**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**





**WASHINGTON,
      D.C. 20549**





FORM
          10-QSB/A (SECOND AMENDMENT)


[X]
      QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE


SECURITIES
      EXCHANGE ACT OF 1934


For
      the
      quarterly period ended March 31, 2004





[
      ]
      TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE


SECURITIES
      EXCHANGE ACT OF 1934 for the transition period from


_________________
      to _______________





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)








(713)
      896-0500


(Issuer's
      telephone number)











Check
      whether
      the issuer has (1) filed all reports required to be filed by Section 13 or
      15(d)
      of the Exchange Act during the past 12 months (or for such shorter period that
      the registrant was required to file such reports) and (2) has been subject
      to
      such filing requirements for the past 90 days.





Yes
      [X] No [
      ]




As
      of May 21,
      2004, there were outstanding 20,549,767 shares of common stock, $.02 par value
      per share.





Transitional
      Small Business Disclosure Format (Check one): Yes [ ] No [X]




















**eLINEAR,
      INC.**


INDEX
      TO
      FORM 10-QSB/A (SECOND AMENDMENT)


MARCH
      31,
      2004






**Page
                  No.****Explanatory
                Note**
              
              3**Part
                I**
              **Financial
                Information**Item
                  1.
              Financial
                  StatementsConsolidated
                  Balance Sheets March 31, 2004 (unaudited) and
                  December 31, 2003
              4Consolidated
                  Statements of Operations (unaudited) Three
                  Months Ended March 31, 2004 and2003
              5Consolidated
                  Statements of Cash Flow (unaudited) Three
                  Months Ended March 31, 2004 and 2003
              6Notes
                  to Unaudited Consolidated Financial
                  Statements
              7Item
                  2.
              Management’s
                  Discussion and Analysis of Results of Operations
                  and Financial Condition
              15Item
                  3.
              Controls
                  and Procedures
              19**Part
                  II**
              **Other
                  Information**Item
                1.
              Legal
                Proceedings
              20Item
                  2.
              Changes
                  in Securities and Use of
                  Proceeds
              20Item
                3.
              Defaults
                Upon Senior Securities
              21Item 4.
              Submission
                of
                Matters to a Vote of Security Holders
              21Item
                5.
              Other
                Information
              21Item
                  6.
              Exhibits
                  and Reports on Form 8-K
              22










**EXPLANATORY
          NOTE**
 
 **This
          Amendment No. 2 on Form 10-QSB/A amends eLinear’s quarterly report on Form
          10-QSB/A (First Amendment) for the quarter ended March 31, 2004, which
          was
          originally filed with the SEC on September 8, 2004. The purpose of this
          Amendment No. 2 is to revise the items set forth below based on comments
          received from the SEC staff on September 21, 2005. Except as otherwise
          expressly
          stated, this Amendment No. 2 does not reflect any events occurring after
          the
          filing of the original Form 10-QSB/A (First Amendment) filing, nor does
          it
          modify or update in any way the disclosures contained in the original Form
          10-QSB/A (First Amendment) filing. This Amendment No.2 continues to speak
          as of
          the date of the original Form 10-QSB/A (First Amendment) filing, except
          that
          eLinear has included as exhibits updated certifications from the Company’s chief
          executive officer and principal accounting officer, as Exhibits 31.1, 31.2,
          32.1
          and 32.2, respectively. This Amendment No.2 should be read in conjunction
          with
          the Company’s filings made with the SEC subsequent to the date of the original
          Form 10-QSB filing, including any amendments to those
          filings.**











**PART
      I. FINANCIAL INFORMATION**





Item
      1. FINANCIAL STATEMENTS





**eLINEAR,
      INC.**


**CONSOLIDATED
      BALANCE SHEETS**





March
                  31,
              
              December
                  31,2004
              
              2003**(Unaudited)**
              
              **(Restated)****ASSETS**
              
              **(Restated)**Current
                  assets:Cash
              
              $
              4,533,168
              
              $
              554,483Certificate of deposit
              
              
              500,000
              
              
              --Cash in restricted accounts
              
              
              500,000
              
              
              --Accounts Receivable, net of allowance of $94,288 at March 31,
                  2004and $69,289 at December 31, 2003, respectively
              
              
              2,553,099
              
              
              1,637,217Inventory
              
              
              308,155
              
              
              190,555Other current assets
              
              
              62,881
              
              
              45,708Total current assets
              
              
              8,457,303
              
              
              2,427,963Property
                  and equipment, net
              
              
              85,957
              
              
              43,662Goodwill
              
              
              1,491,102
              
              
              1,943,022Deferred
                  financing costs, net
              
              
              259,611
              
              
              --Deposits
              
              
              28,208
              
              
              15,049Total
                  assets
              
              $
              10,322,181
              
              $
              4,429,696**LIABILITIES
                  AND SHAREHOLDERS’ EQUITY (DEFICIT)**Current
                  liabilities:Accounts
                  payable, trade
              
              $
              652,571
              
              $
              1,101,603Payable
                  to officers
              
              
              --
              
              
              36,336Accrued
                  liabilities
              
              
              224,683
              
              
              148,747Notes
                  payable, officers
              
              
              --
              
              
              215,703Warrant
                  liability - current
              
              
              2,113,640
              
              
              --Total current liabilities
              
              
              2,990,894
              
              
              1,502,389Long-term
                  debt (less unamortized discount of $1,844,708)
              
              
              1,155,292
              
              
              --Compound
                  embedded derivative liability
              
              
              815,281
              
              
              --Warrant
                  liabilities - non current
              
              
              6,739,283
              
              
              --Total
                  liabilities
              
              
              11,700,750
              
              
              1,502,389Shareholders’
                  equity (deficit):Preferred
                  stock, $.02 par value, 10,000,000 shares authorized, none
                  issued
              
              
              --
              
              
              --Common
                  stock, $.02 par value, 100,000,000 shares authorized,20,530,167
                  and 17,020,754 shares issued and outstanding at
                March, 31, 2004 and December 31, 2003, respectively
              
              
              410,603
              
              
              340,415Additional
                  paid-in capital
              
              
              2,986,476
              
              
              3,982,631Accumulated
                  deficit
              
              
              (4,775,648
              )
              
              (1,395,739
              )Total shareholders’ equity (deficit)
              
              
              (1,378,569
              )
              
              2,927,307Total
                  liabilities and shareholders’ equity (deficit)
              
              $
              10,322,181
              
              $
              4,429,696








See
      accompanying notes to unaudited consolidated financial
      statements.













**eLINEAR,
      INC.**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**FOR
      THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003**


**(Unaudited)**


2004
              
              2003**(Restated)**
              
              **(Restated)**Revenue:Products
              
              $
              3,956,625
              
              $
              3,060,618Services
              
              
              218,453
              
              
              90,524Total revenue
              
              
              4,175,078
              
              
              3,151,142Cost
                  of Revenue:Products
              
              
              3,514,148
              
              
              2,485,082Services
              
              
              200,614
              
              
              78,321Total cost of revenue
              
              
              3,714,762
              
              
              2,563,403Gross
                  profit
              
              
              460,316
              
              
              587,739Operating
                  expenses:Payroll
                  and related expenses
              
              
              534,998
              
              
              248,226Office
                  administration
              
              
              229,094
              
              
              63,248Professional
                  services
              
              
              300,991
              
              
              167,825Impairment
                  of goodwill
              
              
              451,925
              
              
              --Other
              
              
              372,181
              
              
              16,097Depreciation
              
              
              8,505
              
              
              3,394Total operating expenses
              
              
              1,897,694
              
              
              498,790Income
                  (loss) from operations
              
              
              (1,437,378
              )
              
              88,949Change
                  in fair value of derivatives
              
              
              (1,926,279
              )
              
              --Interest,
                  net
              
              
              (16,252
              )
              
              (4,394
              )Net
                  income (loss)
              
              $
              (3,379,909
              )
              $
              84,555Net
                  income (loss) per share: basic
                  and diluted
              
              $
              (0.20
              )
              $
              0.01Weighted
                  average number of common shares outstanding:Basic
                  and diluted
              
              
              16,917,987
              
              
              13,932,238




See
        accompanying notes to unaudited consolidated financial
        statements.








**eLINEAR,
      INC.**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**FOR
      THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003**


**(Unaudited)**








2004
              
              2003(Restated)
              
              (Restated)Cash
                  flows used in operating activities:Net
                  income (loss)
              
              $
              (3,379,909
              )
              $
              84,555Adjustments
                  to reconcile net income (loss) to cash used in operating
                  activities:Depreciation
              
              
              8,505
              
              
              3,394Impairment
                  of goodwill
              
              
              451,920
              
              
              --Amortization
                  of debt discounts
              
              
              27,024
              
              
              --Change
                  in fair value of derivatives
              
              
              1,926,279
              
              
              --Stock
                  based compensation
              
              
              239,474
              
              
              --Changes
                  in assets and liabilities:Certificates
                  of deposit
              
              
              (500,000
              )
              
              --Cash
                  in restricted accounts
              
              
              (500,000
              )
              
              --Accounts
                  receivable
              
              
              (915,881
              )
              
              (114,353
              )Note
                  receivable
              
              
              --
              
              
              (53,500
              )Inventory
              
              
              (117,600
              )
              
              (175,771
              )Other
                  current assets
              
              
              (17,173
              )
              
              (2,943
              )Accounts
                  Payable
              
              
              (449,032
              )
              
              63,449Payable
                  to officers
              
              
              (31,336
              )
              
              91,000Accrued
                  liabilities
              
              
              53,820
              
              
              (4,429
              )Net
                  cash used in operating activities
              
              
              (3,203,909
              )
              
              (108,598
              )Cash
                  flows from investing activities:Purchase
                  of property and equipment
              
              
              (50,800
              )
              
              --Deposits
              
              
              (13,159
              )
              
              (1,303
              )Net
                  cash used in investing activities
              
              
              (63,959
              )
              
              (1,303
              )Cash
                  flows from financing activities:Proceeds
                  from notes payable due to officers
              
              
              --
              
              
              52,038Repayment
                  on notes payable due to officers
              
              
              (215,703
              )
              
              (25,050
              )Proceeds
                  from financing agreement
              
              
              2,539,515
              
              
              --Proceeds
                  from exercise of stock options
              
              
              338,150
              
              
              --Proceeds
                  from sale of common stock
              
              
              4,584,591
              
              
              --Net
                  cash provided by financing activities
              
              
              7,246,553
              
              
              26,988Net
                  increase (decrease) in cash
              
              
              3,978,685
              
              
              (82,913
              )Cash
                  and cash equivalents, beginning of period
              
              
              554,483
              
              
              120,894Cash
                  and cash equivalents, end of period
              
              $
              4,533,168
              
              $
              37,981Supplemental
                  cash flow information:Interest
                  paid
              
              $
              6,342
              
              $
              --







See
      accompanying notes to unaudited consolidated financial statements.








**eLINEAR,
      INC.**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
      31, 2004**








Note
      1.
      Organization and Nature of Business





STATEMENT
      OF INFORMATION FURNISHED





The
      accompanying unaudited consolidated financial statements of eLinear, Inc. and
      Subsidiaries (the "Company" or "eLinear") have been prepared pursuant to the
      rules and regulations for interim financial information and the instructions
      to
      Form 10-QSB and Regulation S-B. Accordingly, certain information and footnote
      disclosures normally included in financial statements prepared in accordance
      with generally accepted accounting principles in the United States have been
      omitted. In the opinion of management, the unaudited consolidated financial
      statements contain all adjustments (consisting of only normal recurring
      accruals) necessary to present fairly the financial position as of March 31,
      2004, and the results of operations and cash flows for the three months ended
      March 31, 2004 and 2003.





The
      preparation of financial statements in conformity with generally accepted
      accounting principles requires 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
      reported amounts of revenue and expenses during the reporting period. Operating
      results for interim periods are not necessarily indicative of the results that
      may be expected for the complete fiscal year. The accompanying unaudited
      condensed consolidated financial statements should be read in conjunction with
      the audited consolidated financial statements and notes thereto included in
      the
      Company's Annual Report on Form 10-KSB/A (Third Amendment) for the year ended
      December 31, 2003, previously filed with the Securities and Exchange
      Commission.





Note
          2.
          Restatement of Previously Issued Unaudited Consolidated Financial Statements
  In
          order to
          correct the financial statements so that they comply with U.S. generally
          accepted accounting principles (in particular, EITF 00-19, *Accounting
          for Derivative Financial Instruments Indexed to, and Potentially Settle
          In, a
          Company’s Own Stock)* ,
          the
          Company’s Unaudited Consolidated Balance Sheet, Unaudited Consolidated Statement
          of Operations and Unaudited Consolidated Statement of Cash Flow as of and
          for
          the three months ended March 31, 2004, have been restated to reflect a
          reclassification from equity to liabilities of the warrants and compounded
          embedded derivative that the Company issued in January and February 2004,
          and to
          reflect the change in fair value of the warrants and compound embedded
          derivative since issuance, as described in Note 6 “Credit Facilities” and Note 7
“Common Stock”.  As a result of this correction, the Company’s net loss for
          the three months ended March 31, 2004, increased from $1,480,630 to $3,379,909
          and the Company’s net loss per share increased from $0.09 to $0.20, basic and
          diluted.
 
 Following
          are
          restated balance sheet, statement of operations and statement of cash flow
          giving effect to the adjustments described in Note 6 “Credit Facilities” and
          Note 7 “Common Stock”.
  **eLINEAR,
          INC.**
 **CONDENSED
          CONSOLIDATED BALANCE SHEET**
 **(Unaudited)**


March
                  31,
              
              
              
              March
                  31,2004
              
              Adjustments
              
              2004**(Previously**
              
              
              
              **(Restated)****ASSETS**
              
              
              **Restated**
              **)**Current
                  assets:Cash
              
              $
              4,533,168
              
              
              
              
              $
              4,533,168Certificate of Deposit
              
              
              500,000
              
              
              
              
              
              500,000Cash in restricted accounts
              
              
              500,000
              
              
              
              
              
              500,000Accounts Receivable, net of allowance of $94,288 at March 1,
                  2004
              
              
              2,553,099
              
              
              
              
              
              2,553,099Inventory
              
              
              308,155
              
              
              
              
              
              308,155Other current assets
              
              
              62,881
              
              
              
              
              
              62,881Total current assets
              
              
              8,457,303
              
              
              
              
              
              8,457,303Property
                  and equipment, net
              
              
              85,957
              
              
              
              
              
              85,957Goodwill
              
              
              1,491,102
              
              
              
              
              
              1,491,102Deferred
                  financing costs, net
              
              
              259,611
              
              
              
              
              
              259,611Deposits
              
              
              28,208
              
              
              
              
              
              28,208Total
                  assets
              
              $
              10,322,181
              
              
              
              
              $
              10,322,181**LIABILITIES
                  AND SHAREHOLDERS’ EQUITY (DEFICIT)**Current
                  liabilities:Accounts
                  payable, trade
              
              $
              652,571
              
              
              
              
              $
              652,571Accrued
                  liabilities
              
              
              224,683
              
              
              
              
              
              224,683Warrant
                  liability - current
              
              
              --
              
              
              2,113,640
              
              
              2,113,640Total current liabilities
              
              
              877,254
              
              
              2,113,640
              
              
              2,990,894Long-term
                  debt (less unamortized discount of $1,844,708)
              
              
              1,794,924
              
              
              (639,632
              )
              
              1,155,292Compound
                  embedded derivative liability
              
              
              --
              
              
              815,281
              
              
              815,281Warrant
                  liabilities - non current
              
              
              --
              
              
              6,739,283
              
              
              6,739,283Total liabilities
              
              
              2,672,178
              
              
              9,028,572
              
              
              11,700,750Shareholders’
                  equity (deficit):Common
                  stock
              
              
              410,603
              
              
              
              
              
              410,603Additional
                  paid-in capital
              
              
              10,115,789
              
              
              (
                  7,129,313
              )
              
              2,986,476Accumulated
                  deficit
              
              
              (2,876,389
              )
              
              (1,899,259
              )
              
              (4,775,648
              )Total
                  shareholders’ equity (deficit)
              
              
              7,650,003
              
              
              (9,028,572
              )
              
              (1,378,569
              )Total
                  liabilities and shareholders’ equity (deficit)
              
              $
              10,322,181
              
              $
              --
              
              $
              10,322,181


























**eLINEAR,
      INC.**


**CONDENSED
      CONSOLIDATED STATEMENT OF OPERATIONS**


**FOR
      THE THREE MONTHS ENDED MARCH 31, 2004**


**(Unaudited)**





March
                  31,
              
              
              
              March
                  31,2004
              
              Adjustments
              
              2004**(Previously
                  Restated)**
              
              
              
              **(Restated)**Revenue:Products
              
              $
              3,956,625
              
              
              
              
              $
              3,956,625Services
              
              
              218,453
              
              
              
              
              
              218,453Total revenue
              
              
              4,175,078
              
              
              
              
              
              4,175,078Cost
                  of revenue:Products
              
              
              3,514,148
              
              
              
              
              
              3,514,148Services
              
              
              200,614
              
              
              
              
              
              200,614Total
                  cost of revenue
              
              
              3,714,762
              
              
              
              
              
              3,714,762Gross
                  profit
              
              
              460,316
              
              
              
              
              
              460,316Operating
                  expenses:Payroll
                  and related expenses
              
              
              534,998
              
              
              
              
              
              534,998Office
                  administration
              
              
              229,094
              
              
              
              
              
              229,094Professional
                  services
              
              
              300,991
              
              
              
              
              
              300,991Impairment
                  of goodwill
              
              
              451,925
              
              
              
              
              
              451,925Other
              
              
              372,181
              
              
              
              
              
              372,181Depreciation
              
              
              8,505
              
              
              
              
              
              8,505Total operating expenses
              
              
              1,897,694
              
              
              
              
              
              1,897,694Income
                  (loss) from operations
              
              
              (1,437,378
              )
              
              
              
              
              (1,437,378
              )Interest,
                  net
              
              
              (43,272
              )
              
              27,020
              
              
              (16,252
              )Change
                  in fair value of derivatives
              
              
              --
              
              
              (1,926,279
              )
              
              (1,926,279
              )Net
                  income (loss)
              
              $
              (1,480,650
              )
              
              (1,899,259
              )
              $
              (3,379,909
              )Net
                  income (loss) per share: basic
                  and diluted
              
              
              ($0.09
              )
              
              
              
              
              ($0.20
              )Weighted
                  average number of common shares outstanding:Basic
                  and diluted
              
              
              16,917,987
              
              
              
              
              
              16,917,987








**eLINEAR,
      INC.**


**CONDENSED
      CONSOLIDATED STATEMENT OF CASH FLOWS**


**FOR
      THE THREE MONTHS ENDED MARCH 31, 2004**


**(Unaudited)**





2004
              
              
              
              2004(Previously
                  Restated)
              
              Adjustments
              
              (Restated)Cash
                  flows used in operating activities:Net
                  income (loss)
              
              $
              (1,480,650
              )
              $
              (1,899,259
              )
              $
              (3,379,909
              )Adjustments
                  to reconcile net income (loss) tocash
                  used in operating activities:Depreciation
              
              
              8,505
              
              
              
              
              
              8,505Impairment
                  of goodwill
              
              
              451,920
              
              
              
              
              
              451,920Amortization
                  of debt discounts
              
              
              54,044
              
              
              (27,020
              )
              
              27,024Change
                  in fair value of derivatives
              
              
              --
              
              
              1,926,279
              
              
              1,926,279Stock
                  based compensation
              
              
              239,474
              
              
              
              
              
              239,474Changes
                  in assets and liabilities:Certificates
                  of deposit
              
              
              (500,000
              )
              
              
              
              
              (500,000
              )Cash
                  in restricted accounts
              
              
              (500,000
              )
              
              
              
              
              (500,000
              )Accounts
                  receivable
              
              
              (915,881
              )
              
              
              
              
              (915,881
              )Inventory
              
              
              (117,600
              )
              
              
              
              
              (117,600
              )Other
                  current assets
              
              
              (17,173
              )
              
              
              
              
              (17,173
              )Accounts
                  Payable
              
              
              (449,032
              )
              
              
              
              
              (449,032
              )Payable
                  to officers
              
              
              (31,336
              )
              
              
              
              
              (31,336
              )Accrued
                  liabilities
              
              
              53,820
              
              
              
              
              
              53,820Net
                  cash used in operating activities
              
              
              (3,203,909
              )
              
              --
              
              
              (3,203,909
              )Cash
                  flows from investing activities:Purchase of property and equipment
              
              
              (50,800
              )
              
              
              
              
              (50,800
              )Deposits
              
              
              (13,159
              )
              
              
              
              
              (13,159
              )Net
                  cash used in investing activities
              
              
              (63,959
              )
              
              --
              
              
              (63,959
              )Cash
                  flows from financing activities:Proceeds from notes payable to officers
              
              
              --
              
              
              
              
              
              --Repayment on notes payable due to officers
              
              
              (215,703
              )
              
              
              
              
              (215,703
              )Proceeds from financing agreement
              
              
              2,539,515
              
              
              
              
              
              2,539,515Proceeds from exercise of stock options
              
              
              338,150
              
              
              
              
              
              338,150Proceeds from sale of common stock
              
              
              4,584,591
              
              
              
              
              
              4,584,591Net
                  cash provided by financing activities
              
              
              7,246,553
              
              
              --
              
              
              7,246,553Net
                  increase in cash
              
              
              3,978,685
              
              
              
              
              
              3,978,685Cash
                  and cash equivalents, beginning of period
              
              
              554,483
              
              
              
              
              
              554,483Cash
                  and cash equivalents, end of period
              
              $
              4,533,168
              
              
              --
              
              $
              4,533,168Supplemental
                  cash flow information:Interest
                  paid
              
              $
              6,342
              
              $
              --
              
              $
              6,342











Note
      3.
      Stock Options





At
      March 31,
      2004, the Company had stock-based compensation plans, which are more fully
      described in Note 8 in the Company's Annual Report on Form 10-KSB/A (Third
      Amendment). In addition, 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 who are contributing to the Company's success. In
      order to remain fully effective, the Plan must be approved by the shareholders
      prior to February 10, 2005. There were no options issued pursuant to the 2004
      Plan as of March 31, 2004.





The
      Company
      applies and intends to continue to apply the recognition and intrinsic value
      measurement principles of Accounting Principles Board, (APB) Opinion No. 25,
      "Accounting for Stock Issued to Employees," and related Interpretations in
      accounting for those plans. No stock-based compensation expense was reflected
      in
      the net loss for the three month period ended March 31, 2004 because no options
      granted under the plans had an exercise price less than the market value of
      the
      underlying common stock on the date of the grant and did not begin to vest
      until
      after March 31, 2004.








The
      following
      table illustrates the effect on net income and earnings per share if eLinear
      had
      applied the fair value recognition provisions of FASB statement No. 123,
      Accounting for Stock-Based Compensation, to stock-based employee
      compensation.







Three
                  Months Ended
                March
                  31,2004
              
              2003Net
                  income (loss), as reported
              
              $
              (3,379,909
              )
              $
              84,555Deduct: Total stock based employeecompensation expense determined under the fairvalue
                  based method for all awards
              
              
              --
              
              
              --Pro
                  forma net income (loss)
              
              $
              (3,379,909
              )
              $
              84,555Net
                  income (loss) per share:Basic and diluted - as reported
              
              
              ($0.20
              )
              $
              0.01Basic and diluted - pro forma
              
              
              ($0.20
              )
              $
              0.01











The
      fair
      value of each option granted is estimated on the date of grant using the
      Black-Scholes option-pricing model with the following weighted average
      assumptions: dividend yield 0.0%, expected volatility of 102%, risk-free
      interest rate of 3.5%, and expected life of 48 months.











Note
          4 -
          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 credit facilities in the quarterly
          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
          quarterly 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 credit facilities
          and
          exercised in connection with the Warrant outstanding. Consequently, the
          Company's 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 7 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 of March 31, 2004 were not designated
          as
          hedges.


Note
      5.
      Impairment





In
      March
      2004, the Company recorded impairment expense totaling $451,925 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. Based on projected estimated
      future cash flows from the reporting unit purchased in 2003, management
      determined a full impairment charge was required.





Note
      6.
      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%). The agreement contains two notes: a minimum secured revolving note
      totaling $2,000,000 ("term note") and a revolving credit facility totaling
      $3,000,000 ("revolver") based on eligible accounts receivable.




The
      Contract
      Rate shall be adjusted as follows: if (i) eLinear shall have registered the
      shares of its Common Stock underlying the conversion of all currently issued
      and
      outstanding Minimum Borrowing Notes and the Warrant on a registration statement
      declared effective by the Securities and Exchange Commission, and (ii) the
      volume weighted average price of the Common Stock as reported by Bloomberg,
      L.P.
      on the principal market for any of the ten (10) trading days immediately
      preceding any applicable date upon which interest is payable under Section
      5
      hereof exceeds 125% of the applicable Fixed Conversion Price (as defined in
      the
      applicable Minimum Borrowing Note) (the “Specified Percentage”); then Contract
      Rate for the succeeding calendar month shall automatically be reduced by one
      hundred basis points (100 b.p.) for such month; provided that for each
      subsequent incremental twenty-five percent increase above the Specified
      Percentage, the Contract Rate shall be reduced by an additional two hundred
      basis pints (200 b.p.) for the succeeding calendar month, but in no event shall
      the Contract Rate be less than zero percent (0%).




The
      Company
      has a redemption option in regard to the Convertible 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.
      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 liquated 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.
      The Company is not obligated at any time to repurchase any portion of the Laurus
      shares not the shares underlying the warrants. 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.




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%.





**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. As of March 31, 2004,
      eligible receivables would not support additional borrowings under the facility.
      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 (4.00% as of March 31,
      2004) plus 0.75%. Laurus has the option to convert all or a portion of the
      advances under any secured convertible revolving note into shares of the
      Company’s common stock at any time, subject to certain limitations, at a fixed
      conversion price of $2.91 per share. The revolving credit facility is secured
      by
      all of the assets of the Company. The fixed conversion price is subject to
      adjustment for stock splits, stock dividends and share issuances. As of March
      31, 2004, the Company had approximately $1,000,000 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 $2.91 per share,
      provided that the closing price of the common stock is greater than $3.20 per
      share for the five trading days immediately preceding the payment date and
      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 $2.91
      per share. The term note is secured by a blanket lien on all of the Company’s
      assets. The fixed conversion price is subject to adjustment for stock splits,
      stock dividends, and share issuances. In conjunction with the term note, Laurus
      was paid a fee of $219,500 and received a seven-year warrant to purchase up
      to
      290,000 shares of the Company’s common stock at prices ranging from $3.05 to
      $3.32 per share. The warrants, which are exercisable immediately, were valued
      at
      $653,807 using a Black-Scholes option pricing model. The fees paid to Laurus
      were recorded as a discount to the term note and will be amortized over the
      term
      of the loan using the effective interest method.




In
        order to
        correct the financial statements so that they comply with U.S. generally
        accepted accounting principles, the Company has restated the Unaudited
        Consolidated Financial Statements as of March 31, 2004, to reclassify the
        Laurus
        warrants from additional paid in capital to liabilities and to record the
        change
        in fair value effective March 31, 2004, to reflect the fact that 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 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 other expense or other income. The company
        determined the fair value of the warrants as follows as of February 23, 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 (seven years);
        no
        dividends; a risk free rate of 3.5%, which equals the five-year yield on
        Treasure bonds at constant (or fixed) maturity; and volatility of 102%. Under
        the assumptions, the Black-Scholes option-pricing model yielded a value of
        $2.26
        for the $3.05 warrants, $2.25 for the $3.19 warrants and $2.24 for the $3.32
        warrants for an aggregate value of $653,807.




The
        Company
        performed the same calculations as of March 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 $2.99 per share and a risk free rate of 3.5%
        with
        all other input assumptions remaining substantially the same as at February
        23,
        2004. The resulting aggregate allocated value of the warrants as of March
        31,
        2004, equaled $728,530. The change in fair value of $74,723 was recorded
        for the
        three months ended March 31, 2004 and is primarily due to the increase in
        fair
        value of the underlying common stock from $2.71 per share to $2.99 per share
        from February 23 to March 31, 2004.




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. 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
        Company
        is also restating the unaudited Consolidated Financial Statements to record
        embedded derivatives rather than a beneficial conversion feature previously
        recorded of $510,282.




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 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 Convertible Notes, or 36 months.





Compound
        Embedded Derivative Liability




Using
        a
        layered discounted probability-weighted expected cash flow methodology, the
        fair
        value of the Derivative Liability with Compound Embedded Derivatives was
        computed at $998,425 and $815,281 as of February 23, 2004 and March 31, 2004,
        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
                  23,2004
              
              March
                  31,2004Assumptions
              
              (Inception)Risk
                  free interest rate
              
              
              2.21
              %
              
              1.99
              %Prime
                  rateIncreasing .25% each quarter of first year
              
              
              4.00
              %
              
              4.00
              %Timely
                  registrationIncreasing by 1% monthly up to 99%
              
              
              95.00
              %
              
              95.00
              %Default
                  statusIncreasing by .1% monthly
              
              
              5.00
              %
              
              5.00
              %Alternative
                  financing available and exercisedIncreasing 2.5% monthly up to 25%
              
              
              0.00
              %
              
              0.00
              %Trading
                  volume, gross monthly dollarsMonthly increase
              
              
              2.00
              %
              
              2.00
              %Annual
                  growth rate of stock price
              
              
              31.80
              %
              
              31.70
              %Future
                  projected volatility
              
              
              102.00
              %
              
              102.00
              %Ownership
                  limitationMonthly increase
              
              
              1.00
              %
              
              1.00
              %Reset
                  provisionIncreasing 5% monthly up to 25%
              
              
              0.00
              %
              
              0.00
              %




The
        decrease
        in the fair value of the derivative liability of $183,144 was recorded as
        a
“change in fair value of derivatives” for the period ended March 31,
        2004.





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





February
                  23, 2004
              
              March
                  31, 2004Notional
                  balance
              
              $
              3,000,000
              
              $
              3,000,000Adjustments:Discount for compound embedded derivatives
              
              
              (998,425
              )
              
              (998,425
              )Discount for Laurus warrants
              
              
              (653,807
              )
              
              (653,807
              )Discount for loan costs paid to Laurus
              
              
              (219,500
              )
              
              (219,500
              )Amortization of discounts
              
              
              --
              
              
              27,024Balance,
                  net of unamortized discount
              
              $
              1,128,268
              
              $
              1,155,292





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
      will be amortized using the effective interest method over the term of the
      loan
      agreement.





The
      Company
      retired its $1,000,000 credit facility with Textron Financial Corporation with
      the proceeds from the Laurus credit facility and entered into a new $500,000
      credit facility with Textron secured by a $500,000 letter of
      credit.





12




Note
      7.
      Common Stock





During
      the
      three months ended March 31, 2004, the Company issued 119,190 shares of common
      stock for services valued at $239,474 using the stock price on the date
      issued.





During
      the
      three months ended March 31, 2004, the Company issued 196,000 shares of common
      stock related to the exercise of stock options. The Company received proceeds
      totaling $338,150.




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 676,500
      shares of common stock at an exercise price of $3.00 per share (the "Class
      A
      Warrants"), and warrants to purchase 676,500 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.





All
      of the
      warrants 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.





All
      of the
      warrants 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.




In
        order to
        correct the financial statements so that they comply with U.S. generally
        accepted accounting principles, the Company has restated the Unaudited
        Consolidated Financial Statements as of March 31, 2004, to record the warrants
        as liabilities effective as of January 12 and February 4, 2004, to reflect
        the
        fact that 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 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 restatement reduced paid in capital as of March
        31,
        2004, by $6,089,693, increased common stock warrant liability as of March
        31,
        2004 by $8,124,393 and expense (change in fair value of derivatives) and
        the net
        loss for the three months ended March 31, 2004, by $2,034,700. The Company
        determined the fair value of the warrants as follows as of January 12 and
        February 4, 2004 (the issuance dates):





The
        Company
        used the Black Scholes option-pricing model with the following assumptions:
        and
        expected life equal to the contractual term of the warrants; no dividends;
        a
        risk free rate of 3.5%, which equals the five-year yield on Treasury bonds
        at


constant
        (or fixed) maturity; and volatility of 102%. Under these 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 March 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 $2.99 per share and a risk free rate of 3.5%
        with
        all other input
        assumptions remaining substantially the same as at January 12 and February
        4,
        2004. The resulting aggregate allocated value of the warrants as of March
        31,
        2004 equaled $8,124,393. The change in fair value for $2,034,700 was recorded
        for the three months ended
        March 31, 2004 and is primarily due to the fair value of the underlying common
        stock from $2.02 per share to $2.99 per share from January 12 to March 31,
        2004.




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 120th 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.





13




Note
      8.
      Common Stock Warrants





In
      connection
      with the equity (Note 7) and debt (Note 6) fundings, the Company issued warrants
      to acquire common stock at various prices. The following table summarizes the
      warrants outstanding as of March 31, 2004:










Exercise
                Price
            
            Financing
              Date
            
            Outstanding
              Warrants
            
            Expiration
                Date$0.70
            
            
            December
                2003
            
            
            26,166
            
            
            December
                2005$1.55
            
            
            January
                2004
            
            
            1,199,155
            
            
            March
                2005$1.89
            
            
            January
                2004
            
            
            1,296,388
            
            
            January
                2009$2.50
            
            
            February
                2004
            
            
            676,500
            
            
            February
                2006$3.00
            
            
            February
                2004
            
            
            676,500
            
            
            February
                2009Total
            
            
            
            
            
            3,874,709





All
      warrants
      are exercisable at March 31, 2004.




Note
      9.
      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 March 31, 2004, the Company's three business
      units, NetView (network and storage solutions), NewBridge (communications
      deployment) and eLinear (consulting services), have separate management teams
      and infrastructures that offer different products and services.








**FOR
      THE QUARTER ENDED MARCH 31, 2004**


**(Restated)**





Dollars
                  ($)
              
              Consulting
                  Services
              
              Network
                  and Storage Solutions
              
              Communications
                  Deployment
              
              ConsolidatedRevenue
              
              
              46,945
              
              
              3,956,625
              
              
              171,508
              
              
              4,175,078Segment
                  profit (loss)
              
              
              (3,361,578
              )
              
              94,503
              
              
              (112,834
              )
              
              (3,379,909
              )Total
                  assets
              
              
              4,653,444
              
              
              3,929,364
              
              
              1,739,373
              
              
              10,322,181Capital
                  expenditures
              
              
              15,375
              
              
              34,860
              
              
              565
              
              
              50,800Depreciation
              
              
              2,721
              
              
              4,159
              
              
              1,626
              
              
              8,505





**FOR
      THE QUARTER ENDED MARCH 31, 2003**


**(Restated)**




Dollars
                ($)
            
            Consulting
                Services
            
            Network
                and Storage Solutions
            
            Communications
                Deployment
            
            ConsolidatedRevenue
            
            
            --
            
            
            3,151,142
            
            
            --
            
            
            3,151,142Segment
                profit (loss)
            
            
            --
            
            
            84,555
            
            
            --
            
            
            84,555Total
                Assets
            
            
            --
            
            
            1,999,441
            
            
            --
            
            
            1,999,441Capital
                expenditures
            
            
            --
            
            
            --
            
            
            --
            
            
            --Depreciation
            
            
            --
            
            
            3,394
            
            
            --
            
            
            3,394




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.








Item
      2.
      MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS ANDFINANCIAL
      CONDITION





*The
      following
      discussion and analysis of the Company's financial condition as of March 31,
      2004, and its results of operations for the three-month periods ended March
      31,
      2004 and 2003, should be read in conjunction with the audited consolidated
      financial statements and notes included in eLinear's Form 10-KSB/A (Third
      Amendment) filed with the Securities and Exchange Commission.*





**OVERVIEW**





The
      Company's business currently consists of three 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.





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 quarter ended March 31, 2004, the consulting segment
      contributed 1% of its 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.





The
      Company
      completed the acquisitions of NetView and NewBridge during the last fiscal
      year.
      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 $451,925. In March 2004, the Company recorded impairment expense
      totaling $451,925 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. Based on projected estimated future cash flows from the reporting
      unit purchased in 2003, management determined a full impairment charge was
      required. Since NetView is deemed to be the acquiring company for accounting
      purposes, the financial information for the quarters ended March 31, 2004 and
      2003 is information derived from the consolidated financial statements of
      NetView, which contributed 95% of eLinear's revenue for the quarter ended March
      31, 2004.





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. NewBridge contributed 4% of eLinear's revenue for
      quarter ended March 31, 2004.





The
      Company's
      strategy is to expand its operations along the above three reporting segments
      through internal growth and through acquisitions. Whereas the Company has added
      two distinct reporting segments through the above listed acquisitions, it
      intends to expand its operations from all three reporting segments through
      the
      addition of personnel to increase sales. The changes in its business strategy
      have not affected its relationship with any of its customers. eLinear intends
      to
      utilize the proceeds from its recent offerings discussed below, as well as
      through additional offerings, to finance its internal growth and for any
      acquisitions. The Company does not have any commitments to raise additional
      funds, and it may be unable to do so in the future. If it does raise additional
      funds, it may do so at below market prices, which would cause dilution to its
      shareholders.





**RECENT
      DEVELOPMENTS**





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 $6,992,156. 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.





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 3 to the unaudited 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. The terms of the Company's agreement with Laurus requires it
      to
      file the registration statement within a definitive period of time not to exceed
      150 days from February 23, 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
      be 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 is
      not
      obligated at any time to repurchase any portion of neither the Laurus conversion
      shares nor the shares underlying the warrants.





15




**CRITICAL
      ACCOUNTING POLICIES**





General





The
      consolidated financial statements and notes included in this Form 10-QSB 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 the Company to
      make
      estimates and assumptions that affect the reported amounts of its assets and
      liabilities, and affect the disclosure of any contingent assets and liabilities.
      The Company 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. The significant accounting policies
      are
      described in its financial statements and notes included in its Form 10-KSB
      filed with the Securities and Exchange Commission.





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 underlying 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 future delivery of products or services or subject
      to
      customer-specified return of 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.





Goodwill





As
      of March
      31, 2004, the Company had $1,491,102 of goodwill resulting from the acquisition
      of NewBridge Technologies, Inc. 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. Due to the newness of the NewBridge
      acquisition, the Company has not performed an impairment assessment of the
      NewBridge acquisition. Due to the large amount of goodwill presently included
      in
      its financial reports, if impairment is required, its financial condition and
      results would be negatively affected.





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." These rules
      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 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 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 financial position. No stock-based
      compensation expense was reflected in the net loss for the three month period
      ended March 31, 2004, because no options granted under the plans had an exercise
      price less than the market value of the underlying common stock on the date
      of
      the grant and did not begin to vest until after March 31, 2004.





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 its 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
      its 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
      its consolidated results of operations or financial position.





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 credit facilities in the quarterly
        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
        quarterly 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 credit facilities
        and
        exercised in connection with the Warrant outstanding. Consequently, the
        Company's 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 7 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 March 31, 2004 were not designated as
        hedges.





16




**RESULTS
      OF OPERATIONS AND FINANCIAL CONDITION**





eLinear's
      primary business focus is on solving well-defined customer problems or providing
      a need-proven service. The Company is focused on delivering reliable and
      effective IT solutions, managed services, software, 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 three
      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 and NewBridge, eLinear 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 information technology outsourcing
      and consulting industry in which the Company operates has declined drastically
      with substantial overall reductions in information technology investments.
      This
      has resulted in a dramatic reduction in spending for information technology
      services overall, and a significant decrease in the amount of services the
      Company is able to sell. In order to reduce costs the Company closed its offices
      in Denver during 2002 and has concentrated its marketing efforts in the Houston
      market. However, due to the failure of Enron Corp. and weakening financial
      conditions of companies such as Dynegy Energy and Reliant Resources, the Houston
      market for information technology services in 2003 and 2004 has been hit
      particularly hard.





In
      order to
      diversify its business plan, eLinear began seeking merger candidates. It
      selected NetView due to its list of customers and management with the view
      toward cross-selling its consulting services with its network and storage
      solutions customers. The Company's 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. In addition to consulting services the Company
      previously provided, eLinear 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. eLinear intends
      to expand its business in all three segments of which it operates.





*Revenue.* Total
      revenue for the quarter ended March 31, 2004 was $4,175,078 which was an
      increase of 33% over the prior year period of $3,151,142. Revenue from the
      consulting services business segment for the quarter ended March 31, 2004 was
      $46,945, which was 1% of total revenue. The consulting services business segment
      has seen a significant decline in customer utilization during 2004 and 2003.
      Due
      to the significant reduction in customers, the Company significantly reduced
      its
      number of full-time employees and contract personnel during this period in
      order
      to reduce costs and conserve its limited resources. In addition, the former
      CEO
      and primary consultant of the Company resigned in May 2003 and the Company
      lost
      its primary consulting customer in March 2004. During February 2004, the Company
      hired a primary consultant and several consulting engineers and the Company
      does
      intend to concentrate its efforts on building additional consulting services
      customer relationships during the current fiscal year and, if successful, add
      additional personnel to increase its 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 the quarter ended March
      31,
      2004 was $3,956,625, which was an increase of $805,483, or 26% over the prior
      year quarter. The network and storage solutions business segment contributed
      95%
      of total revenue for the current year quarter. The Company was able to increase
      its revenue over the 2003 period primarily by the addition of sales personnel
      who had previous customer relationships. The increase in revenue was due to
      an
      increase in the amount of products sold and was not affected by an increase
      in
      pricing. The Company intends to focus on adding additional customers and
      personnel to service these customers. Revenue from the communications deployment
      business segment for the quarter ended March 31, 2004 was $171,508, which was
      4%
      of total revenue.





Of
      the
      revenue generated for the quarter ended March 31, 2004, two customers provided
      in excess of 10% of the Company's revenue with the Methodist Hospital
      contributing 19% and Michael’s Stores, Inc. 16% of total revenue. If the Company
      were to lose any of these customers, its financial results may be negatively
      affected.





*Cost
      of sales* .
      Total
      cost of sales for the quarter ended March 31, 2004 was $3,714,762, an increase
      of $1,151,359, or 45%, over the prior year period of $2,563,403. Neither the
      consulting services nor communications deployment business segments had cost
      of
      sales in the 2003 period. The Company hired a consulting manager to replace
      its
      former CEO and added several consulting engineers during the quarter ended
      March
      31, 2004 to begin growing its business through selling these services to its
      existing client base. Additionally for the network and storage solutions
      business segment, the cost of hardware and software as a percent of revenue
      increased from 81% for the 2003 period to 89% for the 2004 period which was
      a
      result of the addition of a major customer which received favorable pricing
      from
      the Company. In order to obtain and retain this customer, the Company lowered
      its standard pricing for the resale of computer hardware and software to this
      customer. The Company was unable to obtain a reduction in cost of hardware
      and
      software purchases from its vendors, resulting in a decrease in its gross
      margin. This customer was not a customer of the Company in the 2003 period.
      The
      Company does not anticipate the favorable pricing it has granted to this
      customer will change in the future. The third component of the increase was
      an
      inventory adjustment of approximately $55,000, which adjustment did not occur
      in
      the 2003 period.




For
      the
      network and storage solutions business segment, cost of sales is comprised
      of
      the costs associated with acquiring hardware and software to fill customer
      orders. For the consulting services business segment, cost of sales consists
      of
      full-time personnel and contract employee costs associated with projects eLinear
      provides to its customers for a fee. For the communications deployment business
      segment, cost of sales consists of materials and personnel to build the customer
      infrastructure. The increase in cost of sales was due to the cost of procuring
      hardware and software to fill an expanded number of customer orders. The
      Company’s principal suppliers of hardware and software products are Hewlett
      Packard and Cisco, which contributed 20% of its sales for the quarter ended
      March 31, 2004. This amounted to $3,514,148 for quarter ended March 31, 2004.
      The Company anticipates that cost of sales will increase as revenue
      increases.





*Gross
      profit.* Total
      gross profit decreased from $587,739 for the quarter ended March 31, 2003,
      to
      $460,316 for the quarter ended March 31, 2004. Total gross profit as a
      percentage of revenue decreased from 19% for the quarter ended March 31, 2003
      to
      11% for the current quarter. As described in the previous paragraph, the Company
      has hired additional personnel in its consulting services business segment
      in
      order to market those services to its existing customer base. The Company had
      not experienced an increase in revenue associated with the increased staffing
      costs during the quarter ended March 31, 2004, but anticipates its revenue
      and
      profit margin will improve in the future from this business segment.





17





*Operating
      expenses.* Total
      operating expenses for the quarter ended March 31, 2004 were $1,897,694, an
      increase of $1,398,904, or 281%, over the prior year quarter of $498,790. The
      various components of this increase are as follows:





•  The
      Company has added additional personnel in its network and storage solutions
      business segment to facilitate the rapid increase in customer orders, and it
      has
      reduced personnel in its consulting services business segment, reflecting an
      increase in the use of subcontractors to execute on projects as opposed to
      hiring full-time employees. At March 31, 2003, the Company employed 13 personnel
      in the network and storage solutions business segment, which had increased
      to 20
      as of March 31, 2004. The numbers of employees in the consulting services and
      communications deployment business segments as of March 31, 2004 were 6 and
      7,
      respectively. There were no payroll and related costs incurred during the prior
      fiscal quarter for the consulting services or communications deployment business
      segments. The net effect was an increase in payroll and related costs of
      $286,772, which costs are composed of payroll, payroll taxes and health
      insurance.





•  Office
      administration expenses increased from $63,248 for the 2003 period to $229,094
      for the current fiscal quarter. The components of office administration are
      office rent expense, office expenses, travel and entertainment expenses and
      staff development.





•  Professional
      services, which is comprised of legal, accounting and consulting fees, increased
      from $167,825 for the previous year quarter to $300,991 for the current fiscal
      quarter. The Company has incurred additional legal, accounting and outside
      services fees during the current fiscal quarter in association with its
      financings and current litigations.





•  As
      previously discussed, 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. Based on projected future cash flows from the reporting unit,
      management determined a full impairment charge of $451,925 was
      required.





•  Other
      expenses increased from $16,097 for prior year quarter to $372,181 for the
      current fiscal quarter. The Company has initiated an investor
      awareness/marketing program to reach out to current and potential investors
      and
      provide them with current news releases and information about eLinear as well
      as
      to establish nationwide name brand recognition to build the “eLINEAR” name for
      future business. This program consists of investor conferences, electronic
      media
      distribution, newspaper coverage, third party representation through
      introduction to institutional entries and radio coverage. The program was
      designed by in-house eLinear employees. The cost of this program during the
      quarter ended March 31, 2004 approximated $282,000. A majority of the remaining
      expenses was the Company’s listing fee to the American Stock Exchange.





*Interest,
        net* .
        Interest, net for the quarter ended March 31, 2004 increased to $16,252 from
        $4,394 for the prior year quarter. Interest expense for the three months
        ended
        March 31, 2004, includes $27,024 attributable to the amortization of debt
        discounts associated with the Laurus credit facility.





*Change
        in
        Fair Value of Derivatives.* Derivative
        liabilities in connection with the Laurus credit facility and common stock
        warrants resulted in expense of $1,926,279 for the three months ended March
        31,
        2004.





*Net
        Loss* .
        The net
        loss for the quarter ended March 31, 2004 was $3,379,909, or $0.20 per share
        basic and diluted, compared to net income of $84,555, or $0.01 per share
        basic
        and diluted, for the previous year quarter.





18




**LIQUIDITY
      AND CAPITAL RESOURCES**





Changes
        in
        cash flow. Net cash used in operating activities for the quarter ended March
        31,
        2004, was $3,203,909, compared to $108,598 for the prior year quarter. This
        was
        an increase of $3,095,311 over the prior year period. The primary components
        of
        net cash used in operating activities for fiscal 2003 were a net loss of
        $3,379,909, increases in accounts receivable resulting from increased sales
        when
        compared to the prior fiscal quarter and increased purchases of inventory
        associated with the increase in sales. The Company utilized a portion of
        the
        cash received from its sales of common stock to reduce its accounts payable,
        to
        purchase a certificate of deposit in the amount of $500,000 and to place
        $500,000 in a restrictive account. The cash used in operating activities
        was
        partially offset by non-cash charges totaling $2,680,172. The primary components
        of non-cash charges are impairment of goodwill of $451,920, change in fair
        value
        of derivative of $1,926,279 and stock based compensation of $239,474. Cash
        used
        in investing activities increased from $1,303 for the prior year fiscal quarter
        to $63,959 for the current fiscal quarter. The Company purchased property
        and
        equipment during the current period of $50,800 and paid a deposit on its
        new
        office lease, which increased deposits by $13,159. Cash provided by financing
        activities increased from $26,988 for the prior year fiscal quarter to
        $7,246,553 for the current fiscal quarter. This increase was attributable
        to
        sales of common stock of $4,584,591, net proceeds from the Laurus financing
        agreement of $2,539,515, and the exercise of stock options of $338,150. This
        was
        partially offset by the repayment of notes due to Messrs. Allen and Casey
        of
        $215,703.





*Capital
      Resources* .
      The
      Company has funded its operations through the sale of common stock, the exercise
      of stock options, short-term borrowings from two of its officers, lines of
      credit and the Laurus financing agreement. During January and February 2004,
      the
      Company sold shares of common stock in two private placements for aggregate
      net
      proceeds of $4,584,591. During the quarter ended March 31, 2004, the Company
      received $338,150 through the exercise of stock options. NetView has funded
      its
      operations by way of loans from Messrs. Allen and Casey. At December 31, 2003,
      the amount due these individuals was $215,703. These notes were subsequently
      repaid during January 2004. NetView has funded its purchases of network and
      storage solutions products primarily through vendor provided financing
      arrangements. In March 2003, NetView obtained a $1 million line of credit from
      Textron Financial Corporation to fund purchases of network and storage solutions
      product for delivery to customers. This line of credit was secured by all of
      its
      assets. In February 2004, the Company retired this line of credit, obtained
      a
      new $500,000 line of credit with Textron with a $500,000 letter of credit and
      entered into a new credit facility with Laurus Master Fund discussed
      below.





*Liquidity.* As of
      March 31, 2004, the Company had cash balances in non-restricted accounts of
      $4,533,168 and positive working capital of $7,580,049. In January 2004, the
      Company completed a private offering and raised gross proceeds of $2,533,850.
      In
      February 2004, the Company completed a private offering and raised gross
      proceeds of $2,460,000. Both of these agreements include warrants, which, if
      exercised, would raise an additional $8,029,621.





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. At March 31, 2004, the Company had drawn down
      $2,000,000 under the revolver and $1,000,000 under the term note.





As
      part of
      the above financings, 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 an upon the exercise of the warrants
      with in 15 days of the Company’s current SB-2 becoming effective or 150 days
      from February 23, 2004, whichever is earlier. If the Company does not file
      the
      SB-2 within the required timeframe it will be required to pay a 1.5% fee every
      thirty days. Laurus is limited to owning or beneficially owning a maximum of
      4.99% of the Company’s outstanding shares of common stock.





The
      Company
      believes it has sufficient capital to implement its business plan and to seek
      out acquisitions in order to more quickly grow its business. The Company
      believes it will begin to generate positive cash flow from operations during
      fiscal 2004 and believes that sufficient cash flow from operations will be
      available during the next twelve months to satisfy its short-term obligations.
      If expenses are in excess of its estimates or if revenues decline, the Company
      may need to obtain additional financing to fund its operations. If the Company
      is required to obtain additional financing, it will be required to do so on
      a
      best efforts basis, as it currently has no commitments for any further
      financing.





**OFF-BALANCE
      SHEET ARRANGEMENTS**





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





**NEW
      ACCOUNTING PRONOUNCEMENTS**





During
      December 2002, the FASB issued SFAS No. 148. Statement 148 establishes standards
      for two alternative methods of transition to the fair value method of accounting
      for stock-based employee compensation of FASB SFAS No. 123 “Accounting for
      Stock-Based Compensation" ("SFAS 123"). SFAS 148 also amends and augments the
      disclosure provisions of SFAS 123 and Accounting Principles Board Opinion 28
      "Interim Financial Reporting" to require disclosure in the summary of
      significant accounting policies for all companies of the effects of an entity's
      accounting policy with respect to stock-based employee compensation on reported
      net income and earnings per share in annual and interim financial statements.
      The transition standards and disclosure requirements of SFAS 148 are effective
      for fiscal years and interim periods ending after December 15, 2002. The Company
      has adopted only the disclosure provisions of this statement.





SFAS
      No. 150,
“Accounting for Certain Financial Instruments with Characteristics of Both
      Liabilities and Equity," was issued in May 2003 and requires issuers to classify
      as liabilities (or assets under certain circumstances) three classes of
      freestanding financial instruments that represent obligations for the issuer.
      SFAS No. 150 is effective for financial instruments entered into or modified
      after May 31, 2003 and is otherwise effective at the beginning of the first
      interim period beginning after December 15, 2003. The adoption of this statement
      did not have a material effect on the Company’s financial position, results of
      operations or cash flows.





Item
      3. Controls and Procedures





In
      accordance
      with the Securities Exchange Act of 1934 (“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 March
      31, 2004, 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.





As
        explained
        in Note 2 to the financial statements included herein, in order to correct
        the
        financial statements so that they comply with U.S. generally accepted accounting
        principles, the Comapny has restated its unaudited consolidated financial
        statements as of and for the three months ended March 31, 2004, to reflect
        a
        reclassification from equity to liabilities of the warrants and compounded
        embedded derivatives that the Company issued in February 2004, and to reflect
        the related change in fair value of the derivatives, as described further
        in
        Notes 2, 6, and 7 to the financial statements. Notwithstanding this restatement,
        the Company's management continues to believe that its disclosure controls
        and
        procedures were effective at a reasonable assurance level as of March 31,
        2004.
        The Company believes the restatements are a one-time occurrence and are due
        to
        the high complexity of the financing transactions and related judgmental
        accounting issues. The Company does not anticipate entering into any additional
        complex financing transactions involving embedded derivatives in the future
        and
        has hired a Chief Financial Officer.











**PART
      II OTHER INFORMATION**





Item
      1. 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 our 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.





On
      March 27,
      2003, the Company filed a motion to dismiss for failure to prosecute, since
      the
      plaintiff has failed to file any "record activity" in the case for a period
      of
      more than one year. On June 13, 2003, the motion to dismiss was denied and
      the
      case is moving forward. The Company intends to vigorously contest all claims
      in
      this case which is currently in the discovery phase.





On
      October
      17, 2003, the Company filed a civil suit against Jon Ludwig, its former CEO,
      for
      the following causes of action: breach of fiduciary duty; negligent
      misrepresentation; theft of trade secrets; theft/conversion of property;
      wrongful interference with existing and prospective contracts; and civil
      conspiracy. This case is currently in the 127th Judicial District in the
      District Court of Harris County, Texas. As of March 31, 2004, the Company has
      not requested a specific damage amount. Discovery in this case is at the
      beginning stages. Ipath, a direct competitor of the Company and the current
      employer of defendant Ludwig, was added as an additional defendant. The Company
      has claimed against Ipath for its complicity with Ludwig in the latter's breach
      of fiduciary duty.





Item
      2. Changes in Securities and Use of
      Proceeds.





**RECENT
      SALES OF UNREGISTERED SECURITIES**





All
      of the
      following 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 offer for
      sale
      in connection with any distribution thereof and appropriate legends were affixed
      to the share certificates and other instruments issued in such
      transactions.





In
      January
      2004, eLinear entered into a Securities Purchase Agreement with 16 accredited
      investors, pursuant to which it agreed to sell, and the investors agreed to
      purchase, an aggregate of 1,964,225 shares of 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, and
      warrants to purchase 1,090,145 shares of common stock at an exercise price
      of
      $1.55 per share expiring on the earlier of March 2005 or eight months from
      the
      date the Company's registration statement on Form SB-2 becomes
      effective.





In
      January
      2004, eLinear issued 66,190 shares of its common stock to two entities and
      an
      individual for investor relations services. The parties were sophisticated
      persons.





In
      February
      2004, eLinear entered into a Securities Purchase Agreement with 16 accredited
      investors, pursuant to which it agreed to sell, and the investors agreed to
      purchase, an aggregate of 1,230,000 shares of 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, and warrants
      to
      purchase 615,000 shares of common stock at an exercise price of $2.50 per share
      expiring on the earlier of February 2006 or one year from the date the Company's
      registration statement on Form SB-2 becomes effective.





In
      February
      2004, eLinear entered into a revolving credit facility with an accredited
      investor. Payment of interest and principal, under certain circumstances, can
      be
      made with shares of eLinear common stock at a conversion price of $2.91 per
      share. In connection with the execution of this credit facility, eLinear issued
      a seven-year warrant to purchase 290,000 shares of its common stock at exercise
      prices ranging from $3.05 to $3.32 per share.





In
      March
      2004, eLinear issued 3,000 shares of its common stock to an individual for
      consulting services. The individual was a sophisticated person.





In
      March
      2004, eLinear issued 50,000 shares of its common stock to an entity for legal
      services. The party was a sophisticated person.








Item
      3. Defaults Upon Senior Securities - None





Item
      4. Submission of Matters to a Vote of Security Holders -
      None





Item
      5. Other Information - None





21




Item
      6. Exhibits and Reports on Form 8-K





(a)
      Exhibits.
      The following exhibits of the Company are included herein.





Exhibit
      No.  Description





2.1 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 Kevan M. Casey (incorporated by reference to Exhibit 10.2 to
      Registrant's Annual Report on Form 10-KSB, dated April 15, 2003)


10.2 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)


10.3 2000
      Stock Option Plan (incorporated by reference to Exhibit 4.1 to Registrant's
      Definitive Proxy Statement on Schedule 14A, dated June 30, 2000)


10.4 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)


10.5 Amended
      and Restated 2003 Stock Option Plan (incorporated by reference to Exhibit 10.1
      to Registrant's Form S-8, dated January 14, 2003)


10.6 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)


10.7 Agreement
      between eLinear, Inc. and J. Leonard Ivins dated April 15, 2003 (incorporated
      by
      reference to Exhibit 10.10 to Registrant's Annual Report on Form 10-KSB, dated
      April 15, 2003)


10.8 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)


10.9 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)


10.10 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)


10.11 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)


10.12 Employment
      Agreement with Ramzi Milad Nassar (incorporated by reference to Exhibit 10.12
      to
      Registrant's Annual Report on Form 10-KSB, dated February 13, 2004)


10.13 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)


10.14 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)


10.15 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)


10.16 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)


10.17Common
      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)


10.18 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)


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)


10.20 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)


10.21 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)


14.1Code
      of
      Ethics (incorporated by reference to Exhibit 14.1 to Registrant’s Annual Report
      on Form 10-KSB, dated February 13, 2004)


21.1 Subsidiaries
      of Registrant (incorporated by reference to Exhibit 21.1 to Registrant’s Form
      10-QSB filed with the Commission on December 19, 2003)


31.1Certification
      of Michael Lewis


31.2Certification
      of Philip Michael Hardy


32.1Certification
      for Sarbanes-Oxley Act of Michael Lewis


32.2Certification
      for Sarbanes-Oxley Act of Philip Michael Hardy







(b)
      Reports
      on Form 8-K.




Registrant
      filed a report on form 8-K on February 26, 2004, disclosing events pursuant
      to
      Item 5 (Other Events). Included within the report were a Securities Purchase
      Agreement and exhibits for the sale of 1,964,225 shares of eLinear’s common
      stock for an aggregate purchase price of $2,533,850, including warrants to
      purchase additional common stock.




As
      part of
      Exhibit 99.1 to such report, the Company announced a $2.5 million private
      placement.











(b)
      Reports
      on Form 8-K.




Registrant
      filed a report on form 8-K on February 26, 2004, disclosing events pursuant
      to
      Item 5 (Other Events). Included within the report were a Securities Purchase
      Agreement and exhibits for the sale of 1,964,225 shares of eLinear’s common
      stock for an aggregate purchase price of $2,533,850, including warrants to
      purchase additional common stock.




As
      part of
      Exhibit 99.1 to such report, the Company announced a $2.5 million private
      placement.

















In
      accordance with the requirements of the Exchange Act, the registrant caused
      this
      report to be signed on its behalf by the undersigned, thereto duly
      authorized.




**eLINEAR,
              INC.**Date: April
              3, 2006
            By:
            /s/ Michael
              LewisMichael LewisChief
              Executive Officer









**eLINEAR,
              INC.**Date: April
              3, 2006
            By:
            /s/ Phillip
              Michael HardyPhillip Michael HardyPrincipal
              Financial and Accounting Officer






23