**UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**FORM
      10-KSB**


x
            ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
                ACT OF
                1934





For
      the
      fiscal year ended December 31, 2005





o
            TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
                ACT OF
                1934








Commission
      file number 0-07418





**eLINEAR,
      INC.**


(Exact
      name of small business issuer as specified in its charter)




Delaware  76-0478045


(State
      or
      other jurisdiction of incorporation or
      organization)                                        
(IRS Employer Identification No.)





2901
      West Sam Houston Parkway North, Suite E-300, Houston, Texas  77043


(Address
      of principal executive offices)     (Zip
      Code)





Registrant's
      telephone number, including area code: (713)
      896-0500




Securities
      registered pursuant to Section 12(b) of the Act: None














Securities
      registered pursuant to Section 12(g) of the Act: $.02 Par Value Common
      Stock





Check
      whether the Issuer (1) has filed all reports required to be filed by Section
      13
      or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 o





Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B is not 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. o





Issuer's
      revenues for the fiscal year ended December 31, 2005, were
      $29,750,817.





The
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates of the Issuer as of April 24, 2006, based upon the closing price
      as of such date on the American Stock Exchange, was $8,161,940.





The
      Registrant's common stock outstanding as of April 24, 2006, was
      29,467,741shares.





DOCUMENTS
      INCORPORATED BY REFERENCE:  NONE





Transitional
      Small Business Disclosure Format (Check One): Yes o No x




















**eLINEAR,
      INC.**





**INDEX
      TO FORM 10-KSB**


**December
      31, 2005**




**Part
                I**
            Item
                1.
            Description
                of Business
            3Item
                2.
            Description
                of Property
            7Item
                3.
            Legal
                Proceedings
            7Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            7**Part
                II**
            Item
                5.
            Market
                for Common Equity and Related Stockholder Matters
            9Item
                6.
            Management's
                Discussion and Analysis and Results of Operations and Financial
                Condition
            9Item
                7.
            Financial
                Statements
            20Item
                8.
            Changes
                in and Disagreements with Accountants on Accounting and Financial
                Disclosure
            45Item
                8A.
            Controls
                and Procedures
            45Item
                8B
            Other
                Information
            45**Part
                III**
            Item
                9.
            Directors,
                Executive Officers, Promoters and Control Persons, Compliance with
                Section
                16(a) of the Exchange Act
            46Item
                10.
            Executive
                Compensation
            48Item
                11.
            Security
                Ownership of Certain Beneficial Owners and Management
            51Item
                12.
            Certain
                Relationships and Related Party Transactions
            52Item
                13.
            Exhibits
            53Item
                14.
            Principal
                Accountant Fees and Services
            54




















2







**FORWARD
      LOOKING STATEMENTS**




Some
      of the
      statements contained in this report discuss future expectations,
      contain projections of results of operations or financial condition, or
      state other "forward-looking" information. The words "believe," "intend,"
      "plan," "expect," "anticipate," "estimate," "project" and similar expressions
      identify such statement was made. These statements are subject to known and
      unknown risks, uncertainties, and other factors that could cause the actual
      results to differ materially from those contemplated by the statements. The
      forward-looking information is based on various factors and is derived using
      numerous assumptions:








·
            changes
                in general economic and business conditions affecting Information
                Technology ("IT") consulting development and implementation,
                computer-based project management consulting and strategic business
                consulting industries;


·
            technical
                developments that make the Company's products or services
                obsolete;


·
            changes
                in the Company's business
                strategies;


·
            the
                level of demand for the Company's products or
                services;


·
            the
                Company's ability to develop or maintain strategic relationships;
                and
                global economic conditions








The
      Company
      does not promise to update forward-looking information to reflect actual results
      or changes in assumptions or other factors that could affect those statements.
      Future events and actual results could differ materially from those expressed
      in, contemplated by, or underlying such forward-looking statements.





**ITEM
      1. DESCRIPTION OF BUSINESS**





**Overview**





eLinear,
      Inc., a Delaware corporation (the "Company" or "eLinear"), is a total IT
      solutions provider of technology consulting, network and storage solutions
      infrastructure and a provider of digital voice, data, video and security
      services for both commercial and residential customers. Typically, the Company's
      customers are Fortune 2000 and Small to Medium Business ("SMB") organizations.
      The Company's services are offered to companies seeking to increase productivity
      or reduce costs through investing in technology. A majority of the Company's
      customers are located in Houston, Texas. The Company's Internet address
      is http://www.elinear.com .
      Information contained on the Company's web site is not a part of this report.
      The Company's stock is traded on the American Stock Exchange under the symbol
      "ELU".





The
      Company provides IT consulting services through consulting solutions, creative
      web site design, web site content management software and technical project
      management and development services. Through NetView Technologies, Inc., a
      wholly-owned subsidiary ("NetView"), the Company provides network and storage
      solutions through product fulfillment, network and infrastructure design, data
      storage architecture and is a certified partner with several Fortune 100 IT
      solutions providers. Through NewBridge Technologies, Inc., a wholly-owned
      subsidiary ("NewBridge"), the Company provides structured cabling, cabling
      infrastructure design and implementation, security installation and monitoring
      and digital services of voice, data and video over fiber optic networks to
      its
      residential and commercial customers. Through TanSeco Systems, Inc., a
      wholly-owned subsidiary ("TanSeco"), the Company has business centered on
      premise security solutions which includes a three-year contract with RadioShack
      Corporation to install kiosks throughout the United States, third party 24X7
      security monitoring contracts with a variety of commercial customers and project
      work installing security devices and fiber/cable in client locations across
      the
      US.





**Organizational
      History**





The
      Company operated as a technology consulting business from December 1999 until
      its acquisition of NetView in April 2003. It acquired its Internet consulting
      business as a result of a reverse merger with Imagenuity, Inc. ("Imagenuity")
      in
      1999. Since 1999 to date, its Internet consulting business consisted of Internet
      consulting services, creative web site design, web site content management
      and
      software and technical project management and development services. For the
      fiscal year ended December 31, 2005, the consulting segment contributed less
      than 1% of eLinear's revenue. From 1995, its inception, the Company, which
      at
      the time was named Kinetics.com, was engaged in marketing proprietary software
      programs for use on the world wide web of the Internet. Kinetics.com marketed
      two software programs designed for use on the Web in 1995 and 1996. During
      1996,
      several creditors of Kinetics.com obtained court judgments against it as a
      result of non-payment of financial obligations and in 1997, Kinetics.com
      transferred all of its assets to an unaffiliated third party. Subsequent to
      the
      asset transfer, the only activities of Kinetics.com consisted of negotiating
      settlements with its creditors and attempting to identify a suitable acquisition
      or merger candidate. While Kinetics.com was the survivor in the merger, from
      an
      accounting standpoint the transaction was accounted for as though it was a
      recapitalization of Imagenuity and a sale of shares by Imagenuity in exchange
      for the net assets of Kinetics.com. On July 31, 2000, the Company changed its
      name to eLinear, Inc.





3





Three
      acquisitions in 2003 and 2004 expanded the Company’s capabilities in network and
      storage solutions, communications and IT convergence and in physical
      security.





On
      April
      15, 2003, eLinear issued 12,961,979 shares of common stock for 100% of the
      outstanding common stock of NetView. After the merger the stockholders of
      NetView owned approximately 90% of the combined entity. For financial reporting
      purposes this transaction was treated as an acquisition of eLinear and a
      recapitalization of NetView using the purchase method of accounting. For
      accounting purposes, the shares issued to eLinear's shareholders were accounted
      for as the consideration paid by NetView for the acquisition of eLinear and
      was
      valued using the stock price on the date issued. The purchase allocation
      resulted in goodwill of $451,920. NetView's historical financial statements
      replace eLinear's in the accompanying financial statements.





On
      July
      31, 2003, eLinear completed the acquisition of all the issued and outstanding
      shares of NewBridge, a provider of communications deployment. Pursuant to the
      transaction, eLinear issued an aggregate of 850,000 shares of restricted common
      stock and options to purchase 300,000 shares of common stock. NewBridge was
      incorporated in the State of Texas on February 20, 2002, and changed its name
      from MMGD, Inc. to NewBridge on August 7, 2003. As of the effective date,
      NewBridge became a wholly owned subsidiary of eLinear. The acquisition was
      accounted for using the purchase method of accounting. For accounting purposes,
      the shares issued to the NewBridge shareholders were accounted for as the
      consideration paid by eLinear for the acquisition of NewBridge and were valued
      using the stock price on the date issued. The purchase allocation resulted
      in
      goodwill of $1,491,102.





In
      November 2004, the Company acquired all of the outstanding and issued stock
      of
      TanSeco from RadioShack Corporation ("RadioShack"). The Company purchased the
      stock with cash and acquired inventory, fixed assets and security monitoring
      contracts. Concurrent with this transaction, TanSeco entered into a three-year
      services agreement with RadioShack whereby TanSeco will provide the
      installation, service, repair and inspection of security, closed circuit
      television and fire systems used by RadioShack for the security of its more
      than
      5,000 company-owned stores, kiosks and other physical locations.




In
      late
      2005, the Company entered into a joint venture for the purpose of acquiring
      a
      controlling interest in a company licensed to conduct business in Dubai Internet
      City in the United Arab Emirates. eLinear expects to begin delivery of the
      same
      type of solutions offered in the United States to customers in the Middle
      east.





**The
      Company's Products and Services**





The
      Company offers its products and services through four distinct business segments
      as follows:





1.Consulting
                services - the Company offers - strategic planning, technical project
                management, and development
                services.





2.Product
                fulfillment and network and storage solutions - through NetView,
                the
                Company offers a complete solution to its customers for the acquisition,
                management and configuration of complex storage and network server
                installations;





3.Communications
                deployment - through NewBridge, the Company provides structured cabling,
                which is a set of cabling and connectivity products that integrate
                the
                voice, data, video and various management systems of a structure,
                cabling
                infrastructure design and implementation, which is the design and
                implementation of the structured cabling systems, security installation
                and monitoring and digital services of voice, data and video over
                fiber
                optic networks to its residential and commercial customers;
                and





4.Premise
                security solutions - through TanSeco, the Company has business centered
                on
                premise security solutions which includes a three-year contract with
                RadioShack Corporation to install kiosks throughout the United States,
                third party 24X7 security monitoring contracts with a variety of
                commercial customers and project work installing security devices
                and
                fiber/cable in client locations across the
                US.





The
      products the Company sells are "off the shelf" products and it does not incur
      expenses associated with research and development for these products. The
      Company began investment in development of state of the art software products
      for communications security in 2005. Product deployment is expected in
      2006.





The
      combination of these four business segments provides a total IT solution to
      the
      Company's customers.





4





*Technology
      Integration and Consulting Services*





The
      Company's technology consulting segment offers a full set of services ranging
      from traditional technology consulting to managing complex technology
      integration projects. The Company focuses on providing solutions to technology
      related issues ranging from managing a software selection process to
      installation and integration of complex software products. The Company does
      not
      have any patents or copyrights on this product. Typically, the Company's
      contracts it has with its customers are cancelable at any time with fourteen
      to
      thirty days' notice. The Company markets its services through its in-house
      sales
      staff.





*Product
      Fulfillment and Network and Storage Solutions*





NetView
      is a proven supplier of IT product fulfillment and network and storage
      solutions. NetView is classified as a value-added reseller ("VAR") and has
      various retail agreements and certifications with such companies as Hewlett
      Packard, Cisco and IBM. Typically, NetView's customers are Fortune 2000
      businesses and Small to Medium Business ("SMB") organizations of which NetView
      markets its products and services through its own direct sales and marketing
      team, direct mail and trade shows.





*Communications
      Deployment*





NewBridge
      provides structured cabling, cabling infrastructure design and implementation,
      security installation and monitoring and digital services of voice, data and
      video over fiber optic networks to its residential and commercial customers.
      NewBridge markets its products and services through its own direct sales and
      marketing team. Typical customers of NewBridge are government agencies, school
      districts and new construction residential sub-divisions.





*Premise
      Security Solutions*





Through
      TanSeco the Company has business centered on premise security solutions which
      includes a three-year contract with RadioShack to install kiosks throughout
      the
      United States, 24X7 security monitoring contracts with a variety of commercial
      customers and project work installing security devices and fiber/cable in client
      locations across the US.





*Sales
      and Marketing*





The
      Company utilizes its in-house staff of sales and sales support personnel to
      market its products and services. The Company intends to increase this staff
      to
      fully implement its business plan. The Company believes it can obtain a greater
      market share by cross-selling its products and services to its existing customer
      base and identifying new customers which can benefit from the Company's total
      IT
      solutions products and services. A majority of the Company's customers are
      located in Houston and Dallas, Texas, however, the Company intends to expand
      its
      marketing strategy through acquisitions of complimentary
      businesses.





With
      respect to the source of the Company's revenue, the Company had one customer
      which provided more than 13% of the Company's revenue for the fiscal year ended
      December 31, 2005. Another customer provided approximately 12% of total revenue
      in 2005.





*Competition*





The
      IT
      marketplace is intensely competitive and subject to rapid technological change.
      The Company's competitors include other IT solutions firms, Internet
      professional service firms, software firms, product and service fulfillment
      companies for the acquisition, management and configuration of storage and
      network installations and providers of communications deployment. These
      competitors are national, regional and local, including recognizable companies
      such as EDS, IBM, CompuCom and Accenture. While the Company competes with many
      entities that have well established brand names, large customer bases and
      greater resources than it, it believes that its primary competitors are smaller
      companies with business plans similar to the Company's that rely upon
      pre-existing relationships to generate repeat business. The Company anticipates
      that it will face additional competition from new entrants that provide
      significant performance, price, creative or other advantages over those offered
      by the Company. Many of these competitors have greater name recognition and
      resources than the Company.





The
      Company's primary focus is on solving well-defined customer problems or
      providing a need-proven service. It is focused on delivering reliable and
      effective IT consulting solutions, managed services, software, security
      solutions, Internet telephony solutions, and network and storage solutions
      that
      enable enterprises to restructure and integrate entire business processes,
      extending them across enterprise boundaries to employees, customers and
      suppliers. The Company believes that as its line of products, services and
      solutions grows through internal and external initiatives, its sales force
      will
      be presented with cross-selling potential. With appropriate training, its goal
      is that each customer sales representative will be responsible for selling
      all
      of eLinear's offerings.





5




*Customers*





One
      customer accounted for 13% of the Company's revenue for fiscal year 2005 and
      another customer provided 12% of revenue. It does not maintain long-term
      contractual arrangements with any of its customers and, accordingly, there
      is no
      assurance that its customers will continue to conduct business with eLinear
      in
      the future. The loss of these customers would have a material adverse effect
      on
      its business operations. The Company's business model typically relies upon
      negotiated sales transactions with its customers on a transaction by transaction
      basis. Some service contracts cover more than one year but typically are
      cancelled with thirty days notice. Because it does not enter into long-term
      contracts with its customers, there is no assurance that the Company will be
      able to conduct repeat business or long-term business with any one of its
      current customers. The failure of its customers to continue to do business
      with
      it would have a material adverse effect on its business operations.





*Intellectual
      Property, Proprietary Rights and Licenses*





The
      Company's success depends to a significant degree on its methodologies and
      software applications. The Company does not have any patents, registered
      copyrights or registered trademarks. The Company relies, instead, on laws
      protecting trade secrets, common law rights with respect to copyrights and
      trademarks, as well as non-disclosure and other contractual agreements to
      protect proprietary rights. There can be no guarantee that those laws, and
      the
      procedures initiated to protect its business, will prevent misappropriation
      of
      its proprietary software and web site applications. In addition, those
      protections do not preclude competitors from developing products with similar
      features as those of the Company.





Although
      the Company believes its products and services are unique and do not infringe
      upon the proprietary rights of others, there can be no assurance that
      infringement claims will not be brought against the Company in the future.
      Any
      such claim could result in costly litigation or have a material adverse effect
      on the Company's business, operating results and financial
      condition.





*Research
      and Development*





The
      Company relies on the providers of the products it sells to upgrade their
      products through research and development. Consequently, the Company does not
      perform research and development and has not incurred any research and
      development costs during the two previous fiscal years and does not anticipate
      incurring any such costs in the current fiscal year.







*Government
      Regulation*





The
      Company's communications deployment business sometimes requires licensing when
      dealing with a government agency. NewBridge is licensed by the State of Texas
      as
      an alarm installation company. Additionally, NewBridge is in the process of
      applying for CLEC status to provide voice services. The residential communities
      that it will provide video and data services for are not in "franchised" areas.
      The utility easements in which it deploys the infrastructure are public and
      are
      therefore unregulated.





*Employees*





As
      of
      March 10, 2006, the Company had 89 full-time employees which had decreased
      from
      126 at December 31, 2004. None of the Company's employees are covered by any
      collective bargaining agreements. Management believes that its relations with
      its employees are good and the Company has not experienced any work stoppages
      attributable to employee disagreements. The decrease was primarily attributed
      to
      an ongoing cost cutting program.





*Volatility
      of Stock Market*





There
      have been significant fluctuations in the market price for the Company's common
      stock. Factors such as variations in the Company's revenues, earnings and cash
      flow and announcements of innovations or acquisitions by the Company or its
      competitors could cause the market price of the common stock to fluctuate
      substantially. In addition, the stock market has experienced price and volume
      fluctuations that have particularly affected companies in the IT services
      markets, resulting in changes in the market price of the stock of many companies
      which may not have been directly related to the operating performance of those
      companies. Such broad market fluctuations may adversely affect the market price
      of the Company's common stock.


6





**ITEM
      2. DESCRIPTION OF PROPERTY**





The
      Company's executive and administrative offices are located at 2901 West Sam
      Houston Parkway North, Suite E-300, Houston, Texas 77043. It leases these
      facilities. Its lease covers approximately 25,300 square feet and expires on
      November 30, 2008. Its lease payments are $26,209 per month through November
      2008. The Company also has a marketing and sales office in Dallas, Texas. It
      leases these facilities. Its lease covers approximately 7,186 square feet and
      expires May 31, 2009. The lease payments are $10,604 per month and includes
      monthly operating expenses, which will vary based on actual operating expenses
      of the property. TanSeco leases office and warehouse space in Fort Worth, Texas.
      The lease covers approximately 7,972 square feet and expires October 31, 2007.
      The lease payments are $8,304 per month. The Company has no present plans to
      invest in real estate, real estate mortgages, or persons or entities primarily
      engaged in real estate activities.




**ITEM
      3. LEGAL PROCEEDINGS**





From
      time
      to time, the Company may become involved in litigation arising in the ordinary
      course of its business. The Company is presently not subject to any material
      legal proceedings outside of the ordinary course of business except as set
      forth
      below:





On
      December 16, 1999, eLinear and Imagenuity were served with a complaint captioned
      Chris Sweeney v. Kinetics.com, Inc. and Imagenuity, Inc., Circuit Court, Duval
      County, Florida, Civil Case Number 1999-7252-CA. The complaint alleged a breach
      of an alleged oral modification of a written employment agreement between the
      plaintiff, Chris Sweeney, and Imagenuity and alleged breaches by eLinear and
      Imagenuity of fiduciary obligations which the plaintiff claims were owed to
      him.
      Plaintiff is seeking as damages 20% of the Company's common stock received
      by
      the sole shareholder of Imagenuity in connection with the merger of Imagenuity
      with and into eLinear's subsidiary. After the filing of the complaint, eLinear's
      subsidiary, eLinear Corporation, was added as a defendant. The Company intends
      to vigorously contest the case. While the Company believes the case to have
      no
      merit, at this stage it is impossible to predict the amount or range of
      potential loss, if any.





In
      December 1999, the Company counter-sued Chris Sweeney in a lawsuit captioned
      eLinear Corporation v. Chris Sweeney, United States District Court, District
      of
      Colorado, Case Number 99-WM-2434. The complaint sought a determination of the
      rights of the parties with respect to the termination of Chris Sweeney's
      employment agreement with Imagenuity. The lawsuit was indefinitely stayed
      pending resolution of the Florida litigation discussed above.







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





No
      matters were submitted during the fourth quarter of the period covered in this
      report to a vote of shareholders.


7





**PART
      II**


**ITEM
      5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
      MATTERS**





The
      Company's common stock trades on the American Stock Exchange under the symbol
      "ELU" since April 1, 2004. Prior thereto, its common stock traded on the OTC
      Bulletin Board. The following table sets forth the approximate high and low
      closing sales prices per share as reported on the American Stock Exchange and
      OTC Bulletin Board for the Company's common stock for the last two fiscal years.
      The quotations reflect inter-dealer prices, without retail markups, markdowns
      or
      commissions and may not represent actual transactions.


High
            
            LowYear
                2005Quarter ended December 31
            
            $
            0.70
            
            $
            0.38Quarter ended September 30
            
            $
            1.24
            
            $
            0.70Quarter ended June 30
            
            $
            1.31
            
            $
            0.65Quarter ended March 31
            
            $
            1.20
            
            $
            0.75Year
                2004Quarter ended December 31
            
            $
            1.60
            
            $
            0.84Quarter ended September 30
            
            $
            2.11
            
            $
            0.89Quarter ended June 30
            
            $
            3.25
            
            $
            1.50Quarter ended March 31
            
            $
            3.50
            
            $
            1.85





As
      of
      April 24, 2006, there were approximately 211 shareholders of record of the
      Company's common stock which does not include those shareholders whose common
      stock is held in street name. The Company has neither declared nor paid any
      cash
      dividends to date and current existing debt instruments preclude the Company
      from paying dividends. The Company does not anticipate paying dividends in
      the
      foreseeable future until such time as the Company has sufficient cash flow
      from
      operations to justify payment of a dividend.





**Equity
      Compensation Plan Information**





The
      following table gives information about the Company's common stock that may
      be
      issued upon the exercise of options under its 2000 Stock Option Plan, 2003
      Stock
      Option Plan and 2004 Stock Option Plan and 2005 Stock Option Plan as of December
      31, 2004, which have been approved by the Company's shareholders, and under
      compensation arrangements that were not approved by the Company's
      shareholders.





Plan
                Category
            
            Number
                of Securities
              To
                be Issued Upon
              Exercise
                of Outstanding
              Options,
                Warrants and Rights
              (A)
            
            Weighted
                Average
              Exercise
                Price of
              Outstanding
                Options,
              Warrants
                and Rights
              (B)
            
            Number
                of Securities
              Remaining
                Available for
              Future
                Issuance Under
              Equity
                Compensation
              Plans
                (Excluding Securities
              Reflected
                in Column A)
              (C)Equity
                Compensation Plans Approved by Security Holders
            
            
            2,367,611
            
            $
            1.52
            
            
            3,717,766Equity
              Compensation Plans Not Approved by Security Holders
            
            
            750,000
            (1)
            $
            2.17
            
            
            --Total
            
            
            3,117,611
            
            $
            2.03
            
            
            3,717,766





(1)
            Includes
                options to purchase 75,000 shares of common stock at $3.00 per share,
                375,000 shares of common stock at $2.90 per share, 100,000 shares
                of
                common stock at $2.18 per share and 200,000 shares of common stock
                at
                $0.50 per share. These options have expiration dates from 2010 through
                2013 and each was negotiated on an issuance-by-issuance basis between
                the
                holder and the Company..





8




**Recent
      Sales of Unregistered Securities**





Set
      forth
      below is certain information concerning all issuances of securities by the
      Company during the fiscal year ended December 31, 2005, that were not registered
      under the Securities Act.




On
        December 1, 2005, the Company issued 357,143 shares of common stock to a
        third
        party f or
        the
        purpose of acquiring a controlling interest in a company licensed to conduct
        business in Dubai Internet City in the United Arab Emirates.
 
 On
        July
        22, 2005, the Company issued 158,451 shares of common stock to acquire 100%
        of a
        subsidiary that produces security software.




On
      December 6, 2004, the Company issued 37,500 shares of common stock to a third
      party in consideration of a settlement in a dispute of a consulting contract
      valued at $60,000 pursuant to the exemption provided by Section 4(2) of the
      Securities Act.





During
      December 2004, the Company issued 319,248 shares of common stock to certain
      investors as forgiveness of penalties of $353,224 associated with the delay
      in
      obtaining effectiveness of  the Company's registration statement pursuant
      to the exemption provided by Section 4(2) of the Securities Act.





All
      of
      the above transactions were completed pursuant to Section 4(2) of the Securities
      Act. With respect to issuances made pursuant to Section 4(2) of the Securities
      Act, the transactions did not involve any public offering and were sold to
      a
      limited group of persons. Each recipient either received adequate information
      about the Company or had access, through employment or other relationships,
      to
      such information, and the Company determined that each recipient had such
      knowledge and experience in financial and business matters that they were able
      to evaluate the merits and risks of an investment in the Company.





Except
      as
      otherwise noted, all sales of the Company's securities were made by officers
      of
      the Company who received no commission or other remuneration for the
      solicitation of any person in connection with the respective sales of securities
      described above. The recipients of securities represented their intention to
      acquire the securities for investment only and not with a view to or for sale
      in
      connection with any distribution thereof and appropriate legends were affixed
      to
      the share certificates and other instruments issued in such
      transactions.




**ITEM
      6. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF
      OPERATIONS AND FINANCIAL CONDITION**





*The
      following discussion and analysis of the Company's financial condition as of
      December 31, 2005, and the Company's results of operations for the years in
      the
      two-year period ended December 31, 2005 and 2004, should be read in conjunction
      with the Company's audited consolidated financial statements and notes thereto
      included elsewhere in this report.*





**Overview**





The
      Company currently consists of four operating segments:





·
            *Product
                fulfillment and network and storage solutions*.
                Through its wholly owned subsidiary, NetView Technologies,
                Inc.("NetView"), the Company offers a complete solution to its customers
                for the acquisition, management and configuration of complex storage
                and
                network server installations.





·
            *Communications
                deployment*.
                Through its wholly owned subsidiary, NewBridge Technologies, Inc.
                ("NewBridge"), the Company provides: (a) structured cabling, which
                is a
                set of cabling and connectivity products that integrate the voice,
                data,
                video and various management systems of a structure,(b)cabling
                infrastructure design and implementation, which is the design and
                implementation of the structured cabling systems,(c)security installation
                and monitoring, and (d) digital services of voice, data and video
                over
                fiber optic networks to residential and commercial
                customers.





·
            *Consulting
                services*.
                The Company offers: (a) consulting services,(b)creative web site
                design,(c)web site content management software, and (d) technical
                project
                management and development
                services.





·
            *Security
                solutions*.Through
                TanSeco the Company has business centered on premise security solutions
                which includes a three-year contract with RadioShack Corporation
                to
                install kiosks throughout the United States, 24X7 security monitoring
                contracts with a variety of commercial customers and project work
                installing security devices and fiber/cable in client locations across
                the
                US





The
      Company has operated as a technology consulting business since December 1999.
      It
      acquired its Internet consulting business as a result of a reverse merger with
      Imagenuity in 1999. Since 1999 to date, its Internet consulting business
      consisted of Internet consulting services, creative web site design, web site
      content management and software and technical project management and development
      services. For the year ended December 31, 2005, the consulting segment
      contributed less than 1% of the Company’s revenue. From 1995, its inception, the
      Company, which at the time was named Kinetics.com, was engaged in marketing
      proprietary software programs for use on the world wide web of the Internet.
      Kinetics.com marketed two software programs designed for use on the Web in
      1995
      and 1996. During 1996, several creditors of Kinetics.com obtained court
      judgments against it as a result of non-payment of financial obligations and
      in
      1997, Kinetics.com transferred all of its assets to an unaffiliated third party.
      Subsequent to the asset transfer, the only activities of Kinetics.com consisted
      of negotiating settlements with its creditors and attempting to identify a
      suitable acquisition or merger candidate. While Kinetics.com was the survivor
      in
      the merger, from an accounting standpoint, the transaction was accounted for
      as
      though it was a recapitalization of Imagenuity and a sale of shares by
      Imagenuity in exchange for the net assets of Kinetics.com. On July 31, 2000,
      it
      changed its name to eLinear, Inc.





9




The
      Company completed the acquisitions of NetView and NewBridge during 2003. In
      April 2003, eLinear issued 12,961,979 shares of common stock for all of the
      outstanding common stock of NetView. After the merger the stockholders of
      NetView owned approximately 90% of eLinear.





Although
      NetView became its wholly owned subsidiary, for accounting purposes this
      transaction was treated as an acquisition of eLinear and a recapitalization
      of
      NetView using the purchase method of accounting. The acquisition resulted in
      goodwill of $451,920. In March 2004, the Company recorded impairment expense
      totaling $451,920 related to 100% of the goodwill related to the 2003 eLinear
      acquisition. In March 2004, the consulting services reporting unit lost its
      largest consulting contract and the other operations that had been acquired
      in
      the eLinear purchase had declined due to the loss of key employees after the
      acquisition. During the three months ended June 30, 2004, the Company recognized
      only $220 of revenue from the consulting services business segment. Based on
      projected estimated future cash flows from the reporting unit purchased in
      2003,
      management determined a full impairment charge was required. NetView contributed
      67% of eLinear’s revenue for the year ended December 31, 2005.





In
      July
      2003, eLinear completed the acquisition of all the outstanding shares of
      NewBridge. Pursuant to the transaction, eLinear issued 850,000 shares of common
      stock valued at $1,062,500, using the average of the bid and asked prices on
      July 31, 2003, and options to purchase 300,000 shares of common stock valued
      at
      $274,000, using Black Scholes, to the shareholders of NewBridge. The acquisition
      was accounted for using the purchase method of accounting resulting in goodwill
      of $1,491,102, as restated. In September 2004, the Company recorded impairment
      expense totaling $391,114 related to a portion of the goodwill related to the
      NewBridge acquisition. The Company performed a valuation analysis of the
      discounted projected estimated future cash flows from the reporting unit. Based
      on the valuation analysis, the Company elected to write down the goodwill for
      NewBridge to $1,100,000 resulting in the impairment charge. NewBridge
      contributed 16% of eLinear's revenue for the year ended December 31,
      2005.





In
      November 2004, the Company acquired all of the outstanding and issued stock
      of
      TanSeco from RadioShack. As a result, TanSeco became a wholly-owned subsidiary
      of eLinear. The Company purchased the stock with cash and acquired inventory,
      fixed assets and security monitoring contracts. Concurrent with this
      transaction, TanSeco entered into a three-year services agreement with
      RadioShack whereby TanSeco will provide the installation, service, repair and
      inspection of security, closed circuit television and fire systems used by
      RadioShack for the security of its more than 5,000 company-owned stores, kiosks
      and other physical locations.





**Recent
      Developments**





On
      July
      14, 2005, the Company amended the 2005 financing arrangement, entered into
      on
      February 28, 2005. The supplement modifies the February 2005 financing
      arrangement by (i) releasing all the funds held in the restricted account,
      of
      which $7,200,000 was paid to the respective Investors without penalty and the
      remaining amount, approximately $2,138,921, held in the restricted account
      was
      funded to the Company; (ii) amending and restating the notes issued pursuant
      to
      the February 2005 financing arrangement with the new total principal amount
      of
      $5,054,567 that included (x) the twenty percent (20%) (including applicable
      fees) of the February 2005 financing funded to the Company in February 2005;
      (y)
      the funds released from the restricted accounts to the Company pursuant to
      the
      supplement; and (z) the interest accrued on the funds held in the restricted
      account from March 2005 until July 14, 2005; (iii) granting the Investors a
      right to participate in their *pro
      rata* portion
      of 60% of any future financing of the Company for one year; and (iv) issuing
      warrants exercisable after January 14, 2006 at exercise prices ranging from
      $1.50 to $1.75 per share into an aggregate of 991,667 shares of common stock
      to
      Iroquois, RHP, Basso Private and Basso Multi. The terms between the Company
      and
      each of the respective Investors are substantially similar.





The
      new
      notes are secured by all of the Company’s and its subsidiaries' assets. The
      payment of interest and principal, under certain circumstances, may be made
      with
      shares of the Company common stock at a conversion price of no less than $1.00
      per share. The new notes will accrue interest at a rate per annum equal to
      the
“prime rate” published in the Wall Street Journal plus seventy five basis
      points, as may be adjusted. The Company has the ability to prepay any amounts
      owed under these new notes at 115% of the principal amount. The Company is
      obligated to make monthly payments, either in cash or stock as determined by
      the
      new notes, beginning on August 1, 2005 for the total principal of the new notes,
      plus applicable interest (the “Monthly Payment”). The Monthly Payment will be
      made (i) automatically by a conversion in stock at a “Fixed Conversion Price”,
      (ii) at the discretion of the Company at a reduced conversion price, but no
      less
      than $1.00, or (iii) in cash paid by the Company at 101% of the Monthly Payment.
      The Monthly Payments shall be automatically made, subject to volume limitation,
      in Company common stock at the Fixed Conversion Price if (i) the shares of
      the
      Company common stock underlying the shares of the notes are registered; and
      (ii)
      the average trading price of the Company common stock for the five days
      preceding the Monthly Payment is greater than 110% of the Fixed Conversion
      Price. If the Monthly Payment is not automatically converted into shares of
      Company common stock because the average trading price of the Company common
      stock for the five trading days prior to the due date of the Monthly Payment
      is
      less than 110% of the Fixed Conversion Price, the Company may, at its
      discretion, make the Monthly Payment in Company common stock at a conversion
      price equal to 85% of the average trading price of the Company common stock
      for
      the five lowest closing days for the 22 trading days prior to the Company's
      notice, but in no case shall the conversion price be less than $1.00. The Fixed
      Conversion Price is $1.00, subject to adjustment, but in no case reduced to
      less
      than $1.00.





10




The
      Investors may convert all or any portion of the principal amounts of their
      respective new notes, including any accrued interest or fees thereon at the
      Fixed Conversion Price.





Notwithstanding
      the foregoing, the Company's right to issue shares of its common stock in
      payment of obligations under the new notes shall be subject to the limitation
      that the number of aggregate shares of common stock issued to each Investor
      shall not exceed 25% of the aggregate dollar trading volume of the Company
      common stock for the 22 trading days immediately preceding the date on which
      the
      conversion is to occur.





The
      Investors may not exercise the warrants issued pursuant to the Supplement until
      January 14, 2006 and are exercisable until January 14, 2013, of which 466,667
      of
      the warrants are exercisable at $1.50 and 525,000 are exercisable at $1.75.
      The
      warrants were valued at $632,707 using a Black Scholes option-pricing model.
      The
      value of these warrants will be recorded as a discount to the new notes and
      will
      be amortized over the remaining term of the loan (31 months) using the effective
      interest method.





The
      Company had agreed to file a registration statement with the Securities and
      Exchange Commission by August 13, 2005 in order to register the resale of the
      shares of common stock underlying the new notes, the shares issuable upon
      exercise of the warrants issued in February 2005, and the warrants issued in
      connection with the Supplement. If the Company fails to meet this deadline,
      if
      the registration statement is not declared effective prior to October 27, 2005,
      if the registration statement ceases to remain effective, or certain other
      events occur, the Company has agreed to pay the Investors liquidated damages
      of
      1.25% of the principal amount of the new notes per month; except that the
      Company will only have to pay 50% of the liquidated damages if the registration
      statement is not declared effective by the Securities and Exchange Commission
      under certain circumstances. The Company did not get a registration statement
      declared effective prior to October 27, 2005 and is currently in negotiations
      with the lenders regarding the amount of liquidated damages, if
      any.





In
      January 2004, the Company completed a private offering in which it raised gross
      proceeds of $2,533,850. In February 2004, the Company completed a private
      offering in which it raised gross proceeds of $2,460,000. Both of these
      agreements included warrants, which if exercised would bring in an additional
      $8,029,621. In each of these offerings the Company issued its common stock
      at
      prices below the then market price.





The
      Company has filed a registration statement with the Securities and Exchange
      Commission which is registering the resale of 3,194,225 shares of the Company’s
      common stock and 3,944,737 shares of the Company’s common stock underlying the
      warrants pursuant to the above listed financings. The registration statement
      was
      declared effective on September 10, 2004.





In
      February 2004, the Company obtained a secured revolving note with Laurus Master
      Fund, Ltd. ("Laurus"). Under the terms of the agreement, the Company can borrow
      up to $5,000,000 at an annual interest rate of prime plus .75% (with a minimum
      rate of 4.75%). The agreement contains two notes: a minimum secured revolving
      note totaling $2,000,000 and a revolving credit facility totaling $3,000,000
      based on eligible accounts receivable. See Note 5 to the consolidated financial
      statements included herein.





As
      part
      of the above credit facility, the Company agreed to file a registration
      statement with the SEC in order to register the resale of any shares issuable
      upon conversion of up to $2 million of the credit facility and upon the exercise
      of the warrants. In consideration for the issuance of seven-year warrants to
      purchase 150,000 shares of the Company’s common stock at $1.90 per share and the
      forgiveness of penalties owed to Laurus in the approximate amount of $153,000
      as
      of October 2004, the Company agreed in October 2004 to reduce the conversion
      price of the credit facility from $2.91 to $1.00 per share. At the option of
      the
      holder, the outstanding balance on the credit facility can be converted into
      shares of Company common stock at a conversion price of $1.00 per share. In
      connection with the execution of this credit facility, and in connection with
      the October 2004 amendment, the Company issued Laurus seven-year warrants to
      purchase a total of 440,000 shares of Company common stock at exercise prices
      ranging from $1.90 to $3.32 per share. Laurus is limited to owing or
      beneficially owning a maximum of 4.99% of the Company’s outstanding shares of
      common stock. In addition, each time the Company borrows $2 million under the
      credit facility, the Company will be required to file an additional registration
      statement covering the possible conversion of that amount of the nor. The
      Company is not obligated at any time to repurchase any portion of the Laurus
      conversion shares nor the shares underlying the warrants. The Company filed
      a
      registration statement to register the aforementioned shares and shares
      underlying the warrants with the SEC on November 5, 2004.





On
      December 1, 2005 the Company issued 357,143 shares of common stock to acquire
      a
      51% interest along with management control of an entity licensed to conduct
      business in Dubai Internet City, United Arab Emirates. At the time of the
      acquisition the company had $300,000 receivable and no liabilities. eLinear
      Middle East FZ, LLC will begin operations in 2006.




11





**Critical
      Accounting Policies**





*General*





The
      Consolidated Financial Statements and Notes to Consolidated Financial Statements
      contain information that is pertinent to this management's discussion and
      analysis. 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 reported amounts
      of
      assets and liabilities and disclosure of any contingent assets and liabilities.
      Management believes these accounting policies involve judgment due to the
      sensitivity of the methods, assumptions and estimates necessary in determining
      the related asset and liability amounts. Management believes it has exercised
      proper judgment in determining these estimates based on the facts and
      circumstances available to its management at the time the estimates were made.
      The significant accounting policies are described in the Company's financial
      statements (See Note 2 in Notes to Consolidated Financial
      Statements).





*Revenue
      Recognition*





The
      Company's revenue recognition policy is objective in that it recognizes revenue
      when products are shipped or services are delivered. Accordingly, there are
      no
      estimates or assumptions that have caused deviation from its revenue recognition
      policy. Additionally, the Company has a limited amount of sales returns which
      would affect its revenue earned.





The
      Company accounts for arrangements that contain multiple elements in accordance
      with EITF 00-21, "Revenue Arrangements with Multiple Deliverables". When
      elements such as hardware, software and consulting services are contained in
      a
      single arrangement, or in related arrangements with the same customer, the
      Company allocates revenue to each element based on its relative fair value,
      provided that such element meets the criteria for treatment as a separate unit
      of accounting. The price charged when the element is sold separately generally
      determines fair value. In the absence of fair value for a delivered element,
      the
      Company allocates revenue first to the fair value of the undelivered elements
      and allocates the residual revenue to the delivered elements. In the absence
      of
      fair value for an undelivered element, the arrangement is accounted for as
      a
      single unit of accounting, resulting in a delay of revenue recognition for
      the
      delivered elements until the undelivered elements are fulfilled. The Company
      limits the amount of revenue recognition for delivered elements to the amount
      that is not contingent on the future delivery of products or services or subject
      to customer-specified return or refund privileges.





The
      Company recognizes revenue from the sale of manufacturer's maintenance and
      extended warranty contracts in accordance with EITF 99-19 net of its costs
      of
      purchasing the related contracts.





*Allowance
      for Doubtful Accounts*





The
      Company maintains an allowance for doubtful accounts, which reflects the
      estimate of losses that may result from the inability of some of the Company's
      customers to make required payments. The estimate for the allowance for doubtful
      accounts is based on known circumstances regarding collectability of customer
      accounts and historical collections experience. If the financial condition
      of
      one or more of the Company's customers were to deteriorate, resulting in an
      impairment of their ability to make payments, additional allowances may be
      required. Material differences between the historical trends used to estimate
      the allowance for doubtful accounts and actual collection experience could
      result in a material change to the Company's consolidated results of operations
      or financial position.





*Goodwill*





As
      of
      December 31, 2005, the Company had $1,100,000 of goodwill, as restated,
      resulting from the acquisition of NewBridge. Goodwill represents the excess
      of
      cost over the fair value of the net tangible assets acquired and is not
      amortized. However, goodwill is subject to an impairment assessment at least
      annually which may result in a charge to operations if the fair value of the
      reporting segment in which the goodwill is reported declines. In September
      2004,
      the Company performed a valuation analysis of the discounted projected estimated
      future cash flows of NewBridge and the Company elected to write down a portion
      of the goodwill related to NewBridge. Due to the large amount of goodwill
      presently on the Company's financial reports, if an impairment is required,
      the
      Company's financial condition and results of operations would be negatively
      affected. During March 2004, the Company recorded an impairment charge of
      approximately $451,000 related to the goodwill associated with the NetView
      acquisition.





*Accounting
      for Stock-Based Compensation*





The
      Company accounts for stock-based compensation based on the provisions of
      Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
      Employees, as amended by the Financial Accounting Standards Board Interpretation
      No. 44, Accounting for Certain Transactions Involving Stock Compensation
      Accounting Principles Board Opinion No. 25 and Financial Accounting Standards
      Board Interpretation No. 44 state that no compensation expense is recorded
      for
      stock options or other stock-based awards to employees that are granted with
      an
      exercise price equal to or above the estimated fair value per share of the
      company's common stock on the grant date. The Company adopted the disclosure
      requirements of Statement of Financial Accounting Standards No. 123, Accounting
      for Stock-Based Compensation, which requires compensation expense to be
      disclosed based on the fair value of the options granted at the date of the
      grant.





In
      December 2002, the Financial Accounting Standards Board issued its Statement
      No.
      148, Accounting for Stock-Based Compensation -- Transition and Disclosure--an
      amendment of Financial Accounting Standards Board Statement No. 123. This
      Statement amends Statement of Financial Accounting Standards No. 123, to provide
      alternative methods of transition for an entity that voluntarily changes to
      the
      fair value based method of accounting for stock-based employee compensation.
      It
      also amends the disclosure provisions of Statement of Financial Accounting
      Standards No. 123 to require prominent disclosure about the effects on reported
      net income of an entity's accounting policy decisions with respect to
      stock-based employee compensation. The transition and annual disclosure
      provisions of Statement of Financial Accounting Standards No. 148 are effective
      for fiscal years ending after December 15, 2002, and the interim disclosure
      provisions were effective for the first interim period beginning after December
      15, 2002. The Company did not voluntarily change to the fair value based method
      of accounting for stock-based employee compensation, therefore, the adoption
      of
      Statement of Financial Accounting Standards No. 148 did not have a material
      impact on its operations and/or financial position.





12




*Derivative
      Financial Instruments*





The
      Company accounts for all derivatives financial instruments in accordance with
      SFAS No. 133. Derivative financial instruments are recorded as liabilities
      in
      the consolidated balance sheet, measured at fair value. When available, quoted
      market prices are used in determining fair value. However, if quoted market
      prices are not available, the Company estimates fair value using either quoted
      market prices of financial instruments with similar characteristics or other
      valuation techniques.





The
      value
      of the derivative liabilities relating to the Convertible Note in the financial
      statements are subject to the changes in the trading value of the Company’s
      common stock and other assumptions. As a result the Company’s financial
      statements may fluctuate from quarter to quarter based on factors such as
      trading value of the Company’s Common Stock, the amount of shares converted by
      Laurus in connection with the Laurus Convertible Note and exercised in
      connection with the Warrant outstanding. Consequently, our consolidated
      financial position and results of operations may vary from quarter to quarter
      based on conditions other than the Company’s operating revenue and expenses. See
      note 5 and 9 regarding valuation methods used for derivative
      liabilities.





Derivative
      financial instruments that are not designated as hedges or that do not meet
      the
      criteria for hedge accounting under SFAS No. 133 are recorded at fair value,
      with gains or losses reported currently in earnings. All derivative financial
      instruments held by the Company as December 31, 2005 were not designated as
      hedges.





**Results
      of Operations and Financial Condition**





The
      Company's primary business focus is on solving well-defined customer problems
      or
      providing a need-proven service. It is focused on delivering reliable and
      effective IT solutions. Those solutions include managed services, software,
      physical and network security solutions, Internet telephony solutions and
      network and storage solutions that enable enterprises to restructure and
      integrate entire business processes while extending them across enterprise
      boundaries to customers, employees and suppliers. As its arsenal of products,
      services and solutions grows through internal and external initiatives, its
      sales force will be required to leverage its cross-selling potential. The
      Company earns its revenue through the sales efforts of its four distinct
      business segments. When products and/or services are purchased, the Company
      invoices its customers and subsequently receives payment for those products
      and/or services, which generates the cash needed to pay for those products
      and/or services. Due to its growth, the Company has been required to obtain
      various lines of credit to finance the purchase of these products.





Prior
      to
      the acquisitions of NetView, NewBridge and TanSeco, the Company was a technology
      consulting services firm providing strategic consulting solutions, creative
      web
      site design, web site content management software and technical project
      management and development services to companies seeking to increase
      productivity or reduce costs through investing in technology. In order to
      diversify its business plan, the Company began seeking merger candidates.
      eLinear selected NetView due to its list of customers and management with the
      view toward cross-selling its consulting services with NetView's network and
      storage solutions customers. Its acquisition of NewBridge was determined by
      its
      desire to provide a total IT solutions product to its customers, which NewBridge
      provided the ability to expand its business in the area of communications
      deployment. The acquisition of TanSeco provided the Company an opportunity
      to
      enter the security solutions business segment. In addition to its consulting
      services it previously provided, it now offers a full range of IT solutions.
      These acquisitions have in fact expanded its customer base and provided
      additional sales opportunities, which were not previously available to it.
      The
      Company intends to expand its business in all four segments of which it
      operates.





eLinear
      is specifically focused on growing its business across all offerings. This
      growth will, in some instances, be pursued internally and in others, externally
      via acquisitions.




13




*Internal
      Growth*





eLinear,
      Inc. continues to develop sales and solutions delivery capabilities by hiring
      seasoned personnel with a focus on sophisticated network solutions, data
      storage, communications and security solutions specifically and
      training:





1)account
                executives that bring to eLinear established relationships with customers;
                and





2)engineers
                that can assess, architect, design, implement, support and maintain
                all
                the different aspects required by the Company's
                solutions.





Much
      of
      the Company's internal growth will also come from leveraging its ability to
      cross-sell its diverse offerings to its entire customer base. The Company also
      plans to expand into the geographies that its current customers have presences
      in, and hence, would be relatively easier than expanding into other geographies
      without any inroads into them. More specifically, below are some current
      initiatives being developed:





1)IP
                Telephony - the design, architecting, implementation and roll-out
                of
                corporate Voice Over Internet Protocol (VOIP) telephone systems integrated
                with data networks, eliminating the need for traditional switching
                telephone systems. The Company has identified several account executives
                and engineers that would enable broader customer coverage. Concurrently,
                the Company is in the process of upgrading its certification levels
                with
                partners in order to provide it with better services, pricing and
                opportunities, primarily with Cisco
                Systems;





2)Network
                Solutions - the Company continually hires account executives and
                engineers
                that enable broader customer coverage by bringing new customers and
                skills
                to eLinear. During 2004, the Company hired nearly 25 people in Dallas
                as
                an extension of its Houston presence;
                and





3)Security
                Solutions - the Company is now focused on growing its security system
                sales to its customers, with the solutions being enabled via strategic
                partnerships with such companies as Cisco Systems, Netscreen and
                others.








4)
            Data
                Center Network Architecture - provides a standard based design that
                enables organization, enhance regulatory and security compliance
                while
                managing the demands of application, sever and storage
                environments.





All
      of
      its solutions are distributed through its internal sales and engineering
      forces.





*External
      Growth*





The
      primary focus externally will be on entering into strategic partnerships in
      areas that the Company feels it wants to compete, but will not be able to
      establish and grow a competitive presence internally. The security systems
      arena
      is an area where the Company's acquisitions will be targeted. Intrusion
      technology firms and security consulting firms that can perform vulnerability
      assessments, penetration testing and security policy creation represent areas
      that the Company feels it can be more effective by acquiring technology
      by combining our expertise with others.





*Financing
      Growth*





The
      Company plans to continue raising additional investment capital to support
      the
      rapid growth per its business plan. The business plan includes changes in
      operations that, over time, will increase gross profit margins and decrease
      general and administrative expenses in order to generate positive cash
      flow.





The
      Company has an ongoing program of soliciting and evaluating prospective sources
      of investment capital. Fund raising is done on a best efforts basis and there
      is
      no guarantee that the Company will be successful. As December 31, 2005 the
      Company had commitments to raise approximately $2.1 million dollars from
      investors through an offering to be made as part of a pool of companies to
      be
      listed on the Luxembourg Exchange.





14




*Purchase
      of New Products*





From
      a
      procurement perspective, the Company has lines of credit with all major vendors
      that are needed in order to fund the purchase of hardware required for its
      solutions offerings. Its new products are purchased primarily through one of
      the
      following four vendors: Ingram Micro, Westcon Group, Synnex and Tech Data.
      eLinear is typically offered terms of 30-45 days by its vendors. This enables
      eLinear to maintain liquidity and rapid procurement on behalf of its
      customers.





*NetView
      Acquisition*





The
      acquisition of NetView brought to eLinear customers that need services in the
      network solutions market, including the design, procurement, implementation,
      support and maintenance of corporate networks. NetView's customer base ranges
      from the likes of the Fortune 2000 to Small to Medium Businesses (SMB). Industry
      verticals that NetView customers are in, and hence are new markets to eLinear,
      include energy, healthcare, state and local governments, finance and several
      others. The opportunities acquired are general in nature and there was not
      any
      specific opportunity that was deemed material in making this acquisition.
      Network solutions will be selectively expanded through the hiring of key account
      executives with long-term, well-established client relationships.





*NewBridge
      Acquisition*





The
      acquisition of NewBridge brought to eLinear customers that need services in
      the
      network infrastructure market, including the design, procurement,
      implementation, support and maintenance of physical network infrastructure
      such
      as structured cabling, network access points (drops), secure card access, closed
      circuit TV, and other services. NewBridge's customer base includes Houston
      based
      businesses, large and small, that require physical infrastructure for networks
      in new facilities, expansions, upgrades and for maintenance of existing
      facilities. Industry verticals that NewBridge customers are in include energy
      and state and local governments. Part of the strategic reason for the
      acquisition was an opportunity to develop infrastructure services for
      residential communities. Network infrastructure solutions will be selectively
      expanded through the hiring of key account executives with long-term,
      well-established commercial client relationships. There is little emphasis
      on
      the residential aspect of the infrastructure.





*TanSeco
      Acquisition*





The
      acquisition of TanSeco allowed the Company to enter the premise security
      solutions business segment. Through this wholly-owned subsidiary, the Company
      offers security services to RadioShack Corporation under a three-year agreement,
      security monitoring through third parties and project work installing security
      devices and fiber/cable in client locations throughout the US.




*Challenges
      and Risks*





Challenges
      and risks to the Company’s achievement of its business plan for operations and
      growth include the following:





1)The
                company relies on continued strong spending by customers and potential
                customers in areas such as IT convergence, physical security, new
                technology for data storage and management, and disaster
                recovery.





2)Economic
                strength must continue in our core markets in our primary geographic
                areas
                of operation and in the vertical markets that are our primary sources
                of
                revenue. Spending in the Oil and Gas Industry in our markets for
                network
                technology and physical security are important to the Company’s revenue
                stability. Core vertical markets in healthcare and education must
                remain
                strong sources of revenue and our efforts to take advantage of
                opportunities with similar customers in the United Arab Emirates
                must be
                realized.





3)eLinear
                must continually attract experienced certified engineers in the Company’s
                areas of expertise in order to compete with others and to maintain
                our
                suppliers’ relationships.








4)
            The
                Company must continue to be attractive to the investment community
                as a
                source of new capital to fund growth as the Company strives for positive
                cash flow.





15




**Results
      of Operations**





**Year
      Ended December 31, 2005 to Year Ended December 31, 2004**





The
      following table sets forth certain operating information regarding the Company
      for the years ended December 31, 2005 and 2004:





2005
            
            
            2004(As
                Restated)Revenue
            
            $
            29,750,817
            
            $
            24,065,753Cost
                of revenue
            
            
            24,978,859
            
            
            20,476,838Gross profit
            
            
            4,771,958
            
            
            3,588,915Selling,
                general and administrative expenses
            
            
            14,373,579
            
            
            10,456,866Depreciation
                and amortization
            
            
            417,869
            
            
            151,630Loss from operations
            
            
            (10,019,490
            )
            
            (7,019,581
            )Other
                income
            
            
            2,439,033
            
            
            3,172,235Net loss
            
            $
            (7,580,457
            )
            $
            (3,847,346
            )Net loss per share - basic and diluted
            
            $
            (0.32
            )
            $
            (0.19
            )







*Revenue.* Total
      revenue for the year ended December 31, 2005 was $29,750,817 which was an
      increase of 24% over the prior year period of $24,065,753. During February
      2004,
      the Company hired a primary consultant and several consulting engineers and
      the
      Company intends to concentrate its efforts on building additional consulting
      services customer relationships during the current fiscal year. If successful,
      the Company does intend to add additional personnel to increase sales, however,
      there are no guarantees that the Company will be successful in this
      endeavor.





Revenue
      generated from the network and storage solutions business segment for fiscal
      2005 was $19,827,300, which was a decrease of 9%, over fiscal 2004. The network
      and storage solutions business segment contributed 67% of total revenue for
      fiscal 2005 down from 90% in the prior year. The Company was able to increase
      its revenue over the 2004 period primarily by the addition of new sales
      personnel. eLinear intends to focus on adding additional customers and personnel
      to service this segment of the business





Revenue
      from the communications deployment business segment for fiscal 2005 was
      $4,734,468 which was 16% of total revenue. This was an increase of 159%, over
      the 2004 period. The Company continues to add new customers in this area and
      has
      increased its business from its existing customer base by allowing state of
      the
      art implementation, design and support for IP Telephony and Wireless Networking
      in connection with traditional networking.





The
      physical security segment increased revenue to $5,098,307 for 2005 up from
      $377,781 for the year ended December 31, 2004, an increase of 1,250%. This
      revenue includes monitoring installation and service for alarm systems, digital
      video surveillance systems and structured cabling system design and
      installation.





Of
      the
      revenue generated for the period ended December 31, 2005, one customer provided
      in excess of 8% of the Company's revenue. This customer provided 10% of the
      Company's revenue during fiscal 2004. The loss of that customer may have an
      adverse financial effect on the Company.





16




*Cost
      of revenue.* Total
      cost of revenue for the year ended December 31, 2005 was $24,978,859, an
      increase of $4,502,021 or 22%, over the 2004 period of $20,476,838. For the
      network and storage solutions business segment, cost of revenue is comprised
      primarily of the costs associated with acquiring hardware and software to fill
      customer orders. For the consulting services business segment, cost of revenue
      consists primarily of full-time personnel and contract employee costs associated
      with projects the Company provides to its customers for a fee. For the
      communications deployment and security solutions business segments, cost of
      revenue consists primarily of materials and personnel to build the customer
      infrastructure.





The
      primary component of the increase in cost of revenue was the cost of procuring
      hardware and software to fill an expanded number of customer orders. The cost
      of
      hardware and software as a percent of revenue decreased from 85% for fiscal
      2004
      to 81% for fiscal 2005. This decrease was a result of significant increases
      in
      services related to total revenue. The Company's principal suppliers of hardware
      and software products are Hewlett Packard, Cisco, and Ingram Micro which
      contributed approximately 47% of its sales for fiscal 2005. The Company
      anticipates they will continue to be its principal suppliers in the future.
      Total cost of products totaled to $21,606,781 for fiscal 2005. The Company
      anticipates that cost of revenue will increase as revenue
      increases.





*Gross
      profit.* Total
      gross profit increased from $3,588,915 for the year ended December 31, 2004,
      to
      $4,771,958 for the year ended December 31, 2005. The increase in gross profit
      was a result of an increase in revenue from all business segments. Total gross
      profit as a percentage of revenue decreased from 14.9% for fiscal 2004 to 16%
      for fiscal 2005. The primary reason for the decrease was a result of favorable
      pricing for hardware and software purchases a major customer.





*Operating
      expenses.* Total
      operating expenses for the year ended December 31, 2005, were $14,791,448 an
      increase of $4,182,952 or 39.4%, over fiscal 2004. The various components of
      this increase are as follows








·The
                full year impact of the Tanseco acquisition was most responsible
                for the
                increase in salaries and benefits in 2005 of  $3,179,264 over 2004.
                At December 31, 2005 the Company employed 103 which had decreased
                from 126
                as of December 31, 2004. These costs included payroll, payroll taxes,
                sales commissions and employee
                benefits.





·Office
                administration expenses increased from $1,524,253 for the 2004 period
                to
                $2,333,030 for the 2005 period. The components of office administration
                are office rent, office administration, sales and marketing and dues
                and
                subscriptions. Increases in fees related to the debt financing in
                2005
                along with increases in rent, utilities cost and telephone expenses
                were
                major components of the increase over
                2004.





·Professional
                services increased from $2,208,666 in 2004 to $3,682,968 in 2005
                due
                primarily to new investor financing, a lawsuit against the company’s
                former CEO and stock registration efforts in
                2005.





·In
                March 2004 the consulting services reporting unit lost its largest
                consulting contract and the other operations that it had prior to
                the
                NetView acquisition with additional revenue declines due to the loss
                of a
                key consulting services employee after the acquisition. Based on
                projected
                future cash flows from the reporting unit, management determined
                a full
                impairment charge of $451,925 was required. No such adjustment was
                deemed
                necessary in 2005.










In
      September 2004,
      the Company recorded impairment expense totaling $391,102 related to a portion
      of the goodwill related to the NewBridge acquisition in July 2003. The Company
      performed a valuation analysis of the discounted projected estimated future
      cash
      flows from the reporting unit. Based on the valuation analysis, the Company
      elected to write down the goodwill for NewBridge to $1,100,000 resulting in
      the
      impairment charge. No further adjustment was deemed necessary for 2005.  In
      July 2005, the Company acquired a company that develops security software for
      communications software and recorded a charge of $150,000.





·Other
                expenses decreased from $1,093,286 for prior year to $210,683 for
                the
                current fiscal period. The Company has initiated an investor
                awareness/marketing program in 2004 which was not continued in 2005.
                The
                cost of this program during the twelve months ended December 31,
                2004
                approximated $1,979,000. The Company has incurred penalties in association
                with Laurus and its financings in January and February 2004 of $102,597
                and $370,931, respectively, as a result in delays in its two registration
                statements filed with the SEC, which penalties are included in the
                other
                expenses category in 2004.





*Interest
      Expense.* Interest
      expense (net) for the year ended December 31, 2005 increased to $1,211,669
      from
      $614,504 for the prior year. Of this amount approximately $545,334 was
      attributable to the amortization of debt discounts associated with the Laurus
      credit facility.





*Change
      in fair value of derivatives.* The
      decrease in derivative liabilities in connection with the Laurus credit facility
      and common stock warrants was $3,637,714 or compared to an increase in the
      value
      of $5,325,553 for the year ended December 31, 2004.





*Net
      Loss* .
      The net
      loss for the year ended December 31, 2005 was $7,580,457 or $0.32 per share
      basic and diluted, for the twelve months ended December 31, 2004 the net loss
      was ($3,847,346).





17




**Liquidity
      and Capital Resources**





The
      following summary table presents comparative cash flows of the Company for
      the
      years ended December 31, 2005 and 2004:





2005
            
            2004Net
                cash used in operating activities
            
            $
            (5,776,406
            )
            $
            (7,112,080
            )Net
                cash used in investing activities
            
            $
            (572,222
            )
            $
            (1,962,163
            )Net
                cash provided by financing activities
            
            $
            5,894,570
            
            $
            9,418,629








*Changes
      in cash flow.* Net cash
      used in operating activities for the year ended December 31, 2005, was
      $5,776,406 compared to net cash used in operating activities of $7,112,080
      for
      the prior year. This was an decrease of $1,335,674 over the prior year. The
      primary components of net cash used in operating activities for fiscal 2005
      were
      a net loss of $7,580,457, depreciation and amortization of debt discounts and
      decrease in the fair value of derivative contracts of $(3,637,714) and stock
      based compensation of $2,372,992, decreases in accounts receivable resulting
      from improved collections when compared to the prior fiscal year and other
      current assets and increases in inventory. The cash provided from operating
      activities, includes an increase in accrued liabilities of $247,472 which was
      comprised of accrued payables, payroll and sales taxes and an increase in
      accounts payable of $1,321,840. Cash used in investing activities decreased
      to
      $572,222 for the current fiscal year. The Company purchased computer hardware,
      office equipment and furniture during the current period totaling $281,361.
      The
      Company does not believe it will incur significant purchases in the future.
      Cash
      provided by financing activities decreased from approximately $9,418,629
      during fiscal 2004 to approximately $5,894,570 for the current fiscal year.
      This
      decline was attributable to sales of common stock of approximately $4,586,000,
      net proceeds from the Laurus financing agreement of $4,705,697, and the exercise
      of stock options and warrants of $615,843 in the fiscal year 2004. The Company
      entered into a credit facility in February 2005 and amended the credit facility
      in July 2005 and received net proceeds of approximatley $4,000,000 in
      2005.





*Capital
      Resources* .
      The
      Company has funded its operations through the sale of common stock, the exercise
      of stock options and warrants, short-term borrowings from one of its officers,
      lines of credit and the Laurus financing agreements. During January and February
      2004, the Company sold shares of common stock in two private placements for
      aggregate net proceeds of $4,585,792. During the year ended December 31, 2005,
      the Company received $1,173,429 through the exercise of stock options and
      warrants. Net advances under the Company’s revolving line of credit totaled
      $1,063,383.





*Liquidity.* As of
      December 31, 2005, the Company had cash balances in non-restricted accounts
      of
      $444,811 and negative working capital of approximately $2,770,040. In January
      2004, the Company completed a private offering and raised gross proceeds of
      approximately $2,500,000. In February 2004, the Company completed a private
      offering and raised gross proceeds of $2,460,000. Both of these financings
      include warrants, which, if exercised, could raise up to approximately
      $6,900,000.





In
      February 2004, the Company obtained a secured revolving note with Laurus. Under
      the terms of the agreement, the Company can borrow up to $5,000,000 at an annual
      interest rate of prime plus .75% (with a minimum rate of 4.75%). The agreement
      contains two notes: a minimum secured revolving note totaling $2,000,000 and
      a
      revolving credit facility totaling $3,000,000 based on eligible accounts
      receivable. At December 31, 2005, the Company had  $321,076 under the term
      loan and $3,847,926 under the revolver outstanding.





On
      February 28, 2005, the Company entered into financing arrangements for a total
      principal amount of $12 million as described in "Recent Developments".  Of
      this financing $2,400,000 gross proceeds has been funded to the Company and
      $9,600,000 may be funded upon satisfaction of certain conditions.





On
      July
      14, 2005, the Company amended that 2005 financing arrangement, entered into
      on
      February 28, 2005, for a total principal amount of $12 million with the
      investors. The supplement modifies the February 2005 financing arrangement
      by
      (i) releasing all the funds held in the restricted account, of which $7,200,000
      was paid to the respective investor without penalty and the remaining amount,
      approximately $2,138,921, held in the restricted account was funded to the
      Company; (ii) amending and restating the notes issued pursuant to the February
      2005 financing arrangement with the new total principal amount of $5,054,567
      that included (x) the twenty percent (20%) (including applicable fees) on the
      February 2005 financing funded to the Company in February 2005; (y) the funds
      released from the restricted accounts to the Company pursuant to the supplement;
      and (z) the interest accrued on the funds held in the restricted account from
      March 2005 until July 14, 2005; (iii) granting the Investors a right to
      participate in their pro rata portion of 60% of any future financing of the
      Company for one year; (iv) issuing warrants exercisable after January 14, 2006
      at exercise prices ranging from $1.50 to $1.75 per share into an aggregate
      of
      991,667 shares of common stock to Iroquios, RHP, Basso Private and Basso Multi.
      The terms between the Company and each of the respective Investors are
      substantially similar.




The
      Company believes it has sufficient capital sources to implement its business
      plan during fiscal 2006; however, a new investment capital will be sought to
      fund operations during fiscal 2006, if necessary. If the Company is required
      to
      obtain additional financing, it will be required to do so on a best efforts
      basis. The Company regularly considers new proposals for additional financing.
      In November, 2005 the Company entered into an agreement to sell 5,355,946 shares
      of its common stock at a price of $0.378 per share to net the Company $4,024,548
      upon closing. The shares are a part of a pool of shares marketed in the United
      States Global Equities Fund on the Luxembourg Exchange. The shares will not
      be
      issued until funding has occurred. There is no guarantee that the fund will
      be
      successfully marketed and that the shares will be sold. Alternative sources
      of
      capital are currently being considered.  As of the date of this filing no
      shares have been issued.  The Company's auditors have expressed a going
      concern in their audit opinion.


The
        Company's management intends to raise additional operating funds through
        equity
        and/or debt offerings. However, there can be no assurance management will
        be
        successful in its endeavors. Ultimately, the Company will need to achieve
        profitable operations in order to continue as a going concern.
 
 There
        are
        no assurances that the Company will be able to either (1) achieve a level
        of
        revenues adequate to generate sufficient cash flow from operations; or (2)
        obtain additional financing through either private placement, public offerings
        and/or bank financing necessary to support the Company's working capital
        requirements. To the extent that funds generated from operations and any
        private
        placements, public offerings and/or bank financing are insufficient, the
        Company
        will have to raise additional working capital. No assurance can be given
        that
        additional financing will be available, or if available, will be on terms
        acceptable to the Company. If adequate working capital is not available,
        the
        Company may be required to curtail its operations.





18




**Off-Balance
      Sheet Arrangements**





The
      Company does not have any off-balance sheet arrangements.





**New
      Accounting Pronouncements**





In
      June
      2005, the Financial Accounting Standards Board ("FASB") issued Statement of
      Financial Accounting Standards No. 154, Accounting Changes and Error Corrections
      ("SFAS 154"). SFAS 154 replaces Accounting Principles Board ("APB")


Opinion
      No. 20, Accounting Changes and SFAS No. 3, Reporting Accounting Changes in
      Interim Financial Statements. SFAS 154 requires that a voluntary change in
      accounting principle be applied retrospectively with all prior period
      financial


statements
      presented on the new accounting principle. SFAS 154 also requires that a change
      in method of depreciating or amortizing a long-lived non-financial asset be
      accounted for prospectively as a change in estimate, and correction
      of


errors
      in
      previously issued financial statements should be termed a restatement. SFAS
      154
      is effective for accounting changes and correction of errors made in fiscal
      years beginning after December 15, 2005. The Company does not expect
      the


adoption
      of SFAS 154 to have a material impact on the Company's consolidated financial
      statements.





As
      permitted by SFAS No. 123, "Accounting for Stock-Based Compensation," the
      Company accounts for share-based payments to employees using the intrinsic
      value
      method under Accounting Principles Board, or APB, Opinion No. 25. As such,
      the


Company
      generally does not recognize compensation cost related to employee stock options
      or shares issued under the Company's employee stock purchase plan. In December
      2004, the FASB issued SFAS No. 123(R), "Share-Based Payment," which
      is


a
      revision of SFAS No. 123 and supersedes APB Opinion No. 25.





SFAS
      No.
      123(R) allows for two adoption methods:





-
      The
      modified prospective method which requires companies to recognize compensation
      cost beginning with the effective date of adoption based on (a) the requirements
      for all share-based payments granted after the effective


date
      of
      adoption and (b) the requirements for all unvested awards granted to employees
      prior to the effective date of adoption; or





-
      The
      modified retrospective method which includes the requirements of the modified
      prospective method described above, but also requires restatement of prior
      period financial statements using amounts


previously
      disclosed under the pro-forma provisions of Statement 123.





SFAS
      No.
      123(R) require all share-based payments to employees and directors to be
      recognized in the financial statements based on their fair values, using
      prescribed option-pricing models. Upon adoption pro-forma disclosure will
      no


longer
      be
      an alternative to financial statement recognition. The Company will adopt the
      provisions of SFAS No. 123(R) in the first quarter of 2006. The Company intends
      to use the modified prospective method of adoption and continue


to
      use
      the Black-Scholes option pricing model to value share-based payments, though
      alternatives for adoption under the new pronouncement continue to be reviewed
      by
      the Company. The Company continues to review the impact of SFAS No.


123(R)
      as
      relates to future use of share-based payments to compensate employees in 2006.
      The adoption of the fair-value method will not have a significant impact on
      the
      Company's results of operations as the fair value of stock option


grants
      and stock purchases under the employee stock purchase plan will be required
      to
      expense beginning in 2006.





Statement
      No. 123(R) also requires the benefit related to income tax deductions in excess
      of recognized compensation cost to be reported as a financing cash flow, rather
      than as an operating cash flow as required under current accounting


guidance.
      This requirement will reduce net operating flows and increase financing cash
      flows of the Company in periods subsequent to adoption. These future amounts
      cannot be estimated, as they depend on, among other things, when


employees
      exercise stock options.







19


ITEM
      7. FINANCIAL STATEMENTS











**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**











To
      the
      Board of Directors of:


eLinear,
      Inc.


Houston,
      Texas





We
      have
      audited the accompanying consolidated balance sheet of eLinear, Inc., as of
      December 31, 2005 and the related consolidated statements of operations, changes
      in shareholder’s deficit and cash flows for each of the two years ended December
      31, 2005 and 2004. These financial statements are the responsibility of
      eLinear's management. Our responsibility is to express an opinion on these
      financial statements based on our audits.





We
      conducted our audits in accordance with auditing standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit 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 made 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 consolidated financial statements referred to above present fairly,
      in all material respects, the consolidated financial position of eLinear, Inc.
      as of December 31, 2005 and the consolidated results of its operations and
      cash
      flows for each of the two years ended December 31, 2005 and 2004, in conformity
      with accounting principles generally accepted in the United States of
      America.





As
      discussed in Note 13 to the consolidated financial statements, the Company's
      recurring losses from operations and the need to raise additional financing
      in
      order to satisfy its vendors and other creditors and execute its Business Plan
      raise substantial doubt about its ability to continue as a going concern.
      Management's plans as to these matters are also described in Note 13. The 2005
      consolidated financial statements do not include any adjustments that might
      result from the outcome of this uncertainty.





As
      discussed in Note 14, the Company restated its prior period financial
      statements.











Lopez,
      Blevins, Bork & Associates, LLP


Houston,
      Texas


June
      27,
      2006














20








**eLINEAR,
      INC.**


**AND
      SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEET**





December
                31, 2005**ASSETS**Current
                assets:Cash
            
            $
            444,811Cash
                in restricted accounts
            
            
            768,334Accounts
                receivable, net of allowance of $239,881
            
            
            4,369,037Inventory
            
            
            1,146,451Other
                current assets
            
            
            189,237Total current assets
            
            
            6,917,870Property
                and equipment, net
            
            
            669,290Other
                assets:Goodwill
            
            
            1,100,000Deposits
            
            
            61,723Total other assets
            
            
            1,161,723Total
                assets
            
            $
            8,748,883**LIABILITIES
                AND SHAREHOLDERS' DEFICIT**Current
                liabilities:Accounts
                payable, trade
            
            $
            2,588,578Line
                of credit - revolver
            
            
            3,847,926Accrued
                liabilities
            
            
            1,297,446Notes
                payable (net of unamortized discount of $2,483,617)
            
            
            1,755,700Compound embedded derivative liabilities
            
            
            198,260Total current liabilities
            
            
            9,687,910Long-term
                debt (less unamortized discount of $178,924)
            
            
            321,076Compound
                embedded derivative liability non-current
            
            
            45,536Warrant
                liability - non-current
            
            
            1,118,477Total liabilities
            
            
            11,172,999Minority
              liability
            
            
            80,225Commitments
                and contingenciesShareholders'
                deficit:Preferred
                stock, $.02 par value, 10,000,000 shares authorized, none
                issued
            
            
            --Common stock, $.02 par value, 100,000,000 shares authorized,27,703,814 shares issued and outstanding
            
            
            554,076Additional
                paid-in capital
            
            
            9,765,125Accumulated
                deficit
            
            
            (12,823,542
            )Total shareholders' deficit
            
            
            (2,504,341
            )Total
                liabilities and shareholders' deficit
            
            $
            8,748,883











See
      accompanying notes to consolidated financial statements.





21








**eLINEAR,
      INC.**


**AND
      SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2005 AND 2004**











2005
            
            2004(As
                Restated)Revenue:Products
            
            $
            24,188,634
            
            $
            21,472,050Services
            
            
            5,215,198
            
            
            2,513,383Other
            
            
            346,985
            
            
            80,320Total
                revenue
            
            
            29,750,817
            
            
            24,065,753Cost
                of revenue:Products
            
            
            21,606,781
            
            
            19,194,420Services
            
            
            3,372,078
            
            
            1,282,418Total
                cost of revenue
            
            
            24,978,859
            
            
            20,476,838Gross
                profit
            
            
            4,771,958
            
            
            3,588,915Operating
                expenses:Selling,
                general and administrative expenses:Payroll
                and related expenses
            
            
            7,996,898
            
            
            4,787,634Office
                administration
            
            
            2,333,030
            
            
            1,524,253Professional
                services
            
            
            3,682,968
            
            
            2,208,666Impairment
            
            
            150,000
            
            
            843,027Other
            
            
            210,683
            
            
            1,093,286Total selling, general and administrative
            
            
            14,373,579
            
            
            10,456,866Depreciation and amortization
            
            
            417,869
            
            
            151,630Total operating expenses
            
            
            14,791,448
            
            
            10,608,496Loss
                from operations
            
            
            (10,019,490
            )
            
            (7,019,581
            )Other
                income (expense):Interest, net
            
            
            (1,211,669
            )
            
            (614,504
            )Change in fair value of derivatives
            
            
            3,637,714
            
            
            5,325,553Loss on early extinguishment of debt
            
            
            --
            
            
            (1,555,347
            )Other
            
            
            12,988
            
            
            16,533Total other income (expense)
            
            
            2,439,033
            
            
            3,172,235Net
                loss
            
            $
            (7,580,457
            )
            $
            (3,847,346
            )Net
                loss per share:Basic
                and diluted
            
            $
            (0.32
            )
            $
            (0.19
            )Weighted
                average number of common shares outstanding:Basic
                and diluted
            
            
            23,512,369
            
            
            20,289,723











See
      accompanying notes to consolidated financial statements.











22








**eLINEAR,
      INC.**


**AND
      SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF SHAREHOLDERS' DEFICIT**


**FOR
      THE YEARS ENDED DECEMBER 31, 2005 AND 2004**











Additional
            
            
            
            TotalCommon
                Stock
            
            Paid-in
            
            Accumulated
            
            Shareholders'Shares
            
            Amount
            
            Capital
            
            Deficit
            
            DeficitBalances
                January 1, 2004, as restated
            
            
            17,020,754
            
            $
            340,415
            
            $
            3,982,631
            
            $
            (1,395,739
            )
            $
            2,927,307Exercise
                of stock options
            
            
            312,600
            
            
            6,252
            
            
            409,010
            
            
            --
            
            
            415,262Exercise
                of stock warrants
            
            
            200,581
            
            
            4,012
            
            
            299,992
            
            
            --
            
            
            304,004Stock
                issued for cash, net of costs
            
            
            3,194,225
            
            
            63,884
            
            
            4,521,908
            
            
            --
            
            
            4,585,792Value
                assigned to warrants
            
            
            --
            
            
            --
            
            
            (6,089,693
            )
            
            --
            
            
            (6,089,693
            )Stock
                issued for services
            
            
            575,190
            
            
            11,504
            
            
            845,980
            
            
            --
            
            
            857,484Stock issued for expense
            
            
            --
            
            
            --
            
            
            220,091
            
            
            --
            
            
            220,091Stock
                issued for cancellation of penalties
            
            
            319,248
            
            
            6,385
            
            
            346,839
            
            
            --
            
            
            353,224Net loss
            
            
            --
            
            
            --
            
            
            --
            
            
            (3,847,346
            )
            
            (3,847,346
            )Balances,
                December 31, 2004, as restated
            
            
            21,622,598
            
            
            432,452
            
            
            4,536,758
            
            
            (5,243,085
            )
            
            (273,875
            )Exercise
                of stock options
            
            
            1,545,000
            
            
            30,900
            
            
            1,142,529
            
            
            --
            
            
            1,173,429Stock
                issued for acquisitions
            
            
            515,594
            
            
            10,312
            
            
            293,258
            
            
            --
            
            
            303,570Stock
                issued for conversion of debt
            
            
            1,653,908
            
            
            33,078
            
            
            1,466,922
            
            
            --
            
            
            1,500,000Stock
                and options issued for services
            
            
            2,366,714
            
            
            47,334
            
            
            2,325,658
            
            
            --
            
            
            2,372,992Net
                loss
            
            
            --
            
            
            --
            
            
            --
            
            
            (7,580,457
            )
            
            (7,580,457
            )Balances
                December 31, 2005
            
            
            27,703,814
            
            $
            554,076
            
            $
            9,765,125
            
            $
            (12,823,542
            )
            $
            (2,504,341
            )











See
      accompanying notes to consolidated financial statements.























23





**eLINEAR,
      INC.**


**AND
      SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2005 AND 2004**





2005
            
            2004(As
                Restated)Cash
                flows from operating activities:Net
                loss
            
            $
            (7,580,457
            )
            $
            (3,847,346
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Depreciation
                and amortization
            
            
            417,869
            
            
            149,210Impairment
                of goodwill
            
            
            150,000
            
            
            843,022Change in value of sales contracts
            
            
            273,693
            
            
            --Bad
                debt expense
            
            
            92,874
            
            
            242,280Amortization
                of debt discounts
            
            
            545,334
            
            
            356,453Change in fair value of derivatives
            
            
            (3,637,714
            )
            
            (5,325,553
            )Loss on early extinguishment of debt
            
            
            --
            
            
            1,555,347Stock
                and stock option based compensation
            
            
            2,372,992
            
            
            1,077,575Stock
                issuance and warrant repricing for payment of penalties
            
            
            --
            
            
            506,224Minority
              interest
            
            
            (66,775
            )
            
            --Changes
                in assets and liabilities:Accounts receivable
            
            
            548,822
            
            
            (3,615,796
            )Inventory
            
            
            (700,005
            )
            
            (2,914
            )Other current assets
            
            
            237,649
            
            
            (80,608
            )Accounts payable
            
            
            1,321,840
            
            
            165,135Accrued liabilities
            
            
            247,472
            
            
            864,891Net cash used in operating activities
            
            
            (5,776,406
            )
            
            (7,112,080
            )Cash
                flows from investing activities:Purchase
                of property and equipment
            
            
            (281,361
            )
            
            (688,016
            )Restricted
                cash
            
            
            (263,754
            )
            
            (504,580
            )Acquisitions
            
            
            --
            
            
            (750,000
            )Deposits
            
            
            (27,107
            )
            
            (19,567
            )Net cash used in investing activities
            
            
            (572,222
            )
            
            (1,962,163
            )Cash
                flows from financing activities:Repayments
                on notes payable due to officers
            
            
            --
            
            
            (215,703
            )Proceeds
                from revolver, net
            
            
            1,063,383
            
            
            2,705,697Proceeds
                from long-term debt, net
            
            
            3,994,748
            
            
            1,623,577Payments on long-term debt
            
            
            (336,990
            )
            
            --Proceeds
                from exercise of stock options and warrants
            
            
            1,173,429
            
            
            719,266Proceeds
                from sale of common stock, net
            
            
            --
            
            
            4,585,792Net cash provided by financing activities
            
            
            5,894,570
            
            
            9,418,629Net
                increase (decrease) in cash
            
            
            (454,058
            )
            
            344,386Cash
                and cash equivalents, beginning of year
            
            
            898,869
            
            
            554,483Cash
                and cash equivalents, end of year
            
            $
            444,811
            
            $
            898,869Supplemental
              cash flow information:
            
            $
            753,257
            
            $
            593,526Cash paid for interest
            
            $
            --
            
            $
            --Cash paid for taxesNon-cash
              transactions:Issuance of common stock for debt
            
            $
            1,500,000
            
            $
            --Issuance of warrants in connection with debt financing
            
            $
            1,890,858
            
            $
            6,992,733Compound embedded derivative liability incurred with debt
              financing
            
            $
            378,087
            
            $
            998,425





See
      accompanying notes to consolidated financial statements.




24








**eLINEAR,
      INC.**


**AND
      SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**December
      31, 2005**





Note
      1. Organization and Nature of Business





eLinear,
      Inc. (Linear or the Company) is a communications, security and compliance
      company providing integrated technology solutions including information and
      physical security, IP Telephony and network and storage solutions
      infrastructure. Typically, the Company's customers are Fortune 2000 and small
      to
      medium sized business organizations. eLinear's services are offered to companies
      seeking to increase productivity or reduce costs through investing in
      technology. eLinear has a national and international footprint and has its
      headquarters in Houston, Texas.





On
      April
      15, 2003, eLinear, Inc. issued 12,961,979 shares of common stock for 100% of
      the
      outstanding common stock of NetView Technologies, Inc. (NetView). After the
      merger the stockholders of NetView owned approximately 90% of the combined
      entity. For financial reporting purposes this transaction was treated as an
      acquisition of eLinear and a recapitalization of NetView using the purchase
      method of accounting. (See Note 4.)





Prior
      to
      its acquisition of NetView, eLinear, Inc. was a technology consulting services
      firm providing strategic consulting solutions, creative web site design, web
      site content management software, and technical project management and
      development services to companies seeking to increase productivity or reduce
      costs through investing in technology. The Company's current customers are
      based
      in the United States.





NetView
      was incorporated in the State of Texas in December 2001 as an S-Corporation
      and
      commenced operations on January 1, 2002. NetView is an information technology
      solutions company that provides its customers with network and storage solutions
      infrastructure and related services. NetView's focus is on creating recurring
      revenue streams from a diverse client base. NetView markets its products and
      services through its own direct sales and marketing team, direct mail and trade
      shows. NetView sells to entities throughout the United States; however, a
      majority of its revenue is earned from sales in the State of Texas.





On
      July
      31, 2003, eLinear completed the acquisition of all the issued and outstanding
      shares of NewBridge Technologies, Inc. (formerly "MMGD, Inc.") ("NewBridge")
      (See Note 4.).  NewBridge is a digital provider of voice, data, video and
      security services to residential and commercial developments. These services
      are
      over a fiber or wireless infrastructure. NewBridge markets its services through
      its own sales force and the majority of its revenue is earned in
      Texas.





On
      November 3, 2004, eLinear acquired all of the outstanding and issued stock
      of
      TanSeco Systems, Inc., a Delaware corporation (TanSeco), from RadioShack
      Corporation, a Delaware corporation. TanSeco is a nation wide security solutions
      company, established over 35 years ago, that provides single source, integrated
      life safety and physical security systems and security monitoring services
      to
      commercial customers.





Hereinafter,
      all references to eLinear include the operations and financial condition of
      NetView for the two years ended December 31, 2005, and the operations of eLinear
      consolidated with NetView since April 15, 2003, with NewBridge consolidated
      since July 31, 2003 and with TanSeco consolidated since November 8, 2004. (see
      Note 4).





Note
      2. Summary of Significant Accounting Policies





*a)
                Consolidation*





As
                of December 31, 2005, eLinear had four wholly owned
                subsidiaries, NetView Technologies, Inc., NewBridge Technologies,
                Inc., TanSeco Systems, Inc. and UTEK Corporation and a 51% interest
                in
                eLinear Middle East FZ, LLC.  All material inter-company balances and
                inter-company transactions have been
                eliminated.





b) *Cash
      and Cash Equivalents*





Cash
                and cash equivalents consist of cash on hand and held in banks in
                unrestricted accounts. The Company considers all highly liquid investments
                with an original maturity of three months or less to be cash
                equivalents.





*c)
                Inventory*





Inventories
      are stated at the lower of average cost or market. The Company continually
      assesses the appropriateness of inventory valuations giving consideration to
      obsolete, slow-moving and non-saleable inventory.





25


d) *Property
      and Equipment*





Property
      and equipment are stated at cost. Depreciation is computed using the
      straight-line method over the estimated economic lives of the assets that range
      between three and seven years.





e) *Income
      Taxes*





The
      Company accounts for income taxes using the liability method, under which the
      amount of deferred income taxes is based on the tax effects of the differences
      between the financial and income tax basis of the Company's assets, liabilities
      and operating loss carry forwards at the balance sheet date based upon existing
      tax laws. Deferred tax assets are recognized if it is more likely than not
      that
      the future income tax benefit will be realized. Since utilization of net
      operating loss carry forwards is not assured, no benefit for future offset
      of
      taxable income has been recognized in the accompanying financial
      statements.





f) *Goodwill*





Goodwill
      represents the excess of the purchase price over net assets acquired. Goodwill
      is not amortized, but is tested at least annually for impairment. The impairment
      testing is performed at a reporting unit level and consists of two steps. In
      the
      first step, the Company compares the fair value of each reporting unit to its
      carrying value. The Company determines the fair value of its reporting units
      using the income approach, which requires the Company to calculate the fair
      value of a reporting unit based on the present value of estimated future cash
      flows. If the fair value of the reporting unit exceeds the carrying value of
      the
      net assets assigned to that unit, goodwill is not impaired and the Company
      is
      not required to perform further testing. If the carrying value of the net assets
      assigned to the reporting unit exceeds the fair value of the reporting unit,
      then the Company must perform the second step in order to determine the implied
      fair value of the reporting unit's goodwill and compare it to the carrying
      value
      of the reporting unit's goodwill. If the carrying value of a reporting unit's
      goodwill exceeds its implied fair value, then the Company must record an
      impairment loss equal to the difference.





g) *Long-lived
      Assets*





The
      Company reviews for the impairment of long-lived assets whenever events or
      changes in circumstances indicate that the carrying amount of an asset may
      not
      be recoverable. An impairment loss would be recognized when estimated future
      cash flows expected to result from the use of the asset and its eventual
      disposition are less than its carrying amount. The Company has not identified
      any such impairment losses.





h) *Use
      of Estimates*





The
      preparation of the Company's financial statements in conformity with generally
      accepted accounting principles requires the Company's management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities and disclosure of contingent assets and liabilities at the date
      of
      the financial statements and the reported amounts of revenue and expenses during
      the reporting period. Actual results could differ from those
      estimates.





i) *Comprehensive
      Income (Loss)*





Comprehensive
      income is defined as all changes in shareholders' equity, exclusive of
      transactions with owners, such as capital instruments. Comprehensive income
      includes net income or loss, changes in certain assets and liabilities that
      are
      reported directly in equity such as translation adjustments on investments
      in
      foreign subsidiaries, changes in market value of certain investments in
      securities and certain changes in minimum pension liabilities. The Company's
      comprehensive loss was equal to its net loss for the years ended December 31,
      2005 and 2004.





j) *Revenue
      Recognition*





*Communications
      Deployment Segment* -
      Revenues from fixed-price contracts related to the delivery of voice, video
      and
      data services are recognized in the period the services are performed. These
      services are generally provided over a period of several weeks to months,
      depending on the size of the contract.





*Network
      Storage and Solutions Segment* -
      Revenues on the sale of products, which are shipped from eLinear's stock of
      inventory, are recognized when the products are shipped provided that
      appropriate signed documentation of the arrangement, such as a signed contract,
      purchase order or letter of agreement, has been received, the fee is fixed
      or
      determinable and collectability is reasonably assured. In accordance with
      Emerging Issues Task Force ("EITF") Issue No. 99-19 "Recording Revenue Gross
      as
      a Principal Versus Net as an Agent", revenue from drop shipments of third-party
      hardware and software sales are recognized upon delivery, and recorded at the
      gross amount when eLinear is responsible for fulfillment of the customer order,
      has latitude in pricing, has risk of loss during shipment of the inventory,
      incurs credit risk on the receivable and has discretion in the selection of
      the
      supplier.  Shipping and handling costs are included in cost of goods
      sold.





*Security
      Solutions Segment* -
      Revenue from the sale of goods and services is recognized as the goods and
      services are provided. Revenue from security and fire monitoring is recognized
      monthly pursuant to the monitoring contract.





26





The
      Company accounts for arrangements that contain multiple elements in accordance
      with EITF 00-21, "Revenue Arrangements with Multiple Deliverables". When
      elements such as hardware, software and consulting services are contained in
      a
      single arrangement, or in related arrangements with the same customer, the
      Company allocates revenue to each element based on its relative fair value,
      provided that such element meets the criteria for treatment as a separate unit
      of accounting. The price charged when the element is sold separately generally
      determines fair value. In the absence of fair value for a delivered element,
      the
      Company allocates revenue first to the fair value of the undelivered elements
      and allocates the residual revenue to the delivered elements. In the absence
      of
      fair value for an undelivered element, the arrangement is accounted for as
      a
      single unit of accounting, resulting in a delay of revenue recognition for
      the
      delivered elements until the undelivered elements are fulfilled. The Company
      limits the amount of revenue recognition for delivered elements to the amount
      that is not contingent on the future delivery of products or services or subject
      to customer-specified return or refund privileges.




The
      Company
      recognizes revenue from the sale of manufacturer's maintenance and extended
      warranty contracts in accordance with EITF 99-19 net of its costs of purchasing
      the related contracts.




The
      Company
      performs ongoing credit evaluations of its customers' financial condition and
      maintains reserves for potential credit losses based upon the expected
      collectability of total accounts receivable. To date, losses resulting from
      uncollectible receivables have not exceeded management's
      expectations.





*m)*  *Earnings
      (Loss) Per Share*





The
      Company computes net income (loss) per share pursuant to Statement of Financial
      Accounting Standards No. 128 Earnings Per Share. Basic net loss per share is
      computed by dividing income or loss applicable to common shareholders by the
      weighted average number of shares of the Company's common stock outstanding
      during the period. Diluted net income per share is determined in the same manner
      as basic net income per share except that the number of shares is increased
      assuming exercise of dilutive stock options and warrants using the treasury
      stock method and dilutive conversion of the Company's convertible debt and
      preferred stock.





During
      the year ended December 31, 2005 options to purchase 3,092,611 shares of
      common stock, warrants to purchase 5,831,055 shares of common stock and
      8,587,241 shares of common stock issuable upon the conversion of the Laurus
      credit facility were excluded from the calculation of earnings per share since
      their inclusion would be antidilutive. During the years ended December 31,
      2005
      and 2004 there was no convertible preferred stock outstanding.





During
      the year ended December 31, 2004, options to purchase 4,514,583 shares of common
      stock and warrants to purchase 4,114,577 shares of common stock and 2,000,000
      shares of common stock issuable upon the conversion of the Laurus Credit
      Facility were excluded from the calculation of earnings per share since their
      inclusion would be antidilutive.





*n)*  *Stock-Based
      Compensation*





The
      Company accounts for compensation costs associated with stock options and
      warrants issued to employees under the provisions of Accounting Principles
      Board
      Opinion No. 25 (APB 25) whereby compensation is recognized to the extent the
      market price of the underlying stock at the date of grant exceeds the exercise
      price of the option granted. (See Note 9, Stock Options and Warrants).
      Accordingly, no compensation expense has been recognized for grants of options
      to employees with the exercise prices at or above market price of the Company's
      common stock on the measurement dates. During the year ended December 31, 2005,
      eLinear recognized compensation expense totaling $177,065 under the intrinsic
      value method for stock options issued to employees and $52,553 under the fair
      value method for options issued to outside directors. eLinear recognized
      compensation expense totaling $141,968 in 2004 under the intrinsic value method
      for stock options issued to employees and $67,123 under the fair value method
      for options issued to consultants.





Had
      compensation expense been determined based on the estimated fair value at the
      measurement dates of awards under those plans consistent with the method
      prescribed by SFAS No. 123, the Company's December 31, 2005 and 2004, net loss
      would have been changed to the pro forma amounts indicated below.




27








December
                31, 2005
            
            December
                31, 2004Net loss:As
                reported
            
            $
            (7,580,457
            )
            $
            (3,847,346
            )Stock
                based compensation under fair value method
            
            
            (1,085,757
            )
            
            (381,224
            )Less:
              Stock based compensation under intrinsic value
              method
            
            
            177,065
            
            
            --Pro
                forma
            
            $
            (8,489,149
            )
            $
            (4,228,570
            )Net loss
                per share - basic and diluted:As
                reported
            
            $
            (0.32
            )
            $
            (0.19
            )Stock
                based compensation under fair value method
            
            
            (0.04
            )
            
            (0.02
            )Pro
                forma
            
            $
            (0.36
            )
            $
            (0.21
            )








For
      the
      twelve months ended December 31, 2005 the fair value of each option grant was
      estimated on the date of grant using the Black-Scholes option pricing model
      with
      the following assumptions: risk free rate of 4.35%; volatility of 101% for
      2004
      with no assumed dividend yield; and expected lives of six months. For the
      corresponding period in 2004 the assumptions used were; risk free rate of 3.5%;
      volatility of 206%; no dividend yield and expected lives of six
      months.





o) *Fair
      Value of Financial Instruments*





Financial
      instruments that are subject to fair disclosure requirements are carried in
      the
      financial statements at amounts that approximate fair value and include cash
      and
      cash equivalents, accounts receivable and accounts payable. Fair values are
      based on assumptions concerning the amount and timing of estimated future cash
      flows and assumed discount rates reflecting varying degrees of perceived
      risk.








*p)*  *New
      Accounting Pronouncements*




In
      June 2005, the
      Financial Accounting Standards Board ("FASB") issued Statement of Financial
      Accounting Standards No. 154, Accounting Changes and Error Corrections ("SFAS
      154"). SFAS 154 replaces Accounting Principles Board ("APB") Opinion No. 20, Accounting
      Changes and
      SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements. SFAS
      154 requires that a voluntary change in accounting principle be applied
      retrospectively with all prior period financial statements
      presented on the new accounting principle. SFAS 154 also requires that a change
      in method of depreciating or amortizing a long-lived non-financial asset be
      accounted for prospectively as a change in estimate, and correction of errors
      in
      previously issued financial statements should be termed a restatement. SFAS
      154
      is effective for accounting changes and correction of errors made in fiscal
      years beginning after December 15, 2005. The Company does not expect the adoption
      of SFAS 154 to have a material impact on the Company's consolidated financial
      statements.





As
      permitted by SFAS No. 123, "Accounting for Stock-Based Compensation," the
      Company accounts for share-based payments to employees using the intrinsic
      value
      method under Accounting Principles Board, or APB, Opinion No. 25. As such,
      the Company
      generally does not recognize compensation cost related to employee stock options
      or shares issued under the Company's employee stock purchase plan. In December
      2004, the FASB issued SFAS No. 123(R), "Share-Based Payment," which is a
      revision of SFAS No. 123 and supersedes APB Opinion No. 25.





SFAS
      No.
      123(R) allows for two adoption methods:





-
      The
      modified prospective method which requires companies to recognize compensation
      cost beginning with the effective date of adoption based on (a) the requirements
      for all share-based payments granted after the effective


date
      of
      adoption and (b) the requirements for all unvested awards granted to employees
      prior to the effective date of adoption; or





-
      The
      modified retrospective method which includes the requirements of the modified
      prospective method described above, but also requires restatement of prior
      period financial statements using amounts


previously
      disclosed under the pro-forma provisions of Statement 123.





28




SFAS
      No.
      123(R) require all share-based payments to employees and directors to be
      recognized in the financial statements based on their fair values, using
      prescribed option-pricing models. Upon adoption pro-forma disclosure will
      no


longer
      be
      an alternative to financial statement recognition. The Company will adopt the
      provisions of SFAS No. 123(R) in the first quarter of 2006. The Company intends
      to use the modified prospective method of adoption and continue


to
      use
      the Black-Scholes option pricing model to value share-based payments, though
      alternatives for adoption under the new pronouncement continue to be reviewed
      by
      the Company. The Company continues to review the impact of SFAS No.


123(R)
      as
      relates to future use of share-based payments to compensate employees in 2006.
      The adoption of the fair-value method will not have a significant impact on
      the
      Company's results of operations as the fair value of stock option


grants
      and stock purchases under the employee stock purchase plan will be required
      to
      expense beginning in 2006.




Statement
      No. 123(R) also requires the benefit related to income tax deductions in excess
      of recognized compensation cost to be reported as a financing cash flow, rather
      than as an operating cash flow as required under current accounting guidance.
      This requirement will reduce net operating flows and increase financing cash
      flows of the Company in periods subsequent to adoption. These future amounts
      cannot be estimated, as they depend on, among other things, when


employees
      exercise stock options.








*q)
                Vendor Rebates*





The
      Company receiving vendor rebates for achieving certain purchase or sales volume.
      The Emerging Issues Task Force ("EITF") Issue No. 02-16, Accounting by a
      Customer (including a Reseller) for Certain Consideration Received from a
      Vendor" ("EITF 02-16") is effective for arrangements with vendors initiated
      on
      or after January 1, 2003. EITF 02-16 addresses the accounting and income
      statement classification for consideration given by a vendor to a retailer
      in
      connection with the sale of the vendor's products or for the promotion of sales
      of the vendor's products. The EITF concluded that such consideration received
      from vendors should be reflected as a decrease in prices paid for inventory
      and
      recognized in cost of sales as the related inventory is sold, unless specific
      criteria are met qualifying the consideration for treatment as reimbursement
      of
      specific, identifiable incremental costs. The provisions of this consensus
      have
      been applied prospectively. The adoption of EITF 02-16 did not have a material
      impact on the Company's financial statements as a whole.





*Derivative
      Financial Instruments*





The
      Company accounts for all derivative financial instruments in accordance with
      SFAS No. 133. Derivative financial instruments are recorded as liabilities
      in
      the consolidated balance sheet, measured at fair value. When available, quoted
      market prices are used in determining fair value. However, if quoted market
      prices are not available, the Company estimates fair value using either quoted
      market prices of financial instruments with similar characteristics or other
      valuation techniques.





The
      value
      of the derivative liabilities relating to the Convertible Note in the financial
      statements are subject to the changes in the trading value of the Company’s
      common stock and other assumptions. As a result the Company’s financial
      statements may fluctuate from quarter to quarter based on factors such as
      trading value of the Company’s Common Stock, the amount of shares converted by
      Laurus in connection with the Laurus Convertible Note and exercised in
      connection with the Warrant outstanding. Consequently, our consolidated
      financial position and results of operations may vary from quarter to quarter
      based on conditions other than the Company’s operating revenue and expenses. See
      note 6 and 9 regarding valuation methods used for derivative
      liabilities.





Derivative
      financial instruments that are not designated as hedges or that do not meet
      the
      criteria for hedge accounting under SFAS No. 133 are recorded at fair value,
      with gains or losses reported currently in earnings. A11 derivative financial
      instruments held by the Company as of December 31, 2005 were not designated
      as
      hedges.




*Advertising
      Costs*





For
      the
      years ended December 31, 2005 and 2004, the Company expensed approximately
      $52,000, and $30,000, respectively.





*Reclassifications*





Certain
      amounts as previously presented in the 2004 financial statements have been
      reclassified to conform to the current year presentation.




29




Note
      3. Acquisitions




On
      November
      3, 2004, eLinear acquired all of the outstanding and issued stock of TanSeco
      from RadioShack. TanSeco is a nation wide security solutions company,
      established over 35 years ago, that provides single source, integrated life
      safety and physical security systems and security monitoring services to
      commercial customers. Pursuant to this transaction, eLinear offered employment
      to over 35 RadioShack employees. Concurrently with this transaction, TanSeco
      entered into a three-year services agreement with RadioShack, pursuant to which,
      TanSeco will provide the installation, service, repair and inspection of
      security, closed circuit television, and fire systems used by RadioShack for
      the
      security systems of its more than 5,000 company-owned stores located in the
      continental United States, Puerto Rico and the U.S. Virgin Islands, kiosks
      and
      other physical locations. In addition to providing services to RadioShack in
      connection with the services agreement, TanSeco plans to do the following:
      (i)
      continue to provide installation, service, repair, and inspection of security,
      closed circuit television and fire systems to existing customers of TanSeco;
      (ii) seek out and obtain, either independently or through the use of third
      parties, new customers for TanSeco's installation, service, repair, and
      inspection of security, closed circuit television and fire systems services;
      and
      (iii) through the use of third parties, provide monitoring services, which
      may
      include monitoring fire alarms and burglar alarms, to new and existing customers
      of TanSeco.




On
        December 1, 2005, the Company issued 357,143 shares of common stock to a
        third
        party f or
        the
        purpose of acquiring a controlling interest in a company licensed to conduct
        business in Dubai Internet City in the United Arab Emirates. The Company
        owns a
        51% interest in the LLC. The remaining 49% is owned by an uncle of an officer
        of
        the Company. The 49% was to be funded for $300,000. The LLC has a receivable
        of
        $163,724 at December 31, 2005 which is included in other current assets.
        The LLC
        recorded expenses of $136,276 which were funded by the uncle. The Company
        recorded its portion of these expenses in selling, general and administrative
        expenses.
 
 On
        July
        22, 2005, the Company issued 158,451 shares of common stock to acquire 100%
        of
        UTEK Corporation that develops security software.




Note
      4.
      Impairment





As
      of
      December 31, 2005, the Company had $1,100,000 of goodwill, as restated,
      resulting from the acquisition of NewBridge. Goodwill represents the excess
      of
      cost over the fair value of the net tangible assets acquired and is not
      amortized. However, goodwill is subject to an impairment assessment at least
      annually which may result in a charge to operations if the fair value of the
      reporting segment in which the goodwill is reported declines. In March 2004,
      the
      Company recorded impairment expense totaling $451,920 related to 100% of the
      goodwill recorded with the 2003 NetView acquisition. In March 2004 the
      consulting services business segment lost its largest consulting contract and
      the other operations that had been acquired in the acquisition had declined
      due
      to the loss of a key employee after the acquisition. Based on projected
      estimated future cash flows from that business segment, management determined
      a
      full impairment charge was required. In September 2004, the Company performed
      a
      valuation analysis of the discounted projected estimated future cash flows
      of
      NewBridge and the Company elected to write down a portion of the goodwill
      related to NewBridge. Due to the large amount of goodwill presently on the
      Company's financial reports, if an impairment is required, the Company's
      financial condition and results of operations would be negatively affected.
      The
      Company performed another valuation analysis in December 2005. No additional
      write down was deemed necessary.




In
        July
        2005, the Company acquired UTEK Corporation that develops security software
        for
        communications software and recorded a charge of $150,000.


Note
      5.
      Credit Facilities





In
      February 2004, the Company obtained a secured revolving note with Laurus Master
      Fund, Ltd. Laurus. Under the terms of the agreement, the Company can borrow
      up
      to $5,000,000 at an annual interest rate of prime plus .75% (with a minimum
      rate
      of 4.75%, "Contract Rate"). The agreement contains a $3,000,000 line of credit
      revolver and a $2,000,000 term note.





The
      Contract Rate is
      subject to adjustment based on certain share registration and stock price
      conditions as defined in the agreement.




The
      Company has a redemption option in regard to the Term Notes and if exercised,
      will pay 115% on the principal amount outstanding at the time of such
      pre-payment.





As
      part
      of the above credit facility, the Company agreed to file a registration
      statement with the SEC in order to register the resale of any shares issuable
      upon conversion of up to $2 million of the credit facility and upon the exercise
      of the warrants. The terms of its agreement with Laurus require it to file
      the
      registration statement and have the registration statement declared effective
      by
      a definitive period of time, not to exceed 150 days from February 23, 2004,
      or
      within 15 days of the Company's current registration statement being declared
      effective by the SEC, whichever is earlier. The Company's current registration
      statement was declared effective on September 10, 2004. If the Company fails
      to
      meet this deadline, if the registration statement is not declared effective
      prior to the 90 th day
      after filing the registration statement, if the registration statement ceases
      to
      remain effective, or certain other events occur, the Company has agreed to
      pay
      Laurus liquidated damages of 1.5% of the principal amount of the convertible
      portion of the note per month. Laurus is limited to owning or beneficially
      owning a maximum of 4.99% of the Company's outstanding shares of common stock.
      In addition, each time the Company borrows $2 million under the credit facility,
      the Company will be required to file an additional registration statement
      covering the possible conversion of that amount of the note. The Company's
      registration statement filed with the SEC to register the conversion shares
      and
      shares underlying the warrants was declared effective by the SEC on December
      30,
      2004. The Company is not obligated at any time to repurchase any portion of
      the
      Laurus conversion shares nor the shares underlying the warrants.





30





Events
      of
      default under the agreements include failure to pay principal, interest or
      other
      fees; breach of covenant; breach of representations and warranties, stop trade;
      default under related agreements; and failure to deliver common stock or
      replacement notes. In the event of default, Laurus may require the Company
      to
      pay the principal balance and interest on the notes shall automatically be
      increased by 5%.  The
      company is potentially in technical default of the Laurus notes, but is in
      negotiations with the lender to resolve the potential default without penalty
      to
      the Company. No default has been asserted by the lender.





*Line
      of Credit - Revolver*





The
      Laurus revolver provides for borrowings of up to the lesser of; (i) $3 million
      or (ii) 90% of the Company's eligible accounts receivable. The Company borrowed
      $1,000,000 under the revolving facility on the date of the agreement. The
      revolving credit facility has a term of three years and accrues interest on
      outstanding balances at the rate of prime (7.25% as of December 31, 2005) plus
      0.75% (with a minimum rate of 4.75%). The Company is permitted to go over its
      borrowing limit, which is referred to as getting an overadvance, if the Company
      gets the approval of Laurus. The Company does not have any overadvances as
      of
      December 31, 2005.   In October 2004, Laurus agreed to fund an
      additional $500,000, which loan was not deemed an overadvance. This credit
      facility is secured by all of the Company's assets. In consideration for the
      issuance of seven-year warrants to purchase 150,000 shares of the Company's
      common stock at $1.90 per share and the forgiveness of penalties owed to Laurus
      in the approximate amount of $153,000 as of October 31, 2004, the Company agreed
      in October 2004 to reduce the conversion price of the credit facility from
      $2.91
      to $1.00 per share. At the option of the holder, the outstanding balance on
      the
      credit facility can be converted into shares of Company common stock at a
      conversion price of $1.00 per share. In connection with the execution of this
      credit facility, and in connection with the October 2004 amendment, the Company
      issued Laurus seven-year warrants to purchase a total of 440,000 shares of
      Company common stock at exercise prices ranging from $1.90 to $3.22 per share.
      The Company has the ability to prepay any amounts owed under this credit
      facility at 115% of the principal amount. All stock conversion prices and
      exercise prices are subject to adjustment for stock splits, stock dividends
      or
      similar events.   As of December 31, 2005, the Company had $3,847,926
      outstanding under the revolver.





*Term
      Note*





The
      term
      note has a term of three years. The Company has the option of paying scheduled
      interest and principal, or prepaying all or a portion of the term note with
      shares of its common stock at the fixed conversion price of $1.00 per share,
      provided that the shares are registered with the Securities and Exchange
      Commission or with cash at 115% of the outstanding balance. Laurus also has
      the
      option to convert all or a portion of the term note into shares of the Company's
      common stock at any time, subject to certain limitations, at a fixed conversion
      price of $1.00 per share. The term note is secured by a blanket lien on all
      of
      the Company's assets. As of December 31, 2005, the Company had $500,000
      outstanding under the term note.





In
      conjunction with the Laurus credit facility, Laurus was paid a fee of $219,500
      and received a seven-year warrant to purchase up to a total of 440,000 shares
      of
      the Company's common stock at prices ranging from $1.90 to $3.22 per share.
      The
      warrants, which are exercisable immediately, were valued at $653,807 using
      a
      modified Black-Scholes option pricing model. The value of these warrants and
      the
      fees paid to Laurus were recorded as a discount to the term note and are being
      amortized over the term of the loan using the effective interest
      method.





Since
      the
      liquidated damages under the registration right agreement could in some cases
      exceed a reasonable discount for delivering unregistered shares the warrants
      have been classified as a liability until the earlier of the date the warrants
      are exercised or expire. In accordance with EITF 00-19, “ *Accounting
      for Derivative Financial Instruments Indexed To, and Potentially Settled In,
      a
      Company’s Own Stock* ”,
      the
      Company has allocated a portion of the offering proceeds to the warrants based
      on their fair value. EITF 00-19 also requires that the Company revalue the
      warrants as a derivative instrument periodically to compute the value in
      connection with changes in the underlying stock price and other assumptions,
      with the change in value recorded as interest expense or interests income.
      The
      company determined the fair value of the warrants as of the following issuance
      dates:





*February
      23, 2004*





The
      company used the Black Scholes option-pricing model with the following
      assumptions: an expected life equal to the contractual term of the warrants
      (seven years); no dividends; a risk free rate of return of 3.5%, which equals
      the five-year yield on Treasury bonds at constant (or fixed) maturity; and
      volatility of 102%. Under the assumptions, the Black-Scholes option-pricing
      model yielded an aggregate value of $653,807.





31




*October
      20, 2004*





The
      Company used the Black Scholes pricing model with the following assumptions:
      an
      expected life equal to the contractual term of the warrants (seven years);
      no
      dividends; a risk free rate of 2.78%; volatility of 117%. Under the assumptions
      the Black Scholes option pricing model yielded an aggregate value of
      $114,934.





*December
      31, 2004*





The
      Company performed the same calculation as of December 31, 2004 to revalue the
      warrants as of that date. In using the Black Scholes option-pricing model,
      the
      Company used an expected life equal to the remaining life of the warrants;
      an
      underlying stock price of $1.20 per share; no dividends; a risk free rate of
      2.78% and volatility of 99%. The resulting aggregate allocated value of the
      warrants as December 31, 2004, equaled $373,223. The change in fair value of
      was
      $395,518 for the year ended December 31, 2004.





*December
      31, 2005*





For
      the
      year ended December 31, 2005, the Company used an underlying stock price of
      $0.40 per share; no dividends; a risk free rate of 4.35% and volatility of
      101%.
      The resulting aggregate value of the warrants equaled $91,863. The change in
      the
      fair value was $281,360 for the year ended December 31, 2005.





Upon
      the
      earlier of the warrant exercise or the expiration date, the warrant liability
      will be reclassified into shareholders’ equity. Until that time, the warrant
      liability will record at fair value based on the methodology described above.
      Changes in the fair value during each period will be recorded as other income
      or
      other expense. Liquidated damages under the registration rights agreement will
      be expensed as incurred and will be included in operating expenses.





The
      Notes
      are hybrid instruments which contain both freestanding derivative financial
      instruments and more than one embedded derivative feature which would
      individually warrant separate accounting as a derivative instrument under SFAS
      133. The freestanding derivative financial instruments include the Laurus
      Warrants, which were valued individually, and totaled $653,807. The various
      embedded derivative features have been bundled together as a single, compound
      embedded derivative instrument that has been bifurcated from the debt host
      contract, referred to as the “Compound Embedded Derivative Liability”. The
      single compound embedded derivative features include the conversion feature
      within the Notes, the early redemption option, the Contract Rate adjustment
      and
      default provision. The value of the single compound embedded derivative
      liability was bifurcated from the debt host contract and recorded as a
      derivative liability, which resulted in a reduction of the initial carrying
      amount (as amortized discount) of the Notes. The unamortized discount is
      amortized to interest expense using the effective interest method over the
      life
      of the Notes, or 36 months.





Compound
      Embedded Derivative Liability





Using
      a
      layered discounted probability-weighted expected cash flow methodology, the
      fair
      value of the Compound Embedded Derivative Liability was computed at
      $998,425,  $339,752 and $45,536 at February 23, 2004, December 31, 2004,
      and December 31, 2005, respectively. The model replicated the economics of
      the
      Notes and applied different events based on various conditions likely to occur
      over the life of the Note. Multiple scenarios were used in the model and the
      underlying assumptions below were applied. The value of this single, compound
      embedded derivative instrument was bifurcated from the debt host contract and
      recorded as a derivative liability which resulted in a reduction of the initial
      carrying amount (as unamortized discount) to the notional amounts of the
      Convertible Notes.





32




Probability-Weighted
      Expected Cash Flow Methodology





Compound
                Embedded Derivative LiabilityFebruary
                23,2004
            
            December
                31, 2004
            
            December
                31,2005Assumptions
            
            (Inception)Risk
                Free interest rate
            
            
            2.21
            %
            
            3.25
            %
            
            4.37
            %Prime
                RateIncreasing .25% each quarter of first year
            
            
            4.00
            %
            
            5.25
            %
            
            7.25
            %Timely
                registrationIncreasing by 1% monthly up to 99%
            
            
            95.00
            %
            
            95.00
            %
            
            85.00
            %Default
                statusIncreasing by .1% monthly
            
            
            5.00
            %
            
            5.00
            %
            
            10.00
            %Alternative
                financing available and exercisedIncreasing 2.5% monthly up to 25%
            
            
            0.00
            %
            
            0.00
            %
            
            0.00
            %Trading
                volume, gross monthly dollarsMonthly increase
            
            
            2.00
            %
            
            5.00
            %
            
            5.00
            %Annual
                growth rate of stock price
            
            
            31.80
            %
            
            31.7
            %
            
            31.5
            %Future
                projected volatility
            
            
            102.00
            %
            
            99.00
            %
            
            75.00
            %Ownership
                limitationMonthly increase
            
            
            1.00
            %
            
            1.00
            %
            
            1.00
            %Reset
                ProvisionIncreasing 5% monthly up to 25%
            
            
            0.00
            %
            
            0.00
            %
            
            0.00
            %





T he
      decrease in the fair value of the derivative liability of $294,216 and $932,630
      was recorded for the years ended December 31, 2005 and 2004,
      respectively.





During
      the quarter ended June 30, 2004, the Company paid back the original $1,000,000
      it had drawn under the revolver during the quarter ended June 30, 2004.
      Therefore, the Company expensed a portion of the discount recorded in connection
      with the credit facility resulting in additional non-cash interest expense
      of
      approximately $330,000 during the quarter ended June 30, 2004.





As
      a result
      of these contract provisions, the Notes at inception (February 23, 2004) and
      December 31, 2005 was adjusted as follows:





February
                23, 2004
            
            December
                31, 2005Notional
                balance
            
            $
            3,000,000
            
            $
            4,347,927Adjustments:Discount for compound embedded derivatives
            
            
            (998,425
            )
            
            (178,924
            )Discount for Laurus warrants
            
            
            (653,807
            )
            
            -Discount for loan costs paid to Laurus
            
            
            (219,500
            )
            
            -Balance,
                net of unamortized discount
            
            
            1,128,268
            
            
            4,169,003Less current portion (revolver)
            
            
            --
            
            
            (3,847,927
            )Balance,
                net of current portion and unamortized discount
            
            $
            1,128,268
            
            $
            321,076




In
      addition
      to the $219,500 fee paid to Laurus, the Company paid $273,300 in finder’s fees
      to vSource Capital. The $273,000 was capitalized as deferred financing costs
      and
      to be amortized using the effective interest method over the term of the loan
      agreement. However, the Company recorded an adjustment of approximately $102,000
      to expense the remaining portion of the deferred financing costs at December
      31,
      2004 due to the modification of the debt during October 2004.





During
      February 2004, the Company retired its $1,000,000 line of credit with Textron
      Financial Corporation with the proceeds from the Laurus credit facility and
      entered into a new $500,000 credit facility with Textron collateralized with
      a
      $500,000 letter of credit.





33




*February
      2005 Funding*





On
      February 28, 2005, the Company entered into financing arrangements to receive
      up
      to a total principal amount of $12 million with Laurus, Iroquois Capital LP
      (“Iroquois”), RHP Master Fund (“RHP”), Basso Private Opportunity Holding Fund
      Ltd. (“Basso Private”), and Basso Multi-Strategy Holding Fund Ltd. (“Basso
      Multi”), (collectively, the “Investors”) in which it initially received
      $2,736,000 in cash and the ability upon certain conditions to receive the
      remaining amount of the total financing of $9,264,000. Such financing has been
      subsequently amended. The $9,264,000 was held in restricted accounts at the
      sole
      dominion and control of each respective Investor. The Company may only receive
      the amounts (less applicable accrued interest) held in the restricted account
      after (i) the initial amount received, plus interest, is paid in full, (ii)
      the
      shares of the Company common stock underlying the notes are registered; and
      (iii) either the Company or the Investor converts any amounts held in the
      Restricted Accounts into shares of the Company's common stock.  If the
      Company converts the amounts held in the restricted account, the amounts shall
      be converted at either (i) a price equal to 85% of the average of the five
      lowest closing prices of the Company common stock during the 22 trading days
      immediately prior to the date of a respective repayment notice if the average
      closing price of the Company common stock is less than 110% of the Fixed
      Conversion Price, but in no instance may such shares by converted for less
      than
      $1.00; or (ii) at the Fixed Conversion Price if the average closing price of
      the
      Company common stock for the five consecutive trading days immediately preceding
      the respective repayment notice is greater than or equal to 115% of the Fixed
      Conversion Price.




Under
      the
      terms of these notes and related documents, the Company is obligated to make
      monthly interest payments for interest accrued on the initial $2,736,000, the
      interest begins accruing on April 1, 2005. The Company is obligated to make
      monthly payments, either in cash or stock as determined by the terms of the
      notes, beginning on June 1, 2005 for the initial $2,736,000, plus applicable
      interest (the “Monthly Payment”). The Monthly Payment will be made (i)
      automatically by a conversion in stock at a $1.00 per share, (ii) at the
      discretion of the Company at a reduced conversion price, or (iii) in cash paid
      by the Company at 101% of the Monthly Payment.




The
      interest rate shall be subject to adjustment on the last business day of each
      month hereafter until the maturity date. If on any maturity date (i) the Company
      shall have registered under the Securities
      Act of 1933, the shares of the Common Stock underlying the conversion of the
      notes and the exercise of the warrants issued on a registration statement
      declared effective by the Securities and Exchange
      Commission, and (ii) the market price of the Common Stock as reported by
      Bloomberg, LP on the principal market for the five (5) consecutive trading
      days
      immediately preceding such maturity date
      exceeds the then applicable Fixed Conversion Price by at least twenty five
      percent (25%), the interest rate for the succeeding calendar month shall
      automatically be reduced by 200 basis points (200 b.p.)
      (2.0%) for each incremental twenty five percent (25%) increase in the market
      price of the common stock above the then applicable Fixed Conversion Price.
      In
      no event shall the interest rate be less than zero percent (0%).




The
      Company has a redemption option in regard to the Notes and if exercised, will
      pay 115% on the principal amount outstanding at the time of such pre-payment.





As
      part
      of the above note, the Company agreed to file a registration statement with
      the
      SEC in order to register the resale of any shares issuable upon conversion
      or
      exercise of the note and warrants.
      The terms of its agreement with the Investors require it to file the
      registration statement and have the registration statement declared effective
      by
      a definitive period of time, not to exceed 45 days
      from
      February 28, 2005. If the Company fails to meet this deadline, if the
      registration statement is not declared effective prior to the 105 days after
      filing the registration statement, if the registration statement
      ceases to remain effective, or certain other events occur, the Company has
      agreed to pay the Investors liquated damages of 1.25% of the principal amount
      of
      the convertible portion of the note per
      month.




Events
      of
      default under the agreements include failure to pay principal, interest or
      other
      fees; breach of covenant; breach of representations and warranties, receiver
      or
      trustee; judgments; bankruptcy; stop trade; default under related agreements;
      and failure to deliver common stock or replacement notes and change in control.
      In the event of default, Laurus may require the Company to pay the principal
      balance at 115% and interest on the notes shall automatically be increased
      by
      1.5%




In
      addition
      to the notes the Company issued 1,800,000 warrants to the Investors. The
      warrants are exercisable by the Investors until February 28, 2012, at $1.25
      per
      share of Company common stock. All of the warrants are immediately exercisable
      with no requirement to return to the Company should the initial $2,736,000
      is
      not be paid in full.




These
      notes
      are secured by all of the Company and its subsidiaries' assets.




In
      conjunction with the notes, the Investors were paid a fee of $449,484. The
      warrants, which are exercisable immediately, were valued at $1,213,345 using
      a  Black-Scholes option pricing model. The value of these warrants and the
      fees paid to the Investors were recorded as a discount to the notes and are
      being amortized over the term of the loan using the effective interest method.




34





The
      registration rights agreement into which the Company entered in connection
      with
      its issuance of the warrants requires the Company to pay liquidated damages,
      which in come cases could exceed a reasonable discount for delivering
      unregistered shares and thus the warrants have been classified as a liability
      until the earlier of the date the warrants are exercised or expire. In
      accordance with EITF 00-19, Accounting for Derivative Financial Instruments
      Indexed To, and Potentially Settled In, a Company’s Own Stock, the Company has
      allocated a portion of the offering proceeds to the warrants based on their
      fair
      value. EITF 00-19 also requires that the Company revalue the warrants as a
      derivative instrument periodically to compute the value in connection with
      changes in the underlying stock price and other assumptions, with the change
      in
      value recorded as interest expense or interest income. The Company determined
      the fair value of the warrants as follows as of February 28, 2005 (the issuance
      date):




The
      Company
      used the Black Scholes option-pricing model with the following assumptions:
      an
      expected life equal to the contractual term of the warrants (seven years),
      underlying stock price of $0.90, no dividends ; a risk free rate of 3.96%,
      which
      equals the five-year yield on Treasury bonds at constant (or fixed) maturity;
      and volatility of 88%. Under the assumptions, the Black-Scholes option pricing
      model yielded a value of approximately $0.67 for an aggregate value of
      $1,213,345.




The
      Company
      performed the same calculations as of December 31, 2005, to revalue the warrants
      as of that date. In using the Black Scholes option-pricing model, the Company
      used an underlying stock price of $0.40 per share; no dividends; a risk free
      rate of 4.35% and volatility of 101%. The resulting aggregate allocated value
      of
      the warrants as of December 31, 2005, equaled $496,455. The change in fair
      value
      of $716,890 was recorded for the year ended December 31, 2005.




Upon
      the
      earlier of the warrant exercise or the expiration date, the warrant liability
      will be reclassified into shareholders’ equity. Until that time, the warrant
      liability will be recorded at fair value based on the methodology described
      above. Liquidated damages under the registration rights agreement will be
      expensed as incurred and will be included in operating expenses.




On
      July 14,
      2005, the Company amended that 2005 financing arrangement, entered into on
      February 28, 2005, for a total principal amount of $12 million with the
      Investors. The supplement modifies the February 2005 financing arrangement
      by
      (i) releasing all the funds held in the restricted account, of which $7,200,000
      was paid to the respective Investors without penalty and the remaining amount,
      approximately $2,138,921, held in the restricted account was funded to the
      Company; (ii) amending and restating the notes issued pursuant to the February
      2005 financing arrangement with the new total principal amount of $5,054,567
      that included (x) the twenty percent (20%) (including applicable fees) of the
      February 2005 financing funded to the Company in February 2005; (y) the funds
      released from the restricted accounts to the Company pursuant to the supplement;
      and (z) the interest accrued on the funds held in the restricted account from
      March 2005 until July 14, 2005; (iii) granting the Investors a right to
      participate in their pro rata portion of 60% of any future financing of the
      Company for one year; and (iv) issuing warrants exercisable after January 14,
      2006 at exercise prices ranging from $1.50 to $1.75 per share into an aggregate
      of 991,667 shares of common stock to Iroquois, RHP, Basso Private and Basso
      Multi. The terms between the Company and each of the respective Investors are
      substantially similar.




The
      amended
      notes are secured by all of the Company and its subsidiaries' assets. The
      payment of interest and principal, under certain circumstances, may be made
      with
      shares of the Company common stock at a conversion price of no less than $1.00
      per share. The new notes will accrue interest at a rate per annum equal to
      the
“prime rate” published in the Wall Street Journal plus seventy five basis
      points, as may be adjusted. The Company has the ability to prepay any amounts
      owed under these new notes at 115% of the principal amount. The Company is
      obligated to make monthly payments, either in cash or stock as determined by
      the
      new notes, beginning on August 1, 2005 for the total principal of the new notes,
      plus applicable interest (the “Monthly Payment”). The Monthly Payment will be
      made (i) automatically by a conversion in stock at a “Fixed Conversion Price”,
      (ii) at the discretion of the Company at a reduced conversion price, but no
      less
      than $1.00, or (iii) in cash paid by the Company at 101% of the Monthly Payment.
      The Monthly Payments shall be automatically made, subject to volume limitation,
      in Company common stock at the Fixed Conversion Price if (i) the shares of
      the
      Company common stock underlying the shares of the notes are registered; and
      (ii)
      the average trading price of the Company common stock for the five days
      preceding the Monthly Payment is greater than 110% of the Fixed Conversion
      Price. If the Monthly Payment is not automatically converted into shares of
      Company common stock because the average trading price of the Company common
      stock for the five trading days prior to the due date of the Monthly Payment
      is
      less than 110% of the Fixed Conversion Price, the Company may, at its
      discretion, make the Monthly Payment in Company common stock at a conversion
      price equal to 85% of the average trading price of the Company common stock
      for
      the five lowest closing days for the 22 trading days prior to the Company's
      notice, but in no case shall the conversion price be less than $1.00. The Fixed
      Conversion Price is $1.00, subject to adjustment, but in no case reduced to
      less
      than $1.00.




The
      Investors
      may convert all or any of the principal amounts of their respective amended
      notes, including any accrued interest or fees thereon at the Fixed Conversion
      Price.




Notwithstanding
      the
      foregoing, the Company’s right to issue shares of its common stock in payment of
      obligations under the new notes shall be subject to the limitations that the
      number of aggregate shares of common stock issued to each Investor shall not
      exceed 25% of the aggregate dollar trading volume of the Company common stock
      for the 22 trading days immediately preceding the date on which the conversion
      is to occur.




The
      Investors
      may not exercise the warrants issued pursuant to the Supplement until January
      14, 2006 and are exercisable until January 14, 2013, of which 466,667 of the
      warrants are exercisable at $1.50 and 525,000 are exercisable at $1.75. The
      warrants were valued at $677,514 using a Black-Scholes option pricing model.
      The
      value of these warrants will be recorded as a discount to the new notes and
      will
      be amortized over the remaining term of the loan (31 months) using the effective
      interest method.




35





The
      Company has agreed to file a registration statement with the Securities and
      Exchange Commission by August 13, 2005 in order to register the resale of the
      shares of common stock underlying the new notes, the shares issuable upon
      exercise of the warrants issued in February 2005, and the warrants issued in
      connection with the Supplement. If the Company fails to meet this deadline,
      if
      the registration statement is not declared effective prior to October 27, 2005,
      if the registration statement ceases to remain effective, or certain other
      events occur, the Company has agreed to pay the Investors liquidated damages
      of
      1.25% of the principal amount of the new notes per month; except that the
      Company will only have to pay 50% of the liquidated damages if the registration
      statement is not declared effective by the Securities and Exchange Commission
      under certain circumstances.





In
      accordance with EITF 00-19, the Company recorded the warrants issued as
      derivative liabilities. The Company used the following assumptions in using
      the
      Black Scholes pricing model at July 14, 2005; an expected life equal to the
      contractual life of the warrants (seven years); underlying stock price of $0.93,
      no dividends; a risk free rate of 3.98%; and volatility of 87%. The Company
      performed the same calculations at December 31, 2005, to revalue the warrants
      as
      of that date. In using the Black Scholes pricing model, the Company used an
      underlying stock price of $0.40 per share, no dividends; a risk free rate of
      4.35%; and volatility of 101%. The resulting aggregate value of the warrants
      as
      of December 31, 2005 equaled $280,271. The change in the fair value of $397,292
      was recorded for the year ended December 31, 2005.




The
      Notes
      are hybrid instruments which contain both freestanding derivative financial
      instruments and more than one embedded derivative feature which would
      individually warrant separate accounting as derivative instruments under SFAS
      133. The freestanding derivative financial instruments include the Investor
      Warrants, which were valued individually. The various embedded derivative
      features have been bundled together as a single, compound embedded derivative
      instrument that has been bifurcated from the debt host contract, referred to
      as
      the “Compound Embedded Derivative Liability”. The single compound embedded
      derivative features include the conversion feature within the Notes, the early
      redemption option, the Contract Rate adjustment, the premium for cash payment,
      and default provisions. The value of the single compound embedded derivative
      liability was bifurcated from the debt host contract and recorded as a
      derivative liability, which resulted in a reduction of the initial carry amount
      (as amortized discount) of the Notes. The unamortized discount is amortized
      to
      interest expense using the effective interest method over the life of the Notes,
      or 36 months.





*Compound
      Embedded Derivative liability*





Using
      a
      layered discounted probability-weighted expected cash flow methodology, the
      fair
      value of the Compound Embedded Derivative Liability was computed at $311,620,
      $493,733 and $198,260 as of February 28, 2005, July 14, 2005 (amended) and
      December 31, 2005, respectively. The model replicated the economics of the
      Notes
      and applied different events based on various conditions likely to occur over
      the life of the Note. Multiple scenarios were used in the model and the
      underlying assumptions below were applied. The value of this single, compound
      embedded derivative instrument was bifurcated from the debt host contract and
      recorded as a derivative liability which resulted in a reduction of the initial
      carrying amount (as unamortized discount) to the notional amount of the
      Notes




Probability-Weighted
      Expected Cash Flow Methodology





Compound
                Embedded Derivative LiabilityFebruary
                28,2005
            
            December
                31,2005Assumptions
            
            (Inception)Risk
                Free interest rate
            
            
            3.75
            %
            
            4.37
            %Prime
                RateIncreasing .25% each quarter of first year
            
            
            5.5
            %
            
            7.25
            %Timely
                registrationIncreasing by 1% monthly up to 99%
            
            
            95
            %
            
            85
            %Default
                statusIncreasing by .1% monthly
            
            
            5
            %
            
            10
            %Alternative
                financing available and exercisedIncreasing 2.5% monthly up to 10%
            
            
            0
            %
            
            0
            %Trading
                volume, gross monthly dollarsMonthly increase
            
            
            5
            %
            
            5
            %Annual
                growth rate of stock price
            
            
            31.70
            %
            
            31.5
            %Future
                projected volatility
            
            
            88
            %
            
            75
            %Ownership
                limitationMonthly increase
            
            
            1
            %
            
            1
            %Reset
                ProvisionIncreasing 5% monthly up to 25%
            
            
            0
            %
            
            0
            %




The
      increase in the fair value of the derivative liability of $308,790 was recorded
      for the period ended September 30, 2005.




36




As
      a
      result of these contract provisions, the Notes at inception (February 28, 2005),
      amended (July 14, 2005), and December 31, 2005 was adjusted as
      follows:





February
                28, 2005
            
            July
                14,2005
            
            December
                31, 2005Notional
                balance
            
            $
            2,736,000
            
            $
            5,054,567
            
            $
            4,239,317Adjustments:Discount for compound embedded derivatives
            
            
            (311,620
            )
            
            (523,963
            )
            
            (464,704
            )Discount for warrants
            
            
            (1,213,345
            )
            
            (1,833,332
            )
            
            (1,631,080
            )Discount for loan costs paid to Laurus
            
            
            (449,484
            )
            
            (428,173
            )
            
            (387,833
            )Total discounts
            
            
            (1,974,449
            )
            
            (2,785,468
            )
            
            (2,483,617
            )Notes
                payable, net of discount
            
            $
            761,551
            
            $
            2,269,099
            
            $
            1,755,700





The
      Company filed a registration statement with the Securities and Exchange
      Commission to register the resale of the shares of common stock underlying
      the
      notes and the shares issuable upon exercise of the Warrants. During June 2005,
      the Securities and Exchange Commission notified the Company that it believed
      the
      filing of this registration statement violated Section 5 of the Securities
      Act.
      If a violation of Section 5 occurred, the Investors related to the February
      2005
      funding have obtained the right to require the Company to repay to the Investors
      the original amount of the notes of $2,736,000 plus interest from the initial
      date of funding for a period of one year following the date of the violation.








Note
      6. Property and Equipment





Property
      and equipment consist of the following at December 31, 2005 and
      2004:





Estimated
            
            December
                31,Lives
            
            2005
            
            2004Vehicles
            
            
            5
                years
            
            $
            33,807
            
            $
            33,807Computer
                software and equipment
            
            
            1.5
                - 3 years
            
            
            799,751
            
            
            231,116Furniture
                and equipment
            
            
            7
                years
            
            
            203,019
            
            
            610,349Leasehold
                improvements
            
            
            Life
                of lease
            
            
            400,374
            
            
            129,549Total
            
            
            
            
            
            1,436,951
            
            
            1,004,821Accumulated
                depreciation
            
            
            
            
            
            (767,661
            )
            
            (199,023
            )Net
                property and equipment
            
            
            
            
            $
            669,290
            
            $
            805,798





Depreciation
        expense for each of the years ending December 31, 2005 and 2004 was $417,869
        and
        $151,630, respectively.




37




Note
      7. Commitments and Contingent Liabilities





*Lease
      Obligations*





The
      Company's executive and administrative offices are located at 2901 West Sam
      Houston Parkway, North Suite E-300, Houston, Texas 77043. It leases these
      facilities. Its lease covers approximately 25,300 square feet and expires on
      November 30, 2008. Its lease payments are $26,209 per month through November
      2008. The Company also has a marketing and sales office in Dallas, Texas. It
      leases these facilities. Its lease covers approximately 7,186 square feet and
      expires May 31, 2009. The lease payments are $10,604 per month and includes
      monthly operating expenses, which will vary based on actual operating expenses
      of the property. TanSeco leases office and warehouse space in Fort Worth, Texas.
      The lease covers approximately 7,972 square feet and expires October 31, 2007.
      The lease payments are $8,304 per month. The Company has no present plans to
      invest in real estate, real estate mortgages, or persons or entities primarily
      engaged in real estate activities.  Rent
      expense for each of the years ended December 31, 2005 and 2004 was $467,976
      and
      $344,827, respectively.





Future
      minimum lease payments under non-cancelable leases with terms in excess of
      one
      year are as follows:





Twelve
                Months Ending December 31,2006
            
            $
            520,9402007
            
            
            504,3322008
            
            
            395,0812009
            
            
            35,5922010
            
            
            --Total
            
            $
            1,455,945





*Legal
      Proceedings*





From
      time
      to time, the Company may become involved in litigation arising in the ordinary
      course of its business. The Company is presently not subject to any material
      legal proceedings outside of the ordinary course of business except as set
      forth
      below:





On
      December 16, 1999, eLinear and Imagenuity were served with a complaint captioned
      Chris Sweeney v. Kinetics.com, Inc. and Imagenuity, Inc., Circuit Court, Duval
      County, Florida, Civil Case Number 1999-7252-CA. The complaint alleged a breach
      of an alleged oral modification of a written employment agreement between the
      plaintiff, Chris Sweeney, and Imagenuity and alleged breaches by eLinear and
      Imagenuity of fiduciary obligations which the plaintiff claims were owed to
      him.
      Plaintiff is seeking as damages 20% of the Company's common stock received
      by
      the sole shareholder of Imagenuity in connection with the merger of Imagenuity
      with and into eLinear's subsidiary. After the filing of the complaint, eLinear's
      subsidiary, eLinear Corporation, was added as a defendant. The Company intends
      to vigorously contest the case. While the Company believes the case to have
      no
      merit, at this stage it is impossible to predict the amount or range of
      potential loss, if any.





In
      December 1999, the Company counter-sued Chris Sweeney in a lawsuit captioned
      eLinear Corporation v. Chris Sweeney, United States District Court, District
      of
      Colorado, Case Number 99-WM-2434. The complaint sought a determination of the
      rights of the parties with respect to the termination of Chris Sweeney's
      employment agreement with Imagenuity. The lawsuit was indefinitely stayed
      pending resolution of the Florida litigation discussed above.




*Commitment*
 
 In
        January 2004, the Company entered into a two-year agreement with Mr. Nassar.
        Under the terms of the agreement, Mr. Nassar receives monthly compensation
        of
        $8,000, a quarterly bonus of $5,000, a home office and car allowance of $1,000
        per month, and a to be determined annual performance bonus. Mr. Nassar also
        received a five-year employee option to purchase 460,000 shares of Company
        common stock at an exercise price of $2.00 per share. The vesting schedule
        for
        the shares is 25% upon the one-year anniversary of the agreement and 25%
        each
        subsequent year thereafter, provided that no vesting can occur unless Mr.
        Nassar
        is employed on the respective vesting date. However, if the Company terminates
        Mr. Nassar during the two-year term for any reason other than for cause,
        the
        options due Mr. Nassar will be prorated in relation to the date of Mr. Nassar’s
        employment termination and the prorated amount will vest immediately. If
        the
        Company undergoes a change of control, all of Mr. Nassar’s options will vest
        immediately. If the Company terminates Mr. Nassar for any reason other than
        cause, the Company has agreed to pay Mr. Nassar the lesser of six months
        salary
        or the salary due Mr. Nassar through the end of the two-year
        term.







38




Note
      8. Common Stock





In
      February 2004, the Company sold 1,230,000 shares of its common stock at a price
      of $2.00 per share, together with five-year warrants to purchase an aggregate
      of
      615,000 shares of common stock at an exercise price of $3.00 per share (the
      Class A Warrants, and warrants to purchase 615,000 shares of common stock at
      an
      exercise price of $2.50 per share (the Class B Warrants) expiring on the earlier
      of two years from the closing date or one year from the date a registration
      statement registering the resale of the shares underlying the warrants and
      the
      shares becomes effective for an aggregate purchase price of $2,460,000, in
      a
      private placement transaction. The Company received proceeds totaling
      $2,257,800, net of offering costs of $202,200. In addition, the Company issued
      61,500 Class A Warrants and 61,500 Class B Warrants to vSource1 as a finders
      fee.




All
      of
      the Class A Warrants and Class B Warrants issued in the February 2004 offering
      are exercisable immediately. Subject to certain exceptions, in the event that
      on
      or before the date on which the warrants are exercised, the Company issues
      or
      sells, or is deemed to have issued or sold in accordance with the terms of
      the
      warrants, any shares of common stock for consideration per share less than
      the
      exercise price of the warrants as then in effect, then the exercise price of
      the
      warrants will be adjusted in accordance with a weighted average formula
      contained in the warrants.




In
      January 2004, the Company sold 1,964,223 shares of its common stock at a price
      of $1.29 per share, together with five-year warrants to purchase an aggregate
      of
      1,178,535 shares of common stock at an exercise price of $1.89 per share (the
      Class A Warrants), and warrants to purchase 1,090,145 shares of common stock
      at
      an exercise price of $1.55 per share (the Class B Warrants), expiring on the
      earlier of fourteen months from the closing date or eight months from the date
      a
      registration statement registering the resale of the shares underlying the
      warrants and the shares becomes effective for an aggregate purchase price of
      $2,533,850, in a private placement transaction. The Company received proceeds
      totaling $2,326,481, net of offering costs of $207,369. In addition, the Company
      issued 117,854 Class A Warrants and 109,015 Class B Warrants to vSource as
      a
      finders fee.




All
      of the
      warrants issued in the January 2004 offering are exercisable immediately.
      Subject to certain exceptions, in the event that on or before the date on which
      the warrants are exercised, the Company issues or sells, or is deemed to have
      issued or sold in accordance with the terms of the warrants, any shares of
      common stock for consideration per share less than the exercise price of the
      warrants as then in effect, then the exercise price of the warrants will be
      adjusted to equal the consideration per share of common stock issued or sold
      or
      deemed to have been issued and sold in such dilutive issuance, provided that
      if
      such exercise price is adjusted to a $1.00 per share of common stock, any
      additional issuances shall only further reduce the exercise price of the
      warrants in accordance with a weighted average formula contained in the
      warrants.





The
      registration rights agreement into which the company entered in connection
      with
      its issuance of the warrants requires the Company to pay liquidated damages,
      which in some cases could exceed a reasonable discount for delivering
      unregistered shares and thus would require the warrants to be classified as
      a
      liability until earlier of the date the warrants are exercised or expire. In
      accordance with EITF 00-19, *Accounting
      for Derivative Financial Instruments Indexed To, and Potentially Settled In,
      a
      Company’s Own Stock* ,
      the
      Company has allocated a portion of the offering proceeds to the warrants based
      on their fair value. EITF 00-19 also requires that the Company revalue the
      warrants as a derivative instrument periodically to compute the value in
      connection with changes in the underlying stock price and other assumptions,
      with the change in value recorded as other expense or other income. The Company
      determined the fair value of the warrants as follows as of January 12 and
      February 4, 2004 (the issuance date):




·
            The
                Company used the Black Scholes option-pricing model with the following
                assumptions: an expected life equal to the contractual term of the
                warrants; no dividends; a risk free rate of return of 3.5%, which
                equals
                the five-year yield on Treasury bonds at constant (or fixed) maturity;
                and
                volatility of 102%. Under the assumptions, the Black-Scholes
                option-pricing model yielded a value of $1.57 for the $1.89 warrants,
                $1.02 for the $1.55 warrants, $2.36 for the $3.00 warrants and $1.82
                for
                the $2.50 warrants for an aggregate value of
                $6,089,693.





·
            The
                Company performed the same calculations as of December 31, 2004,
                to
                revalue the warrants as of that date. In using the Black Scholes
                option-pricing model, the Company used an underlying stock price
                of $1.20
                per share; a risk free rate of 2.78%; an expected life equal to the
                remaining contractual term of the warrants, no dividend; and volatility
                of
                99%. The resulting aggregate allocated value of the warrants as of
                December 31, 2004, equaled $1,989,073. For the year ended December
                31,
                2005, the Company used an underlying stock price of $0.40 per share;
                no
                dividends; a risk free rate of 4.35%; and volatility of 101%. The
                resulting aggregate value of the warrants was
                $249,484





Upon
      the
      earlier of the warrant exercise or expiration date, the warrant liability will
      be reclassified into shareholders’ equity. Until that time, the warrant
      liability will be recorded at fair value based on the methodology described
      above. Changes in the fair value during each period will be recorded as other
      income or other expense. Liquidated damages under the registration rights
      agreement will be expensed as incurred and will be included in operating
      expenses.





As
      part
      of the above financings, the Company agreed to file a registration statement
      with the SEC in order to register the resale of the shares purchased and the
      shares issuable upon exercise of the warrants. If (i) the registration statement
      is not declared effective prior to the 120 th day
      after the closing date of each financing, (ii) the Company fails to respond
      to
      the comments provided by the SEC to its registration statement within ten days
      of receipt of comments; or (iii) the registration statement has been declared
      effective by the SEC and it ceases to remain continuously effective until all
      the registered securities are resold, the Company has agreed to pay the
      investors 1.5% of the aggregate purchase price for the first month, and if
      the
      event continues to occur, 2.0% of the purchase price per month thereafter.
      The
      Company's registration statement was declared effective by the SEC on September
      10, 2004. As settlement for the penalties, the Company issued 319,248 shares
      of
      its common stock valued at $353,224 and lowered the exercise price on certain
      warrants to $1.00 per share and extended the expiration dates.





The
      Company issued 312,600 shares of common stock for stock options exercised during
      2004 resulting in proceeds totaling $415,262 and 200,581 shares of common stock
      for stock warrants exercised during 2004 resulting in proceeds totaling
      $304,004.


The
        Company issued 1,545,000 shares of common stock for stock options exercised
        during 2005 resulting in proceeds totaling $1,173,429.
 
 The
        Company issued 1,653,908 shares of common stock for the conversion of debt
        of
        $1,500,000 during 2005.
 
 The
        Company issued 515,594 shares of common stock in connection with the acquisition
        of UTEK Corporation and eLinear Middle East FZ, LLC.




The
      Company issued 2,366,714 shares of its common stock valued at $2,372,992 to
      third parties for services during 2005. The Company measured the transactions
      at
      the date of issuance at the quoted market price. There are no performance
      commitments or penalties for non-performance, therefore, the Company recorded
      the services at the date of issuance.




39


Note
      9. Stock Options and Warrants





*Stock
      Option Plans*





On
      March
      31, 2000, the directors of the Company approved the 2000 Stock Option Plan
      (the
      2000 Plan) under which up to 4,000,000 shares of the Company's common stock
      may
      be issued. The 2000 Plan was approved by the Company's shareholders at its
      annual shareholder meeting. Under the 2000 Plan, incentive and nonqualified
      stock options may be granted to employees, directors and consultants of the
      Company. Awards under the 2000 Plan will be granted as determined by the
      Company's Board of Directors. The options that may be granted pursuant to the
      2000 Plan may be either incentive stock options qualifying for beneficial tax
      treatment for the recipient or nonqualified stock options. The term of the
      options granted under the 2000 Plan will be fixed by the Company, provided
      the
      maximum option term may not exceed ten years from the grant date (incentive
      stock options are granted at an exercise price of not less than 100% (110%
      for
      individuals owning 10% or more of the Company's common stock at the time of
      grant) of the common stock's fair market value at the date of grant.
      Nonqualified stock options may be granted at an exercise price determined by
      the
      Company's Board of Directors. Vesting rights will be fixed by the Company's
      Board of Directors provided, however, that an outside director not have the
      right to exercise more than 50% of the shares granted until six months after
      the
      grant date. As of December 31, 2005, incentive stock options to purchase 750,000
      shares exercisable at prices ranging from $0.32 to $2.65 per share that vest
      immediately and were outstanding. As of December 31, 2005, non-qualified stock
      options to purchase 830,750 shares exercisable at prices ranging from $0.75
      to
      $39.38 per share that vest immediately to over a four-year period were
      outstanding. Of these amounts, 221,167 options were vested as of December 31,
      2005.





On
      April
      16, 2003, the Board of Directors adopted the 2003 Stock Option Plan (the 2003
      Plan), which allows for the issuance of up to 2,000,000 stock options to
      directors, executive officers, employees and consultants of the Company. The
      2003 Plan was approved by the Company's shareholders at its annual shareholder
      meeting. Under the 2003 Plan, incentive and nonqualified stock options may
      be
      granted to employees, directors and consultants of the Company. Awards under
      the
      2003 Plan will be granted as determined by the Company's Board of Directors.
      The
      options that may be granted pursuant to the 2003 Plan may be either incentive
      stock option qualifying for beneficial tax treatment for the recipient or
      nonqualified stock options. The term of the options granted under the 2003
      Plan
      will be fixed by the Company, provided the maximum option term may not exceed
      ten years from the grant date (incentive stock options are granted at an
      exercise price of not less than 100% (110% for individuals owning 10% or more
      of
      the Company's common stock at the time of grant) of the common stock's fair
      market value at the date of grant. Nonqualified stock options may be granted
      at
      an exercise price determined by the Company's Board of Directors. Vesting rights
      will be fixed by the Company's Board of Directors. As of December 31, 2005,
      incentive stock options to purchase 1,043,000 shares exercisable at prices
      ranging from $0.67 to $3.25 per share that vest immediately to over a four-year
      period were outstanding. As of December 31, 2005, non-qualified stock options
      to
      purchase 445,000 shares exercisable at $0.50 per share that vest immediately
      to
      over a three-year period were outstanding. Of these amounts, 445,000 options
      were vested as of December 31, 2005. In addition to the options granted pursuant
      to the 2003 Plan, the Company issued 443,728 shares of its common stock to
      outside consultants for services.





On
      February 10, 2004, the Board of Directors adopted the 2004 Stock Option Plan
      (the 2004 Plan), which allows for the issuance of up to 2,000,000 stock options
      to directors, executive officers, employees and consultants of the Company.
      The
      2004 Plan was approved by the Company's shareholders at its annual shareholder
      meeting. Under the 2004 Plan, incentive and nonqualified stock options may
      be
      granted to employees, directors and consultants of the Company. Awards under
      the
      2004 Plan will be granted as determined by the Company's Board of Directors.
      The
      options that may be granted pursuant to the 2004 Plan may be either incentive
      stock option qualifying for beneficial tax treatment for the recipient or
      nonqualified stock options. The term of the options granted under the 2004
      Plan
      will be fixed by the Company, provided the maximum option term may not exceed
      ten years from the grant date (incentive stock options are granted at an
      exercise price of not less than 100% (110% for individuals owning 10% or more
      of
      the Company's common stock at the time of grant) of the common stock's fair
      market value at the date of grant. Nonqualified stock options may be granted
      at
      an exercise price determined by the Company's Board of Directors. Vesting rights
      will be fixed by the Company's Board of Directors. As of December 31, 2005,
      incentive stock options to purchase 408,861 shares exercisable at prices
      ranging from $0.90 to $3.10 per share that vest over a four-year period were
      outstanding. Of
      these
      amounts, 154,145 options were vested as of December 31, 2005. In addition to
      the
      options granted pursuant to the 2004 Plan, the Company issued 394,997 shares
      of
      its common stock to outside consultants for services.




40




The
      Board
      of Directors adopted the Company’s 2005 Stock Option Plan (the “2005 Plan”) in
      December 2004. The shareholders approved the plan in June 2005. The 2005 Plan
      will be administered by the Committee of non-employee directors. The Committee
      will be authorized to grant to key employees of the Company awards in the form
      of stock options, performance shares, and restricted stock. In addition, the
      Committee will have the authority to grant other stock-based awards in the
      form
      of stock appreciation rights, restricted stock units, and stock unit awards.





The
      Committee selects grantees from among the key employees, officers, directors
      and
      consultants of the Company and its subsidiaries. All awards and the terms of
      any
      award to eligible participants who are members of the Committee must also be
      approved by the Board of Directors.





A
      maximum
      of 4,000,000 shares of Company common stock may be issued under the plan. Any
      shares of Company common stock subject to awards that are forfeited or withheld
      in payment of any exercise price or taxes will again be available for grant.
      Also, if an award terminates without shares of Company common stock being
      issued, then the shares that were subject to the award will again be available
      for grant. The shares may be authorized and unissued shares or treasury shares.
      In the event of a stock split, stock dividend, spin-off, or other relevant
      change affecting the Company’s common stock, the Committee shall make
      appropriate adjustments to the number of shares available for grants and to
      the
      number of shares and price under outstanding grants made before the event.
      As of
      December 31, 2005, 60,000 incentive stock options were outstanding with no
      shares vested. Exercise prices range from $0.70 to $1.19 per share





In
      April
      2005, the Board of Directors adopted the 2005 Employee Stock Purchase Plan
      (the
“2005 Employee Stock Purchase Plan”), which allows eligible employees of eLinear
      or its subsidiaries opportunities to purchase up to a total of 2,500,000 shares
      of the Company's common stock.





Under
      the
      2005 Employee Stock Purchase Plan, eligible employees may authorize the Company
      to deduct amounts from their pay, which amounts are used to enable the employees
      to exercise options (each an “Option”) to purchase shares of the Company’s
      common stock. The purpose of the 2006 Employee Stock Purchase Plan is to provide
      Company employees with opportunities to purchase Company common stock. The
      2006
      Employee Stock Purchase Plan is an employee stock purchase plan under Section
      423 of the Internal Revenue Code of 1986, as amended, and the regulations
      thereunder (the “Code”).





41




Stock
      option activity during the periods indicated is as follows:








Number
                of Shares
            
            Weighted
                Average Exercise PriceOutstanding,
                January 1, 2004
            
            
            1,990,183
            
            $
            3.38Granted
            
            
            2,901,500
            
            
            1.74Exercised
            
            
            (312,600
            )
            
            1.33Forfeited
            
            
            (64,500
            )
            
            0.85Expired
            
            
            --
            
            
            --Outstanding,
                December 31, 2004
            
            
            4,514,583
            
            $
            2.51Granted
            
            
            2,812,726
            
            
            0.98Exercised
            
            
            (510,638
            )
            
            0.26Forfeited
            
            
            (3,724,060
            )
            
            3.01Expired
            
            
            --
            
            
            --Outstanding,
                December 31, 2005
            
            
            3,092,611
            
            $
            1.53Exercisable,
                December 31, 2005
            
            
            1,728,651
            
            $
            1.56








At
      December
      31, 2005, the range of exercise prices and weighted average remaining
      contractual life of outstanding options was $0.32 to $39.38 and 3.6 years,
      respectively. The weighted average grant date fair value of the options issued
      in 2005 and 2004 amounted to $0.98 and $0.73, respectively.





*Common
      Stock Warrants*





In
      connection with the debt (Note 6) and equity (Note 9) fundings, the Company
      issued warrants to acquire common stock at various prices. The following table
      summarizes the warrants outstanding as of December 31, 2005:





Exercise
                Price
            
            Financing
                Date
            
            Outstanding
                Warrants
            
            Expiration
                Date$1.00
            
            
            February
                2004
            
            
            240,000
            
            
            February
                2006$1.25
            
            
            February
                2005
            
            
            1,800,000
            
            
            February
                2012$150
            
            
            July
                2005
            
            
            466,667
            
            
            January
                2013$1.75
            
            
            July
                2005
            
            
            525,000
            
            
            January
                2019$1.89
            
            
            January
                2004
            
            
            1,296,388
            
            
            January
                2009$2.50
            
            
            February
                2004
            
            
            386,500
            
            
            February
                2006$3.00
            
            
            February
                2004
            
            
            676,500
            
            
            February
                2009$1.90
            
            
            October
                2004
            
            
            150,000
            
            
            October
                2011$3.05
            
            
            February
                2004
            
            
            200,000
            
            
            February
                2011$3.19
            
            
            February
                2004
            
            
            50,000
            
            
            February
                2011$3.22
            
            
            February
                2004
            
            
            40,000
            
            
            February
                2011Total
            
            
            
            
            
            5,831,055








All
      warrants
      are exercisable at December 31, 2005.





42


Note
      10. Industry Segments





The
      Company has adopted the provisions of Statements of Financial Accounting
      Standards No. 131, Disclosures about Segments of an Enterprise and Related
      Information (SFAS 131). At December 31, 2005, the Company's four business units,
      NetView, NewBridge, eLinear and TanSeco, have separate management teams and
      infrastructures that offer different products and services;.





**For
                the Year Ended December 31, 2005**Dollars
                ($)
            
            Consulting
                Services
            
            Network
                and Storage Solutions
            
            Communications
                Deployment
            
            Security
              Solutions
            
            ConsolidatedRevenue
            
            
            90,742
            
            
            19,827,300
            
            
            4,734,468
            
            
            5,098,307
            
            
            29,750,817Segment
                income (loss)
            
            
            (5,705,491)
            
            
            (334,778)
            
            
            16,351
            
            
            (1,556,539)
            
            
            (7,580,457
            )Total
                assets
            
            
            2,161,743
            
            
            3,221,987
            
            
            1,602,817
            
            
            1,762,336
            
            
            8,748,883Capital
                expenditures
            
            
            130,695
            
            
            90,856
            
            
            --
            
            
            59,810
            
            
            281,361Depreciation
                and amortization
            
            
            109,158
            
            
            272,952
            
            
            3,302
            
            
            32,457
            
            
            417,869








**For
                the Year Ended December 31, 2004**Dollars
                ($)
            
            Consulting
                Services
            
            Network
                and Storage Solutions
            
            Communications
                Deployment
            
            Security
              Solutions
            
            ConsolidatedRevenue
            
            
            106,515
            
            
            21,753,584
            
            
            1,827,873
            
            
            377,781
            
            
            24,065,753Segment
                loss
            
            
            (1,424,404
            )
            
            (1,356,590
            )
            
            (878,379
            )
            
            (187,973
            )
            
            (3,847,346)Total
                assets
            
            
            1,598,064
            
            
            4,726,771
            
            
            1,781,988
            
            
            1,094,228
            
            
            9,201,051Capital
                expenditures
            
            
            343,636
            
            
            295,113
            
            
            11,286
            
            
            37,981
            
            
            688,016Depreciation
            
            
            55,929
            
            
            66,572
            
            
            4,703
            
            
            24,426
            
            
            151,630





The
      accounting policies of the reportable segments are the same. The Company
      evaluates the performance of its operating segments based on income before
      net
      interest expense, income taxes, depreciation expense, accounting changes and
      non-recurring items.




Note
      11. Income Taxes





eLinear
      has incurred net losses since the merger with NetView (See Note 4.) and,
      therefore, has no tax liability. The net deferred tax asset generated by the
      loss carry-forward has been fully reserved. The valuation allowance increased
      by
      approximately $4,500,000. The cumulative operating loss carry-forward is
      approximately $11,000,000 and $4,000,000 at December 31, 2005 and 2004,
      respectively, and will begin to expire in the year 2019.




Deferred
      income taxes consist of the following at December 31, 2005 and
      2004:





December
                312005
            
            2004Deferred
                tax assets
            
            $
            8,000,000
            
            $
            3,500,000Valuation
                allowance
            
            
            (
                8,000,000
            )
            
            (3,500,000
            )Deferred
                income taxes
            
            $
            --
            
            $
            --





NetView
      was an S-Corporation in 2002 and upon the completion of the merger with eLinear
      (See Note 4.), NetView terminated its S-Corporation status for income tax
      purposes. The pro forma income tax expense shown in the accompanying financial
      statements indicates the results as if the Company applied the current policy
      for income taxes.




43




Note
      12. Significant Concentration




One
      customer
      accounted for approximately 13% of sales for the year ended December 31, 2005.
      One additional customer represented 12% of sales for the year ended December
      31,
      2005 and 22% of the Company’s accounts receivable at December 31,
      2005.


One
        customer
        accounted for approximately 18% of sales for the year ended December 31,
        2004.
        No other customers represented more than 10% of sales of the Company for
        the
        year ended December 31, 2004. The Company had three customers which had in
        excess of 10% of the Company's accounts receivable balance at December 31,
        2004.
        These customers had 17%, 11% and 10%, respectively, of the Company's accounts
        receivable balance
 
 Note
        13.
        Financial Condition And Going Concern
 The
        Company’s
        financial statements have been presented on the basis that it is a going
        concern, which contemplates the realization of assets and the satisfaction
        of
        liabilities in the normal course of business. The Company has negative working
        capital of $2,770,040 and has incurred losses of $7,580,457 and $3,847,346
        during 2005 and 2004 and there is substantial doubt as to the Company's ability
        to achieve profitable operations.
  The
        Company's
        management intends to raise additional operating funds through equity and/or
        debt offerings. However, there can be no assurance management will be successful
        in its endeavors. Ultimately, the Company will need to achieve profitable
        operations in order to continue as a going concern.
  There
        are no
        assurances that the Company will be able to either (1) achieve a level of
        revenues adequate to generate sufficient cash flow from operations; or (2)
        obtain additional financing through either private placement, public offerings
        and/or bank financing necessary to support the Company's working capital
        requirements. To the extent that funds generated from operations and any
        private
        placements, public offerings and/or bank financing are insufficient, the
        Company
        will have to raise additional working capital. No assurance can be given
        that
        additional financing will be available, or if available, will be on terms
        acceptable to the Company. If adequate working capital is not available,
        the
        Company may be required to curtail its operations.


Note
      14. Other Restatement





The
      Company
      originally filed the financial statements and accounted for the stock issued
      in
      the acquisition of NewBridge using an average stock price fifteen days prior
      to
      and subsequent to the date of the merger. The Company has revised the average
      stock price and calculated the purchase price using the stock price on the
      date
      of the merger. The balance sheet was restated to increase goodwill and
      additional paid in capital by $295,500 for the change in the value of the
      stock.




Note
      15.  Subsequent Evets
      (unaudited)




The
      Company
      issued 200,000 shares of common stock for stock options exercised during 2006
      resulting in proceeds totaling $60,000.


The
        Company
        issued 1,739,595 shares of its common stock to third parties for services
        during
        2006 which included 212,595 shares to a former officer. The Company measured
        the
        transactions at the date of issuance at the quoted market price. There are
        no
        performance commitments or penalties for non-performance, therefore, the
        Company
        recorded the services at the date of issuance.
  The
        Company
        issued 41,364 shares of its common stock to directors during 2006 valued
        at
        $13,600





44





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





On
      October 12, 2004, the Company dismissed Malone & Bailey, PLLC as its
      auditors. Malone & Bailey's audit report on eLinear's consolidated financial
      statements as of December 31, 2003, and for the year then ended did not contain
      an adverse opinion or disclaimer of opinion, or qualification or modification
      as
      to uncertainty, audit scope or accounting principles. The Company filed a Report
      on Form 8-K on October 14, 2004, reflecting that it replaced Malone &
Bailey, LLP, as its independent auditor with Lopez, Blevins, Bork &
Associates, LLP ("Lopez Blevins"). Members of Lopez Blevins, prior to the
      formation of Lopez Blevins, performed all the audit-related work while employed
      with Malone & Bailey, LLP, in connection with conducting eLinear's audit for
      the fiscal year ended December 31, 2003. Lopez Blevins reaudited eLinear's
      fiscal year ended December 31, 2003. There were no other changes to the Amended
      Form 10-KSB for the year ended December 31, 2003, previously filed on September
      8, 2004.





During
      the most recent fiscal year ended December 31, 2003, and in the subsequent
      interim periods through the date of dismissal, there were no disagreements
      with
      Malone & Bailey on any matters of accounting principles or practices,
      financial statement disclosure, or auditing scope and procedures which, if
      not
      resolved to the satisfaction of Malone & Bailey would have caused Malone
& Bailey to make reference to the matter in their report. eLinear requested
      Malone & Bailey to furnish it a letter addressed to the Commission stating
      whether it agreed with the above statements. A copy of that letter, dated
      October 14, 2004, is filed as Exhibit 16.1 to the Form 8-K.





The
      Company retained the services on October 13, 2004 of Lopez, Blevins, Bork &
Associates, LLP as eLinear's principal accountant to audit the financial
      statements of eLinear for the year ended December 31, 2005. The decision to
      change accountants was approved by the Board of Directors.





**ITEM
      8A. CONTROLS AND PROCEDURES.**





In
      accordance with the Exchange Act, the Company carried out an evaluation, under
      the supervision and with the participation of management, including its Chief
      Executive Officer and Principal Accounting Officer, of the effectiveness of
      its
      disclosure controls and procedures as of the end of the period covered by this
      report. Based on this evaluation, the Company's Chief Executive Officer and
      Principal Accounting Officer concluded that the Company's disclosure controls
      and procedures were effective as of December 31, 2005, to provide reasonable
      assurance that information required to be disclosed in its reports filed or
      submitted under the Exchange Act is recorded, processed, summarized and reported
      within the time periods specified in the Securities and Exchange Commission's
      rules and forms. There has been no change in the Company's internal controls
      over financial reporting that occurred during the year ended December 31, 2005,
      that has materially affected, or is reasonably likely to materially affect,
      its
      internal controls over financial reporting.





**ITEM
      8B. OTHER INFORMATION.**





In
      December 2004, the Company issued 319,248 shares of common stock to certain
      investors as forgiveness of penalties of $353,224 associated with the delay
      in
      obtaining effectiveness of a company registration statement.





45


**PART
      III**





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


The
      Company’s executive officers and directors, and their ages and positions as of
      July 6, 2006 are as follows:





**Name**
            **Age**
            **Position**Carl
                A. Chase
            56
            Chairman
                of the BoardTommy
                Allen
            42
            Chief
                Executive Officer, Vice Chairman and DirectorPhillip
                M. Hardy
            57
            President,
                Chief Financial Officer, Treasurer andDirectorRamzi
                M. Nassar
            34
            Chief
                Strategy OfficerJoAnn
                Agee
            47
            Principal
                Accounting Officer, Controllerand SecretaryJ.
                Leonard Ivins
            70
            DirectorRyan
                Cravey
            33
            Director




*Carl
      A. Chase* has
      served as chairman of the board since December 16, 2005 and he has served as
      a
      director since April 16, 2003. Mr. Chase also serves as chairman of the audit
      committee and as a member of the compensation committee. Mr. Chase also serves
      as chief financial officer and director of Unicorp, Inc., an independent oil
      and
      gas company. From April 2001 until January 2005, Mr. Chase served as senior
      vice
      president - budgets & controls for Rockport Healthcare Group, Inc., a
      preferred provider organization for work-related injuries and illnesses
      and served as an independent consultant to Rockport until June 2006. Prior
      to joining Rockport, Mr. Chase was an independent consultant to Rockport from
      June 2000. From August 1999 to May 2000, Mr. Chase was chief financial officer
      of ClearWorks.net, Inc. Mr. Chase also served as chief financial officer of
      Bannon Energy Incorporated, an independent oil and gas company, from December
      1992 to August 1999.




*Tommy
      Allen* served
      as the Company’s senior vice president and as a director of the company since
      April 16, 2003, and became vice chairman in August 2004 and chief executive
      officer in May 2006. He and Mr. Kevan Casey founded NetView Technologies, Inc.
      in December 2001 and Mr. Allen served as its secretary and treasurer from its
      inception. From July 1999 to December 2001, Mr. Allen served as vice president
      for United Computing Group and United Consulting Group, a value-added reseller
      and an information technology consulting firm. In December 1999, United
      Computing Group and United Consulting Group were acquired by ClearWorks.net,
      Inc., and Mr. Allen continued as vice president of the companies until December
      2001. From 1996 to June 1999, Mr. Allen served as senior account executive
      for
      ComputerTech, Inc.




*Phillip
      M.
      Hardy* has
      served as the Company’s Chief Financial Officer ** since
      November 2005 and Director since December 16, 2005. Prior to joining eLinear
      Mr.
      Hardy owned and operated a private investment company, Phillip M. Hardy
      Consultants, Inc. were he was involved in organizing and managing approximately
      20 businesses in the areas of physical security software, real estate
      development, real estate investment, security consulting and communications
      systems distribution. From 1983 until 1987 Mr. Hardy was Chief Financial Officer
      of Stone Oak, Inc. a developer of large scale mixed use real estate and utility
      developments. From 1978 until 1983 Mr. Hardy was Chief Financial Officer and
      Treasurer of Cullen/Frost Bankers, Inc. and  prior to that he practiced
      Public Accounting with Ernst & Whinney from 1974 until *1978.*




*Ramzi
      M.
      Nassar* has
      served as the Company’s chief strategy officer since January 2004. From June
      2003 until joining eLinear, Mr. Nassar worked with De Bellas & Co., where he
      was involved in the firm’s merger and acquisition projects and valuation
      engagements. From July 2002 until October 2003, Mr. Nassar worked at CIBC World
      Markets and from July 1999 until May 2001, Mr. Nassar worked at Morgan Stanley,
      each in their M&A groups. From 1993 until 1997, Mr. Nassar worked in various
      capacities with Computer Sciences Corporation in the consulting and systems
      integration division. Mr. Nassar is a graduate of Rice University with a double
      major in Economics and Managerial Studies earned an MBA from the MIT Sloan
      School of Management.




46


**


*JoAnn
      Agee* has
      served as the Company’s controller since August 2004 and principal accounting
      officer since January 2005. Prior to joining the Company, Ms. Agee was assistant
      controller for ComputerTech, Inc., a Houston-based integrator, from March 2000
      to July 2004. From February 1995 until January 2000, Ms. Agee was general
      accounting manager for Containment Solutions, Inc., a Conroe, Texas based
      company which manufactures fiberglass underground storage tanks and steel above
      ground storage tanks..




*J.
      Leonard
      Ivins* has
      served as a director since November 2000 and has acted as lead director since
      December 16, 2005. Mr. Ivins also serves as chairman of the Company’s
      compensation committee and as a member of the audit committee. Since 1995,
      he
      has been a private investor. Previously, Mr. Ivins was a founder and co-owner
      of
      a privately held company that was an FDIC and RTC contractor. From 1979 to
      1981,
      Mr. Ivins was a turnaround and workout consultant to small, publicly held oil
      and gas companies. From 1970 to 1975, Mr. Ivins was president of The Woodlands
      Development Corporation and a director of Mitchell Energy and Development
      Corp.




*Ryan
      Cravey* has
      served as a director since March 5, 2004. Mr. Cravey also serves as a member
      of
      the audit committee. Since April 1, 2002, Mr. Cravey has been the owner of
      IQUEST Networking Solutions, a privately held IT consulting company for the
      small to medium business market in Houston and Austin, Texas. Prior to forming
      IQUEST, Mr. Cravey was operations manager for United Computing Group, a
      value-added reseller of computer hardware and software, from October 1998 to
      March 31 2002, where he managed sales accounts and the purchasing, receiving
      and
      shipping of over $24 million in product.





*Section
      16(a) Beneficial Ownership Reporting Compliance*





Mr.
      Casey
      filed a Form 4 for sales of Company common stock made on December 16 on December
      23.





Mr.
      Casey
      filed a Form 4 for sales of Company common stock made on September 12, 13,
      14,
      and 15 on September 23, 2005.





Mr.
      Casey
      filed a Form 4 for sales of Company common stock made on August 31, 2005,
      September 1, 2, 6,7,8, and 9 on September 9, 2005.





Mr.
      Casey
      filed a Form 4 for sales of Company common stock made on July 6, 7, and 11,
      on
      July 11, 2005.





Mr.
      Casey
      filed a Form 4 for sales of Company common stock made on March 28, 30, and
      31,
      2005 and April 1, 4, 5, 6, 7, 8, 11, 12, 15, on May 5, 2005.





Mr.
      Allen
      filed a Form 4 for sales of Company common stock made on August 25, 26, 29,
      30,
      and August 31 as well as September 1, 2, 6, 7, 8, an 9 on September 23, 2005.





Mr.
      Allen
      filed a Form 4 for sales of Company common stock made on May 04, 2005 on July
      11, 2005.





Mr.
      Nassar
      filed a Form 4 for sales of Company common stock made on April 11, 2005 on
      April
      19, 2005.








47




*Audit
      Committee*





The
      Company’s audit committee oversees its corporate accounting and financial
      reporting process. Among other duties, it:





§
            evaluates
                the Company’s independent auditors’ qualifications, independence and
                performance;§
            determines
                the engagement of the independent
                auditors;





§
            approves
                the retention of the Company’s independent auditors to perform any
                proposed permissible non-audit services;§
            reviews
                the Company’s financial statements;





§
            reviews
                the Company’s critical accounting policies and estimates;§
            oversees
                the internal audit function; and





§
            discusses
                with management and the independent auditors the results of the annual
                audit and the review of the Company’s quarterly financial statements.





The
      current members of the Company’s audit committee are Messrs. Chase, who is the
      committee chair, and Ivins and Cravey. Mr. Chase is the Company’s audit
      committee financial expert.





*Code
      of Ethics*





The
      Company has adopted a Code of Ethics that applies to all of its directors,
      officers (including its chief executive officer, chief financial officer, chief
      accounting officer and any person performing similar functions) and
      employees.





**ITEM
      10. EXECUTIVE COMPENSATION**





The
      following table provides information about the compensation received during
      the
      last three fiscal years to the Company’s named executive officers. None of the
      Company’s other employees received greater than $100,000 in salary and bonus
      during the last three fiscal years.





**Summary
      Compensation Table**





**Annual**
              **Compensation**
            
            **Long
                Term Compensation****Awards**Name
                andPrincipal
                Position
            
            Year
            
            Salary
              ($)
            
            
            
            Bonus
              ($)
            
            Securities
                Underlying Options / SARs (#)Michael
                Lewis,
              Former
                Chief Executive Officer
            
            
            2005
              2004
            
            123,815
              54,646
            (2)
            
            
            
            108,921
              46,500
            (1)
              (3)
            
            
            
            
            
            
            --
              --Tommy
                Allen,
              Chief
                Executive Officer
            
            
            2005
              2004
              2003
            
            96,000
              91,255
              70,154
            
            
            
            
            15,000
              33,000
              24,000
            (5)
            
            
            
            
            
            
            100,000Phillip
                M. Hardy,
              President
                and Chief Financial Officer
            
            
            2005
            
            10,230
            (6)
            
            
            
            1,500
            (7)Ramzi
                Nassar,
              Chief
                Strategy Officer
            
            
            2005
              2004
            
            96,000
              84,923
            (9)
            
            
            
            28,538
              51,000
            (8)
              (10)
            
            
            
            
            
            
            460,000





(1)
            This
                amount includes bonuses, relocation and travel expenses.  Mr. Lewis
                resigned his position as chief executive officer in May
                2006.(2)
            Mr.
                Lewis joined eLinear in May 2004 and became CEO in December 2004.
                This
                amount includes all compensation paid to Mr. Lewis since May
                2004.(3)
            Includes
                $6,000 for a $1,000 per month auto and home office allowance and
                $18,000
                for a relocation allowance.(5)
            This
                amount includes $12,000 for auto, home and office
                allowance.(6)
            Mr.
                Hardy joined eLinear in November 2005 as CFO. This amount includes
                all
                compensation paid to Me. Hardy in 2005.(7)
            Includes
                $1,500 for auto allowance.(8)
            This
                amount includes bonuses and $6,538 per month auto
                allowance.(9)
            Mr.
                Nassar joined eLinear in January 2004. This amount includes all
                compensation paid to Mr. Nassar since January 2004.(10)
            Includes
                $11,000 for auto and home office
                allowance.


48
  *Option
        Issuances*





The
      following table sets forth information concerning individual grants of stock
      options made during the last fiscal year to the Company’s named executive
      officers. No stock appreciation rights were issued during the fiscal
      year.





**Option
      Grants in Last Fiscal Year**


(Individual
      Grants)








Name
            
            Number
                of Securities
              Underlying
                Options
              Granted
              (#)
            
            Percent
                of Total
              Options
                Granted to
              Employees
                in
              Fiscal
                Year
            
            Exercise
                or
              Base
                Price
              ($/Sh)
            
            Expiration
              Date
            
            Grant
                date
              Value
                ($)Michael
                Lewis
            
            
            150,000
            
            
            9
            %
            
            
            
            $
            0.10
            
            
            December
                2009
            
            $
            122,921








Financial
      instruments that are subject to fair disclosure requirements are carried in
      the
      financial statements at amounts that approximate fair value and include cash
      and
      cash equivalents, accounts receivable and accounts payable. Fair values are
      based on assumptions concerning the amount and timing of estimated future cash
      flows and assumed discount rates reflecting varying degrees of perceived
      risk.











**AGGREGATED
      OPTION EXERCISES IN LAST FISCAL YEAR**


**AND
      FY-END OPTION VALUES**





Name
            
            Shares
                Acquired on Exercise
              (#)
            
            Value
              Realized
                ($)
            
            Number
                of Unexercised Securities Underlying Options at FY-End
              (#)
            
            Value
                of Unexercised
              In-the-Money
              Options
                at FY-End
              ($)
                (1)Exercisable
            
            Unexercisable
            
            Exercisable
            
            UnexercisableMichael
                Lewis
            
            
            150,000
            
            $
            122,291
            
            
            --
            
            
            150,000
            
            $
            --
            
            $
            --Tommy
                Allen
            
            
            --
            
            $
            --
            
            
            100,000
            
            
            70,000
            
            $
            --
            
            $
            --Ramzi
                Nassar
            
            
            --
            
            $
            --
            
            
            115,000
            
            
            345,000
            
            $
            --
            
            $
            --





(1)
            The
                closing price of the Company’s common stock as of the end of its fiscal
                year ended December 31, 2005 was $0.40 per
                share.





49




*Employment
      Agreements and Change in Control Agreements*





In
      January 2004, the Company entered into a two-year agreement with Mr. Nassar.
      Under the terms of the agreement, Mr. Nassar receives monthly compensation
      of
      $8,000, a quarterly bonus of $5,000, a home office and car allowance of $1,000
      per month, and a to be determined annual performance bonus. Mr. Nassar also
      received a five-year employee option to purchase 460,000 shares of Company
      common stock at an exercise price of $2.00 per share. The vesting schedule
      for
      the shares is 25% upon the one-year anniversary of the agreement and 25% each
      subsequent year thereafter, provided that no vesting can occur unless Mr. Nassar
      is employed on the respective vesting date. However, if the Company terminates
      Mr. Nassar during the two-year term for any reason other than for cause, the
      options due Mr. Nassar will be prorated in relation to the date of Mr. Nassar’s
      employment termination and the prorated amount will vest immediately. If the
      Company undergoes a change of control, all of Mr. Nassar’s options will vest
      immediately. If the Company terminates Mr. Nassar for any reason other than
      cause, the Company has agreed to pay Mr. Nassar the lesser of six months salary
      or the salary due Mr. Nassar through the end of the two-year term.





*Director
      Compensation*




Directors
        who are also employees do not receive any compensation for serving as directors.
        All directors are reimbursed for ordinary and necessary expenses incurred
        in
        attending any meeting of the board of directors or any board committee or
        otherwise incurred in their capacities as directors.
 
 Effective
        January 1, 2005, Mr. Casey has a consulting agreement with the Company of
        which
        he receives a monthly fee of $5,000 and a payment of $6,000 at the beginning
        of
        each quarter for his services as director of business development. Additionally,
        Mr. Casey receives $1,000 per month as payment for a car allowance and
        healthcare costs, reimbursement of actual business related expenses and an
        office equipped with a computer, fax machine and telephone. He will also
        receives as compensation a cash bonus of one percent (1%) of all amounts
        funded
        to the Company up to $2 million and two percent (2%) of all amounts in excess
        of
        $2 million.   Mr. Casey received approximately $40,000 on the closing
        of the $12 million financing and is entitled to additional amounts as cash
        is
        made available to the Company from the restricted accounts.  Mr. Casey’s
        agreement began on December 22, 2004 and terminates on December 31, 2006,
        unless
        terminated sooner in accordance with the agreement. Mr. Casey received $96,000
        during the twelve months ended December 31, 2005 for compensation and he
        received a $40,000 fee for his assistance in securing a $12 million line
        of
        credit for the Company.
 
 Mr.
        Ivins
        received $34,788 during the twelve months ended December 31, 2005 which
        consisted of $2,899 per month plus $200 per meeting for each meeting attended.
        During the year ended December 31, 2004 Mr. Ivins received $4,500 per quarter
        for his services as chairman of the compensation committee and $1,500 per
        quarter for services as a member of the audit committee. Mr. Ivins also received
        $200 per board meeting attended and $850 per month for reimbursement of certain
        expenses incurred as a director. During the twelve month period ended December
        31, 2004, Mr. Ivins earned $32,200 for his board services. On December 21,
        2004,
        Mr. Ivins received a four-year non-qualified stock option to purchase 75,000
        shares of Company common stock at an exercise price of $0.75 per share, which
        options vested immediately.











For
        the
        twelve months ended December 31, 2005 Mr. Cravey received $6,000 in compensation
        which consists of $1,500 per quarter for his services as a member of
        the audit committee. During the twelve months ended December 31, 2004, Mr.
        Cravey earned $3,400 for his board services. Upon joining the Company’s board in
        March 2004, Mr. Cravey received a non-qualified stock option to purchase
        50,000
        shares of Company common stock at an exercise price of $2.75 per share expiring
        March 2008




50




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





As
      of
      April 24, 2006, 29,467,741 shares of common stock were outstanding. The
      following table sets forth, as of such date, information with respect to shares
      beneficially owned by





§
            each
                person who is known by the Company to be the beneficial owner of
                more than
                5% of its outstanding shares of common stock;§
            each
                of the Company’s directors;





§
            each
                of the Company’s named executive officers; and§
            all
                of the Company’s directors and executive officers as a
                group.





Beneficial
      ownership has been determined in accordance with Rule 13d-3 of the Exchange
      Act.
      Under this rule, shares may be deemed to be beneficially owned by more than
      one
      person (if, for example, persons share the power to vote or the power to dispose
      of the shares). In addition, shares are deemed to be beneficially owned by
      a
      person if the person has the right to acquire shares (for example, upon exercise
      of an option) within 60 days of the date of this table. In computing the
      percentage ownership of any person, the amount of shares includes the amount
      of
      shares beneficially owned by the person by reason of these acquisition rights.
      As a result, the percentage of outstanding shares of any person does not
      necessarily reflect the person’s actual voting power.





To
      the
      Company’s knowledge, except as indicated in the footnotes to this table and
      pursuant to applicable community property laws, the persons named in the table
      have sole voting and investment power with respect to all shares of common
      stock
      shown as beneficially owned by them. Unless otherwise indicated, the business
      address of the individuals listed is 2901 West Sam Houston Parkway North, Suite
      E-300, Houston, Texas 77043.





**Number
                of Shares**
            
            
            
            **Percentage
                of****Beneficially**
            
            
            
            **Outstanding****Name
                and Address of Beneficial Owner**
            
            **Owned**
            
            
            
            **Shares**Tabitha
                Casey
            
            
            2,711,289
            
            
            (1
            )
            
            9.2
            %3311
                Banbury PlaceHouston,
                Texas 77027Kevan
                M. Casey
            
            
            2,711,289
            
            
            (2
            )
            
            9.2
            %PO
                Box 87721Houston,
                Texas 77287Michael
                Lewis
            
            
            160,000
            
            
            (3
            )
            
            *2901
                W. Sam Houston Pkwy. N. Ste. E-300Houston,
                Texas 77043Nancy
                Allen
            
            
            4,997,289
            
            
            (4
            )
            
            17.0
            %2901
                W. Sam Houston Pkwy. N. Ste. E-300Houston,
                Texas 77043Tommy
                Allen
            
            
            4,997,289
            
            
            (5
            )
            
            17.0
            %2901
                W. Sam Houston Pkwy. N. Ste. E-300Houston,
                Texas 77043Ramzi
                Nassar
            
            
            155,000
            
            
            (6
            )
            
            *2901
                W. Sam Houston Pkwy. N. Ste. E-300Houston,
                Texas 77043J.
                Leonard Ivins
            
            
            525,000
            
            
            (7
            )
            
            1.8
            %2036
                Brentwood DriveHouston,
                Texas 77008Carl
                A. Chase
            
            
            134,445
            
            
            (8
            )
            
            *1117
                Herkimer StreetHouston,
                Texas 77008Ryan
                Cravey
            
            
            16,667
            
            
            (9
            )
            
            *9542
                Bending Willow LaneHouston,
                Texas 77064All
                as a group (8 persons)
            
            
            8,699,690
            
            
            
            
            
            29.0
            %




*
      Less
      than one percent (1%)


(1)
            Includes
                options held by Ms. Casey’s husband, Kevan Casey, to purchase 100,000
                shares of common stock at an exercise price of $0.50 per share expiring
                April 16, 2007 and 129,619 shares owned by Ms. Casey’s husband, the record
                holder.(2)
            Includes
                options to purchase 100,000 shares of common stock at an exercise
                price of
                $0.50 per share expiring April 16, 2007. Includes 6,181,670 shares
                owned
                by Mr. Casey’s wife, the record holder.(3)
            Includes
                an option to purchase 112,500 shares of an exercise price of
                $2.00.(4)
            Includes
                options held by Ms. Allen’s husband, Tommy Allen, to purchase 100,000
                shares of common stock at an exercise price of $0.50 per share expiring
                April 16, 2007 and 129,619 shares owned by Ms. Allen’s husband, the record
                holder(5)
            Includes
                options to purchase 100,000 shares of common stock at an exercise
                price of
                $0.50 per share expiring April 16, 2007. Includes 6,181,671 shares
                owned
                by Mr. Allen’s wife, the record holder.(6)
            Includes
                options to purchase 115,000 shares of common stock at an exercise
                price of
                $2.00 per share expiring January 14, 2009.(7)
            Includes
                options to purchase 525,000 shares of common stock at exercise prices
                ranging from $0.50 to $3.00 per share expiring from November 28,
                2005 to
                December 29, 2010.(8)
            Includes
                options to purchase 134,400 shares of common stock at an exercise
                price of
                $0.50 per share expiring April 16, 2007.(9)
            Includes
                options to purchase 16,667 shares of common stock at an exercise
                price of
                $2.75 per share expiring March 5, 2008.(10)
            Includes
                options to purchase 1,031,112 shares of common
                stock.




51




**ITEM
      12. CERTAIN RELATIONSHIPS AND RELATED PARTY
      TRANSACTIONS**





At
      December 31, 2005, a note payable due to one of the Company’s officers totaled
      $84,000. The note earned interest at 7% per annum, and is due July 1,
      2006.




On
      February 18, 2005, the Company borrowed $135,000 from this same officer. This
      loan was repaid on March 8, 2005.





52





**ITEM
      13. EXHIBITS**







Exhibit
                  No.
              
              Description2.1
              
              Agreement
                  and Plan of Merger, dated October 11, 1999, between Registrant,
                  eLinear
                  Corporation and Imagenuity, Inc. (incorporated by reference to
                  Exhibit A-1
                  to Registrant's Current Report on Form 8-K, dated October 25,
                  1999)2.2
              
              Agreement
                  and Plan of Merger, dated April 15, 2003, between Registrant, NetView
                  Acquisition Corp. and NetView Technologies, Inc. (incorporated
                  by
                  reference to Exhibit 2.2 to Registrant's Annual Report on form
                  10-KSB,
                  dated April 15, 2002)3.1
              
              Articles
                  of Incorporation of Registrant (incorporated by reference to Registrant's
                  Form 10-KSB for the period ended December 31, 1995)3.2
              
              Bylaws
                  of Registrant (incorporated by reference to Registrant's Form 10-KSB
                  for
                  the period ended December 31, 1995)3.3
              
              Amended
                  and Restated Certificate of Incorporation of Registrant (incorporated
                  by
                  reference to Registrant's Form 10-QSB for the period ended June
                  30,
                  2000)4.1
              
              Specimen
                  of Registrant's Common Stock Certificate (incorporated by reference
                  to
                  Registrant's Form 10-KSB for the period ended December 31,
                  1995)10.1
              
              Employment
                  Agreement with Tommy Allen (incorporated by reference to Exhibit
                  10.3 to
                  Registrant's Annual Report on Form 10-KSB, dated April 15, 2003)
                  *10.2
              
              2000
                  Stock Option Plan (incorporated by reference to Exhibit 4.1 to
                  Registrant's Definitive Proxy Statement on Schedule 14A, dated
                  June 30,
                  2000) *10.3
              
              Amendment
                  No. 1 to Registrant's 2000 Stock Option Plan (incorporated by reference
                  to
                  Exhibit 4.2 to Registrant's Form S-8, dated July 31, 2001)
                  *10.4
              
              Amended
                  and Restated 2003 Stock Option Plan (incorporated by reference
                  to Exhibit
                  10.1 to Registrant's Form S-8, dated January 14, 2003)
                  *10.5
              
              Form
                  of Indemnification Agreement for all officers and directors of
                  Registrant
                  (incorporated by reference to Registrant's Form 10-QSB filed with
                  the
                  Commission on October 24, 2000)10.6
              
              Securities
                  Purchase Agreement dated as of January 12, 2004 between eLinear,
                  Inc. and
                  the Investors named therein (incorporated by reference to Exhibit
                  10.1 to
                  Registrant's Form 8-K, dated January 28, 2004)10.7
              
              Form
                  of Class A Warrant issued to each of the Investors in the Securities
                  Purchase Agreements dated as of January 12, 2004 (incorporated
                  by
                  reference to Exhibit 10.2 to Registrant's Form 8-K, dated January
                  28,
                  2004)10.8
              
              Form
                  of Class B Warrant issued to each of the Investors in the Securities
                  Purchase Agreements dated as of January 12, 2004 (incorporated
                  by
                  reference to Exhibit 10.3 to Registrant's Form 8-K, dated January
                  28,
                  2004)10.9
              
              Registration
                  Rights Agreement issued to each of the Investors in the Securities
                  Purchase Agreements dated as of January 12, 2004 (incorporated
                  by
                  reference to Exhibit 10.4 to Registrant's Form 8-K, dated January
                  28,
                  2004)
  10.10
              
              Securities
                  Purchase Agreement dated as of February 4, 2004 between eLinear,
                  Inc. and
                  the Investors named therein (incorporated by reference to Exhibit
                  10.13 to
                  Registrant's Annual Report on Form 10-KSB, dated February 13,
                  2004)10.13
              
              Form
                  of Class A Warrant issued to each of the Investors in the Securities
                  Purchase Agreements dated as of February 4, 2004 (incorporated
                  by
                  reference to Exhibit 10.14 to Registrant's Annual Report on Form
                  10-KSB,
                  dated February 13, 2004)10.14
              
              Form
                  of Class B Warrant issued to each of the Investors in the Securities
                  Purchase Agreements dated as of February 4, 2004 (incorporated
                  by
                  reference to Exhibit 10.15 to Registrant's Annual Report on Form
                  10-KSB,
                  dated February 13, 2004)10.15
              
              Registration
                  Rights Agreement issued to each of the Investors in the Securities
                  Purchase Agreements dated as of February 4, 2004 (incorporated
                  by
                  reference to Exhibit 10.16 to Registrant's Annual Report on Form
                  10-KSB,
                  dated February 13, 2004)10.16
              
              Common
                  Stock Purchase Warrant Agreement dated as of February 23, 2004
                  by and
                  between eLinear, Inc. and Laurus Master Fund, LLC (incorporated
                  by
                  reference to Exhibit 10.18 to Registrant's Form 8-K, dated February
                  26,
                  2004)10.17
              
              Secured
                  Revolving Note Agreement dated as of February 23, 2004 by and between
                  eLinear, Inc., NetView Technologies, Inc. and NewBridge Technologies,
                  Inc.
                  and Laurus Master Fund, LLC (incorporated by reference to Exhibit
                  10.19 to
                  Registrant's Form 8-K, dated February 26, 2004)10.18
              
              Secured
                  Convertible Minimum Borrowing Note Agreement dated as of February
                  23, 2004
                  by and between eLinear, Inc., NetView Technologies, Inc. and NewBridge
                  Technologies, Inc. and Laurus Master Fund, LLC (incorporated by
                  reference
                  to Exhibit 10.20 to Registrant's Form 8-K, dated February 26,
                  2004)10.19
              
              Minimum
                  Borrowing Note Registration Rights Agreement dated as of February
                  23, 2004
                  by and between eLinear, Inc. and Laurus Master Fund, LLC (incorporated
                  by
                  reference to Exhibit 10.21 to Registrant's Form 8-K, dated February
                  26,
                  2004)10.20
              
              Funds
                  Escrow Agreement dated as of February 23, 2004 by and between eLinear,
                  Inc., NetView Technologies, Inc. and NewBridge Technologies, Inc.
                  and
                  Laurus Master Fund, LLC (incorporated by reference to Exhibit 10.22
                  to
                  Registrant's Form 8-K, dated February 26, 2004)10.21
              
              eLinear,
                  Inc. 2004 Stock Option Plan (incorporated by reference to Exhibit
                  A to
                  Registrant's Definitive Information Statement, dated October 15,
                  2004)
                  *10.22
              
              Amendment
                  to the Security Agreement and Ancillary Agreement with Laurus Master
                  Funs,
                  LLC (incorporated by reference to Exhibit 10.24 to Registrant's
                  Form SB-2
                  dated November 5, 2004)10.23
              
              Stock
                  Purchase Agreement of TanSeco Systems, Inc. (incorporated by reference
                  to
                  Exhibit 10.25 to Registrant's Form SB-2 dated November 5,
                  2004)10.24
              
              Service
                  Agreement with RadioShack Corporation (incorporated by reference
                  to
                  Exhibit 10.26 to Registrant's Form SB-2 dated November 5,
                  2004)10.25
              
              Form
                  of Master Security Agreement, dated as of February 28, 2005, by
                  and
                  between eLinear, Inc., NetView Technologies, Inc., NewBridge Technologies,
                  Inc., TanSeco Systems, Inc. and Investor (incorporated by reference
                  to
                  Exhibit 10.1 to Registrant's Form 8-K dated March 3,
                  2005)
  10.26
              
              Form
                  of Common Stock Purchase Warrant Agreement, dated as of February
                  28, 2005,
                  by and between eLinear, Inc. and Investor (incorporated by reference
                  to
                  Exhibit 10.2 to Registrant's Form 8-K dated March 3,
                  2005)10.27
              
              Form
                  of Secured Convertible Term Note, dated as of February 28, 2005,
                  by and
                  between eLinear, Inc. and Investor (incorporated by reference to
                  Exhibit
                  10.3 to Registrant's Form 8-K dated March 3, 2005)10.28
              
              Form
                  of Restricted Account Agreement, dated as of February 28, 2005,
                  by and
                  between eLinear, Inc., the bank and Investor (incorporated by reference
                  to
                  Exhibit 10.4 to Registrant's Form 8-K dated March 3,
                  2005)10.29
              
              Form
                  of Registration Rights Agreement, dated as of February 28, 2005,
                  by and
                  between eLinear, Inc. and Investor (incorporated by reference to
                  Exhibit
                  10.5 to Registrant's Form 8-K dated March 3, 2005)10.30
              
              Form
                  of Stock Purchase Agreement, dated as of February 28, 2005, by
                  and between
                  eLinear, Inc. and Investor (incorporated by reference to Exhibit
                  10.6 to
                  Registrant's Form 8-K dated March 3, 2005)10.31
              
              Consulting
                  Agreement dated December 22, 2005 with Kevan Casey (incorporated
                  by
                  reference to Exhibit 10.31 to Registrant's Annual Report on Form
                  10-KSB,
                  dated March 18, 2005) *10.32
              
              Form
                  of Supplement, dated July 14, 2005, by and between Company and
                  Investor.
                  (incorporated by reference to Exhibit 10.1 to Registrant's Form
                  8-K dated
                  July 20, 2005)10.33
              
              Form
                  of Warrant, dated as of July 14, 2005, by and between eLinear,
                  Inc. and
                  Investor. . (incorporated by reference to Exhibit 10.1 to Registrant's
                  Form 8-K dated July 20, 2005)10.34
              
              Form
                  of Warrant, dated as of July 14, 2005, by and between eLinear,
                  Inc. and
                  Investor. . (incorporated by reference to Exhibit 10.1 to Registrant's
                  Form 8-K dated July 20, 2005)10.35
              
              Form
                  of Amended and Restated Secured Convertible Term Note, dated as
                  of July
                  14, 2005, by and between the eLinear, Inc. and Investor. (incorporated
                  by
                  reference to Exhibit 10.1 to Registrant's Form 8-K dated July 20,
                  2005)10.36
              
              2005
                  Employee Stock Purchase Plan (incorporated by reference to Exhibit
                  A to
                  Registrant's Definitive Information Statement, dated May 6, 2005)
                  *10.37
              
              2005
                  Stock Option Plan (incorporated by reference to Exhibit A to Registrant's
                  Definitive Information Statement, dated May 6, 2005) *23.1
              
              Consent
                  of Lopez, Blevins, Bork and Associates LLP31.1
              
              Certification
                  of Tommy Allen31.2
              
              Certification
                  of Phillip Michael Hardy32.1
              
              Certification
                  for Sarbanes-Oxley Act of Tommy Allen32.2
              
              Certification
                  for Sarbanes-Oxley Act of Phillip Michael Hardy*
                  Indicates management contract or compensatory plan or
                  arrangement.
  53




**ITEM
      14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**





*Audit
      Fees*




The
      aggregate fees billed for professionals services rendered by Lopez, Blevins,
      Bork & Associates LLP ("LBB") for the twelve months ended December 31, 2005
      was $102,170.  These fees are for the audit of the Company’s annual
      financial statements for the fiscal year ended December 31, 2005, for the
      reviews of the financial statements included in the Company’s quarterly reports
      on Form 10-QSB for that fiscal year and the restatements of the Comapny's
      financial statements for the periods March 31, 2004 through and including June
      30, 2005.





The
      aggregate
      fees billed by LBB for professional services rendered for the audit of the
      Company’s annual financial statements for the fiscal year ended December 31,
      2004, and for the reviews of the financial statements included in the Company’s
      quarterly reports on Form 10-QSB for that fiscal year were $35,200.








The
      aggregate fees billed by Gerald R. Hendricks & Company, P.C. (Hendricks) for
      professional services rendered for the review of the Company’s Form S-8 and two
      Form SB-2’s filed by the Company with the SEC during fiscal 2004 were
      $11,250.





*All
      Other Fees*





Other
      than the services described above under Audit Fees, for the fiscal years ended
      December 31, 2005 and 2004, neither Malone & Bailey nor LBB received any
      other fees.





*Audit
      Committee Pre-Approval Policies and Procedures*





The
      2005
      and 2004 audit services provided by Malone & Bailey and LBB were approved by
      the Audit Committee. The Audit Committee implemented pre-approval policies
      and
      procedures related to the provision of audit and non-audit services. Under
      these
      procedures, the Audit Committee pre-approves both the type of services to be
      provided by the Company’s independent accountants and the estimated fees related
      to these services. During the approval process, the Audit Committee considers
      the impact of the types of services and related fees on the independence of
      the
      auditor. These services and fees deemed compatible with the maintenance of
      the
      auditor’s independence, including compliance with the SEC rules and
      regulations.





Throughout
      the year, the Audit Committee reviews revisions to the estimates of audit and
      non-audit fees initially approved.





54





**SIGNATURES**




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




**eLINEAR,
      INC.**


By: /s/
      Tommy Allen ___________


Tommy
      Allen, Chief Executive Officer


Date:
      July 11, 2006





Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the Registrant and in the
      capacities and on the dates indicated.





/s/ Carl
                A.
                Chase
              
              
              /s/ Tommy
                AllenCarl
                  A.
                  Chase
                Chairman of the Board
              
              
              Tommy
                  Allen
                Chief
                  Executive Officer and Director


/s/ Phillip
                Michael Hardy
              
              
              /s/ J.
                Leonard IvinsPhillip
                  Michael Hardy
                President, Principal Financial Officer and
                  Director
              
              
              J.
                  Leonard Ivins
                Director


/s/ Ryan
                CraveyRyan
                  Cravey
                Director


55


Exhibit
                No.
            
            Description2.1
            
            Agreement
                and Plan of Merger, dated October 11, 1999, between Registrant, eLinear
                Corporation and Imagenuity, Inc. (incorporated by reference to Exhibit
                A-1
                to Registrant's Current Report on Form 8-K, dated October 25,
                1999)2.2
            
            Agreement
                and Plan of Merger, dated April 15, 2003, between Registrant, NetView
                Acquisition Corp. and NetView Technologies, Inc. (incorporated by
                reference to Exhibit 2.2 to Registrant's Annual Report on form 10-KSB,
                dated April 15, 2002)3.1
            
            Articles
                of Incorporation of Registrant (incorporated by reference to Registrant's
                Form 10-KSB for the period ended December 31, 1995)3.2
            
            Bylaws
                of Registrant (incorporated by reference to Registrant's Form 10-KSB
                for
                the period ended December 31, 1995)3.3
            
            Amended
                and Restated Certificate of Incorporation of Registrant (incorporated
                by
                reference to Registrant's Form 10-QSB for the period ended June 30,
                2000)4.1
            
            Specimen
                of Registrant's Common Stock Certificate (incorporated by reference
                to
                Registrant's Form 10-KSB for the period ended December 31,
                1995)10.1
            
            Employment
                Agreement with Tommy Allen (incorporated by reference to Exhibit
                10.3 to
                Registrant's Annual Report on Form 10-KSB, dated April 15, 2003)
                *10.2
            
            2000
                Stock Option Plan (incorporated by reference to Exhibit 4.1 to
                Registrant's Definitive Proxy Statement on Schedule 14A, dated June
                30,
                2000) *10.3
            
            Amendment
                No. 1 to Registrant's 2000 Stock Option Plan (incorporated by reference
                to
                Exhibit 4.2 to Registrant's Form S-8, dated July 31, 2001)
                *10.4
            
            Amended
                and Restated 2003 Stock Option Plan (incorporated by reference to
                Exhibit
                10.1 to Registrant's Form S-8, dated January 14, 2003)
                *10.5
            
            Form
                of Indemnification Agreement for all officers and directors of Registrant
                (incorporated by reference to Registrant's Form 10-QSB filed with
                the
                Commission on October 24, 2000)10.6
            
            Securities
                Purchase Agreement dated as of January 12, 2004 between eLinear,
                Inc. and
                the Investors named therein (incorporated by reference to Exhibit
                10.1 to
                Registrant's Form 8-K, dated January 28, 2004)10.7
            
            Form
                of Class A Warrant issued to each of the Investors in the Securities
                Purchase Agreements dated as of January 12, 2004 (incorporated by
                reference to Exhibit 10.2 to Registrant's Form 8-K, dated January
                28,
                2004)10.8
            
            Form
                of Class B Warrant issued to each of the Investors in the Securities
                Purchase Agreements dated as of January 12, 2004 (incorporated by
                reference to Exhibit 10.3 to Registrant's Form 8-K, dated January
                28,
                2004)10.9
            
            Registration
                Rights Agreement issued to each of the Investors in the Securities
                Purchase Agreements dated as of January 12, 2004 (incorporated by
                reference to Exhibit 10.4 to Registrant's Form 8-K, dated January
                28,
                2004)




10.10
            
            Securities
                Purchase Agreement dated as of February 4, 2004 between eLinear,
                Inc. and
                the Investors named therein (incorporated by reference to Exhibit
                10.13 to
                Registrant's Annual Report on Form 10-KSB, dated February 13,
                2004)10.13
            
            Form
                of Class A Warrant issued to each of the Investors in the Securities
                Purchase Agreements dated as of February 4, 2004 (incorporated by
                reference to Exhibit 10.14 to Registrant's Annual Report on Form
                10-KSB,
                dated February 13, 2004)10.14
            
            Form
                of Class B Warrant issued to each of the Investors in the Securities
                Purchase Agreements dated as of February 4, 2004 (incorporated by
                reference to Exhibit 10.15 to Registrant's Annual Report on Form
                10-KSB,
                dated February 13, 2004)10.15
            
            Registration
                Rights Agreement issued to each of the Investors in the Securities
                Purchase Agreements dated as of February 4, 2004 (incorporated by
                reference to Exhibit 10.16 to Registrant's Annual Report on Form
                10-KSB,
                dated February 13, 2004)10.16
            
            Common
                Stock Purchase Warrant Agreement dated as of February 23, 2004 by
                and
                between eLinear, Inc. and Laurus Master Fund, LLC (incorporated by
                reference to Exhibit 10.18 to Registrant's Form 8-K, dated February
                26,
                2004)10.17
            
            Secured
                Revolving Note Agreement dated as of February 23, 2004 by and between
                eLinear, Inc., NetView Technologies, Inc. and NewBridge Technologies,
                Inc.
                and Laurus Master Fund, LLC (incorporated by reference to Exhibit
                10.19 to
                Registrant's Form 8-K, dated February 26, 2004)10.18
            
            Secured
                Convertible Minimum Borrowing Note Agreement dated as of February
                23, 2004
                by and between eLinear, Inc., NetView Technologies, Inc. and NewBridge
                Technologies, Inc. and Laurus Master Fund, LLC (incorporated by reference
                to Exhibit 10.20 to Registrant's Form 8-K, dated February 26,
                2004)10.19
            
            Minimum
                Borrowing Note Registration Rights Agreement dated as of February
                23, 2004
                by and between eLinear, Inc. and Laurus Master Fund, LLC (incorporated
                by
                reference to Exhibit 10.21 to Registrant's Form 8-K, dated February
                26,
                2004)10.20
            
            Funds
                Escrow Agreement dated as of February 23, 2004 by and between eLinear,
                Inc., NetView Technologies, Inc. and NewBridge Technologies, Inc.
                and
                Laurus Master Fund, LLC (incorporated by reference to Exhibit 10.22
                to
                Registrant's Form 8-K, dated February 26, 2004)10.21
            
            eLinear,
                Inc. 2004 Stock Option Plan (incorporated by reference to Exhibit
                A to
                Registrant's Definitive Information Statement, dated October 15,
                2004)
                *10.22
            
            Amendment
                to the Security Agreement and Ancillary Agreement with Laurus Master
                Funs,
                LLC (incorporated by reference to Exhibit 10.24 to Registrant's Form
                SB-2
                dated November 5, 2004)10.23
            
            Stock
                Purchase Agreement of TanSeco Systems, Inc. (incorporated by reference
                to
                Exhibit 10.25 to Registrant's Form SB-2 dated November 5,
                2004)10.24
            
            Service
                Agreement with RadioShack Corporation (incorporated by reference
                to
                Exhibit 10.26 to Registrant's Form SB-2 dated November 5,
                2004)10.25
            
            Form
                of Master Security Agreement, dated as of February 28, 2005, by and
                between eLinear, Inc., NetView Technologies, Inc., NewBridge Technologies,
                Inc., TanSeco Systems, Inc. and Investor (incorporated by reference
                to
                Exhibit 10.1 to Registrant's Form 8-K dated March 3,
                2005)




10.26
            
            Form
                of Common Stock Purchase Warrant Agreement, dated as of February
                28, 2005,
                by and between eLinear, Inc. and Investor (incorporated by reference
                to
                Exhibit 10.2 to Registrant's Form 8-K dated March 3,
                2005)10.27
            
            Form
                of Secured Convertible Term Note, dated as of February 28, 2005,
                by and
                between eLinear, Inc. and Investor (incorporated by reference to
                Exhibit
                10.3 to Registrant's Form 8-K dated March 3, 2005)10.28
            
            Form
                of Restricted Account Agreement, dated as of February 28, 2005, by
                and
                between eLinear, Inc., the bank and Investor (incorporated by reference
                to
                Exhibit 10.4 to Registrant's Form 8-K dated March 3,
                2005)10.29
            
            Form
                of Registration Rights Agreement, dated as of February 28, 2005,
                by and
                between eLinear, Inc. and Investor (incorporated by reference to
                Exhibit
                10.5 to Registrant's Form 8-K dated March 3, 2005)10.30
            
            Form
                of Stock Purchase Agreement, dated as of February 28, 2005, by and
                between
                eLinear, Inc. and Investor (incorporated by reference to Exhibit
                10.6 to
                Registrant's Form 8-K dated March 3, 2005)10.31
            
            Consulting
                Agreement dated December 22, 2005 with Kevan Casey (incorporated
                by
                reference to Exhibit 10.31 to Registrant's Annual Report on Form
                10-KSB,
                dated March 18, 2005) *10.32
            
            Form
                of Supplement, dated July 14, 2005, by and between Company and Investor.
                (incorporated by reference to Exhibit 10.1 to Registrant's Form 8-K
                dated
                July 20, 2005)10.33
            
            Form
                of Warrant, dated as of July 14, 2005, by and between eLinear, Inc.
                and
                Investor. . (incorporated by reference to Exhibit 10.1 to Registrant's
                Form 8-K dated July 20, 2005)10.34
            
            Form
                of Warrant, dated as of July 14, 2005, by and between eLinear, Inc.
                and
                Investor. . (incorporated by reference to Exhibit 10.1 to Registrant's
                Form 8-K dated July 20, 2005)10.35
            
            Form
                of Amended and Restated Secured Convertible Term Note, dated as of
                July
                14, 2005, by and between the eLinear, Inc. and Investor. (incorporated
                by
                reference to Exhibit 10.1 to Registrant's Form 8-K dated July 20,
                2005)10.36
            
            2005
                Employee Stock Purchase Plan (incorporated by reference to Exhibit
                A to
                Registrant's Definitive Information Statement, dated May 6, 2005)
                *10.37
            
            2005
                Stock Option Plan (incorporated by reference to Exhibit A to Registrant's
                Definitive Information Statement, dated May 6, 2005) *23.1
            
            Consent
                of Lopez, Blevins, Bork and Associates LLP31.1
            
            Certification
                of Tommy Allen31.2
            
            Certification
                of Phillip Michael Hardy32.1
            
            Certification
                for Sarbanes-Oxley Act of Tommy Allen32.2
            
            Certification
                for Sarbanes-Oxley Act of Phillip Michael Hardy*
                Indicates management contract or compensatory plan or
                arrangement.