UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

|X|   ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
      1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005

|_|   TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
      OF 1934

               FOR TRANSITION PERIOD FROM            TO
                                         -----------    -----------

                        COMMISSION FILE NUMBER 000-30244

                                  NEXICON, INC.
                 (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)

                     NEVADA                              13-3389415
(State or other jurisdiction of incorporation)        (I.R.S. Employer
                                                    Identification Number)

          400 GOLD SW, SUITE 1000
          ALBUQUERQUE, NEW MEXICO                              87102
  (Address of principal executive offices)                  (Zip code)


                                                          (505) 248-0000
                                                    (Issuer's telephone number)

Securities  registered  under Section  12(b) of the Exchange Act:  COMMON STOCK,
$0.001 PAR VALUE

Securities registered under Section 12(g) of the Exchange Act:  NONE

               TITLE OF EACH CLASS COMMON STOCK, $0.001 PAR VALUE

Check whether the issuer is not required to file reports pursuant to Section 13
or 15(d) of the Exchange Act. |_|

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

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation SB contained in this form,  and no disclosure  will be contained,  to
the  best  of  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. |X|

Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Exchange ACT). |_|

The issuer's operating revenues for its most recent fiscal year were: $394,146.

The aggregate  market value of the  registrant's  voting and  non-voting  common
equity held by non-affiliates (computed based on the average bid and asked price
of the registrant's Common Stock quoted on the Pink Sheets):  $5,691,648 ON JULY
31, 2006.

The number of shares of Common Stock outstanding: 212,183,351 ON AUGUST 17, 2006

Documents incorporated by reference:  NONE

Transitional Small Business Disclosure Format:  |_| YES  |X|  NO


<PAGE>


                                  NEXICON, INC.
                FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 2005
                                TABLE OF CONTENTS


PART I                                                                        2
   ITEM 1.  DESCRIPTION OF BUSINESS                                           2
RISKS RELATED TO OUR BUSINESS                                                 4
   ITEM 2.  DESCRIPTION OF PROPERTY                                           7
   ITEM 3.  LEGAL PROCEEDINGS                                                 8
   ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS               8
PART II                                                                       9
   ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS          9
   ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION        12
   ITEM 7.  FINANCIAL STATEMENTS                                             18

   ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
            AND FINANCIAL DISCLOSURE                                         18
   ITEM 8A. CONTROLS AND PROCEDURES                                          18
   ITEM 8B. OTHER INFORMATION                                                18
PART III                                                                     19
   ITEM 9.  DIRECTORS AND EXECUTIVE OFFICERS, PROMOTORS AND CONTROL
            PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT       19
   ITEM 10. EXECUTIVE COMPENSATION                                           20
   ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
            MANAGEMENT AND RELATED STOCKHOLDER MATTERS                       21
   ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                   22
   ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K                                 23
   ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES                           27
SIGNATURES                                                                   28
FINANCIAL STATEMENTS                                                        F-1


                                       1
<PAGE>


                                     PART I


ITEM 1.  DESCRIPTION OF BUSINESS


      OVERVIEW

      Nexicon,  Inc., formerly Cyco.net,  Inc. ("Nexicon" or the "Company"),  is
the successor  corporation  to AVE, Inc. The Company was an e-commerce  business
until July 2003 when it sold the assets of its cigarette e-tail  business.  This
decision  was made after  several  states filed civil  lawsuits  against the New
Mexico  subsidiary  involved in the sale of cigarettes  over the  Internet.  The
Company's management felt that although the Company had a meritorious defense it
would be much too costly to defend its position in court.  The Company  chose to
pursue other business  opportunities and on November 19, 2003, Nexicon purchased
all of the  outstanding  common  stock  of  Orion  Security  Services,  Inc.,  a
Wisconsin corporation  ("OSSI"), in a stock-for-stock  purchase. On November 15,
2004,   Nexicon  purchased  all  of  the  outstanding   common  stock  of  Pluto
Communications  International,  AS,  a  Norwegian  corporation  ("Pluto"),  in a
stock-for-stock  purchase.   Pluto's  name  has  been  changed  to  Nexicon,  AS
("Nexicon,  AS").  On March 17, 2005,  Nexicon  agreed to  repurchase 15 million
shares of the  Company's  common stock held by Robert Demson in exchange for all
right, title, and interest that Mr. Demson had in certain agreements  associated
with the "SatSecure" technology and to the trade names "Orion Security Services,
Inc.",  "OSSI",   "Ossi-Secure",   "SatSecure",   "SatWatch"  and  "RECON  9000"
(collectively,  "Trade  Names"),  and all  equipment,  computers  and  furniture
valued, in the aggregate,  at approximately $15,213. The operations of OSSI have
been discontinued.

      CORE BUSINESS

      The  Company  `s core  business  is  software  development  in two  areas:
Security  Solutions  and Billing  Solutions.  The Company's  security  solutions
products  provide for  intellectual  property  security,  business  intelligence
gathering, network monitoring and unified threat management. The billing system,
known as the Charon Billing System,  offers comprehensive billing processing and
customer  care  solutions  that  can be  used  by a wide  range  of  businesses.
Combining  development  efforts  with its  facility  and staff  based in Bergen,
Norway,  with those in the United  States,  Nexicon is  empowered to deliver its
products on an international scope offering localized application customization.
All of the Company's products are marketed under the name Nexicon, in the United
States by Nexicon, Inc., the parent company, and in Norway by Nexicon, AS.

      SECURITY SOLUTIONS

      Nexicon's  anti-piracy  and  intelligence  tools  address  one of  today's
leading  forms of network  security  breaches:  intellectual  property  theft or
piracy. The anti-piracy tracking tool searches for unique identifiers of pirated
software and content across the Internet  through known websites,  insecure file
sharing  networks and many other  locations.  It monitors and  identifies  those
individuals  and/or Websites that facilitate  intellectual  property theft.  The
intelligence  tools enables  processing of this information to provide customers
with the  intelligence  reports  needed to act in whatever  way they choose with
regards to those who have committed the piracy.

      The intelligence tools also employ a sorting process to parse through vast
amounts of data and produce informational  reports,  based on the requested sort
criteria, providing insight into any activities conducted over the Internet. The
result provides  customers with the ability to research  through vast amounts of
information on the Internet and obtain  statistical  reports that focus on their
particular  area of interest to analyze and  possibly  identify  other  business
opportunities.

      Nexicon offers consulting  services to customers providing them with sound
network management and security advice backed up by dedicated  service.  Capable
of servicing  customers in commercial and government  markets,  Nexicon combines
its  expertise  and its  nexus of  technologies  to  provide  comprehensive  and
impactful  solutions  that take into  consideration  the entire  value  chain of
customer environments. Additionally, Nexicon's multinational footprint allows us
the flexibility to meet the global needs of any customer requests.


                                       2
<PAGE>


      The  ComSecure(C)   Controller  is  designed  to  give  a  global  network
enterprise  full  control of all  traffic,  devices  and  subscribers  within an
intellectual  property ("IP") network.  The ComSecure(C)  Controller  breaks the
network processing bottleneck and increases total performance by executing tasks
previously  performed by firewalls and routers,  and by eliminating the need for
additional  control  boxes  such  as  authentication  servers,  packet  shapers,
monitoring  devices,  intrusion  detection  and  protection  servers  and access
control systems.

      BILLING SOLUTIONS

      The Charon  Billing System offers a scalable range of billing and customer
care solutions. It consists of several stand alone modules that can be delivered
separately  or combined for maximum  operational  advantages.  These modules are
grouped into three main brand names:  CHARON,  CERBERUS and MINOS.  Each branded
module is divided into  segments  focusing on different  markets.  Operators and
service  providers  can  therefore  use our system for more than one product and
service,  and bundle products to increase revenue.  Each module has capabilities
for the  respective  market  segment,  enabling it to be adapted to suit several
needs for multi-operational products and service.

      The Charon  Billing  Systems  support  the billing  processes  for mobile,
wireline, satellite, Internet, and energy. Offering flexibility, reliability and
scalability,  Charon is a constantly evolving,  open,  client/server system that
meets the needs of customers  ranging  from low volume  start-ups to high volume
Tier-1 operators.

      SOURCES OF SUPPLY

      The  Security  Solutions  products  and the Charon  Billing  products  are
developed and maintained in house.

      INDUSTRY AND COMPETITION

      We compete with many software  developers the following are a few: BayTSP,
Media Century,  Nortel  Networks,  Check Point Software and IBM. Our competitors
have  substantially  greater  resources that we do, and a large market presence.
These  competitors  also have name and brand  recognition  which  often  implies
reliability  to the  customer.  We  believe  we  offer  flexibility  of  product
offerings and customization services.

      The Company has entered into the highly  competitive  industry of software
development in the areas of IP security and billing systems. Currently there are
several options for protecting a secure computer network.  Most are comprised of
a group  of  components  that  collectively  form a  barrier  between  networks,
commonly  referred  to as  firewalls.  Firewalls,  which  are not  standardized,
usually  consist of several  layers of  applications  and hardware  that work to
ensure that no single point of vulnerability exists.  Firewalls often consist of
a bastion host,  proxy servers,  packet  screening tools,  multiple  routers,  a
"demilitarized   zone",   virus  detection  and  intrusion   detection  devices.
Currently,  there are several large  corporations that provide these services to
the market,  including Cisco Systems, Nortel Networks, Check Point Software, and
IBM.

      CUSTOMERS

      Currently,  our Security  Solutions  segment is providing  anti-piracy and
intelligence  products to one client in the motion  picture  industry and to one
client in the software industry.  Our Charon Billing system is being used by two
telecommunications companies in Norway.

      SALES AND MARKETING

      Most of our marketing is done through  referrals from our current clients.
We have hired a Director of Marketing  and a sales person to call upon  referred
potential  clients.  We have received some  interest from  Government  agencies,
those  calls are  handled  through  Fed-Comm  USA,  a  company  that has all the
necessary  clearances  in order to win  government  work.  Nexicon has no formal
agreement with Fed-Comm USA at this time.


                                       3
<PAGE>


      EMPLOYEES

      Nexicon,  Inc.  currently has six full-time and four part-time  employees.
Nexicon, AS in Norway has two full-time employees. We believe relations with our
employees are good.

      COMPANY HISTORY

      Nexicon is the successor to Deluxe Onyx Company, a company incorporated in
1921 that produced  motion  pictures.  In 1987,  Deluxe Onyx Company  changed to
Walsh  Communications  Group,  Inc. and moved its domicile to Nevada.  On May 4,
1990,  its name was changed to AVE,  Inc.  AVE,  Inc. was inactive  from 1990 to
April 1997 when it began to seek to acquire an operating  business.  In December
1997, AVE, Inc. acquired Digital Manufacturing Inc. in a reverse merger. Digital
Manufacturing Inc. produced an antenna that could be re-engineered to operate in
the home satellite  frequency  spectrum.  In February  1999,  AVE, Inc. sold its
antenna business.

      On July 22, 1999, AVE, Inc. acquired  Cyco.net,  Inc. of Albuquerque,  New
Mexico in a transaction  accounted for as a recapitalization  of Cyco.net,  Inc.
Cyco.net  was  established  in December  1998 to develop a network of  web-based
companies.  Under the terms of the  agreement,  AVE,  Inc.  changed  its name to
Cyco.net,  Inc. Mr. R. Gene  Klawetter,  former  Chairman  and CEO of AVE,  Inc.
became a director of Cyco.net,  Inc. George Sullivan,  former AVE Vice President
of Operations resigned, as did Henri Hornby, former Director of AVE, Inc. In the
transaction,  Cyco.net,  Inc.  shareholders  received  2.08  shares  of AVE (now
Nexicon) for each share of Cyco.net,  Inc.  stock.  This provided the former AVE
shareholders  with 15% ownership  interest in the surviving company and Cyco.net
shareholders  with 85% ownership  interest of the surviving  company.  Effective
January 2005, Cyco.net, Inc. changed its name to Nexicon, Inc.


                          RISKS RELATED TO OUR BUSINESS

      We are subject to various  risks that may  materially  harm our  business,
financial  condition and results of  operations.  An investor  should  carefully
consider the risks and  uncertainties  described below and the other information
in this Report before  deciding  whether to purchase our common stock. If any of
these risks or uncertainties actually occurs, our business,  financial condition
or operating results could be materially harmed. In that case, the trading price
of our common stock could decline.


      WE HAVE  HISTORICALLY  LOST MONEY AND LOSSES MAY  CONTINUE  IN THE FUTURE,
      WHICH COULD HAVE A SIGNIFICANT NEGATIVE IMPACT ON OUR FINANCIAL CONDITIONS

      We have historically  lost money. The Company has experienced  losses from
operations.  In the years ended  December  31, 2005 and 2004,  we had net losses
from  operations of $2,649,208 and  $4,759,976,  respectively.  In addition,  in
2003, the Company was subject to legal action related to its or its subsidiary's
sale of cigarettes  online in the City of New York.  Future losses are likely to
occur. Accordingly, we may continue to experience significant liquidity and cash
flow problems because  historically our operations have not been profitable.  If
we are not successful in reaching and maintaining profitable operations,  we may
not be able to  attract  sufficient  capital to  continue  our  operations.  Our
inability  to obtain  adequate  financing  will  result  in the need to  curtail
business operations and will likely result in a lower stock price.


      WE HAVE BEEN THE SUBJECT OF A GOING CONCERN  OPINION FROM OUR  INDEPENDENT
      AUDITORS  BECAUSE  WE MAY NOT BE ABLE TO  CONTINUE  OPERATIONS  UNLESS  WE
      OBTAIN ADDITIONAL FUNDING

      Our  independent  auditors  have added an  explanatory  paragraph to their
audit opinions issued in connection with the financial  statements for the years
ended  December  31,  2005 and 2004,  which  state  that  Nexicon  has  suffered
recurring  losses  from  operations  and has  working  capital  and  stockholder
deficits.  These factors raise  substantial doubt about the Company's ability to
continue as a going concern.

      The accompanying  financial  statements have been presented  assuming that
Nexicon will continue as a going concern,  which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business. For
the year ended December 31, 2005, the Company incurred a net loss of $3,145,568.
At December 31, 2005, the Company has a working capital deficit of $998,571, and
a stockholders' deficit of $3,093,254.  Management anticipates that Nexicon will
incur net losses for the immediate future, and will need to generate  additional
monthly  revenue if it is to  continue  as a going  concern.  In  addition,  the
Company's  ability to continue as a going concern must be considered in light of
the problems, expenses and complications frequently encountered by entrance into
established  markets  and the  competitive  environment  in  which  the  Company
operates.  Our financial  statements do not include any  adjustments  that might
result  from the outcome of this  uncertainty.  We expect to be able to continue
operations  for twelve months with the cash  currently on hand,  borrowings  and
sales of common stock  through  Cornell  Capital and cash  anticipated  from our
operations.


                                       4
<PAGE>


      WE WILL NEED TO RAISE ADDITIONAL CAPITAL TO FINANCE OPERATIONS, WHICH WILL
      POTENTIALLY DILUTE THE VALUE OF OUR SHAREHOLDERS' SHARES

      We have relied on significant  external  financing to fund our operations.
Such financing has historically  come from a combination of borrowings,  sale of
common  stock to third  parties  and funds  provided  by  certain  officers  and
directors.  We cannot  assure  you that new  financing,  whether  from  external
sources or related parties, will be available if needed or on favorable terms to
our Company.  Our inability to obtain adequate financing will result in the need
to curtail business operations.  Any of these events would be materially harmful
to our  business  and may result in a lower stock  price.  We will need to raise
additional capital to fund our continuing  operations.  Any additional financing
may involve dilution to our then-existing shareholders,  which could result in a
decrease in the price of our shares.


      WE ARE SUBJECT TO A WORKING CAPITAL DEFICIT,  WHICH MEANS THAT OUR CURRENT
      ASSETS ON  DECEMBER  31, 2005 WERE NOT  SUFFICIENT  TO SATISFY OUR CURRENT
      LIABILITIES

      We had a working capital  deficit of $998,571 at December 31, 2005,  which
means that our current  liabilities  exceeded our current assets on December 31,
2005 by  $998,571.  As of August 17,  2006,  our  working  capital  deficit  had
increased  approximately  $55,000 compared to December 31, 2005.  Current assets
are  assets  that are  expected  to be  converted  to cash  within one year and,
therefore,  may be used to pay  current  liabilities  as they  become  due.  Our
working  capital  deficit means that our current assets on December 31, 2005 and
on August 17, 2006 were not sufficient to satisfy all of our current liabilities
on that date.


      OUR  OBLIGATIONS  UNDER THE NOVEMBER 2005 DEBENTURES ARE SECURED BY ALL OF
      OUR ASSETS WHICH WILL CAUSE OUR OPERATIONS TO CEASE IF WE DEFAULT

      Our  obligations  under the November 2005  Debentures (see Recent Sales of
Unregistered  Securities)  issued to Cornell are secured by substantially all of
our assets as security for  repayment of the  Company's  obligations  to Cornell
thereunder.  The  Company is not  currently  in default of any of its  foregoing
obligations to Cornell.  However,  if we default under the terms of the November
2005 Debentures, Cornell could foreclose its security interest and liquidate all
of our assets. This would cease operations of our business.

      WE DEPEND ON CORNELL AS A FINANCING SOURCE, WHICH COULD HAMPER OUR ABILITY
      TO OBTAIN OR RENEW FUNDING FROM THIRD PARTIES

      At December 31, 2005, we owed to Cornell a total of $1,592,075 in debt and
accrued interest  thereon,  consisting of $1,574,817 of principal and $17,258 of
interest. We are not currently in default of any of its foregoing obligations to
Cornell. Pursuant to the terms of the foregoing promissory notes and debentures,
all of our  non-cash  assets  have been  pledged  to  Cornell  as  security  for
repayment of our obligations to Cornell thereunder.

      Our  dependence  on Cornell for financing may hamper our ability to raise,
obtain or renew  funding  from third  parties.  Third  parties may not engage in
financing  arrangements  with us  because  they would not want to be in a junior
position  to Cornell.  Accordingly,  we may be unable to obtain  financing  from
sources  other than  Cornell,  which  in-turn  may  affect our  ability to raise
additional funds.

      OUR  COMMON  STOCK MAY BE  AFFECTED  BY  LIMITED  TRADING  VOLUME  AND MAY
      FLUCTUATE SIGNIFICANTLY

      There has been a limited  public market for our common stock and there can
be no assurance that an active trading market for our common stock will develop.
An absence of an active trading market could adversely affect our  shareholders'
ability to sell our common stock in short time periods,  or possibly at all. Our
common  stock  has  experienced,  and is  likely to  experience  in the  future,
significant  price and volume  fluctuations  which  could  adversely  affect the
market price of our common stock without regard to our operating performance. In
addition,  we  believe  that  factors  such  as  quarterly  fluctuations  in our
financial  results and changes in the overall  economy or the  condition  of the
financial  markets  could  cause  the  price of our  common  stock to  fluctuate
substantially.


                                       5
<PAGE>


      OUR  COMMON  STOCK IS DEEMED TO BE "PENNY  STOCK,"  WHICH MAY MAKE IT MORE
      DIFFICULT  FOR   INVESTORS  TO  SELL  THEIR  SHARES  DUE  TO   SUITABILITY
      REQUIREMENTS

      Our common  stock is deemed to be a "penny  stock" as that term is defined
in Rule 3a51-1 promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). These requirements may reduce the potential market for our
common  stock by reducing the number of  potential  investors.  This may make it
more difficult for investors in our common stock to sell shares to third parties
or to  otherwise  dispose of them.  This could cause our stock price to decline.
Penny stocks are stock:

      o     With a price of less than $5.00 per share;

      o     That are not traded on a "recognized" national exchange;

      o     Whose prices are not quoted on the NASDAQ automated quotation system
            (NASDAQ  listed stock must still have a price of not less than $5.00
            per share); or

      o     In issuers  with net  tangible  assets  less than $2 million (if the
            issuer has been in  continuous  operation for at least three years),
            or $5  million  (if in  continuous  operation  for less  than  three
            years),  or with  average  revenues  of less than $6 million for the
            last three years.

      Broker/dealers  dealing in penny stocks are required to provide  potential
investors  with a  document  disclosing  the  risks of penny  stocks.  Moreover,
broker/dealers  are required to determine whether an investment in a penny stock
is a suitable investment for a prospective investor.


      WE ARE  SUBJECT  TO  PRICE  VOLATILITY  DUE TO OUR  OPERATIONS  MATERIALLY
      FLUCTUATING;  AS A  RESULT,  ANY  QUARTER-TO-QUARTER  COMPARISONS  IN  OUR
      FINANCIAL STATEMENTS MAY NOT BE MEANINGFUL

      As a result of the evolving nature of the markets in which we compete,  as
well as the  current  nature of the public  markets  and our  current  financial
condition, we believe that our operating results may fluctuate materially,  as a
result of which quarter-to-quarter  comparisons of our results of operations may
not be  meaningful.  If in some  future  quarter,  whether as a result of such a
fluctuation or otherwise,  our results of operations fall below the expectations
of  securities  analysts and  investors,  the trading  price of our common stock
would likely be materially  and adversely  affected.  You should not rely on our
results  of any  interim  period as an  indication  of our  future  performance.
Additionally, our quarterly results of operations may fluctuate significantly in
the future as a result of a variety of  factors,  many of which are  outside our
control.  These  factors  that may  cause our  quarterly  results  to  fluctuate
include, among others:

      o     our ability to retain existing clients and customers;

      o     our ability to attract new clients and customers at a steady rate;

      o     our ability to maintain client satisfaction;

      o     the extent to which our products gain market acceptance;

      o     the timing and size of client and customer purchases;

      o     introductions of products and services by competitors;

      o     price competition in the markets in which we compete;


                                       6
<PAGE>


      o     our ability to attract, train, and retain skilled management; and

      o     the amount and timing of  operating  costs and capital  expenditures
            relating  to  the  expansion  of  our  business,   operations,   and
            infrastructure.


      WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY IN MARKETS WHERE OUR COMPETITORS
      HAVE MORE RESOURCES

      Substantially  all of our  competitors  have longer  operating  histories,
larger customer bases,  longer  relationships  with clients,  and  significantly
greater financial,  technical,  marketing,  and public relations  resources than
Nexicon. Based on total assets and annual revenues, we are significantly smaller
than  substantially  all of  our  competitors.  Similarly,  we  compete  against
significantly larger and better-financed  companies in our business.  We may not
successfully  compete in any market in which we conduct business currently or in
the  future.  The fact that we compete  with  established  competitors  who have
substantially  greater financial  resources and longer operating  histories than
us,  enables them to engage in more  substantial  advertising  and promotion and
attract a greater  number of customers and business  than we currently  attract.
While this  competition is already  intense,  if it increases,  it could have an
even greater adverse impact on our revenues and profitability.


      WE COULD FAIL TO ATTRACT OR RETAIN KEY PERSONNEL

      Our success largely depends on the efforts and abilities of key executives
and consultants, including Richard Urrea, our Chief Executive Officer, President
and sole director.  The loss of the services of Mr. Urrea could  materially harm
our  business  because of the cost and time  necessary  to  replace  and train a
replacement  and  because  of  Mr.  Urrea's   relationship  with  the  Company's
customers.  Such a  loss  would  also  divert  management  attention  away  from
operational issues. We do not presently maintain a key-man life insurance policy
on Mr. Urrea.

      OUR  ABILITY TO  COMPETE  SUCCESSFULLY  WILL  DEPEND  UPON THE  CONTINUING
      DEVELOPMENT AND ENHANCEMENT OF OUR TECHNOLOGY APPLICATIONS AND SOLUTIONS.

      To be  successful,  our  applications  and  solutions  must keep pace with
technological   developments  and  evolving  industry  standards,   address  the
ever-changing and increasingly sophisticated needs of our customers, and achieve
market acceptance. The development of systems and other proprietary technologies
entails  significant  technical and business  risk. We may encounter  unexpected
problems in connection with the development of our technologies,  including cost
overruns, bugs or software incompatibilities. Our existing technologies or those
that we develop may not adequately address our customer's business needs, or may
not address those needs as well as our competitors' service offerings. To remain
competitive  and  successfully  address the evolving needs of our  customers,  a
significant portion of our resources will need to be expended to: O identify and
anticipate  emerging  technological  and market  trends  affecting  the business
segment in which we do business;

      o     enhance  our current  services  offerings  so as to  increase  their
            functionality, features and cost-effectiveness;

      o     develop,  license or acquire new  applications or services that meet
            emerging customer needs;

      o     modify our  services  offerings  in response  to  changing  business
            practices and technical  requirements  of our customers,  as well as
            new regulatory requirements;

      o     integrate our current and future services offerings with third-party
            systems and services; and

      o     create and maintain  interfaces to changing customer and third party
            systems and services.

      We must  achieve  these  goals in a timely and  cost-effective  manner and
successfully market our new and enhanced services offerings to our customers. If
we are  unable to expand  or  appropriately  enhance  or modify  our  technology
solutions offerings quickly and efficiently,  our business and operating results
will be adversely affected.

      OUR BUSINESS MAY BE HARMED BY ERRORS IN OUR SOFTWARE.

      The  software  that we develop and license to our  customers  is extremely
complex and contains  hundreds of thousands of lines of computer  code.  Complex
software  systems such as ours are susceptible to errors.  Our software  design,
development  and testing  processes are not always  adequate to detect errors in
our software prior to its release for commercial use. As a result,  we have from
time to time  discovered,  and we may likely in the future  discover,  errors in
software  that  has  been  placed  into  use by our  customers.  Because  of the
complexity  of our  systems  and the large  volume of data we process on a daily
basis, we sometimes have not detected software errors until after they have been
put into use by our  customers.  Such  errors can harm our  business  in several
ways, including the following:


                                       7
<PAGE>


      o     we may suffer a loss of revenues if, due to software errors,  we are
            temporarily  unable  to  provide  the  technology  applications  and
            solutions to our customers;

      o     we may not be paid for the applications  and services  provided to a
            customer that contain or result in errors;

      o     we may incur additional  expenses to correct errors in our software,
            or to fund product  development  projects  that we may  undertake to
            minimize the occurrence of such errors in the future;

      o     we may damage our  relationships  with customers or suffer a loss of
            reputation within our industry;

      o     our customers may terminate or fail to renew their  agreements  with
            us or reduce the services they purchase from us.

      We  currently  do not have  errors  and  omissions  insurance.  It is also
possible that such insurance  might cease to be available to us on  commercially
reasonable terms or at all.

      IF WE ARE UNABLE TO RESPOND TO THE RAPID  TECHNOLOGICAL  CHANGES  THAT ARE
      CHARACTERISTIC OF OUR INDUSTRY, OUR TECHNOLOGY  APPLICATIONS AND SOLUTIONS
      MAY NOT BE COMPETITIVE.

      The market for our technology  applications and solutions is characterized
by rapid changes in business models and technological features and capabilities,
and we will need to constantly  adapt to changing  markets and  technologies  to
provide competitive services. We believe that our future success will depend, in
part, upon our ability to develop and continually  adapt our services  offerings
to suit the needs of our target business market. We may not, however, be able to
successfully do so, and our competitors may develop  innovations that render our
services obsolete or uncompetitive.


ITEM 2.  DESCRIPTION OF PROPERTY

      The Company  operates  its  executive  offices at 400 Gold SW, Suite 1000,
Albuquerque,  New Mexico 87102.  Nexicon  entered into a two-year lease contract
with a monthly  basic  lease  payment of $1,400.  On January 28,  2004,  Nexicon
entered into a three-year  lease  contract  for the  operations  of OSSI at 8280
Greensboro  Dr,  McLean,  Virginia  22102.  The basic  monthly  lease payment is
$5,590. We moved all operations at this location to Albuquerque in March 2005.


ITEM 3.  LEGAL PROCEEDINGS

      On January 28, 2003, the Company's subsidiary Cyco.net,  Inc. was named in
a civil action filed in the United States  District Court  Southern  District of
New York by the City of New York as one of  approximately a dozen defendants who
engaged in the business of Internet  online  cigarette  sales.  The suit alleges
that Cyco.net, Inc. failed to report the names and addresses of its customers to
taxing  authorities.  The extent of the City's  damages are to be  determined at
trial.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         None.


                                       8
<PAGE>


                                     PART II


ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

      Nexicon's  common stock is quoted on the  Over-the-Counter  Bulletin Board
maintained by the NASD under the symbol "NXCN.OB".

      The  following  table sets forth the range of high and low bid  quotations
for each calendar quarter for Nexicon's common stock for the prior two years.

                                                         BID PRICE PER SHARE
                                                        HIGH             LOW

January 1, 2004 - March 31, 2004                      $1.2300          $0.2500
April 1, 2004 - June 30, 2004                         $0.4700          $0.1800
July 1, 2004 - September 30, 2004                     $0.4000          $0.1800
October 1, 2004 - December 31, 2004                   $0.2200          $0.0700

January 1, 2005 - March 31, 2005                      $0.1100          $0.0300
April 1, 2005 - September 30, 2005                    $0.0390          $0.0300
July 1, 2005 - September 30, 2005                     $0.0510          $0.0160
October 1, 2005 - December 30, 2005                   $0.0270          $0.0170

January 1, 2006 - March 31, 2006                      $0.0300          $0.0110
April 1, 2006 - June 30, 2006                         $0.0151          $0.0400
July 1, 2006 - July 31, 2006                          $0.0260          $0.0350

August 1, 2006 - August 17, 2006                      $0.0200          $0.0200

      The above prices were obtained from NASDAQ, Inc. The quotations  represent
inter-dealer quotations, without retail mark-up, markdown or commission, and may
not necessarily represent actual transactions.

      As of August 17,  2006,  Nexicon  believes  there were  approximately  635
holders of record of our common stock.

      We have not paid dividends in the past on any class of stock and we do not
anticipate paying dividends in the foreseeable future.

      Nexicon  does not have any equity  compensation  plans under which  equity
securities of the Company are authorized for issuance.


      RECENT SALES OF UNREGISTERED SECURITIES

      During  the past  three  years,  the  Company  has  issued  the  following
unregistered securities:

      During the year ended  December 31, 2005,  the Company  issued  23,100,000
shares  of its  common  stock  to  otherwise  unrelated  entities,  for  cash of
$282,000,  5,506,250  shares to  employees as  compensation  valued at $118,425,
3,947,369 shares to Richard Urrea valued at $75,000,  3,947,369 shares to Daniel
Urrea valued at $75,000,  and 2,631,579  shares to an employee valued at $50,000
as payment for bonuses accrued in the fiscal year ended 2003. The Company issued
1,439,900  shares to John  Morrison for investor  relations  services  valued at
$31,177,  1,500,000  shares  were  issued  to Brent  Jay for  market  consulting
services valued at $30,000, 318,500 shares were issued to CCG Investor Relations
for market  consulting  services valued at $3,185 (which is included in non-cash
compensation - general and administrative),  and 3,066,124 shares were issued in
connection with the conversion of $65,000 of debentures,  and 11,933,540  shares
were issued in connection with advances made to Nexicon under the Standby Equity
Distribution Agreement ("2005 SEDA") with Cornell.


                                       9
<PAGE>


      On November 21, 2005, Nexicon entered into a Securities Purchase Agreement
with Cornell pursuant to which the Company issued to Cornell secured convertible
debentures  in  the  principal   amount  of  $2,000,000   (the   "November  2005
Debentures").   The  November  2005  Debentures  were  issued  as  follows:  (i)
$1,085,481 of which was issued to replace secured  promissory  notes  previously
issued  and  sold to  Cornell  on  March  3,  2005 in the  principal  amount  of
$1,000,000 plus $85,481 in accrued interest due and  outstanding;  (ii) $389,337
of which was issued to replace secured  promissory notes  previously  issued and
sold to Cornell on May 4, 2005 in the principal  amount of $360,000 plus $29,337
in accrued interest due and outstanding; and (iii) $525,182 of which consists of
new secured convertible debentures issued and sold (or to be issued and sold, as
applicable) to Cornell as follows: (a) $100,000 was funded on November 22, 2005,
(b)  $100,000  will be funded two  business  days prior to the date on which the
Company files a registration  statement (the "Registration  Statement") with the
United States  Securities  and Exchange  Commission  (the "SEC") to register the
securities  underlying  the November 2005  Debentures,  and (c) $325,182 will be
funded one  business  day prior to the  Registration  Statement  being  declared
effective by the SEC. The November 2005 Debentures are secured by  substantially
all of the Company's  assets,  have two-year maturity dates, and accrue interest
at 10% per annum.

      On July 22, 2005, Nexicon and Central Solutions,  Inc.  ("Central") agreed
to terminate the Investment,  Marketing and Distribution  Agreement entered into
on December 10, 2004. As a result of  terminating  said  agreement,  the Company
returned its 35% ownership  interest in Central  Solutions and Central  returned
the 10,000,000 shares of the Company's common stock received per said agreement.

      On July 5, 2005, Nexicon entered into the 2005 Standby Equity Distribution
Agreement  ("2005 SEDA'),  effective as of June 24, 2005,  pursuant to which, at
our discretion,  we could have periodically sold to Cornell shares of our common
stock for a total purchase price of up to $20,000,000.  For each share of common
stock purchased under the 2005 SEDA,  Cornell would have paid Nexicon 99% of the
lowest volume weighted average price of our common stock on the Over-the-Counter
Bulletin Board or other principal market on which our common stock is traded for
the five trading days immediately  following the notice date.  Further,  Cornell
would have  retained a fee of 5% of each advance  under the 2005 Standby  Equity
Distribution  Agreement.  In  light  of the  limitations  contained  in the 2005
Standby Equity  Distribution  Agreement,  we would have had to submit a $300,000
advance request  approximately  every six trading days for 24 months in order to
attain the full $20,000,000 available under the 2005 Standby Equity Distribution
Agreement.  The 2005 Standby  Equity  Distribution  Agreement was  terminated on
November 21, 2005 pursuant to a Termination Agreement,  dated November 21, 2005,
between Nexicon and Cornell.

      Also  on  July  5,  2005,  we  refinanced  the  2004  Secured  Convertible
Debentures as the 2005 Secured  Convertible  Debentures (" 2005  Debentures") in
the  principal  amount of  $380,000,  effective  as of June 24,  2005.  The 2005
Secured  Convertible  were  convertible  at the  holder's  option any time up to
maturity  at a  conversion  price per share  equal to $0.01.  At  maturity,  the
remaining   unpaid  principal  and  accrued  interest  under  the  2005  Secured
Convertible  Debenture would be, at Nexicon's  option,  either paid or converted
into  shares of common  stock at a  conversion  price  equal to $0.01.  The 2005
Secured Convertible  Debentures were secured by substantially all of our assets,
and accrued  interest at a rate of 5% per year and had a 2-year term. On July 1,
2005,  the Company  issued  1,086,957  shares of its common stock to Cornell for
conversion  of  $20,000  under the 2005  Debenture  . The 2005  Debentures  were
terminated on November 21, 2005,  dated November 21, 2005,  between  Nexicon and
Cornell. The balance of $389,337 outstanding at November 21, 2005 under the 2005
Debentures was refinanced under the November 2005 Debentures.

      On  March  17,  2005,   Nexicon   discontinued   operations  of  its  OSSI
SatSecure(C)  Systems  business,  pursuant  to the  terms of a Stock  Repurchase
Agreement. The Company repurchased 15,000,000 shares of its common stock held by
the  President  of OSSI Robert  Demson in  exchange  for all right,  title,  and
interest that the Company held in agreements  associated with the "SatSecure(C)"
technology  and to the  tradenames  "Orion  Security  Services,  Inc.",  "OSSI",
"Ossi-Secure",  "SatSecure",  "SatWatch"  and  "RECON  9000" and all  equipment,
computers and furniture valued at approximately $15,213.

      On January  14,  2005,  Nexicon  issued an  unsecured  promissory  note to
Cornell in the amount of $250,000 and  received  net proceeds of $225,033  after
payment of financing costs of $24,967.  Effective March 3, 2005,  Nexicon issued
an additional  unsecured  promissory note to Cornell in the amount of $1,000,000
and  received  net proceeds of  $915,099,  after  payment of financing  costs of
$84,901.  The loan was evidenced by a promissory note dated March 3, 2005, which
has an interest at a rate of 12% per annum and was due on November 26, 2005.  As
a condition  precedent to the loan,  Nexicon  agreed to issue and hold in escrow
40,000,000  shares  of its  common  stock  to be  released  in  connection  with
repayment of the loan. On November 21, 2005, the promissory  note was terminated
and Cornell  surrendered the promissory  note and 35,889,410  shares of stock to
Nexicon.  The balance of $1,085,481  outstanding  on the  promissory  note as of
November 21, 2005 was converted into the November 2005 Debentures.


                                       10
<PAGE>


      During the year ended  December 31,  2004,  the Company  issued  6,600,000
shares of common stock for cash  consideration  of $587,800.  The Company issued
8,799,833 shares for services valued at $2,560,380, the fair value of the shares
on the date the Company  agreed to issue them, of which  $1,850,105 was expensed
as non-cash  stock  compensation  (general  and  administrative),  $166,279  was
expensed as part of discontinued  operations,  and $543,996 has been deferred to
be amortized over the terms of certain consulting agreements.

      Effective  December 10,  2004,  the Company  entered into a marketing  and
distribution  agreement  with Central  whereby the Company  granted  Central the
right to market,  distribute  and  support  any and all  technology  directly or
indirectly controlled, licensed, owned, joint ventured or otherwise approved for
the Company,  exclusively in the healthcare  markets in the U.S. and Canada.  In
connection  with this,  the Company issued  10,000,000  shares of its restricted
common  stock  valued at fair market  value of  $902,000 in exchange  for 35% of
Central's  issued and outstanding  common stock.  The agreement with Central was
terminated on July 22, 2005.

      On November 15, 2004,  Nexicon  purchased  all of the  outstanding  common
stock of Pluto,  a  Norwegian  company  that  provides  a range of  billing  and
customer care solutions for telecommunication carriers and service providers via
their Charon billing and customer care real-time,  client/server  system. In the
stock-for-stock purchase, Nexicon issued 5,010,496 shares of common stock valued
at  fair  market  value  of  $518,352  in  exchange  for all of the  issued  and
outstanding common stock of Pluto.

      Nexicon  acquired the stock of Pluto from the following people in exchange
for the number of shares of  Nexicon's  common  stock set forth  opposite  their
names:

<TABLE>
<CAPTION>
NAME                         NUMBER OF SHARES    NAME                     NUMBER OF SHARES
<S>                            <C>               <C>                          <C>
Teigland Eiendom AS            1,117,043         Nordea Liv Norge AS          155,400
Mercury Mobile AS                827,820         Holberg @                    133,980
Frank Mjos                       656,250         Tommy Eide                   105,000
Toman Invest AS                  388,500         Lie Invest AS                 38,850
Tommy Stiansen                   262,500         Rune Svendsen                 34,965
Reidar Asphaug                   262,500         Jens Petter Teigland          31,248
Svein Erik Fauskanger            262,500         Vest Kapital AS               26,250
Eiendomsgruppen Vest AS          242,498         Anders Giske                   7,770
Holberg Norden                   235,200         Eivind B0e                     5,250
Holberg Norge                    216,972                                    ---------
                                                 Total Shares               5,010,496
                                                                            =========
</TABLE>


      t 6 0 In  May  2004,  the  Company  entered  into  a  Securities  Purchase
Agreement, whereby up to $500,000 of 5% secured, convertible debentures would be
issued.  During the year ended  December  31,  2004,  the Company  received  net
proceeds of $369,323  after  payment of expenses in the amount of $130,677  from
the sale of  $500,000  of  debentures.  The  investor  converted  $75,000 of the
debentures  for 679,855  shares of its common stock.  At December 31, 2004,  the
balance of the  debentures  was $425,000  and the accrued  interest was $12,801.

      In March 2004,  the Company  entered  into a Standby  Equity  Distribution
Agreement with Cornell ("2004 SEDA"). This agreement replaced the Equity Line of
Credit Agreement entered into in September 2001. Pursuant to this agreement, the
Company may, at its discretion for up to two years,  periodically issue and sell
shares of common stock for a total purchase price of $20 million. If the Company
requests an advance under the SEDA, Cornell will purchase shares of common stock
for 99% of the volume weighted  average price on the  Over-the-Counter  Bulletin
Board or other principal market on which our common stock is traded for the five
days immediately  following the notice date.  Cornell intends to sell any shares
purchased  under the SEDA at the market  price.  On June 10,  2004,  the Company
filed a registration statement on Form SB-2 under the Securities Act of 1933, as
amended,  for the  registration  of 69,513,810  shares of the  Company's  common
stock. The registration statement became effective on August 11, 2004. Effective
March 23, 2004,  upon the  execution  of the SEDA,  the Company  issued  490,000
shares of its common stock to Cornell at $0.48 per share,  plus 20,833 shares of
its common stock to Newbridge  Securities  Corporation,  the placement agent, at
$0.48 per share,  for its advisory  services in  connection  with the SEDA.  The
total  fees of  $245,000  are  capitalized  as  financing  costs net of  $85,200
amortization  of  non-cash  interest  expense  in  the  accompanying   financial
statements, in the amount of $160,000 at December 31, 2004 which was written off
at the termination of the 2004 SEDA.


                                       11
<PAGE>


      With respect to the sale of the unregistered  securities referenced above,
all transactions were exempt from  registration  pursuant to Section 4(2) of the
Securities  Act of 1933, as amended (the  "Securities  Act"),  and  Regulation D
promulgated thereunder. In each instance, the purchaser had access to sufficient
information  regarding  Nexicon so as to make an informed  investment  decision.
More specifically, Nexicon had a reasonable basis to believe that each purchaser
was either an accredited  investor as defined in Regulation D of the  Securities
Act or otherwise  had the  requisite  sophistication  to make an  investment  in
Nexicon's common stock.


ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

      FORWARD-LOOKING  STATEMENTS AND  ASSOCIATED  RISKS.  This Report  contains
forward-looking  statements.  Such forward-looking statements include statements
regarding,  among other things,  (a) our projected sales and operating  results,
(b) our growth  strategies,  (c)  anticipated  trends in our  industry,  (d) our
future financing plans, (e) our anticipated  needs for working capital,  (f) our
lack of operational experience, and (g) the benefits related to ownership of our
common stock. Forward-looking statements, which involve assumptions and describe
our future plans,  strategies,  and expectations,  are generally identifiable by
use of the words "may," "will," "should,"  "expect,"  "anticipate,"  "estimate,"
"believe,"  "intend,"  or  "project"  or the  negative  of these  words or other
variations  on these  words or  comparable  terminology.  These  forward-looking
statements are based largely on our company's  expectations and are subject to a
number of risks and  uncertainties,  including those described in "Risks Related
to our Business" section of this Report.  Actual results could differ materially
from these  forward-looking  statements  as a result of changes in trends in the
economy and our industry,  demand for our products,  competition,  reductions in
the  availability of financing,  and other factors.  In light of these risks and
uncertainties,  there can be no assurance  that the  forward-looking  statements
contained in this Report will, in fact, occur as projected.


      OVERVIEW

      Effective  July 1, 2003,  Nexicon,  Inc.  sold its tobacco  operations  to
American Indian Cigco, LLC ("ACC"). In conjunction with this sale, ACC agreed to
purchase  2,000,000  shares of the Company's  common stock.  The purchase  price
aggregated  $3,000,000 in the form of two notes payable as follows:  (i) payment
for the assets of the  business  in the form of a note in the amount of $200,000
payable in 12 equal  monthly  installments  of $16,667  commencing  on August 1,
2003; and (ii) payment for the 2,000,000 common shares is payable in the form of
a $2,800,000 note with interest at 7% per annum, on an interest only basis.  The
interest payments were originally due annually commencing on August 31, 2004 and
the principal balance was due on July 31, 2008. Accrued interest  receivable has
not been reflected in the accompanying financial statements, as recognition will
occur as proceeds are received.  In November  2004, the agreement was amended to
effect monthly  interest-only  payments at an annual rate of 4.223%,  commencing
December 31, 2004,  with the  principal  due on or before  December 31, 2009, at
ACC's option. To date, ACC has paid no interest on the note.

      Because  the sale of the  business  and the common  shares  were made to a
thinly  capitalized  entity and significant  uncertainties  exist related to the
collectibility  of the amounts due, the gain from the sale of the business  will
be deferred  until such time as the proceeds are collected or until such time as
the cash flows from the operating activities of the business sold are sufficient
to fund the debt  service.  The deferred  portion of the gain on the sale of the
business  aggregating  $37,563 at  December  31, 2005 is  reflected  as deferred
revenue.

      On a go forward  basis,  revenues and expenses  from tobacco sales will be
shown as operating  results of discontinued  operations and are shown separately
in the accompanying statements of operations.

      On November  19,  2003,  Nexicon  purchased  OSSI,  a  corporation  in the
development  stage,  which  provides  secure  computer  network  and  management
solutions,  and video  surveillance  systems via  satellite  communication.  The
business  combination  has been  accounted  for as a  purchase.  The  results of
operations of OSSI have been included in the accompanying  financial  statements
since the effective date of the  acquisition.  In exchange for all of the issued
and outstanding  common shares of OSSI, the Company issued  50,000,000 shares of
its common  stock  valued at  $4,500,000.  The shares  were  valued at $0.09 per
share,  the fair market value at November 19, 2003. As of December 31, 2003, the
Company recorded a loss on asset impairment  related to this investment,  in the
amount of $4,500,000, which was charged to operations.

      On November 15, 2004, the Company purchased all of the outstanding  common
stock of Pluto,  a  Norwegian  company,  that  provides a range of  billing  and
customer care solutions for telecommunication carriers and service providers via
their Charon billing and customer care real-time, client/server system. Pursuant
to a Share Exchange  Agreement between the Company and Pluto dated June 16, 2004
and amended on November 15, 2004, the Company issued  5,010,496 shares of common
stock to Pluto in exchange for all of the issued and outstanding common stock of
Pluto.  Pluto will  continue  its  operations  in Norway  and will  operate as a
wholly-owned  subsidiary of the Company. The results of operations of Pluto from
November  15, 2004 through  December  31, 2005 are included in the  accompanying
financial statements.


                                       12
<PAGE>


      On March 17, 2005,  Nexicon decided to discontinue  operations of its OSSI
business,  pursuant to the terms of a Stock  Repurchase  Agreement.  The Company
agreed to repurchase 15,000,000 shares of its common stock held by the President
of OSSI and issued an unsecured  promissory note for $240,000 payable as $20,000
at closing and a note payable for $220,000 covering previously accrued wages and
expenses.  The note is payable in successive $20,000 increments on or before the
15th of each month for 11 consecutive  months.  As of July 31, 2006, the Company
is 9 months  in  arrears  on this  obligation.  This  individual  also  received
equipment  located in the OSSI  facility  with a net book value of  $15,213.  In
addition,  the  Company  relinquished  all  right,  title  and  interest  in any
agreements  associated with the SatSecure(C)  technology and to the Trade Names.
Accordingly,  all  revenues and  associated  costs  related to the  SatSecure(C)
product are reflected as discontinued  operations in the accompanying  financial
statements.   The  Company  recorded  a  loss  on  the  disposal  of  assets  of
discontinued  operations in connection with this  transaction,  in the amount of
$23,472,  which is presented  net of $9,362 of  previously  deferred gain on the
sale of the Company's Internet tobacco products division. Effective November 15,
2004,  the  Company  entered  into a share  exchange  agreement  with Pluto that
provides a range of billing and customer care  solutions  for  telecommunication
carriers  and service  providers  via their  Charon  billing and  customer  care
real-time, client/server system. The business combination has been accounted for
as a purchase.  The  results of  operations  of Pluto have been  included in the
accompanying financial statements since the effective date of the acquisition.

      The  following   information  should  be  read  in  conjunction  with  the
consolidated  financial  statements  of  Nexicon  and the  notes  thereto  which
accompany this Report.  Statements in this Management's  Discussion and Analysis
or Plan of Operation  and  elsewhere in this filing that are not  statements  of
historical or current fact constitute forward-looking statements.


      GOING CONCERN

      The  Company  has  experienced  losses  from  operations  as a  result  of
investments  it has made in attempting to achieve its operating  plan,  which is
long-range  in nature.  For the years  ended  December  31,  2005 and 2004,  the
Company  incurred net losses of  $3,145,568  and  $5,929,891,  respectively.  At
December 31,  2005,  the Company had a working  capital  deficit of $998,571 and
stockholders'  deficit of  $3,093,254.  In  addition,  the Company is subject to
legal action. On January 28, 2003, the Company's subsidiary  Cyco.net,  Inc. was
named in a civil  action  filed in the United  States  District  Court  Southern
District  of New York by the City of New  York as one of  approximately  a dozen
defendants who engaged in the business of Internet online  cigarette  sales. The
suit alleges that Cyco.net, Inc. failed to report the names and addresses of its
customers  to taxing  authorities.  The extent of the City's  damages  are to be
determined at trial.

      The Company's  ability to continue as a going  concern is contingent  upon
its ability to secure financing and attain profitable  operations.  In addition,
the Company's ability to continue as a going concern must be considered in light
of the problems,  expenses and complications  frequently encountered by entrance
into  established  markets and the competitive  environment in which the Company
operates. The Company purchased two wholly-owned subsidiaries, OSSI and Nexicon,
AS, and through sales of their products hopes to attain profitable operations.

      Our  independent  auditors  have added an  explanatory  paragraph to their
audit opinions  issued in connection  with the years ended December 31, 2005 and
2004 financial statements,  which states that the Company has suffered recurring
losses from operations and has working capital and stockholder  deficits.  These
factors raise  substantial  doubt about the  Company's  ability to continue as a
going  concern.  Our ability to obtain  additional  funding will  determine  our
ability to continue as a going concern.  The financial statements do not include
any adjustments to reflect the possible future effects on the recoverability and
classification  of assets or the amounts and  classification of liabilities that
may result  from the  possible  inability  of the Company to continue as a going
concern.


      CRITICAL ACCOUNTING POLICIES

      Nexicon's  consolidated  financial statements and related public financial
information  are based on the  application  of accounting  principles  generally
accepted in the United  States  ("GAAP").  GAAP  requires the use of  estimates,
assumptions,  judgments and subjective  interpretations of accounting principles
that have an impact on the assets,  liabilities,  revenue  and  expense  amounts
reported.  These estimates can also affect supplemental information contained in
our external disclosures including information regarding contingencies, risk and
financial condition.  We believe our use of estimates and underlying  accounting
assumptions adhere to GAAP and are consistently and conservatively  applied.  We
base our estimates on  historical  experience  and on various other  assumptions
that we believe to be reasonable  under the  circumstances.  Actual  results may
differ   materially  from  these   estimates  under  different   assumptions  or
conditions.  We  continue  to  monitor  significant  estimates  made  during the
preparation of our financial statements.


                                       13
<PAGE>


      Our  significant  accounting  policies  are  summarized  in  Note 1 of our
consolidated  financial  statements.  While  all  these  significant  accounting
policies impact its financial  condition and results of operations,  the Company
views certain of these policies as critical.  Policies determined to be critical
are those  policies  that  have the most  significant  impact  on the  Company's
consolidated financial statements and require management to use a greater degree
of judgment and estimates.  Actual results may differ from those estimates.  Our
management  believes that given current facts and circumstances,  it is unlikely
that applying any other  reasonable  judgments or estimate  methodologies  would
cause a material  effect on our  consolidated  results of operations,  financial
position or liquidity for the periods presented in this report.

      Our  critical  accounting  policies  are  revenue  recognition,   deferred
offering costs, and derivative financial instruments.

      REVENUE  RECOGNITION.  Effective  November 19, 2003  through  November 14,
2004, the Company's sole source of revenue was the sale of the  SatSecure(C) and
ComSecure(C)  systems  discussed above. The terms of sale are FOB shipping point
and the Company records  revenue when the product is shipped.  In December 2004,
the Company determined to dispose of the SatSecure(C)  division of its business,
which  was  consummated  in March  2005.  Accordingly,  the  revenues  and costs
associated  with  the  SatSecure(C)   division  are  presented  as  discontinued
operations in the accompanying financial statements.

      In November 2004, the Company  through Pluto,  added the service  revenues
from the sale of the Charon  Billing in Norway and Sweden.  On July 13, 2005, we
entered into a Service Agreement with the Motion Picture  Association of America
(the "MPAA"),  dated July 8, 2005, pursuant to which the Company will supply the
MPAA  with  Nexicon's  line of  next-generation  intelligence  and  data  mining
services  worldwide.  On December 7, 2005,  effective January 1, 2006 we entered
into a Service  Agreement  with Software  Information  and Industry  Association
("SIIA") to provide online  anti-piracy  monitoring.  Revenues are recognized at
the completion of the related services, and where they are earned.

      DEFERRED  OFFERING  COSTS.  The Company defers costs  associated  with the
raising of capital until such time as the offering is  completed,  at which time
the costs are  charged  against  the  capital  raised.  Should the  offering  be
terminated  the costs are  charged to  operations  during  the  period  when the
offering is terminated.

      DERIVATIVE FINANCIAL  INSTRUMENTS.  In connection with the sale of debt or
equity  instruments,  the Company may sell  options or warrants to purchase  its
common  stock.  In  certain  circumstances,  these  options or  warrants  may be
classified as derivative liabilities,  rather than as equity. Additionally,  the
debt or equity instruments may contain embedded derivative instruments,  such as
conversion  options,  which  in  certain  circumstances  may be  required  to be
bifurcated from the associated host instrument and accounted for separately as a
derivative  instrument  liability.  The  identification  of, and accounting for,
derivative   instruments  is  complex.  The  Company's   derivative   instrument
liabilities are re-valued at the end of each reporting  period,  with changes in
the fair value of the  derivative  liability  recorded  as charges or credits to
income,  in the period in which the changes  occur.  For  options,  warrants and
bifurcated  conversion options that are accounted for as derivative  instruments
liabilities,  the Company  determines the fair value of these  instruments using
the Black-Scholes  Option Pricing Model. That model requires assumptions related
to the remaining  term of the  instruments  and risk-free  rates of return,  the
Company's  current  common  stock price and  expected  dividend  yield,  and the
expected  volatility  of the  Company's  common stock price over the life of the
option.  The Company has  estimated  the future  volatility  of its common stock
price based on the history of the Company's stock price. The  identification of,
and accounting for,  derivative  instruments  and the assumptions  used to value
them can significantly affect the Company's financial statements.

      PLAN OF OPERATION

      Over the next 12-month period commencing on August 1, 2006,  Nexicon plans
to  continue  its efforts to obtain  working  capital;  pursue  sales of its two
product lines,  Security  Solutions and Charon Billing System;  and continue its
sales  efforts by gaining  new  contacts  through  current  customer  referrals,
pursuing other customers with data security problems,  and partnering with major
integrators.  As of August  17,  2006,  the  Company  has  raised  approximately
$358,000 from the sale of unregistered  common stock to various  individuals and
has received $100,000 from Cornell under the November 2005 Debenture  Agreement.
In addition,  as of August 17, 2006, sales had increased  approximately  $40,000
over the twelve months ended  December 31, 2005.  The Company's  cash balance at
August 17, 2006 is approximately $29,000.


                                       14
<PAGE>


      RESULTS OF  OPERATIONS  FOR YEAR ENDED  DECEMBER 31, 2005  COMPARED TO THE
      YEAR ENDED DECEMBER 31, 2004

      Revenues  for the year  ended  December  31,  2005 were  $394,146  and was
attributable  to  security  products  sales of  $300,000  and  billing  sales of
$94,146.  Revenues for the year ended  December  31, 2004 were  $495,990 and was
attributable to sale of a ComSecure  System  $448,510 and billing  revenues from
the Charon  Billing  system of $47,480.  The difference in revenues from 2004 to
2005 was a decrease  of  $101,844  or 20.5%.  Revenues in 2004 were from the one
time sale of a ComSecure  System as compared to revenues in 2005,  from the sale
of monthly anti-piracy  software fees. The Company is providing  anti-piracy and
intelligence  products to one client in the motion  picture  industry and to one
client in the software industry.

      Cost of goods sold for the year ended  December  31, 2005 was $299,551 and
was attributable to the cost of security  products of $228,000 and billing sales
products of $71,551. Cost of goods sold for the year ended December 31, 2004 was
$355,766  and was  attributable  to the cost of sales of a  ComSecure  System of
$319,681  and  billing  costs from the Charon  Billing  system of  $36,085.  The
difference  in cost of goods sold from 2004 to 2005 was a decrease of $56,215 or
15.8%.

      General and  administrative  expenses for the year ended December 31, 2005
and 2004 were $1,869,169 and $1,471,697,  respectively. The increase of $397,472
or 27.0% in general and  administrative  expenses in the year ended December 31,
2005,  was primarily due to the operations of OSSI for 10 months of the year and
to the operations of Pluto for 1.5 months.  General and administrative  expenses
for  the  year  ended  December  31,  2005  primarily  consisted  of  $1,362  in
advertising,  $885,086  in payroll  expenses,  $563,268  in  professional  fees,
$117,905 in rent,  $16,404 in amortization  and  depreciation,  $13,133 bad debt
expense,  $162,960  in travel  expense  and  $109,051  in  telephone,  supplies,
utilities and other miscellaneous expenses.  General and administrative expenses
for the  year  ended  December  31,  2004  primarily  consisted  of  $17,961  in
advertising,  $665,914  in payroll  expenses,  $396,741  in  professional  fees,
$51,532 in rent,  $22,829 in  amortization  and  depreciation,  $58,841 bad debt
expense,  $186,529  in  travel  expense  and  $71,350  in  telephone,  supplies,
utilities and other miscellaneous expenses.

      Research and development  costs for the year ended December 31, 2005, were
$0 as  compared to $75,138 in the prior year.  For the year ended  December  31,
2004,  purchased  research and development was $601,260 as compared to $0 in the
current year.  The cost was non-cash as common stock was issued in lieu of cash.
The Company recorded  purchased  research and development  pursuant to the write
down of its  investment  in Pluto of $601,260 and an  impairment  of the Central
investment  of  $902,000.  For the year ended  December  31,  2005,  the Company
recorded an  impairment  of  $147,851 of the  investment  in Mercury  Mobil,  AS
("Mercury").

      Non-cash stock  compensation for the year ended December 31, 2005 and 2004
was $726,783 and $1,850,105 respectively, a decrease of $1,123,322 or 60.7%. The
Company  issued  stock in lieu of cash for  various  services,  including  stock
issued to  employees  valued at  $118,425,  and other  services  were  valued at
$608,358.

      Nexicon  had an  operating  loss of  $2,649,208  for the 12  months  ended
December 31, 2005,  compared to $4,759,976 in the comparable period in the prior
year, a decrease of $2,110,768 or 44.3%.

      Other income and (expense) for the year ended December 31, 2005,  resulted
in net expense of  ($406,724)  which  included  interest  income of $1,478,  and
non-cash  derivative  instruments  income  which is the result of changes in the
fair value of derivative  instruments  that are indexed to our common stock,  in
the amount of $522,485,  offset by non-cash  interest expense of  ($704,880),and
loss on  extinguishments  of old debenture debt of ($225,807).  Other income and
(expense)  for the same period in 20034  resulted in net expense of  ($519,897),
which included  interest income of $7,510 offset by non-cash interest expense of
($106,109),  and derivative instruments expense of ($421,298). The difference in
other income (expense) from 2004 to 2005 was a decrease of $113,176 or 22%.

      Net loss from discontinued operations for the year ended December 31, 2005
and 2004 was a loss of $115,636 net of income tax  (benefit) of  ($26,000),  and
loss of $897,018 net of income tax (benefit) of $(247,000),  respectively.  This
relates  primarily to the Company's former cigarette  business which was sold in
July 2003, and the Company's sale of the SatSecure product line in 2004.

      Nexicon had a net loss for the year ended December 31, 2005 of $3,145,568,
compared to a net loss of $5,929,891  for the same period last year, a decreased
in loss of  $2,932,174  or 49%.  The  comprehensive  net loss for the year ended
December 31, 2005 was $3,150,661.


                                       15
<PAGE>


      LIQUIDITY AND CAPITAL RESOURCES

      For the  year  ended  December  31,  2005,  cash  used in  operations  was
$1,558,251,  cash used in investing activities was $11,371, and cash provided by
financing activities was $1,562,000.  This resulted in a net decrease in cash of
$7,622 or 25.8% in the year ended  December  31, 2005.  Cash used in  operations
consisted  of a net  loss  of  $3,145,568,  derivative  instruments  expense  of
$522,485,  currency  translation  adjustment of $5,093,  offset by  depreciation
expenses of $16,230,  non-cash  interest  expense,  including  accretion of debt
discount of $574,666,  loss on asset  impairment  of  $147,851,  gain on sale of
discontinued  operations  of $14,110,  loss on  extinguishment  of debentures of
225,807, common stock issued for services of $726,783, a decrease in receivables
of $6,185,  and a decrease  in other  assets of $4,953,  an increase in accounts
payable  accrued  expense  of  $329,310,  an  increase  in  net  liabilities  of
discontinued  operations of $78,362,  and a decrease in deferred gain of $9,362.
Cash  used by  investing  activities  consisted  of  purchase  of  property  and
equipment  of  $11,371.  Cash  provided by  financing  activities  consisted  of
proceeds  from the sale of common  stock of  $282,000,  proceeds  from notes and
debentures of  $1,350,000,  proceeds from  American  Indian CigCo  receivable of
$10,000 offset by payments on notes payable - related parties of $80,000.  As of
December 31, 2005, Nexicon had cash on hand of $21,940.

      For the  period  ended  August 17,  2006,  as  compared  to the year ended
December 31, 2005,  cash used in operations  decreased  approximately  $570,000,
cash used in investing  activities was approximately the same, and cash provided
by financing activities decreased by approximately $1,000,000.  This resulted in
a net increase in cash and a cash balance of approximately $29,000 at August 17,
2006.

      The  Company  estimates  that  it will  require  $2,040,000  to  fund  its
operations for the 12-month  period  commencing on August 1, 2006. The Company's
primary  need  for  cash  during  the  next  12  months  is to  satisfy  current
liabilities  of  $1,315,134,  as  well  as  to  support  the  Company's  current
operations. The Company's current operating cash requirements are expected to be
$170,000 per month,  including payroll, rent, utilities and litigation costs. In
the next 12 months,  Nexicon  expects to receive  the  balance of $54,674 of the
current  receivable from ACC and hopes to attain profitable  operations  through
its Security Solutions products and Charon billing system sales.


      On November 21,  2005,  the Company  entered  into a  Securities  Purchase
Agreement with Cornell  pursuant to which the Company issued to Cornell  secured
convertible debentures in the principal amount of $2,000,000 (the "November 2005
Debentures").   The  November  2005  Debentures  were  issued  as  follows:  (i)
$1,085,481 of which was issued to replace secured  promissory  notes  previously
issued  and  sold to  Cornell  on  March  3,  2005 in the  principal  amount  of
$1,000,000 plus $85,481 in accrued interest due and  outstanding;  (ii) $389,337
of which was issued to replace secured  promissory notes  previously  issued and
sold to Cornell on May 4, 2005 in the principal  amount of $360,000 plus $29,337
in accrued interest due and outstanding; and (iii) $525,182 of which consists of
new secured convertible debentures issued and sold (or to be issued and sold, as
applicable) to Cornell as follows: (a) $100,000 was funded on November 22, 2005,
(b)  $100,000  will be funded two  business  days prior to the date on which the
Company files a new registration  statement (the "New  Registration  Statement")
with the SEC to register the securities underlying the November 2005 Debentures,
and (c) $325,182  will be funded one business day prior to the New  Registration
Statement being declared  effective by the SEC. The November 2005 Debentures are
secured by substantially  all of the Company's  assets,  have two-year  maturity
dates, and accrue interest at 10% per annum.

      On  November  21,  2005,  the  Company  also  entered  into a  Termination
Agreement (the "November 2005 Termination Agreement") with Cornell, whereby that
certain Securities Purchase Agreement, Investor's Registration Rights Agreement,
Escrow Agreement,  Security Agreement, 2005 SEDA, Registration Rights Agreement,
and Escrow  Agreement,  all of which were dated as of June 24, 2005,  as well as
convertible  debentures  issued by the Company to Cornell on June 24, 2005, were
terminated.

      On July 5, 2005,  Nexicon entered into the 2005 SEDA with Cornell pursuant
to which Nexicon may, at its discretion,  periodically sell to Cornell shares of
Nexicon's common stock for a total purchase price of up to $20,000,000. For each
share of common stock  purchased  under the 2005 SEDA,  Cornell will pay Nexicon
99% of the lowest volume weighted average price of Nexicon's common stock on the
Over-the-Counter  Bulletin Board or other  principal  market on which  Nexicon's
common  stock is traded for the five  trading  days  immediately  following  the
notice date. Further,  Cornell will retain a fee of 5% of each advance under the
2005 SEDA. In light of the limitations contained in the 2005 SEDA, Nexicon would
need to submit a $300,000 advance request  approximately every nine trading days
for 24 months in order to attain the full  $20,000,000  available under the 2005
SEDA;  however,  Nexicon does not  currently  have  sufficient  shares given the
current  price of  Nexicon's  stock to permit  the  delivery  of the  securities
required to obtain the maximum  $20,000,000  available  under the 2005 SEDA. The
2005 SEDA  replaced  the Standby  Equity  Distribution  Agreement  that  Nexicon
entered into with  Cornell on March 23, 2004 (the "2004  SEDA")  pursuant to the
terms of the termination  agreement  dated June 23, 2005,  which was executed by
Nexicon and Cornell (the "June 2005  Termination  Agreement").  The 2005 Standby
Equity Distribution  Agreement was terminated on November 21, 2005 pursuant to a
Termination Agreement, dated November 21, 2005, between Nexicon and Cornell. The
balance of $1,085,481  outstanding  at November 21, 2005 under the 2005 SEDA was
refinanced under the November 2005 Debentures.


                                       16
<PAGE>


      Also  on  July  5,  2005,  we  refinanced  the  2004  Secured  Convertible
Debentures as the 2005 Secured  Convertible  Debentures (" 2005  Debentures") in
the  principal  amount of  $380,000,  effective  as of June 24,  2005.  The 2005
Secured  Convertible  were  convertible  at the  holder's  option any time up to
maturity  at a  conversion  price per share  equal to $0.01.  At  maturity,  the
remaining   unpaid  principal  and  accrued  interest  under  the  2005  Secured
Convertible  Debenture would be, at Nexicon's  option,  either paid or converted
into  shares of common  stock at a  conversion  price  equal to $0.01.  The 2005
Secured Convertible  Debentures were secured by substantially all of our assets,
and accrued  interest at a rate of 5% per year and had a 2-year  term.  The 2005
Debentures  were  terminated on November 21, 2005,  between Nexicon and Cornell.
The  balance  of  $389,337  outstanding  at  November  21,  2005  under the 2005
Debentures was refinanced under the November 2005 Debentures.

      RECENT ACCOUNTING PRONOUNCEMENTS

      In May 2005, the Financial  Accounting Standards Board (the "FASB") issued
Statement  of  Financial  Accounting  Standards  ("SFAS")  No. 154,  "Accounting
Changes  and Error  Corrections-a  replacement  of APB  Opinion  No. 20 and FASB
Statement  No. 3." This  Statement  replaces  APB  Opinion  No. 20,  "Accounting
Changes," and SFAS No. 3,  "Reporting  Accounting  Changes in Interim  Financial
Statements,"  and changes the requirements for the accounting for, and reporting
of, a change in accounting  principle.  This Statement  applies to all voluntary
changes in  accounting  principle.  It also  applies to changes  required  by an
accounting pronouncement in the unusual instance that the pronouncement does not
include specific transition  provisions.  When a pronouncement includes specific
transition provisions, those provisions should be followed.

      SFAS No. 154 is effective for accounting changes and corrections of errors
made in fiscal years  beginning after December 15, 2005. It will only affect the
financial  statements  of the  Company  if  there  is a  change  any  accounting
principle. At this time, no such changes are contemplated or anticipated.

      In February  2006, the FASB issues SFAS No. 155,  "Accounting  for Certain
Hybrid Financial  Instruments--an amendment of FASB Statements No. 133 and 140."
This amends SFAS No. 133,  "Accounting  for Derivative  Instruments  and Hedging
Activities,"  and No. 140,  "Accounting for Transfers and Servicing of Financial
Assets and  Extinguishments of Liabilities." This SFAS resolves issues addressed
in SFAS No. 133  Implementation  Issue No. D1,  "Application of Statement 133 to
Beneficial Interests in Securitized Financial Assets." This SFAS:

      a.    Permits  fair  value   re-measurement   for  any  hybrid   financial
            instrument that contains an embedded derivative that otherwise would
            require bifurcation;
      b.    Clarifies which interest-only  strips and principal-only  strips are
            not subject to the requirements of SFAS No. 133;
      c.    Establishes  a  requirement  to evaluate  interests  in  securitized
            financial  assets  to  identify   interests  that  are  freestanding
            derivatives or that are hybrid financial instruments that contain an
            embedded derivative requiring bifurcation;
      d.    Clarifies  that  concentrations  of  credit  risk  in  the  form  of
            subordination are not embedded derivatives; and
      e.    Amends SFAS No. 140 to  eliminate  the  prohibition  on a qualifying
            special-purpose   entity  from   holding  a   derivative   financial
            instrument that pertains to a beneficial interest other than another
            derivative financial instrument.

      This SFAS is effective  for all financial  instruments  acquired or issued
after the first fiscal year that begins after September 15, 2006.

      The fair value  election  provided for in paragraph  4(c) of this SFAS may
also be applied upon adoption of this Statement for hybrid financial instruments
that  had been  bifurcated  under  paragraph  12 of SFAS  No.  133  prior to the
adoption of this SFAS.  Earlier adoption is permitted as of the beginning of the
fiscal year, provided financial  statements have not yet been issued,  including
financial statements for any interim period, for that fiscal year. Provisions of
this SFAS may be  applied  to  instruments  held at the date of  adoption  on an
instrument-by-instrument  basis. The Company is currently  reviewing the effects
of adoption of this SFAS but it is not expected to have a material impact on its
financial statements.

      In March 2006, the FASB issued SFAS No. 156,  "Accounting for Servicing of
Financial  Assets--an  amendment of FASB Statement No. 140," with respect to the
accounting for separately recognized servicing assets and servicing liabilities.
This SFAS:

      1.    Requires  an entity to  recognize  a  servicing  asset or  servicing
            liability  each  time it  undertakes  an  obligation  to  service  a
            financial  asset by entering  into a  servicing  contract in certain
            situations;


                                       17
<PAGE>


      2.    Requires all separately  recognized  servicing  assets and servicing
            liabilities to be initially measured at fair value, if practicable;
      3.    Permits an entity to choose  either the  amortization  method or the
            fair  value   measurement   method  for  each  class  of  separately
            recognized servicing assets and servicing liabilities;
      4.    At its  initial  adoption,  permits a one-time  reclassification  of
            available-for-sale securities to trading securities by entities with
            recognized  servicing  rights,  without  calling  into  question the
            treatment of other available-for-sale securities under SFAS No. 115,
            provided that the  available-for-sale  securities  are identified in
            some manner as offsetting  the entity's  exposure to changes in fair
            value of servicing  assets or servicing  liabilities that a servicer
            elects to subsequently measure at fair value; and
      5.    Requires  separate  presentation  of servicing  assets and servicing
            liabilities  subsequently measured at fair value in the statement of
            financial  position and  additional  disclosures  for all separately
            recognized servicing assets and servicing liabilities.

      Adoption of this SFAS is required as of the  beginning of the first fiscal
year that begins after  September 15, 2006.  The Company is currently  reviewing
the effects of  adoption of this SFAS but it is not  expected to have a material
impact on its financial statements. The adoption of this SFAS is not expected to
have a material impact on the Company's financial statements.


ITEM 7.  FINANCIAL STATEMENTS

      The responses to Item 7 are contained in a separate  section at the end of
this Report. Please see Index to the Financial Statements on page F-1 hereto.


ITEM  8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE

      None.


ITEM 8A.  CONTROLS AND PROCEDURES

      A. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

      Nexicon's  Principal  Executive Officer and Principal  Financial  Officer,
after  evaluating the  effectiveness  of the Company's  disclosure  controls and
procedures (as defined in Rules  13a-15(e) and 15d-15(e) under the Exchange Act)
as of the end of the period  covered by this Report,  have  concluded that as of
such date,  Nexicon's  disclosure  controls  and  procedures  were  adequate and
effective to ensure that  material  information  relating to the Company that is
required to be disclosed  by Nexicon in reports  that it files or submits  under
the Exchange Act, is recorded,  processed,  summarized  and reported  within the
time periods  specified in SEC rules and  accumulated  and  communicated  to the
Company's  management,  including its Principal  Executive Officer and Principal
Accounting Officer, to allow timely decisions regarding required disclosure.

      B. CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING

      In connection  with the evaluation of Nexicon's  internal  controls during
the fiscal quarter ended December 31, 2005,  the Company's  Principal  Executive
Officer  and  Principal  Financial  Officer  have  determined  that there are no
changes to  Nexicon's  internal  controls  over  financial  reporting  that have
materially  affected,  or  are  reasonably  likely  to  materially  effect,  the
Company's internal controls over financial reporting.


ITEM 8B.  OTHER INFORMATION

      None.


                                       18
<PAGE>


                                    PART III


ITEM 9.  DIRECTORS  AND  EXECUTIVE  OFFICERS,  PROMOTORS  AND  CONTROL  PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

       Nexicon's present directors and executive officers are as follows:

NAME                   AGE       POSITION
Richard Urrea          41        Chief Executive Officer, President and Director
Daniel Urrea           34        Chief Financial Officer

      The  directors  and  executive  officers of Nexicon are not  directors  or
executive  officers of any other  company  that files  reports with the SEC, nor
have they been involved in any bankruptcy proceedings, criminal proceedings, any
proceeding  involving  any  possibility  of  enjoining or  suspending  Nexicon's
directors  and officers  from  engaging in any  business,  securities or banking
activities, and have not been found to have violated, nor been accused of having
violated, any federal or state securities or commodities laws.

      The following is a brief  description  of the  background of the directors
and executive officers of Nexicon.

      RICHARD URREA has been  President and Chief  Executive  Officer of Nexicon
since  its  inception  in  January  1999 and has been  our sole  director  since
December 2004. He served as President of Sycom International,  Inc. from 1997 to
1999.  Sycom is a data  communications  company.  Mr. Urrea led the company from
start up through national marketing plan and implementation of its manufacturing
plan.  The  company  currently   manufactures  its  products  and  markets  them
throughout the U.S. and is in the process  expanding into foreign markets.  From
1996 to 1997,  Mr. Urrea was President of Klaire  International  Ltd., an export
company  distributing  automotive  parts in Mexico.  From  1995-1996,  Mr. Urrea
served as the managing member of Toltec Fruit, L.C., a limited liability company
involved  in the  importation  of fruit into the United  States  from Mexico and
South  America.  From 1993 to 1995,  Mr.  Urrea  worked on the  development  and
marketing plan for Septima Enterprises Inc. From 1991 to 1993, Mr. Urrea managed
the  Albuquerque  Office of White  Discount  Securities.  In 1990, Mr. Urrea was
contract  administrator  for  Foresight,  Inc.,  an  Albuquerque,   laser-optics
government  contractor.  In 1989, Mr. Urrea served as marketing director for HDI
System,  Inc. where he devised and implemented an  international  marketing plan
for an ignition system for marine application. In 1985 and 1986, Mr. Urrea owned
and  operated  Shannon  Euro  Motorcars,  a European  automobile  importing  and
maintenance  company.  Mr.  Urrea  sold the  business  in 1986 to attend  Baylor
University.  Mr.  Urrea  received  his  Bachelor of Business  Administration  in
Marketing and Business Broadcasting from Baylor University's Hankammer School of
Business in 1989.

      DANIEL  URREA has been Chief  Financial  Officer  with  Nexicon  since its
inception in January 1999. Prior to his involvement with the Nexicon,  Mr. Urrea
worked with Sycom International, manufacturer and distributor of Radio Telemetry
Units.  During that time Mr. Urrea was  responsible  for the  maintenance of the
accounting  records for the company,  and was instrumental in the development of
the  company's   business  plan.  Before  this,  Mr.  Urrea  worked  for  Klaire
International,  an exporter of  automotive  accessories  to Mexico,  in the same
capacity.  From January 1996 thorough  August 1996 Mr. Urrea worked with Equinox
International, an international marketing and distribution company, where he was
involved in sales and talent recruiting  activities.  In the Spring of 1995, Mr.
Urrea received a Bachelors in Business  Administration  with a concentration  in
Finance from the Anderson Schools of Management at the University of New Mexico.


      FAMILY RELATIONSHIPS

      Richard Urrea, our President,  Chief Executive  Officer and sole director,
is the brother of Daniel Urrea, our Chief Financial Officer.


      COMMITTEES

      Nexicon's Board of Directors serves as the audit  committee.  The Board of
Directors  does not have a "financial  expert" due to the lack of capital needed
to attract a qualified expert. Nexicon does not have any other committees.


                                       19
<PAGE>


      DIRECTOR COMPENSATION

      Nexicon's  directors do not receive any compensation for their services as
such. Nexicon does periodically  reimburse directors for out-of-pocket  expenses
they incur in fulfilling their duties as such.

      CODE OF ETHICS

      On April 8, 2004, the Board of Directors of the Company  adopted a written
Code of Ethics  designed  to deter  wrongdoing  and  promote  honest and ethical
conduct,  full,  fair and  accurate  disclosure,  compliance  with laws,  prompt
internal reporting and  accountability to adherence to the Code of Ethics.  This
Code of Ethics was filed with the Commission as an Exhibit to the Company's Form
10-KSB for the year ended December 31, 2003.

ITEM 10.  EXECUTIVE COMPENSATION

      The following table shows all the cash  compensation  paid by Nexicon,  as
well as certain  other  compensation  paid or accrued,  during the fiscal  years
ended December 31, 2005, 2004 and 2003 to Nexicon's three highest paid executive
officers. No restricted stock awards,  long-term incentive plan payouts or other
types of  compensation,  other  than the  compensation  identified  in the chart
below, were paid to these executive  officers during these fiscal years.  Except
as indicated below, no executive  officer earned a total annual salary and bonus
for any of these years in excess of $100,000.

<TABLE>
<CAPTION>
                                      ANNUAL COMPENSATION                                 LONG-TERM COMPENSATION
                         ----------------------------------------------   ----------------------------------------------------
                                                                             AWARDS                    PAYOUTS
                                                                                                         S
                                                           OTHER ANNUAL     RESTRICTED      OPTIONS/    LTIP       ALL OTHER
                                  SALARY      BONUS        COMPENSATION   STOCK AWARD(S)      SARS     PAYOUTS    COMPENSATION
                          ----   --------   ---------      ------------   ---------------   --------   --------   ------------

<S>                       <C>       <C>         <C>            <C>               <C>            <C>          <C>           <C>
NAME AND PRINCIPAL
POSITION                  YEAR      ($)         ($)            ($)               ($)            (#)          ($)           ($)
                          ----   --------   ---------      ------------   ---------------   --------   --------   ------------

Richard Urrea,
Chief Executive           2005   $109,520          --                --                --         --         --             --
Officer, President        2004   $108,634          --                --                --         --         --             --
and Director              2003   $ 42,100   $  75,000(1)             --                --         --         --             --

Daniel Urrea,             2005   $ 87,666          --                --                --         --         --             --
Chief Financial Officer   2004   $ 49,896          --                --                --         --         --             --
And Secretary/Treasurer   2003   $ 30,333   $  75,000(1)             --                --         --         --             --
</TABLE>


---------------
(1)      A bonus of $75,000 each was accrued for Richard  Urrea and Daniel Urrea
         for reduced  salaries paid in the year ended  December 31, 2003.  These
         were paid by the issuance of 3,947,369  shares of the  Company's  $.001
         par value common stock to each individual on October 17, 2005.


      EMPLOYMENT AGREEMENTS

      Effective  January  1,  2004,  Nexicon  entered  into a 5-year  employment
agreement with Richard  Urrea.  Mr. Urrea is employed as the President and Chief
Executive Officer of Nexicon.  Mr. Urrea's annual salary is $120,000.  Mr. Urrea
is also  entitled to  discretionary  bonuses to be  determined  by the Company's
board of directors and the use of a Company car.

      Effective  January  1,  2004,  Nexicon  entered  into a 5-year  employment
agreement  with Daniel  Urrea.  Mr.  Urrea is  employed  as the Chief  Financial
Officer of Nexicon.  Mr.  Urrea's  annual  salary is $90,000.  Mr. Urrea is also
entitled to  discretionary  bonuses to be determined  by the Company's  board of
directors and the use of a Company car.


      SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLAN

      The following  table sets forth the securities  that have been  authorized
under equity compensation plans as of December 31, 2005.


                                       20
<PAGE>

<TABLE>
<CAPTION>
                                                                                                              NUMBER
                                                                                                          OF SECURITIES
                                                                                                       REMAINING AVAILABLE
                                                         NUMBER                                        FOR FUTURE ISSUANCE
                                                      OF SECURITIES             WEIGHTED-AVERAGE    UNDER EQUITY COMPENSATION
                                                      TO BE ISSUED               EXERCISE PRICE               PLANS
                                                      UPON EXERCISE              OF OUTSTANDING       (EXCLUDING SECURITIES
                                            OF OUTSTANDING OPTIONS, WARRANTS        OPTIONS,                REFLECTED
                                                       AND RIGHTS              WARRANTS AND RIGHTS        IN COLUMN (A))
                                            --------------------------------   -------------------   ------------------------
                                                           (A)                        (B)                       (C)
                                            --------------------------------   -------------------   ------------------------

<S>                                                                  <C>       <C>                                    <C>
Equity compensation plans approved by
  security holders                                                   750,000   $              0.06                    750,000
Equity compensation plans not approved by
  security holders                                                         0   $                 0                          0
TOTAL                                                                750,000   $              0.06                    750,000
</TABLE>

      No options have been granted to the named officers and directors.


      SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

      Section  16(a)  of the  Exchange  Act and  the  rules  thereunder  require
Nexicon's officers and directors, and persons who beneficially own more than 10%
of a  registered  class of  Nexicon's  equity  securities,  to file  reports  of
ownership  and changes in  ownership  with the SEC and to furnish  Nexicon  with
copies  thereof.  Based on its reviews of the copies of the Section  16(a) forms
received  by it, or written  representations  from  certain  reporting  persons,
Nexicon  believes  that,  during the last fiscal year,  all Section 16(a) filing
requirements  applicable  to  its  officers,  directors  and  greater  than  10%
beneficial owners were complied with though not timely filed.


ITEM 11.  SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
RELATED STOCKHOLDER MATTERS


      VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF

      The following  table sets forth, as of August 17, 2006,  information  with
respect to the beneficial  ownership of our common stock by (i) persons known by
us to beneficially  own more than five percent of the outstanding  shares,  (ii)
each director, (iii) each executive officer and (iv) all directors and executive
officers as a group.

<TABLE>
<CAPTION>
                                                                       COMMON STOCK
                                                                    BENEFICIALLY OWNED
                                                             ---------------------------------
NAME/ADDRESS                                                 NUMBER                PERCENT (1)
------------------------------                               ------------       ---------------
<S>                                                            <C>                   <C>
Daniel Urrea                                                   8,993,369             4.24%
3009 Charleston NE
Albuquerque, New Mexico 87110
Richard Urrea                                                  8,668,369             4.10%
600 Alcalde SW #4D
Albuquerque, New Mexico 87104
ALL OFFICERS AND DIRECTORS AS A GROUP (2 PERSONS)             17,661,738             8.34%


                                       21
<PAGE>


<CAPTION>
                                                                       COMMON STOCK
                                                                    BENEFICIALLY OWNED
                                                             ---------------------------------
NAME/ADDRESS                                                 NUMBER                PERCENT (1)
------------------------------                               ------------       ---------------

<S>                                            <C>            <C>                    <C>
Mathew Urrea - Tres Santos Limited Partnership (2)            10,000,000             4.71%
7850 Jefferson NE Suite 140
Albuquerque, New Mexico 87109
Mathew Urrea - Urrea Family Limited Partnership (2)            8,000,000             3.77%
7850 Jefferson NE Suite 140
Albuquerque, New Mexico 87109
Cornell Capital Partners, LP                          500,000 / 50,780,645        0.24% /
                                                                        (3)        23.93% (3)
101 Hudson Street, Suite 3700
Jersey City, NJ 07302
</TABLE>

---------------

(1)      Applicable  percentage of ownership is based on  212,183,351  shares of
         common  stock  outstanding  as  of  August  17,  2006,   together  with
         applicable  options  for  each  shareholder.  Beneficial  ownership  is
         determined  in  accordance  with  the  rules  of the SEC and  generally
         includes voting or investment power with respect to securities.  Shares
         of common stock  subject to options that are currently  exercisable  or
         exercisable  within  60  days of  August  17,  2006  are  deemed  to be
         beneficially  owned by the person  holding such options for the purpose
         of computing the  percentage  of ownership of such person,  but are not
         treated as  outstanding  for the purpose of  computing  the  percentage
         ownership of any other person. The common stock is the only outstanding
         class of equity securities of Nexicon.


(2)      Mathew  Urrea is the Trustee for and has  beneficial  ownership  of the
         common stock held by the Urrea Family  through these two  partnerships.
         Mathew Urrea is a brother to Richard Urrea and Daniel Urrea.


(3)      As of August 17, 2006,  Cornell  directly owns 500,000 shares of common
         stock.  Cornell  would  own  an  additional  50,280,645  shares  if  it
         immediately  converted  the  outstanding  principal   ($1,480,000)  and
         accrued interest ($78,770) under the November 2005 Debentures, which it
         is entitled  to do under the terms of said  debentures.  The  foregoing
         conversion  calculation  is based on a recent  share  price of  $0.031.
         However,  under the terms of the November 2005 Debentures,  Cornell may
         not own more than 4.9% of the Company's outstanding common stock unless
         the Company is in default  under the  debentures.  The total  number of
         shares shown as being  beneficially owned by Cornell in the above table
         (50,780,645) assumes that Cornell converted all outstanding  debentures
         that it holds without regard to the 4.9% ownership limitation.


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      On October 17, 2005,  the Company  issued  3,947,369  shares of its common
stock to each of Richard Urrea and Daniel Urrea valued at a total of $150,000 as
payment for bonuses accrued in the fiscal year ended December 31, 2004.

      On March 17, 2005,  Nexicon decided to discontinue  operations of its OSSI
SatSecure(C)  Systems  business,  pursuant  to the  terms of a Stock  Repurchase
Agreement.  Nexicon agreed to repurchase  15,000,000  shares of its common stock
held by the  president  of OSSI and  issued  an  unsecured  promissory  note for
$240,000 covering previously accrued wages and expenses.  The note is payable as
$20,000 at closing and $220,000 payable in successive  $20,000  increments on or
before the 15th of the month for 11 consecutive  months.  This  individual  also
received  equipment  located  in the  OSSI  facility  with a net  book  value of
$15,213. In addition,  Nexicon  relinquished all right title and interest in any
agreements  associated  with the  SatSecure(C)  technology  and to various trade
names.

      At December 31, 2004,  the Company has recorded  notes payable and accrued
interest  payable to the  president of its  subsidiary  OSSI,  in the  aggregate
amount of $21,741,  including interest of $8,741. In addition,  the Company owes
this  individual  $249,276  including  $210,000 of prior year accrued and unpaid
wages,   $19,022  of  current  year   accrued   wages  and  $20,054  of  expense
reimbursement.  All of these  liabilities  are  included in Net  Liabilities  of
Discontinued  Operations related to the SatSecure(C) System division at December
31,  2004,  and  payment of these  obligations  is  incorporated  into the Stock
Repurchase Agreement.

      Accrued  expenses - related  party  includes an  aggregate  of $100,000 of
unpaid prior year bonuses to employees, who are also shareholders, plus $125,820
of current year accrued wages.

      During the year ended  December 31, 2004, the Company paid $100,200 to its
affiliate  Mercury Mobile, AS ("Mercury"),  a closely-held  Norwegian company of
which Nexicon owns 2.5% of the issued and outstanding common stock. In addition,
$74,864 was paid to a company affiliated with certain shareholders, for the cost
of materials related to its ComSecure(C)  Controller product,  which amounts are
included in cost of goods sold.


                                       22
<PAGE>


ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

      (A)   THE  FOLLOWING  EXHIBITS  ARE  FILED  AS PART  OF THIS  REGISTRATION
            STATEMENT:

<TABLE>
<CAPTION>
EXHIBIT NO.           DESCRIPTION                                              LOCATION

<S>                   <C>                                                      <C>
2.1                   Acquisition Agreement between Ave and DMI                Incorporated by reference to Exhibit 2.1 to
                                                                               the Company's Annual Report on Form 10-KSB as
                                                                               filed with the Securities and Exchange
                                                                               Commission on April 16, 2001

2.2                   Letter of Intent between Ave and Nexicon dated July 9,   Incorporated by reference to Exhibit 2.2 to
                      1999                                                     the Company's Annual Report on Form 10-KSB as
                                                                               filed with the Securities and Exchange
                                                                               Commission on April 16, 2001

3.1                   Certificate of Amendment to Change name to Ave, Inc.     Incorporated by reference to Exhibit 2.7 to
                      dated 5/7/90                                             the Company's Annual Report on Form 10-KSB as
                                                                               filed with the Securities and Exchange
                                                                               Commission on April 16, 2001

3.2                   Certificate of Agreement of Merger of DeLuxe Onyx        Incorporated by reference to Exhibit 2.8 to
                      Company dated January 23, 1987                           the Company's Annual Report on Form 10-KSB as
                                                                               filed with the Securities and Exchange
                                                                               Commission on April 16, 2001

3.3                   Certificate and Agreement of Merger of DeLuxe dated      Incorporated by reference to Exhibit 2.9 to
                      1/23/87                                                  the Company's Annual Report on Form 10-KSB as
                                                                               filed with the Securities and Exchange
                                                                               Commission on April 16, 2001

3.4                   Certificate Amending Certificate of Incorporation        Incorporated by reference to Exhibit 2.10 to
                      dated January 23, 1987                                   the Company's Annual Report on Form 10-KSB as
                                                                               filed with the Securities and Exchange
                                                                               Commission on April 16, 2001

3.5                   Ave, Inc. Bylaws                                         Incorporated by reference to Exhibit 3.0 to
                                                                               the Company's Annual Report on Form 10-KSB as
                                                                               filed with the Securities and Exchange
                                                                               Commission on April 16, 2001

3.6                   Articles in Incorporation of Nexicon, Inc. the           Incorporated by reference to Exhibit 21.1 to
                      Wholly-owned Subsidiary Nexicon, Inc. (formerly Ave,     the Company's Annual Report on Form 10-KSB as
                      Inc.)                                                    filed with the Securities and Exchange
                                                                               Commission on April 16, 2001

3.7                   Certificate of Amendment to Articles of Nexicon, Inc.    Incorporated by reference to Exhibit 21.2 to
                      to change name from Ave, Inc. to Nexicon, Inc.           the Company's Annual Report on Form 10-KSB as
                                                                               filed with the Securities and Exchange
                                                                               Commission on April 16, 2001

3.8                   Certificate of Amendment of Nexicon, Inc.                Incorporated by reference to Exhibit 21.3 to
                                                                               the Company's Annual Report on Form 10-KSB as
                                                                               filed with the Securities and Exchange
                                                                               Commission on April 16, 2001

                                       23
<PAGE>

<CAPTION>
EXHIBIT NO.           DESCRIPTION                                              LOCATION

<S>                   <C>                                                      <C>
3.9                   Bylaws of Nexicon, Inc.                                  Incorporated by reference to Exhibit 21.5 to
                                                                               the Company's Annual Report on Form 10-KSB as
                                                                               filed with the Securities and Exchange
                                                                               Commission on April 16, 2001

3.10                  Articles of Amendment and Restatement to Articles of     Incorporated by reference to Exhibit 3.10 to
                      Incorporation of AVE, Inc.                               Nexicon's Registration Statement on Form SB-2
                                                                               filed with the Securities and Exchange
                                                                               Commission on September 15, 2001

3.11                  Certificate of Amendment to Articles of Incorporation    Incorporated by reference to Exhibit 3.11 to
                      of Nexicon, Inc. filed with Nevada Secretary of State    Nexicon's Registration Statement on Form SB-2
                      on August 9, 2001                                        filed with the Securities and Exchange
                                                                               Commission on September 15, 2001

4.1                   Stock Specimen                                           Incorporated by reference to Exhibit 2.4 to
                                                                               the Company's Annual Report on Form 10-KSB as
                                                                               filed with the Securities and Exchange
                                                                               Commission on April 16, 2001

10.1                  Asset Purchase and Investment Agreement dated June 13,   Incorporated by reference to Exhibit 10.11 to
                      2003 between Nexicon, Inc. and American Indian Cigco,    the Company's Quarterly Report on Form 10QSB
                      LLC.                                                     as filed with the Securities and Exchange
                                                                               Commission on August 19, 2003.

10.2                  One Year Installment Note dated June 13, 2003, between   Incorporated by reference to Exhibit 10.12 to
                      Cyco.net, Inc. and American Indian Cigco, LLC.           the Company's Quarterly Report on Form 10QSB
                                                                               as filed with the Securities and Exchange
                                                                               Commission on August 19,2003

10.3                  Five Year Capital Note dated June 13, 2003, among        Incorporated by reference to Exhibit 10.13 to
                      Nexicon, Inc., American Indian Cigco, LLC and            the Company's Quarterly Report on Form 10QSB
                      CigCo-Epic Venture.                                      as filed with the Securities and Exchange
                                                                               Commission on August 19, 2003

10.4                  Purchase Agreement dated November 19, 2003 between       Incorporated by reference to Exhibit 10.14 to
                      Cyco.net, Inc. and Orion Security Services, Inc.         the Company's Current Report on Form 8K dated
                                                                               November 19, 2003 filed with the Securities
                                                                               and Exchange Commission on December 4, 2003.

                      Employment Agreement dated as of January 1, 2004         Incorporated by reference to Exhibit 10.18 to
10.5                  between Cyco.net and Richard Urrea                       the Company's Annual Report on Form 10KSB as
                                                                               filed with the Securities and Exchange
                                                                               Commission on April 13, 2004

10.6                  Employment Agreement dated as of January 1, 2004         Incorporated by reference to Exhibit 10.19 to
                      between Cyco.net and Daniel Urrea                        the Company's Annual Report on Form 10KSB as
                                                                               filed with the Securities and Exchange
                                                                               Commission on April 13, 2004

10.7                  Share Exchange Agreement dated as of June 16, 2004       Incorporated by reference to Exhibit 99.1 to
                      between the Company and Pluto Communications             the Company's Current Report on Form 8K as
                      International A.S.                                       filed on March 2, 2004


                                       24
<PAGE>

<CAPTION>
EXHIBIT NO.           DESCRIPTION                                              LOCATION

<S>                   <C>                                                                                              <C>
10.8                  Amendment to Share Exchange Agreement between the        Incorporated by reference to Exhibit 99.2 to
                      Company and Pluto Communications International A.S.      the Company's Current Report on Form 8K as
                      dated as of November 15, 2004                            filed on March 2, 2005

10.-9                 Repurchase Agreement dated as of March 17, 2005          Incorporated by reference to Exhibit 99.1 to
                      between Nexicon and Robert V. Demson                     the Company's Current Report on Form 8K as
                                                                               filed on March 19, 2005

10.10                 Termination Agreement dated June 23, 2005 between the    Incorporated by reference to Exhibit 99.10 to
                      Company and Cornell Capital Partners, LP                 the Company's Current Report on Form 8-K as
                                                                               filed with the Securities and Exchange
                                                                               Commission on July 7, 2005


10.11                 Securities Purchase Agreement dated as of November 21,   Incorporated by reference to Exhibit 99.1 to
                      2005 by and between Nexicon, Inc. and Cornell Capital    the Company's Current Report on Form 8-K as
                      Partners, LP                                             filed with the Securities and Exchange
                                                                               Commission on November 28, 2005

10.12                 Investor Registration Rights Agreement dated as of       Incorporated by reference to Exhibit 99.2 to
                      November 21, 2005 by and between Nexicon, Inc. and       the Company's Current Report on Form 8-K as
                      Cornell Capital Partners, LP                             filed with the Securities and Exchange
                                                                               Commission on November 28, 2005


10.13                 Secured Convertible Debenture in the principal amount    Incorporated by reference to Exhibit 99.8 to
                      of $1,085,481 dated as of November 21, 2005, issued to   the Company's Current Report on Form 8-K as
                      Cornell Capital Partners, LP                             filed with the Securities and Exchange
                                                                               Commission on November 28, 2005


10.14                 Secured Convertible Debenture in the principal amount    Incorporated by reference to Exhibit 99.5 to
                      of $389,337 dated as of November 21, 2005, issued to     the Company's Current Report on Form 8-K as
                      Cornell Capital Partners, LP                             filed with the Securities and Exchange
                                                                               Commission on November 28, 2005

10.15                 Secured Convertible Debenture in the principal amount    Incorporated by reference to Exhibit 99.6 to
                      of $100,000.00 dated as of November 21, 2005, between    the Company's Current Report on Form 8-K as
                      Nexicon Inc. and Cornell Capital Partners, LP            filed with the Securities and Exchange
                                                                               Commission on November 28, 2005

10.16                 Amended and Restated Security Agreement dated as of      Incorporated by reference to Exhibit 99.7 to
                      November 21, 2005 between Nexicon, Inc. and Cornell      the Company's Current Report on Form 8-K as
                      Capital Partners, LP                                     filed with the Securities and Exchange
                                                                               Commission on November 28, 2005

10.17                 Warrant dated as of November 21, 2005 issued to          Incorporated by reference to Exhibit 99.9 to
                      Cornell Capital Partners, LP                             the Company's Current Report on Form 8-K as
                                                                               filed with the Securities and Exchange
                                                                               Commission on November 28, 2005

10.18                 Escrow Agreement dated November 21, 2005 by and among    Incorporated by reference to Exhibit 99.10 to
                      Nexicon, Inc., Cornell Capital Partners, LP and David    the Company's Current Report on Form 8-K as
                      Gonzalez, Esq.                                           filed with the Securities and Exchange
                                                                               Commission on November 28, 2005

                                       25
<PAGE>

<CAPTION>
EXHIBIT NO.           DESCRIPTION                                              LOCATION

<S>                   <C>                                                      <C>
10.19                 Termination Agreement dated as of November 21, 2005 by   Incorporated by reference to Exhibit 99.10 to
                      and between Nexicon, Inc. and Cornell Capital            the Company's Current Report on Form 8-K as
                      Partners, LP                                             filed with the Securities and Exchange
                                                                               Commission on November 28, 2005

10.20                 Form of Service Agreement, dated as of July 8, 2005 by   Incorporated by reference to Exhibit 99.11 to
                      and between Nexicon, Inc. and the Motion Picture         the Company's Current Report on Form 8-K as
                      Association of America                                   filed with the Securities and Exchange
                                                                               Commission on July 13, 2005

14                    Code of Ethics                                           Incorporated by reference to Exhibit 14.1 to
                                                                               the Company's 10-KSB for the year ended
                                                                               December 31, 2003 filed with the Securities
                                                                               and Exchange Commission on April 8, 2004

21                    List of Subsidiaries and States of                       Provided herewith
                      Organization/Incorporation

31.1                  Certification of Principal Executive  Officer pursuant   Provided herewith
                      to Rule 13a-14(a)/15d-14(a) of the Exchange Act

31.2                  Certification of Principal Financial pursuant to Rule    Provided herewith
                      13a-14(a)/15d-14(a) Certification of the Exchange Act

32.1                  Certification of Principal Executive Officer pursuant    Provided herewith
                      to 18 U.S.C. Section 1350 as adopted pursuant to
                      Section 906 of the Sarbanes-Oxley Act of 2002

32.2                  Certification of Principal Financial Officer pursuant    Provided herewith
                      to 18 U.S.C. Section 1350 as adopted pursuant to
                      Section 906 of the Sarbanes-Oxley Act of 2002
</TABLE>


      (b) REPORTS ON FORM 8-K:

      On March 2, 2005,  the Company  filed a report on Form 8K  announcing  the
acquisition of Pluto Communications International AS, on November 17, 2004.

      On March 19, 2005,  the Company filed a report on Form 8K  announcing  the
repurchase  of  15,000,000  shares of its common stock held by the  president of
OSSI, Robert Demson.

      On July 7, 2005,  the Company filed a Current Report on Form 8-K reporting
the  Termination  Agreement  with Cornell  whereby the 2004 SEDA and the related
Registration Rights Agreement, Placement Agent Agreement and Escrow Agreement of
even  date  therewith,  were  terminated.  Upon  execution  of such  Termination
Agreement,  the Company  entered  into the 2005 SEDA with  Cornell as  described
above.

      On July 26, 2005, the Company filed a Current Report on Form 8-K reporting
that the Company and Central Solutions, Inc. agreed to terminate the Investment,
Marketing  and  Distribution  Agreement  entered into on December 10, 2004. As a
result of terminating said agreement, the Company has returned its 35% ownership
interest in Central  Solutions and Central Solutions has returned the 10,000,000
shares of the Company's common stock received per said agreement.

      On  November  28,  2005,  the Company  filed a Current  Report on Form 8-K
reporting the Securities  Purchase  Agreement with Cornell pursuant to which the
Company issued to Cornell secured convertible debentures in the principal amount
of $2,000,000,  and the Termination Agreement with Cornell whereby the 2005 SEDA
and the related  Registration  Rights  Agreement,  Placement Agent Agreement and
Escrow Agreement of June 24, 2005 were terminated.


                                       26
<PAGE>


ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

      AUDIT FEES. The aggregate fees billed for professional  services  rendered
was  $41,700  and  $35,254  for the  audit  of the  Company's  annual  financial
statements for the fiscal years ended December 31, 2005 and 2004,  respectively,
and the reviews of the  financial  statements  included in the  Company's  Forms
10-QSB and 8-K for those fiscal years.

      AUDIT-RELATED  FEES.  The  aggregate  fees  billed in each of the last two
fiscal years for assurance and related services by the principal accountant that
are  reasonably  related  to the  performance  of the  audit  or  review  of the
Company's  financial  statements and not reported under the caption "Audit Fee,"
amounted to $35,823 and $10,575,  respectively, for the years ended December 31,
2005 and 2004.

      TAX  FEES.  Fees  billed  in  each  of  the  last  two  fiscal  years  for
professional  services rendered by the principal  accountant for tax compliance,
tax advice and tax planning services amounted to $6,000 and $5,000, respectively
for the years ended December 31, 2005 and 2004.

      ALL OTHER FEES.  Other than the services  described  above,  the aggregate
fees billed for services  rendered by the  principal  accountant  was $0 and $0,
respectively, for the fiscal years ended December 31, 2005 and 2004.

      AUDIT  COMMITTEE  POLICIES AND  PROCEDURES.  Nexicon's  Board of Directors
performs  the  duties  of an  audit  committee.  The  Board  of  Directors  must
pre-approve all auditing services and permitted  non-audit  services  (including
the fees and terms  thereof)  to be  performed  for  Nexicon by its  independent
auditors,  subject to the de minimus exceptions for non-audit services described
in Section  10A(i)(1)(B)  of the Exchange Act,  which should be  nonetheless  be
approved by the Board of Directors  prior to the  completion of the audit.  Each
year, the  independent  auditor's  retention to audit our financial  statements,
including the associated  fee, is approved by the Board of Directors  before the
filing of the previous year's annual report on Form 10-KSB.  At the beginning of
the fiscal year,  the Board of Directors  will  evaluate  other known  potential
engagements of the independent auditor,  including the scope of work proposed to
be performed and the proposed fees,  and approve or reject each service,  taking
into account whether the services are permissible  under  applicable law and the
possible  impact  of  each  non-audit  service  on  the  independent   auditor's
independence from management.  At each such subsequent meeting,  the auditor and
management may present subsequent services for approval.  Typically, these would
be services such as due diligence for an  acquisition,  that would not have been
known at the beginning of the year.

      Since May 6, 2003,  the effective  date of the SEC's rules stating that an
auditor is not independent of an audit client if the services it provides to the
client are not appropriately approved, each new engagement of our auditor, Stark
Winter  Schenkein  & Co.,  LLP,  has been  approved  in  advance by the Board of
Directors, and none of those engagements made use of the de minimus exception to
the pre-approval contained in Section 10A(i)(1)(B) of the Exchange Act.


                                       27
<PAGE>


                                   SIGNATURES

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

                                       NEXICON, INC.

Date:  August 30, 2006                 By: /s/ Richard Urrea
                                           ------------------------------
                                           Richard Urrea
                                           President and Chief Executive Officer

                                       By: /s/ Daniel Urrea
                                           ------------------------------
                                           Daniel Urrea
                                           Chief Financial Officer

      In accordance  with the Exchange Act, this Report has been signed below by
the following  persons on behalf of the  Registrant and in the capacities and on
the dates indicated.


Date:  August 30, 2006                 By: /s/ Richard Urrea
                                           ------------------------------
                                           Richard Urrea
                                           Director


                                       28
<PAGE>


                                  NEXICON, INC.

                        CONSOLIDATED FINANCIAL STATEMENTS

                                TABLE OF CONTENTS

                                                                          PAGE

Report of Independent Registered Public Accounting Firm                   F-1

Consolidated Balance Sheet                                                F-2

Consolidated Statements of Operations                                     F-3

Consolidated Statements of Changes in Stockholders' (Deficit)             F-4

Consolidated Statements of Cash Flows                                     F-6

Notes to Consolidated Financial Statements                                F-8



                                       F-i
<PAGE>



             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Shareholders and Board of Directors
Nexicon, Inc.

      We have audited the  accompanying  consolidated  balance sheet of Nexicon,
Inc.  as of  December  31,  2005,  and the related  consolidated  statements  of
operations, stockholders' (deficit), and cash flows for the years ended December
31, 2005 and 2004.  These  financial  statements are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audits.

      We conducted  our audits in  accordance  with the  standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audits to obtain reasonable  assurance about whether the
financial  statements  are free of  material  misstatement.  An  audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial  statements.  An audit also  includes  assessing  the  accounting
principles used and significant  estimates by management,  as well as evaluating
the overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.

      In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Nexicon, Inc. as of December
31, 2005,  and the results of its  operations,  and its cash flows for the years
ended  December 31, 2005 and 2004,  in  conformity  with  accounting  principles
generally accepted in the United States of America.

      The accompanying financial statements have been prepared assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 2 to the
consolidated  financial  statements,  the Company has suffered  recurring losses
from  operations  and has working  capital  and  stockholders'  deficits.  These
factors raise  substantial  doubt about the  Company's  ability to continue as a
going concern.  Management's plans in regard to these matters are also discussed
in Note 2. The financial  statements do not include any  adjustments  that might
result from the outcome of this uncertainty.


/s/ Stark Winter Schenkein & Co., LLP
Denver, Colorado
June 30, 2006


                                      F-1
<PAGE>

<TABLE>
<CAPTION>
                                  NEXICON, INC.
                           CONSOLIDATED BALANCE SHEET
                                DECEMBER 31, 2005

                                     ASSETS
<S>                                                                        <C>
CURRENT ASSETS
  Cash                                                                     $     21,940
  Receivables, net of allowance for doubtful accounts of $35,439                  2,636
  Receivables - related parties                                                   9,325
  Receivable - ACC                                                               55,056
  Financing costs                                                               171,921
  Prepaid expense                                                                   473
                                                                           ------------
    Total current assets                                                        261,351
                                                                           ------------

PROPERTY AND EQUIPMENT, net of accumulated depreciation of $127,196              44,617
                                                                           ------------

OTHER ASSETS
  Financing cost, net                                                           146,944
  Deposits                                                                        2,902
                                                                           ------------

    Total other assets                                                          149,846
                                                                           ------------


                                                                           $    455,814
                                                                           ============

                     LIABILITIES AND STOCKHOLDERS' (DEFICIT)

CURRENT LIABILITIES
  Accounts payable and accrued expenses                                    $    956,539
  Accrued expenses - shareholders                                               225,820
  Deferred gain                                                                  37,563
  Customer deposit                                                               40,000
                                                                           ------------
    Total current liabilities                                                 1,259,922
                                                                           ------------

CONVERTIBLE DEBENTURES (net of unamortized discounts of $1,574,495)                 322
DERIVATIVE FINANCIAL INSTRUMENTS                                              1,957,681
                                                                           ------------
NET LIABILITIES OF DISCONTINUED OPERATIONS                                      331,143
                                                                           ------------


STOCKHOLDERS' (DEFICIT)
  Common stock, $0.001 par value, 500,000,000 shares authorized,
  151,884,869 shares issued and outstanding                                     151,884
  Additional paid-in capital                                                 14,253,259
  Stock subscription receivable                                              (2,800,000)
  Accumulated (deficit)                                                     (14,820,534)
                                                                           ------------

                                                                             (3,215,391)
                                                                           ------------

  Other comprehensive income:
    Currency translation adjustment                                             122,137
                                                                           ------------

                                                                             (3,093,254)
                                                                           ------------


                                                                           $    455,814
                                                                           ============
</TABLE>

        SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.


                                      F-2
<PAGE>


                                  NEXICON, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                           YEAR ENDED
                                                                           DECEMBER 31,
                                                                      2005             2004
                                                                                    (Restated)
                                                                 -------------    -------------

<S>                                                              <C>              <C>
REVENUES                                                         $     394,146    $     495,990
                                                                 -------------    -------------
COSTS OF GOODS SOLD                                                    299,551          355,766
                                                                 -------------    -------------

GROSS PROFIT                                                            94,595          140,224
                                                                 -------------    -------------

OTHER COSTS AND EXPENSES
  General and administrative                                         1,869,169        1,471,697
  Research and development                                                  --           75,138
  Purchased research and development                                        --          601,260
  Non-cash stock compensation - general and administrative             726,783        1,850,105
  Loss on asset impairment                                             147,851          902,000
                                                                 -------------    -------------

                                                                     2,743,803        4,900,200
                                                                 -------------    -------------

OPERATING (LOSS)                                                    (2,649,208)      (4,759,976)
                                                                 -------------    -------------

OTHER INCOME (EXPENSE)
  Interest income                                                        1,478            7,510
  (Loss) on extinguishment of debt                                    (225,807)              --
  Interest (expense)                                                  (704,880)        (421,298)
  Derivative instruments income (expense)                              522,485         (106,109)
                                                                 -------------    -------------
                                                                      (406,724)        (519,897)
                                                                 -------------    -------------

(LOSS) BEFORE INCOME TAXES                                          (3,055,932)      (5,279,893)

INCOME TAXES (BENEFIT)                                                 (26,000)        (247,000)
                                                                 -------------    -------------

(LOSS) BEFORE DISCONTINUED OPERATIONS                               (3,029,932)      (5,032,873)

DISCONTINUED OPERATIONS
  Gain(loss) on sale of assets of discontinued operations              (14,110)          75,716
  Net (loss) from discontinued operations, net of income taxes
  (benefit) of ($26,000) and ($247,000), respectively                 (101,526)        (972,734)
                                                                 -------------    -------------
                                                                      (115,636)        (897,018)


NET (LOSS)                                                          (3,145,568)      (5,929,891)

OTHER COMPREHENSIVE INCOME
  Foreign currency translation adjustment                               (5,093)          44,322
                                                                 -------------    -------------

NET COMPREHENSIVE (LOSS)                                         $  (3,150,661)   $  (5,885,569)
                                                                 =============    =============

WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC AND DILUTED            125,077,480       96,573,504
                                                                 =============    =============

NET (LOSS) PER COMMON SHARE
  (Loss) from operations                                         $       (0.03)   $       (0.05)
  (Loss) from discontinued operations
                                                                            --            (0.01)
                                                                 -------------    -------------
                                                                 $       (0.03)   $       (0.06)
                                                                 =============    =============
</TABLE>


        SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.


                                      F-3
<PAGE>


                                  NEXICON, INC.
                CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT)
                YEARS ENDED DECEMBER 31, 2004 (RESTATED) AND 2005

<TABLE>
<CAPTION>
                                              Common Stock
                                     -------------------------------                                            Stock
                                                                          Additional       Deferred Stock    Subscription
                                          Shares          Amount        Paid in Capital     compensation      Receivable
                                      -------------    -------------    ---------------    --------------    -------------

<S>                                   <C>              <C>              <C>                            <C>   <C>
Balance at December 31, 2003          $  85,715,931    $      85,716    $     7,697,969                --    $  (2,800,000)
Shares issued  for cash at $.05 -
  $.17 per share                          6,600,000            6,600            581,200                --               --
Shares issued  at $.07 - $.21 per
  share, pursuant to Equity Line of
  Credit repayments                       2,177,290            2,177            247,823                --               --
Shares issued  at $.07 - $.17 per
  share, pursuant to debenture
  conversions including embedded
  derivative instruments                    679,855              680            263,354                --               --
Shares issued for services at $.12
  - $.61 per share                        8,799,833            8,800          2,551,580          (543,996)              --
Shares issued for financing costs,
  pursuant to debenture issue at
  $.48 per share                            510,833              511            244,689                --               --
Shares issued at Pluto purchase at
  $.12 per share,                         5,010,496            5,010            513,342                --               --
Liabilities assumed at Pluto
  purchase                                       --               --            (83,371)               --               --
Shares issued at Central Solutions
  investment at $.12 per share
  pursuant to stock purchase
  agreement                              10,000,000           10,000            892,000                --               --
Currency translation adjustment                  --               --                 --                --               --
Net (loss) for the year                          --               --                 --                --               --
                                      -------------    -------------    ---------------    --------------    -------------

Balance at December 31, 2004
  (Restated)                            119,494,238          119,494         12,908,586          (543,996)      (2,800,000)
Shares issued  for cash at $.01 -
  $.10 per share                         23,100,000           23,100            258,900                --               --
Repurchase Demson shares                (15,000,000)         (15,000)            15,000                --               --
Central Solutions cancellation          (10,000,000)         (10,000)            10,000                --               --
Shares issued for services, at
  $0.01 - $0.02 per share                 3,258,400            3,259             61,103                --               --
Shares issued  at $.01 - $.07 per
  share, pursuant to Equity Line of
  Credit repayments including
  embedded derivative instruments        11,933,540           11,933            635,343                --               --
Shares issued at $.019 to officers
  and an employee for bonuses
  accrued in 2003                        10,526,317           10,526            189,474                --               --
Shares issued to employees as
  compensation, at $0.01 - $0.022
  per share                               5,506,250            5,506            112,919                --               --
Amortization Deferred Stock
  Compensation                                   --               --                 --           543,996               --
Shares issued  at $.01 - $.02 per
  share, pursuant to debenture
  conversions                             3,066,124            3,066             61,934                --               --
Currency translation adjustment                  --               --                 --                --               --
Net (loss) for the year                          --               --                 --                --               --
                                      -------------    -------------    ---------------    --------------    -------------
Balance at December 31, 2005            151,884,869    $     151,884    $    14,253,259    $           --    $  (2,800,000)
                                      =============    =============    ===============    ==============    =============
</TABLE>


                                      F-4
<PAGE>

<TABLE>
<CAPTION>
                                                                                         Currency
                                                                         Accumulated    Translation
                                                                          (Deficit)      Adjustment        Total
                                                                        ------------    ------------    ------------
<S>                                                                     <C>             <C>             <C>
Balance at December 31, 2003                                            $ (5,745,075)   $         --    $   (761,390)
  Shares issued  for cash at $.05 - $.17 per share                                --              --         587,800
  Shares issued  at $.07 - $.21 per share, pursuant to Equity Line of
    Credit repayments                                                             --              --         250,000
  Shares issued  at $.07 - $.17 per share, pursuant to debenture
    conversions including embedded derivative instruments                         --              --         264,034
  Shares issued for services at $.12 - $.61 per share                             --              --       2,016,384
  Shares issued for financing costs, pursuant to debenture issue at
    $.48 per share                                                                --              --         245,200
  Shares issued at Pluto purchase at $.12 per share,                              --          82,908         601,260
  Liabilities assumed at Pluto purchase                                           --              --         (83,371)
  Shares issued at Central Solutions investment at $.12 per share
    pursuant to stock purchase agreement                                          --              --         902,000
  Currency translation adjustment                                                 --          44,322          44,322
  Net (loss) for the year                                                 (5,929,891)             --      (5,929,891)
                                                                        ------------    ------------    ------------
  Balance at December 31, 2004 (Restated)                                (11,674,966)        127,230      (1,863,652)
  Shares issued  for cash at $.01 - $.10 per share                                --              --         282,000
  Repurchase Demson shares                                                        --              --              --
  Central Solutions cancellation                                                  --              --              --
  Shares issued for services, at $0.01 - $0.02 per share                          --              --          64,362
  Shares issued  at $.01 - $.07 per share, pursuant to Equity Line of
  Credit repayments including embedded derivative instruments                     --              --         647,276
  Shares issued at $.019 to officers and an employee for bonuses
  accrued in 2003                                                                 --              --         200,000
  Shares issued to employees as compensation, at $0.01 - $0.022 per
  share                                                                           --              --         118,425
  Amortization Deferred Stock Compensation                                        --              --         543,996
  Shares issued  at $.01 - $.02 per share, pursuant to
  debenture conversions                                                           --              --          65,000

  Currency translation adjustment                                                 --          (5,093)         (5,093)
  Net (loss) for the year                                                 (3,145,568)             --      (3,145,568)
                                                                        ------------    ------------    ------------
  Balance at December 31, 2005                                          $(14,820,534)   $    122,137    $ (3,093,254)
                                                                        ============    ============    ============
</TABLE>


        SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.


                                      F-5
<PAGE>



                                  NEXICON, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                              YEAR ENDED
                                                                                             DECEMBER 31,
                                                                                    --------------------------
                                                                                        2005            2004
                                                                                                    (Restated)
                                                                                    -----------    -----------
<S>                                                                                 <C>            <C>
OPERATING ACTIVITIES
  Net (loss)                                                                        $(3,145,568)   $(5,929,891)
  Adjustments to reconcile net (loss) to net cash (used in) operating activities:
    Allowance for doubtful accounts                                                      35,349             --
    Depreciation                                                                         16,230         22,829
    Non-cash interest expense, including accretion of debt discount                     574,666        420,527
    Loss on asset impairment                                                            147,851        902,000
    (Gain) loss on sale of assets of discontinued operations                             14,110        (75,716)
    Derivative instruments (income) expense                                            (522,485)       106,109
    Loss on extinguishment of debt                                                      225,807             --
    Common stock issued for services and other non-cash items, net of deferred
      compensation                                                                      726,783      2,451,365
    Currency translation adjustment                                                      (5,093)        44,322
  Changes in assets and liabilities:
    (Increase) in receivables                                                           (29,164)       (20,138)
    (Increase) decrease in other assets                                                   4,953         (5,451)
    Increase in accounts payable and accrued expenses                                   329,310        407,575
    Increase  in net liabilities of discontinued operations                              78,362        170,834
    Increase  in accrued expenses - related party                                            --         99,337
    (Decrease) in deferred gain                                                          (9,362)            --
                                                                                    -----------    -----------
      Net cash (used in) operating activities                                        (1,558,251)    (1,406,298)
                                                                                    -----------    -----------

INVESTING ACTIVITIES
  Purchase of property and equipment                                                    (11,371)       (12,994)
  Acquisition of Mercury                                                                     --       (147,851)
  Cash received in Pluto acquisition                                                         --         24,890
                                                                                    -----------    -----------
    Net cash (used in) investing activities                                             (11,371)      (135,955)
                                                                                    -----------    -----------


FINANCING ACTIVITIES
  Proceeds from sale of common stock                                                    282,000        587,800
  Payments on notes payable - related party                                             (80,000)        (1,000)
  Proceeds from notes and debentures                                                  1,350,000        900,000
  Proceeds from receivable - ACC                                                         10,000         75,716
                                                                                    -----------    -----------
    Net cash provided by financing activities                                         1,562,000      1,562,516
                                                                                    -----------    -----------

    Net increase (decrease) in cash                                                      (7,622)        20,263

CASH AT BEGINNING OF YEAR                                                                29,562          9,299
                                                                                    -----------    -----------

CASH AT END OF YEAR                                                                 $    21,940    $    29,562
                                                                                    ===========    ===========

SUPPLEMENTAL CASH FLOW INFORMATION:
  Cash paid for interest                                                            $        --    $        --
                                                                                    ===========    ===========
  Cash paid for income taxes                                                        $        --    $        --
                                                                                    ===========    ===========
</TABLE>

                                      F-6
<PAGE>

<TABLE>
<CAPTION>
                                                                                              YEAR ENDED
                                                                                             DECEMBER 31,
                                                                                    --------------------------
                                                                                        2005            2004
                                                                                                    (Restated)
                                                                                    -----------    -----------

<S>                                                                                 <C>           <C>
SUPPLEMENTAL DISCLOSURE OF SIGNIFICANT NON-CASH FINANCING
  AND INVESTING ACTIVITIES
  Issuance of common stock pursuant to equity line of credit                        $   647,276   $        --
                                                                                    ===========   ===========
  Issuance of common stock for settlement of accrued bonuses                        $   200,000   $        --
                                                                                    ===========   ===========
  Issuance of common stock for financing costs                                      $        --   $   245,200
                                                                                    ===========   ===========
  Issuance of common stock for conversion of debt                                   $    65,000   $   325,000
                                                                                    ===========   ===========
  Equipment disposed of in stock repurchase                                         $    15,213   $        --
                                                                                    ===========   ===========
</TABLE>


        SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.


                                      F-7
<PAGE>


                                  NEXICON, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2005


NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


ORGANIZATION

Nexicon, Inc. (the "Company") is the successor to Cyco.Net,  Inc, (formerly AVE,
Inc. a Nevada  corporation) and operates through its wholly-owned  subsidiaries,
Cyco.net (a New Mexico corporation), Orion Security Systems ("OSSI", a Wisconsin
corporation),   and  Nexicon,   AS  ("Pluto",   formerly  Pluto   Communications
International, AS, a Norwegian corporation), discussed below.

Prior to July 1, 2003,  the  Company's  primary line of business was the sale of
cigarettes  through three websites to customers in the United States of America.
Effective July 1, 2003, the Company sold its Internet tobacco products division,
as more fully discussed in Note 12.

On November 19, 2003, the Company purchased all of the outstanding  common stock
of Orion Security Systems,  Inc., a Wisconsin  corporation whose primary line of
business is the sale of its SatSecure(C)  System and  ComSecure(C)  Controller.,
which are  designed  to  provide  bi-directional  video,  audio,  data and alarm
transfer between a wide variety of locations,  including but not limited to land
based  positions,  airborne  aircraft,  ships at sea,  and a command and control
center.  In December 2004,  management of the Company resolved to dispose of the
SatSecure(C) division of OSSI, as more fully discussed in Notes 6 and 12.

On November 15, 2004, the Company  acquired all of the outstanding  common stock
of  Pluto  Communications  International,  AS,  a  Norwegian  corporation  which
provides a variety of billing and customer care solutions for  telecommunication
carriers  and other  network  service  providers  via its  "Charon"  billing and
customer care real-time  client/server  system.  The "Charon"  system provides a
high-end  Operational  Support  System  ("OSS")  and  billing  system to improve
customer service (see Note 13).

The  Company's  core  business is software  development  in two areas:  Security
Solutions and Billing  Solutions.  The  Company's  security  solutions  products
provide for intellectual  property security,  business  intelligence  gathering,
network monitoring and unified threat management.  The billing system,  known as
the Charon Billing System,  offers comprehensive billing processing and customer
care  solutions  that  can be  used by a wide  range  of  businesses.  Combining
development  efforts with its facility and staff based in Bergen,  Norway,  with
those in the United  States,  Nexicon is empowered to deliver its products on an
international  scope offering localized  application  customization.  All of the
Company's products are marketed under the name Nexicon,  in the United States by
Nexicon,  Inc.  the parent  company  and in Norway by  Nexicon,  AS. The Company
entered into a Service Agreement with the Motion Picture  Association of America
(the "MPAA"),  to supply  Nexicon's line of  next-generation  security  services
worldwide.  On December 7, 2005,  effective  January 1, 2006 the Company entered
into a Service  Agreement  with Software  Information  and Industry  Association
("SIIA") to provide online anti-piracy monitoring.


PRINCIPLES OF CONSOLIDATION

The consolidated  financial  statements  include the accounts of the Company and
its  wholly-owned  subsidiaries.   All  significant  intercompany  accounts  and
transactions have been eliminated.


EQUITY METHOD OF ACCOUNTING FOR INVESTMENTS

Investments  in which the Company has a 20% to 50% interest are carried at cost,
adjusted for the Company's  proportionate share of their undistributed  earnings
or losses.


                                      F-8
<PAGE>


                                  NEXICON, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2005

RECLASSIFICATIONS

Certain amounts presented in the previous year's financial  statements have been
reclassified to conform to the current year presentation.

RESTATEMENT AND CORRECTION OF AN ERROR

The  accompanying  financial  statements  have been  restated for the year ended
December 31, 2004, to reflect the accounting for the convertible  debentures and
unsecured   promissory   notes  in  connection  with  the  Company's   financing
transactions with Cornell Capital Partners, LP ("Cornell"). In October 2005, the
staff (the "Staff") of the United States Securities and Exchange Commission (the
"SEC") issued a comment letter  concerning the accounting for  convertible  debt
instruments  that are subject to a registration  rights  agreements  and/or that
have embedded  derivative  instruments.  The Company has  re-evaluated  its debt
agreements in light of the issues  raised by the Staff in  accordance  with EITF
00-19 and has concluded that there are embedded derivative  instruments that are
required to be bifurcated and accounted for as derivative  liabilities (see Note
3). The Company is  responding  to comments  provided by the Staff in connection
with the Company's  December 31, 2004, Form 10-KSB and subsequent  filings under
the Securities Act of 1934, as amended.

REVENUE RECOGNITION

Effective November 19, 2003 through November 14, 2004, the Company's sole source
of revenue was the sale of the SatSecure(C) and ComSecure(C)  systems  discussed
above.  The terms of sale are FOB shipping point and the Company records revenue
when the product is shipped. In December 2004, the Company determined to dispose
of the  SatSecure(C)  division of its business,  which was  consummated in March
2005.  Accordingly,  the revenues  and costs  associated  with the  SatSecure(C)
division are presented as discontinued  operations in the accompanying financial
statements.

In November 2004, the Company through Pluto, added the service revenues from the
sale of the Charon  Billing in Norway and Sweden.  On July 13, 2005, the Company
entered into a Service Agreement with the Motion Picture  Association of America
(the "MPAA"),  dated July 8, 2005, pursuant to which the Company will supply the
MPAA  with  Nexicon's  line of  next-generation  intelligence  and  data  mining
services worldwide.  On December 7, 2005,  effective January 1, 2006 the Company
entered  into  a  Service  Agreement  with  Software  Information  and  Industry
Association  ("SIIA") to provide  online  anti-piracy  monitoring.  Revenues are
recognized at the completion of the related services, when they are earned.


DISCOUNT AND FEES RELATED TO THE EQUITY LINE OF CREDIT

The discount and any related  fees on the shares  issued  pursuant to the equity
line of credit agreement or the standby equity distribution  agreement described
in Note 3 are  treated as though they were  commissions  and are  deducted  from
additional paid in capital at the time the shares are issued.


INVENTORY

Inventory,  consisting of products available for sale, is stated at the lower of
cost or market. Cost is determined on a first-in, first-out basis.


ADVERTISING

The Company  expenses all costs of  advertising as incurred.  Advertising  costs
included in general and  administrative  expenses  aggregated $1,362 in 2005 and
$10,653 in 2004.


                                      F-9
<PAGE>


                                  NEXICON, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2005

CASH AND CASH EQUIVALENTS

For purposes of balance sheet  classification  and the statements of cash flows,
the Company considers all highly liquid  investments  purchased with an original
maturity of three months or less to be cash equivalents.


TRADE AND OTHER RECEIVABLES

Trade receivables and other current  receivables are stated on the balance sheet
at estimated net realizable value. Accounts receivable are comprised of balances
due from customers net of estimated  allowances for uncollectible  accounts.  In
determining  collectibility,   historical  trends  are  evaluated  and  specific
customer issues are reviewed to arrive at appropriate  allowances.  During 2005,
an allowance of $35,439 was recorded.


FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value estimates  discussed herein are based upon certain market assumptions
and pertinent  information  available to management as of December 31, 2005. The
respective  carrying  value of certain  on-balance-sheet  financial  instruments
approximated  their fair values.  These financial  instruments  include cash and
cash equivalents,  receivables, accounts payable and accrued expenses, and notes
payable.  Fair  values were  assumed to  approximate  carrying  values for these
financial  instruments  because  they are short term in nature,  their  carrying
amounts  approximate  fair values,  or they are receivable or payable on demand.
The fair value of long-term  debt is based on current rates at which the Company
could  borrow  funds  with  similar  remaining  maturities.  The  fair  value of
derivative instruments is discussed below.


PROPERTY AND EQUIPMENT

Property and equipment consists of furniture and office equipment,  is stated at
cost and is being depreciated using the straight-line  method over the estimated
economic lives of three to five years.


IMPAIRMENT OF LONG-LIVED ASSETS

The Company  periodically  reviews the carrying  amount of  property,  plant and
equipment and its identifiable  intangible  assets to determine  whether current
events or  circumstances  warrant  adjustments to such carrying  amounts.  If an
impairment  adjustment is deemed necessary,  such loss is measured by the amount
that the carrying  value of such assets  exceeds their fair value.  Considerable
management  judgment  is  necessary  to  estimate  the  fair  value  of  assets;
accordingly, actual results could vary significantly from such estimates. Assets
to be disposed of are carried at the lower of their financial statement carrying
amount or fair value less costs to sell. The Company recorded  impairment losses
of $147,851 and $902,000 in 2005 and 2004 respectively, as discussed in Note 13.

DERIVATIVE INSTRUMENTS

The Company does not use derivative instruments to hedge exposures to cash flow,
market or foreign currency risks.

In connection with the sale of debt or equity instruments,  the Company may sell
options or warrants  to purchase  its common  stock.  In certain  circumstances,
these options or warrants may be classified  as derivative  liabilities,  rather
than as  equity.  Additionally,  the  debt or  equity  instruments  may  contain
embedded derivative  instruments,  such as conversion options,  which in certain
circumstances  may  be  required  to be  bifurcated  from  the  associated  host
instrument  and accounted for separately as a derivative  instrument  liability.
The  identification of, and accounting for,  derivative  instruments is complex.
The Company's derivative instrument liabilities are re-valued at the end of each
reporting  period,  with changes in the fair value of the  derivative  liability
recorded  as charges or  credits to income,  in the period in which the  changes
occur.  For  options,  warrants  and  bifurcated  conversion  options  that  are
accounted for as derivative instruments liabilities,  the Company determines the
fair value of these instruments using the Black-Scholes Option Pricing Model.


                                      F-10
<PAGE>


                                  NEXICON, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2005

That model requires assumptions related to the remaining term of the instruments
and  risk-free  rates of return,  the Company's  current  common stock price and
expected  dividend yield,  and the expected  volatility of the Company's  common
stock price over the life of the option.  The Company has  estimated  the future
volatility of its common stock price based on the history of the Company's stock
price. The identification of, and accounting for, derivative instruments and the
assumptions used to value them can significantly  affect the Company's financial
statements.

The classification of derivative instruments, including whether such instruments
should be recorded as liabilities or as equity, is reassessed at the end of each
reporting  period.  Derivative  instrument  liabilities  are  classified  in the
balance  sheet as  current  or  non-current  based on  whether  or not  net-cash
settlement of the derivative  instrument  could be required  within 12 months of
the balance sheet date.

DEFERRED OFFERING COSTS

The Company defers costs  associated with the raising of capital until such time
as the offering is  completed,  at which time the costs are charged  against the
capital  raised.  Should the  offering  be  terminated  the costs are charged to
operations during the period when the offering is terminated.


NET (LOSS) PER COMMON SHARE

The Company  calculates  net income (loss) per share as required by Statement of
Financial  Accounting  Standards  ("SFAS")  128,  "Earnings  Per  Share".  Basic
earnings  (loss) per common share  calculations  are  determined by dividing net
income  (loss)  by the  weighted  average  number  of  shares  of  common  stock
outstanding   during  the  year.   Diluted  earnings  (loss)  per  common  share
calculations  are  determined  by  dividing  net income  (loss) by the  weighted
average  number  of  common  shares  and  dilutive   common  share   equivalents
outstanding.  During  the  periods  when they are  anti-dilutive,  common  stock
equivalents, if any, are not considered in the computation.


STOCK-BASED COMPENSATION

The Company  accounts for equity  instruments  issued to employees  for services
based on the fair value of the equity instruments issued and accounts for equity
instruments  issued  to other  than  employees  based  on the fair  value of the
consideration received or the fair value of the equity instruments, whichever is
more reliably measurable.

The Company  accounts for stock based  compensation in accordance with SFAS 123,
"Accounting  for  Stock-Based  Compensation."  The  provisions of SFAS 123 allow
companies  to either  expense the  estimated  fair value of stock  options or to
continue to follow the intrinsic value method set forth in Accounting Principles
Board  Opinion 25,  "Accounting  for Stock Issued to  Employees"  ("APB 25") but
disclose  the pro forma  effects on net income  (loss) had the fair value of the
options  been  expensed.  The Company has elected to continue to apply APB 25 in
accounting for its stock option incentive plans.


USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States of America requires  management to make
estimates  and  assumptions  that affect the amounts  reported in the  financial
statements  and  accompanying  notes.  Actual  results  could  differ from those
estimates.


RESEARCH AND DEVELOPMENT

Research and development costs are expensed as incurred.


                                      F-11
<PAGE>


                                  NEXICON, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2005

IN PROCESS RESEARCH AND DEVELOPMENT

The Company charges the cost of the purchased research and development  acquired
as part of an acquisition to operations if the acquired assets have no allocable
items to be allocated to, technological feasibility has not yet been established
and there is no alternative future use.


SEGMENT INFORMATION

The  Company  follows  Statement  of  Financial  Accounting  Standards  No. 131,
"Disclosure about Segments of an Enterprise and Related  Information" ("SFAS No.
131").  This  statement  establishes  standards for the reporting of information
about operating segments in annual and interim financial  statements.  Operating
segments are defined as components of an enterprise for which separate financial
information  is  available  that is evaluated  regularly by the chief  operating
decision  maker(s)  in  deciding  how to  allocate  resources  and in  assessing
performance.  SFAS No. 131 also requires disclosure about products and services,
geographic  areas and major  customers.  The application of SFAS No. 131 did not
affect  results  of  operations  or  financial  position  but does  require  the
disclosure of segment information as presented in Note 16. The Company currently
operates  in  two  business  segments,  and  will  evaluate  additional  segment
disclosure requirements as it expands operations.


CONCENTRATIONS

There have been a number of adverse legislative, regulatory, political and other
developments concerning the tobacco industry that have received widespread media
attention.  These  developments  have  negatively  affected  the  perception  of
potential  and  current  customers  with  respect to the tobacco  industry,  and
therefore  had a  significant  influence in the  Company's  decision to sell its
Internet tobacco products division as discussed in Note 12.


TRANSLATION OF FINANCIAL STATEMENTS

The Company's  wholly-owned  subsidiary  Pluto (see Note 13) operates in Norway.
The  financial  statements  are  translated  from  a  functional  currency  (the
Norwegian Kroner) which is not the U.S. dollar, in the following manner:  assets
and  liabilities  at the year-end  rate;  stockholders'  (deficit) at historical
rates and results of  operations  at the daily  average  exchange  rates for the
period.


COMPREHENSIVE INCOME

The  Company  follows  SFAS  130,  "Reporting  Comprehensive  Income".  SFAS 130
establishes  standards for reporting and display of comprehensive income and its
components in the financial statements.


RECENT PRONOUNCEMENTS

In May 2005,  the  Financial  Accounting  Standards  Board (the  "FASB")  issued
Statement  of  Financial  Accounting  Standards  ("SFAS")  No. 154,  "Accounting
Changes  and Error  Corrections--a  replacement  of APB  Opinion No. 20 and FASB
Statement  No. 3." This  Statement  replaces  APB  Opinion  No. 20,  "Accounting
Changes," and SFAS No. 3,  "Reporting  Accounting  Changes in Interim  Financial
Statements,"  and changes the requirements for the accounting for, and reporting
of, a change in accounting  principle.  This Statement  applies to all voluntary
changes in  accounting  principle.  It also  applies to changes  required  by an
accounting pronouncement in the unusual instance that the pronouncement does not
include specific transition  provisions.  When a pronouncement includes specific
transition provisions, those provisions should be followed.


                                      F-12
<PAGE>


                                  NEXICON, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2005


SFAS No. 154 is effective for accounting  changes and corrections of errors made
in fiscal years  beginning  after  December  15,  2005.  It will only affect the
financial  statements  of the  Company  if  there  is a  change  any  accounting
principle. At this time, no such changes are contemplated or anticipated.

In February 2006, the FASB issues SFAS No. 155,  "Accounting  for Certain Hybrid
Financial  Instruments--an  amendment of FASB  Statements No. 133 and 140." This
amends  SFAS  No.  133,  "Accounting  for  Derivative  Instruments  and  Hedging
Activities,"  and No. 140,  "Accounting for Transfers and Servicing of Financial
Assets and  Extinguishments  of  Liabilities."  This Statement  resolves  issues
addressed in SFAS No. 133 Implementation Issue No. D1, "Application of Statement
133 to Beneficial Interests in Securitized Financial Assets." This Statement:

      a.    Permits  fair  value   re-measurement   for  any  hybrid   financial
            instrument that contains an embedded derivative that otherwise would
            require bifurcation;
      b.    Clarifies which interest-only  strips and principal-only  strips are
            not subject to the requirements of SFAS No. 133;
      c.    Establishes  a  requirement  to evaluate  interests  in  securitized
            financial  assets  to  identify   interests  that  are  freestanding
            derivatives or that are hybrid financial instruments that contain an
            embedded derivative requiring bifurcation;
      d.    Clarifies  that  concentrations  of  credit  risk  in  the  form  of
            subordination are not embedded derivatives; and
      e.    Amends SFAS No. 140 to  eliminate  the  prohibition  on a qualifying
            special-purpose   entity  from   holding  a   derivative   financial
            instrument that pertains to a beneficial interest other than another
            derivative financial instrument.

This  Statement is effective  for all financial  instruments  acquired or issued
after the first fiscal year that begins after September 15, 2006.


The fair value  election  provided for in paragraph  4(c) of this  Statement may
also be applied upon adoption of this Statement for hybrid financial instruments
that  had been  bifurcated  under  paragraph  12 of SFAS  No.  133  prior to the
adoption of this Statement. Earlier adoption is permitted as of the beginning of
the  fiscal  year,  provided  financial  statements  have not yet  been  issued,
including  financial  statements for any interim  period,  for that fiscal year.
Provisions of this Statement may be applied to  instruments  held at the date of
adoption on an instrument-by-instrument basis.

The Company is currently reviewing the effects of adoption of this statement but
it is not expected to have a material impact on its financial statements.

In March  2006,  the FASB  issued SFAS No. 156,  "Accounting  for  Servicing  of
Financial  Assets--an  amendment of FASB Statement No. 140," with respect to the
accounting for separately recognized servicing assets and servicing liabilities.
This Statement:

      1.    Requires  an entity to  recognize  a  servicing  asset or  servicing
            liability  each  time it  undertakes  an  obligation  to  service  a
            financial  asset by entering  into a  servicing  contract in certain
            situations;
      2.    Requires all separately  recognized  servicing  assets and servicing
            liabilities to be initially measured at fair value, if practicable;
      3.    Permits an entity to choose  either the  amortization  method or the
            fair  value   measurement   method  for  each  class  of  separately
            recognized servicing assets and servicing liabilities;
      4.    At its  initial  adoption,  permits a one-time  reclassification  of
            available-for-sale securities to trading securities by entities with
            recognized  servicing  rights,  without  calling  into  question the
            treatment of other available-for-sale securities under SFAS No. 115,
            provided that the  available-for-sale  securities  are identified in
            some manner as offsetting  the entity's  exposure to changes in fair
            value of servicing  assets or servicing  liabilities that a servicer
            elects to subsequently measure at fair value; and
      5.    Requires  separate  presentation  of servicing  assets and servicing
            liabilities  subsequently measured at fair value in the statement of
            financial  position and  additional  disclosures  for all separately
            recognized servicing assets and servicing liabilities.

Adoption of this  Statement is required as of the  beginning of the first fiscal
year that begins after September 15, 2006. The adoption of this statement is not
expected to have a material impact on the Company's financial statements.


                                      F-13
<PAGE>


                                  NEXICON, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2005


NOTE 2.  GOING CONCERN

The Company's financial statements are presented on a going concern basis, which
contemplates  the  realization of assets and  satisfaction of liabilities in the
normal course of business.

The Company has experienced losses from operations as a result of its investment
necessary to achieve its operating plan, which is long-range in nature.  For the
years ended  December  31, 2005 and 2004,  the Company  incurred net (losses) of
($3,145,568) and ($5,929,891),  respectively.  At December 31, 2005, the Company
had a working capital (deficit) of $(998,571),  and  stockholders'  (deficit) of
$(3,093,254). In addition the Company is subject to legal action (see Note 11).

The  Company's  ability to continue as a going  concern is  contingent  upon its
ability to secure financing and attain profitable  operations.  In addition, the
Company's  ability to continue as a going concern must be considered in light of
the problems, expenses and complications frequently encountered by entrance into
established  markets  and the  competitive  environment  in  which  the  Company
operates.  As  discussed  in Note  13,  the  Company  purchased  a  wholly-owned
subsidiary,  Pluto and through its Charon Billing and Operational Support System
sales, in conjunction with Security  Solutions sales hopes to attain  profitable
operations. The Company entered into a Service Agreement with the Motion Picture
Association of America (the "MPAA"),  dated July 8, 2005,  pursuant to which the
Company will supply the MPAA with Nexicon's line of next-generation intelligence
and data mining services  worldwide.  On December 7, 2005,  effective January 1,
2006 the company entered into a Service Agreement with Software  Information and
Industry Association ("SIIA") to provide online anti-piracy monitoring.

The financial  statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the possible inability of
the Company to continue as a going concern.


NOTE 3.  NOTES PAYABLE AND DERIVATIVE LIABILITIES

FINANCING AGREEMENTS WITH CORNELL

In 2004,  the Company  entered  into the  following  financing  agreements  with
Cornell, all of which were mutually terminated on June 23, 2005:

      MARCH 23, 2004 STANDBY EQUITY  DISTRIBUTION  AGREEMENT  (SEDA).  Under the
      2004 SEDA,  the Company could,  at its  discretion,  periodically  sell to
      Cornell shares of the Company's common stock for a total purchase price of
      up to $20,000,000. For each share of common stock purchased, Cornell would
      pay 99% of the average  volume-weighted  lowest  price of the common stock
      for the five trading days immediately  following the notice date.  Cornell
      retained a fee of 5% of each purchase under the 2004 SEDA.

      On June 14, 2004,  Cornell  received a one-time  commitment fee related to
      the 2004 SEDA of 490,000 shares of the Company's  common stock. The shares
      issued in payment of the  commitment fee were valued at $0.48 per share or
      $235,200,  the fair market value of the shares at March 23, 2004 (the date
      of execution of the 2004 SEDA),  and were  capitalized as financing  costs
      and were being amortized as interest expense over the two-year  commitment
      period of the SEDA.  On  termination  of the 2004  SEDA,  the  unamortized
      balance of the financing costs of $160,000 was expensed.

o                 In  connection  with the SEDA,  the Company  issued  unsecured
      promissory notes to Cornell, as described below,  aggregating  $400,000 in
      2004. A total of 11,933,540  shares of the  Company's  common stock with a
      fair market value of $410,208 were issued  pursuant to the 2004 SEDA,  the
      proceeds  of which were used for  partial  repayment  of these  promissory
      notes.

o                 On August 4, 2004, the Company filed a Registration  Statement
      on Form SB-2 to register up to 69,000,000  shares  issuable under the 2004
      SEDA.


                                      F-14
<PAGE>

                                  NEXICON, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2005


      MAY 5, 2004 SECURITIES PURCHASE AGREEMENT.  Under this agreement,  Cornell
      agreed to purchase from the Company, up to $500,000 of secured convertible
      debentures, as described below.

      2004 SECURED  CONVERTIBLE  DEBENTURES  (PARTIALLY  REFINANCED  AS THE 2005
      SECURED CONVERTIBLE DEBENTURES).  On May 7, 2004, June 30, 2004 and August
      13, 2004,  Cornell  purchased a total of $500,000 of  Convertible  Secured
      Debentures.  The Company received net proceeds of $369,323,  after payment
      of expenses of $130,677.  The Debentures  accrued interest at 5% per annum
      and were  secured  by a  Security  Agreement  covering  substantially  all
      business  assets.  Principal plus accrued interest was payable in full two
      years after the date of issue, unless previously  converted into shares of
      the Company's  common stock.  Cornell could  convert,  at any time, all or
      part of the principal plus accrued interest, at a per share price equal to
      the lesser of (i) 120% of the quoted closing bid price of the stock on the
      date of the debenture,  or (ii) 80% of the lowest quoted closing bid price
      during the five trading days immediately preceding the conversion date.

o                 The conversion option embedded in the debentures was initially
      valued at $547,787 and was  bifurcated  and accounted for  separately as a
      derivative  instrument  liability,   as  described  below.  The  resulting
      discount  from the face  amount of the  Debenture  is being  amortized  as
      interest expense over the term of the Debenture.

o                 During  the year  ended  December 31, 2004  Cornell  converted
      $75,000 of the Debentures into 679,855 of the Company's  common stock. The
      Debentures were mutually terminated by the Company and Cornell pursuant to
      the June 23, 2005  Termination  Agreement and the outstanding  $380,000 of
      the original  principal  amounts of $500,000,  was  refinanced as the 2005
      Secured Convertible Debenture, as described below.

In July 5, 2005,  the Company  entered into the following  financing  agreements
with Cornell, all of which were mutually terminated on November 21, 2005:

o                 2005 SECURITIES PURCHASE AGREEMENT. Cornell agreed to purchase
      from  the  Company,  up to  $380,000  of  secured  convertible  debentures
      pursuant to the terms contained in the 2005 Secured Convertible Debentures
      described below.

o                  2005  STANDBY EQUITY DISTRIBUTION  AGREEMENT.  Under the 2005
      SEDA,  the Company may, at its  discretion,  periodically  sell to Cornell
      shares of the Company's  common stock for a total  purchase price of up to
      $20,000,000.  For each share of common stock  purchased,  Cornell will pay
      99% of the lowest  volume-weighted  average  price of the common stock for
      the five trading days immediately  following the notice date. Cornell will
      retain a fee of 5% of each purchase under the 2005 SEDA.

      In connection  with the 2005 SEDA, the Company and Cornell  entered into a
      Registration Rights Agreement,  whereby the Company has agreed to register
      the shares  issuable under the 2005 SEDA.  The  commitment  period for the
      2005 SEDA  extends  through  the  earlier of such time as Cornell has made
      aggregate  advances of $20,000,000 or two years from the effective date of
      the Registration Statement.

o                 2005  SECURED  CONVERTIBLE  DEBENTURE  (THE  REFINANCED  2004
      SECURED  CONVERTIBLE  DEBENTURES).  Effective  as of June  24,  2005,  the
      Company issued a $380,000 Secured  Convertible  Debenture to refinance the
      outstanding  principal  under  the 2004  Secured  Convertible  Debentures,
      described above. The Debenture, which accrues interest at 5% per annum and
      matures on June 24, 2007, is secured by substantially all of the Company's
      assets.

o                 The Debenture  was convertible at the holder's  option, at any
      time up to maturity on June 24, 2007,  at a price per share of $0.01.  The
      difference  between the fair market  value of the shares at June 24, 2005,
      and the  conversion  price of $0.01 is a  beneficial  conversion  feature;
      because  the value of that  beneficial  conversion  feature  exceeded  the
      amount of the Debenture,  the entire proceeds of $380,000 were credited to
      additional paid-in capital. The resulting discount from the face amount of
      the Debenture was being amortized as interest expense over the term of the
      Debenture.  At  maturity,  the  remaining  unpaid  principal  and  accrued
      interest may, at the Company's option, either be paid in cash or converted
      into shares of common stock at the conversion  price of $0.01. On November
      21,  2005,  the 2005  Secured  Convertible  Debenture  was replaced by the
      November 2005 Debentures (below).


                                      F-15
<PAGE>


                                  NEXICON, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2005


On November 21, 2005, the Company,  entered into a Securities Purchase Agreement
with Cornell pursuant to which the Company issued to Cornell secured convertible
debentures  in  the  principal   amount  of  $2,000,000   (the   "November  2005
Debentures").   The  November  2005  Debentures  were  issued  as  follows:  (i)
$1,085,481 of which was issued to replace secured  promissory  notes  previously
issued  and sold to  Cornell  on March  3,  2005,  in the  principal  amount  of
$1,000,000 plus $85,481 in accrued interest due and  outstanding;  (ii) $389,338
of which was issued to replace secured  promissory notes  previously  issued and
sold to Cornell on May 4, 2005, in the principal amount of $360,000 plus $29,338
in accrued interest due and outstanding; and (iii) $525,181 of which consists of
new secured convertible debentures issued and sold (or to be issued and sold, as
applicable) to Cornell as follows: (a) $100,000 was funded on November 22, 2005,
(b)  $100,000  will be funded two  business  days prior to the date on which the
Company files a registration  statement (the "Registration  Statement") with the
United States  Securities  and Exchange  Commission  (the "SEC") to register the
securities  underlying  the November 2005  Debentures,  and (c) $325,181 will be
funded one  business  day prior to the  Registration  Statement  being  declared
effective by the SEC.


The November 2005 Debentures are secured by  substantially  all of the Company's
assets, have two-year maturity dates, and accrue interest at 10% per annum.


PROMISSORY NOTES

During the years ended December 31, 2004 and 2005, the Company issued to Cornell
unsecured  promissory  notes bearing interest at 12% per annum, in the aggregate
amount of  $400,000  and  $1,250,000,  respectively,  maturing  in one year from
issuance.  The Company  received  $363,843 and $1,140,132,  respectively,  after
payment of financing  costs of $36,157 and $109,868,  respectively.  At November
21, 2005,  the  promissory  notes were replaced by the issuance of Debentures in
the amount of  $1,085,481which  equaled the principal  balance on the promissory
notes of $1,000,000 with accrued interest of $85,481 (see above).


DERIVATIVE INSTRUMENTS

The Company  reviews the terms of convertible  debt and equity  instruments  the
Company issues to determine whether there are embedded  derivative  instruments,
including the embedded conversion option, that are required to be bifurcated and
accounted for separately as a derivative financial instrument.  Generally, where
the  instruments  are subject to  registration  rights  agreements  or where the
ability to physical or net-share  settle the  conversion  option is deemed to be
not within  the  control  of the  Company,  the  embedded  conversion  option is
required to be bifurcated and accounted for as a derivative financial instrument
liability.

Derivative financial instruments are initially measured at their fair value. For
derivative  financial  instruments  that are accounted for as  liabilities,  the
derivative  instrument  is  initially  recorded  at its fair  value  and is then
re-valued at each  reporting  date,  with changes in the fair value  reported as
charges or credits to income. For option-based derivative financial instruments,
the Company uses the Black-Scholes  Option Pricing Model to value the derivative
instruments.

To the  extent  that the  fair  values  of the  bifurcated  and/or  freestanding
derivative  instrument  liabilities  exceed  the  total  proceeds  received,  an
immediate  charge to income is  recognized,  in order to  initially  record  the
derivative  instrument  liabilities  at their fair value.  The discount from the
face value of the convertible  debt instrument is amortized over the life of the
instrument  through  periodic  charges to income,  using the effective  interest
method.

The classification of derivative instruments, including whether such instruments
should be recorded as  liabilities  or as equity,  is  re-assessed at the end of
each reporting period.  Derivative instrument  liabilities are classified in the
balance  sheet as  current  or  non-current  based on  whether  or not  net-cash
settlement of the derivative  instrument  could be required  within 12 months of
the balance sheet date.

In  connection  with the  financing of embedded  compound  derivative  financial
instruments,  as more fully discussed above,  the Company has recorded  deferred
financing fees relating to future debenture conversions, in the aggregate amount
of $318,865, of which $171,921 is reflected as current and $146,944 is presented
as non-current as of December 31, 2005.


                                      F-16
<PAGE>

                                  NEXICON, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2005

At December  31,  2005 and 2004,  the  following  debt  instruments  and related
bifurcated derivative instruments were outstanding:

<TABLE>
<CAPTION>
                                                        ISSUE DATE          DECEMBER 31, 2005              DECEMBER 31, 2004
------------------------------------------------------------------------------------------------------------------------------------
ISSUE DATE     EXPIRY DATE                              AIR VALUE       FAIR VALUE                      FAIR VALUE
                                                             OF             OF                              OF
                                                         BIFURCATED     BIFURCATED                      BIFURCATED         DEBT
                                                          EMBEDDED       EMBEDDED     DEBT CARRYING      EMBEDDED         CARRYING
                                                         DERIVATIVES    DERIVATIVES       VALUE         DERIVATIVES        VALUE
------------------------------------------------------------------------------------------------------------------------------------

<S>            <C>            <C>                       <C>                     <C>              <C>       <C>                <C>
05-07-2004     05-07-2006     $250,000 convertible
                              debenture                 $    251,435             --              --        $233,095       $    858

06-30-2004     06-30-2006     $100,000 convertible
                              debenture                      144,251             --              --         131,429            520

08-13-2004     08-13-2006     $150,000 convertible
                              debenture                      152,101             --              --         195,000          2,665

08-30-2004     08-30-2006     $250,000 unsecured
                              promissory note                216,835             --              --              --             --

11-30-2004     11-30-2006     $150,000 unsecured
                              promissory note                112,662             --              --         118,788        145,047

11-21-2005     11-21-2007     $1,085,479 convertible
                              debenture                    1,307,444      1,163,165             222              --             --

11-21-2005     11-21-2007     $389,338 convertible
                              debenture                      468,952        397,335              80              --             --

11-21-2005     11-21-2007     $100,000 convertible
                              debenture                      120,449        102,054              20              --             --
                                                                         ---------------------------------------------------------
Total debt and bifurcated derivatives                                    $1,662,554       $     322        $678,312       $149,090

<CAPTION>
                                                                         DECEMBER 31, 2005                 DECEMBER 31, 2004
ISSUE DATE     EXPIRY DATE             INSTRUMENT          FAIR VALUE    FAIR VALUE                        FAIR VALUE
----------------------------------------------------------------------------------------------------------------------------------


<S>            <C>            <C>                           <C>          <C>                     <C>             <C>            <C>
11-21-2005     11-21-2012     15,000,000 common stock
                              warrants                      $340,123     $  295,127              --              --             --
                                                                         ----------       ---------        --------       --------
Total freestanding derivative instruments                                $  295,127              --              --             --
                                                                         ----------       ---------        --------       --------

Total debt and derivative instrument liabilities                         $1,957,681       $     322        $678,312       $149,090
                                                                         ----------       ---------        --------       --------
</TABLE>


                                      F-17
<PAGE>


                                  NEXICON, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2005


<TABLE>

<S>                                                                    <C>
Secured Convertible Debentures; 10% per annum; due November 21, 2007   $ 1,085,479
Less: unamortized bifurcated embedded derivative instruments            (1,085,257)
                                                                       -----------
                                                                       $       222
                                                                       -----------

Secured Convertible Debentures; 10% per annum; due November 21, 2007   $   389,338
Less: unamortized bifurcated embedded derivative instruments              (389,258)
                                                                       -----------
                                                                       $        80
                                                                       -----------

Secured Convertible Debentures; 10% per annum; due November 21, 2007   $   100,000
Less: unamortized bifurcated embedded derivative instruments               (99,980)
                                                                       -----------
                                                                       $        20
                                                                       -----------

Total carrying value at December 31, 2005                              $       322
                                                                       ===========
</TABLE>


NOTE 4.  RESTATEMENT AND CORRECTION OF AN ERROR

The  financial  statements  for 2004  and the 2005  interim  periods  have  been
restated to reflect the  correction  of an error as  discussed  below.  No other
changes have been made.

The Company has amended its annual report for the year ended  December 31, 2004,
and quarterly  reports for the quarters  ended March 31, 2005 and June 30, 2005,
to  reflect  the  accounting  for  the  convertible   debentures  and  unsecured
promissory notes in connection with the Company's  financing  transactions  with
Cornell . In October  2005,  the staff (the "Staff") of the SEC issued a comment
letter  concerning the  accounting for  convertible  debt  instruments  that are
subject to a registration rights agreements and/or that have embedded derivative
instruments.  The Company has  re-evaluated  its debt agreements in light of the
issues raised by the Staff in accordance  with EITF 00-19 and has concluded that
there are embedded derivative instruments that are required to be bifurcated and
accounted for as derivative  liabilities (see Note 3). The Company is responding
to comments provided by the Staff in connection with the Company's  December 31,
2004,  Form 10-KSB and  subsequent  filings under the Securities Act of 1934, as
amended.

The  accompanying  financial  statements have been restated to reflect the above
correction.  The adjustments  increased the net loss for the year ended December
30, 2004, as previously  reported from  $(5,488,455)  to $(5,929,891) or $(0.06)
per share.  In addition,  the liability  for  convertible  debentures  and notes
payable to Cornell previously reported on the balance sheet was reduced $575,000
to $0, the amount  reported on the balance sheet for derivative  instruments was
increased  from  $0 to  $827,402.  These  restatements  had  no  effect  on  our
liquidity.

NOTE 5.  STOCKHOLDERS' (DEFICIT)

During the year ended December 31, 2005, the Company issued 23,100,000 shares of
its  common  stock  for cash in the  amount  of  $282,000,  5,506,250  shares to
employees as compensation valued at $118,425,  3,947,369 shares to Richard Urrea
valued at  $75,000,  3,947,369  shares to Daniel  Urrea  valued at  $75,000  and
2,631,579 shares to an employee valued at $50,000 as payment for bonuses accrued
in the fiscal year ended December 31, 2003. The Company issued  1,439,900 shares
to John Morrison for investor  relations  services valued at $31,177,  1,500,000
shares were issued to Brent Jay for market consulting services valued at $30,000
and 318,500 shares were issued to CCG Investor  Relations for market  consulting
services valued at $3,185 in addition 3,066,124 shares were issued in connection
with the  conversion of $65,000 of debentures,  and 11,933,540  shares valued at
$647,276  were issued in connection  with the Equity Line of Credit  repayments,
including embedded derivative instruments .


                                      F-18
<PAGE>


                                  NEXICON, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2005

On January 14, 2005,  Nexicon issued an unsecured  promissory note to Cornell in
the amount of $250,000 and received  net proceeds of $225,033  after  payment of
financing  costs  of  $24,967.  Effective  March  3,  2005,  Nexicon  issued  an
additional  unsecured promissory note to Cornell in the amount of $1,000,000 and
received net proceeds of $915,099,  after payment of financing costs of $84,901.
The loan was  evidenced by a promissory  note dated March 3, 2005,  which has an
interest  at a rate of 12% per  annum and was due on  November  26,  2005.  As a
condition  precedent  to the  loan,  Nexicon  agreed to issue and hold in escrow
40,000,000  shares  of its  common  stock  to be  released  in  connection  with
repayment of the loan. On November 21, 2005, the promissory  note was terminated
and Cornell  surrendered the promissory  note and 35,889,410  shares of stock to
Nexicon. In connection with the November 21, 2005 restructuring of the financing
agreements  with  Cornell,  as more  fully  discussed  in Note 3, an  additional
$100,000 was  advanced to the Company,  resulting in $20,000 net to the Company,
after  financing  costs  and  professional  fees  of  $80,000.  The  balance  of
$1,085,481  outstanding  on the  promissory  note as of  November  21,  2005 was
converted into the November 2005 Debentures.  During the year ended December 31,
2005,  the Company  issued  11,933,540  shares of common stock with an aggregate
value of $647,276 in connection with Equity Line of Credit repayments to Cornell
(including embedded derivative instruments), at $.01 - $.07 per share.

On March 17, 2005,  Nexicon  discontinued  operations  of its OSSI  SatSecure(C)
Systems  business,  pursuant to the terms of a Stock Repurchase  Agreement.  The
Company repurchased  15,000,000 shares of its common stock held by the President
of OSSI.

On July 5, 2005, the Company refinanced the 2004 Secured Convertible  Debentures
as the 2005 Secured Convertible  Debentures in the principal amount of $380,000,
effective as of June 24, 2005. The 2005 Secured  Convertible were convertible at
the  holder's  option any time up to  maturity at a  conversion  price per share
equal to $0.01. At maturity, the remaining unpaid principal and accrued interest
under the 2005 Secured  Convertible  Debenture  would be, at  Nexicon's  option,
either paid or converted into shares of common stock at a conversion price equal
to $0.01. The 2005 Secured Convertible  Debentures were secured by substantially
all of our  assets,  and  accrued  interest  at a rate of 5% per  year and had a
2-year term. During the year ended December 31, 2005, 3,066,124 shares of common
stock valued at $65,000 were issued in  connection  with the  conversion  of the
debentures.  The 2005 Secured  Convertible  Debentures was refinanced  under the
November 2005 Debentures.

On July 22, 2005,  Nexicon and Central  Solutions,  Inc. agreed to terminate the
Investment,  Marketing and Distribution  Agreement  entered into on December 10,
2004. As a result of terminating  said agreement,  the Company  returned its 35%
ownership  interest in Central  Solutions and Central Solutions has returned the
10,000,000 shares of the Company's common stock received per said agreement.

During the periods covered by these financial  statements the Company has issued
shares of common stock without  registration  under the  Securities Act of 1933.
Although the Company  believes that the sales did not involve a public  offering
of its  securities  and that the  Company  did  comply  with the  "safe  harbor"
exemptions from registration, it could be liable for rescission of the issuances
if such  exemptions  were  found not to apply,  and this  could  have a material
negative impact on the Company.

NOTE 6.  DISCONTINUED OPERATIONS

In December 2004, the Company, through its wholly-owned subsidiary OSSI, decided
to discontinue its  SatSecure(C)  Systems  division,  pursuant to the terms of a
Stock Repurchase  Agreement with the President of OSSI, which was consummated on
March 17, 2005 (see Note 12).

Operating  results of  discontinued  operations for the years ended December 31,
2005  and  2004,  are  shown  separately  in  the  accompanying   statements  of
operations.

Net sales and net income (loss) from discontinued operations are as follows:

                                     2005          2004
                                 -----------    -----------
Net sales                        $        --    $   174,810
                                 -----------    -----------
Net (loss)                       $  (101,526)   $  (972,734)
                                 ===========    ===========


                                      F-19
<PAGE>


                                  NEXICON, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2005


Net  liabilities of  discontinued  operations,  which were included in the Stock
Repurchase Agreement, were as follows as of December 31, 2005 and 2004:

                                                   2005            2004
                                               ------------    ------------
Property and equipment - net                   $         --    $     16,020
Deposits                                                 --          11,179
Accounts payable and accrued expenses              (148,788)       (135,353)
Notes payable and accrued interest - related       (160,000)        (21,741)
Accrued expenses - shareholder                      (22,355)       (249,276)
                                               ------------    ------------
  Net liabilities of discontinued operations   $   (331,143)   $   (379,171)
                                               ============    ============


NOTE 7.  RELATED PARTY TRANSACTIONS

On October 17,  2005,  the Company  issued  3,947,369  shares each of its common
stock to Richard Urrea and Daniel Urrea valued at a total of $150,000 as payment
for bonuses accrued in the fiscal year ended December 31, 2003.

Accrued  expenses - related  party  includes an  aggregate of $100,000 of unpaid
prior year bonuses to  employees,  who are also  shareholders,  plus $125,820 of
current year accrued wages payable to the Company's employees/shareholders.


NOTE 8.  INCOME TAXES

The Company  accounts  for income taxes under SFAS 109,  "Accounting  for Income
Taxes",  which  requires use of the  liability  method.  SFAS 109 provides  that
deferred  tax assets  and  liabilities  are  recorded  based on the  differences
between the tax bases of assets and liabilities  and their carrying  amounts for
financial reporting purposes, referred to as temporary differences. Deferred tax
assets  and  liabilities  at the end of each  period  are  determined  using the
currently  enacted tax rates  applied to taxable  income in the periods in which
the deferred tax assets and liabilities are expected to be settled or realized.

The types of  temporary  differences  between  the tax basis of assets and their
financial  reporting  amounts  that give rise to a  significant  portion  of the
deferred tax asset are as follows:

                                                 Reconciling          Tax
                                                     Item            Effect
                                                  ----------       ----------
       Net operating loss carry forward           $5,431,000       $1,853,000
                                                  ==========       ==========

The net operating loss carry forward will expire through 2025.

The  deferred tax asset has been fully  reserved as of December  31,  2005.  The
change in the  valuation  allowance  for the  deferred tax asset during the year
ended  December 31, 2005 was an increase of $337,000.  The principal  difference
between the net operating loss for financial  reporting  purposes and income tax
purposes results from non-cash interest and services.


NOTE 9.  STOCK BASED COMPENSATION

STOCK OPTIONS

The Company has a  compensatory  stock option plan.  Under the plan, the Company
may grant options for up to 4,000,000 shares of common stock. The exercise price
of each option shall be determined by the  Compensation  Committee or by the CEO
with reference to factors such as current fair market value of the common stock,
net book value per share,  regular or other remuneration  already being received
by the optionee.  The maximum term of the options is five years and they vest on
the date granted. All options outstanding at December 31, 2005 have been granted
to employees.


                                      F-20
<PAGE>


                                  NEXICON, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2005


Summarized  information  relative  to the  Company's  stock  option  plan  is as
follows:

                                                          Weighted
                                                           Average
                                   Number of Shares     Exercise Price
                                   ----------------    ----------------

Outstanding at January 1, 2003            1,350,000    $           0.06
Granted                                          --                  --
Exercised                                        --                  --
Forfeited                                  (600,000)               0.06
                                   ----------------    ----------------
Outstanding at December 31, 2004            750,000    $           0.06
Granted                                          --                  --
Exercised                                        --                  --
Forfeited                                        --                  --
                                   ----------------    ----------------
Outstanding at December 31, 2005            750,000    $           0.06
                                   ================    ================


An option for 600,000  shares  expired in 2004 and the option for 750,000 shares
are vested and expire in 2006.


NOTE 10.  STOCK PURCHASE WARRANT

In  connection  with the issuance of  $1,085,481  (face  amount) of  convertible
debentures  effective  November 21, 2005, as more fully discussed in Note 3, the
Company issued 15,000,000 common stock purchase  warrants,  exercisable at $0.02
per share  through  November  21,  2012.  The fair value of the  warrants in the
amount of  $295,127  is  included  in  derivative  financial  liabilities  as of
December 31, 2005.

NOTE 11.  CONTINGENT LIABILITY

On January 28, 2003,  the Company was named in a civil suit filed by the City of
New York as one of  approximately  a dozen  defendants  who are  engaged  in the
business of Internet  online  tobacco  sale.  The suit  alleges that the Company
failed to report the names and addresses of its customers to taxing authorities.
The extent of the city's damages is yet to be determined at trial.


NOTE 12.  SALE OR DISPOSITION OF BUSINESS


INTERNET TOBACCO PRODUCTS

Effective  on July 1, 2003,  the  Company  agreed to sell its  Internet  tobacco
products  business to American Indian CigCo,  LLC ("ACC").  In conjunction  with
this purchase ACC agreed to purchase  2,000,000  shares of the Company's  common
stock. The purchase price  aggregated  $3,000,000 in the form of 2 notes payable
as follows:

Payment  for the assets of the  business  in the form of a note in the amount of
$200,000  payable in 12 equal  monthly  installments  of $16,667  commencing  on
August 1, 2003.  The balance of the note plus accrued  interest  receivable  was
$55,056 at December 31, 2005.

Payment for the  2,000,000  common shares is payable in the form of a $2,800,000
note with  interest at 7% per annum,  on an interest  only basis.  The  interest
payments are due annually  commencing on July 31, 2004 and the principal balance
is due on July 31, 2008.  Accrued interest  receivable has not been reflected in
the accompanying financial statements, as recognition will occur as proceeds are
received.


                                      F-21
<PAGE>


                                  NEXICON, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2005


Because  the sale of the  business  and the common  shares were made to a thinly
capitalized   entity  and  significant   uncertainties   exist  related  to  the
collectibility  of the amounts due, the gain from the sale of the business  will
be deferred  until such time as the proceeds are collected or until such time as
the cash flows from the operating activities of the business sold are sufficient
to fund the debt  service.  The deferred  portion of the gain on the sale of the
business  aggregating  $37,563 at  December  31, 2005 is  reflected  as deferred
revenue.

In  addition,  interest  income  from the  $2,800,000  note  receivable  will be
recognized as the proceeds are collected and the unpaid portion of the principal
balance will be recorded as a reduction of stockholders' equity.


SATSECURE(C) SYSTEMS

In December  2004,  the Company  decided to  discontinue  operations of its OSSI
SatSecure(C)  Systems  business,  pursuant  to the  terms of a Stock  Repurchase
Agreement which was consummated March 17, 2005. The Company agreed to repurchase
15,000,000  shares of its common stock held by the president of OSSI for a total
purchase  price of $240,000  payable  $20,000 at closing and a note  payable for
$220,000 payable in successive  $20,000  increments on or before the 15th of the
month for 11 consecutive  months,  plus  equipment  located in the OSSI facility
with a net book  value of  $15,213,  which is  included  in net  liabilities  of
discontinued   operations  at  December  31,  2004.  In  addition,  the  Company
relinquished all right title and interest in any agreements  associated with the
SatSecure(C) technology and to various associated trade names. Accordingly,  all
revenues and associated costs related to the SatSecure(C)  product are reflected
as discontinued  operations in the accompanying  financial  statements (Note 6).
The balance of the note at December 31, 2005, was $160,000.


NOTE 13.  ACQUISITION OF ASSETS AND LOSS ON ASSET IMPAIRMENT

PLUTO

Effective November 15, 2004, the Company entered into a share exchange agreement
with Pluto Communications International,  AS ("Pluto") a Norwegian company, that
provides a range of billing and customer care  solutions  for  telecommunication
carriers and service  providers  via their  "Charon"  billing and customer  care
real-time,  client/server system. Pursuant to a Share Exchange Agreement between
the Company and Pluto,  Inc.,  dated June 16, 2004,  and amended on November 15,
2004,  to change the date of Closing to the date  thereof,  the  Company  issued
5,010,496  shares of common stock to Pluto in exchange for all of the issued and
outstanding  common stock of Pluto, which consists of 2,385,950 shares of common
stock. The business combination has been accounted for as a purchase. The shares
were  valued at $.12 per share,  the fair  market  value at  November  15,  2004
($601,260).  The  results  of  operations  of Pluto  have been  included  in the
accompanying  financial  statements since the effective date of the acquisition.
Pluto  will  continue  its  operations  in  Norway  and will  operate  as a 100%
wholly-owned subsidiary of the Company.

The purchase price was allocated as follows:

        Current assets                                        $    93,327
        Property and equipment                                     37,283
        Other assets                                                7,221
        Current liabilities                                      (221,202)
                                                              -----------
        Net liabilities acquired                              $   (83,371)
                                                              ===========

The assets  acquired and  liabilities  assumed were recorded at fair value which
equal  the  historical  cost  basis of  Pluto,  translated  from the  functional
currency of Norwegian  Kroner into U.S.  dollars as of the date of  acquisition,
November 15, 2004. Included, is $23,688 of temporarily  restricted cash to cover
a portion of the Pluto  employees'  payroll  tax  withholdings,  as  required by
Norwegian law. Since the funds are  periodically  remitted to the related taxing
authorities,  this amount is presented as a current  asset at December 31, 2004.
The excess of the purchase price paid over the value of the assets acquired, has
been recorded as purchased  research and  development  in the amount of $601,260
and charged to  operations  during the period  ended  December  31,  2004.  (see
below).


                                      F-22
<PAGE>


                                  NEXICON, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2005


The Company  purchased the rights to the billing system in development by Pluto.
Although the billing system was generating  revenues in Europe,  it had not been
developed to be marketed to the Company's  target market in the United States at
the purchase date. The fair value of the shares issued to effect the acquisition
was used to determine the consideration paid for the assets acquired. Based upon
this the Company allocated $601,260 of the purchase price to acquired In-Process
Research and Development.

This acquired  research and  development  represents  products  currently  under
development  that have not yet been  proven to be  commercially  feasible in the
United States and have no alternative future use. Future projected cash flows of
sales discounted to the present value using a reasonable  discount rate viewed a
nominal  value and no future cash flows can be  predicted  in the United  States
with  reasonable  reliability.  Therefore  no value was assigned to the products
under  development as there  remained a substantial  amount of development to be
done, the related risks of further  development,  the Company's lack of funds or
commitment for funds for development.

The following  unaudited  summarized  pro forma  information  for the year ended
December 31, 2004, assumes the acquisition had occurred on January 1, 2004:

         Net sales                                              $    731,385
                                                                ============

         Net (loss)                                             $ (6,039,227)
                                                                ============

         (Loss) per share:  basic and diluted                   $      (0.06)
                                                                ============


CENTRAL SOLUTIONS

Effective   December  10,  2004,  the  Company  entered  into  a  marketing  and
distribution  agreement with Central  Solutions,  Inc.  ("Central"),  a Delaware
corporation, whereby the Company granted Central the right to market, distribute
and support any and all technology directly or indirectly controlled,  licensed,
owned joint ventured or otherwise  approved for the Company,  exclusively in the
healthcare  markets in the U.S. and Canada. In connection with this, the Company
issued  10,000,000  shares of its restricted common stock in exchange for 35% of
Central's  issued  and  outstanding  common  stock.  Central  was a dormant  and
inactive entity at the  acquisition  date. The excess of the purchase price paid
over the value of the assets  acquired,  has been  determined  to be impaired at
December 31, 2004,  because of the non performance by Central under the terms of
the  agreement  and the fair value of the  shares  issued of  $902,000  has been
charged to operations.

 On July 22, 2005, the Company and Central  Solutions,  Inc. agreed to terminate
the Investment,  Marketing and Distribution  Agreement  entered into on December
10, 2004. As a result of terminating  said agreement,  the Company  returned its
35% ownership  interest in Central  Solutions and Central Solutions has returned
the 10,000,000 shares of the Company's common stock received per said agreement.


MERCURY MOBILE

Effective May 18, 2004, the Company entered into a Stock Purchase Agreement with
Mercury  Mobile AS  ("Mercury"),  a Norwegian  Corporation,  whereby the Company
purchased 58,845 shares (2.5% of the then issued and outstanding Mercury shares)
of Mercury for cash in the amount of  $147,851.  During the year ended  December
31, 2004, the Company paid $100,200 to Mercury for certain  materials related to
its ComSecure Controller product, which amount is included in cost of goods sold
.. The  excess  of the  purchase  price  paid over the fair  value of the  assets
acquired  has been  determined  to be  impaired  as of December  31,  2005,  and
accordingly $147,851 has been charged to operations.


                                      F-23
<PAGE>


                                  NEXICON, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2005


NOTE 14.  EXCLUSIVE PURCHASE AND SUPPLY AGREEMENT

Effective  October 27, 2003,  the Company  through its  wholly-owned  subsidiary
OSSI,  entered  into an  exclusive  purchase  and supply  agreement  for certain
specialized equipment, with the manufacturer,  a foreign entity. The term of the
agreement  extends  through  December 31, 2006 and  provides  for two  automatic
two-year extensions. The agreement calls for an annual minimum purchase quota of
(pound)160,000,  denominated  in UK Pounds.  Pursuant  to the terms of the Stock
Repurchase  Agreement  discussed in Note 12, this  agreement  transferred to the
president of OSSI,  therefore  as of March 17, 2005,  the Company has no further
obligation under this agreement.


NOTE 15.  COMMITMENTS


EMPLOYMENT AGREEMENTS

Effective  January 1, 2004, the Company has entered into  employment  agreements
with its three  employees.  The agreements call for aggregate annual salaries of
$294,000,  through December 31, 2008. At December 31, 2005,  $93,380 is included
in accrued expenses, related to these employment agreements.


DISTRIBUTOR AGREEMENT

Effective  January 1, 2004,  the Company,  through its  wholly-owned  subsidiary
OSSI, entered into an exclusive  distributor agreement with a foreign entity. As
per the  terms  of the  agreement,  OSSI is  granted  an  exclusive  license  to
distribute, promote, sell, install, service and otherwise maintain and reproduce
by its own means, certain surveillance  equipment to the U.S. government as well
as non-exclusive rights to certain equipment for both the U.S.  governmental and
commercial entities.  The term of the agreement extends to December 31, 2007 and
provides for an automatic  two-year renewal period.  The agreement calls for the
sale of a minimum of fifty licenses,  of which at least five must be "Advanced".
The cost per license for both the  Advanced  and Basic  systems is,  $80,000 and
$40,000,  respectively,  with  annual  support  agreement  costs of $20,000  and
$10,000, respectively. The Company, via verbal agreements with this distributor,
is not in default on this agreement.


OPERATING LEASES

On January 29, 2004, the Company  entered into an operating  lease agreement for
office space for its subsidiary,  OSSI. The term commences February 1, 2004, and
continues through April 30, 2007.

The Company  remains  liable on the OSSI lease  through its term and is actively
pursuing a sublessee,  since the McLean,  VA operations  have been  discontinued
(see Notes 6 and 12).  Effective  April 1, 2004,  the  Company  entered  into an
operating  lease agreement for its corporate  headquarters  in Albuquerque,  NM,
commencing April 1, 2004, and continuing through March 31, 2006.

Future minimum lease payments pursuant to these agreements are as follows:

              Year ended
              December 31                Amount
              -----------            --------------
              2006                   $       87,781
              2007                           24,253
                                     --------------
                                     $      197,754
                                     ==============

                                      F-24
<PAGE>


                                  NEXICON, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2005


Aggregate  rent  expense  amounted to  $117,905  and $74,040 for the years ended
December  31,  2005 and  2004,  respectively,  of  which  $19,420  and  $22,508,
respectively  are included in discontinued  operations  (Note 6) and $98,485 and
$51,532, respectively, are included in general and administrative expenses.


CONSULTING AGREEMENTS

Effective  June 1, 2004,  the Company  entered into an agreement  for  financial
consulting  services.  As  consideration  for the services,  the Company  issued
4,500,000 shares of its restricted  common stock to this individual.  The shares
were valued at the fair market value of the stock on the  effective  date of the
agreement,  and will have piggy-back  registration  rights for a period of three
years. As of December 31, 2005 and 2004, $502,658 and $667,342, respectively has
been  expensed as stock  compensation.  In  addition,  the Company has agreed to
issue  1,500,000  additional  shares to the  consultant at September 1, 2006, at
prices to be  determined  in the future,  based on the fair market  value of the
stock at that time.


NOTE 16.  REPORTABLE SEGMENTS

The Company has two reportable  segments,  billing systems and security systems.
The  accounting  policies of the  segments are  substantially  the same as those
described in the summary of  significant  accounting  policies,  as presented in
Note 1. All revenues generated in the segments are external. For the years ended
December  31, 2005 and 2004,  the total  reportable  segment  information  is as
follows:

<TABLE>
<CAPTION>
                                          Billing
                                         Solutions       Network                      Total as
                                          Systems        Security      Corporate      Reported
                                        -----------    -----------    -----------    -----------

<S>                                     <C>            <C>            <C>            <C>
For the year ended December 31, 2005:
  Reportable segments
    External revenues                   $    94,146    $   300,000    $        --    $   394,146
    Depreciation and amortization            14,398            581          1,251         16,230
    Operating (loss)                       (581,976)       (88,780)    (1,978,452)    (2,649,208)
    Assets                                   52,879             --        402,935        455,814
    Capital expenditures                      6,291             --          5,080         11,371

For the year ended December 31, 2004:
  Reportable segments
    External revenues                   $    47,480    $   448,510    $        --    $   495,990
    Depreciation and amortization            17,644          4,318            867         22,829
    Operating (loss)                       (202,979)      (545,026)    (4,011,971)    (4,759,976)
    Assets                                   73,756          3,265        376,550        453,571
    Capital expenditures                      2,000         10,994             --         12,994
</TABLE>


External  revenues  for  groups of  similar  products  and  services,  consisted
principally of the security  systems,  ($300,000) and telephone  billing systems
($94,146). The security segment is operating and has derived its revenues from a
single  customer in the United States  during the year ended  December 31, 2005,
and 2004. The Billing  solutions  systems segment is operating in Norway and has
derived its revenues in Norway and Sweden.


                                      F-25
<PAGE>


                                  NEXICON, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2005


NOTE 17.  SUBSEQUENT EVENTS


STOCK ISSUANCE

Subsequent to December 31, 2005,  the Company  issued an aggregate of 46,958,482
shares of its  common  stock.  28,300,000  for cash in the  amount of  $273,000,
1,750,270  shares as  compensation  to  employees  valued at $35,005,  2,550,000
shares for services valued at $51,000,  and 14,358,212 shares in connection with
the conversion of $194,817 of debentures (Note 3).



                                      F-26