance of 94,258 shares
      of restricted common stock for the first 90 days the loan is
      outstanding.  The terms of the agreement requires the payment of an
      identical “Second” equity fee if the loan remains unpaid after the 90th
      day from the date
      of funding.  The “Second” equity fee will be valued at the lower of
      the closing price of the Company’s common stock on the day of funding, or the
      average of the closing price of the Company’s common stock for the ten trading
      days prior to the 90th
      day the note is
      outstanding. In the case of the “Second” Equity fee, the agreement stipulated
      that in the event the price of the Company’s stock declines in value during the
      90 day period after issuance, then the number of shares included in the “Second”
Equity fee shall be subject to an upward adjustment. This provision has been
      accounted for as a freestanding written put liability. At September 30, 2007,
      the liability is $16,646 and is recorded in derivative liabilities in the
      consolidated balance sheets. In addition, under the terms of the agreement,
      the
      Company issued warrants with a 5 year expiration, to purchase an additional
      105,000 shares of the Company’s common stock at an exercise price of $0.65 per
      share, or 125% of the closing price of the Company’s common stock on the date of
      funding.  The warrants did not meet all of the criteria for equity
      classification and consequently have been recorded as a derivative
      liability in the consolidated balance sheets at September 30, 2007.




Convertible
        notes payable consists of the following at September 30,
        2007:




Principal
                    Balance
                
                $
                718,598Less
                    reductions for:Fair
                    value of common stock
                
                
                (97,310
                )Fair
                    value of beneficial conversion feature
                
                
                (588,041
                )Fair
                    value of warrants
                
                
                (56,091
                )Fair
                    value of  derivative liability
                
                
                (16,928
                )Derivative
                    loss at inception
                
                
                39,772Accretion
                    of discount (interest expense)through
                    September 30, 2007
                
                
                468,938Carrying
                    value at September 30, 2007:
                
                $
                468,938
 F-11


POWERLINX,
        INC.
 NOTES
        TO CONDENSED CONSOLIDATED
        FINANCIAL STATEMENTS
 FOR
        THE NINE MONTHS ENDED SEPTEMBER
        30, 2007 AND 2006
 (UNAUDITED)




9.
        Commitments and contingencies:





Material
      Commitments:





On
      March
      15, 2007, the Company signed a two year Consulting Agreement (the “Agreement”)
      with a consulting company (the “Consultant”) hired to assist the Company in
      areas of strategic business planning, financial advisory, and investor and
      public relations services; and specifically to design and implement an investor
      and public relations program designed to make the investing public knowledgeable
      about the benefits of stock ownership in the Company. Under the Agreement,
      the
      Company agreed to pay the Consultant three thousand dollars ($3,000.00) per
      month, payable on the 15th of each month, commencing on the date of the
      agreement, and 440,000 shares of the Company’s common stock restricted for a
      year under Rule-144 of the Act (the “Shares”); as total and complete
      consideration for the services to be provided by the Consultant to the
      Company.  Under the Agreement, as amended, the Consultant will
      commence earning Shares on May 1, 2007, earning one-twelfth (1/12) of the total
      Shares to be issued under the Agreement each month, for twelve consecutive
      months. The issuance of Shares shall occur in four equal periodic installments
      over the course of twelve (12) months, on the last day of each three month
      earning period as follows; 110,000 Shares on July 31, 2007, 110,000 Shares
      on
      October 31, 2007, 110,000 on January 31, 2008, and 110,000 on April 30, 2008.
      Either party may terminate the agreement upon a sixty (60) day written
      notice.  In the event of termination, the “Termination Date” will be
      the 60th
      day after the
      written termination notice is properly delivered in accordance with the terms
      of
      the Agreement.  Any cash or Shares earned by the Consultant up to the
      Terminate Date will be pro-rated to the day, based on a 360 day calendar
      year.  During the three month period ending September 30, 2007, the
      Consultant earned 110,000 shares in accordance with the agreement. The shares
      were valued based on the closing market price of the Company’s common stock on
      the last day of each month.   The amount is included in accrued
      expenses in the accompanying September 30, 2007 condensed consolidated balance
      sheet.





On
      April
      30, 2007, the Company executed an amendment to the original April 2, 2004 lease
      agreement for office space it leases in Concord, California where its research
      and development operation resides.  The amendment extends the lease
      for an additional year, commencing May 1, 2007 through April 30,
      2008.  The total commitment due under the amendment equals $24,203,
      payable in equal monthly installments of $2,017.





F-12


POWERLINX,
        INC.
 NOTES
        TO CONDENSED CONSOLIDATED
        FINANCIAL STATEMENTS
 FOR
        THE NINE MONTHS ENDED SEPTEMBER
        30, 2007 AND 2006
 (UNAUDITED)


The
      Company leases its office and warehouse facilities under non-cancellable leases.
      Minimum lease payments under the non-cancellable operating leases as of
      September 30, 2007 are as follows:


R
                  & D Office
              
              
              CorporateLease
              
              
              Office
                  LeaseConcord,
                  CA
              
              
              St.
                  Petersburg, FL
              
              
              TotalYears
                  ending September 30,2008
              
              $
              24,203
              
              
              $
              88,271
              
              
              $
              112,4742009
              
              
              -
              
              
              
              91,699
              
              
              
              91,6992010
              
              
              -
              
              
              
              95,127
              
              
              
              95,1272011
              
              
              -
              
              
              
              49,706
              
              
              
              49,7062012
              
              
              -
              
              
              
              -
              
              
              
              -$
              24,203
              
              
              $
              324,803
              
              
              $
              349,006




The
      Company recorded rent expense of $87,489 and $95,703 under non-cancellable
      leases for the nine months ended September 30, 2007 and 2006,
      respectively.





Litigation,
      claims and assessment:




Reed
      Elsevier,
      Inc.





On
      April
      26, 2007 the Company learned that a default judgment had been entered against
      it
      on August 1, 2006 in the Circuit Court of the 6th
      Judicial Circuit
      of Pinellas County, Florida, in the amount of $20,192; to the plaintiff Reed
      Elsevier, Inc.  The obligation is associated with a commitment made in
      December of 2004, by a former officer of the Company, for floor space at a
      trade
      show in March of 2005, at which the Company did not attend.  The
      Company has retained counsel to negotiate a resolution to the matter, and is
      awaiting a response from the plaintiff for a meeting date.  The
      Company recorded a liability in the amount of $22,203, including post judgment
      interest, which is included in accrued expenses in the accompanying September
      30, 2007 condensed consolidated balance sheet.




Guestlinx,
      LLC




On
      May
      19, 2006 the Company learned that a default judgment had been entered against
      it
      on May 3, 2006 in the Superior Court of California, Orange County, in the amount
      of $90,561, to the plaintiff Guestlinx, LLC. The obligation is associated with
      the Hotel/MDU product segment, the operations of which were discontinued in
      April of 2005. The judgment was granted based on an action filed by Guestlinx,
      LLC on November 2, 2005. We had no prior knowledge of the action and believe
      it
      was never properly served. We retained counsel in California, and on August
      4,
      2006 were successful in having the judgment set aside for improper service.
      We
      had previously recorded a liability associated with this dispute in the amount
      of $46,352. On December 8, 2006, we negotiated a settlement and release
      agreement at a mandatory settlement conference, in the amount of $52,500. We
      remitted $16,250 toward the settlement amount on December 15, 2006, and the
      remaining balance of $36,250 was recorded as an accrued liability at December
      31, 2006. Under the agreement, we were required to pay the remaining
      balance by February 15, 2007, but were unable to do so. The agreement provides
      for the plaintiff to receive a stipulated judgment in the amount of $60,000
      (less amounts remitted) if we are in default of the agreement. On April 18
      2007,
      the plaintiff filed for and received the default judgment and the Company’s
      counsel is currently working with the plaintiff on a revised payment
      schedule.  The Company increased the aforementioned liability in the
      amount of $7,500 to account for the additional obligation incurred under the
      stipulated judgment.  The amounts are included in accrued expenses in
      the accompanying September 30, 2007 and December 31, 2006 condensed consolidated
      balance sheets.





Pro-Marketing
      Inc.





On
      August
      18, 2005 the Company agreed to a settlement with Pro-Marketing of Texas, Inc.
      relating to an alleged breach of contract from a financing transaction that
      took
      place during fiscal year 2000.  The settlement consisted of the
      issuance of 3,000 shares of restricted common stock, and cash payments totaling
      $60,000 to be disbursed in an amount of $2,500 per month for a period of two
      years, commencing on August 18, 2005.  Since August of 2005, the
      Company remitted payments totaling $30,000.  On October 2, 2007 the
      Company agreed to the plaintiffs Motion for Final Summary Judgment, in the
      Circuit Court for Pinellas County, in the amount of $32,597.50, which includes
      pre-judgment interest and attorney’s fees.





Acu-cast
      Technologies,
      LLC





On
      June
      11, 2007, Acu-cast Technologies, LLC filed a complaint against the Company
      in
      the amount of $4,437 in the County Court of Lawrence, Tennessee.  The
      liability relates to proto-types made by the plaintiff on behalf of the
      Company.  During September 2007, the Company paid $4,220 as full
      settlement for the liability.




10.  Subsequent
        Events:




On
      November 6, 2007, the Company’s Board of Directors approved a resolution to
      modify the conversion terms for the $471,598 of outstanding promissory notes
      (See Note 8).  All outstanding notes will be convertible, at the
      option of the lender, into restricted common stock at $.15 per share, and three
      year warrants to purchase an additional 50% of the converted shares at an
      exercise price of $0.45 per share.





On
      November 8, 2007, the Company received a demand letter from ICON Capital
      Partners, LP, for the repayment of three short-term unsecured promissory notes
      totaling $100,000.  The convertible notes consisted of a $25,000 note
      issued on May 11, 2007, due June 10, 2007, and extended to August 24, 2007;
      a
      $50,000 note issued on May 30, 2007, due on July 30, 2007, and extended to
      August 29, 2007; and a $25,000 note issued on June 14, 2007, due July 13, 2007,
      and extended to August 13, 2007.  The demand letter asked for payment
      in full of principal and interest by November 19, 2007.  As of the
      time of this filing, the notes remain outstanding and the Company is working
      with several accredited investors to obtain additional capital to repay these
      notes.





Subsequent
      to December 15, 2007, the Company was in default on the remaining convertible
      notes payable with a face value of $371,598.  The maturity date was
      not extended beyond December 15, 2007 and therefore the convertible notes were
      in default.  As of September 30, 2007, the convertible notes payable
      are classified as current liabilities.





In
      addition, subsequent to September 30, 2007, the Company borrowed and additional
      $120,900 through the issuance of a series of 30 day short-term convertible
      promissory notes to accredited investors on the same terms and conditions
      outlined above.  Subsequent to December 15, 2007, the Company was in
      default on $53,000 of these notes.  The maturity date was not extended
      beyond December 15, 2007 and therefore the convertible notes were in
      default.





F-13





Item
      2. Management's Discussion and
      Analysis of Financial Condition and Results of Operations.




Cautionary
      Statement Regarding
      Forward-Looking Statements




You
      should read the following discussion and analysis in conjunction with the
      Financial Statements and related Notes contained elsewhere in this Quarterly
      Report on Form 10-QSB (the "Report"). The information in this Report is not
      a
      complete description of our business or the risks associated with an investment
      in our common stock. We urge you to carefully review and consider the various
      disclosures made by us in this Report and in our other reports filed with the
      SEC, including our Annual Report on Form 10-K for the year ended December 31,
      2006.




The
      section entitled "Risk Factors"
      set forth in our Annual Report on Form 10-K for the year ended December 31,
      2006
      and similar types of discussions in other SEC filings discuss some of the
      important risks that may affect our business, results of operations and
      financial condition.  Some of those risks are as
      follows:




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




·
            Our
                stock price can be extremely
                volatile.




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




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




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




OVERVIEW




Our
      current products, and products and technologies under development, are based
      on
      our proprietary analog and digital power line communication technology
      (PLC).  Our PLC technology has been developed to transmit voice,
      video, audio and data either individually, or in combination. PLC transmission
      can take place over power lines, twisted pair wires and coaxial cables in AC
      and
      DC power environments, through any power grid.  We also develop,
      manufacture and market underwater video cameras, lights and accessories for
      the
      marine, commercial and consumer retail markets.





Through
      fiscal year ended December 31, 2006 and the nine months ended September 30,
      2007, our power line products have been sold successfully into primarily two
      markets; security and transportation.  Our single analog camera,
“SecureView”, is currently being sold to The Home Shopping Network and Sam’s
      Club, and has been the primary source of revenue in this segment.  The
      Company will expand its product line in the security / video surveillance market
      segment in 2008 with the introduction of a multi-camera analog security system
      and a digital IP Netcam.





We
      believe our new IP Netcam is a perfect way to remotely monitor either a home
      or
      small business from a different location using a PC.  The IP Netcam
      uses your home’s electrical wiring as a “digital pipeline” to deliver streaming
      video from up to 8 individual cameras around your home or
      business.  Each camera is actually a sophisticated “video server” that
      configures itself automatically within your PC. Simply plug the camera into
      any
      electrical wall outlet, plug the companion receiver into any electrical outlet,
      and connect the base to your network or cable modem. Once connected, your
      cameras are available in a secure network available only to authorized users.
      Market statistics show that the IP Camera market is expected to grow by 20%
      annually, with projected segment sales of $649 million by 2009.  We
      have found in this marketplace that internet users want to monitor their homes
      and businesses remotely.  In fact, 56% want remote monitoring of home
      and business webcams, 45% want to manage home security via a PC, and 47% want
      network cameras for home security.





In
      our
      transportation products segment, in addition to power-line rear vision systems,
      we have continued to upgrade and expand our product offerings and now carry
      a
      full line of accident avoidance products including hard wired vision systems,
      DVRs, and GPS for tracking and directions.





3




For
        the
        three months ended September 30, 2007, net revenues of $573,086 decreased
        43%
        compared to net revenues for the same period ended September 30, 2006. Operating
        expenses of $988,751 for the three months ended September 30, 2007 increased
        24%
        compared to operating expenses for the same period ended September 30,
        2006.  Loss from operations of $721,474 for the three months ended
        September 30, 2007 increased 37% compared to the same period ended September
        30,
        2006.





The
      primary reason for the decrease in net revenues was due to a one time
      significant sale to a large retailer in the previous comparative
      period.  The increase in operating expenses and net loss from
      operations was due primarily from stock based compensation to consultants for
      services provided in conjunction with the launch of our new product line and
      promotion of the Company within the consumer electronics industry.





The
        operating results of the DC Transportation Product Segment continued to improve
        significantly compared to the prior comparative period. Net revenues in the
        transportation division increased 234%, to $447,196 for the three months
        ended
        September 30, 2007, from $134,029 for the same period ended September 30,
        2006.  The growth in this segment was driven primarily by two
        factors.  First, the industry has an extremely lengthy sales cycle,
        and the efforts made by our sale personnel during 2006 fiscal year, and targeted
        trade show participation during the same year, has resulted in the acquisition
        of new customers and distributors that have been in our sales
“pipeline”.  Second, we have continued to expand and upgrade our
        product line allowing us to gain incremental revenues from existing customers
        who may have in the past purchased certain systems and components from competing
        suppliers.





As
      previously announced, we will launch a new product segment in 2007; the Audio
      Segment, with the introduction of three products which transmit audio over
      the
      power line.  In the Audio Segment, our business plan is focused on
      leveraging our proprietary technologies, and to deliver the next generation
      of
      power line communication products aimed at the wireless audio market. Our target
      market will be the home-based user and small office user. Our research has
      concluded that some of the fastest growing areas of the consumer market can
      benefit from our technology.  The home audio sales market will be
      approximately $6 billion in 2007, largely driven by the portable audio market.
      The portable audio market includes Apple Computer Inc.'s iPod player and
      Microsoft Corp.'s recently launched Zune player, as well as other MP3-format
      audio players. Sales of portable audio players will account for 90 percent
      of
      all audio sales in 2007, with an estimated 41 million portable audio players
      being shipped, compared to the 34 million players shipped in
      2006.  The research conclusively shows that the popularity of digital
      music stored on PC's, Mac's, Apple’s iPod®, and MP3 players has led to an
      increased demand by consumers to play stored music anywhere in their home or
      office.





In
      the
      multi-billion dollar home theatre market, we have found that a large number
      of
      consumers have cited two main reasons of dissatisfaction with their home theatre
      systems: 1) there were too many wires that had to be connected to make the
      system work as advertised; and 2) many of the wires were exposed due to the
      distance of the system components from the system base.  Because of
      these two reasons, a large number of home theatre systems do not have the rear
      speakers hooked up at all, resulting in less than expected performance of the
      system. This lack of overall performance is a problem not only for consumers,
      but for manufacturers as well.





1)Tune
      DogTM:
      This is an
      iPod/MP3/iPhone accessory, complete with audio speakers, which will allow the
      user to send music wirelessly to any room in their home from an iPod®, MP3
      player, or PC, using only existing electrical wiring.





2)
      Audio EverywhereTM:
      This
      accessory is targeted at existing home entertainment systems and component
      stereo systems, and it will allow a stereo tuner to send audio through a home’s
      existing electrical wiring. Speakers can then be connected to the receiver
      for
      digital-quality music anywhere in the home with no additional wires, cables,
      antennas, or radio frequency (RF) equipment.





3)
      Rear Speakers DIY Install
      KitTM:
      This
      accessory is targeted at new and existing home entertainment systems, with
      surround sound.  Potential licensing partners have told us that 75 to
      80% of rear surround sound speakers are either never connected or located on
      the
      front wall with the audio source because users find it to difficult hide the
      wires to the rear speakers.  Our Rear Speakers DIY Install KitTM
      enables the user
      to use the existing electrical wires in their home to transmit to the rear
      speakers as part of the overall home theatre experience.





The
      2007
      launch of our new audio product and the 2008 launch of our new video products
      is
      the culmination of almost two years of intensive and focused research and
      development efforts and we believe these products are well branded, and well
      positioned for success in the markets we have targeted.  During
      February 2007, the complete product specifications for the audio products were
      sent to several potential manufacturers in Asia for quoting and we intend to
      begin the manufacturing of an initial production run after a manufacturer is
      chosen.




We
          were
          able to raise additional capital during the three months ended September
          30,
          2007 through the issuance of a series of short-term promissory notes (See
          Liquidity and Capital Resources and Note 8); however, additional funding
          will be
          required to fund the launch of our new power line products and technologies,
          which are now ready for release, to pay the approximate $2.7 million of
          notes
          payable which are currently due, and to fund operations.  In addition
          to the continued effort to reduce overhead expenses through the streamlining
          of
          our operations, we plan to continue to borrow funds through the issuance
          of
          short-term convertible promissory notes until longer-term financing can
          be
          arranged. Subsequent to September 30, 2007, we have received gross proceeds
          of
          $120,900 through the issuance of such notes. We are currently reviewing
          the
          financing options available to us based on our current strategic plan,
          which may
          require the restructuring or conversion of convertible notes payable and
          convertible debentures. We are currently in discussions with several investors
          regarding both short-term and long-term financing opportunities; however,
          we
          have received no formal investment offers or terms sheets at this
          time.


4




RESULTS
      OF
      OPERATIONS




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




NINE
      MONTHS ENDED SEPTEMBER 30, 2007
      AND SEPTEMBER 30, 2006




NET
      REVENUE: Net revenue decreased 12% from $1,503,980 for the nine months ended
      September 30, 2006 to $1,322,337 for the nine months ended September 30, 2007.
      Marine product segment sales were $156,942 or 12% of total revenues for the
      nine
      months ended September 30, 2007 compared to $132,983, or 9% of total revenues,
      for the nine months ended September 30, 2006. Overall, marine product sales
      increased $23,959, or 18%. Security product segment sales were $149,474 or
      11%
      of total revenues for the nine months ended September 30, 2007 compared to
      $879,001, or 58% of total revenues, for the nine months ended September 30,
      2006. Overall, security product sales decreased $729,527, or 83%. DC
      Transportation product segment sales were $1,015,921, or 77% of total revenues
      for the nine months ended September 30, 2007 compared to $491,996, or 33% of
      total revenues for the nine months ended September 30, 2006. Overall, DC
      Transportation product sales increased $523,925, or 106%. The increase in net
      revenues for the marine product segment was due to a concentrated effort on
      internet marketing. The decrease in net revenues for the security product
      segment was because the previous year comparative quarter included a large
      one
      time sale to a large retailer.  The increase in net revenues for the
      DC transportation product segment was due to a continual expansion and upgrading
      of the product line, and the acquisition of new customers from leads developed
      by sales personnel and trade show attendances in prior periods.




COST
        OF
        GOODS SOLD: Cost of goods sold decreased 30% from $1,013,734 for the nine
        months
        ended September 30, 2006 to $710,903 for the nine months ended September
        30,
        2007. As a percentage of net revenue, cost of goods sold decreased to 54%
        for
        the nine months ended September 30, 2007 from 67% for the nine months ended
        September 30, 2006. Cost of goods sold for the marine products segment increased
        $16,619 or 21%, from $78,414 for the nine months ended September 30, 2006
        to
        $95,033 for the same period ended in 2007. As a percentage of net revenue,
        cost
        of goods sold for the marine product segment increased from 58% for the nine
        months ended September 30, 2006 to 61% for same period ended in 2007. Cost
        of
        goods sold for the security products segment decreased $585,112 or 85%, from
        $689,232 for the nine months ended September 30, 2006 to $104,120 for the
        same
        period ended in 2007. As a percentage of revenue, cost of goods sold for
        the
        security product segment decreased from 78% for the nine months ended September
        30, 2006 to 70% for same period ended in 2007. Cost of goods sold for the
        DC
        Transportation product segment increased $265,662 or 108% from $246,088 for
        the
        nine months ended September 30, 2006 to $511,750 for the same period ended
        in
        2007. As a percentage of net revenue, cost of goods sold for the DC
        Transportation product segment remained unchanged at 50% for the nine month
        periods ending September 30, 2007 and 2006, respectively.




The
      increase in the cost of goods sold as a percentage of net revenues for the
      marine products segment was driven primarily by increased sales to dealers
      at
      wholesale prices. The decrease in the cost of goods sold as a percentage of
      net
      revenues for the security products segment was due to an increase in the average
      sales prices during the period.





GROSS
      PROFIT MARGIN: Gross profits on sales for the nine months ended September 30,
      2007 amounted to $611,434 or 46% of net revenues, compared to $490,246, or
      33%
      of net revenues, for the nine months ended September 30, 2006. The marine
      products segment contributed $61,909 and $54,569 of the total gross profit
      for
      the nine months ended September 30, 2007 and 2006, respectively. The security
      products segment contributed $45,354 and $189,769 of the total gross profit
      for
      the nine months ended September 30, 2007 and 2006, respectively. The DC
      Transportation products segment contributed $504,171 and $245,908 of the total
      gross profit for the nine months ended September 30, 2007 and 2006,
      respectively. The gross profit percentage for the marine products segment
      decreased from 41% for the nine months ended September 30, 2006 to 39% for
      the
      nine months ended September 30, 2007. The gross profit percentage for the
      security products segment increased from 22% for the nine months ended September
      30, 2006 to 30% for the nine months ended September 30, 2007. The gross profit
      percentage for the DC Transportation products segment was unchanged for the
      nine
      month periods ending September 30, 2007 and 2006.





The
      decrease in the gross profit as a percentage of net revenues for the marine
      products segment was driven primarily by increased sales to dealers at wholesale
      prices. The increase in the gross profit as a percentage of net revenues for
      the
      security products segment was due to an increase in the average sales prices
      during the period.





SALARIES
      AND WAGES: Salaries and Wages decreased 14% from $1,020,978 for the nine months
      ended September 30, 2006 to $880,372 for the nine months ended September 30,
      2007. The decrease was due to a general downsizing implemented by management.
      Salary and Wages is comprised of employee wages, benefits, taxes, and stock
      compensation. During the nine months ended September 30, 2007, there was $7,857
      in stock-based compensation issued to employees.





PROFESSIONAL
      AND CONSULTING FEES: Professional and consulting fees decreased 26% from
      $1,027,101 for the nine months ended September 30, 2006 to $758,277 for the
      nine
      months ended September 30, 2007. The decrease was primarily due to a reduction
      in legal fees offset by an accrual for Board of Director compensation and
      investor relations consulting. Professional and consulting fees include fees
      paid to attorneys, accountants, Directors, and business
      consultants.  During the nine months ended September 30, 2007, stock
      based compensation expense for consultants and service providers amounted to
      $131,227.  In addition, a charge of $69,525 was recorded as an
      estimate of expected Board of Director compensation earned during the
      period.





5




DEPRECIATION
      AND AMORTIZATION EXPENSE: Depreciation and amortization decreased 33% from
      $214,454 for the nine months ended September 30, 2006 to $142,818 for the nine
      months ended September 30, 2007. The decrease was attributable to a reduction
      in
      amortization expense as certain intangible assets were fully amortized as of
      September 30, 2007.





RESEARCH
        AND DEVELOPMENT: Research and development expense decreased 17% from $507,667
        for the nine months ended September 30, 2006, to $423,039 for the nine months
        ended September 30, 2007. The decrease was due to a reduction in engineering
        resources as the Company’s new power line products neared completion. Research
        and development costs consist of all expenditures related to the improvement
        and
        development of the Company's current product line, new product development,
        and
        engineering consulting fees associated with licensed technology. Currently,
        substantially all of our research and development costs and efforts are
        dedicated to the development of our Security (both analog and digital), and
        product segments. For the nine months ended September 30, 2007, of the total
        Research and Development expenditures, $408,202 or 96% was related to the
        security and audio products segment, $6,517 or 1.5% was related to the Marine
        products segment, and $8,320 or 2.0% was related to the DC Transportation
        products segment. The cost of our research and development activities is
        borne
        directly by the Company; no amounts are borne by our customers, nor are any
        contracts for customer funded research and development currently anticipated.
        The Company plans to continue funding the security, audio and DC transportation
        product segments for the next several years.





ADVERTISING
      AND PROMOTIONS: Advertising and promotions decreased 10% from $106,558 for
      the
      nine months ended September 30, 2006 to $95,903 for the nine months ended
      September 30, 2007. The decrease was due directly to a reduction in overall
      advertising and a focus on trade show attendance. The amount also includes
      portions of postage, printing, and travel that are attributable to advertising
      and promotions.





RENT
      AND
      UTILITIES: Rent and utilities decreased 4% from $145,263 for the nine months
      ended, September 30, 2006 to $138,796 for the nine months ended, September
      30,
      2007. The decrease is due to the consolidation of the Company’s office and
      warehouse facilities to new office and warehouse space effective July 1,
      2006.  The Company leases approximately 6,850 square feet of combined
      office and warehouse space in St. Petersburg, Florida, under a non-cancellable
      lease through September of 2011. The Company also leases approximately 2,400
      square feet of office space in California, under a one year lease, which houses
      its research and development operations.  Rent and utilities includes
      office rent, warehouse rent, storage, telephone, and utilities.





TRAVEL
      AND ENTERTAINMENT EXPENSE: Travel and entertainment expense decreased 14% from
      $102,686 for the nine months ended September 30, 2006 to $88,768 for the nine
      months ended September 30, 2007. The decrease was attributed to decreased travel
      by employees of the DC Transportation product segment. Travel and entertainment
      expenses include normal expenses associated with traveling including, but not
      limited to; airfare, auto rental, parking and tolls, hotels and lodging, taxis,
      meals, and entertainment.





OTHER
      EXPENSES: Other expenses decreased 4% from $278,794 for the nine months ended
      September 30, 2006 to $267,458 for the nine months ended September 30, 2007.
      The
      decrease was due primarily to a reduction in insurance premiums and the
      elimination of telemarketing expenditures. Other expenses include supplies,
      property taxes, insurance, financing fees, bank charges, provision for doubtful
      accounts, postage and delivery, and various other expenses that are classified
      as miscellaneous.





NON-OPERATING
      INCOME (EXPENSE) ITEMS: Non-operating income (expense) decreased 50% from
      $727,380 for the nine months ended September 30, 2006 to $366,297 for the nine
      months ended September 30, 2007. Components of non-operating expenses are as
      follows:




·
            Interest
                expense increased 1119% to $1,956,157 for the nine months ended September
                30, 2007 from $160,503 for the nine months ended September 30, 2006.
                The
                current period interest expense includes $1,364,433 of amortization
                of
                debt discount on the Convertible Debentures, $506,326 of amortization
                of
                debt discount on the short-term promissory notes payable, and $85,398
                of
                interest associated with notes payable outstanding during the period.
                The
                Company records amortization using the effective interest method
                and,
                accordingly, interest expense associated with these debentures will
                increase as the carrying value
                increases.




·
            Other
                income (expense) decreased 179% to $(56,713) for the nine months
                ended
                September 30, 2007, from $72,200 for the nine months ended September
                30,
                2006. Current period expense is related primarily to financing fees
                incurred related to short-term financing.   Amounts also
                include interest earned on cash balances held by the Company throughout
                the period.




·
            Loss
                of extinguishment of debt decreased 94% to $(75,913) for the nine
                months
                ended September 30, 2007, from $(1,502,286) for the nine months ended
                September 30, 2006. The amounts are recorded in connection with our
                debenture financing where we allocated the fair value of instruments
                issued in connection with the financing to the proceeds and the debt
                relieved on a relative fair value basis. This calculation resulted
                in a
                loss on extinguishment associated with the relieved
                indebtedness.




·
            Derivative
                gain increased 6% to $2,455,080 for the nine months ended September
                30,
                2007, from $2,317,969 for the nine months ended September 30, 2006.
                Derivative gain arises from fair value adjustments to our derivative
                financial instruments. These instruments consist of freestanding
                warrants
                and embedded conversion features associated with the Debenture offering.
                We will continue to incur fair value adjustments to these instruments
                until such instruments are converted, exercised or reclassified to
                stockholders' equity. Future fair value adjustments require the use
                of
                subjective estimates. However, the principal drive of our valuation
                model
                is the Company's trading common stock. Accordingly, future volatility
                in
                the trading market price may result in significant changes in fair
                value
                that are required to be recorded as adjustments in
                income.





6




THREE
      MONTHS ENDED SEPTEMBER 30, 2007
      AND SEPTEMBER 30, 2006




NET
      REVENUE: Net revenue decreased 43% from $1,004,564 for the three months ended
      September 30, 2006 to $573,086 for the three months ended September 30, 2007.
      Marine product segment sales were $44,444 or 8% of total revenues for the three
      months ended September 30, 2007 compared to $31,945, or 3% of total revenues,
      for the three months ended September 30, 2006. Overall, marine product sales
      increased $12,499, or 39%. Security product segment sales were $81,446 or 14%
      of
      total revenues for the three months ended September 30, 2007 compared to
      $838,591, or 83% of total revenues, for the three months ended September 30,
      2006. Overall, security product sales decreased $757,145, or 90%. DC
      Transportation product segment sales were $447,196, or 78% of total revenues
      for
      the three months ended September 30, 2007 compared to $134,029, or 13% of total
      revenues for the three months ended September 30, 2006. Overall, DC
      Transportation product sales increased $313,167, or 234%. The increase in net
      revenues for the marine product segment was due to a concentrated effort on
      internet marketing. The decrease in net revenues for the security product
      segment was because the previous year comparative quarter included a large
      one
      time sale to a large retailer.  The increase in net revenues for the
      DC transportation product segment was due to a continual expansion and upgrading
      of the product line, and the acquisition of new customers from leads developed
      by sales personnel and trade show attendances in prior periods.




COST
      OF
      GOODS SOLD: Cost of goods sold decreased 58% from $731,688 for the three months
      ended September 30, 2006 to $305,809 for the three months ended September 30,
      2007. As a percentage of net revenue, cost of goods sold decreased to 53% for
      the three months ended September 30, 2007 from 73% for the three months ended
      September 30, 2006. Cost of goods sold for the marine products segment increased
      $10,244 or 61%, from $16,866 for the three months ended September 30, 2006
      to
      $27,110 for the same period ended in 2007. As a percentage of net revenue,
      cost
      of goods sold for the marine product segment increased from 53% for the three
      months ended September 30, 2006 to 61% for same period ended in 2007. Cost
      of
      goods sold for the security products segment decreased $603,676 or 92%, from
      $654,824 for the three months ended September 30, 2006 to $51,148 for the same
      period ended in 2007. As a percentage of net revenue, cost of goods sold for
      the
      security product segment decreased from 78% for the three months ended September
      30, 2006 to 63% for same period ended in 2007. Cost of goods sold for the DC
      Transportation product segment increased $167,552 or 279% from $59,999 for
      the
      three months ended September 30, 2006 to $227,551 for the same period ended
      in
      2007. As a percentage of net revenue, cost of goods sold for the DC
      Transportation product segment increased from 45% for the three months ended
      September 30, 2006 to 51% for same period ended in 2007.




The
      increase in the cost of goods sold as a percentage of net revenues for the
      marine products segment was driven primarily by increased sales to dealers
      at
      wholesale prices. The decrease in the cost of goods sold as a percentage of
      net
      revenues for the security products segment was due to an increase in the average
      sales prices during the period.  The increase in the cost of goods
      sold as a percentage of net revenues for the DC Transportation product segment
      was due to volume price reductions to a customer with significant purchases
      during the period.





GROSS
      PROFIT MARGIN: Gross profits on sales for the three months ended September
      30,
      2007 amounted to $267,277 or 47% of net revenues, compared to $272,876 or 27%
      of
      net revenues, for the three months ended September 30, 2006. The marine products
      segment contributed $17,334 and $15,079 of the total gross profit for the three
      months ended September 30, 2007 and 2006, respectively. The security products
      segment contributed $30,298 and $183,767 of the total gross profit for the
      three
      months ended September 30, 2007 and 2006, respectively. The DC Transportation
      products segment contributed $219,645 and $74,030 of the total gross profit
      for
      the three months ended September 30, 2007 and 2006, respectively. The gross
      profit percentage for the marine products segment decreased from 47% for the
      three months ended September 30, 2006 to 39% for the three months ended
      September 30, 2007. The gross profit percentage for the security products
      segment increased from 22% for the three months ended September 30, 2006 to
      37%
      for the three months ended September 30, 2007. The gross profit percentage
      for
      the DC Transportation products segment decreased from 55% for the three months
      ended September 30, 2006 to 49% for the three months ended September 30,
      2007.





The
      decrease in the gross profit as a percentage of net revenues for the marine
      products segment was driven primarily by increased sales to dealers at wholesale
      prices. The increase in the gross profit as a percentage of net revenues for
      the
      security products segment was due to an increase in the average sales prices
      during the period. The decrease in the gross profit as a percentage of net
      revenues for the DC Transportation product segment was due to volume price
      reductions to a customer with significant purchases during the
      period.





SALARIES
      AND WAGES: Salaries and Wages decreased 12% from $306,757 for the three months
      ended September 30, 2006 to $269,245 for the three months ended September 30,
      2007. The decrease was due to a general downsizing implemented by management.
      Salary and Wages is comprised of employee wages, benefits, taxes, and stock
      compensation.





PROFESSIONAL
      AND CONSULTING FEES: Professional and consulting fees increased 160% from
      $121,779 for the three months ended September 30, 2006 to $316,940 for the
      three
      months ended September 30, 2007. The increase was primarily due to an accrual
      for Board of Director compensation, investor relations consulting, marketing
      consulting, and business development consulting. Professional and consulting
      fees include fees paid to attorneys, accountants, Directors, and business
      consultants. During the three months ended September 30, 2007, stock based
      compensation expense for consultants and service providers amounted to
      $57,477.  In addition, a charge of $20,600 was recorded as an estimate
      of expected Board of Director compensation earned during the
      period.




DEPRECIATION
      AND AMORTIZATION EXPENSE: Depreciation and amortization decreased 19% from
      $52,818 for the three months ended September 30, 2006 to $42,757 for the three
      months ended September 30, 2007. The decrease was attributable to a reduction
      in
      amortization expense as certain intangible assets were fully amortized as of
      September 30, 2007.





7




RESEARCH
      AND DEVELOPMENT: Research and development expense increased 3% from $152,932
      for
      the three months ended September 30, 2006, to $157,973 for the three months
      ended September 30, 2007. The increase was due to an increase in resources
      needed relating the launch of the Company’s power line audio products. Research
      and development costs consist of all expenditures related to the improvement
      and
      development of the Company's current product line, new product development,
      and
      engineering consulting fees associated with licensed technology. Currently,
      substantially all of our research and development costs and efforts are
      dedicated to the development of our Security (both analog and digital), and
      product segments. For the three months ended September 30, 2007, 100% of the
      total Research and Development expenditures were related to the security and
      audio products segment.  The cost of our research and development
      activities is borne directly by the Company; no amounts are borne by our
      customers, nor are any contracts for customer funded research and development
      currently anticipated. The Company plans to continue funding the security,
      audio
      and DC transportation product segments for the next several years.





ADVERTISING
      AND PROMOTIONS: Advertising and promotions increased 64% from $22,158 for the
      three months ended September 30, 2006 to $36,234 for the three months ended
      September 30, 2007. The increase was due primarily increased trade show
      attendance. The amount also includes portions of postage, printing, and travel
      that are attributable to advertising and promotions.





RENT
      AND
      UTILITIES: Rent and utilities increased 63% from $29,689 for the three months
      ended, September 30, 2006 to $48,424 for the three months ended, September
      30,
      2007. The increase is due to the fact that in the prior period comparative
      quarter the Company had negotiated a three month rent abatement for which no
      rent expense was incurred on its corporate office lease. The Company leases
      approximately 6,850 square feet of combined office and warehouse space in St.
      Petersburg, Florida, under a non-cancellable lease through September of 2011.
      The Company also leases approximately 2,400 square feet of office space in
      California, under a one year lease, which houses its research and development
      operations.  Rent and utilities includes office rent, warehouse rent,
      storage, telephone, and utilities.





TRAVEL
      AND ENTERTAINMENT EXPENSE: Travel and entertainment expense decreased 32% from
      $31,832 for the three months ended September 30, 2006 to $21,587 for the three
      months ended September 30, 2007. The decrease was attributed to decreased travel
      by employees in the DC Transportation product segment. Travel and entertainment
      expenses include normal expenses associated with traveling including, but not
      limited to; airfare, auto rental, parking and tolls, hotels and lodging, taxis,
      meals, and entertainment.





OTHER
      EXPENSES: Other expenses increased 20% from $79,841 for the three months ended
      September 30, 2006 to $95,591 for the three months ended September 30, 2007.
      The
      increase was due to an increase in the provision for doubtful accounts. Other
      expenses include  supplies, property taxes, insurance, financing fees,
      bank charges, provision for doubtful accounts, postage and delivery, and various
      other expenses that are classified as miscellaneous.





NON-OPERATING
      INCOME (EXPENSE) ITEMS: Non-operating income (expense) increased 69% from
      $59,851 for the three months ended September 30, 2006 to $101,117 for the three
      months ended September 30, 2007. Components of non-operating expenses are as
      follows:




·
            Interest
                expense increased 1460% to $1,081,728 for the three months ended
                September
                30, 2007 from $69,333 for the three months ended September 30, 2006.
                The
                current period interest expense includes $646,977 of amortization
                of debt
                discount on the Convertible Debenture, $399,931 of amortization of
                debt
                discount on various short term promissory notes and $34,820 of interest
                associated with notes payable outstanding during the period. The
                Company
                records amortization using the effective interest method and, accordingly,
                interest expense associated with these debentures will increase as
                the
                carrying value increases.




·
            Other
                income (expense) decreased 241% to $(66,350) for the three months
                ended
                September 30, 2007, from $47,200 for the three months ended September
                30,
                2006. Current period expense is related primarily to financing fees
                incurred in conjunction with short-term financing.  Amounts also
                include interest earned on cash balances held by the Company throughout
                the period.




·
            Derivative
                gain increased 2668% to $968,546 for the three months ended September
                30,
                2007, from a loss of $(37,718) for the three months ended September
                30,
                2006. Derivative gains and losses arise from fair value adjustments
                to our
                derivative financial instruments. These instruments consist of
                freestanding warrants and embedded conversion features associated
                with the
                Debenture offering. We will continue to incur fair value adjustments
                to
                these instruments until such instruments are converted, exercised
                or
                reclassified to stockholders' equity. Future fair value adjustments
                require the use of subjective estimates. However, the principal drive
                of
                our valuation model is the Company's trading common stock. Accordingly,
                future volatility in the trading market price may result in significant
                changes in fair value that are required to be recorded as adjustments
                in
                income.




LIQUIDITY
      AND CAPITAL
      RESOURCES





The
        accompanying condensed consolidated financial statements have been prepared
        assuming that the Company will continue as a going concern. However, the
        Company
        has incurred losses from operations of $2,183,997 and $2,913,255 during the
        nine
        months ended September 30, 2007 and 2006, respectively. In addition, during
        those periods, the Company has used cash of $1,162,170 and $3,688,859
        respectively, in its operating activities and has a stockholders' deficit
        at
        September 30, 2007. These conditions raise substantial doubt about the Company's
        ability to continue as a going concern.





8




The
      Company has allocated significant resources to the development of new power
      line
      technologies and products that will be available for sale and/or licensing
      during the third or fourth quarters of fiscal year 2007. The Company’s ability
      to continue will be dependent upon achieving profitable operations through
      the
      licensing and sales of these new technologies and products.




The
      Company’s ability to continue as a going concern is dependent upon (i) raising
      additional capital to fund operations (ii) the further development of the
      Security, DC Transportation, and new Audio products segments, and (iii)
      ultimately the achievement of profitable operations. During the nine months
      ended September 30, 2007, the Company secured net financing of $1,253,098 in
      the
      form of short-term notes payable from its primary financial partner and other
      various accredited investors. While the proceeds of this financing did mitigate
      the Company’s liquidity difficulties for the nine months ended September 30,
      2007, additional funding will be required to fund the launch of the Company’s
      new power line products and technologies, which are now ready for release,
      and
      to fund operations through June 30, 2008, or until it can achieve profitability.
      In addition to the continued effort to reduce overhead expenses through the
      streamlining of its operations, the Company plans to continue to borrow funds
      through the issuance of short-term convertible promissory notes until
      longer-term financing can be arranged. Management and the Board of Directors
      are
      currently reviewing the long-term financing options available to the Company
      based on its current strategic plan. The ability of the Company to sustain
      its
      operations for a reasonable period without further financing cannot be assured
      and the condensed consolidated financial statements do not include any
      adjustments that might arise as a result of this uncertainty.





During
      the nine months ended September 30, 2007 the Company funded its losses from
      operations through the following vehicles:





We
      borrowed $500,000 from our primary financial partner through the issuance of
      two
      separate unsecured promissory notes. We executed a promissory note on January
      29, 2007 in the amount of $300,000. The note was due on February 28, 2007,
      and
      bears an 8% interest rate. On March 21, 2007, we executed a second promissory
      note in the amount of $200,000. The note was due on May 5, 2007, and bears
      an 8%
      interest rate. Interest on each of these notes was due and payable upon the
      maturity dates. On May 14, 2007, the Company received an additional $50,000
      in
      cash from its primary finance partner, the proceeds of which are included in
      a
      note payable that consolidates all outstanding notes payable with this finance
      partner.  The Company issued a new consolidated note payable in the
      amount of $898,661 which includes the following: the retirement of the September
      14, 2006 note payable in the principal amount of $300,000, the retirement of
      the
      January 29, 2007 note payable in the principal amount of $300,000, the
      retirement of the March 21, 2007 note payable in the amount of $200,000, accrued
      interest in the amount of $48,661 (including default rate interest of 18%)
      on
      the three aforementioned notes, and $50,000 in new proceeds received on May
      14,
      2007. The note bears an 8% interest rate and an 18% default interest rate for
      all principal amounts outstanding beyond the maturity date. The note was due
      on
      July 13, 2007, but was extended by the lender until January 31,
      2008.





We
      borrowed $508,598 from accredited investors and related parties through the
      issuance of a series of short-term 30 day promissory notes, all which bear
      an
      annual interest rate of 8%. The notes were issued during the months of May
      through September and $468,938 remained outstanding at September 30,
      2007.  $408,000 of the notes included a loan origination fee for the
      lender to be paid in restricted common stock in share amounts equaling 25%
      of
      the principal amount loaned.  The shares carry piggyback registration
      rights.  Each of the notes are convertible, at the option of the
      lender, into restricted common stock at $.60 per share, and  three
      year warrants to purchase an additional 50% of the converted shares at an
      exercise price of $1.25 per share.  $100,598 of the notes included a
      loan origination fee for the lender to be paid in restricted common stock in
      share amounts equaling 25% of the principal amount loaned.  The shares
      carry piggyback registration rights.  Each of the notes are
      convertible, at the option of the lender, into restricted common stock at $.35
      per share, and  three year warrants to purchase an additional 50% of
      the converted shares at an exercise price of $0.75 per share.  At
      September 30, 2007, no principal amounts had been converted to common stock
      and
      all lenders with notes due prior to September 30, 2007 extended the maturity
      date until December 15, 2007, except for $100,000 which is currently in default
      (See Note 8).





We
      borrowed $210,000 from an accredited investor through the issuance of a six
      month convertible promissory note bearing an annual interest rate of
      12%.  The note was collateralized with the common stock of a third
      party shareholder (See Note 8).





We
      received $75,790 in proceeds from the exercise of 126,316 common stock warrants
      at $.60 per share.  The warrants, issued in conjunction with the
      Company’s March 2006 Convertible Debenture financing, were issued at an exercise
      price of $2.375 per share; however, were re-priced for a limited two week period
      during the third quarter ended September 30, 2007 by approval of the Company’s
      Board of Directors.




Material
      Commitments:





See
      Note
      10 in the accompanying condensed consolidated financial statements.





Subsequent
      Events:




On
      November 6, 2007, the Company’s Board of Directors approved a resolution to
      modify the conversion terms for the $471,598 of outstanding promissory notes
      (See Note 8).  All outstanding notes will be convertible, at the
      option of the lender, into restricted common stock at $.15 per share, and three
      year warrants to purchase an additional 50% of the converted shares at an
      exercise price of $0.45 per share.





9




On
      November 8, 2007, the Company received a demand letter from ICON Capital
      Partners, LP, for the repayment of three short-term unsecured promissory notes
      totaling $100,000.  The convertible notes consisted of a $25,000 note
      issued on May 11, 2007, due June 10, 2007, and extended to August 24, 2007;
      a
      $50,000 note issued on May 30, 2007, due on July 30, 2007, and extended to
      August 29, 2007; and a $25,000 note issued on June 14, 2007, due July 13, 2007,
      and extended to August 13, 2007.  The demand letter asked for payment
      in full of principal and interest by November 19, 2007.  As of the
      time of this filing, the notes remain outstanding and the Company is working
      with several accredited investors to obtain additional capital to repay these
      notes.





Subsequent
      to December 15, 2007, the Company was in default on the remaining convertible
      notes payable with a face value of $371,598.  The maturity date was
      not extended beyond December 15, 2007 and therefore the convertible notes were
      in default.  As of September 30, 2007, the convertible notes payable
      are classified as current liabilities.





In
      addition, subsequent to September 30, 2007, the Company borrowed and additional
      $120,900 through the issuance of a series of 30 day short-term convertible
      promissory notes to accredited investors on the same terms and conditions
      outlined above.  Subsequent to December 15, 2007, the Company was in
      default on $53,000 of these notes.  The maturity date was not extended
      beyond December 15, 2007 and therefore the convertible notes were in
      default.




Item
      3. Controls
      and Procedures





(a)
      Evaluation of Disclosure Controls and Procedures




Based
      on
      an evaluation of our disclosure controls and procedures (as defined in Rules
      13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended)
      required by paragraph (b) of Rule 13a-15 or Rule 15d-15, as of September 30,
      2007, our Chief Executive Officer and Chief Financial Officer, have concluded
      that our disclosure controls and procedures were effective in ensuring that
      information required to be disclosed by us in the reports that we file or submit
      under the Exchange Act is recorded, processed, summarized and reported within
      the time periods specified in the Commission's rules and forms. Our Chief
      Executive Officer and Chief Financial Officer, also concluded that, as of
      September 30, 2007, our disclosure controls and procedures were effective in
      ensuring that information required to be disclosed by us in the reports that
      we
      file or submit under the Exchange Act is accumulated and communicated to our
      management, including our Chief Executive Officer and Chief Financial Officer,
      to allow timely decisions regarding required disclosure.




Limitations
      on the Effective of
      Controls





Our
      management does not expect that our disclosure controls or our internal controls
      over financial reporting will prevent all error and fraud. A control system,
      no
      matter how well conceived and operated, can provide only reasonable, but no
      absolute, assurance that the objectives of a control system are met.
 Further, any control system reflects limitations on resources, and the
      benefits of a control system must be considered relative to its costs.
 These limitations also include the realities that judgments in
      decision-making can be faulty and that breakdowns can occur because of simple
      error or mistake. Additionally, controls can be circumvented by the individual
      acts of some persons, by collusion of two or more people or by management
      override of a control. A design of a control system is also based upon certain
      assumptions about potential future conditions; over time, controls may become
      inadequate because of changes in conditions, or the degree of compliance with
      the policies or procedures may deteriorate.  Because of the inherent
      limitations in a cost-effective control system, misstatements due to error
      or
      fraud may occur and may not be detected.




(b)
      Changes in Internal Controls




There
      were no changes in our internal controls over financial reporting that could
      significantly, or are reasonably likely to materially affect, our affect
      internal controls over financial reporting that occurred during the our fiscal
      quarter ended September 30, 2007.




PART
      II OTHER INFORMATION




Item
      1. Legal
      Proceedings





Litigation,
      claims and assessment:




Reed
      Elsevier,
      Inc.





On
      April
      26, 2007 the Company learned that a default judgment had been entered against
      it
      on August 1, 2006 in the Circuit Court of the 6th
      Judicial Circuit
      of Pinellas County, Florida, in the amount of $20,192, to the plaintiff Reed
      Elsevier, Inc.  The obligation is associated with a commitment made in
      December of 2004, by a former officer of the Company, for floor space at a
      trade
      show in March of 2005, which the Company did not attend.  The Company
      has retained counsel to negotiate a resolution to the matter, and is awaiting
      a
      response from the plaintiff for a meeting date.  The Company has
      recorded a liability in the amount of $22,203, including post judgment interest,
      which is included in accrued expenses in the accompanying September 30, 2007
      condensed consolidated balance sheet.





10




Guestlinx,
      LLC




On
      May
      19, 2006 we learned that a default judgment had been entered against us on
      May
      3, 2006 in the Superior Court of California, Orange County, in the amount of
      $90,561, to the plaintiff Guestlinx, LLC. The obligation is associated with
      the
      Hotel/MDU product segment, the operations of which were discontinued in April
      of
      2005. The judgment was granted based on an action filed by Guestlinx, LLC on
      November 2, 2005. We had no prior knowledge of the action and believe it was
      never properly served. We retained counsel in California, and on August 4,
      2006
      were successful in having the judgment set aside for improper service. We had
      previously recorded a liability associated with this dispute in the amount
      of
      $46,352. On December 8, 2006, we negotiated a settlement and release agreement
      at a mandatory settlement conference, in the amount of $52,500. We remitted
      $16,250 toward the settlement amount on December 15, 2006, and the remaining
      balance of $36,250 was recorded as an accrued liability at December 31,
      2006. Under the agreement, we were required to pay the remaining balance by
      February 15, 2007, but were unable to do so. The agreement provides for the
      plaintiff to receive a stipulated judgment in the amount of $60,000 (less
      amounts remitted) if we are in default of the agreement.  On April 18,
      2007, the plaintiff filed for and received the default judgment and the
      Company’s counsel is currently working with the plaintiff on a revised payment
      schedule.  The Company increased the aforementioned liability in the
      amount of $7,500 to account for the additional obligation incurred under the
      stipulated judgment.  The amounts are included in accrued expenses in
      the accompanying September 30, 2007 and December 31, 2006 condensed consolidated
      balance sheets.




Pro-Marketing
      Inc.





On
      August
      18, 2005 the Company agreed to a settlement with Pro-Marketing of Texas, Inc.
      relating to an alleged breach of contract from a financing transaction that
      took
      place during fiscal year 2000.  The settlement consisted of the
      issuance of 3,000 shares of restricted common stock, and cash payments totaling
      $60,000 to be disbursed in an amount of $2,500 per month for a period of two
      years, commencing on August 18, 2005.  Since August of 2005, the
      Company remitted payments totaling $30,000.  On October 2, 2007 the
      Company agreed to the plaintiffs Motion for Final Summary Judgment, in the
      Circuit Court for Pinellas County, in the amount of $32,597.50, which includes
      pre-judgment interest and attorney’s fees.





Acu-cast
      Technologies,
      LLC





On
      June
      11, 2007, Acu-cast Technologies, LLC filed a complaint against the Company
      in
      the amount of $4,437 in the County Court of Lawrence, Tennessee.  The
      liability relates to proto-types made by the plaintiff on behalf of the
      Company.  During September 2007, the Company paid $4,220 as full
      settlement for the liability.




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




During
      the three months ended September 30, 2007, the Company issued 110,000 shares
      of
      restricted common stock to a consultant hired to assist the Company in areas
      of
      strategic business planning, financial advisory, and investor and public
      relations services.  The shares were valued at $77,000 based on the
      closing price of the Company’s common stock on the date of the agreement (See
      Note 10).




During
      the three months ended September 30, 2007, the Company issued 126,316 shares
      of
      common stock for the exercise of warrants associated with the Company’s 2006
      Convertible Debenture financing.  The warrants were exercised at $0.60
      per share for net proceeds of $75,790.




During
      the three months ended September 30, 2007, the Company issued 194,500 shares
      of
      restricted common stock in conjunction with a convertible note payable
      transaction executed during the period.  The shares were valued at
      $101,140 based on the closing price of the Company’s common stock on the day of
      funding (See Note 8).




During
      the three months ended September 30, 2007, the Company issued 15,967 shares
      of
      common stock for payment of interest due associated with the Company’s 2006
      Convertible Debentures.  The shares were valued at $12,516 based on
      the closing price of the Company’s common stock on the date of the
      agreement.




During
      the three months ended September 30, 2007, the Company issued 119,500 shares
      of
      common stock for payment of loan fees due associated with convertible notes
      payable issued during the period.  The shares were valued at $108,113
      based on the closing price of the Company’s common stock on the date of issuance
      of each of the notes (See Note 8).




During
      the three months ended September 30, 2007, the Company issued 31,587 shares
      of
      common stock for conversion of accounts payable related to legal services
      rendered during the period.  The shares issued converted $16,062 of
      accounts payable liability owed and were valued based on the terms of a prior
      executed retainer agreement.  The shares were registered on Form S-8
      filed with the Securities and Exchange Commission on May 8, 2007.




11




During
      the three months ended September 30, 2007, the Company issued 20,000 shares
      of
      common stock for conversion of accounts payable related to marketing services
      rendered during the period.  The shares issued converted $18,400 of
      accounts payable liability owed and were valued based on the closing price
      of
      the Company’s common stock on the date of issuance.  The shares were
      registered on Form S-8 filed with the Securities and Exchange Commission on
      May
      8, 2007.




During
      the three months ended September 30, 2007, the Company issued 16,000 shares
      of
      common stock for conversion of accounts payable related to information
      technology services rendered during the period.  The shares issued
      converted $13,600 of accounts payable liability owed and were valued based
      on
      the closing price of the Company’s common stock on the date of
      issuance.  The shares were registered on Form S-8 filed with the
      Securities and Exchange Commission on May 8, 2007.




During
      the three months ended September 30, 2007, the Company issued 18,841 shares
      of
      common stock for conversion of accounts payable related to information
      technology services rendered during the period.  The shares issued
      converted $11,305 of accounts payable liability owed and were valued based
      on
      the closing price of the Company’s common stock on the date of
      issuance.  The shares were registered on Form S-8 filed with the
      Securities and Exchange Commission on May 8, 2007.




During
      the three months ended September 30, 2007, the Company issued 8,152 shares
      of
      common stock for conversion of accounts payable related to sales consulting
      services rendered during the period.  The shares issued converted
      $7,500 of accounts payable liability owed and were valued based on the closing
      price of the Company’s common stock on the date of issuance.  The
      shares were registered on Form S-8 filed with the Securities and Exchange
      Commission on May 8, 2007.




During
      the three months ended September 30, 2007, the Company issued 3,913 shares
      of
      common stock for conversion of accounts payable related to marketing services
      rendered during the period.  The shares issued converted $3,600 of
      accounts payable liability owed and were valued based on the closing price
      of
      the Company’s common stock on the date of issuance.  The shares were
      registered on Form S-8 filed with the Securities and Exchange Commission on
      May
      8, 2007.





Item
      3. Defaults Upon Senior
      Securities.





As
      of September 30, 2007 and December
      31, 2006, the Company was in default under the terms of the Purchase Agreement
      dated March 7, 2006, and the Debentures issued on March 22, 2006 in connection
      therewithin an aggregate
      principal amount of $4,473,933. The terms of the Purchase Agreement and the
      Debenture required that the Company generate gross profit in excess of $300,000
      per month on average during the period from October 1, 2006 to December 31,
      2006. Under the default provisions, upon the Company delivering an Event of
      Default Notice to Purchasers (Debenture holders) or the Purchasers becoming
      aware of an Event of Default, the Purchasers may require the Company to redeem
      all or any portion of their Debentures by delivering an “Event of Default
      Redemption Notice” to the Company. At that time the Company would be required to
      redeem the requested portion of the debenture at a redemption value calculated
      in accordance with the default provisions in the March 7, 2006 Securities
      Purchase Agreement, to be no less than 120% of the principal amount requested
      to
      be redeemed. At September 30, 2007, the Company had not negotiated a form of
      a
      waiver agreement with the Purchasers covering the Company’s inability to meet
      this covenant. The Company has not received an “Event of Default Redemption
      Notice” from any Purchaser and is currently engaged in negotiating with the
      Purchasers in order to enter into a such a waiver agreement covering the
      aforementioned default.




Because
      the Company was in default as of September 30, 2007 and December 31, 2006,
      and
      while under default, may receive an “Event of Default Redemption Notice” at any
      time, the liabilities associated with the Debentures on the accompanying
      condensed consolidated balance sheets, as presented, have been reclassified
      from
      long-term to current liabilities.




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




None.




Item
      5. Other
      Information.




(a)           None.





(b)           No
      material changes to the procedures by which security holders may recommend
      nominees to our board of directors occurred or have been implemented since
      our
      last periodic filing, our Annual Report filed on Form 10-K for the fiscal year
      ended December 31, 2006.




Item
      6.
      Exhibits





Exhibit
                No.
            Description3(i).1
            Articles
                of Restatement of the Articles of Incorporation of PowerLinx, Inc.,
                dated
                February 25, 2003. (Incorporated by reference to Annual Report for
                the
                fiscal year ended December 31, 2001, filed with the SEC on Form 10KSB/A.
                on January 16, 2003)3(i).2
            Amendment
                to the Articles of Incorporation increasing authorized Common Stock
                from
                250,000,000 to shares. (Incorporated by reference to the Current
                Report
                filed on Form 8-K with the Securities and Exchange Commission on
                400,000,000, March 22, 2006).3(i).3
            Amendment
                to the Articles of Incorporation changing the Company's name from
                Seaview
                Video Technology, Inc. to PowerLinx, Inc. (Incorporated by reference
                to
                the Current Report filed on Form 8-K with the Securities and Exchange
                Commission on March 16, 2004).3(i).4
            Certificate
                of Amendment filed with the Secretary of State of Nevada on August
                9,
                2006, amending the Company’s Articles of Incorporation to increase the
                Company’s authorized common stock from 8,000,000 to 50,000,000 shares.
                (Incorporated by reference to the Company’s Registration Statement filed
                on Form SB-2 with the Securities and Exchange Commission on September
                9,
                2006).3(ii).1
            Bylaws
                of the Company. (Incorporated by reference to the Annual Report filed
                on
                Form 10-KSB with the Securities and Exchange
              Commission
                on April 15, 2005).4.1
            Certificate
                of designation of Series A Preferred Stock (Incorporated by reference
                to
                the Company’s Current Report filed on Form
              10-KSB
                with the Securities and Exchange Commission on March 16,
                2004).31.1
            Certification
                of Michael Tomlinson, Chief Executive Officer, dated August 9, 2007,
                pursuant to Rule 13a-14(a) of the
              Securities
                Exchange Act of 1934, as amended. (Filed herewith).31.2
            Certification
                of Douglas Bauer, Chief Financial Officer, dated August 9, 2007,
                pursuant
                to Rule 13a-14(a) of the Securities
              Exchange
                Act of 1934, as amended. (Filed herewith).32.1
            Statement
                of Michael Tomlinson, Chief Executive Officer, dated August 9, 2007,
                pursuant to Rule 13(a)-14(b) of the Securities Exchange Act of 1934,
                as
                amended. (Filed herewith).32.2
            Statement
                of Douglas Bauer, Chief Financial Officer, dated August 9, 2007,
                pursuant
                to Rule 13(a)-14(b) of the Securities Exchange Act of 1934, as amended.
                (Filed herewith).




12




SIGNATURES




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





POWERLINX
                INC.Date:
            December
                20, 2007
            By:
            /s/
                Michael
                TomlinsonMichael
                TomlinsonChief
                Executive OfficerBy:
            /s/
                Douglas
                BauerDouglas
                BauerChief
                Financial Officer (and Acting Principal Accounting
                Officer)






13