**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**Form
      10-KSB**





[X]
      ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For
      the
      fiscal year ended **DECEMBER
      31, 2005**





Commission
      File Number 0-33135





**ADSOUTH
      PARTNERS, INC.**


___________________________________


(Name
      of
      small business issuer in its charter)





Nevada
            
            68-0448219(State
                or other jurisdiction of Incorporation or organization)
            
            (I.R.S.
                Employer Identification No.)1141
                S. Rogers Circle, Suite 11, Boca Raton, FL
            
            33487(Address
                of principal executive offices)
            
            Zip
                Code





Issuer's
      telephone number ( 561 ) 750-0410





Securities
      Registered Pursuant to Section 12(b) of the Act: None





Securities
      Registered Pursuant to Section 12(g) of the Act:





Common
                Stock, par value $.0001(Title
                of class)





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





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





Indicate
      by check mark whether the registrant is a shell company (as defined in rule
      12b-2 of the exchange act. Yes [ ] No [X].





The
      Company had revenues of $13,314,000 for the year ended December 31,
      2005.





The
      aggregate market value of the registrant's common stock held by non-affiliates
      of the registrant was $1.8 million as of March 28, 2006.





There
      were 8,922,849 shares of the Company's common stock, $.0001 par value,
      outstanding as of March 28, 2006.





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





**DOCUMENTS
      INCORPORATED BY REFERENCE**





The
      information required by Items 9, 10, 11, 12 and 14 of Part III is incorporated
      by reference from the Registrant’s proxy statement for the 2006 annual meeting
      of stockholders, to be filed within 120 days after the end of the Registrant’s
      fiscal year .


1


**PART
      I**


**Item
      1. Description of Business**


**Statement
      Regarding Forward Looking Disclosure**




Statements
      in this Form 10-KSB annual report may be "forward-looking statements" within
      the
      meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking
      statements include, but are not limited to, statements that express our
      intentions, beliefs, expectations, strategies, predictions or any other
      statements relating to our future activities or other future events or
      conditions. These statements are based on current expectations, estimates and
      projections about our business based, in part, on assumptions made by
      management. These statements are not guarantees of future performance and
      involve risks, uncertainties and assumptions that are difficult to predict.
      Therefore, actual outcomes and results may, and are likely to, differ materially
      from what is expressed or forecasted in the forward-looking statements due
      to
      numerous factors, including those described above and those risks discussed
      from
      time to time in this Form 10-KSB annual report, including the risks described
      under "Risk Factors," and "Management's Discussion and Analysis of Financial
      Condition and Results of Operations" in other documents which we file with
      the
      Securities and Exchange Commission. In addition, such statements could be
      affected by risks and uncertainties related to product demand, our ability
      to
      develop, obtain rights to or acquire new products and successfully market the
      products, market and customer acceptance, competition, government regulations
      and requirements, pricing and development difficulties, our ability to make
      acquisitions and successfully integrate those acquisitions with our business,
      as
      well as general industry and market conditions and growth rates, and general
      economic conditions. Any forward-looking statements speak only as of the date
      on
      which they are made, and we do not undertake any obligation to update any
      forward-looking statement to reflect events or circumstances after the date
      of
      this Form 10-KSB.





The
      success of recent or contemplated future acquisitions will depend on the
      effective integration of newly-acquired businesses, products or services into
      the Company's current operations. Important factors for integration include
      realization of anticipated synergies and cost savings and the ability to retain
      and attract new personnel and clients.





This
      Annual Report also contains certain financial information calculated on a "pro
      forma" basis. Because "pro forma" financial information by its very nature
      departs from traditional accounting conventions, this information should not
      be
      viewed as a substitute for historical financial information prepared in
      accordance with GAAP contained in the Company's financial statements that are
      contained in this Annual Report and should be read in conjunction
      therewith.





Investors
      should evaluate any statements made by the Company in light of these important
      factors.




**Available
      Information**





Information
      regarding the Company's annual reports on Form 10-KSB, quarterly reports on
      Form
      10-QSB, current reports on Form 8-K, and any amendments to these reports, are
      available to the public from the SEC's website at http://www.sec.gov as soon
      as
      reasonably practicable after the Company electronically files such reports
      with
      the Securities and Exchange Commission. Any document that the Company files
      with
      the SEC may also be read and copied at the SEC's public reference room located
      at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549.
      Please call the SEC at 1-800-SEC-0330 for further information on the public
      reference room.





2


**PART
      I**


**Item
      1. Description of Business**


**Introduction**





Our
      business consists of two operating sectors, advertising and products.





Since
      July 8, 2003, when Adsouth, Inc. was formed, we have provided advertising agency
      services specializing in direct response media campaigns. Our advertising agency
      services include (i) the placement of advertising in television, internet and
      print media outlets; (ii) the production of advertising content including
      television commercials, print advertising and other graphics design literature;
      and (iii) advertising and marketing consulting services. Our advertising sector
      revenues were $7,730,000 for 2005 and $2,925,000 for 2004.





Our
      strategy is to combine our advertising and direct marketing resources with
      our
      knowledge of the retail market to develop, acquire or obtain rights to products
      which we believe can our enhance our overall business. In furtherance of this
      strategy we have obtained the rights to the following products, which are sold
      by our products sector.





•
            The
                Dermafresh line of skin care product, which we acquired in February
                2004.
                At that time there was one product, a microdermabrasion kit skin
                care
                product. Since then, we have expanded the line and it presently consists
                of nine skin care products.





•
            Simon
                Cosmetic’s line of skin care products, for which, in October 2004, we
                obtained a two year exclusive distribution license for North America.
                The
                initial Simon Solutions Line product is a Lip Solution Product, a
                lip
                enhancement product that is endorsed by Pamela Sue Anderson.





•
            e70
                brand, a line of products created by Delmar, Inc., which utilize
                Delmar’s
                proprietary technology utilized in skin care formulations which
                incorporates the whole egg and is used in Delmar’s proprietary L’Avenir
                products , for which, in February 2005, we obtained a two year exclusive
                distribution agreement for mass market distribution in the United
                States
                and Canada.





•
            Hercules
                Hook, a patented hook for hanging items on walls, for which in August
                2005, we obtained exclusive five year marketing and distribution
                rights.
                We are utilizing direct response veteran Billy Mays to market the
                Hercules
                Hook.





•
            PEARL
                - Anti Wrinkle/ Moisturizing Mist, an advanced anti-wrinkle moisturizing
                treatment used by members of the entertainment industry, for which
                in
                October 2005, we obtained an exclusive two year distribution agreement
                with StarMaker Products for domestic and international distribution.
                StarMaker Products is a joint effort between director and former
                Happy
                Days star, Anson Williams and renowned makeup artist and product
                developer
                JoAnna Connell.





•
            D-Shed,
                a pet grooming device, for which in August, 2005, we obtained exclusive
                distribution rights.





•
            Extreme
                Beam and Clip Light - During 2005 we internally developed and marketed
                two
                lines of flashlights branded as the “Extreme Beam Flashlight” and the
                “Clip Light”.





•
            Genco
                Power Solutions - In December 2005, we organized Genco Power Solutions,
                Inc. (“Genco”) for the purpose of marketing, selling, installing and
                servicing integrated power generator systems to residential homeowners
                and
                commercial business throughout Florida. We own 66% of Genco and four
                individuals own the remaining 34% of
                Genco.





•
            The
                Miko brand, which consists of nine marinades and dressings, which
                we
                acquired in January 2005, for which we have conducted limited marketing
                to
                date...





We
      generated product revenue of $5,584,000 for 2995 and $1,119,000 for
      2004.





3


**PART
      I**


**Item
      1. Description of Business**


**Corporate
      Information**





We
      are a
      Nevada corporation organized under the name Zenith Transportation, Inc., in
      December 1998. Our name was changed to Zenith Technology, Inc. in February
      1999.
      In January 2004, in a transaction characterized as a reverse acquisition, we
      acquired Adsouth, Inc. and our corporate name was changed to Adsouth Partners,
      Inc. The transaction by which we acquired the stock of Adsouth, Inc. is referred
      to in this Form 10-KSB as the "reverse acquisition." From and after January
      8,
      2004, our business was the business conducted by Adsouth, Inc. prior to the
      reverse acquisition.





The
      reverse acquisition was effected through a share exchange agreement dated
      January 4, 2004 by and among The Tiger Fund, Inc., which was then our
      controlling stockholders, us and John P. Acunto, Jr. and Angela E. Acunto,
      who
      were the sole stockholders of Adsouth, Inc. Pursuant to the share exchange
      agreement, The Tiger Fund transferred 1,866,667 shares of common stock to Mr.
      and Mrs. Acunto in consideration for which they transferred all of the
      outstanding stock of Adsouth, Inc. to us. Upon completion of the share exchange
      transaction, the control of our company had changed such that Mr. and Mrs.
      Acunto collectively owned more than 50% of our outstanding common
      stock.





The
      accounting rules for reverse acquisitions require that beginning January 4,
      2004, our balance sheet includes the assets and liabilities of Adsouth, Inc.
      and
      our equity accounts were recapitalized to reflect the net equity of Adsouth,
      Inc. In addition, the 2003 operating results are those of Adsouth,
      Inc.





Our
      executive offices are located at 1141 S. Rogers Circle, Suite 11, Boca Raton,
      Florida 33487, telephone (561) 750-0410. Our website is www.adsouthinc.com .
      Neither
      the information nor other statements contained in our website nor the
      information contained in any other Internet website is a part of this annual
      report on Form 10-KSB.





**Reverse
      Split**





On
      March
      24, 2005, the Company effected a one-for-15 reverse split of its common stock.
      All share and per share information in this Form 10-KSB Annual Report
      retroactively reflects such reverse split.




**Risk
      Factors**




***Risks
      Concerning Our Advertising Business***




*Because
      of our dependence on a limited number of clients, our failure to generate
      business from new customers for our advertising business could impair our
      ability to continue in that business* .




During
      2005, 49% of our total revenues, representing 84% of advertising sector
      revenues, were from one advertising sector client that was not a client in
      2004.
      During 2004, 67% of our total revenues, representing substantially all of our
      advertising sector revenues, were derived from one advertising sector customer
      that was not a client in 2005 and during 2004 we reserved $482,000 of
      receivables from such client. Since our inception we have remained dependent
      on
      a limited number of clients. The
      absence of a significant client base may impair our ability to attract new
      clients. We cannot assure you that we will be able to operate our advertising
      business profitably. We are exposed to credit risk associated to sales to our
      clients.





*Because
      our advertising clients are generally smaller companies that are highly subject
      to fluctuations in the economy, our advertising business will be especially
      subject to adverse economic trends.*




Since
      downturns in the economy have generally had a more severe effect upon smaller
      companies, especially single-product companies with limited product acceptance,
      than larger companies, any changes or anticipated changes in the economy which
      cause these companies to reduce their advertising, marketing and promotion
      budget or which affect the ability of these companies to borrow money or raise
      capital or otherwise implement their business plans would impair our advertising
      business by reducing if not eliminating the requirements of these companies
      for
      our services or the ability of these companies to pay for our
      services.




4


**PART
      I**


**Item
      1. Description of Business**




*Our
      failure to develop and sustain long-term relationships with our clients would
      impair our ability to continue our advertising business* .




Almost
      all of our agreements for our advertising services are performed pursuant to
      short-term or single project engagements. If our clients do not continue to
      use
      our services, and if we are unable always to replace departing clients or
      generate new business in a timely or effective manner our advertising business
      could suffer a significant loss in revenue.




*Because
      we are a small company, with only modest revenue and significant losses to
      date
      from our advertising business, we may not be able to compete
      effectively.*




Our
      advertising business generated revenues of $7,730,000 for 2005, on which it
      operated on a breakeven basis and generated $653,000 of cash flows from
      operations. For 2004, our advertising business generated revenues of $2,925,000,
      on which it sustained a loss of $4,302,000 (including $3,718,000 of non cash
      stock based compensation expense for 2004 compared to $141,000 for 2005) and
      a
      cash flow deficit from operations of $368,000. With this level of business,
      it
      is difficult for us to compete in the highly competitive advertising market,
      which is dominated by both major national and international advertising
      agencies, major providers of creative or media services which are not themselves
      advertising agencies, and a significantly larger number of regional and local
      agencies. The client’s perception of the quality of our creative product, our
      reputation and our ability to serve clients are, to a large extent, factors
      in
      determining our ability to generate and maintain advertising business. Our
      size
      and our lack of significant revenue and our losses may affect the way that
      potential clients view us.




***Risks
      Concerning our Products***




*Because
      we are dependent upon a small number of major retail chains for sales of our
      products, the loss of any of these customers could result in a significant
      decrease in both revenues and income from our product
      business.*




During
      2005, 17% of our total revenues, representing 39% of our product revenues,
      were
      derived from one customer. During 2004, 21% of our total revenues, representing
      74% of our product revenues, were derived from this customer. Unless we can
      develop a broader customer base, we expect that we will remain dependent on
      a
      limited number of clients. The loss of any one or more of these product
      customers would significantly reduce our product revenues. Further, a
      determination by one of the major chains to whom we sell our products to no
      longer continue to sell our products could affect the willingness of other
      retailers and retail chains to purchase our products.




*Because
      we sell our products to discount chains, we are dependent upon the purchasing
      and return policies of these chains.*




We
      sell
      our product to discount chains and because of their buying power, we are subject
      to their policies on such matters as accepting and scheduling deliveries,
      payment and returns. In order to sell products to these chains we may have
      to
      sell at a price that is less that our standard selling prices and also place
      reserves against the accounts receivables from these chains, which may impair
      our ability to operate profitably by reducing our gross margins and increasing
      our selling, general and administrative expenses.




*The
      products which we sell are unrelated to our advertising business, and we may
      not
      be able to generate profits from this line* .




Our
      products business and the market for our products are different from our
      advertising business. The markets to which we market our products are highly
      competitive. Our ability to operate this business profitably will be dependent
      upon a number of factors, including: (i) our ability to obtain shelf space
      and
      desirable displays in stores, in face of competition from numerous major and
      specialty product companies that presently dominate the market for those
      products; (ii) our ability to price our products at levels that make them
      attractive to retail customers and enable us to generate a sufficient gross
      margin to enable us to generate profits from the sales; (iii) the consumer’s
      response to our products, including their willingness to make repeat purchases;
      and, (iv) the word-of-mouth response to our products and our ability to develop
      brand recognition for our products. If
      we are
      not able to obtain and retain shelf space or if the consumer’s response to our
      products is not favorable, we may be unable to continue in this business.
      Furthermore, even if we are initially successful in placing our products in
      our
      target retail markets, the failure to generate customer acceptance is likely
      to
      affect our ability to retain shelf space. We cannot assure you that we will
      be
      successful in generating either adequate shelf space or customer
      acceptance.




5


**PART
      I**


**Item
      1. Description of Business**




*Because
      our distribution agreements have a short period of exclusivity, we may not
      be
      able to get the full value of our distribution rights if the agreements are
      not
      extended.*




Our
      present distribution agreements give us exclusive rights for a period of one
      to
      five years. Because of the time and effort and normal delays associated with
      product introduction, if the product is successful, unless the agreement is
      extended, we may incur significant cost in introducing and generating interest
      in the product with no assurance that we will have any rights to market the
      product once consumers have accepted the products. As a result, we may be unable
      to receive the long-term benefits of our efforts in introducing the product.




*We
      may be subject to claims arising from the use of our products* .




As
      a
      company that markets and sells skin care and related products, we may be subject
      to claims relating to such concerns as allergic or other reaction to the
      products and claims as to the efficacy of the products even if the products
      are
      manufactured by others. We cannot assure you that we will not be subject to
      such
      claims or that we will be successful in defending any such claims. Any
      litigation, regardless of the outcome, would entail significant costs and use
      of
      management time which could impair our ability to generate revenue and profit.
      In the event that we have liability from a claim relating to any of our
      products, our insurance may not be sufficient to cover our liability. Although
      we presently have product liability insurance, it may not be available in the
      future at a reasonable cost, if at all.




*Because
      we have no manufacturing facilities we are dependent upon third party suppliers
      to manufacture our products* .




All
      of
      our products are or will be manufactured for us by non-affiliated manufacturers
      pursuant to purchase orders, and we do not have any long-term agreements with
      any supplier. We rely upon our suppliers to develop and test their formulations,
      to produce a uniform product for us in facilities that comply with applicable
      laws, to implement adequate quality control procedures and to deliver product
      to
      us in a timely manner. The failure of our suppliers to do any of the foregoing
      could affect both our ability to delivery quality product in a timely manner
      and
      the willingness of our customers to purchase our products. Further, in the
      event
      that we change suppliers, it may be necessary to change the formulations of
      one
      or more of our products, and we cannot assure you that we will have a smooth
      transition to a new supplier or that we will not encounter other serious
      problems in the quality or delivery of products resulting from a change in
      supplier.




*We
      do
      not have patent rights for all of our products* .




Although
      our suppliers have advised us that they have patent rights or licenses to those
      ingredients in our formulations which are proprietary and that the formulations
      have been developed either by the manufacturers or by us, we cannot assure
      you
      that our skin care or other products do not infringe upon the patent or other
      proprietary rights of others. In the event that a supplier’s formulation
      infringes upon the rights of a third party, the third party may include us
      in
      any litigation, which may be expensive regardless of whether we or our
      manufacturer ultimately prevails.




*Because
      our products are sold in different markets, we may be unable to develop a
      unified marketing strategy which may impair our ability to
      grow.*




Many
      of
      our present products are unrelated to other products, are sold under different
      names and through different distribution channels. In
      seeking new products or the rights to new products, we may obtain rights to
      products that are not related to each other or to any of our existing products
      and which are not sold in the same product market or geographic market as
      products which we are then marketing. Since each type of product requires a
      separate marketing strategy and marketing organization, we may incur expenses
      in
      duplicating marketing and sales organizations for totally unrelated
      products and we
      may not be able to translate any brand acceptance to other products. Further,
      w e
      may not
      be able to integrate these operations and to the extent that we duplicate
      organizations for different products, our ability both to grow and to operate
      profitably may be affected.




6


**PART
      I**


**Item
      1. Description of Business**




*Because
      of our size, we may have difficulty competing with larger companies that offer
      similar products* .




Our
      revenues from products for 2005 and 2004 are $5,584,000 and $1,119,000,
      respectively. All of our products compete in highly competitive markets that
      are
      dominated by major international companies as well as numerous smaller companies
      whose product names are well recognized and who have ready access to shelf
      space
      in retail outlets. We may not be able to compete successfully with such
      competitors is obtaining shelf space or customer acceptance.




***General
      Risks Concerning our Business***




*We
      require additional funds to develop and expand our business* .




At
      December 31, 2005, we had a working capital of approximately $1,841,000, which
      included a $100,000 certificate of deposit which was restricted since it is
      held
      as collateral by a lender. We require significant cash during 2006 both to
      purchase products for sale and to implement an aggressive marketing program
      for
      both our new products and our generator business. We
      do not
      have any credit facility for the purchase of inventory and our ability to
      generate revenue will be impaired to the extent that we are not able to purchase
      sufficient inventory in a timely manner . We
      have
      rights to products that we have not yet introduced to market. W e
      will
      need additional funds in order to continue growing our business, including
      the
      market introduction of our products and the expansion of the market for our
      existing products. Our
      failure to generate cash flow from operations or raise the necessary capital
      could affect our ability to generate revenue and could require us to scale
      down
      some or all of our operations. We are exposed to interest rate risks under
      our
      current factoring agreement pursuant to which we pay interest of 2% plus their
      variable base rate.




*Because
      of the terms on which we sell products to certain retailers, we have incurred
      difficulties in purchasing inventory and have had to borrow at high interest
      rates.*




Two
      of
      our major customers purchase products from us on a “pay on scan” basis, which
      means that the customer has no obligation to make payment to us until and unless
      the product is sold to a customer. Because we do not generate an account
      receivable until the product is ultimately sold by the retailer, we do not
      have
      an account receivable to sell to our factor, which impairs our cash flow and
      our
      ability to purchase additional inventory. Although we borrowed $1 million on
      a
      demand basis from an unrelated lender at an interest of 18% per annum and the
      guarantee of our principal stockholder, we cannot assure you that the lender
      will not demand payment or that we will be able to finance such sales in the
      future, which could impair our ability both to place product in two major retail
      accounts and to generate revenue.




*The
      terms on which we may raise additional capital may result in significant
      dilution and may impair our stock price.*




Because
      of our stock price and the terms of our recent private placement, it may be
      difficult for us to raise additional capital if required for our present
      businesses and for any planned expansion. We cannot assure you that we will
      be
      able to get additional financing on any terms, and, if we are able to raise
      funds, it may be necessary for us to sell our securities at a price which is
      at
      a significant discount from the market price and on other terms which may be
      disadvantageous to us. In connection with any such financing, we may be required
      to provide registration rights to the investors and pay damages to the investor
      in the event that the registration statement is not filed or declared effective
      by specified dates. The price and terms of any financing which would be
      available to us could result in both the issuance of a significant number of
      shares and significant downward pressure on our stock price and could result
      in
      a reduction of the conversion price of the series B preferred stock and exercise
      price of the warrants held by the selling stockholders.




*We
      may not be able to continue to grow through acquisitions* .




An
      important part of our growth strategy is to obtain the rights to other product
      lines or acquire other businesses, which may or may not be related to our
      current businesses. Such acquisitions may be made with cash or our securities
      or
      a combination of cash and securities. To the extent that we require cash, we
      may
      have to borrow the funds or sell equity securities. The issuance of equity,
      if
      available, would result in dilution to our stockholders. We have no commitments
      from any financing source and we may not be able to raise any cash necessary
      to
      complete an acquisition. If we fail to make any acquisitions, our future growth
      may be limited. As of the date of this prospectus, we do not have any agreement
      or understanding, either formal or informal, as to any acquisition.




7


**PART
      I**


**Item
      1. Description of Business**




*If
      we
      make any acquisitions, they may disrupt or have a negative impact on our
      business* .




We
      may
      not be able to identify and integrate future acquisitions. If we make
      acquisitions, we could have difficulty integrating the acquired companies’
personnel and operations with our own. In addition, the key personnel of the
      acquired business may not be willing to work for us. We cannot predict the
      affect expansion may have on our core business. Regardless of whether we are
      successful in making an acquisition, the negotiations could disrupt our ongoing
      business, distract our management and employees and increase our expenses.




In
      addition to the risks described above, acquisitions are accompanied by a number
      of inherent risks, including, without limitation, the following:




•
            the
                difficulty of integrating acquired products, services or
                operations;




•
            the
                potential disruption of the ongoing businesses and distraction of
                our
                management and the management of acquired companies;




•
            the
                difficulty of incorporating acquired rights or products into our
                existing
                business;




•
            difficulties
                in disposing of the excess or idle facilities of an acquired company
                or
                business and expenses in maintaining such facilities;




•
            difficulties
                in maintaining uniform standards, controls, procedures and policies;




•
            the
                potential impairment of relationships with employees and customers
                as a
                result of any integration of new management
                personnel;




•
            the
                potential inability or failure to achieve additional sales and enhance
                our
                customer base through cross-marketing of the products to new and
                existing
                customers;




•
            the
                effect of any government regulations which relate to the business
                acquired;




•
            potential
                unknown liabilities associated with acquired businesses or product
                lines,
                or the need to spend significant amounts to retool, reposition or
                modify
                the marketing and sales of acquired products or the defense of any
                litigation, whether of not successful, resulting from actions of
                the
                acquired company prior to our acquisition.




Our
      business could be severely impaired if and to the extent that we are unable
      to
      succeed in addressing any of these risks or other problems encountered in
      connection with these acquisitions, many of which cannot be presently
      identified, these risks and problems could disrupt our ongoing business,
      distract our management and employees, increase our expenses and adversely
      affect our results of operations.




*Because
      we are dependent on our management, the loss of key executive officers or a
      key
      consultant and the failure to hire additional qualified key personnel could
      harm
      our business* .




Our
      advertising business is largely dependent upon John P. Acunto, Jr., who was,
      until June 2005, our chairman and chief executive officer and who is now a
      consultant to us, and our products business is largely dependent upon our
      president and chief executive officer, John Cammarano, Jr. These businesses
      may
      be adversely affected if Mr. Cammarano or any of our key management personnel
      or
      other key employees left our employ or Mr. Acunto terminated his consulting
      relationship with us. Although we have an employment agreement with Mr.
      Cammarano and a consulting agreement with Mr. Acunto, these agreements do not
      guarantee that they will continue with us. Furthermore, we need to hire
      additional executive, managerial, marketing and other key employees for our
      direct response marketing business and our products business. We cannot assure
      you that we will be successful in engaging and retaining such personnel and
      the
      failure to engage qualified personnel will have a material adverse effect upon
      our business. See “Management - Directors and Executive Officers.”




8


**PART
      I**


**Item
      1. Description of Business**





*Control
      by our present principal stockholder might limit independent, public stockholder
      influence over us and prevent a third party from acquiring us even if an
      acquisition is in the best interest of our stockholders* .




As
      of
      December 31, 2005, John P. Acunto, Jr., who was our chairman of the board and
      chief executive officer until June 2005 when he became a consultant to us,
      together with his wife, Angela E. Acunto, hold 41.4% of our outstanding shares
      of common stock, and at a meeting of stockholders, they may be able to elect
      all
      of the members of our board of directors and approve any matter requiring
      stockholder approval.




***Risks
      Concerning our Common Stock***




*Because
      we are subject to the “penny stock” rules, you may have difficulty in selling
      our common stock.*




Because
      our stock is traded on the OTC Bulletin Board and our stock price is less than
      $5.00, our stock is subject to the SEC’s penny stock rules, which impose
      additional sales practice requirements and restrictions on broker-dealers that
      sell our stock to persons other than established customers and institutional
      accredited investors. These rules may affect the ability of broker-dealers
      to
      sell our common stock and may affect your ability to sell any common stock
      you
      may own.




According
      to the SEC, the market for penny stocks has suffered in recent years from
      patterns of fraud and abuse. Such patterns include:




•
            Control
                of the market for the security by one or a few broker-dealers that
                are
                often related to the promoter or
                issuer;




•
            Manipulation
                of prices through prearranged matching of purchases and sales and
                false
                and misleading press releases;




•
            “Boiler
                room” practices involving high pressure sales tactics and unrealistic
                price projections by inexperienced sales
                persons;




•
            Excessive
                and undisclosed bid-ask differentials and markups by selling
                broker-dealers; and




•
            The
                wholesale dumping of the same securities by promoters and broker-dealers
                after prices have been manipulated to a desired level, along with
                the
                inevitable collapse of those prices with consequent investor
                losses.




*Because
      our stock is thinly traded, fluctuations in our operating results and
      announcements and developments concerning our business affect our stock
      price.*





Historically,
      there has been volatility in the market price for our common stock. Our
      quarterly operating results, the number of stockholders desiring to sell their
      shares, changes in general economic conditions and the financial markets, the
      execution of new contracts and the termination or expiration of existing
      contracts, financial difficulties affecting our clients and other developments
      affecting us, could cause the market price of our common stock to fluctuate
      substantially.





*Because
      our stock is thinly traded, we cannot predict when or whether an active market
      for our common stock will develop.*





In
      the
      absence of an active trading market, you may have difficulty buying and selling
      or obtaining market quotations for our stock; the market visibility for our
      stock may be limited, and the lack of visibility for our common stock may have
      a
      depressive effect on the market price for our common stock.


9


**PART
      I**


**Item
      1. Description of Business**





*Our
      stock price may be affected by our failure to meet projections and estimates
      of
      earnings developed either by us or by independent securities
      analysts.*





Our
      operating results may fall below the expectations of securities analysts and
      investors as well as our own projections. In this event, the market price of
      our
      common stock would likely be materially adversely affected.





*Sales
      of common stock pursuant to a registration statement declared effective on
      August 3, 2005 may have a depressive effect upon the market for our common
      stock.*





As
      of
      December 31, 2005, there were 1,166,557 shares of series B preferred stock
      outstanding which are convertible into 10,499,013 shares of common stock. As
      a
      result of our loss for 2005, pursuant to the series B preferred stock purchase
      agreement, the number of shares of common issuable upon conversion of the series
      B preferred stock will increase by 3,604,655 shares . In
      addition the investors who hold the shares of series B preferred stock hold
      warrants to purchase: (i) 2,500,000 shares of common stock for $.65 per share;
      (ii) 2,500,000 shares for $1.20 per shares; (iii) 3,500,000 shares of common
      stock for $1.50 per share; and, (iv) 3,500,000 shares of common stock for $1.80
      per share. The
      underlying common stock by the holders of the series B preferred stock
      constitutes a significant percentage of our outstanding common stock and an
      even
      higher percentage of the public float. If the holders of the series B preferred
      stock sell a significant number of shares of common stock, the market price
      of
      our common stock may decline. Furthermore, the sale or potential sale of the
      shares offered by the holders of the series B preferred stock could have a
      significant depressive effect on our stock price which could make it difficult
      for us to raise funds from other sources.





*If
      we
      issue shares of common stock at a price less than the conversion price of the
      series B preferred stock we may be required to issue a significant number of
      additional shares of common stock.*





We
      are
      required to reduce the conversion price of the series B preferred stock and
      the
      exercise price of the warrants if, while the series B preferred stock and
      warrants are outstanding, we offer or issue common stock at a lower price than
      the conversion price or the exercise price than in effect.




*Because
      the purchasers of the series B preferred stock have a right of first refusal
      for
      future offering of our stock, we may have difficulty in raising additional
      funds
      if required for our business.*




The
      holders of the series B preferred stock have the right to participate in any
      future funding on terms whereby each they can purchase the securities offered
      at
      80% of the offering price. These provisions may prevent us from raising
      additional funds.




*Because
      we are not subject to compliance with rules requiring the adoption of certain
      corporate governance measures, our stockholders have limited protections against
      interested director transactions, conflicts of interest and similar
      matters.*





The
      Sarbanes-Oxley Act of 2002, as well as rule changes proposed and enacted by
      the
      SEC, the New York and American Stock Exchanges and the Nasdaq Stock Market
      as a
      result of Sarbanes-Oxley, require the implementation of various measures
      relating to corporate governance. These measures are designed to enhance the
      integrity of corporate management and the securities markets and apply to
      securities which are listed on those exchanges or the Nasdaq Stock Market.
      Because we are not presently required to comply with many of the corporate
      governance provisions and because we chose to avoid incurring the substantial
      additional costs associated with such compliance any sooner than necessary,
      we
      have not yet adopted all of these measures. Because none of our directors are
      independent directors, we do not have independent audit or compensation
      committees. We also are not in compliance with requirements relating to the
      distribution of annual and interim reports, the holding of stockholders meetings
      and solicitation of proxies for such meeting and requirements for stockholder
      approval for certain corporate actions. Until we comply with such corporate
      governance measures, regardless of whether such compliance is required, the
      absence of such standards of corporate governance may leave our stockholders
      without protections against interested director transactions, conflicts of
      interest and similar matters and investors may be reluctant to provide us with
      funds necessary to expand our operations.


10


**PART
      I**


**Item
      1. Description of Business**





*Failure
      to achieve and maintain internal controls in accordance with Section 404 of
      the
      Sarbanes-Oxley Act could have a material adverse effect on our business and
      operating results and stockholders could lose confidence in our financial
      reporting.*





Effective
      internal controls are necessary for us to provide reliable financial reports
      and
      effectively prevent fraud. If we cannot provide reliable financial reports
      or
      prevent fraud, our operating results could be harmed. We will be required to
      document and test our internal control procedures in order to satisfy the
      requirements of Section 404 of the Sarbanes-Oxley Act, which requires increased
      control over financial reporting requirements, including annual management
      assessments of the effectiveness of such internal controls and a report by
      our
      independent certified public accounting firm addressing these assessments.
      We
      must be in compliance with these requirements for our 2007 calendar year. In
      preparing to meet such deadline, we may identify deficiencies that we may not
      be
      able to remediate in time to meet the deadline. In addition, if we fail to
      maintain the adequacy of our internal controls, as such standards are modified,
      supplemented or amended from time to time, we may not be able to conclude that
      we have effective internal controls over financial reporting in accordance
      with
      Section 404 of the Sarbanes-Oxley Act. Failure to achieve and maintain an
      effective internal control environment could also cause investors to lose
      confidence in our reported financial information, which could have a material
      adverse effect on our stock price.





*Our
      stock price may be affected by shares of common stock becoming available for
      public sale* .




We
      estimate that the public float for our common stock presently consists of
      approximately 4 million shares of common stock. The 1,866,667 shares that were
      issued to John and Angela Acunto in January 2004 will become salable commencing
      June 2007 as a result of a two-year lock-up agreement. In addition, The Tiger
      Fund and its designee acquired 981,045 shares in May 2003. In January 2005,
      we
      issued 63,333 shares of common stock to Mr. Carter, as the designee of Miko
      Brands, as consideration for the purchase of Miko Brands assets. These shares
      became eligible for sale pursuant to Rule 144 commencing in January 2006. Under
      the volume limitations of Rule 144, a stockholder, together with members of
      his
      or her family, may not sell more than 1% of our outstanding common stock in
      any
      three-month period.




*The
      issuance and sale of the registered shares of common stock underlying the series
      B preferred and warrants to purchase common stock could result in a change
      of
      control.*





In
      the
      event we issue all of the 25,478,418 shares issuable upon conversion of the
      remaining shares of series B preferred stock and exercise of the related
      warrants, such shares would constitute approximately 75% of our then outstanding
      common stock. Any sale of all or a significant percentage of those shares to
      a
      person or group could result in a change of control.




*We
      may issue preferred stock without approval of our stockholders which could
      make
      it more difficult for a third-party to acquire us and could depress our stock
      price* .




Our
      articles of incorporation permit us to issue up to 10,000,000 shares in one
      or
      more series of preferred stock that have more than one vote per share or which
      give the holders other preferential rights which may dilute or impair the rights
      of the holders of common stock. As a result, our board of directors can issue
      such stock to investors who support our management and give effective control
      of
      our business to our management.




*The
      issuance of shares through our stock compensation and incentive plans may dilute
      the value of existing stockholders* .




We
      anticipate using stock options, stock grants and other equity-based incentives,
      to provide motivation and compensation to our officers, employees and key
      independent consultants. The award of any such incentives will result in an
      immediate and potentially substantial dilution to our existing stockholders
      and
      could result in a decline in the value of our stock price. Furthermore, as
      a
      result of required changes in the method of accounting for the grant of stock
      which became effective in 2006, we will expense as compensation the value of
      options granted to our employees, which would result in lower earnings or a
      greater loss from our operations.




11


**PART
      I**


**Item
      1. Description of Business**




*We
      do
      not anticipate paying dividends on our common stock* .




The
      terms
      of our series B preferred stock restricts our payment of dividends on our common
      stock while the series B preferred stock is outstanding.







**OUR
      BUSINESS**





**Advertising**




We
      offer
      our advertising customers a range of services including:




•
            the
                placement of advertising in television, internet and print media
                outlets;




•
            the
                production of advertising content, including television commercials,
                print
                advertising and other graphics design literature;
                and




•
            advertising
                and marketing consulting services relating to the customer’s marketing
                campaign.




In
      performing our advertising agency services, we both use our production services
      and, in certain cases, we outsource commercial production services to third
      party production companies.




With
      the
      development of our products business in 2004, we are using our in-house
      advertising capabilities to develop and to implement a marketing and advertising
      campaign for each of our products.




Our
      advertising clients are typically small companies for whom are range of services
      include, in addition to the placement of advertising, consulting services which
      can include assistance in not only developing an advertising program, but
      helping the client to design or develop the particular product or service,
      determine the appropriate market and design and implement an overall marketing
      program and strategy. Revenues from our advertising sector were $7,730,000
      in
      2005 and $2,925,000 in 2004.




**Our
      Products**




We
      presently either own the rights to or have distribution rights for a number
      of
      products, most of which are skin care and related products. We acquired these
      rights since February 2004. As part of our business strategy, we intend to
      seek
      to obtain products or distribution rights to other products, which may be in
      different fields from our present products. The following table summarizes
      our
      product sector revenues for 2005 and 2004:




Product
                Line
            
            2005
            
            %
            
            2004
            
            %Simon
                Cosmetics
            
            $
            2,375,000
            
            
            43
            %
            
            -
            
            
            -E70
            
            
            1,443,000
            
            
            26
            %Dermafresh
            
            
            1,045,000
            
            
            18
            %
            $
            1,119,000
            
            
            100
            %Extreme
                Beam and Cliplight
            
            
            332,000
            
            
            6
            %
            
            -
            
            
            -Hercules
                Hook
            
            
            246,000
            
            
            4
            %
            
            -
            
            
            -D-Shed
            
            
            131,000
            
            
            2
            %
            
            -
            
            
            -Other
            
            
            12,000
            
            
            1
            %
            
            -
            
            
            -$
            5,584,000
            
            
            100
            %
            $
            1,119,000
            
            
            100
            %







In
      February 2004, we acquired the rights to Dermafresh. At the time of our
      acquisition, the Dermafresh line consisted of a home microdermabrasion kit
      skin
      care product. During 2004, we expanded our line of skin care products to include
      a collagen facial blanket, a glycolic facial blanket, eye and lip contour
      patches, a scar and stretch mark renewal patch, a décolleté renewal blanket, a
      roll-on collagen, an anti-wrinkle and firming serum and a bottled skin toner.
      We
      commenced our direct response campaign for the Dermafresh line in June 2004,
      and
      we commenced sales to retail customers in the third quarter of
      2004.




12


**PART
      I**


**Item
      1. Description of Business**




In
      October 2004, we entered into a distribution and marketing agreement with Simon
      Cosmetics pursuant to which Simon Cosmetics granted us the two-year exclusive
      right to distribute and sell its line of skin care products, knows as the Simon
      Solutions Line, in North America, although each party has the right to terminate
      the agreement on six months’ notice. The initial Simon Solutions product is a
      lip enhancement product that is endorsed by Pamela Sue Anderson. We introduced
      the lip enhancement product in April 2005.




In
      January 2005, we acquired certain assets of Miko Brands, including the right
      to
      the Miko products. Miko sells nine marinade and dressing sauces. As of December
      31, 2005 we have not expended significant marketing resources on the Miko
      brand




In
      February 2005, we signed an exclusive retail distribution agreement with Delmar,
      pursuant to which we have a two-year right to distribute and sell a line of
      skin
      care products for mass market distribution in the United States and Canada.
      These products will utilize Delmar’s proprietary skin care formulations that
      incorporate the nutrients included in the whole egg. Delmar markets its skin
      care products under the L’Avenir brand name. The products covered by the
      agreement were developed by Delmar for us to market pursuant to the agreement.
      We introduced this product, which we market under the name “e70,” in March
      2005.




In
      August
      2005 we obtained exclusive five year marketing and distribution rights for
      the
      Hercules Hook, a patented hook for hanging items on walls. We are utilizing
      direct response veteran Billy Mays to market the Hercules Hook. We introduced
      the Hercules Hook to the retail market in September 2005.




In
      August
      2005, we obtained distribution rights for D-Shed, a pet grooming device. We
      introduced the D-Shed to the retail market in December 2005.





In
      October 2005, we obtained two year exclusive distribution rights for PEARL
      -
      Anti Wrinkle/ Moisturizing Mist, an advanced anti-wrinkle moisturizing treatment
      used by members of the entertainment industry. The distribution rights were
      obtained from StarMaker Products for domestic and international distribution.
      StarMaker Products is a joint effort between director and former Happy Days
      star, Anson Williams and renowned makeup artist and product developer JoAnna
      Connell.





During
      2005, we internally developed and marketed two lines of flashlights branded
      as
      the “Extreme Beam Flashlight” and the “Clip Light”.





In
      December 2005, we organized Genco Power Solutions, Inc. (“Genco”) for the
      purpose of marketing, selling, installing and servicing integrated power
      generator systems to residential homeowners and commercial business throughout
      Florida. We own 66% of Genco and four individuals own the remaining 34% of
      Genco. Genco had minimal business activities in 2005.





We
      intend
      to continue obtaining products or marketing rights for other products, which
      may
      be in the same market as our current product offerings or which may be in
      markets which are unrelated to those markets. In seeking new products, we focus
      on the potential market for the product, our potential ability to expand that
      market, the extent that we can use our advertising and direct marketing
      experience to develop and implement a marketing plan. We also consider the
      possibility that the product can be marketed in the same distribution channels
      as other products that we market, even if the marketing is directed to a
      different division or purchasing organization. However, we can give no assurance
      that we will be able to obtain rights to, and successfully market, any new
      products. In this
      connection, we periodically review our products to evaluate the marketability
      of
      the products, and, we may determine to discontinue any one or more products
      if
      we determine that we cannot profitably market the product .




13


**PART
      I**


**Item
      1. Description of Business**


**Sales
      and Marketing**




We
      market
      our products to major retail, drug store, food and similar chains. In marketing
      to these chains we seek to demonstrate that our products meet a consumer need,
      are priced in a manner that could allow the stores to generate sufficient sales
      to justify stocking the product and that we are able to provide consistency
      in
      our products and timely deliveries. In general, before committing to a major
      purchase, a chain may test market the product with a modest quantity, and,
      if
      the tests show consumer acceptance, increase the size of the order. Because
      of
      the buying power, in selling to major retail establishments, we are subject
      to
      their policies with respect to such matters as scheduling and delivering of
      products, payment
      terms and returns. These policies may result is a net realizable sale price
      to
      us which is less that the stated price on the purchase order.




The
      key
      to selling and marketing our skin care and related products is the ability
      to
      obtain shelf space, and, if possible, obtain space for a display. Typically,
      displays are used for products which the retailer believes will generate high
      volume over a relatively short time. We have been able to place major displays
      for both our Simon Solutions’ lip enhancer product and our Dermafresh line of
      products with most of our retail accounts. We believe that the ability to place
      such displays in stores will help the stores to generate sufficient sales to
      justify product reorders or to place the products in other stores owned or
      operated by the retailer. However, we cannot assure you that we will be
      successful in retaining existing or obtaining new shelf space if needed or
      in
      placing displays with our retail accounts, or that the placement of products
      will generate significant additional revenue.




As
      part
      of our marketing strategy, we have arrangements with two major retailers
      pursuant to which we sell products on a pay on scan basis, by which we provide
      the product to the retailer, but do not recognize a sale until the retailer
      sells the product. We believe that this strategy has enabled us to obtain more
      shelf space in major retailers than we would otherwise be able to
      obtain.




We
      also
      sell our products by direct marketing to consumers. Direct marketing typically
      involves the use of television to air either a presentation concerning our
      product, such an informational, or commercials which are longer than the
      standard 30 second to one minute commercial.




We
      have a
      marketing staff of three people whose duties include marketing as well as other
      duties with respect to our products. During 2005, we engaged a third party
      fulfillment center to provide fulfillment of our products. Our personnel handle
      order processing, marketing and customer service related to the direct response
      sales of the products.




We
      use
      our direct marketing capability to introduce the most of our products or test
      customer response to the product. Based on the response to our direct marketing
      campaign, we can change the product presentation or its packaging to address
      the
      issues which we believe are of concern to consumers.




At
      December 31, 2005 our order backlog approximated $160,000 of which substantially
      all has been shipped in 2006.




**Product
      Development**




During
      2005 we began the internal development of our own brand of products. We identify
      new and or developing market trends within the retail and direct response
      industry and create our own brand name and packaging for the products.
      Historically, we have used third party manufacturers to produce the products.
      We
      do not perform traditional research and development activities but rather
      develop the creative packaging and marketing plan for distributing the products.
      All of our internal product development costs are charged to operations as
      they
      are incurred.




**Our
      Suppliers**




We
      do not
      manufacture any of our products. In general, our products are manufactured
      either by third party suppliers pursuant to purchase orders that we place.
      We
      purchase products for which we have distribution rights from the party who
      granted us the rights or from its authorized manufacturers. Because our product
      volume is low, we are not able to take advantage of quantity pricing from our
      suppliers. To the extent that we are able to increase our volume of products
      significantly, we expect that we will be able to reduce the cost of our
      products. However, we cannot assure you that we will be able to generate
      sufficient volume to enable us to significantly reduce the cost of our
      products.




14


**PART
      I**


**Item
      1. Description of Business**





**Major
      Customers**




Our
      customers for our products are generally mass merchandising retail companies,
      including some of the largest retailers in the United States. To the extent
      that
      we are dependent upon one or more of these retailers, we may be subject to
      their
      policies on such matters as the time of delivery and payment as well as their
      cancellation and return policies. It may be necessary for us to accept such
      terms in order to generate the business. The following table sets forth the
      percentage of revenue derived by the Company from those customers which
      accounted for at least 10% of consolidated revenues during the applicable
      periods:





Customer
            2005
            2004Customer
                A
            49%
            *Customer
                B
            17%
            21%Customer
                C
            **
            67%





*  Not
      a
      customer during this period.


**  Not
      a
      customer during this period and no longer a customer.







**Intellectual
      Property**




Our
      E-70
      trade name is a registered trademark. We have pending trademark applications
      filed for our Dermafresh and D-Shed. We license the rights for those products
      for which we have distribution rights. We acquired the rights to the Dermafresh
      and Miko products, including the formulations for those products.




**Competition**




The
      marketing communications business is highly competitive, with agencies of all
      sizes and disciplines competing primarily on the basis of reputation and quality
      of service to attract and retain clients and personnel. Companies such as WPP
      Group, Omnicom Group, Interpublic Group, Digitas, ChoicePoint Precision
      Marketing and Havas generally serve large corporations with consolidated or
      business unit sales from direct marketing in excess of $100 million.
      Additionally, based on agency direct marketing revenues published in the trade
      journal Advertising Age’s 2004 Agency Survey, our research indicates that there
      are approximately 36 agencies with direct marketing revenues ranging from $10
      million to $244 million and more than 70 agencies with direct marketing revenues
      ranging from at least $1 million to $10 million. We intend to seek a market
      niche by providing a full level of service quality that users of direct
      marketing services may not receive from our larger competitors. Most of our
      advertising clients are smaller companies that would not typically be sought
      by
      the major advertising and marketing companies.




The
      markets in which our products are sold are highly competitive. Our products
      compete with products of many large and small companies, including well-known
      global competitors, such as The Proctor & Gamble Company, Johnson &
Johnson, Revlon, Inc. and Guthy-Renker. Each product which we introduce competes
      with major manufacturers and distributors. We market our products with
      advertising, promotions and other vehicles to build awareness of our brands
      in
      conjunction with an extensive sales force including direct response advertising.
      We believe this combination provides the most efficient method of marketing
      for
      these types of products. Product quality, performance, value and packaging
      are
      also important competitive factors. We believe that we gain a certain level
      of
      competitive advantage by utilizing cost savings from our direct response
      advertising sector which provides us with a lower overall advertising cost
      to
      promote our products.




In
      marketing our products we also compete with the major companies in seeking
      shelf
      space and in placing displays in prime locations within a store. The ability
      to
      obtain shelf space and to display our products in the stores is crucial to
      generating business, especially for products, such as ours, that are not as
      well
      knows as the products which are manufactured and marketed by some of the largest
      skin care and food products companies in the world. After an initial order,
      retail outlets, especially mass marketing retailers, decide on whether and
      how
      much to order and where to display the product in the store based on their
      perception of the consumer response to the product. Thus, without good shelf
      space or displays for an initial order, it may be difficult for a new product
      to
      generate a favorable consumer response which in turn affects the willingness
      of
      the retailer to make further purchases.







*Employees*





As
      of
      December 31, 2005 we had approximately thirty full-time employees.







15





**PART
      I**


**Item
      2.**  **Description
      of Property.**





We
      lease
      20,394 square feet of office and warehouse space in a warehouse complex located
      at 1141 S. Rogers Circle, Boca Raton, Florida under a lease, which expires
      in
      October 2015 and which has a current annual rent is $310,000. We also lease
      6,658 square feet of executive office space located at 1515 N. Federal Highway,
      Boca Raton, Florida under a lease, which expires in March of 2010 and which
      has
      a current annual rent of $149,000. We leases 846 square feet of office space
      in
      Bentonville, Arkansas under lease which expires in November 2008 for which
      we
      pay annual rent of $15,000. All
      of
      our leases include standard escalation provisions. We believe that our current
      space is adequate for our immediate and near term requirements and that
      additional space is available on commercially reasonable terms.





**PART
      I**


**Item
      3.**  **Legal
      Proceedings.**





On
      or
      about January 17, 2005, Paul Spinner instituted a lawsuit in U.S. District
      Court, Southern District of Florida, against Mr. Acunto and our subsidiary,
      Adsouth, Inc. Upon an initial investigation, we consider the allegations to
      relate to a private business transaction between Paul Spinner and Mr. Acunto.
      Accordingly, on March 2, 2006, Mr. Acunto executed an Indemnification and Hold
      Harmless Agreement in favor of Adsouth, Inc., which addresses the cost of
      defense of the legal proceedings and an indemnification of Adsouth, Inc. in
      the
      event of any adverse finding against Adsouth, Inc. The case is in its initial
      discovery stage and we are unable to determine the potential impact of the
      litigation on us or our operations.





In
      the
      normal course of business we may be involved in legal proceedings in the
      ordinary course of business. Such matters are subject to many uncertainties,
      and
      outcomes are not predictable with assurance.





16


**PART
      I**


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





On
      October 20, 2005, the Company held its annual meeting. The following proposals
      were adopted by the margins indicated:





i.  To
      elect
      the following three (3) directors:


Number
                of SharesFor
            WithheldJohn
                Cammarano, Jr.
            
            6,872,531
            96,675Jerald
                Horowitz
            
            6,895,865
            73,341Harlan
                I. Press
            
            6,885,865
            83,341





ii.  To
      approve an amendment to Company's Articles of Incorporation to (i) eliminate
      the
      series A convertible preferred stock, (ii) increase the number of authorized
      shares of preferred stock to 10,000,000 shares, and (iii) increase the number
      of
      authorized shares of common stock to 60,000,000 shares.





For
            
            5,159,707Against
            
            136,926Abstain
            
            4Broker
                non-vote
            
            1,673,206





iii.  To
      approve the Company’s amended by-laws.





For
            
            5,208,710Against
            
            85,119Abstain
            
            2,171Broker
                non-vote
            
            1,673,206





iv.  To
      approve the 2005 Long Term Incentive Plan





For
            
            5,186,032Against
            
            100,496Abstain
            
            9,472Broker
                non-vote
            
            1,673,206





v.  To
      approve the selection of Marcum & Kliegman LLP as the Company's independent
      certified public accountants for the year ended December 31, 2005.





For
            
            6,896,835Against
            
            61,867Abstain
            
            10,504Broker
                non-vote
            
            --





17


**PART
      II**


**Item
      5.**  **Market
      for Common Equity and Related Stockholder Matters**





Our
      common stock has been trading since April 29, 2002 on the over-the-counter
      market and quoted on the OTC Bulletin Board. For the period from April 29,
      2002
      through January 13, 2004 our trading symbol was ZNTH and, from January 14,
      2004
      until March 24, 2005 we traded under the symbol ADPR. Effective March 28, 2005,
      the effective date of our one-for-15 reverse split, our trading symbol was
      changed to ASPR.





The
      table
      below sets forth, for the periods indicated, the high and low bid prices of
      our
      common stock for the periods indicated, as quoted by the OTC Bulletin Board
      Research Service. Such quotations reflect inter-dealer prices, without retail
      markup, markdown or commission, and may not represent actual
      transactions.





Quarter
                Ended
            High
                Bid
            Low
                BidMarch
                31, 2004
            $4.65
            $1.35June
                30, 2004
            $3.23
            $1.13September
                30, 2004
            $3.45
            $0.77December
                31, 2004
            $2.03
            $1.14March
                31, 2005
            $1.05
            $0.20June
                30, 2005
            $0.92
            $0.51September
                30, 2005
            $0.65
            $0.17December
                31, 2005
            $0.40
            $0.22





As
      of
      December 31, 2005 the number of stockholders of record holding our common stock
      was approximately 400.





We
      have
      not paid dividends on our common stock. We plan to retain future earnings,
      if
      any, for use in our business and, accordingly, we do not anticipate paying
      dividends on our common stock in the foreseeable future.





Equity
      Compensation Plan Information





The
      following table sets forth information relating to equity compensation plans
      as
      of December 31, 2005





Plan
                Category
            Number
                of securities to be issued upon exercise of outstanding options and
                warrants
            Weighted-average
                exercise price of outstanding options and warrants
            Number
                of securities remaining available for future issuance under equity
                compensation plansEquity
                compensation plans approved by security holders
            4,998,815
            $0.59
            1,120Equity
                compensation plan
              not
                approved by security holders
            12,893,348
            $1.28
            -





Issuances
      that were not approved by security holders consist of warrants issued to brokers
      in connection with the private placement transactions in 2005.





In
      March
      2006, we amended our 2005 long-term incentive plan to (i) increase the number
      of
      shares subject to the plan from 1,870,000 shares to 3,120,000 shares and (ii)
      to
      provide that the annual grant to independent directors for 2006 be changed
      to
      options to purchase 25,000 shares of common stock at $.32 per share, being
      the
      market price on the date of grant, in lieu of an option to purchase 10,000
      shares of common stock on April 1, 2006. The amendment to the plan, including
      the amended grant of options to officers, is subject to stockholder approval.
      The information concerning the amendment to the plan is included under “Equity
      compensation plans not approved by security holders” since, as of the date of
      this report, stockholder approval had not been obtained.


18


**PART
        II**
 **Item
        6.**  **Management's
        Discussion and Analysis or Plan of Operation.**


We
      are in
      two distinct business sectors - advertising and product sales. Our advertising
      sector includes the placement of advertising in different media, the production
      of direct marketing commercials, and the planning and implementation of direct
      marketing programs for our clients. Both our revenue and our gross margins
      reflect services in addition to those of a typical advertising agency since
      the
      gross margin on advertising revenue is typically a percentage of the amount
      paid
      for the advertisement. To the extent that we are able to provide additional
      services, our margins can improve. Our advertising clients are generally smaller
      companies, many of which may be undercapitalized, and that require services
      in
      addition to those of a typical advertising agency. In 2004, a major client,
      that
      accounted for approximately 67% of our total revenue in 2004, because of
      economic conditions affecting its business, was unable to pay a significant
      portion of the money it owed us and is no longer a client.





In
      our
      products sector we sell, both through our direct marketing operations and sales
      to retail stores, a range of products, some of which are not related to the
      others and have different distribution channels. During 2004, we generated
      revenue from only one product line, our Dermafresh product line, which we
      acquired in February 2004 and introduced to the market in June 2004. Since
      December 31, 2004, we have either acquired or obtained marketing rights to
      a
      number of additional products and our strategy contemplates that we will seek
      to
      acquire additional products. There is typically a period of several months
      from
      the time that we acquire the right to distribute a product until we generate
      revenue from that product. During this period, we are engaged in marketing
      activities and thus are incurring costs before we can generate any revenue
      from
      a product. Before we sell our products to retail accounts, we use our direct
      marketing capability to introduce the product to market.




In
      October 2005, we leased a warehouse facility for the purpose of maintaining
      our
      inventory and fulfilling our product sales orders. During the fourth quarter
      of
      2005 we began fulfillment operations from our newly leased facilities. In
      December 2005, the inventory that was held at the third party warehousing
      facility was transferred to our new facility from the third party fulfillment
      that we used for order processing for most of our orders during 2005. We
      purchase our products from third parties. The price we pay for our products
      is
      affected by the amount of our purchases. To the extent that we increase our
      volume we may be able to take advantage of more favorable pricing for the
      products we sell. Other than products that we own, we have exclusive
      distribution rights for only a short term.




Our
      available cash affects our ability to purchase products and generate sales.
      Although we have a factoring agreement, we can only receive funds under that
      agreement after we have shipped goods pursuant to purchase orders and generated
      accounts receivable (see Note 1. “Summary of Significant Accounting Policies”).
      We do not have a credit facility which would enable us to purchase inventory
      in
      order to fill orders we have received. The lack of inventory financing together
      with the failure of a major advertising client to pay a significant receivable
      impaired our ability to purchase inventory and make sales during the fourth
      quarter of 2004 and the first month and a half of 2005. The receipt of net
      private placement proceeds of approximately $2,820,000 enabled us to increase
      our purchases of inventory, resulting in increased sales, for the lip
      enhancement product, which was introduced in April 2005, the e70 skin care
      product line which was introduced in June 2005 and the Hercules Hook product
      which was introduced in September 2005.




The
      terms
      on which we sell products to retailers provide for payment from 30 to 60 days
      from shipment. Generally, our product and packaging purchases require us to
      pay
      a deposit ranging from 25% to 50% of the purchase price with the balance being
      due 30 to 60 days from the shipment date. As a result of these terms, we are
      required to pay for a significant portion of our cost of goods in advance of
      receiving payment from our retail customers. Our agreements with two national
      retailers provide for payment by the retailers on a “pay on scan” basis, which
      means that the retailers do not pay us until they sell the products. For 2005
      we
      have recognized revenue on these shipments only for the products that were
      sold
      by the pay on scan retailers. At December 31, 2005, approximately $947,000
      of
      shipments was not reflected as sales under the pay on scan arrangements. We
      believe that these agreements are an effective way of placing our products
      in
      major retail chains and generating consumer acceptance of our products. In
      order
      to finance the costs of our pay on scan shipments we obtained a $1,000,000
      demand loan from an unaffiliated third party on which we pay interest at 18%
      per
      annum. In order to shorten the time period in which we receive cash on our
      retail shipments we have sold invoices of certain of our retail customers to
      a
      factoring company. The terms of our factoring agreement allow us to receive
      an
      advance payment of 80% of the invoice amounts for approved customers. However,
      under the agreement with the factor, we do not receive any funds from the factor
      until the products are shipped and invoiced.




19


**PART
        II**
 **Item
        6.**  **Management's
        Discussion and Analysis or Plan of Operation.**


Although
      we believe that our working capital, combined with our credit facilities and
      cash flow from operations will provide us with sufficient cash to meet our
      immediate cash requirements, to the extent that we are able to increase our
      business or develop or acquire rights to new products, we may require additional
      cash, and our failure to obtain the necessary cash could impair our ability
      to
      grow. Because of our cash position, we have been required to borrow $2 million
      at 18% per annum. Of this amount, $1 million was borrowed in 2006 by Genco
      Power
      Solutions, Inc. to finance the start-up phase of its operations, and we borrowed
      $1 million to finance the inventory which we transferred to two retailers for
      sale on a pay on scan basis. The loan to Genco Power Solutions is payable in
      monthly installments through March 15, 2007, and is secured by a security
      interest in substantially all of Genco’s assets. In connection with that loan,
      we issued to the lender a 7% interest in Genco Power Solutions. The $1 million
      loan to finance our pay on scan inventory is a demand note. Both loans are
      guaranteed by John P. Acunto, Jr., a principal stockholder and consultant to
      us.




All
      of
      our present distribution agreements have terms of one or two years, and some
      include extension rights if volume levels are reached. As a result, if we are
      successful in selling a product, we may not be able to take advantage of the
      good will that we have built up for the products unless we are able to obtain
      an
      extension of our distribution rights. Because of the short-term nature of our
      distribution rights, we must continually obtain rights to new products and
      successfully market these products if we are to be successful over the long
      term.




When
      discussing our performance, we discuss loss before non-cash stock-based
      compensation which is a non-GAAP financial measure.




In
      connection with a private placement in June of 2005, John P. Acunto, Jr.
      resigned as an officer and director and we entered into a consulting agreement
      with him. Mr. Acunto’s consulting agreement provided for an initial payment of
      $200,000, which will be amortized over the three year term of the consulting
      agreement, and granted him a non-qualified stock option to purchase 2,000,000
      shares of common stock at an exercise price of $.65 per share. Because Mr.
      Acunto is a consultant rather than an employee, the fair value of the option,
      as
      calculated pursuant to the Black-Scholes option valuation formula approximates
      $480,000, and will be amortized over the term of the consulting agreement.
      We
      also granted Mr. Cammarano an option to purchase 800,000 shares of common stock
      at an exercise price of $.65 per share. The value of the option, as calculated
      using the intrinsic value method approximates $8,000, and will be expensed
      as
      the option vests.




**Critical
      Accounting Policies**





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States requires our management to make
      assumptions, estimates and judgments that affect the amounts reported in the
      financial statements, including the notes thereto, and related disclosures
      of
      commitments and contingencies, if any. We consider our critical accounting
      policies to be those that are complex and those that require significant
      judgments and estimates in the preparation of our financial statements,
      including the following: recognition of revenues, accounting for stock-based
      compensation, and accounting for income taxes. We rely on historical experience
      and on other assumptions we believe to be reasonable under the circumstances
      in
      making our judgment and estimates. Actual results could differ materially from
      those estimates. There have been no significant changes in the assumptions,
      estimates and judgments in the preparation of these financial statements from
      the assumptions, estimates and judgments used in the preparation of our 2004
      audited financial statements.





*Revenue
      Recognition*





We
      derive
      revenue from; (i) the placement of advertising in television, internet and
      print
      media outlets; (ii) the production of advertising content including television
      commercials, print advertising and other graphics design literature; (iii)
      advertising and marketing consulting services; and (iv) the sale of products.
      Our advertising services revenue is derived from billings that are earned when
      the media is placed, from fees earned as advertising services are performed
      and
      from production services rendered. In addition, incentive amounts may be earned
      based on qualitative and/or quantitative criteria. In the case of media
      placements, revenue is recognized as the media placements appear. We are the
      primary obligor and carry all of the credit risk for the media placements and
      accordingly, record the full amount of such billings from the media placements
      as revenue in accordance with Emerging Issues Task Force Issue No. 99-19. In
      the
      case of consulting and production arrangements, the revenue is recognized as
      the
      services are performed. Our creative consulting revenue is generally earned
      on a
      fee basis, and in certain cases incentive amounts may also be earned. As with
      fee arrangements in advertising, such revenue is recognized as the work is
      performed. Incentive amounts for advertising and marketing services are
      recognized upon satisfaction of the qualitative and/or quantitative criteria,
      as
      set out in the relevant client contract. Deferred revenues are recognized as
      a
      liability when billings are received in advance of the date when revenues are
      earned. Revenues from the sale of products are recognized upon the shipment
      of
      the goods being sold and are net of estimated returns and other promotional
      allowances.


20


**PART
      II**


**Item
      6.**  **Management's
      Discussion and Analysis or Plan of Operation.**








*Stock-Based
      Compensation*




Our
      most
      significant expense in 2004 was $4,488,000 of non-cash stock based compensation
      expense representing the fair value of common stock that was granted to
      employees, including officers, and consultants during 2004. The stock grants
      were used to obtain consulting services from third parties and to attract
      qualified employees. Non-cash stock based compensation expense for 2005 was
      $264,000.




In
      December 2004, the FASB issued SFAS No.123 (revised 2004), “Share-Based
      Payment.” Statement 123(R) will provide investors and other users of financial
      statements with more complete financial information by requiring that the
      compensation cost relating to share-based payment transactions be recognized
      in
      financial statements. That cost will be measured based on the fair value of
      the
      equity or liability instruments issued. Statement 123(R) covers a wide range
      of
      share-based compensation arrangements including stock options, restricted stock
      plans, performance-based awards, stock appreciation rights, and employee stock
      purchase plans. Statement 123(R) replaces FASB Statement No. 123, Accounting
      for
      Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for
      Stock Issued to Employees. Statement 123, as originally issued in 1995,
      established as preferable a fair-value-based method of accounting for
      share-based payment transactions with employees. However, that statement
      permitted entities the option of continuing to apply the guidance in Opinion
      25,
      as long as the footnotes to financial statements disclosed what net earnings
      would have been had the preferable fair-value-based method been used. Public
      entities that are small business issuers will be required to apply Statement
      123(R) as of the first annual reporting period that begins after December 15,
      2005. Prior to 2006 we recognized the expense of options or similar instruments
      issued to employees using the intrinsic value based method. Beginning with
      the
      first quarter of 2006, we will be required to recognize expense of options
      or
      similar instruments issued to employees using the fair-value-based method of
      accounting for stock-based payments.





SFAS
      123(R) permits companies to adopt its requirements using either a “modified
      prospective” method, or a “modified retrospective” method. Under the “modified
      prospective” method, compensation cost is recognized in the financial statements
      beginning with the effective date, based on the requirements of SFAS 123(R)
      for
      all share-based payments granted after that date, and based on the requirements
      of SFAS 123 for all unvested awards granted prior to the effective date of
      SFAS
      123(R). Under the “modified retrospective” method, the requirements are the same
      as under the “modified prospective” method, but companies may restate financial
      statements of previous periods based on pro forma disclosures made in accordance
      with SFAS 123. The Company is evaluating these methods.





*Income
      Taxes*





We
      provide for federal and state income taxes currently payable, as well as for
      those deferred because of temporary differences between reporting income and
      expenses for financial statement purposes versus tax purposes. Deferred tax
      assets and liabilities are recognized for the future tax consequences
      attributable to differences between the carrying amount of assets and
      liabilities for financial reporting purposes and the amounts used for income
      tax
      purposes. Deferred tax assets and liabilities are measured using the enacted
      tax
      rates expected to apply to taxable income in the years in which those temporary
      differences are expected to be recoverable or settled. The effect of a change
      in
      tax rates is recognized as income or expense in the period of the change. A
      valuation allowance is established, when necessary, to reduce deferred income
      taxes to the amount that is more likely than not to be realized. As of December
      31, 2005, we had net operating loss carry-forwards approximating $3,486,000.
      Pursuant to Section 382 of the Internal Revenue Code, utilization of these
      losses may be limited in the event of a change in control, as defined in the
      Treasury regulations. Approximately $130,000 of net operating losses incurred
      prior to January 4, 2004 is limited to $26,000 per year due to the change of
      control that resulted from the January 1, 2004 reverse acquisition.
      Approximately $2.3 million of net operating losses incurred from January 1,
      2004
      through June 17, 2005 are limited to $651,000 per year due to the June 17,
      2005
      private placement of the series B preferred stock. There was no tax benefit
      or
      expense for 2005 and 2004.


21


**PART
        II**
 **Item
        6.**  **Management's
        Discussion and Analysis or Plan of Operation.**


*Off-balance
      Sheet Arrangements*





We
      have
      no off-balance sheet arrangements, financings or other relationships with
      unconsolidated entities known as “Special Purpose Entities.”





*New
      Accounting Pronouncements*





In
      October 2004, the Financial Accounting Standards Board (“FASB”) ratified the
      consensus reached in Emerging Issues Task Forces (“EITF”) Issue No. 04-8, “The
      Effect of Contingently Convertible Debt on Diluted Earnings
      Per Shares .”
The
      EITF states that contingently convertible instruments, such as contingently
      convertible debt, contingently convertible preferred stock, and other such
      securities should be included in diluted earnings per share (if dilutive)
      regardless of whether the market price trigger has been met. The consensus
      became effective for reporting periods ending after December 15, 2004. The
      adoption of this pronouncement did not have an effect on the Company’s financial
      statements for 2005 as such convertible instruments would have been
      anti-dilutive. Such convertible instruments may dilute earnings per share,
      if
      any, in the future.





In
      May
      2005, the Financial Accounting Standards Board issued Statement of Financial
      Accounting Standards No. 154 “Accounting Changes and Error Corrections” (“SFAS
      154”). SFAS 154 changes the requirements for the accounting for the accounting
      for and reporting of a change in accounting principle. SFAS 154 requires that
      the cumulative effect of voluntarily changing to a new accounting principle
      be
      applied retrospectively to prior period financial statements. Prior to the
      effective date of SFAS 154, the cumulative effect of voluntarily changing to
      a
      new accounting principle was included in the operating results of the period
      in
      which such change was adopted. SFAS 154 is effective for fiscal years beginning
      after December 15, 2005. We expect that the adoption of the foregoing new
      statement will not have a significant impact on our financial
      statements.





**Results
      of Operations**





The
      following table sets forth selected financial information for our two operating
      sectors for 2005 and 2004 in terms of dollars and percentage.




Advertising
              
              Products
              
              TotalYear
                  Ended December 31, 2005:Revenues
              
              $
              7,730,000
              
              $
              5,584,000
              
              $
              13,314,000Costs
                  and expenses (excluding non cash stock based compensation expense
                  and
                  non-recurring payments)
              
              
              (7,230,000
              )
              
              (5,524,000
              )
              
              (12,754,000
              )500,000
              
              
              60,000
              
              
              560,000Payments
                  to settle arbitration and litigation matters
              
              
              (100,000
              )
              
              (25,000
              )
              
              (125,000
              )Non
                  cash stock based compensation
              
              
              (141,000
              )
              
              (123,000
              )
              
              (264,000
              )Operating
                  income (loss)
              
              
              259,000
              
              
              (88,000
              )
              
              171,000Discount
                  on receivables sold to factor
              
              
              -
              
              
              (70,000
              )
              
              (70,000
              )Interest
                  expense on line of credit and notes payable
              
              
              (16,000
              )
              
              (51,000
              )
              
              (67,000
              )Other
                  income (expense), net
              
              
              (11,000
              )
              
              5,000
              
              
              (6,000
              )232,000
              
              
              (204,000
              )
              
              28,000Non
                  cash interest expense from the amortization of debt discount on
                  convertible securities
              
              
              (53,000
              )
              
              (107,000
              )
              
              (160,000
              )Loss
                  on early debt extinguishment
              
              
              ($179,000
              )
              
              (358,000
              )
              
              (537,000
              )Net
                  loss
              
              
              -
              
              
              ($669,000
              )
              
              ($669,000
              )




22


**PART
      II**


**Item
      6.**  **Management's
      Discussion and Analysis or Plan of Operation.**





Advertising
              
              Products
              
              TotalYear
                  Ended December 31, 2004:Revenues
              
              $
              2,925,000
              
              $
              1,119,000
              
              $
              4,044,000Costs
                  and expenses (excluding non cash stock based compensation
                  expense)
              
              
              (3,495,000
              )
              
              (1,820,000
              )
              
              (5,315,000
              )(570,000
              )
              
              (701,000
              )
              
              (1,271,000
              )Non
                  cash stock based compensation
              
              
              (3,718,000
              )
              
              (770,000
              )
              
              (4,488,000
              )Operating
                  loss
              
              
              (4,288,000
              )
              
              (1,471,000
              )
              
              (5,759,000
              )Discount
                  on receivables sold to factor
              
              
              -
              
              
              (15,000
              )
              
              (15,000
              )Interest
                  expense on line of credit and notes payable
              
              
              -
              
              
              (23,000
              )
              
              (23,000
              )Other
                  income (expense), net
              
              
              (14,000
              )
              
              --
              
              
              (14,000
              )Net
                  loss
              
              
              ($4,302,000
              )
              
              ($1,509,000
              )
              
              ($5,811,000
              )







*Advertising*





Advertising
      revenues in 2005 increased $4,805,000, or 164%, compared to 2004. During 2005,
      marketing, consulting and media placement services revenues were generated
      from
      nineteen customers of which 84% was from Customer A which was not a customer
      in
      2004. Substantially all of the advertising revenues for 2004 were from Customer
      C which has not been a customer subsequent to 2004. The m edia
      placement and production costs increased $4,481,000, or 433%, from 2004.
      Advertising revenues in 2005 compared to 2004 were more heavily concentrated
      in
      media placement as compared to commercial production which resulted in a lower
      overall return from 65% to 29%.





We
      are
      continuing our efforts to broaden our customer base for the advertising sector,
      and we are seeking to use our advertising program for our product division
      as a
      promotion for our advertising services for other potential new direct response
      marketing clients.





Selling,
      administrative and other expenses for 2005 for our advertising sector were
      $1,955,000, compared to $6,178,000 for 2004. Advertising’s operating expenses
      during 2004 include $3,718,000 of non-cash stock-based compensation expense
      compared to $141,000 for 2005. Operating expenses for 2005 includes $100,000
      for
      the settlement of an arbitration with the Screen Actors Guild. Recurring
      operating expenses for the advertising sector decreased by $746,000 primarily
      from a reduction of executive payroll related to the advertising
      sector.





Advertising’s
      interest expense for 2005 was $69,000 of which $63,000 relates to the
      convertible notes that were issued in February and May of 2005, including
      $53,000 of amortized discount on the convertible note issuance. Advertising
      did
      not have interest expense for 2004.





On
      June
      17, 2005, we completed a private placement of our series B preferred stock
      of
      which a portion of the proceeds were used to pay our convertible notes that
      were
      issued in February and May 2005. As a result of such early extinguishment,
      for
      2005, the advertising sector recorded a loss on early debt extinguishment of
      $179,000.





Advertising
      broke even for 2005 compared to a net loss of $4,302,000 for 2004.




*Products*




Our
      first
      product was the Dermafresh microdermabrasion kit skin care product, which we
      acquired in February 2004 and introduced in June 2004. As a result, we did
      not
      generate any revenue or incur any expenses from our products until June 2004.
      Product revenues for 2005 increased $4,465,000, or 399%, compared to 2004.
      During 2005 product revenues were generated from direct response sales and
      thirty-one retail customers of which 39% was from sales to Customer B and 14%
      was from Customer E. During 2004, 67% of product revenues were from Customer
      B.




23


**PART
        II**
 **Item
        6.**  **Management's
        Discussion and Analysis or Plan of Operation.**


The
      following table summarizes our product sector revenues for 2005 and
      2004:




Product
                Line
            
            2005
            
            %
            
            2004
            
            %Simon
                Cosmetics
            
            $
            2,375,000
            
            
            43
            %
            
            -
            
            
            -e70
            
            
            1,443,000
            
            
            26
            %
            
            -
            
            
            -Dermafresh
            
            
            1,045,000
            
            
            18
            %
            $
            1,119,000
            
            
            100
            %Extreme
                Beam and Cliplight
            
            
            332,000
            
            
            6
            %
            
            -
            
            
            -Hercules
                Hook
            
            
            246,000
            
            
            4
            %
            
            -
            
            
            -D-Shed
            
            
            131,000
            
            
            2
            %
            
            -
            
            
            -Other
            
            
            12,000
            
            
            1
            %
            
            -
            
            
            -$
            5,584,000
            
            
            100
            %
            $
            1,119,000
            
            
            100
            %





Our
      product sector’s gross margin was 50% for 2005 and 46% for 2004. The higher
      gross margin in 2005 results from the change in product mix. Our margin on
      the
      Simon Cosmetics line is lower than on our other products due to higher costs.
      However, the lower margins earned on the Simon Cosmetics line was more than
      offset by the higher margins earned on the e70 product line. We also shipped
      products to two large national retailers on a pay on scan basis. During 2005
      we
      did not recognize revenue from those sales until such retailers sold the items
      to the consumers. We believe that it was important to establish a presence
      for
      our products in such markets and that the ultimate sell through by these
      retailers will help us achieve our long-term sales objectives. As of December
      31, 2005, $947,000 of such shipments was not recognized as revenue, the cost
      of
      which is included as inventory.





The
      product sector’s selling, administrative and other expense for 2005 was
      $2,860,000 compared to $1,983,000 for 2004. The product sector’s operating
      expenses during 2004 include $770,000 of non-cash stock-based compensation
      expense compared to $123,000 for 2005. Operating expenses for 2005 includes
      $25,000 for the settlement of litigation. Recurring operating expenses for
      the
      product sector increased by $1,499,000 due primarily to increased in salaries.
      Our overall headcount increased from eight at December 31, 2004 to thirty at
      December 31, 2005 of which a majority of the new hires were for the product
      sectors sales and fulfillment staff. We also increased our product sector
      overhead in the fourth quarter from the increased rent and start-up costs
      related to the new warehouse and fulfillment facility.




The
      product sector’s interest expense during of 2005 was $158,000 of which $130,000
      relates to the convertible notes that were issued in February and May of 2005,
      including $107,000 of amortized discount on the convertible note issuance.
      During 2005 and 2004, interest expense related to notes payable was $28,000
      and
      23,000, respectively.





Discounts
      on receivables sold to a factor were $70,000 and $15,000 for 2005 and 2004,
      respectively. We pay a fixed discount on factored invoices of .75% and a
      variable discount of a base rate, as quoted from time to time by the factoring
      company, plus 2% on the amounts that are initially advanced to us for the period
      of time that such amounts remain outstanding. The effective rate of the variable
      discount as of December 31, 2005 was 9.25%. During 2005 and 2004, the Company
      sold $3,620,000 and $928,000, respectively, of receivables.





On
      June
      17, 2005, we completed a private placement of our series B preferred stock
      of
      which a portion of the proceeds were used to pay all our convertible notes
      that
      were issued in February and May 2005. As a result of such early extinguishment,
      for 2005, the product sector recorded a loss on early debt extinguishment of
      $358,000.





The
      product sector’s net loss for 2005 was $669,000 compared to $1,509,000 for
      2004.




*Overall*




As
      a
      result of the foregoing, we incurred consolidated net loss for 2005 of $669,000
      compared to a loss of $5,811,000 for 2004. In connection with the private
      placement completed on June 17, 2005, the fair value of the securities issued
      (including the preferred stock and warrants to purchase common stock) when
      compared to the net proceeds resulted in a beneficial conversion feature that
      approximated $1,344,000. For purposes of calculating the net loss attributable
      to common stockholders, such beneficial conversion feature is considered a
      deemed dividend and is deducted from the net loss for purposes of calculating
      basic and fully diluted loss per share. Including the deemed dividend, the
      net
      loss attributable to common stockholders for 2005 and was $2,013,000 and
      $5,811,000, respectively, and the basic and fully diluted loss for such periods
      was $.26 and $1.05, respectively.




24


**PART
      II**


**Item
      6.**  **Management's
      Discussion and Analysis or Plan of Operation.**





**Financial
      Condition**





At
      December 31, 2005, we had available working capital of approximately $1,841,000
      compared to a working capital deficiency of $916,000 at December 31, 2004.
      The
      following table details changes in components of working capital during
      2005.




As
                of December 31,
            
            2005
            
            2004
            
            ChangeCash
            
            $
            1,429,000
            
            $
            38,000
            
            $
            1,391,000Certificate
                of deposit (restricted)
            
            
            103,000
            
            
            100,000
            
            
            3,000Accounts
                receivable - net
            
            
            967,000
            
            
            36,000
            
            
            931,000Due
                from factor
            
            
            154,000
            
            
            -
            
            
            154,000Inventory
            
            
            1,959,000
            
            
            186,000
            
            
            1,773,000Prepaid
                media
            
            
            289,000
            
            
            -
            
            
            289,000Other
                current assets
            
            
            234,000
            
            
            34,000
            
            
            200,000Accounts
                payable
            
            
            (810,000
            )
            
            (475,000
            )
            
            (335,000
            )Accrued
                expenses
            
            
            (306,000
            )
            
            (481,000
            )
            
            175,000Deferred
                media revenue
            
            
            (1,029,000
            )
            
            -
            
            
            (1,029,000
            )Current
                debt
            
            
            (1,149,000
            )
            
            (354,000
            )
            
            (795,000
            )Working
                capital (deficiency)
            
            $
            1,841,000
            
            
            ($916,000
            )
            $
            2,757,000





The
      most
      significant increases to working capital were inventory, cash and accounts
      receivable. At December 31, 2005, $644,000 of inventory are the costs of products
      shipped to two large national retailers on which sales are made on a pay on
      scan
      basis, whereby in 2005 we did not recognize sales nor the cost of goods sold,
      until such retailers sell the items to the consumers. The remaining inventory
      costs are related to inventory items on-hand for products including the
      Dermafresh line, e-70, Hercules Hook, D-Shed and other products which are
      actively marketed.




As
      of
      December 31, 2005, 30%, 21% and 14% of the Company’s accounts receivable were
      due from Customer B, Customer D and Customer E, respectively. During the last
      three months of 2004, product shipments were not significant and all but $36,000
      of the invoices related to 2004 shipments had been collected as of December
      31,
      2004. During 2005 product shipments were $5,584,000, of which $1,663,000 was
      shipped in December 2005 a significant portion of which are included in
      outstanding receivables as of December 31, 2005. The terms that we have with
      the
      retailers, other than those whose shipments are on a pay on scan basis, for
      our
      product shipments range from 30 to 60 days from shipment. During January 2006,
      approximately $551,000 of the December 31, 2005 receivables was sold to our
      factor.




The
      increase in cash reflects $500,000 of proceeds from the second funding of an
      18%
      demand note made in December 2005 plus the net difference between deferred
      media
      revenue received from advertising customers in advance of media airing dates
      and
      prepaid media costs paid to networks in advance of the media airing dates.




On
      September 22, 2004, we executed an agreement with our factor pursuant to which
      we may sell qualified receivables without recourse to us. We pay the factor
      a
      fixed discount of .75% of the gross amount of receivables sold to them and
      we
      are advanced 80% of the gross amount of such receivables. The remaining 20%
      of
      the gross amount of any receivables sold is held as a reserve by the factoring
      company until such time as the receivable is collected by the factoring company.
      We pay a variable discount of a base rate, as quoted from time to time by the
      factoring company, plus 2% on the amounts that are initially advanced to us
      until the factor collects the receivable from the customer. The effective rate
      of the variable discount as of December 31, 2005 was 9.25%. During 2005 and
      2004, the Company sold $3,620,000 and $928,000, respectively, of
      receivables.




The
      increase in other current assets is due primarily to deposits paid to vendors
      for product purchases.




25


**PART
      II**


**Item
      6.**  **Management's
      Discussion and Analysis or Plan of Operation.**





The
      significant increase in accounts payable is due to primarily to our increased
      purchases of inventory. Generally, our product and packaging suppliers require us to pay a deposit
      ranging from 25% to 50% of the purchase price with the balance being due 30
      to
      60 days from the shipment date. Deposits which are paid in advance to our
      vendors are included in prepaid and other assets.




Current
      debt increased by $795,000. During
      2005, we shipped products to two large national retailers on a pay on scan
      basis. In order to obtain working capital to fund the costs of shipping to
      these
      two retailers, on December 20, 2005, we borrowed $1,000,000 from a
      non-affiliated lender. The note is a demand note that bears interest at 18%
      per
      annum and is guaranteed by John P. Acunto, Jr., our principal shareholder.
      In
      consideration for his guarantee, we paid Mr. Acunto the sum of $50,000, which
      was charged to operations in 2005. The loan requires quarterly interest payments
      and principal payments in an amount equal to collections from the two pay on
      scan retailers. This note also requires us to make our best efforts to carve-out
      the inventory and receivables related to the two pay on scan retailers from
      the
      blanket security position held by a factoring company. In addition, during 2005
      we
      repaid a $250,000 promissory note which was issued in July 2004 and we executed
      three vehicle loans and two machinery and equipment loans of which the current
      portion is $38,000 as of December 31, 2005. As of December 31, 2005, the
      outstanding balance on our bank line-of-credit was $100,000. The bank
      line-of-credit expired on July 8, 2005 and was renewed by the bank until July
      8,
      2006, and is fully collateralized with a $100,000 certificate of deposit held
      by
      the bank. In March 2005 we paid-off the balance on the bank line-of-credit
      and
      closed it.





On
      February 10, 2006, Genco Power Solutions, Inc., our 66% owned subsidiary entered
      into a loan agreement with a non-affiliated lender which provides for a
      $1,000,000 loan (See Note 17. “Subsequent Events”). The terms of the loan
      agreement provides for an initial draw of $500,000, which loan was made on
      February 10, 2006, and a second draw of $500,000 which was made on March 15,
      2006. The loan bears interest at 18% per annum, requires an interest only
      payment for the first month and twelve payments thereafter consisting of $41,667
      of principal plus accrued interest. The loan is guaranteed by Mr. John P.
      Acunto, Jr., our principal stockholder, for which he received consideration
      of
      fifty thousand dollars from Genco Power Solutions, Inc. In addition the lender
      holds a security interest in all of Genco Power Solutions, Inc.'s assets.
      Pursuant to the loan agreement, the lender received 7% of Genco Power Solutions,
      Inc.'s common stock and has a right of first refusal to provide customer
      financing for the sale of Genco Power Solutions, Inc.'s generator systems.
      Also,
      after 18 months, the lender has the right to cause us to purchase the lender's
      shares of Genco Power Solutions, Inc. common stock at a negotiated price of
      no
      less than 3.5 times Genco Power Solutions, Inc.'s trailing twelve month's income
      before interest, depreciation, amortization and income taxes.





**Guidance
      and Outlook**





On
      February 15, 2006 we filed an 8-K current report reporting the issuance of
      a
      press release in which we disclosed projected revenues of at least $5,500,000
      for the three months ended March 31, 2006.





In
      February, May and June of 2005 we received net proceeds, after payment of
      brokerage and legal fees, of approximately $2.8 million from the sale of our
      securities. In December 2005 and February 2006 we obtained two $1,000,000 loans
      to: (i) finance our shipments to pay on scan customers and (ii) provide us
      with
      working capital for Genco Power Solutions, Inc. Because
      of our cash position and net losses, the only funding source available to us
      required us to pay 18% interest and, with the respect to the Genco Power
      Solutions loan, to provide the lender with a 7% interest in Genco Power
      Solutions. Although we believe that
      these financings will provide us with sufficient funds to enable us to continue
      our operations at least through 2006, it is possible that we may require
      additional funds before that time, and we cannot assure you that we will be
      able
      to raise any funds which we may require or
      that
      our lender holding the $1.0 million demand note will not demand payment. To
      the
      extent that our business grows at a rate higher than projected or that we
      develop or obtain rights to products, our inability to have a credit facility
      based on inventory and accounts receivable rather than a factoring arrangement
      could inhibit our growth. We cannot assure you that we will be able to obtain
      a
      credit facility that provides us with an increased borrowing base based on
      both
      accounts receivable and inventory.




26


**PART
        II**
 **Item
        7. Financial Statements**


**ADSOUTH
      PARTNERS, INC. AND SUBSIDIARIES**


**Index
      to Consolidated Financial Statements**








PageReport
                  of Independent Registered Public Accounting Firm
              
              
              28Sector
                  Statements of Operations for the Years Ended December 31,
                  2005and
                  2004
              
              
              29Consolidated
                  Statements of Operations for the Years Ended December 31,
                  2005and
                  2004
              
              
              30Sector
                  Balance Sheet as of December 31, 2005
              
              
              31-32Consolidated
                  Balance Sheet as of December 31, 2005
              
              
              33Sector
                  Statements of Cash Flows for the Years Ended December 31,
                  2005and
                  2004
              
              
              34-35Consolidated
                  Statements of Cash Flows for the Years Ended December 31,
                  2005and
                  2004
              
              
              36-37Consolidated
                  Statement of Changes in Capital Deficiency for theYear
                  Ended December 31, 2004
              
              
              38Consolidated
                  Statement of Changes in (Capital Deficiency) Stockholders’Equity
                  for the Year Ended December 31, 2005
              
              
              39Notes
                  to Consolidated Financial Statements
              
              
              40-61


27


**PART
      II**


**Item
      7. Financial Statements**








**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





To
      the
      Board of Directors and Stockholders


**Adsouth
      Partners, Inc. and Subsidiaries**





We
      have
      audited the accompanying consolidated balance sheet of Adsouth Partners, Inc.
      and Subsidiaries (the “Company”) as of December 31, 2005, and the related
      consolidated statements of operations, changes in (capital deficiency)
      stockholders’ equity, and cash flows for the years ended December 31, 2005 and
      2004. In addition, we have audited the accompanying sector balance sheet and
      the
      related sector statements of operations and cash flows, presented for purposes
      of additional analysis, for the years ended December 31, 2005 and 2004. These
      consolidated and sector financial statements (collectively, the “financial
      statements”) are the responsibility of the Company's management. Our
      responsibility is to express an opinion on these consolidated financial
      statements based on our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. The
      Company is not required to have, nor were we engaged to perform, an audit of
      its
      internal control over financial reporting. Our audit included consideration
      of
      internal control over financial reporting as a basis for designing audit
      procedures that are appropriate in the circumstances, but not for the purpose
      of
      expressing an opinion on the effectiveness of the Company’s internal control
      over financial reporting. Accordingly, we express no such opinion. An
      audit
      also includes examining, on a test basis, evidence supporting the amounts and
      disclosures in the financial statements, assessing the accounting principles
      used and significant estimates made by management, as well as evaluating the
      overall financial statement presentation. We believe that our audits provide
      a
      reasonable basis for our opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the consolidated financial position of Adsouth
      Partners, Inc. and Subsidiaries as of December 31, 2005, and the consolidated
      results of their operations and their cash flows for the years ended December
      31, 2005 and 2004 in conformity with accounting principles generally accepted
      in
      the United States of America. In addition, in our opinion, the accompanying
      sector balance sheet and the related sector statements of operations and of
      cash
      flows, presented for purposes of additional analysis, present fairly, in all
      material respects, the information set forth therein when read in conjunction
      with the related consolidated financial statements.








/s/
      Marcum & Kliegman LLP








New
      York,
      New York


February
      25, 2006, except for Note No. 17(b) which is as of March 15, 2006 and Note
      17(c)
      which is as of March 28, 2006.


28


**PART
      II**


**Item
      7. Financial Statements**








**Adsouth
                Partners, Inc. and Subsidiaries****Sector
                Statements of Operations****For
                the Year Ended December 31,**
            
            **2005**
            
            **2004****ADVERTISING**Revenues
            
            $
            7,730,000
            
            $
            2,925,000Costs
                and expensesMedia
                placement and production costs
            
            
            5,516,000
            
            
            1,035,000Selling,
                administrative and other expense (includes non cash stock based
                compensation of $141,000 and $3,718,000,respectively, for the years
                ended
                December 31, 2005 and 2004)
            
            
            1,955,000
            
            
            6,178,000Total
                costs and expenses
            
            
            7,471,000
            
            
            7,213,000Operating
                income (loss) - Advertising
            
            
            259,000
            
            
            (4,288,000
            )Interest
                income
            
            
            2,000
            
            
            -Interest
                expense
            
            
            (69,000
            )
            
            -Loss
                on sale of marketable securities
            
            
            (13,000
            )
            
            (10,000
            )Other
                expense
            
            
            -
            
            
            (4,000
            )Loss
                on early debt extinguishment
            
            
            (179,000
            )
            
            -Net
                loss - Advertising
            
            
            -
            
            
            (4,302,000
            )**PRODUCTS**Revenues
            
            
            5,584,000
            
            
            1,119,000Costs
                and expensesCost
                of sales
            
            
            2,812,000
            
            
            607,000Selling,
                administrative and other expense (includes non cash stock based
                compensation of $123,000 and $770,000, respectively, for the years
                ended
                December 31, 2005 and 2004)
            
            
            2,860,000
            
            
            1,983,000Total
                costs and expenses
            
            
            5,672,000
            
            
            2,590,000Operating
                loss - Products
            
            
            (88,000
            )
            
            (1,471,000
            )Interest
                income
            
            
            5,000
            
            
            -Discount
                on receivables sold to factor
            
            
            (70,000
            )
            
            (15,000
            )Interest
                expense
            
            
            (158,000
            )
            
            (23,000
            )Loss
                on early debt extinguishment
            
            
            (358,000
            )
            
            -Net
                loss - Products
            
            
            (669,000
            )
            
            (1,509,000
            )**TOTAL
                COMPANY**Net
                loss
            
            
            (669,000
            )
            
            (5,811,000
            )Deemed
                dividend-series B preferred stock
            
            
            (1,344,000
            )
            
            -Net
                loss attributable to common stockholders
            
            
            ($2,013,000
            )
            
            ($5,811,000
            )**AMOUNTS
                PER SHARE OF COMMON STOCK**Loss
                per common share;Basic
            
            
            ($0.26
            )
            
            ($1.05
            )Diluted
            
            
            ($0.26
            )
            
            ($1.05
            )Weighted
                average number of common shares:Basic
            
            
            7,666,172
            
            
            5,559,674Diluted
            
            
            7,666,172
            
            
            5,559,674*The
                accompanying notes are an integral part of these consolidated financial
                statements.*





29


**PART
      II**


**Item
      7. Financial Statements**








**Adsouth
                Partners, Inc. and Subsidiaries****Consolidated
                Statements of Operations****For
                the Year Ended December 31,**
            
            **2005**
            
            **2004**RevenuesAdvertising
            
            $
            7,730,000
            
            $
            2,925,000Products
            
            
            5,584,000
            
            
            1,119,000Revenues
            
            
            13,314,000
            
            
            4,044,000Costs
                and expensesMedia
                placement and production costs - advertising
            
            
            5,516,000
            
            
            1,035,000Cost
                of sales - products
            
            
            2,812,000
            
            
            607,000Selling,
                administrative and other expense (includes non cash stock based
                compensation of $264,000 and $4,488,000, respectively, for the years
                ended
                December 31, 2005 and 2004)
            
            
            4,815,000
            
            
            8,161,000Total
                costs and expenses
            
            
            13,143,000
            
            
            9,803,000Income
                (loss) from operations
            
            
            171,000
            
            
            (5,759,000
            )Interest
                income
            
            
            7,000
            
            
            -Discount
                on receivables sold to factor
            
            
            (70,000
            )
            
            (15,000
            )Interest
                expense
            
            
            (227,000
            )
            
            (23,000
            )Loss
                on sale of marketable securities
            
            
            (13,000
            )
            
            (10,000
            )Other
                expense
            
            
            -
            
            
            (4,000
            )Loss
                on early debt extinguishment
            
            
            (537,000
            )
            
            -Net
                loss
            
            
            (669,000
            )
            
            (5,811,000
            )Deemed
                dividend-series B preferred stock
            
            
            (1,344,000
            )
            
            -Net
                loss attributable to common stockholders
            
            
            ($2,013,000
            )
            
            ($5,811,000
            )**AMOUNTS
                PER SHARE OF COMMON STOCK**Loss
                per common share;Basic
            
            
            ($0.26
            )
            
            ($1.05
            )Diluted
            
            
            ($0.26
            )
            
            ($1.05
            )Weighted
                average number of common shares:Basic
            
            
            7,666,172
            
            
            5,559,674Diluted
            
            
            7,666,172
            
            
            5,559,674*The
                accompanying notes are an integral part of these consolidated financial
                statements.*





30


**PART
      II**


**Item
      7. Financial Statements**








**Adsouth
                Partners, Inc. and Subsidiaries****Sector
                Balance Sheet****As
                of December 31, 2005****ASSETS****ADVERTISING**Cash
            
            $
            1,428,000Certificate
                of deposit (restricted)
            
            
            103,000Accounts
                receivable - net
            
            
            24,000Current
                portion of deferred charge, related party
            
            
            67,000Prepaid
                media
            
            
            289,000Prepaid
                expenses and other current assets
            
            
            9,000Total
                advertising current assets
            
            
            1,920,000Property
                and equipment - net
            
            
            369,000Deferred
                charge, related party - net of current portion
            
            
            100,000Deposits
            
            
            52,000Total
                advertising assets
            
            
            2,441,000**PRODUCTS**Cash
            
            
            1,000Accounts
                receivable - net
            
            
            943,000Due
                from factor
            
            
            154,000Inventory
            
            
            1,959,000Prepaid
                expenses and other current assets
            
            
            158,000Total
                product current assets
            
            
            3,215,000Property
                and equipment - net
            
            
            209,000Investment
                in product line rights - net
            
            
            148,000Deposits
            
            
            10,000Total
                product assets
            
            
            3,582,000**TOTAL
                ASSETS**
            
            $
            6,023,000(continued)*The
                accompanying notes are an integral part of these consolidated financial
                statements.*





31


**PART
      II**


**Item
      7. Financial Statements**








**Adsouth
                Partners, Inc. and Subsidiaries****Sector
                Balance Sheet****As
                of December 31, 2005****LIABILITIES
                AND STOCKHOLDERS’ EQUITY****ADVERTISING**Accounts
                payable
            
            $
            27,000Deferred
                revenues
            
            
            1,029,000Accrued
                expenses
            
            
            59,000Current
                portion of notes payable
            
            
            11,000Current
                portion of capital lease obligations
            
            
            5,000Total
                advertising current liabilities
            
            
            1,131,000Notes
                payable - net of current portion
            
            
            37,000Capital
                lease obligations - net of current portion
            
            
            17,000Total
                advertising liabilities
            
            
            1,185,000**PRODUCTS**Accounts
                payable
            
            
            783,000Accrued
                expenses
            
            
            247,000Bank
                line of credit
            
            
            100,000Demand
                note payable
            
            
            1,000,000Current
                portion of notes payable
            
            
            27,000Current
                portion of capital lease obligations
            
            
            6,000Total
                products current liabilities
            
            
            2,163,000Notes
                payable - net of current portion
            
            
            101,000Capital
                lease obligations - net of current portion
            
            
            23,000Total
                products liabilities
            
            
            2,287,000Contingencies
                and commitments (see Note 11)**STOCKHOLDERS’
                EQUITY**Preferred
                stock, $.0001 par value; 10,000,000 shares authorized,
              1,500,000
                designated as series B convertible preferred stock,
              1,166,557
                issued and outstanding
            
            
            -Common
                stock, $.0001 par value; 60,000,000 shares authorized,
              8,197,599issued and outstanding
            
            
            1,000Additional
                paid-in capital
            
            
            9,521,000Notes
                receivable - stockholder
            
            
            (20,000
            )Deferred
                compensation
            
            
            (471,000
            )Accumulated
                deficit
            
            
            (6,480,000
            )Total
                stockholders’ equity
            
            
            2,551,000**TOTAL
                LIABILITIES AND STOCKHOLDERS’ EQUITY**
            
            $
            6,023,000*The
                accompanying notes are an integral part of these consolidated financial
                statements.*





32


**PART
      II**


**Item
      7. Financial Statements**








**Adsouth
                Partners, Inc. and Subsidiaries****Consolidated
                Balance Sheet****As
                of December 31, 2005****ASSETS**Cash
            
            $
            1,429,000Certificate
                of deposit (restricted)
            
            
            103,000Accounts
                receivable - net
            
            
            967,000Due
                from factor
            
            
            154,000Inventory
            
            
            1,959,000Current
                portion of deferred charge, related party
            
            
            67,000Prepaid
                media
            
            
            289,000Prepaid
                expenses and other current assets
            
            
            167,000Total
                current assets
            
            
            5,135,000Property
                and equipment - net
            
            
            578,000Investment
                in product line rights - net
            
            
            148,000Deferred
                charge, related party - net of current portion
            
            
            100,000Deposits
            
            
            62,000**TOTAL
                ASSETS**
            
            $
            6,023,000**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**Accounts
                payable
            
            $
            810,000Deferred
                revenues
            
            
            1,029,000Accrued
                expenses
            
            
            306,000Bank
                line of credit
            
            
            100,000Demand
                note payable
            
            
            1,000,000Current
                portion of notes payable
            
            
            38,000Current
                portion of capital lease obligations
            
            
            11,000Total
                current liabilities
            
            
            3,294,000Notes
                payable - net of current portion
            
            
            138,000Capital
                lease obligations - net of current portion
            
            
            40,000Total
                liabilities
            
            
            3,472,000Contingencies
                and commitments (see Note 11)**STOCKHOLDERS’
                EQUITY**Preferred
                stock, $.0001 par value; 10,000,000 shares authorized,
              1,500,000
                designated as series B convertible preferred stock,
              1,166,557
                issued and outstanding
            
            
            -Common
                stock, $.0001 par value; 60,000,000 shares authorized,
              8,197,599issued and outstanding
            
            
            1,000Additional
                paid-in capital
            
            
            9,521,000Notes
                receivable - stockholder
            
            
            (20,000
            )Deferred
                compensation
            
            
            (471,000
            )Accumulated
                deficit
            
            
            (6,480,000
            )Total
                stockholders’ equity
            
            
            2,551,000**TOTAL
                LIABILITIES AND STOCKHOLDERS’ EQUITY**
            
            $
            6,023,000*The
                accompanying notes are an integral part of these consolidated financial
                statements.*





33


**PART
      II**


**Item
      7. Financial Statements**








**Adsouth
                Partners, Inc. and Subsidiaries****Sector
                Statements of Cash Flows**




**Advertising**
            
            **Products****For
                the Year Ended December 31,**
            
            **2005**
            
            **2004**
            
            **2005**
            
            **2004****CASH
                FLOWS - OPERATING ACTIVITIES**Net
                loss
            
            
            -
            
            ($
            4,302,000
            )
            ($
            669,000
            )
            ($
            1,509,000
            )Adjustments
                to reconcile net loss to net cash - operating activities:Stock
                based compensation
            
            $
            141,000
            
            
            3,718,000
            
            
            123,000
            
            
            770,000Depreciation
            
            
            26,000
            
            
            8,000
            
            
            13,000
            
            
            1,000Amortization
                of product line rights
            
            
            -
            
            
            -
            
            
            49,000
            
            
            11,000Amortization
                of debt discount on convertible notes
            
            
            53,000
            
            
            -
            
            
            107,000
            
            
            -Bad
                debt expense
            
            
            15,000
            
            
            484,000
            
            
            24,000
            
            
            31,000Loss
                from sale of marketable securities
            
            
            13,000
            
            
            10,000
            
            
            -
            
            
            -Loss
                on early debt extinguishment
            
            
            179,000
            
            
            -
            
            
            358,000
            
            
            -Other
                operating adjustments
            
            
            -
            
            
            6,000
            
            
            -
            
            
            25,000Changes
                in assets and liabilitiesAccounts
                receivable
            
            
            (40,000
            )
            
            (668,000
            )
            
            (931,000
            )
            
            (67,000
            )Inventory
            
            
            -
            
            
            -
            
            
            (1,773,000
            )
            
            (186,000
            )Prepaid
                expense and other current assets
            
            
            (297,000
            )
            
            (1,000
            )
            
            (126,000
            )
            
            (32,000
            )Deferred
                charge, related party
            
            
            (167,000
            )
            
            -
            
            
            -
            
            
            -Accounts
                payable
            
            
            (76,000
            )
            
            86,000
            
            
            415,000
            
            
            370,000Deferred
                revenues
            
            
            978,000
            
            
            51,000
            
            
            (39,000
            )
            
            39,000Accrued
                expenses
            
            
            (172,000
            )
            
            240,000
            
            
            211,000
            
            
            35,000Net
                cash - operating activities
            
            
            653,000
            
            
            (368,000
            )
            
            (2,238,000
            )
            
            (512,000
            )**CASH
                FLOWS - INVESTING ACTIVITIES**Capital
                expenditures
            
            
            (323,000
            )
            
            (47,000
            )
            
            (182,000
            )
            
            (10,000
            )Purchase
                certificate of deposit, restricted
            
            
            (3,000
            )
            
            (100,000
            )
            
            -
            
            
            -Proceeds
                from sale of marketable securities
            
            
            160,000
            
            
            -
            
            
            -
            
            
            -Investment
                in product line rights
            
            
            -
            
            
            -
            
            
            -
            
            
            (125,000
            )Deposits
            
            
            (42,000
            )
            
            (8,000
            )
            
            (6,000
            )
            
            (4,000
            )Net
                cash - investing activities
            
            
            (208,000
            )
            
            (155,000
            )
            
            (188,000
            )
            
            (139,000
            )**CASH
                FLOWS FINANCING ACTIVITIES**Deferred
                financing costs
            
            
            (80,000
            )
            
            -
            
            
            (160,000
            )
            
            -Capital
                lease payments
            
            
            (3,000
            )
            
            -
            
            
            (2,000
            )
            
            -Proceeds
                from notes payable
            
            
            50,000
            
            
            -
            
            
            1,134,000
            
            
            250,000Repayments
                of notes payable
            
            
            (3,000
            )
            
            -
            
            
            (256,000
            )
            
            -Proceeds
                from bank line-of-credit
            
            
            -
            
            
            -
            
            
            100,000
            
            
            245,000Repayments
                on bank line-of-credit
            
            
            -
            
            
            (145,000
            )
            
            (100,000
            )
            
            -Due
                (from) to factor
            
            
            -
            
            
            -
            
            
            (269,000
            )
            
            113,000Proceeds
                from exercise of stock options and warrants
            
            
            33,000
            
            
            130,000
            
            
            107,000
            
            
            -Proceeds
                from issuance of common stock
            
            
            -
            
            
            560,000
            
            
            -
            
            
            43,000Proceeds
                from issuance of convertible notes
            
            
            487,000
            
            
            -
            
            
            973,000
            
            
            -Repayments
                of convertible notes
            
            
            (257,000
            )
            
            -
            
            
            (513,000
            )
            
            -Cash
                proceeds from issuance of preferred stock
            
            
            1,603,000
            
            
            -
            
            
            897,000
            
            
            -Offering
                costs
            
            
            (123,000
            )
            
            -
            
            
            (246,000
            )
            
            -Inter
                sector advances
            
            
            (762,000
            )
            
            -
            
            
            762,000
            
            
            -Net
                cash - financing activities
            
            
            945,000
            
            
            545,000
            
            
            2,427,000
            
            
            651,000*The
                accompanying notes are an integral part of these consolidated financial
                statements.*
            
            Continued





34


**PART
      II**


**Item
      7. Financial Statements**








**Adsouth
                Partners, Inc. and Subsidiaries****Sector
                Statements of Cash Flows****Advertising**
            
            **Products****For
                the Year Ended December 31,**
            
            **2005**
            
            **2004**
            
            **2005**
            
            **2004**Net
                change in cash
            
            
            1,390,000
            
            
            22,000
            
            
            1,000
            
            
            -Cash
                - beginning of period
            
            
            38,000
            
            
            16,000
            
            
            -
            
            
            -Cash
                - end of period
            
            $
            1,428,000
            
            $
            38,000
            
            $
            1,000
            
            
            -**SUPPLEMENTAL
                CASH**
              **FLOW
                INFORMATION**Cash
                paid for interest
            
            $
            15,000
            
            
            -
            
            $
            50,000
            
            $
            16,000Cash
                paid for income taxes
            
            
            -
            
            
            -
            
            
            -
            
            
            -





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








35


**PART
      II**


**Item
      7. Financial Statements**








**Adsouth
                Partners, Inc. and Subsidiaries****Consolidated
                Statements of Cash Flows****For
                the Year Ended December 31,**
            
            **2005**
            
            **2004****CASH
                FLOWS - OPERATING ACTIVITIES**Net
                loss
            
            ($
            669,000
            )
            ($
            5,811,000
            )Adjustments
                to reconcile net loss to net cash - operating activities:Stock
                based compensation
            
            
            264,000
            
            
            4,488,000Depreciation
            
            
            39,000
            
            
            9,000Amortization
                of product line rights
            
            
            49,000
            
            
            11,000Amortization
                of debt discount on convertible notes
            
            
            160,000
            
            
            -Bad
                debt expense
            
            
            39,000
            
            
            515,000Loss
                from sale of marketable securities
            
            
            13,000
            
            
            10,000Loss
                on early debt extinguishment
            
            
            537,000
            
            
            -Other
                operating adjustments
            
            
            -
            
            
            31,000Changes
                in assets and liabilitiesAccounts
                receivable
            
            
            (971,000
            )
            
            (735,000
            )Inventory
            
            
            (1,773,000
            )
            
            (186,000
            )Prepaid
                expense and other current assets
            
            
            (423,000
            )
            
            (33,000
            )Deferred
                charge, related party
            
            
            (167,000
            )
            
            -Accounts
                payable
            
            
            339,000
            
            
            456,000Deferred
                revenues
            
            
            939,000
            
            
            90,000Accrued
                expenses
            
            
            39,000
            
            
            275,000Net
                cash - operating activities
            
            
            (1,585,000
            )
            
            (880,000
            )**CASH
                FLOWS - INVESTING ACTIVITIES**Capital
                expenditures
            
            
            (505,000
            )
            
            (57,000
            )Purchase
                certificate of deposit, restricted
            
            
            (3,000
            )
            
            (100,000
            )Proceeds
                from sale of marketable securities
            
            
            160,000
            
            
            -Investment
                in product line rights
            
            
            -
            
            
            (125,000
            )Deposits
            
            
            (48,000
            )
            
            (12,000
            )Net
                cash - investing activities
            
            
            (396,000
            )
            
            (294,000
            )**CASH
                FLOWS FINANCING ACTIVITIES**Deferred
                financing costs
            
            
            (240,000
            )
            
            -Capital
                lease payments
            
            
            (5,000
            )
            
            -Proceeds
                from notes payable
            
            
            1,184,000
            
            
            250,000Repayments
                of notes payable
            
            
            (259,000
            )
            
            -Proceeds
                from bank line-of-credit
            
            
            100,000
            
            
            245,000Repayments
                on bank line-of-credit
            
            
            (100,000
            )
            
            (145,000
            )Due
                (from) to factor
            
            
            (269,000
            )
            
            113,000Proceeds
                from exercise of stock options and warrants
            
            
            140,000
            
            
            130,000Proceeds
                from issuance of common stock
            
            
            -
            
            
            603,000Proceeds
                from issuance of convertible notes
            
            
            1,460,000
            
            
            -Repayments
                of convertible notes
            
            
            (770,000
            )
            
            -Cash
                proceeds from issuance of preferred stock
            
            
            2,500,000
            
            
            -Offering
                costs
            
            
            (369,000
            )
            
            -Net
                cash - financing activities
            
            
            3,372,000
            
            
            1,196,000Net
                change in cash
            
            
            1,391,000
            
            
            22,000Cash
                - beginning of period
            
            
            38,000
            
            
            16,000Cash
                - end of period
            
            $
            1,429,000
            
            $
            38,000


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





36


**PART
      II**


**Item
      7. Financial Statements**








**Adsouth
                Partners, Inc. and Subsidiaries****Consolidated
                Statements of Cash Flows****For
                the Year Ended December 31,**
            
            **2005**
            
            **2004****SUPPLEMENTAL
                CASH FLOW INFORMATION**Cash
                paid for interest
            
            $
            65,000
            
            $
            16,000Cash
                paid for income taxes
            
            
            -
            
            
            -


**SUPPLEMENTAL
      DISCLOSURES OF NON CASH INVESTING AND FINANCING ACTIVITIES**





During
      the Year Ended December 31, 2005





In
      January 2005 the Company issued 63,333 shares of common stock valued at $83,000
      to acquire the assets of the Miko Brand.





On
      February 17, 2005, the Company issued warrants as part of a fee paid in
      connection with the issuance of convertible notes. The value of the warrants
      approximated $145,000 and was capitalized as a deferred financing
      cost.





On
      May
      16, 2005, the Company issued warrants as part of a fee paid in connection with
      the issuance of convertible notes. The value of the warrants approximated
      $61,000 and was capitalized as a deferred financing cost.





On
      June
      17, 2005, the Company issued 300,633 shares of series B convertible preferred
      stock in exchange for $800,000 of convertible notes and $12,000 of interest
      accrued thereon.





During
      2005, the Company issued options to consultants which, using the Black-Scholes
      option valuation formula, had an aggregate value of $736,000, which was recorded
      as an increase to deferred compensation expense. Such deferred compensation
      expense is being amortized pursuant to the terms of the underlying consulting
      agreement to which the related options were issued.





In
      2005,
      the Company entered into capital lease obligations having an aggregate net
      present value of $34,000 resulting in a non cash increase in property and
      equipment of $7,000 to the advertising sector and $27,000 to the products
      sector.





During
      the Year Ended December 31, 2004





On
      March
      31, 2004, the Company sold 333,333 shares of common stock to a related party
      for
      $1,002,000 of which $650,000 was paid with the issuance of a promissory note.
      On
      June 23, 2004, 157,894 of such shares were returned in cancellation of $635,000
      of the related promissory note.





In
      2004,
      the Company entered into a capital lease oblation having an aggregate net
      present value of $22,000 resulting in a non cash increase in property and
      equipment of $18,000 to the advertising sector and $4,000 to the products
      sector.





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




37


**PART
      II**


**Item
      7. Financial Statements**







**Adsouth
                Partners, Inc and Subsidiaries**
              **Consolidated
                Statement of Changes in Stockholders’ Equity (Capital
                Deficiency)**
              **For
                the Year Ended December 31,
                2004**






Shares
                of Common stock Issued and Outstanding
            
            Common
                Stock, Par Value
            
            Additional
                Paid-in Capital
            
            Deferred
                Compensation
            
            Note
                Receivable Stockholder
            
            Accumulated
                Deficit
            
            TotalBalance
                at December 31, 2003
            
            
            -
            
            
            -
            
            $
            22,000
            
            
            -
            
            
            -
            
            
            ($12,000
            )
            $
            10,000Equity
                section of Zenith Technology, Inc. (Note 1)
            
            
            3,478,032
            
            
            -
            
            
            934,000
            
            
            ($783,000
            )
            
            ($20,000
            )
            
            (131,000
            )
            
            -Transfer
                to additional paid-in capital upon reorganization
            
            
            -
            
            
            -
            
            
            (131,000
            )
            
            -
            
            
            -
            
            
            131,000
            
            
            -Capitalization
                of accumulated deficit at the time of the S-Corp
                revocation
            
            
            -
            
            
            -
            
            
            (12,000
            )
            
            -
            
            
            -
            
            
            12,000
            
            
            -Stock
                issued pursuant to stock grants (Note 13)
            
            
            2,003,396
            
            
            -
            
            
            3,625,000
            
            
            (130,000
            )
            
            -
            
            
            -
            
            
            3,495,000Grant
                of stock options (Note 13)
            
            
            -
            
            
            -
            
            
            78,000
            
            
            (78,000
            )
            
            -
            
            
            -
            
            
            -Exercise
                of stock options (Note 13)
            
            
            150,000
            
            
            -
            
            
            130,000
            
            
            -
            
            
            -
            
            
            -
            
            
            130,000Amortization
                of deferred compensation (Note 13)
            
            
            -
            
            
            -
            
            
            -
            
            $
            991,000
            
            
            -
            
            
            -
            
            
            991,000Stock
                issued for note receivable - related party (Note 12)
            
            
            333,333
            
            
            -
            
            
            1,002,000
            
            
            -
            
            
            (650,000
            )
            
            -
            
            
            352,000Cancellation
                of note receivable - related party upon return of previously issued
                stock
                (Note 12)
            
            
            (157,894
            )
            
            -
            
            
            (650,000
            )
            
            -
            
            
            650,000
            
            
            -
            
            
            -Stock
                issued in lieu of cash for interest expense
            
            
            15,347
            
            
            -
            
            
            25,000
            
            
            -
            
            
            -
            
            
            -
            
            
            25,000Sale
                of common stock
            
            
            180,000
            
            
            -
            
            
            251,000
            
            
            -
            
            
            -
            
            
            -
            
            
            251,000Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (5,811,000
            )
            
            (5,811,000
            )Balance
                at December 31, 2004
            
            
            6,002,214
            
            
            -
            
            $
            5,274,000
            
            
            -
            
            
            ($20,000
            )
            
            ($5,811,000
            )
            
            ($557,000
            )*The
                accompanying notes are an integral part of these consolidated financial
                statements.*








38


**PART
          II**
 **Item
          7. Financial Statements**
 **Adsouth
                    Partners, Inc. and Subsidiaries**
                  **Consolidated
                    Statement of Changes in (Capital Deficiency) Stockholders’
                    Equity**
                  **For
                    the Year Ended December 31,
                    2005**
  Shares
                      of Series B Preferred Stock, Issued and Outstanding
                
                Shares
                      of Common Stock, Issued and Outstanding
                
                Preferred
                      Stock, Par Value
                
                Common
                      Stock, Par Value
                
                Additional
                    Paid-in Capital
                
                Deferred
                    Compensation
                
                Note
                    Receivable Stockholder
                
                Accumulated
                  Deficit
                
                TotalBalance
                    atDecember
                    31, 2004
                
                
                -
                
                
                6,002,214
                
                
                -
                
                
                -
                
                $
                5,274,000
                
                
                -
                
                
                ($20,000
                )
                
                ($5,811,000
                )
                
                ($557,000
                )Net
                    loss
                
                
                -
                
                
                
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (669,000
                )
                
                (669,000
                )Stock
                    returned from settlements
                
                
                -
                
                
                (3,333
                )
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -Stock
                    issued to acquire the Miko Brand assets (Note 1)
                
                
                -
                
                
                63,333
                
                
                -
                
                
                -
                
                
                83,000
                
                
                -
                
                
                -
                
                
                -
                
                
                83,000Securities
                    issued in conjunction with the issuance of the convertible notes
                    (Note
                    12)
                
                
                -
                
                
                1,891,033
                
                
                -
                
                $
                1,000
                
                
                1,077,000
                
                
                -
                
                
                -
                
                
                -
                
                
                1,078,000Securities
                    returned upon the early extinguishment of the convertible notes
                    (Note
                    12)
                
                
                -
                
                
                (570,833
                )
                
                -
                
                
                -
                
                
                (936,000
                )
                
                -
                
                
                -
                
                
                -
                
                
                (936,000
                )Issuance
                    of series B convertible preferred stock(Note 12)
                
                
                1,226,557
                
                
                -
                
                
                -
                
                
                -
                
                
                3,312,000
                
                
                -
                
                
                -
                
                
                -
                
                
                3,312,000Offering
                    costs
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (370,000
                )
                
                -
                
                
                -
                
                
                -
                
                
                (370,000
                )Series
                    B convertible preferred stock conversion (Note 12)
                
                
                (60,000
                )
                
                540,000
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -Grant
                    of stock options to consultants(Note 13)
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                736,000
                
                
                ($736,000
                )
                
                -
                
                
                -
                
                
                -Grant
                    of warrants for placement fees (Note 13)
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                205,000
                
                
                -
                
                
                -
                
                
                -
                
                
                205,000Exercise
                    of stock options and warrants (Note 13)
                
                
                -
                
                
                275,185
                
                
                -
                
                
                -
                
                
                140,000
                
                
                -
                
                
                -
                
                
                -
                
                
                140,000Amortization
                    of deferred stock based compensation (Note 13)
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                265,000
                
                
                -
                
                
                -
                
                
                265,000Balance
                    atDecember
                    31, 2005
                
                
                1,166,557
                
                
                8,197,599
                
                
                -
                
                $
                1,000
                
                $
                9,521,000
                
                
                ($471,000
                )
                
                ($20,000
                )
                
                ($6,480,000
                )
                $
                2,551,000
  *The
                    accompanying notes are an integral part of these consolidated
                    financial
                    statements.*


39


**PART
        II**
 **Item
        7. Financial Statements**
 
 **Adsouth
        Partners, Inc. and Subsidiaries**
 **Notes
        to Consolidated Financial Statements**
 **For
        the Year Ended December 31, 2005**










**1.**  **Summary
      of Significant Accounting Policies**





Organization





Adsouth
      Partners, Inc. (the "Company"), (formerly Zenith Technology, Inc.) is a publicly
      held Nevada corporation organized on December 2, 1998.





Changes
      in Control





On
      January 4, 2004, the Company, The Tiger Fund, Adsouth, Inc., John P. Acunto,
      Jr.
      and Angela E. Acunto entered into a share exchange transaction, pursuant to
      which the Tiger Fund transferred 1,866,667 shares of the Company’s common stock,
      par value $.0001 per share, it owned to Mr. Acunto and Ms. Acunto, who were
      the
      two shareholders of Adsouth, Inc., in exchange for their 100% equity ownership
      in Adsouth, Inc. (the “Adsouth Acquisition”). Upon the completion of the Adsouth
      Acquisition, control of the Company had changed whereby Mr. Acunto, and Ms.
      Acunto owned more than 50% of the total issued and outstanding common stock.





Because
      the Adsouth Acquisition resulted in the former owners of Adsouth, Inc. gaining
      control of the Company, the transaction is accounted for as a reverse
      acquisition. Effective on the acquisition date, the Company’s balance sheet
      includes the assets and liabilities of Adsouth, Inc. and its equity accounts
      have been recapitalized to reflect the equity of Adsouth, Inc. In addition,
      effective on the acquisition date, and for all reporting periods thereafter,
      the
      Company’s operating activities, including any prior comparative periods, will
      include only those of Adsouth, Inc.





Reverse
      Split





All
      share
      and per share information in these financial statements reflects a one-for-15
      reverse split which became effective on March 25, 2005.





Nature
      of Operations





Since
      July 8, 2003 and throughout 2004, the Company has been engaged in providing
      advertising agency services specializing in direct response media campaigns.
      The
      Company’s advertising agency services include (i) the placement of advertising
      in television, internet and print media outlets; (ii) the production of
      advertising content including television commercials, print advertising and
      other graphics design literature; and (iii) advertising and marketing consulting
      services.





In
      February 2004, the Company acquired the rights to a home microdermabrasion
      kit
      skin care product in consideration for $125,000 and throughout 2004 the Company
      expanded its line of skin care products to include a collagen facial blanket,
      a
      glycolic facial blanket, eye and lip contour patches, a scar and stretch mark
      renewal patch, a décolleté renewal blanket, a roll-on collagen, an anti-wrinkle
      and firming serum and a bottled skin toner (the “Dermafresh Line”). Sales of the
      Company’s skin care products began in June 2004 and sales to retail customers
      began in the third quarter of 2004.





In
      October 2004, the Company entered into a distribution and marketing agreement
      with SIMON Cosmetics LLC pursuant to which the Company has two year exclusive
      rights to distribute and sell SIMON Cosmetics LLC’s line of skin care products
      (the “Simon Solutions Line”) in North America. Pursuant to the distribution and
      marketing agreement, the Company has exclusive rights to purchase distribute
      the
      Simon Solutions Line in North America for a period of two years, although either
      party has the right to terminate the agreement on six months’ notice. The
      distribution and marketing agreement also requires the Company to participate
      with SIMON Cosmetics LLC in a cooperative advertising campaign. Pursuant to
      a
      separate royalty agreement, the Company is required to pay a royalty of $.10
      per
      unit on the Lip Solution Product to the company that introduced SIMON Cosmetics
      LLC to the Company. Sales of the Simon Solutions Line began in the first quarter
      of 2005.


40


**PART
        II**
 **Item
        7. Financial Statements**
 
 **Adsouth
        Partners, Inc. and Subsidiaries**
 **Notes
        to Consolidated Financial Statements**
 **For
        the Year Ended December 31, 2005**








In
      January 2005, the Company entered into an asset purchase agreement to acquire
      assets of Miko Brands, LLC. The Miko Brand products consist of a line of
      marinade and dressing sauces. Pursuant to the asset purchase agreement, the
      Company issued 63,333 shares of common stock to the sole member of Miko Brands,
      LLC. The Company entered into a two year consulting agreement with Miko’s sole
      member pursuant to which the Company granted to him an option to purchase 26,667
      shares of common stock for $1.31 per share, being the fair market value on
      the
      date of grant. Using the Black-Scholes option valuation formula, these stock
      and
      option grants were valued at approximately $30,000 which is amortized over
      the
      term of the related consulting agreement. In addition, the Company entered
      into
      a manufacturing license agreement with a entity formed by Miko’s sole member
      which grants that entity certain manufacturing rights for the Miko brand. The
      Company has not begun marketing the Miko brand and no significant sales of
      the
      Miko brand line of products has occurred.





In
      February 2005, the Company entered into an exclusive retail distribution
      agreement with Delmar Products, Inc. (“Delmar”), pursuant to which it has a two
      year right to distribute and sell a line of skin care products for mass market
      distribution in the United States and Canada. These products utilize Delmar’s
      proprietary skin care formulations that incorporate the nutrients included
      in
      the whole egg. Delmar markets its skin care products under the L’Avenir brand
      name. The products covered by the agreement were developed by Delmar for the
      Company to market pursuant to the agreement. The Company introduced this
      product, which it markets under the name “e70,” in March 2005.





In
      August
      2005, the Company entered into an exclusive five year agreement for the
      marketing and distribution rights for the distribution of a patented hook for
      hanging items on walls (the “Hercules Hook”). In connection with the agreement,
      the Company is required to pay a 15% royalty on all units sold. Sales of the
      Hercules Hook brand of products commenced in September 2005.





In
      October 2005, the Company entered into an exclusive two year promotional
      agreement with StarMaker Products for domestic and international distribution
      under the Dermafresh brand of select StarMaker products. StarMaker’s feature
      product is PEARL - Anti Wrinkle/ Moisturizing Mist, an advanced anti-wrinkle
      moisturizing treatment used by members of the entertainment industry. Sales
      of
      PEARL did not commence during 2005.





In
      August, 2005 and November 2005, the Company entered into two separate agreements
      providing it with exclusive distribution rights to a pet grooming device
      marketed as D-Shed. Pursuant to the agreements, the Company is required to
      pay a
      royalty of 12% on all non direct response sales and 4% on all direct response
      sales. Sales of the D-Shed line commenced in December 2005.





During
      2005 the Company developed and marketed two lines of flashlights branded as
      the
“Extreme Beam Flashlight” and the “Clip Light”. Sales of the Extreme Beam
      commenced in September 2005 and sales of the Clip Light commenced in October
      2005.





In
      December 2005, the Company organized Genco Power Solutions, Inc. (“Genco”) for
      the purpose of marketing, selling, installing and servicing integrated power
      generator systems to residential homeowners and commercial business throughout
      Florida. The Company owns 66% of Genco and four individuals own the remaining
      34% of Genco. The Company did not recognize any revenues from the operations
      of
      Genco during 2005.





Principles
      of Consolidation





The
      accompanying consolidated financial statements include the accounts of the
      Company and its subsidiaries through which it has direct controlling interests.
      The Company has 100% ownership in Adsouth, Inc., a Florida corporation organized
      on October 31, 2003 and Dermafresh, Inc., a Florida corporation organized on
      February 2, 2004 and Miko Distributors, Inc., a Florida corporation organized
      on
      January 10, 2005. The Company has a 66% ownership interest in Genco Power
      Solutions, Inc., a Florida corporation organized on December 14, 2005 For Genco,
      the Company eliminates the minority interest portion of any related profits
      and
      losses. The allocable losses of Genco’s minority interests are in excess of the
      Company’s investment in Genco by $4,000 at December 31, 2005. All significant
      intercompany balances and transactions have been eliminated.


41


**PART
          II**
 **Item
          7. Financial Statements**
 
 **Adsouth
          Partners, Inc. and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**
 **For
          the Year Ended December 31, 2005**


Cash
      and cash equivalents





The
      Company considers all highly liquid instruments purchased with an original
      maturity of three months or less to be cash equivalents. As of December 31,
      2005, the Company has no cash equivalents.





Accounts
      Receivables





All
      of
      the Companies accounts receivable are reported at their net collectible amounts.
      The Company records a reserve against any accounts receivable for which the
      Company deems, in its judgment, that collection may be in doubt. The reserve
      for
      uncollectible accounts at December 31, 2005 was $39,000. Bad debt expense for
      2005 and 2004 was $39,000 and $515,000, respectively.





Factored
      Receivables (Due from Factor)





On
      September 22, 2004, the Company and a factoring company executed an Account
      Transfer and Purchase Agreement pursuant to which the Company may sell qualified
      receivables without recourse to the Company. Currently, the Company pays a
      fixed
      discount of .75% of the gross amount of any receivables sold and is advanced
      80%
      of the gross amount of such receivables (the “Initial Payment”) and the
      remaining 20% of the gross amount of any receivables sold is held as a reserve
      by the factoring company until such time as the receivable is collected by
      the
      factoring company. The Company pays a variable discount of a base rate, as
      quoted from time to time by the factoring company, plus 2% on the Initial
      Payment for the period of time that the Initial Payment remains outstanding.
      The
      effective rate of the variable discount as of December 31, 2005 was 9.25%.
      During 2005 and 2004, the Company sold $3,620,000 and $928,000, respectively,
      of
      receivables and the total fixed and variable discounts on receivables sold
      was
      $70,000 and $15,000, respectively.





Pursuant
      to the Account Transfer and Purchase Agreement, the factoring company holds
      a
      security interest in all of the Company’s accounts receivable, inventory, cash
      and contract rights. Pursuant to the Account Transfer and Purchase Agreement
      the
      Company is required to provide the factoring company with (i) quarterly
      financial statements within thirty days after the end of each quarter, (ii)
      quarterly payroll tax returns with proof of payment of the related payroll
      taxes
      within thirty days after the end of each quarter, and (iii) annual financial
      statements within sixty days after the end of the fiscal year.





Inventory





Inventory
      is comprised of finished goods available for sale and is valued at the lower
      of
      cost or market, cost being determined both on a moving average and a
      first-in/first-out basis.





Property
      and Equipment





Property
      and equipment and leasehold improvements are
      carried at cost less allowances for accumulated depreciation and amortization.
      The cost of equipment held under capital leases is equal to the lower of the
      net
      present value of the minimum lease payments or the fair market value of the
      leased property at the inception of the lease. Depreciation is computed
      generally by the straight-line method over the estimated useful lives of the
      assets, which are generally five to seven years. Amortization of leasehold
      improvements and equipment held under capital leases is included with
      depreciation expense and is calculated on the straight-line method over the
      term
      of the underlying leases which range from three to ten years. . Expenditures
      for
      maintenance and repairs, which do not generally extend the useful life of the
      related assets, are charged to operations as incurred. Gains or losses on
      disposal of property and equipment are reflected in the statement of operations
      in the period of disposal.


42


**PART
          II**
 **Item
          7. Financial Statements**
 
 **Adsouth
          Partners, Inc. and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**
 **For
          the Year Ended December 31, 2005**


Investment
      in Product Line Rights





The
      following table summarizes the Company’s investments in product line
      rights.




Dermafresh
                  Product Line (a)
              
              $
              125,000Accumulated
                  amortization
              
              
              (60,000
              )65,000Miko
                  Brands Product Line (b)
              
              
              83,000$
              148,000


(a)
      In
      February 2004, the Company acquired Dermafresh,, Inc., whose sole asset was
      the
      Dermafresh Product Line, from an unaffiliated company for cash consideration
      of
      $125,000. The acquisition cost is being amortized as an expense against the
      sales of the Dermafresh product as calculated as the percentage of sales of
      the
      Dermafresh line in any period to the total expected sales over the life of
      the
      Dermafresh Line. For 2005 and 2004, such amortization expense was $49,000 and
      $11,000 and the unamortized balance as of December 31, 2005 was
      $65,000.





(b)
      In
      January 2005, the Company executed an asset purchase agreement to acquire assets
      of Miko Brands, LLC. Pursuant to the asset purchase agreement, the Company
      issued 63,333 shares of common stock having a fair value of $83,000 to the
      sole
      member of Miko Brands, LLC. We have determined that the Miko Brand has an
      indefinite life and as such the asset will not be amortized,





Long-lived
      Assets





Long-lived
      assets consist primarily of property and equipment. Long-lived assets are
      reviewed for impairment whenever events or circumstances indicate their carrying
      value may not be recoverable. When such events or circumstances arise, an
      estimate of the future undiscounted cash flows produced by the asset, or the
      appropriate grouping of assets, is compared to the asset's carrying value to
      determine if impairment exists pursuant to the requirements of SFAS 144,
      "Accounting for the Impairment or Disposal of Long-Lived Assets". If the asset
      is determined to be impaired, the impairment loss is measured based on the
      excess of its carrying value over its fair value. Assets to be disposed of
      are
      reported at the lower of its carrying value or net realizable
      value.





Revenue
      Recognition





During
      2005 and 2004, the Company derived revenue from; (i) the placement of
      advertising in television, internet and print media outlets; (ii) the production
      of advertising content including television commercials, print advertising
      and
      other graphics design literature; (iii) advertising and marketing consulting
      services; and (iv) the sale of products. The Company's advertising services
      revenue is derived from billings that are earned when the media is placed,
      from
      fees earned as advertising services are performed and from production services
      rendered. In addition, incentive amounts may be earned based on qualitative
      and/or quantitative criteria. In the case of media placements, revenue is
      recognized as the media placements appear. During 2005 and 2004, the Company
      was
      the primary obligor and carried all of the credit risk for the media placements
      and accordingly, recorded the full amount of such billings from the media
      placements as revenue in accordance with Emerging Issues Task Force Issue No.
      99-19. In the case of consulting and production arrangements, the revenue is
      recognized as the services are performed. The Company's creative consulting
      revenue is generally earned on a fee basis, and in certain cases incentive
      amounts may also be earned. As with fee arrangements in advertising, such
      revenue is recognized as the work is performed. Incentive amounts for
      advertising and marketing services are recognized upon satisfaction of the
      qualitative and/or quantitative criteria, as set out in the relevant client
      contract. Deferred revenues are recognized as a liability when billings are
      received in advance of the date when revenues are earned and were $1,029,000
      as
      of December 31, 2005. Revenues from the sale of products are recognized upon
      the
      shipment of the goods being sold and are net of estimated returns and other
      promotional allowances.


43


**PART
        II**
 **Item
        7. Financial Statements**
 
 **Adsouth
        Partners, Inc. and Subsidiaries**
 **Notes
        to Consolidated Financial Statements**
 **For
        the Year Ended December 31, 2005**







Advertising
      Costs





Advertising
      costs, which for 2005 and 2004 were $763,000 and $556,000, respectively, are
      expensed as incurred and are included within selling expenses in the statement
      of operations.





Income
      Taxes





The
      Company provides for federal and state income taxes currently payable, as well
      as for those deferred because of temporary differences between reporting income
      and expenses for financial statement purposes versus tax purposes. Deferred
      tax
      assets and liabilities are recognized for the future tax consequences
      attributable to differences between the carrying amount of assets and
      liabilities for financial reporting purposes and the amounts used for income
      tax
      purposes. Deferred tax assets and liabilities are measured using the enacted
      tax
      rates expected to apply to taxable income in the years in which those temporary
      differences are expected to be recoverable or settled. The effect of a change
      in
      tax rates is recognized as income or expense in the period of the change. A
      valuation allowance is established, when necessary, to reduce deferred income
      taxes to the amount that is more likely than not to be realized.





As
      of
      December 31, 2005, the Company has net operating loss carry-forwards
      approximating $3,486,000. Pursuant to section 382 of the Internal Revenue Code,
      utilization of these losses may be limited upon a change in
      control.





Basic
      and Diluted Income (Loss) Per Share





Basic
      and
      diluted per share results for 2005 and 2004 were computed based on the net loss allocated
      to the common stock for
      the
      respective periods. The weighted average number of shares of common stock
      outstanding during the periods was used in the calculation of basic earnings
      (loss) per share. In accordance with FAS
      128, “Earnings Per Share,” the weighted average number of shares of common stock
      used in the calculation of diluted per share amounts is adjusted for the
      dilutive effects of potential common shares including, (i) the assumed exercise
      of stock options based on the treasury stock method; and (ii) the assumed
      conversion of convertible preferred stock only if an entity records earnings
      from continuing operations, as such adjustments would otherwise be anti-dilutive
      to earnings per share from continuing operations. As a result of the Company
      recording losses during 2005 and 2004, the average number of common shares
      used
      in the calculation of basic and diluted loss per share is identical and have
      not
      been adjusted for the effects of potential common shares from unconverted shares
      of convertible preferred stock and unexercised stock options and
      warrants .
      As of
      December 31, 2005 there were outstanding options to purchase 5,490,297 shares
      of
      common stock, warrants to purchase 12,954,868 shares of common stock and series
      B preferred stock convertible into 10,499,013 shares of common stock. Such
      potential common shares may dilute earnings per share in the
      future.





Fair
      Value of Financial Instruments





Accounting
      principles generally accepted in the United States of America require disclosing
      the fair value of financial instruments to the extent practicable for financial
      instruments, which are recognized or unrecognized in the balance sheet. The
      fair
      value of the financial instruments disclosed herein is not necessarily
      representative of the amount that could be realized or settled, nor does the
      fair value amount consider the tax consequences of realization or settlement.
      In
      assessing the fair value of these financial instruments, the Company used a
      variety of methods and assumptions, which were based on estimates of market
      conditions and risks existing at that time. For certain instruments, including
      cash, accounts and notes receivable and other current liabilities, it was
      estimated that the carrying amount approximated fair value for the majority
      of
      these instruments because of their short maturity. For investments in marketable
      securities, fair value is estimated based on current quoted market price. The
      fair value of the Company's investment in product line rights and its property
      and equipment is estimated to approximate their net book values. The fair value
      of the capital leases, the bank line of credit and notes payable obligations
      as
      recorded approximate their fair values as represented by the net present value
      of the future payments on the underlying obligations.


44


**PART
        II**
 **Item
        7. Financial Statements**
 
 **Adsouth
        Partners, Inc. and Subsidiaries**
 **Notes
        to Consolidated Financial Statements**
 **For
        the Year Ended December 31, 2005**







Concentration
      of Credit Risk





Financial
      instruments that potentially subject the Company to significant concentrations
      of credit risk include cash and accounts receivable. As of December 31, 2005,
      all of the Company's cash is placed with high credit quality financial
      institutions. The amount on deposit in any one institution that exceeds
      federally insured limits is subject to credit risk. As of December 31, 2005
      the
      Company had $1,327,000 of cash balances in excess of federally insured
      limits.





The
      following table sets forth the percentage of revenue derived by the Company
      from
      those customers which accounted for at least 10% of consolidated revenues during
      the applicable periods:




Customer
              2005
              2004Customer
                  A
              49%
              *Customer
                  B
              17%
              21%Customer
                  C
              **
              67%




*  Not
      a
      customer during this period.


**  Not
      a
      customer during this period and no longer a customer.





As
      of
      December 31, 2005, 30%, 21% and 14% of the Company’s accounts receivable were
      due from Customer B, Customer D and Customer E, respectively. The Company does
      not require collateral to support accounts receivable or financial instruments
      subject to credit risk.





Stock
      Options and Similar Equity Instruments





The
      Company adopted the disclosure requirements of Statement of Financial Accounting
      Standards (“SFAS”) No. 123, “Accounting for Stock Based Compensation,” as
      amended by SFAS No. 148 “Accounting for Stock Based Compensation - Transition
      and Disclosure,” for stock options and similar equity instruments (collectively
“Options”) issued to employees. SFAS No. 123 allows for the choice of recording
      stock options issued to employees using Accounting Principles Board (“APB”)
      Opinion No. 25 “Accounting for Stock Issued to Employees” while disclosing the
      effects, on a pro forma basis, of using SFAS No. 123 in the footnotes to the
      financial statements. SFAS No. 123 also applies to transactions in which an
      entity issues its equity instruments to acquire goods or services from
      non-employees. Those transactions must be accounted for based on the fair value
      of the consideration received or the fair value of the equity instruments
      issued, whichever is more reliably measurable. In December 2004, the FASB issued
      SFAS No.123 (revised 2004), “Share-Based Payment.” SFAS 123(R) will provide
      investors and other users of financial statements with more complete financial
      information by requiring that the compensation cost relating to share-based
      payment transactions be recognized in financial statements. That cost will
      be
      measured based on the fair value of the equity or liability instruments issued.
      SFAS 123(R) covers a wide range of share-based compensation arrangements
      including stock options, restricted stock plans, performance-based awards,
      stock
      appreciation rights, and employee stock purchase plans. SFAS 123(R) replaces
      SFAS 123 and supercedes APB Opinion No. 25. Public entities that are small
      business issuers will be required to apply Statement 123(R) as of the first
      annual reporting period that begins after December 15, 2005. Through 2005,
      the
      Company recognized the expense of options or similar instruments issued to
      employees using the intrinsic value based method. Beginning with the first
      quarter of 2006, the Company will be required to recognize expense of options
      or
      similar instruments issued to employees using the fair-value-based method of
      accounting for stock-based payments.


45


**PART
        II**
 **Item
        7. Financial Statements**
 
 **Adsouth
        Partners, Inc. and Subsidiaries**
 **Notes
        to Consolidated Financial Statements**
 **For
        the Year Ended December 31, 2005**







For
      purposes of pro forma disclosures the amount of stock-based compensation as
      calculated using the fair value method of accounting for stock options issued
      to
      employees is amortized over the options’ vesting period. The Company’s pro forma
      information for years ended December 31, 2005 and 2004 is as
      follows:




Year
                Ended December 31,
              
              2005
              
              2004Net
                  loss attributable to common stockholders
              
              
              ($2,013,000
              )
              
              ($5,811,000
              )Add:
                  Stock-based employee compensation as determined under the intrinsic
                  value
                  based method and included in the statement of operations
              
              
              8,000
              
              
              3,063,000Deduct:
                  Stock- based employee compensation as determined under fair value
                  based
                  method
              
              
              (210,000
              )
              
              (3,184,000
              )Pro
                  forma net loss attributable to common stockholders
              
              
              ($2,215,000
              )
              
              ($5,932,000
              )Basic
                  loss per common share attributable to common stockholders:As
                  reported
              
              
              ($0.26
              )
              
              ($1.05
              )Pro
                  forma
              
              
              ($0.29
              )
              
              ($1.07
              )Diluted
                  loss per common share attributable to common stockholders:As
                  reported
              
              
              ($0.26
              )
              
              ($1.05
              )Pro
                  forma
              
              
              ($0.29
              )
              
              ($1.07
              )





The
      following table summarizes the Company's stock warrants and options for 2005
      and
      2004.


2005
                    Shares
                
                2005
                    Weighted Average Exercise Price
                
                2004
                    Shares
                
                2004
                    Weighted Average Exercise PriceOutstanding-beginning
                    of year
                
                
                1,061,520
                
                $
                1.73
                
                
                -
                
                
                -Granted
                
                
                19,379,750
                
                $
                1.06
                
                
                3,246,583
                
                $
                0.62Exercised
                
                
                (241,852
                )
                $
                0.63
                
                
                (2,151,730
                )
                
                $0.06Forfeited/Expired
                
                
                (1,754,253
                )
                $
                1.32
                
                
                (33,333
                )
                $
                1.35Outstanding-end
                    of year
                
                
                18,445,165
                
                $
                1.02
                
                
                1,061,520
                
                $
                1.73Options
                    exercisable-end of year
                
                
                16,517,040
                
                $
                1.14
                
                
                1,061,520
                
                $
                1.73Weighted-average
                    fair value of options granted during the year
                
                
                
                
                $
                0.39
                
                
                
                
                $
                1.50


The
      assumptions used during the year ended December 31, 2005 and 2004 were as
      follows:





2005
              
              2004Risk
                  free interest rate
              
              3.56%
              
              2.12%Expected
                  Dividend Yield
              
              0%
              
              0%Expected
                  Lives
              
              1-5
                  years
              
              1-5
                  yearsExpected
                  Volatility
              
              33%-177%
              
              68%-120%





46


**PART
          II**
 **Item
          7. Financial Statements**
 
 **Adsouth
          Partners, Inc. and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**
 **For
          the Year Ended December 31, 2005**


The
      following table presents warrants and options outstanding as of December 31,
      2005 and their exercise prices and contractual remaining lives, the 18,445,165
      warrants and options outstanding have exercise prices ranging between $0.28
      and
      $30.00 and a weighted-average remaining contractual life of 4.28
      years.





Shares
                Underlying Outstanding Options and Warrants
            
            Exercise
                Price
            
            Remaining
                Contractual
              Life
                in Years9,077
            
            $30.00
            
            2.8452,444
            
            $3.00
            
            0.203,499,999
            
            $1.80
            
            4.463,499,999
            
            $1.50
            
            4.46733,335
            
            $1.35
            
            3.1626,667
            
            $1.31
            
            2.032,500,000
            
            $1.20
            
            4.46700,000
            
            $0.80
            
            3.2798,628
            
            $0.74
            
            4.2556,667
            
            $0.71
            
            0.225,300,000
            
            $0.65
            
            4.46135,017
            
            $0.60
            
            4.13125,000
            
            $0.48
            
            0.74175,000
            
            $0.38
            
            1.00750,000
            
            $0.32
            
            5.00100,000
            
            $0.31
            
            4.61633,333
            
            $0.30
            
            4.4650,000
            
            $0.28
            
            5.00





Use
      of
      Estimates





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





Reclassifications





Certain
      2004 items have been reclassified to conform to the December 31, 2005
      presentation.




**2.**  **Accounts
      Receivable**





The
      Company’s accounts receivables as of December 31, 2005 are summarized as
      follows:





Accounts
                receivable
            
            $
            1,006,000Allowance
                for doubtful accounts
            
            
            (39,000
            )Accounts
                receivable, net
            
            $
            967,000





As
      of
      December 31, 2005 all of the Company’s accounts receivable are pledged as
      collateral for borrowings.


47


**PART
        II**
 **Item
        7. Financial Statements**
 
 **Adsouth
        Partners, Inc. and Subsidiaries**
 **Notes
        to Consolidated Financial Statements**
 **For
        the Year Ended December 31, 2005**







The
      following table summarizes the activity in the Company’s allowance for doubtful
      accounts for 2005 and 2005:


2005
              
              2004Balance
                  at beginning of period
              
              
              ($484,000
              )
              
              -Write-offs
              
              
              484,000
              
              $
              31,000Provision
                  for bad expense
              
              
              (39,000
              )
              
              (515,000
              )Balance
                  at end of period
              
              
              ($39,000
              )
              
              ($484,000
              )


In
      2004,
      67% of the Company’s consolidated revenues were derived from Customer C who owed
      the Company $655,000 as of December 31, 2004. In 2004, the Company reserved
      $482,000 of the receivable due from such customer. In 2005, the Company accepted
      marketable securities which were valued at $173,000 in payment towards the
      outstanding receivable and wrote-off the balance of $482,000. Customer C is
      no
      longer a customer.





**3.**  **Deferred
      Charge, Related Party**





On
      June
      16, 2005, Mr. Acunto, who beneficially owns more than 10% of our common stock,
      received an initial payment of $200,000 on June 17, 2005 pursuant to his
      consulting agreement of which $33,000 was charged to operations in 2005 and
      $167,000 is a deferred charge asset which will be amortized over the term of
      the
      consulting agreement. $67,000 of the deferred charge will be amortized over
      the
      next twelve months and is classified as a current asset and the balance of
      $100,000 is classified as a long-term asset.





**4.**  **Property
      and Equipment**





The
      Company’s property and equipment as of December 31, 2005 are summarized as
      follows:





Vehicles
            
            $
            75,000Machinery
            
            
            72,000Leasehold
                improvements
            
            
            73,000Computer
                equipment
            
            
            77,000Computer
                software
            
            
            46,000Equipment
            
            
            43,000Furniture
            
            
            116,000Production
                equipment
            
            
            67,000569,000Accumulated
                depreciation and amortization
            
            
            (42,000
            )527,000Equipment
                held under capitalized lease obligations
            
            
            55,000Accumulated
                amortization
            
            
            (6,000
            )49,000Property
                and equipment, net
            
            $
            578,000





During
      2005 and 2004 the Company recorded depreciation and amortization expense of
      $39,000 and $9,000, respectively .


48


**PART
        II**
 **Item
        7. Financial Statements**
 
 **Adsouth
        Partners, Inc. and Subsidiaries**
 **Notes
        to Consolidated Financial Statements**
 **For
        the Year Ended December 31, 2005**







**5.**  **Capital
      Lease Obligations**





As
      of
      December 31, 2005, the future minimum lease payments under a capital lease
      are
      as follows:





Year
                End December 31,
            
            Amount2006
            
            $
            15,0002007
            
            
            15,0002008
            
            
            15,0002009
            
            
            14,0002010
            
            
            4,00063,000Less
                amount representing imputed interest
            
            
            (12,000
            )Present
                value of net minimum capital lease payments
            
            
            51,000Current
                portion of capital lease obligation
            
            
            11,000Non
                current portion of capital lease obligation
            
            $
            40,000





**6.**  **Bank
      Line of Credit**





On
      July
      9, 2004, the Company obtained a $100,000 bank line of credit. The line of credit
      bears interest at prime and is collateralized by a $100,000 certificate of
      deposit. On June 8, 2005, the line of credit and the certificate of deposit
      were
      each renewed for an additional year. During 2005 the Company borrowed $100,000
      under the line-of-credit all of which remains outstanding as of December 31,
      2005. During 2005 and 2004, interest expense on the line of credit approximated
      $6,000 and $1,000, respectively. The effective rate on the line of credit was
      7.35% as of December 31, 2005.





**7.**  **Demand
      Note Payable**





During
      2005, the Company shipped products to two large national retailers on a pay
      on
      scan basis. In order to obtain working capital to fund the costs of purchasing
      inventory and shipping the products to these two retailers, on December 20,
      2005, the Company borrowed $1,000,000 from a non-affiliated lender. The note
      is
      a demand note that bears interest at 18% per annum and is guaranteed by Mr.
      Acunto. In consideration for his guarantee, the Company paid Mr. Acunto a fee
      of
      $50,000, which was charged to operations in 2005. This note replaced a note
      for
      $500,000 representing a loan which the lender made to the Company on December
      12, 2005. The prior loan was also guaranteed by Mr. Acunto. The loan requires
      quarterly interest payments and principal payments in an amount equal to
      collections from the two pay on scan retailers. This note also requires the
      Company to make its best efforts to carve-out the inventory and receivables
      collateral related to the two pay on scan retailers from the blanket security
      position held by a factoring company. During 2005, interest expense on the
      demand note was $9,000.





**8.**  **Promissory
      Note Payable**





On
      July
      8, 2004, the Company issued a $250,000 promissory note to an individual. The
      note bore interest at 18% per annum due and payable each month that the note
      was
      outstanding. The note was paid in full during 2005. In addition, the Company
      issued to the individual 15,347 shares of its common stock, having a value
      of
      $25,000, which reduced the amount of interest paid in cash and the fair value
      of
      such stock was treated as interest expense. During 2005 and 2004 interest
      expense on the notes payable was $12,000 and $22,000,
      respectively.


49


**PART
        II**
 **Item
        7. Financial Statements**
 
 **Adsouth
        Partners, Inc. and Subsidiaries**
 **Notes
        to Consolidated Financial Statements**
 **For
        the Year Ended December 31, 2005**








**9.**  **Long-term
      Notes Payable**





As
      of
      December 31, 2005, the amounts outstanding on long-term notes payable are as
      follows:





Year
                Ended December 31,
            
            AmountVehicle
                loan dated April 25, 2005 (a)
            
            $
            16,000Vehicle
                loan dated August 19, 2005 (b)
            
            
            14,000Vehicle
                loan dated September 2, 2005 (c)
            
            
            23,000Furniture
                and fixtures loan dated November 8, 2005 (d)
            
            
            60,000Machinery
                and equipment loan dated November 8, 2005 (e)
            
            
            63,000Total
                Notes payable
            
            
            176,000Less
                current portion of notes payable
            
            
            (38,000
            )Long-term
                portion of notes payable
            
            $
            138,000





The
      aggregate maturities of long-term notes payable are as follows:





Year
                Ended December 31,
            
            Amount2006
            
            $
            38,0002007
            
            
            41,0002008
            
            
            38,0002009
            
            
            32,0002010
            
            
            27,000Total
                maturities of long-term notes payable
            
            $
            176,000





Interest
      expense on the long-term notes payable for 2005 was $3,803.





(a)
      On
      April 25, 2005, the Company obtained a $20,000 vehicle loan. The loan bears
      interest at 9.5% per annum and requires monthly principal and interest payments
      over the three year term of the loan. The loan is collateralized with a security
      interest in the underlying vehicle. During 2005 interest expense on the loan
      was
      $1,191.





(b)
      On
      August 19, 2005, the Company obtained a $16,000 vehicle loan. The loan bears
      interest at 8.0% per annum and requires monthly principal and interest payments
      over the three year term of the loan. The loan is collateralized with a security
      interest in the underlying vehicle. During 2005 interest expense on the loan
      was
      $441.





(c)
      On
      September 2, 2005, the Company obtained a $25,000 vehicle loan. The loan bears
      interest at 8.0% per annum and requires monthly principal and interest payments
      over the four year term of the loan. The loan is collateralized with a security
      interest in the underlying vehicle. During 2005 interest expense on the loan
      was
      $603.





(d)
      On
      November 8, 2005, the Company obtained a $60,000 furniture and fixtures loan.
      The loan bears interest at 8.75% per annum and requires monthly principal and
      interest payments over the five year term of the loan. The loan is
      collateralized with a security interest in the underlying furniture and
      fixtures. During 2005 interest expense on the loan was $765.





(e)
      On
      November 8, 2005, the Company obtained a $64,000 machinery and equipment loan.
      The loan bears interest at 8.75% per annum and requires monthly principal and
      interest payments over the five year term of the loan. The loan is
      collateralized with a security interest in the underlying furniture and
      fixtures. During 2005 interest expense on the loan was $803.





50


**PART
        II**
 **Item
        7. Financial Statements**
 
 **Adsouth
        Partners, Inc. and Subsidiaries**
 **Notes
        to Consolidated Financial Statements**
 **For
        the Year Ended December 31, 2005**







**10.**  **Income
      Taxes**





For
      2005
      and 2004, the Company has no current Federal or state taxes payable. Deferred
      taxes based upon differences between the financial statement and tax basis
      of
      assets and liabilities and available tax carry-forwards are summarized in the
      following table.





As
                of December 31,
            
            2005Net
                operating loss carry-forward
            
            $
            1,220,000Allowance
                for doubtful accounts receivable
            
            
            7,000Stock
                compensation expense
            
            
            1,005,000Sales
                returns and promotion allowance
            
            
            75,000Depreciation
            
            
            (27,000
            )Net
                deferred tax asset
            
            
            2,280,000Valuation
                allowance
            
            
            ($2,280,000
            )-





For
      the
      year ended December 31, 2005 the valuation allowance for net deferred tax assets
      increased by $217,000. The net increase was the result of changes in net
      temporary differences. Based upon the current tax loss, the Company has
      established the valuation allowance against the entire net deferred tax
      asset.





As
      of
      December 31, 2005, the Company has net operating loss carry-forwards
      approximating $3,486,000. Pursuant to section 382 of the Internal Revenue Code,
      utilization of these losses may be limited upon a change in control.
      Approximately $130,000 of net operating losses incurred prior to January 4,
      2004
      is limited to $26,000 per year due to the change of control that resulted from
      the January 1, 2004 reverse acquisition. Approximately $2.3 million of net
      operating losses incurred from January 1, 2004 through June 17, 2005 are limited
      to $651,000 per year due to the June 17, 2005 private placement of the series
      B
      preferred stock.





The
      Company's net operating loss carry-forwards at December 31, 2005 expire as
      set
      forth in the following table.





Year
                carry-forward expires
            
            Amount2023
            
            $
            130,0002024
            
            
            2,006,0002025
            
            
            1,350,000$
            3,486,000





The
      following table reconciles the statutory federal income tax rate to the
      effective rate.





Year
                Ended December 31,
            
            2005
            
            2004Statutory
                federal income tax rate
            
            (35.0%
            )
            (35.0%
            )Net
                operating loss for which no benefit was received
            
            32.3%
            
            34.7%Permanent
                difference
            
            2.7%
            
            .3%Effective
                income tax rate
            
            0.0%
            
            0.0%





51


**PART
        II**
 **Item
        7. Financial Statements**
 
 **Adsouth
        Partners, Inc. and Subsidiaries**
 **Notes
        to Consolidated Financial Statements**
 **For
        the Year Ended December 31, 2005**







**11.**  **Commitments
      and Contingencies**





(a)  Operating
      Lease Obligations





The
      Company leases 20,394 square feet of office and warehouse space in a warehouse
      complex located at 1141 S. Rogers Circle, Boca Raton, Florida under a lease,
      which initially expires in October 2015. The Company also leases 6,658 square
      feet of executive office space in an office building located 1515 N. Federal
      Highway, Boca Raton, Florida under a lease, as amended, which initially expires
      in March of 2010. The Company leases 846 square feet of office space in
      Bentonville, Arkansas under a lease which initially expires in November
      2008.





As
      of
      December 31, 2005 the Company’s future minimum lease payments under operating
      leases are as follows:





Years
                Ending December 31,
            
            Amounts2006
            
            $
            475,0002007
            
            
            492,0002008
            
            
            500,0002009
            
            
            513,0002010
            
            
            533,000Thereafter
            
            
            2,071,000Total
            
            $
            4,584,000





Rent
      expense under operating leases for the years ended 2005 and 2004 were $240,000
      and $76,000, respectively. These costs are included as part of selling,
      administrative and other expense in the consolidated statement of
      operations.





(b)  Consulting
      Agreement





On
      June
      17, 2005, in connection with the private placement of the series B preferred
      stock, Mr. Acunto resigned as the Company’s chief executive officer and the
      Company entered into a consulting agreement with Mr. Acunto, pursuant to which
      Mr. Acunto agreed to serve on a substantially full-time basis as a consultant
      with principal emphasis in marketing the Company’s advertising business for a
      term of three years and continuing thereafter on a year-to-year basis unless
      terminated by either party on 90 days prior written notice. As compensation
      for
      his services, the Company paid Mr. Acunto an initial payment of $200,000, and
      is
      to pay him a non-refundable monthly draw of $17,000 against commissions earned.
      The Company agreed to pay Mr. Acunto a commission equal to 5% of the gross
      profit on covered accounts, as defined in the agreement. The Company also
      granted Mr. Acunto a non-qualified stock option to purchase 2,000,000 shares
      of
      common stock at an exercise price of $.65 per share, which is exercisable
      immediately as to 500,000 shares and thereafter in quarterly installments based
      on the Company’s gross profit for the quarter. On August 16, 2005, the
      consulting agreement with Mr. Acunto was amended whereby the $34,000 paid to
      him
      for the months of July 2005 and August 2005 were deemed earned fees and not
      a
      draw on commissions and effective September 1, 2005, his commission was
      increased from 5% to 10% of the gross profit on covered
      accounts.


52


**PART
          II**
 **Item
          7. Financial Statements**
 
 **Adsouth
          Partners, Inc. and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**
 **For
          the Year Ended December 31, 2005**


(c)  Employment
      Agreements





On
      June
      17, 2005, contemporaneously with Mr. Acunto’s resignation, Mr. John Cammarano,
      Jr, who is the Company’s president, was elected as chief executive officer and
      was granted non-qualified stock options to purchase 800,000 shares of common
      stock at $.65 per share. Mr. Cammarano continues to serve as the Company’s
      president. The intrinsic value of the option issued to Mr. Cammarano
      approximates $8,000 which will be expensed as the option vests. Mr. Cammarano’s
      annual compensation was increased to $250,000, effective June 17, 2005. On
      October 7, 2005, the Company entered into an employment agreement with Mr.
      Cammarano and Mr. Anton Lee Wingeier (the Company’s chief financial officer)
      which supersede their previous employment agreements. The employment agreements
      initially expire on December 31, 2008 and continue on a month-to-month basis
      thereafter unless terminated on not less than 90 days notice by either the
      Company or executive. Pursuant to their employment agreements Mr. Cammarano
      and
      Mr. Wingeier receive annual compensation of $250,000 and $175,000 respectively,
      signing bonuses of $50,000 each and quarterly and annual bonuses. The quarterly
      bonuses are equal to the sum of (i) a gross margin bonus calculated as 5% of
      the
      amount by which the product sectors gross profit is greater than 47% of the
      product sectors revenues; (ii) an operating expense bonus calculated as the
      amount by which selling, general and administrative expense (less consulting
      fees, legal fees, non-cash stock expense and investor relations fees) as a
      percentage of consolidated revenue has decreased from the immediately preceding
      quarter, multiplied by consolidated revenues, the product of which is multiplied
      by one-half of the percentage decrease; and (iii) a net income bonus calculated
      as 7.5% of the quarter’s income before debt extinguishment, interest expense on
      subordinated debentures and non-cash stock compensation expense. The annual
      bonuses are calculated as 7.5% of the amount by which annual income before
      debt
      extinguishment, interest expense on subordinated debentures and non-cash stock
      compensation expense has increased from the immediately preceding year. Pursuant
      to the quarterly and annual bonus provisions of the employment agreements dated
      October 7, 2005, the Company recorded aggregate accrued bonus compensation
      of
      approximately $100,000. Both Mr. Cammarano and Mr. Wingeier will receive options
      to purchase not less than such shares of common stock as having a value equal
      to
      the sum of the quarterly and annual bonuses and in December 2005 they each
      received an option to purchase 200,000 shares of common stock for $0.32 per
      share, the fair value on the date of grant.




As
      of
      June 27, 2005, the Company entered into a three-year employment agreement with
      a
      key marketing employee at an annual salary of $145,000. In connection with
      her
      employment, the Company granted her an option to purchase 500,000 shares of
      common stock pursuant to the 2005 Plan at an exercise price of
      $.65.




(d)  Legal
      Proceedings





On
      or
      about January 17, 2005, Paul Spinner instituted a lawsuit in U.S. District
      Court, Southern District of Florida, against Mr. Acunto and the Company’s
      subsidiary, Adsouth, Inc. Upon an initial investigation, the Company considers
      the allegations to relate to a private business transaction between Paul Spinner
      and Mr. Acunto. Accordingly, on March 2, 2006, Mr. Acunto executed an
      Indemnification and Hold Harmless Agreement in favor of Adsouth, Inc., which
      addresses the cost of defense of the legal proceedings and an indemnification
      of
      Adsouth, Inc. in the event of any adverse finding against Adsouth, Inc. The
      case
      is in its initial discovery stage and the Company is unable to determine the
      potential impact of the litigation on the Company or its
      operations.





In
      the
      normal course of business the Company may be involved in legal proceedings
      in
      the ordinary course of business. Such matters are subject to many uncertainties,
      and outcomes are not predictable with assurance.




**12.**  **Capital
      Stock**





Common
      and Preferred Stock





As
      of
      December 31, 2005 there are 60,000,000 shares of common stock authorized of
      which 8,197,599 shares are issued and outstanding. As of December 31, 2005
      there
      are 10,000,000 shares of preferred stock, $.0001 par value per share,
      outstanding of which 1,500,000 are designated as series B convertible preferred
      stock. As of December 31, 2005 there are 1,166,557 shares of series B preferred
      stock issued and outstanding.





In
      April
      2004, the Company’s stockholders, by a consent of the holders of a majority of
      the outstanding shares of common stock, approved an amendment to the Company’s
      certificate of incorporation, which (i) increased the number of authorized
      shares of common stock to 500,000,000 shares, and (ii) authorized 5,000,000
      shares of preferred stock, par value $.0001 per share, of which 3,500,000 shares
      were designated as series A convertible preferred stock.


53


**PART
          II**
 **Item
          7. Financial Statements**
 
 **Adsouth
          Partners, Inc. and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**
 **For
          the Year Ended December 31, 2005**


On
      March
      14, 2005, the board of directors approved a one-for-fifteen share reverse split
      of the Company’s common stock and a proportionate reduction of the authorized
      shares outstanding. On March 25, 2005, the effective date of the reverse split,
      the numbers of authorized shares of common stock was reduced to 33,333,333.
      All
      share information and per share amounts presented in these consolidated
      financial statements are presented as if the aforementioned reverse split was
      effective for all periods presented.





On
      June
      16, 2005, the Company’s board of directors approved, and on October 20, 2005 the
      Company’s stockholders adopted, an amendment to Company's Articles of
      Incorporation to (i) eliminate the series A convertible preferred stock, (ii)
      increase the number of authorized shares of preferred stock to 10,000,000
      shares, and (iii) increase the number of authorized shares of common stock
      to
      60,000,000 shares.





On
      June
      16, 2005, the Company created the series B preferred stock. The certificate
      of
      designation provides that:





(i)
      each
      issued and outstanding share of series B preferred stock was convertible into
      9
      shares of common stock through March 22, 2006 and, as a result of an amendment
      dated March 23, 2006, into 12.15 shares of common stock
      thereafter;





(ii)
      if,
      within two years after the closing, the Company issues common stock or options,
      warrants or other convertible securities at a price or with a conversion or
      exercise price less than the conversion price (initially $.30), with certain
      specified exceptions, the number of shares issuable upon conversion of one
      share
      of series B preferred stock is adjusted, using a weighted average formula,
      to
      reflect such issuance;





(iii)
      no
      dividends are payable with respect to the series B preferred stock;





(iv)
      while the series B preferred stock is outstanding, the Company may not pay
      dividends on or redeem shares of common stock;





(v)
      upon
      any voluntary or involuntary liquidation, dissolution or winding-up, the holders
      of the series B preferred stock are entitled to a preference of $2.70 per share
      before any distributions or payments may be made with respect to the common
      stock or any other class or series of capital stock which is junior to the
      series B preferred stock upon voluntary or involuntary liquidation, dissolution
      or winding-up;





(vi)
      the
      holders of the series B preferred stock have no voting rights;





(vii)
      without the approval of the holders of 75% of the series B preferred stock,
      the
      Company will not (a) alter or change the powers, preferences or rights given
      to
      the series B preferred stock or alter or amend the Certificate of Designation
      relating to the series B preferred stock, (b) authorize or create any class
      of
      stock ranking as to dividends or distribution of assets upon a liquidation
      senior to or otherwise pari passu with the series B preferred stock, or any
      class or series of preferred stock possessing greater voting rights or the
      right
      to convert at a more favorable price than the series B preferred stock, (c)
      amend its certificate or articles of incorporation or other charter documents
      in
      breach of any of the provisions hereof, (d) increase the authorized number
      of
      shares of series B preferred stock, or (e) enter into any agreement with respect
      to the foregoing.; and,





(viii)
      in
      the event the Company does not deliver a stock certificate upon conversion
      of
      the series B preferred stock in a timely manner, as set forth in the Certificate
      of Designation, the Company must pay the converting holder liquidated damages.
      The holders of the series B preferred stock may not convert the series B
      preferred stock to the extent that such conversion would result in the holders
      owning more than 4.9% of the outstanding common stock. This limitation may
      not
      be amended without the consent of the holders of a majority of the outstanding
      common stock.





All
      remaining shares of preferred stock not so specifically designated may be
      designated in the future by action of the Board of Directors of the Corporation
      and otherwise in accordance with the applicable provisions of the Nevada Revised
      Statutes of the State of Nevada.


54


**PART
          II**
 **Item
          7. Financial Statements**
 
 **Adsouth
          Partners, Inc. and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**
 **For
          the Year Ended December 31, 2005**


Common
      Stock Private Placement Offerings





On
      June
      4, 2004, the Company sold 133,333 shares of its common stock for $1.50 per
      share
      to an accredited investor pursuant to a private placement offering receiving
      proceeds of $200,000. Pursuant to the offering, the investor has the right
      to
      demand registration of the 133,333 shares one year from the date of purchase.
      Such shares were registered effective August 3, 2005.





On
      July
      20, 2004, the Company sold 46,667 shares of its common stock for $1.13 per
      share
      to an accredited investor pursuant to a private placement offering receiving
      proceeds of approximately $52,500. Pursuant to the offering, the investor has
      the right to demand registration of the 46,667 shares one year from the date
      of
      purchase. Such shares were registered effective August 3, 2005.





Convertible
      Debentures Private Placement Offering





On
      February 17 and 22, 2005, the Company completed a private placement of its
      securities with ten accredited investors (the “February Private Placement”)
      pursuant to which, the Company sold, for $810,100, (i) its 10% convertible
      notes
      due December 2006 in the aggregate principal amount of $810,100, (ii) 1,620,200
      shares of common stock, and (iii) warrants to purchase 675,083 shares of common
      stock at an exercise price of $1.28 per share. The notes were convertible into
      common stock at the fixed conversion price of $.60 per share at any time. The
      debt discount related to the convertible notes was $810,000 and was to be
      amortized over the term of the 10% convertible notes. Atlas Capital Services,
      LLC served as placement agent for the financing. As compensation for its
      services as placement agent, the Company paid Atlas a fee of 10% of the gross
      proceeds raised in the private placement, warrants to purchase 135,017 shares
      of
      common stock at an exercise price of $.60 per share. The Company also paid
      the
      subscribers’ legal expenses. In connection with the Company’s engagement of
      Atlas, it issued to Atlas an option to purchase 33,333 shares of common stock
      for nominal consideration. This option was exercised at or about the closing
      of
      the private placement.





On
      May
      16, 2005 and May 20, 2005, the Company completed a private placement of its
      securities with two accredited investors (the “May Private Placement”) pursuant
      to which the Company sold, for $650,000, (i) its 12% secured convertible notes
      due March 15, 2007 in the aggregate principal amount of $650,000, (ii) 270,833
      shares of common stock, and (iii) warrants to purchase 812,500 shares of common
      stock at an exercise price of $1.275 per share. The notes were convertible
      into
      common stock at the fixed conversion price of $.60 per share at any time. The
      debt discount related to the convertible notes was $267,000 and was to be
      amortized over the term of the 10% convertible notes. In connection with the
      placement, the Company paid fees equal to 10% of the gross proceeds raised
      in
      the private placement and warrants to purchase 125,000 shares of common stock
      at
      an exercise price of $.48 per share. The Company also reimbursed the investors
      for legal fees and expenses of $10,000.





The
      closing costs related to the issuance of the convertible notes were $445,000
      including legal fees, broker fees and the value of broker warrants issued
      pursuant to the convertible note offerings. The deferred offering costs were
      being amortized on a straight-line basis over the period in which the
      convertible notes were outstanding. On June 17, 2005, the Company paid a total
      of $792,120 to the holders of $660,100 of the convertible notes. The
      subscription agreements relating to the issuance of the notes gave the Company
      the right to redeem the notes at a premium and gave the holders of the notes
      the
      right to demand redemption of the notes at a premium. In connection with the
      payment, the note holders also cancelled warrants to purchase 550,087 shares
      of
      common stock. On June 17, 2005, note holders exchanged a total of $800,000
      of
      principal and $12,000 of accrued interest for shares of the series B preferred
      stock. In connection with the exchange, the note holders also cancelled warrants
      to purchase 937,500 shares of common stock and returned 570,833 shares of common
      stock. As a result of the payment and exchange of this debt the Company incurred
      a loss of $537,000 for 2005 from the early extinguishment of the convertible
      notes which includes the unamortized balance of the deferred offering
      costs.





55


**PART
          II**
 **Item
          7. Financial Statements**
 
 **Adsouth
          Partners, Inc. and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**
 **For
          the Year Ended December 31, 2005**


Series
      B Preferred Stock Private Placement





On
      June
      17, 2005, the Company completed a private placement with three accredited
      investors (the “June Private Placement”) pursuant to which the Company issued an
      aggregate of 1,226,557 shares of series B preferred stock and warrants to
      purchase 12,000,000 shares of common stock in exchange for $2,500,000 cash,
      the
      cancellation of (i) $812,000 of principal and interest on the Company’s
      convertible debentures; (ii) warrants to purchase a total of 937,500 shares
      of
      common stock, and (iii) 570,833 shares of common stock, which were issued
      pursuant to the February and May 2005 private placements.





The
      June
      Private Placement required the issuance of additional shares of series B
      preferred stock if the Company’s fully-diluted earnings per share of common
      stock, computed as provided in the purchase agreement which excludes certain
      non-recurring expenses, is $.167 or less for the year ending December 31, 2005.
      On March 23, 2006, the holders of the series B preferred stock agreed to an
      equivalent increase in the conversion rate of the remaining outstanding shares
      of series B preferred stock as opposed to the issuance of additional shares
      of
      series B preferred stock.  Based on the calculation of the Company’s fully
      diluted earnings for the year ended December 31, 2005, as calculated pursuant
      to
      the purchase agreement, as of March 21, 2006, each outstanding share of series
      B
      preferred stock is convertible into 12.15 shares of common stock, an increase
      of
      35% from the original conversion rate..





The
      Company and the investors entered into a registration rights agreement pursuant
      to which the Company filed a registration statement covering the common stock
      issuable upon conversion of the series B preferred stock and exercise of the
      warrants. The registration statement became effective on August 3,
      2005.





The
      warrants issued to the investors have a term of five years, commencing June
      17,
      2005, and have exercise prices of $.65 as to 2,500,000 shares, $1.20 as to
      2,500,000 shares, $1.50 as to 3,500,000 shares and $1.80 as to 3,500,000. If,
      while the warrants are outstanding, the Company issues common stock or options,
      warrants or other convertible securities at a price or with a conversion or
      exercise price less than the exercise price, with certain specified exceptions,
      the exercise price of the warrants will be reduced using a weighted average
      formula, to reflect such issuance. The reduction in the exercise price pursuant
      to this provision will not result in an increase in the number of shares of
      common stock issuable upon such exercise.





Atlas
      Capital Services, LLC served as placement agent for the financing. As
      compensation for its services as placement agent, the Company paid Atlas a
      fee
      of $125,000 and issued to Atlas and its designees warrants to purchase 300,000
      shares of common stock at $.30 per share. Liberty Company Financial, LLC served
      as financial advisor to Barron, and the Company paid Liberty Company Financial
      a
      fee of $125,000 and issued to Liberty warrants to purchase 333,333 shares of
      common stock at $.30 per share. The Company also reimbursed Barron Partners
      for
      its legal fees and other expenses in the amount of $50,000.





The
      Company determined that the series B preferred stock was issued with an
      effective beneficial conversion feature of approximately $1,344,000 based upon
      the relative fair values of the underlying securities issued. As such, this
      beneficial conversion feature is recorded as a deemed preferred stock
      dividend.





As
      of
      December 31, 2005, 60,000 shares of series B preferred stock were converted
      into
      540,000 shares of common stock.





Note
      Receivable Stockholder





On
      May 9,
      2003, the Company’s board of directors authorized The Tiger Fund’s purchase of
      an additional 1,298,452 shares of common stock upon their issuance of an
      approximately $20,000 promissory note to the Company, subsequent to which,
      the
      Tiger Fund owned the maximum number of shares permitted by the Tiger Fund Stock
      Purchase Agreement. The note accrues interest annually at a rate equal to the
      90
      day treasury rate published in the Wall Street Journal on January 1st of each
      year, an effective rate of 1% at December 31, 2005, with all principal and
      interest due in forty-eight (48) months.


56


**PART
          II**
 **Item
          7. Financial Statements**
 
 **Adsouth
          Partners, Inc. and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**
 **For
          the Year Ended December 31, 2005**


Pursuant
      to the Adsouth Acquisition, the Tiger Fund, Inc. committed to provide the
      Company with a total of $1 million in equity funding during 2004. Originally,
      the Tiger fund was to receive a warrant to purchase 133,333 shares of common
      stock at $15 per share for its $1 million investment. On March 31, 2004, the
      Company and the Tiger Fund entered into an amended agreement pursuant to which
      the Tiger Fund, Inc. purchased 333,333 shares of common stock for approximately
      $1 million consisting of $350,000 cash and a promissory note in the amount
      of
      $650,000. Subsequently, The Tiger Fund returned 157,894 shares of common stock
      and the $650,000 promissory note was cancelled.





Stock
      Repurchase Plan





On
      July
      23, 2004 the Company’s board of directors authorized the purchase of up to
      $500,000 of its common stock from time to time in open market transactions.
      The
      repurchase program did not have a specified duration. No shares were repurchased
      by the Company under the stock repurchase plan and in 2005 the Company’s board
      of directors terminated the plan. The Company’s agreement relating to the sale
      of the series B preferred stock prohibits the Company from purchasing
      stock.





**13.**  **Stock
      Based Compensation**





The
      Company’s stock based compensation is summarized on the following
      table:





2005
            
            2004Deferred
                stock based compensation (a)
            
            $
            264,000
            
            $
            991,000Non
                deferred stock based compensation (b)
            
            
            -
            
            $
            3,497,000Total
                stock based compensation expense
            
            $
            264,000
            
            $
            4,488,000





(a)  Deferred
      Stock Based Compensation





The
      Company’s deferred stock compensation is summarized in the following table:





2005
            
            2004Balance
                at beginning of period
            
            
            -
            
            $
            783,000Value
                of stock grant, option and warrants issued
            
            $
            736,000
            
            $
            208,000Amortization
                of deferred stock compensation
            
            
            (264,000
            )
            
            ($991,000
            )Balance
                at end of period
            
            $
            472,000
            
            
            -





In
      December 2003, pursuant to a management agreement, the Company authorized the
      issuance of 347,800 shares of common stock to Strategy Partners, Inc., a related
      party, as payment for the first twelve months of their management consulting
      services. During 2004, the Company granted to consultants an aggregate of 58,334
      shares of common stock and options to purchase to an aggregate of 363,333 shares
      of common stock at prices ranging from $.0015 to $1.38 per share for services
      performed during 2004. Using the Black-Scholes option valuation formula, these
      stock and option grants were valued at an aggregate of $991,000, all which
      was
      expensed in 2004.





During
      2005, the Company granted to consultants options to purchase an aggregate of
      2,786,852 shares of common stock at prices ranging from $0.32 to $1.31 per
      share, including an option issued to Mr. Acunto, pursuant to his consulting
      agreement to purchase 2,000,000 shares at $.65 per share and an option issued
      to
      Mr. Acunto by the compensation committee to purchase 200,000 shares at $.32
      per
      share. Using the Black-Scholes option valuation formula, these option grants
      were valued at an aggregate of $736,000 of which $264,000 was expensed during
      2005 and $472,000 was deferred based on the term of service pursuant to which
      the options were issued.


57


**PART
        II**
 **Item
        7. Financial Statements**
 
 **Adsouth
        Partners, Inc. and Subsidiaries**
 **Notes
        to Consolidated Financial Statements**
 **For
        the Year Ended December 31, 2005**







(b)  Non
      Deferred Stock Based Compensation





During
      2004, the Company granted to employees and consultants 1,945,063 shares of
      common stock valued at $3,497,000, all of which was expensed on the date of
      grant in 2004.





During
      2004, the Company issued to certain former and existing stockholders of the
      Company, in order
      to settle claims for such warrants that were purported to exist prior to the
      Adsouth Acquisition, warrants
      to purchase an aggregate of 9,076 shares of common stock at a price of $30.00
      per share and warrants to purchase 52,444 shares of common stock at a price
      of
      $3.30. Using the Black-Scholes option valuation formula, these warrants resulted
      in no compensation expense.





Stock
      Options





During
      2004, the Company issued to executive officers, options to purchase 766,667
      shares of common stock at a price of $1.35 per share, the fair value of such
      shares on February 27, 2004, resulting in no stock-based compensation
      expense.





On
      May 4,
      2004, the Company issued to a consultant an option to purchase 53,333 shares
      of
      common stock at a price of $2.45 per share. The fair value of each share on
      May
      4, 2004 was $1.95 per share resulting in no stock-based
      compensation.





During
      2005, the Company issued to employees and directors options to purchase an
      aggregate of 2,211,962 shares of common stock at prices ranging from $.28 to
      $.80 per share, of which an option to purchase 56,667 shares of common stock
      for
      $0.71 per share was exercised. The exercise prices of all such options issued
      equaled the fair value of the underlying common stock on the date of grant,
      resulting in no stock based compensation expense.





Warrants





On
      February 17, 2005, in connection with the February Private Placement, the
      Company issued warrants to purchase 675,083 shares of common stock at an
      exercise price of $1.28 per share, all of which were cancelled on June 17,
      2005
      as a result of the June Private Placement, and issued broker warrants to
      purchase 135,017 shares of common stock at an exercise price of $.60 per
      share.





On
      May
      16, 2005, in connection with the May Private Placement, the Company issued
      warrants to purchase 812,500 shares of common stock at an exercise price of
      $1.275 per share, all of which were cancelled as a result of the June Private
      Placement, and issued broker warrants to purchase 125,000 shares of common
      stock
      at an exercise price of $.48 per share.





On
      June
      17, 2005, in connection with the June Private Placement, the Company issued
      warrants to purchase 12,000,000 shares of common stock having exercise prices
      of
      $.65 as to 2,500,000 shares, $1.20 as to 2,500,000 shares, $1.50 as to 3,500,000
      shares and $1.80 as to 3,500,000. In connection with the June Private Placement,
      the Company issued broker warrants to purchase 633,333 shares of common stock
      at
      $.30 per share.





**14.**  **Sector
      Information**





The
      Company’s operating activity consists of two operating sectors or segments,
      Advertising and Products. Segment selection is based upon the organizational
      structure that the Company’s management uses to evaluate performance and make
      decisions on resource allocation, as well as availability and materiality of
      separate financial results consistent with that structure. The Advertising
      sector consists of the placement of advertising, the production of advertising
      and creative advertising consulting. The Products sector includes all activities
      related to the sale of the Dermafresh product line and the sale of other
      products for which the Company has internally developed or obtained distribution
      rights. Corporate and general expenses of the Company are allocated to the
      Company’s segments based on an estimate of the proportion that such allocable
      amounts benefit the segments.


58


**PART
        II**
 **Item
        7. Financial Statements**
 
 **Adsouth
        Partners, Inc. and Subsidiaries**
 **Notes
        to Consolidated Financial Statements**
 **For
        the Year Ended December 31, 2005**







**15.**  **Related
      Party Transactions**





On
      January 4, 2004, the Company, The Tiger Fund, Adsouth, Inc., Mr. Acunto and
      Ms.
      Acunto entered into a share exchange transaction, pursuant to which the Tiger
      Fund transferred 1,866,667 shares of the Company’s common stock it owned to Mr.
      Acunto and Ms. Acunto, who were the two shareholders of Adsouth, Inc., in
      exchange for their 100% equity ownership in Adsouth, Inc. (the “Adsouth
      Acquisition”). Upon the completion of the Adsouth Acquisition, control of the
      Company had changed whereby Mr. Acunto and Ms. Acunto owned more than 50% of
      the
      total issued and outstanding common stock.





On
      May 9,
      2003, the Company’s board of directors authorized The Tiger Fund’s purchase of
      1,298,452 shares of common stock upon their issuance of a $19,477 promissory
      note to the Company. The note accrues interest annually at a rate equal to
      the
      90 day treasury rate published in the Wall Street Journal on January 1st of
      each
      year, an effective rate of 1% at December 31, 2005, with all principal and
      interest due in forty-eight (48) months.





Pursuant
      to the Adsouth Acquisition, The Tiger Fund, Inc. committed to provide the
      Company with a total of $1 million in equity funding during 2004. Originally,
      The Tiger fund was to receive a warrant to purchase 133,333 shares of common
      stock at $15 per share for its $1 million investment. On March 31, 2004, the
      Company and The Tiger Fund entered into an amended agreement pursuant to which
      the Tiger Fund, Inc. purchased 333,333 shares of common stock for $1 million
      consisting of $350,000 cash and a promissory note in the amount of $650,000.
      Subsequently, The Tiger Fund returned 175,439 shares of common stock and the
      $650,000 promissory note was cancelled.





Mr.
      Acunto, who beneficially owns more than 10% of our common stock, earned
      approximately $252,000 for services performed pursuant to his consulting
      agreement with the Company for 2005.





Mr.
      Horowitz, a member of our board of directors, is the president and 50% owner
      of
      Profit Motivators, Inc., an independent marketing representative. Profit
      Motivators represents the Company as an independent marketing representative
      to
      certain of our customers. In this capacity, Profit Motivators has earned
      commissions approximating $75,000 for 2005.





On
      December 20, 2005, the Company borrowed $1,000,000 from a non-affiliated lender.
      The note is a demand note that bears interest at 18% per annum and is guaranteed
      by Mr. Acunto. In consideration for his guarantee, the Company paid Mr. Acunto
      the sum of $50,000, which was charged to operations in 2005.





**16.**  **New
      Authoritative Pronouncements**





In
      September 2005, the FASB ratified the following consensus reached in EITF Issue
      05-8 ("Income Tax Consequences of Issuing Convertible Debt with a Beneficial
      Conversion Feature"): a) The issuance of convertible debt with a beneficial
      conversion feature results in a basis difference in applying FASB Statement
      of
      Financial Accounting Standards SFAS No. 109, Accounting for Income Taxes.
      Recognition of such a feature effectively creates a debt instrument and a
      separate equity instrument for book purposes, whereas the convertible debt
      is
      treated entirely as a debt instrument for income tax purposes. b) The resulting
      basis difference should be deemed a temporary difference because it will result
      in a taxable amount when the recorded amount of the liability is recovered
      or
      settled. c) Recognition of deferred taxes for the temporary difference should
      be
      reported as an adjustment to additional paid-in capital. This consensus is
      effective in the first interim or annual reporting period commencing after
      December 15, 2005, with early application permitted. The effect of applying
      the
      consensus should be accounted for retroactively to all debt instruments
      containing a beneficial conversion feature that are subject to EITF Issue
      00-27,"Application of Issue No. 98-5 to Certain Convertible Debt Instruments"
      (and thus is applicable to debt instruments converted or extinguished in prior
      periods but which are still presented in the financial statements). The adoption
      of this pronouncement is not expected to have a material impact on the Company's
      financial statements.


59


**PART
        II**
 **Item
        7. Financial Statements**
 
 **Adsouth
        Partners, Inc. and Subsidiaries**
 **Notes
        to Consolidated Financial Statements**
 **For
        the Year Ended December 31, 2005**







In
      September 2005, the EITF reached a consensus on, Issue No. 05-7, "Accounting
      for
      Modifications to Conversion Options Embedded In Debt Securities and Related
      Issues,” beginning in the first interim or annual reporting period beginning
      after December 15, 2005. Early application of this guidance is permitted in
      periods for which financial statements have not yet been issued. The disclosures
      required by Statement 154 should be made excluding those disclosures that
      require the effects of retroactive application. EITF No. 05-7 is not expected
      to
      have material effect on the Company’s consolidated financial
      position.





In
      June
      2005, the EITF reached consensus on Issue No. 05-6, “Determining the
      Amortization Period for Leasehold Improvements ("EITF 05-6"). EITF 05-6 provides
      guidance on determining the amortization period for leasehold improvements
      acquired in a business combination or acquired subsequent to lease inception.
      The guidance in EITF 05-6 will be applied prospectively and is effective for
      periods beginning after June 30, 2005. EITF 05-6 is not expected to have a
      material effect on the Company’s consolidated financial position or results of
      operations.





In
      May
      2005, SFAS No. 154, "Accounting Changes and Error Corrections, a replacement
      of
      APB Opinion No. 20, Accounting Changes and FASB Statement No. 3" was issued
      which, among other things, changes the accounting and reporting requirements
      for
      a change in accounting principle and provides guidance on error corrections.
      SFAS No. 154 requires retrospective application to prior period financial
      statements of a voluntary change in accounting principle unless impracticable
      to
      determine the period-specific effects or cumulative effect of the change, and
      restatement with respect to the reporting of error corrections. SFAS No. 154
      applies to all voluntary changes in accounting principles, and to changes
      required by an accounting pronouncement in the unusual instance that the
      pronouncement does not include specific transition provisions. SFAS No. 154
      also
      requires that a change in method of depreciation or amortization for long-lived,
      non-financial assets be accounted for as a change in accounting estimate that
      is
      effected by a change in accounting principle. SFAS No. 154 is effective for
      accounting changes and corrections of errors made in fiscal years beginning
      after December 15, 2005. At this time, adoption of SFAS No. 154 is not expected
      to significantly impact the Company's financial statements or future results
      of
      operations.





In
      December 2004, the Financial Accounting Standards Board ("FASB") issued its
      final standard on accounting for share-based payments ("SBP"), FASB Statement
      No. 123R (revised 2004), Share-Based Payment. The statement requires companies
      to expense the value of employee stock options and similar awards. Under FAS
      123R, SBP awards result in a cost that will be measured at fair value on the
      awards' grant date, based on the estimated number of awards that are expected
      to
      vest. Compensation cost for awards that vest would not be reversed if the awards
      expire without being exercised. The effective date for public companies
      that file as small business issuers is the annual period beginning after
      December 15, 2005, and applied to all outstanding and unvested SBP awards at
      a
      company's adoption. The Company believes that the implementation of FAS 123R
      will result in additional stock-based compensation expense in future
      periods.





In
      December 2004, the FASB issued Statement of Financial Accounting Standards
      No.
      153, Exchanges Of Non-monetary Assets - An Amendment of APB No. 29 ("SFAS 153").
      SFAS 153 amends APB No. 29 to eliminate the exception of non-monetary exchanges
      of similar productive assets and replaces it with a general exception for
      exchanges of non-monetary assets that do not have commercial substance. A
      non-monetary exchange has commercial substance if the future cash flows of
      the
      entity are expect to change significantly as a result of the exchange. SFAS
      153
      and APB No. 29 do not apply to the acquisition of non-monetary assets or
      services on issuance of the capital stock of an entity. Currently, the Company
      has not had any exchanges of non-monetary assets within the meaning of SFAS
      153
      and adoption of SFAS 153 has had no effect on the Company's financial position
      or results of operations.


60


**PART
        II**
 **Item
        7. Financial Statements**
 
 **Adsouth
        Partners, Inc. and Subsidiaries**
 **Notes
        to Consolidated Financial Statements**
 **For
        the Year Ended December 31, 2005**








In
      November 2004, the FASB issued SFAS No. 151, Inventory Costs (SFAS 151). The
      provisions of this statement become effective for the Company in fiscal 2007.
      SFAS 151 amends the existing guidance on the recognition of inventory costs
      to
      clarify the accounting for abnormal amounts of idle expense, freight, handling
      costs, and wasted material (spoilage). Existing rules indicate that under some
      circumstances, items such as idle facility expense, excessive spoilage, double
      freight, and rehandling costs may be so abnormal as to require treatment as
      current period charges. SFAS 151 requires that those items be recognized as
      current period charges regardless of whether they meet the criterion of "so
      abnormal". In addition, SFAS 151 requires that allocation of fixed production
      overheads to the costs of conversion be based on the normal capacity of the
      production facilities. The adoption of SFAS 151 is not expected to have a
      material impact on the Company’s valuation of inventories or operating
      results.





In
      October 2004, the FASB ratified the consensus reached in EITF Issue No. 04-8,
      "The Effect of Contingently Convertible Instruments on Diluted Earnings per
      Share." The EITF reached a consensus that contingently convertible instruments,
      such as contingently convertible debt, contingently convertible preferred stock,
      and other such securities should be included in diluted earnings per share
      (if
      dilutive) regardless of whether the market price trigger has been met. The
      consensus became effective for reporting periods ending after December 15,
      2004.
      The adoption of this pronouncement did not have a material effect on the
      Company's financial statements.





**17.
      Subsequent Events**





(a)  On
      February 1, 2006 the Company entered into an agreement with an individual to
      serve as the Company’s vice president of finance/controller and as Genco’s, Inc.
      chief financial officer. On February 1, 2006, the Company granted such
      individual an option to purchase 50,000 shares of common stock for $.36 per
      share, the market value of the common stock on the date of grant.





(b)  On
      February 10, 2006, Genco entered into a loan agreement with a non-affiliated
      lender which provides for a $1,000,000 loan commitment. The terms of the loan
      agreement provides for an initial draw of $500,000, which loan was made on
      February 10, 2006, and a second draw of $500,000 which was made on March 15,
      2006. The loan bears interest at 18% per annum, requires an interest only
      payment for the first month and twelve payments thereafter consisting of
      $41,666.67 of principal plus accrued interest. The loan is guaranteed by Mr.
      John Acunto, Jr., the Company's principal stockholder, for which he provided
      received consideration of fifty thousand dollars from Genco. In addition the
      lender holds a security interest in all of Genco's assets. Pursuant to the
      loan
      agreement, the lender received 7% of Genco's common stock and has a right of
      first refusal to provide customer financing for the sale of Genco's generator
      systems. Also, after 18 months, the lender has the right to cause the Company
      to
      purchase the lender's shares of Genco common stock at a negotiated price of
      no
      less than 3.5 times Genco's trailing twelve month's income before interest,
      depreciation, amortization and income taxes. At this time the Company is unable
      to place a fair value on the equity of Genco and no debt discount or contingent
      repurchase liability has been recorded or disclosed.





(c)  On
      March
      1, 2006 22,222.22 shares of series B preferred stock were converted 200,000
      shares of common stock.  On
      March
      28, 2006, 35,000 shares of series B preferred stock were converted into 425,250
      shares of common stock. The June Private Placement required the issuance of
      additional shares of series B preferred stock if the Company's fully-diluted
      earnings per share of common stock, computed as provided in the purchase
      agreement which excludes certain non-recurring expenses, is $.167 or less for
      the year ending December 31, 2005. On March 23, 2006, the holders of the series
      B preferred stock agreed to an equivalent increase in the conversion rate of
      the
      remaining outstanding shares of series B preferred stock as opposed to the
      issuance of additional shares of series B preferred stock. Based on the
      calculation of the Company's fully diluted earnings for the year ended December
      31, 2005, as calculated pursuant to the purchase agreement, as of March 23,
      2006, each outstanding share of series B preferred stock is convertible into
      12.15 shares of common stock, an increase of 35% from the original conversion
      rate.


61


**PART
      II**


**Item
      8.**  **Changes
      In and Disagreements With Accountants on Accounting and Financial
      Disclosure.**





Not
      applicable.





**Item
      8A. Controls and Procedures**




The
      Company's principal executive officer and principal financial officer, based
      on
      their evaluation of the Company's disclosure controls and procedures (as defined
      in Rules 13a-14 (c) and 15d-14 (c) of the Securities Exchange Act of 1934)
      as of
      December 31, 2005 have concluded that the Company's disclosure controls and
      procedures are effective to ensure that material information relating to the
      Company and its consolidated subsidiaries are recorded, processed, summarized
      and reported within the time periods specified by the SEC's rules and forms,
      particularly during the period in which this annual report has been prepared.





The
      Company's principal executive officer and principal financial officer have
      concluded that there were no significant changes in the Company's internal
      controls or in other factors that could significantly affect these controls
      during the fourth quarter ended December 31, 2005.





**Item
      8B. Other Information.**





Not
      applicable





62


**PART
      III**


**Items
      9, 10, 11, 12, and 14.**





The
      information called for by Item 9 (Directors, Executive Officers, Promoters
      and
      Control Persons; Compliance with Section 16(a) of the Exchange Act); Item 10
      (Executive Compensation), Item 11 (Security Ownership of Certain Beneficial
      Owners and Management and Related Stockholder Matters), Item 12 (Certain
      Relationships and Related Transactions) and 14 (Principal Accountant Fees and
      Services) is incorporated herein by reference from the Company’s definitive
      proxy statement for the Annual Meeting of Stockholders to be filed with the
      Securities and Exchange Commission not later than 120 days after the close
      of
      the year ended December 31, 2005.





**Item
      13. Exhibits**





Exhibit
                Number
            
            Exhibit
                Description3.1
            
            Articles
                of Incorporation3.2.1
            
            Certificate
                of Designation for the Series B Convertible Preferred
                Stock(1)3.2.2
            
            Amendment
                to the Certificate of Designation for the Series B Convertible Preferred
                Stock3.3
            
            By-laws(2)4.1
            
            Form
                of Preferred Stock Purchase Agreement dated June 16,
                2005(1)4.2
            
            Form
                of warrant issued in the June 2005 private placement
                (1)4.3
            
            Form
                of registration rights agreement relating to the June 2005 private
                placement(1)10.1
            
            Employment
                agreement dated October 7, 2005, between the Company and John Cammarano,
                as amended10.2
            
            Employment
                agreement dated as of October 7, 2005 between the Company and Anton
                Lee
                Wingeier, as amended10.4
            
            Consulting
                agreement dated June 17, 2005, between the Company and John P. Acunto,
                Jr., as amended (1)10.5
            
            The
                Company’s 2005 Long-Term Incentive Plan (2)10.6
            
            Lease
                dated September 20, 2005 between the Company and Penn Florida Venture
                IV.10.7
            
            Loan
                agreement, dated December 20, 2005, between the Company and HSK Funding,
                Inc.10.78
            
            Loan
                agreement, dated February 10, 2006 between Genco Power Solutions,
                Inc. and
                New Valu, Inc. (3)21.1
            
            Subsidiaries
                of the Registrant23.1
            
            Consent
                of Marcum & Kliegman, LLP31.1
            
            Certification
                of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 200231.2
            
            Certification
                of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 200232.1
            
            Certification
                of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
                Act of 200232.2
            
            Certification
                of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
                Act of 2002




(1)  Filed
      as
      an exhibit to the Company’s Form 8-K with a report date of June 17, 2005 and a
      filing date of June 20, 2005, and incorporated herein by reference.





(2)  Filed
      as
      an appendix to the Company’s proxy statement dated September 19, 2005, relating
      to the Company’s 2005 annual meeting of stockholders and incorporated herein by
      reference.





(3)  Filed
      as
      an exhibit to the Company’s Form 8-K with a report date of February 9, 2006 and
      a filing date of February 14, 2005, and incorporated herein by
      reference.


63


**SIGNATURES**





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







ADSOUTH
              PARTNERS, INC.By:
            /s/
              JOHN
              CAMMARANO, JR.John CammaranoChief
              Executive Officer, Director


Date: March 27, 2006




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





By:
              /s/
                JOHN
                CAMMARANO, JR.John CammaranoChief
                Executive Officer, Director


Date: March 27, 2006


By:
                /s/
                  ANTON LEE
                  WINGEIERAnton Lee WingeierChief
                  Financial Officer
 Date: March 27, 2006
   By:
                /s/
                  HARLAN I.
                  PRESSHarlan I. PressDirector
 Date: March 27, 2006
   By:
                /s/
                  JERALD
                  HOROWITZJerald HorowitzDirector
 Date: March 27, 2006
   By:
                /s/
                  LOREN R.
                  HAYNESLoren R. HaynesDirector
 Date: March 27, 2006





64