Telkonet, Inc.

(This report may not be reproduced.)

Telkonet, Inc. TKO (AMEX)

$4.12

April 19, 2004

BUY

Intermediate Term Target Price Estimates

Quarterly and Annual EPS Reported and Estimated EPS

Price Target Vs. LT GrowthScenario 18 20 23Optimistic $28.27 $31.05 $35.23Base $17.81 $19.58 $22.23Pessimistic $8.73 $9.62 $10.95

FY 2006 2007 2008EPS $0.43 $0.83 $1.46

2002 2003 2004 2005Mar -0.06 -0.08 -0.04 E -0.02 EJun -0.05 -0.12 -0.04 E 0.03 ESep -0.05 -0.09 -0.04 E 0.04 EDec -0.04 -0.06 -0.03 E 0.06 EFY -0.22 -0.37 -0.15 E 0.12 E

Cohen Independent Research Group, Inc.

VALUATION MEASURES

Market Cap (intraday): 159.44M

Enterprise Value (18-Apr-04): 164.01M

Trailing P/E (ttm, intraday): N/A

Forward P/E (fye 31-Dec-04): 0

PEG Ratio (5 yr expected)¹: N/A

Price/Sales (ttm): 1770.5

Price/Book (mrq): 55.1

Enterprise Value/EBITDA (ttm): N/A

FINANCIAL HIGHLIGHTS

Fiscal Year

Fiscal Year Ends: 31-Dec

Most Recent Quarter (mrq): 31-Dec-03

Profitability

Profit Margin (ttm): N/A

Operating Margin (ttm): N/A

Management Effectiveness

Return on Assets (ttm): -183.65%

Return on Equity (ttm): -2219.71%

Income Statement

Revenue (ttm): 94.00K

Revenue Per Share (ttm): 0.005

Revenue Growth (lfy): N/A

Gross Profit (ttm): -11.00K

EBITDA (ttm): --6.45M

Net Income Avl to Common (ttm): -7.66M

Diluted EPS (ttm): -0.388

Earnings Growth (lfy): N/A

Balance Sheet

Total Cash (pro forma): 18M

Total Cash Per Share (pro forma): 0.47

Total Debt (pro forma): 0.45M

Total Debt/Total Cap (pro forma): 2.4%

Current Ratio (pro forma): 28.5

Book Value Per Share (pro forma): 0.46

Cash Flow Statement

From Operations (ttm): -5.60M

Free Cash flow (ttm): -5.73M

TRADING INFORMATION

Stock Price History

Beta: N/A

52-Week Change: N/A

52-Week Change (relative to S&P500): N/A

52-Week High : 5.74

52-Week Low 1.55

50-Day Moving Average: N/A

200-Day Moving Average: N/A

Share Statistics

Average Volume (3 month): 450,000

Average Volume (10 day): 324,000

Shares Outstanding: (pro forma) 38.70

Float: 31.40M

% Held by Insiders: 18.87%

% Held by Institutions: 0.08%

Shares Short (as of 8-Mar-04): 455.00K

Daily Volume (as of 8-Mar-04): N/A

Short Ratio (as of 8-Mar-04): 0.779

Short % of Float (as of 8-Mar-04): 1.45%

Shares Short (prior month): 101.00K

Dividends & Splits

Annual Dividend: N/A

Dividend Yield: 0.00%

Dividend Date: N/A

Ex-Dividend Date: N/A

Last Split Factor (new per old)²: N/A

Last Split Date: N


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TABLE OF CONTENTS THE COMPANY .......................................................................................................................................3

Company History ..................................................................................................................................3 Investment Highlights............................................................................................................................3 Recent News.........................................................................................................................................4

Wed, March 31, 2004........................................................................................................................................ 4 Mon, March 29, 2004 ........................................................................................................................................ 4 Tue, March 23, 2004......................................................................................................................................... 4 Fri, March 19, 2004........................................................................................................................................... 4 Tue, March 9, 2004........................................................................................................................................... 4 Thu, March 4, 2004........................................................................................................................................... 4 Mon, Feb 23, 2004............................................................................................................................................ 4 Wed, Feb 18, 2004 ........................................................................................................................................... 4 Tue, Feb 17, 2004............................................................................................................................................. 5 Mon, Feb 9, 2004.............................................................................................................................................. 5 Wed, Feb 4, 2004 ............................................................................................................................................. 5 Mon, Jan 26, 2004 ............................................................................................................................................ 5 Wed, Jan 14, 2004............................................................................................................................................ 5 Wed, Jan 7, 2004.............................................................................................................................................. 5 Mon, Jan 5, 2004 .............................................................................................................................................. 5 Mon, Dec 15, 2003............................................................................................................................................ 5

Marketing Telkonet Products – Recent News Announcements............................................................5 Two Huge Additional Markets Propel Telkonet to another Level ..........................................................6 The Products.........................................................................................................................................6

SCHEMATIC OF THE PLUGPLUSINTERNET™ SYSTEM ....................................................................7 THREE COMPONENTS OF THE PLUGPLUSINTERNET™ SYSTEM...................................................9

Government Regulations ....................................................................................................................10 Intellectual Property ............................................................................................................................10 Business Development in a $26 Billion Market...................................................................................10 Cost of Service....................................................................................................................................11 Home versus Commercial Use ...........................................................................................................11 Competition in the Commercial Marketplace ......................................................................................12

Competing in the Commercial Marketplace - The Hospitality Industry........................ 12 History of HSIA in the Hospitality Industry ...................................................................................................... 13 Wireless in the Hospitality Industry................................................................................................................. 13

Security in the Hospitality Industry......................................................................................................14 Usage of HSIA in the Hospitality Industry....................................................................................................... 15 Support Provided to the Hospitality Industry................................................................................................... 15 Business Models for Addressing the Hospitality Industry............................................................................... 15 Marketing to the Hospitality Industry............................................................................................................... 16 Market Size of the Hospitality Industry ........................................................................................................... 16 Primary Competitors in the Hospitality Industry.............................................................................................. 17 STSN............................................................................................................................................................... 17 Wayport........................................................................................................................................................... 17 Golden Tree Communications ........................................................................................................................ 18 How Telkonet Compares to Incumbents......................................................................................................... 19 Telkonet Installation ........................................................................................................................................ 19

Telkonet’s Initial Customers................................................................................................................20 Marketing to the Hospitality Industry...................................................................................................21 Management Team.............................................................................................................................21


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GROWTH ASSUMPTIONS ....................................................................................................................24 CASH FLOW ANALYSIS.......................................................................................................................24 LIQUIDITY AND LEVERAGE.................................................................................................................25

CAPITALIZATION...............................................................................................................................26 Capitalization – Debt....................................................................................................................................... 26 Capitalization – Equity .................................................................................................................................... 27

FORECASTS AND VALUATION...........................................................................................................29 Bull Case.............................................................................................................................................36 Bear Case ...........................................................................................................................................36

CONCLUSION........................................................................................................................................36 ANNUAL BALANCE SHEET: TELKONET, INC. (TKO) .......................................................................39 ANNUAL BALANCE SHEET: TELKONET, INC. (TKO) .......................................................................40 QUARTERLY BALANCE SHEET..........................................................................................................41 STATEMENT OF CHANGES IN CASH .................................................................................................42 STATEMENT OF CHANGES IN CASH .................................................................................................43 DISCLAIMER: ........................................................................................................................................43 DISCLAIMER: ........................................................................................................................................44


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TELKONET, INC. TKO $4.12 AMEX

April 19, 2004

We have re-issued our April 10th report and increased estimated earnings per share due to positive prospects in the MDU and military markets.

THE COMPANY

Company History

Telkonet (TKO) has primarily been a development stage company, but has begun the transition to a revenue producing business armed with exciting disruptive technology. TKO is at an inflection point of becoming a profitable growth company in the intermediate future. The company has moved into exciting giant sized market opportunities completing important strategic ventures with Hughes/Direct TV - (DPV), Anteon and Leviton. TKO has developed a system that utilizes the existing electrical wiring infrastructure in residential and commercial buildings to deliver Internet and telephony connectivity. The Company posted its initial revenues in the September 2003 quarter.

In 1999, Telkonet Communications, Inc, was formed to develop applications for the emerging power line carrier technologies. In July 2001, TKO announced the completion of the initial product development phase of its proprietary communications system.

In August 2001, the company announced the performance of successful system tests in the Washington DC area. The Telkonet PlugPlus™ Internet connectivity solutions were demonstrated in a 28 unit residential apartment building and a 5-story commercial office building. High-speed data connections were successful whether measuring the basement outlets or the farthest receptacle on top floors.

After extensive research and product testing for three years, in January 2002, the company shifted its management emphasis from R&D to commercial development. The company has since demonstrated the product’s robust capacity and decided to focus on marketing the company’s initial proprietary products.

Investment Highlights

1. The Company has developed a potentially disruptive technology for High Speed Internet Access, using the existing electrical wiring in a building for Internet access.

2. The Company’s technology can be applied to hotels, multiple dwelling units, commercial buildings, ships, using either 110V or 220V and other industries. The technology can be applied on a worldwide, international basis.

3. The thrust of the story is this: Telkonet has recently signed agreements with Anteon, Leviton and is in the process of finalizing its agreement with Hughes/Direct TV. All three companies give TKO access to enormous new markets. Anteon provides access to the military and government markets. Leviton provides access to the multiple dwelling unit (MDU) market. Hughes/Direct TV provides access to the satellite-to-internet market worldwide. Separate from the hotel industry,


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we believe these additional markets can generate $40 million in real revenues going forward.

4. The hospitality industry is installing High Speed Internet Access (HSIA) for guest usage at an increasing rate. We estimate that 20,000 of a total of 45,000 hotels in the U.S. will offer HSIA to guests in five years. TKO does not charge an installation fee.

5. The Telkonet system competes very favorably on price basis. Competitors all require an upfront installation fee. TKO requires none. Competitors charge $9,000 to $23,000 for a 100 room hotel for HSIA system installation, excluding the cost of rewiring.

6. Standard installation time for the Telkonet system is typically less than a day.

7. The Telkonet system competes favorably on an on-going cost basis.

8. The Telkonet system allows a hotel guest using the Internet to move a laptop to any location near an electrical outlet.

9. In the MDU market, we forecast a conservative 1.8% market share of the 2 million buildings with over 100 units in five years.

10. Our US government/military and satellite to internet industry projections are very conservative. However, the company is currently engaged in tests with the U.S. Navy that if successful, could yield significant revenues. These two markets are forecast to purchase equipment rather than lease.

11. Any improvement in the forecast for the government/military and satellite to internet markets in the next two years will positively impact earnings and cash flows. Positive

margins in the purchase business model will offset the initial negative margins in the lease business model of the MDU and hospitality markets.

Recent News

Wed, March 31, 2004

• Telkonet announces discussion of recent agreements with Anteon and Leviton in webcast.

Mon, March 29, 2004

• Telkonet and Leviton form strategic partnership to deliver broadband internet access

Tue, March 23, 2004

• Telkonet and Anteon to provide power line communications solutions for the US Navy.

Fri, March 19, 2004

• Daniel L McGinnis resigns from Board of Directors of Telkonet.

Tue, March 9, 2004

• Telkonet listed by Broadband Properties Magazine as one of the ‘Companies to Watch in 2004.’

Thu, March 4, 2004

• Telkonet CEO Ronald Pickett discusses the Hughes VAR agreement, the AMEX listing and private stock offering.

Mon, Feb 23, 2004

• Telkonet Chairman Pete Musser To Ring AMEX Opening Bell February 24, 2004

Wed, Feb 18, 2004

• Telkonet, Inc. & UTEK Corporation Form Strategic Technology Alliance


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• Telkonet On-Track with FCC's Broadband Over Power Line Initiative

Tue, Feb 17, 2004

• Telkonet Completes Private Placement for $12.8 million.

• Telkonet's 'Outlet to the Internet' Total Service Soon to Be Available Everywhere!

Mon, Feb 9, 2004

• Telkonet & Anteon Team-Up On High-Speed Internet Pilot Program at Chicago Housing Authority

Wed, Feb 4, 2004

• Telkonet Now 'TKO' on Amex

• American Stock Exchange Lists Common Stock of Telkonet, Inc.

Thu, Jan 29, 2004

• Telkonet's President Makes Featured Presentation At Friedland Capital's Undervalued Equities Conference

• Telkonet Moving to Amex

Mon, Jan 26, 2004

• Telkonet Announces Senior Noteholders Elect to Convert $2.5M to Equity

Wed, Jan 14, 2004

• Telkonet Patents 'Power Line Telephony Exchange

Wed, Jan 7, 2004

• Telkonet Appoints Albert Diehl as Vice President

• Wed, Jan 7 - 1:03pm ET - Business Wire

Mon, Jan 5, 2004

• Telkonet Deploys Test System Onboard U.S. Naval Research Vessel Mon, Jan 5 - 8:32am ET - Business Wire

Mon, Dec 15, 2003

• Telkonet Ships Next Generation Of Product Mon, Dec 15 - 9:00am

Marketing Telkonet Products – Recent News Announcements

Telkonet is also negotiating with Value Added Resellers (VAR) that will market the PlugPlus™ system and manage the installation at the local level. In February 2004, Telkonet announced a relationship with Hughes whereby Telkonet will become an authorized reseller of Hughes. Included in this agreement is the co-marketing relationship with 1000 VAR’s that are approved by Hughes. These VARS will be able to resell Telkonet solutions with minimal training.

The scope of this agreement is global in nature and enables the VARS around the world to offer a HSIA solution with a satellite connection. The global reach will primarily be in three regions, North America, Europe (Spain to Ukraine) and India.

Telkonet has also formed a relationship with Leviton, the largest electric component manufacturer in North America. The Leviton agreement provides for the future development of manufacturing processes to lower the cost of the Telkonet products, and provide Telkonet with access to 7,000 licensed electrical contractors. These electrical contractors will be the VAR that installs and services the Telkonet solutions. Leviton intends to manufacture and ship Telkonet products to their network of electrical contractors for installation. A division of Leviton, the Leviton Integrated Networks (LIN) focuses on the multi-dwelling units (MDU) marketplace. LIN has 120 sales people who will


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market Telkonet technology products into major urban areas.

The relationship with Anteon for bringing HSIA to public housing is in its initial stages. Anteon is currently working with the Chicago Housing Authority to install Telkonet technology in public housing structures in the Chicago area. Anteon is also a major electronics contractor with the US Military. After testing Telkonet’s products on Navy vessels, Anteon has entered into an agreement to offer Telkonet solutions to the military. Anteon currently has a large contract to provide ongoing support for network services for the US Navy.

Two Huge Additional Markets Propel Telkonet to another Level

The recent marketing agreements with Leviton, Anteon and Hughes open up large markets for Telkonet. We believe the combination of these markets will add approximately $40 million in real revenues during the intermediate period of time.

The LIN sales force will focus on the MDU market for Telkonet products. This sales force has sold the CAT5 wiring option and is knowledgeable of the market. In the US there are over 30 million apartment units, of which 10 million have 100 units or more. LIN salespeople will initially address the large unit market place first. The Company anticipates launching marketing efforts in two major metropolitan areas. In this market, TKO will provide the Gateway™ and Coupler™ products without charge and collect a $200 per month building fee along with a monthly fee for the iBridge modems. The building or the ISP providing the service will only have to pay for the electricians time to install the equipment in order to offer HSIA to all tenants.

The military market is very large and demands those who are experienced in it to succeed. The agreement

with Anteon is very valuable in addressing a potentially large market for Telkonet. The Telkonet equipment displayed its capabilities in a live setting, by providing a viable low-cost solution to the challenges of retrofitting a secure HSIA by using a ships existing electrical infrastructure. We anticipate that orders for TKO equipment on US Navy ships are forthcoming. Aircraft carriers are floating cities of 5,000 plus personnel. Middle level officers and all of the lower level personnel currently share access with many others due to wiring constraints onboard. Anteon will be addressing networking solutions for onshore facilities.

The agreement with Hughes opens up the international marketplace by allowing internet access into a building’s electronic infrastructure via satellite access. The ProductTelkonet has developed a revolutionary method for consumers and businesses to access the Internet. The power line communications (PLC) technology utilizes the existing electrical wiring in a building to bring Internet access throughout the building. This patented technology is a unique system that delivers broadband Internet access without any re-wiring. The PlugPlus™ system converts every power outlet in every room to an access port of a high-speed data network. It creates a transport system that allows all Internet functions including email, browsing, access to company networks via the Internet and creation of Virtual Private Networks. The data and high-speed Internet access is reliable and secure.

The Products

There are three components to Telkonet’s PlugPlus™ system that create an Internet delivery system. They are the PlugPlus™ Gateway, the PlugPlus™ Coupler and the iBridge. The PlugPlus™ Gateway connects to an existing hardwire network using an embedded 10/100 Ethernet port and distributes the data to the


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PlugPlus™ Coupler via the powerline carrier (PLC) interface. The PlugPlus™ Coupler distributes the PLC signal into the electrical circuit breaker of the building. The iBridge is plugged into an electrical outlet and takes the PLC signal and converts it to an Ethernet signal for each computer throughout the building.

The PLC communication between the Telkonet Gateway and the Telkonet iBridge is based on a set of proprietary protocols. The Ethernet communication protocol leading into the Gateway and out of the iBridge are standard communication protocols.

SCHEMATIC OF THE PLUGPLUSINTERNET™ SYSTEM

The Gateway is a self-contained unit that accepts data from an existing network on one port and distributes it via the second port. The most common configuration is the 10BaseT Ethernet on one side and power line carrier PLC on the other.

The backbone of the Gateway is a fast communications processor running a series of proprietary applications under Linux. Other Gateway/Coupler configurations have a PLC to PLC component where more than one coupler is required. This configuration provides bridge data around a physical block to the signal that commonly occurs


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when an old section of a building does not share the common wiring of a new section. A third Gateway configuration is a PLC to wireless access point (WAP). This configuration provides immediate line-of-sight wireless access in an open space such as a large office or hotel lobby.

The PLC signal generated by the Gateway can be directly coupled into low voltage wiring via the power cord of the Gateway. The PLC signal may also be routed to a remote injection point via a coaxial cable. This allows the Telkonet solution to address the medium voltage and multi-phase environments found in commercial buildings.

Large hotels or office buildings typically have several electrical panels. One Coupler is required for each electrical panel, and each Gateway can drive six couplers. Recent tests indicate that one Gateway and one Coupler were able to deliver Internet access to all outlets spanning 26 stories of an office building.

The PlugPlus system is designed to operate in commercial environments that experience electrical noise, electrical load imbalances, transformer interference and unpredictable changes in attenuation conditions (signal strength). The PlugPlus system implements frequency division multiplexing over a spectrum of 77 communication channels. Interference and noise that could cause a loss of data are continuously monitored. When interference is detected on a channel, that channel is shut down until interference is eliminated. Internet Access is continuous, reliable and seamless. Typical noise sources include fluorescent and halogen lamps, brush motors (garbage disposal) and dimmer switches. Additionally, amateur band radio transmitters and switching power supplies can create electrical interference. The Gateway is approximately the size of a cigar box, only thinner, and the Coupler is approximately 4” x 4” x 3”. The small size poses minimal installation difficulty, and

is far less than the space required by a server and a router. A coaxial cable connects the two and may be very long since there is virtually no attenuation on it.

The iBridge-to-Gateway architecture is encrypted for security. The default security does not allow one Internet user in the same building to see other users on the network. Communication to other users via the Internet, i.e. email, is always available. A network in a building may also be configured to allow each user to see other users without going through the Internet. This essentially creates a virtual LAN or VLAN. There are over 1000 options in configuring VLANs. This customization allows for the security required when more than one entity exists within a building and each desires their own LAN.

A suite of software applications on the Gateway performs communications and system management functions. The firmware of the Gateway and the iBridge can be remotely updated and managed. This allows for integrity of a VLAN while the internal configuration of a building may change. That is, as one office tenant expands and requires more space, the integrity of their VLAN can be maintained without additional wiring.

The Gateway can network with dozens of PlugPlusInternet Modems and provides a scalable, robust solution for the commercial marketplace. The PlugPlusInternet Modem is the iBridge. This modem has a standard 110V plug on one side and an Ethernet RJ-45 connector on the other. Once the Gateway and Coupler are installed, a new Internet user needs only to plug the iBridge into an outlet and connect the computer to the Ethernet port on the iBridge for an Internet connection.

The current generation of Telkonet PlugPlusInternet system delivers data at speeds in excess of 7 mega bits per second (Mbps), with burst speeds of 12.6 Mbps. This compares to dial up speed of 56 Kbps, a


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typical DSL line of 200 Kbps to 500 Kbps and a typical cable modem at 300 Kbps to 1Mbps. T1 lines typically operate at 1.5 Mbps. The PlugPlusInternet™ system can sufficiently deliver Internet access at any required speed. The

determining factor is the speed provided from the Internet Service Provider (ISP).

THREE COMPONENTS OF THE PLUGPLUSINTERNET™ SYSTEM


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The incoming broadband signal (DSL, T1, Satellite and Cable Modem) connects to the Gateway. The Gateway then connects to the building’s electrical panel, and distributes access to the Internet provided by the ISP throughout the existing network of electrical wires within the building. Moving the location of a PC, server or printer is accomplished by simply moving the PlugPlusInternet Modem to another electrical outlet. No additional wiring is required.

Government Regulations

The Federal Communications Commission (FCC) permits the operation of unlicensed digital devices that radiate radio frequency emissions if the manufacturer complies with certain equipment authorization procedures, technical requirements marketing restrictions and product labeling. Telkonet’s Gateway PLC products have been verified to meet FCC requirements for Class A digital devices from an independent FCC-certified lab. The device may be marketed for commercial use. Any future products will require testing.

The FCC has also been fielding public comments regarding allowing Internet access over the electricity power grid. We expect more announcements will be forthcoming this year.

Intellectual Property

The company has applied for patents to cover the intellectual property embedded in the Company’s products. Telkonet recently received its first patent that covers the ability to transmit and distribute high speed digital data and voice over existing electrical power lines of the premises. This patent is very significant in that it covers the comprehensive system invention. This patent utilizes PLC and Internet protocol in conjunction with Voice-Over-Internet-Protocol (VOIP). The patent covers the

hardware developed by Telkonet along with other associated equipment.

Additional patents have been applied for the past several years for different product components of the PlugPlusInternet™ system. We expect that several additional patents will be granted to Telkonet over the course of the next two years. The Coupler is designated as ‘patent-pending.’

Business Development in a $26 Billion Market

The Company’s products are designed to deliver high-speed Internet connections for minimal costs in commercial, hospitality and multi-dwelling building markets. Typical customers will include office buildings, hotels, schools, shopping malls, the military, condominiums and apartment buildings. The demand for broadband Internet access from the business traveler and multi-dwelling market continues to grow. According to industry analysts, the market for home and building networks will represent a $26 billion market worldwide for the next four years.

Management is initially focusing on the commercial markets, targeting the hospitality and MDU markets with a direct sales force that currently numbers twelve. Telkonet has formed relationships with a select few national value added resellers (VAR) to market the PlugPlusInternet™ system. Such relationships have already extended Telkonet’s reach into the multi-unit dwelling, government, and commercial markets.

As an unknown company with a potentially disruptive technology, Telkonet has begun an advertising and telemarketing campaign to spread awareness of its products and services. Articles have appeared in certain select trade magazines covering the hospitality and MDU markets. These


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articles describe initial users’ success with the Telkonet system.

International markets are a large opportunity. Access to the Internet is restricted in some developing countries by the limitation of the infrastructure of the basic Public Service Telephone Network. Antiquated pricing mechanisms for per-minute usage on phone lines, creates an opportunity for Telkonet products. The end user bypasses the per-minute charge when Telkonet products are implemented in conjunction with a 2-way satellite link, dedicated landline or fixed wireless access. Additional opportunities exist in Europe, South America, Asia and the Pacific Rim where the Internet is available.

Another large market possibility for Telkonet is the initiation to offer broadband over power lines (BPL). The FCC is taking steps to allow electricity utility vendors to offer BPL service. Telkonet’s proprietary solutions can bring high speed Internet access to many users who require the “last mile” connection from a high speed line.

Cost of Service

The Company has experimented with different revenue plans and has settled on a total solution plan where the customer pays nothing up front and incurs a monthly fee for a minimum of three years. Telkonet incurs the cost of installing the equipment. Most standard installations can be completed in less than a day. More difficult ones may take a full day or slightly more due to a difficult configuration. In the MDU industry, the customer pays $195 monthly maintenance and support fee with a minimum three year contract. The per modem monthly fee is $6.75 in the first year, $5.75 in the second and $4.75 in the third year.

In the hospitality industry, the minimum three year contract provides for a $295 per month service fee,

including ongoing maintenance and support. The hotel may elect to include the ISP service for an additional $200 per month. The slightly higher fees for the hospitality industry are justified by the continually changing guests that may require support. The iBridge modems are priced at $173 each or $8/month for 24 months.

For a hotel, MDU or business tenant in a commercial building, there is no disruption in business activity during the installation process. Implementation is quick and is far less expensive than adding dedicated wiring or installing wireless systems.

Home vs. Commercial Use

A few companies offer PLC based service for the home. Linksys and Netgear have planned or announced Powerline Communications products that are compliant with the HomePlug Alliance. The HomePlug Alliance was formed to form standards and develop a chipset that enables PLC products for the home. Both Linksys and Netgear are focusing on products for the home and residential marketplace. The presence of Linksys and Netgear in the residential marketplace provides a validation of the viability of the powerline communications market.

Telkonet is focused on the commercial marketplace. Commercial needs differ from residential in that commercial users require heightened security, the ability to connect a large number of users, support for greater distances and enhanced work management. In the residential PLC solution, all nodes communicate with each other. In commercial applications, software provides the isolation and security in the network. The driver power and receiver sensitivity are also improved to increase bandwidth throughput performance for commercial users.


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In a commercial setting, a more powerful Gateway manages all the traffic to the Telkonet iBridges. The PlugPlusInternet™ system is scaleable to hundreds of users. Proprietary software enhancements have extended the Telkonet system reach to meet the needs of a broad array of building configurations. The PlugPlusInternet™ system offers a robust solution that allows the formation and alteration of several virtual private networks (VPN) within the same building.

Competition in the Commercial Marketplace

The markets Telkonet is targeting, hospitality, MDU, commercial and government all have incumbent competitors. The competitive landscape is very fragmented with numerous ISPs. Value added resellers (VAR) service the diversity of buildings that exist across the U.S. Regardless of the specific market, Telkonet’s methodology to distribute Internet access throughout a building competes with the incumbent separately wired network technology.

Traditional high speed wiring, known as CAT5, is the coaxial cable that is a separate network within a building. It can be expensive and time consuming to install. It is certainly disruptive to the buildings tenants and guests. After installation, Internet access is physically limited to areas served by the wall jack. Electrical outlet access to the Internet provided by Telkonet improves flexibility for furniture reconfigurations over time.

Wireless solutions also may be a competitive threat. Wireless Internet connections require a wireline connection point to the network, which can be time consuming to install. Wireless solutions must also be engineered to address the unique characteristics of the building, such as footprint and construction material. Steel and concrete demand a high concentration of access points to ensure adequate

coverage. Wireless also is inherently less secure since other users can intercept the radio frequency used. Telkonet’s PlugPlusInternet™ system can interface with a wireless system and drive the backbone of the wireless installation.

Competing in the Commercial Marketplace - the Hospitality Industry

Of the several markets the Company is addressing, we have analyzed the hospitality market for several reasons. The hospitality industry is less fragmented than the commercial or MDU market. Secondly, there is data available that assist in assessing Telkonet’s prospects for revenue growth. Most important, industry participants are eager for high speed Internet access (HSIA). Several companies have already established themselves as the leaders in offering HSIA to the hospitality industry. The following discussion of the hospitality industry, however, does not diminish the enormous potential of the Military, MDU, satellite and internet markets worldwide.

The hospitality industry is unique in that there are frequent connection problems due to the constant turnover of users (new hotel guests daily), which creates servicing issues. Users also require secure access to external corporate networks. Network configurations do not require much flexibility after installation, since VPNs will not be established among guests. Hotel management functions, however may desire a VPN.

These requirements place less demand on Telkonet’s product features than a commercial building with tenants whose changing business demands create the need to alter a VPN. Customer servicing requirements, however, is high due to guest turnover.


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History of HSIA in the Hospitality Industry

The history of offering HSIA in the hospitality industry provides insight into user demand and business models that have worked. Five years ago, HSIA had been considered an amenity for hotel guests that would compete with entertainment services such as Video on Demand (VoD) and Pay per View movies (PPV). More business travelers are now demanding HSIA services because HSIA provides more content and access to corporate networks. The strongest players in the VoD and PPV market had the opportunity to become dominant in offering reliable HSIA, but the focus on VoD and PPV allowed others to dominate in the HSIA market for the hospitality industry. The market leaders in the HSIA market have a focus on HSIA exclusive of VoD and PPV.

The original players in the HSIA market within the hospitality industry were Case Internet (CAIS), Sweet Technology (now STSN) and Wayport. CAIS was a Washington based ISP which resold T1 lines to office buildings, multiple dwelling units and hotels. During the dotcom era, each of these firms were able to raise significant funds. The business models for each were similar: install the equipment at cost and share in the revenues. In 2001, CAIS was bankrupt and Wayport purchased its hotel equipment.

The primary flaw in the similar business models was the long term trend for the hospitality industry to offer amenities for free to attract guests. According to Dwight Kling, Manager of Business Development at Wayport, the largest HSIA provider offering amenities for free changes with the competitive structure of the hospitality industry. After 9/11/01, occupancy rates in the hospitality industry declined dramatically. This heightened competitive pressures, causing HSIA offerings to be given away. With occupancy rates now back to the level of pre-9/11, fewer hotels are giving HSIA away. Virtually

all of Wayports’s customers are charging for HSIA. Wayport focuses on the high end of the hospitality industry. Golden Tree Communications, which focuses on both the high end and the middle level hotels, indicates a different trend. Rein Norma, VP of Sales for Green Tree indicates that more hotels overall are moving towards offering HSIA at no charge, while some hotels have a minimal additional charge.

Business travelers have been specifying they will only stay at hotels with HSIA since their more complex applications (CRM, PowerPoint, VPNs) require high speed connections. Generally, HSIA is becoming a free amenity in the Limited Service and Extended Stay type hotels. HSIA has been built into the price of the room. The full service hotels cater to a less price sensitive guest and HSIA is typically treated as an amenity, similar to local telephone calls.

There are three general products available to the hospitality industry. Those hotels with CAT5 (coaxial cable) wiring can offer the highest access speeds generally available, the T1 line. All new Marriott and Hilton hotels were built with T1 capability in the past few years. Guests plug the Ethernet connector directly into the wall and turn on their browser. Older hotels use CAT3 wiring, the two twisted pairs for plain old telephone service (POTS). CAT3 wiring is limited to offering DSL service. For the DSL over CAT3 wiring, a modem is required in each room to separate out the high frequency DSL from the low frequency telephone service. The third offering is wireless.

Wireless in the Hospitality Industry

Many hotels are interested in wireless service. The initial impression is that wireless installation is inexpensive since no wires need to be installed. The reality is that many access points need to be wired.


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A typical old hotel with much concrete and steel in its structure will require many access points.

The number of Wi-Fi enabled laptops is low. It is estimated that 5% of all laptops and 15% of frequent business travelers have Wi-Fi enabled laptops. This is rapidly changing, however. Most laptops currently sold are Wi-Fi enabled.

Advertising by Intel has brought the public attention to recognizing the possibility of wireless connections to the Internet. Service quality is another matter. Just as digital cellular phones are less reliable than wireline phones, wireless Internet connections can leave the user frustrated by data transmission interruptions. Nonetheless, hoteliers are interested and according to Green Tree, approximately half of new installations are wireless. 80% to 90% of new installations contain wireless as a component.

The high incident of wireless installations for Green Tree may be due to their business model. Green Tree does not focus on revenue sharing, but allows the hotel to keep all ongoing revenues from hotel guests utilizing HSIA. The trade-off for the hotel is a higher installation cost. The installation cost for wireless is typically half that for a CAT3 based DSL installation. The low entry cost may be very attractive for a hotel uncertain of usage rates.

Wireless is primarily viable in open spaces since building structures can limit the wireless connection. Numerous wireless receptors are required to make all spaces accessible to Wi-Fi Internet access, and may be cost prohibitive in older buildings. Steel and concrete are barriers to the wireless radio signal. Adding Wi-Fi to public areas allows the hotel to enable Internet access to visitors attending conferences during the day at the hotel. In newer buildings the cost of installing wireless is far less expensive than a CAT5 T1 speed installation. In some hotels, primarily older ones, the number of

wireless access points may be so large due to the architecture, that the cost is prohibitive.

In a combination setting, wireless is available to hotel guests in the lobby and conference areas, whereas wireline is available in the guest rooms and conference rooms. This mixture of services is more common in high end hotels and enables the non-guest visitor or conference attendee to have HSIA. Billing for the non-guest wireless user varies by vendor. The common theme is to have a daily charge that can be prepaid at a discount. For hotel guests, wireless access is free when the wireline service is used in the guest room.

Security in the Hospitality Industry

Security is a primary issue in installing HSIA. Port level security is that level of security that maintains the integrity of each individual computer connected to the building’s network. This means that someone in room 101 is secure from a hacker in room 102. Wireless access inherently compromises this. Another security level occurs when a guest desires access into their company’s VPN. At this level, the network provider needs to understand the different VPNs that allow secure access. For VPN access, the hotel also needs to have IP addresses available. These are provided by the Internet Service Provider (ISP) and can be managed by the vendor managing the HSIA network in the hotel. This can be an important consideration for the hotel since the hotel will pay the ISP for a bank of IP addresses. When a group of HSIA users comes to the hotel, it is imperative that the hotel has enough IP addresses available. Otherwise, guests will complain about the HSIA that does not perform as it should.

Wireless access presents additional security issues that may not be apparent to the user. The wireless connection uses radio waves that are easily intercepted by a hacker. Some corporate VPNs will


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not allow a user in that is using a wireless connection.

Usage of HSIA in the Hospitality Industry

HSIA usage rates have increased dramatically in the past few years. In 2002, a 3% to 5% usage rate was typical with a peak usage up to 20% of occupied rooms. All vendors quote a 10% usage rate or higher. Green Tree quoted a 15%-20% usage rate in hotels that have a high concentration of business travelers. A few hotels average 30% to 40% per day and peak at 50% to 70% usage. As occupancy rates improve and the economy continues to expand, it is clear that the business traveler is demanding an HSIA connection. In the past year, surveys of business travelers have indicated that HSIA was the most preferred amenity at a hotel. Now that it is becoming more widely available, the business traveler is using the HSIA more extensively with CRM and PowerPoint applications and to access their company’s VPN.

Support Provided to the Hospitality Industry

Hoteliers are in the hospitality industry. They are not in the Internet connection business. Technical Internet connection problems for a late arriving guest needs to be addressed. Frustrating computer problems attributed to the hotel’s connection can cause the customer to search for other hotel options on return visits. The top three vendors offer 24/7/365 service by phone for hotel guests. The top three vendors charge $3 to more than $7 per room per month for this service.

A local Value Added Reseller (VAR) is typically used for on-site hardware service. This will cost from $100 to $300 based on the type of response the hotel wishes to have. The cost of the ISP line can vary. For a hypothetical 100 room hotel, this will range from $250 to $1000 per month for the ISP connection. DSL lines can cost $250 per month,

but may not be available everywhere. T1 lines are typically $600 - $700 per month but may be up to $1000 per month. A fractional T1, which is close in speed to a DSL, can cost $500 per month. An annual software license fee may be an additional $300 to $400 per year for the hotel regardless of size.

Business Models for Addressing the Hospitality Industry

There are two general business models that are employed. The most frequently implemented model is a revenue share model. The vendor installs the equipment at close to cost and participates in the revenues generated by HSIA usage. Revenue sharing is negotiable but averages a 50:50 split of revenues between hotel and network vendor. Most revenue share agreements specify a range for the daily HSIA charge to the guest. Cost to the guest is typically $9.95 per day.

Maintenance and on-going technical support is an additional expense for the hotel, which can total $5 to $10 per room per month. In the revenue sharing model, the hotel can make a small profit while providing a service that more guests require. If the hotel decides not to charge the guest, the hotel is still liable for a minimum payment to the network vendor. The revenue share business model provides incentive for the hotel to charge guests for HSIA service.

Another business model requires higher upfront installation costs. The hotel pays for the equipment installation which would include a profit to the vendor. The hotel does not share any revenues with the vendor. This provides the hotel with flexibility in offering amenity discounts to groups without incurring an additional cost to the HSIA provider. Maintenance and support fees are required as quoted above, combined with the monthly charge to the ISP. The network vendor may also manage the ISP


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vendor relationship for a fee, which transfers all network problem-solving to the vendor.

Marketing to the Hospitality Industry

Marketing to the hospitality industry can be a long sales cycle. For the chain hotels, the vendor must first receive approval from the holder of the Brand name. This may take some time and does not ensure that any hotel will purchase the equipment. Once approved by the brand name parent, the franchisee is free to select from the approved list of vendors.

Most chain hotels are owned by franchisees and may be managed by a separate management company. The owners and managers must agree on the vendor selected. Once approved by the brand parent, it may be several months to a year before a hotel decides on a particular vendor. Long term relationships are very important, and a franchisee may decide to use the service that a competitor is using because of the vendors reputation. Cost is not always the deciding factor. Service and a good guest experience are vital. A lower cost service that causes some customers grief is not acceptable.

Since many hotels have tried to implement HSIA service over the past several years and have had varying degrees of success, the hoteliers’ level of sophistication is increasing. The initial three to five year contracts are going through their renewal phase in the next few years. Hotel management has generally created a set of criteria necessary for the next contract period. Security, guest satisfaction and service will be more closely monitored.

Most companies market with a two tier approach. The small direct sales force services the national accounts and the indirect value added resellers (VARS) work directly with the hotels when installing or providing day to day assistance.

Market Size of the Hospitality Industry

There are approximately 45,000 hotels in the U.S. The vast majority of these, approximately 70%, are 120 rooms or less. The top three HSIA vendors claim a total of 2,000 hotels as customers, and it is estimated that smaller players may add another 500 to at most 1,000 more hotels with HSIA. Competitive forces are requiring the HSIA installation to increase dramatically.

Rein Norma of Golden Tree Communications believes that 20% of current installations are “good to stay” with current vendors and another 20% will be replaced. The remaining 60% are not up for renewal for another year or more. Although this data is somewhat speculative, it originates from the V.P. of Sales of the fastest growing HSIA service provider who has been with two of the top three vendors in the industry during the past several years. Assuming that a total of 3000 hotels have HSIA capabilities, this means that 600 hotels will most likely change vendors in the next 18 months.

Over the next two years, the market is expected to grow at a rapid pace. The technology has now been proven to be profitable for the hospitality industry and HSIA is in demand by business travelers. Of the 45,000 hotels in the U.S., it is estimated that 30,000 may eventually install HSIA. Some hotel chains are mandating their owners to implement HSIA in a relatively short time frame. Competition for guests will cause other hotel chains and independents to install HSIA. If it takes five years for 30,000 hotels to install HSIA from a base of 3,000 already installed today, the industry will experience a 58.5% compound annual growth rate. If it takes 10 years, HSIA adoption will grow at a 25.9% rate. Taking into consideration the 20% of current installations that will be replaced, the growth rate for new HSIA installations becomes 65.7% and 28.7% over a five and ten year timeframe, respectively. We believe a 25% to 30% growth rate for HSIA adoption during


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the next five plus years is conservative. We expect the growth to be much higher in the next three years.

Primary Competitors in the Hospitality Industry

There are three main competitors in the HSIA hospitality industry. Wayport, STSN and Green Tree Communications. The three are profiled as follows.

STSN

STSN currently has 600 hotels installed and/or under contract, ranging from 150 rooms to 1100 room hotels. STSN has a CAT3, a CAT5 and wireless solution. STSN claims to have the best security, best diagnostics and support. STSN can troubleshoot the hotel’s switches and routers remotely.

STSN has received funding from APV Technology Partners, BankOne, First Media ST Holdings, Intel, Marriott International, Third Coast Capital, Thom Vest, TransAmerica Technology Finance, VantagePoint Venture and Communication Partners, and Venture Frogs Fund.

Most guests using HSIA are business travelers for whom security is a big issue. STSN has considerable experience working with VPN managers and providing customer support. Guests find the system easy to use. Technical support is 24/7 for both the guest and hotel staff. The network easily interfaces with corporate Virtual Private Networks (VPN).

Gwen Cudero explained how STSN’s experience indicates that security is a critical issue. It is rumored that Starwood Properties had to compensate KPMG for the impact of a virus that attacked the laptops of consultants and caused significant downtime. STSN has had their system independently tested for hackers, viruses and other security issues. The A+ grade received is very

helpful in an environment where firms may hold the local network operator liable for significant problems.

STSN has account managers in all first tier and many second tier cities. These account managers can train the General Managers and Sales and Catering staff in handling Group Event questions involving technology. The local Account Manager is the single point of contact for the hotel, whose purpose is to drive awareness of the hotel’s HSIA. Marketing materials are available for the front desk, the elevators and the in-guest rooms.

Wayport

Wayport, Inc is currently the largest provider of HSIA to the lodging industry, with 740 hotels installed or under contract. Wayport is also one of the largest providers of Wi-Fi in public areas, focusing on airports. Usage rates for HSIA are increasing from 3% in mid 2002 to 10% to 12% recently.

Wayport is a private firm with venture capital investments from INVESCO Private Capital, Stevin Rosen Funds, New Enterprise Associates, BA Venture Partners, Lucent Venture Partners, Trellis Partners, GC Technology Fund, Sanders Morris Harris and Star Ventures.

Wayport offers three types of HSIA systems: A fully digital system that requires CAT5 wires and supplies a T1 connection, a VDSL system which runs over CAT3 wires and requires a modem in each room, and a wireless option. Wayport indicates the wireless Wi-Fi system receives a lot of press but is not frequently deployed in hotels. Despite being one of the leaders in Wi-Fi, Wayport believes issues around the construction materials, billing and the cost of the “Wireless Bridge” make Wi-Fi a good choice only for certain architectural types of hotels.


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Wayport uses the Revenue Share business model where equipment installation is done at cost. Wayport collects a fee of $7 to $7.50 per room per month for repair, training and technical support. Maintenance is additional. The revenue share is typically a 50:50 split with the hotel with a recommended price of $9.95 per day. Installation costs range from $90 to $180 per room or $9,000 to $18,000 for a 100 room hotel. Dwight Kling of Wayport quoted that a typical hotel will have 65% occupancy and a 10% to 12% usage rate.

Hotel employees who market to conferences typically need training to sell high speed Internet and video conferencing. Wayport trains hotel employees, creates marketing materials and can help hotels close deals. Wayport has been performing this function for its client hotels and has 30 people on staff dedicated to assisting hotel employee gain more conference business. Wayport has service personnel in major cities for service.

Golden Tree Communications

Golden Tree Communications (GTC) has over 600 hotels installed with HSIA. Two years ago, GTC had only 50 installations. In the past two years, GTC has been the fastest grower of the top three HSIA providers. GTC is a privately held company that previously was a subsidiary of BCM Advanced Research, a private company that manufactures printed circuit boards. Golden Tree has three product offerings, T1 line speed access, DSL and Wireless.

The GTC solutions are based on Cisco routers and switches with GTC proprietary software interfacing with the router and switch software. Solutions to software problems are downloaded to all hotels. Green Tree has marketing agreements with Intel and the Centrino chip.

Golden Tree uses the investment business model where the hotel invests in the equipment and keeps all revenue generated from the HSIA service. An average installation costs for a hypothetical 100 room hotel is $23,000 without re-wiring. A wireless solution would on average cost $12,000 assuming the building configuration does not require an enormous amount of receptors. On an ongoing basis, hotel operators pay for the ISP line, which is standard for any business model. Green Tree will manage the ISP along with IP addresses for approximately $1,000 per month, which would include the cost for the ISP service. Support is $3/room/month and software license fee is $360 per year. Contracts for support, ISP management and software license may be separate and are 1 to 5 years in length. Maintenance and support are typically one year contracts while ISP management is typically one year contracts. Green Tree offerings are a full turnkey services with 24/7/365 service and onsite repair.

Green Tree attributes their phenomenal growth rate to how their business model makes more sense for the hotel. The hotel can manage its revenue stream with more flexibility when there is no revenue share requirement. It may offer free HSIA to some guests, or choose to make it free to all guests and raise room rate across the board to compensate for the additional amenity. When usage rates were in the mid to low single digits, the revenue share model made more sense to hotel operators. Now that usage rates are consistently in the 15%+ range for Green Tree clients, hotels benefit financially by not sharing HSIA based revenues. The risk of installing equipment has decreased with the increase in usage from guests. The payback for the investment is easily achieved in 14 months. This assumes a $10 guest fee for HSIA, 65% occupancy, and a 12.3% average usage rate. The hotel will collect $29,200 in the first year for a hypothetical 100 room hotel. Expenses would be $23,000 for installation, and


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$700 to $1100 per month for maintenance, support, ISP service, and software license.

Green Tree markets through 8 sales people calling on large national accounts and through many value added resellers (VAR). The installation force of 30 people works with the local VAR. A smaller hotel of 100 rooms can be installed in a day. The current installation team can install up to 60 hotels per month.

How Telkonet Compares to Incumbents

The least expensive installation of the top three incumbent providers of HSIA is in the range of $9,000 to $10,000 for a 100 room hotel for a low speed DSL or minimal wireless system. The cost could rise to $20,000 based on a faster line speed and the hotel configuration. With this lower up front cost, the hotel must share revenues from HSIA with the vendor in addition to paying ongoing support fees.

For a non-revenue share option, a 100 room hotel is required to make an upfront investment of $20,000 to $25,000, which may be higher for a faster line speed or difficult hotel configurations.

For a 100 room hotel, on-going maintenance and support from the incumbents are approximately $300 to $750 per month. Lower on-going fees are typically associated with the higher installation costs and the higher on-going fees are associated with lower installation costs and a revenue share requirement.

For a 100 room hotel with a 65% occupancy and a 10% usage rate, the revenue share program would create a $975 payment to the vendor and income to the hotel of $975 if all users were charged the standard $10 per day fee. However, hotels are moving away from charging for HSIA in favor of giving it away.

The revenue share program could be more beneficial to the hotelier if they consistently charged for the amenity. This is typically done only at the high-end hotels, where guests are willing to pay extra for additional amenities. In the vast majority of hotels, where customers exhibit some price sensitivity, HSIA will most likely be offered for free due to competitive pressures. Hotel rates may increase as a result. Below the high-end hotels, revenue share programs will most likely become less attractive to hoteliers. Green Tree’s recent strong growth testifies to this general trend. Of the top three, Green Tree addresses more of the middle range hotel. Telkonet’s initial targeted market segment is this middle range hotel.

Of the top three incumbent competitors, Green Tree has had the fastest growth in the past two years. Green Tree charges more than the others for installation, but does not receive any revenue sharing. Its on-going fees are among the lowest.

Telkonet Installation

The no-cost installation from Telkonet for the PlugPlusInternet™ system is extremely attractive. Most hotels will install an HSIA system for competitive or mandated reasons. No up front costs is a major competitive advantage whether the hotel charges for the service or not.

The time for installation is also attractive. The top three HSIA providers indicate a one day to one week installation timeframe. It can take up to three months to get the ISP vendor to deliver the HSIA to the hotel. Since the PlugPlusInternet™ system only requires an experienced electrician for standard installation, it can be installed in less than a day, typically costing the hotel less than $1,000. Difficult installations that take Telkonet a full day would take several days to a week or longer for other vendors. The installation time quoted does not include time taken to rewire a building, which is


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very time-consuming. The top HSIA providers indicate this is rarely done.

Telkonet’s ongoing fee is lower than that of Wayport, which employs the revenue sharing model, and slightly higher than Green Tree ($500 vs. $330). Additional modem charges for Telkonet customers will either create a nominal upfront cost or raise the monthly cost. For a 100 room hotel, seven modems would cover an expected 10% usage rate at 65% occupancy. Purchasing seven modems at $173 each would incur a total upfront cost of $1,211. If paid for monthly at $8/month, seven modems would cost the hotel $56/month for 24 months. As usage increases, the hotel would need to purchase more modems.

Hotels consider three additional criteria beyond price. First, the quality of support can make or break a sale. TKO has a minimal track record at this time. Second, the big three offer marketing services to hotels seeking conference business that may be very attractive to the larger hotels. Third, higher line speed typically requires higher initial costs and may incur higher monthly costs to the vendor. For Telkonet, a higher line speed does not alter the Telkonet fee. The higher the percentage of business travelers at a hotel, the more the higher line speed will be required.

Telkonet’s Initial Customers

Since the end of FY 2002, the Company has installed the PlugPlusInternet™ system in 80 hotels, and has 100+ hotels under contract in 30 states. Currently there are 37 hotels that are waiting for an installation date. In December, 2002, the Company announced the installation of a product field trial at the Marriott Residence Inn-Landfall in Wilmington, NC. The PLC system provides Internet connectivity to 90 guest rooms, meeting rooms, common areas and a lobby kiosk.

A Telkonet PlugPlus system installed in a Newark, Delaware Comfort Suite hotel has been sited as the reason for a 5% - 10% increase in sales. Customer satisfaction is high and people are delighted to plug the modem in outlets that are close to the sofa, bed or desk.

A WyteStone Suite hotel in Fredericksburg, Virginia had been built in 1995 with the standard CAT-3 wiring throughout the 85 unit hotel. Although sufficient at that time for the hotels phone system, it is inadequate for high-speed Internet signals. After considering installing new wires, installing a wireless system or a PLC system, Telkonet installed the PlugPlusInternet™ system. This installation required five Couplers and lasted a full day. With iBridge modems in the rooms the following day, the hotel was offering free Internet access. The hotel claims the cost was one third that of a wireless solution. The hotel has encouraged groups that have filled half of the hotel to challenge the Internet system. No speed degradation has been reported. No on-site technical assistance has been required.

The Quality Inn in Surprise, Arizona installed a Telkonet system using the T-1 line coming into the property. The Helmsley in Manhattan is also a client of Telkonet. Several hotels operated by Universal Hospitality, Inc. have installed the PlugPlus™ system through the integration of high-quality, two-way satellite service.

Telkonet has a few apartment buildings using the PlugPlusInternet™ system. The 154 unit Hunters Glen in Upper Marlboro, Maryland has installed the Telkonet system. Feedback from management and tenants using the system is very favorable. The Whitney, a 250 unit luxury apartment complex in Bethesda, Maryland, has the Telkonet system.

The Chicago Housing Authority (CHA) has decided to deploy Telkonet’s system on a trial basis in its


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public housing. As the CHA modernizes its 25,000 apartments, high speed Internet access is desired.

Marketing to the Hospitality Industry

In March 2003, the Company announced a strategic alliance with Choice Hotels International (CHH). Choice Hotels is one of the largest hotel franchise companies in the world with more than 4,500 hotels, inns, all-suite hotels and resorts in 46 countries. The franchise companies include Comfort Inn, Comfort Suites, Quality, Clarion, Sleep Inn, Roadway Inn, EconoLodge and Mainstay suites. Additionally, there are 8,000 to 10,000 more hotels under the Choice network. The two year agreement identifies Telkonet as the Endorsed Vendor for the PLC product offerings. Telkonet and Choice will cooperatively market, advertise and promote Telkonet’s Internet access solution to the franchisees. This agreement is very significant since CHH covers close to one third of all hotels in the U.S.

Comfort Suites, a 400 hotel chain, has recently mandated that all hotels must have HSIA by May 31, 2004. With 80 hotels currently installed and 100+ under contract in 30 states, Telkonet has a footprint that spans the ten geographic regions defined by Choice Hotels International. Advertising, telemarketing and direct marketing is bringing name recognition to members of CHH.

The total solution package for the PlugPlusInternet™ system is very price competitive. Relative to the competition discussed, Telkonet offers the least expensive solution. For the 70% of hotels in the country that have 120 rooms or less, a low cost option is very attractive. Of the top three vendors to the hospitality industry, none offer a “no-cost” installation. Whether a hotel decides to charge guests for HSIA or not, the lower ongoing cost structure is beneficial to the hotel.

Telkonet is providing support on a 24/7/365 basis for the three-year service agreement at $495 per month fee. This includes the ISP fee and the 24/7 support. Recent results at the support call center indicate that most problems have occurred because the hotel guest does not have an Ethernet card or the Ethernet cable is not correctly attached. The Company installs a router next to the Gateway which allow software technicians to remotely determine if a problem is associated with the ISP vendor

Telkonet also offers a satellite connection to the Internet that enables more remote hotels to offer HSIA. Six hotels currently use the PlugPlusInternet™ system with a satellite hookup. Telkonet appears to be the only vendor offering a satellite solution.

The company has 12 direct sales people. Telkonet is building momentum in the hospitality market. Once more traction is gained during FY04, the company will address the international hospitality market.

Management Team

Warren V. “Pete” Musser Chairman of the Board and Co-CEO

Warren V. “Pete” Musser, 76, has served as Telkonet’s chairman of the board since January 2003. Musser has taken more than 50 companies public during his distinguished and successful career as an entrepreneur. He is currently the managing director of The Musser Group and chairman emeritus of Safeguard Scientifics, Inc. Mr. Musser's distinguished affiliations also included: director of CompuCom Systems, Inc., director of Internet Capital Group, Inc., vice chairman and director of Nutri/System, Inc., vice chairman and director of the Eastern Technology Council, chairman and director of Economics PA, and vice president of development at Cradle of Liberty Council, Boy Scouts of America. Mr. Musser received a BS


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degree in Industrial Engineering from Lehigh University.

Ronald W. Pickett President, Co-CEO and Director

Ronald W. Pickett, 56, is the president of Telkonet and was the company’s principle investor. Mr. Pickett was the founder, chairman of the board and president of Medical Advisory Systems, Inc., now the Digital Angel Corporation. A graduate of Gordon College, Mr. Pickett has engaged in various entrepreneurial activities for the past 35 years.

E. Barry Smith Chief Financial Officer

E. Barry Smith, 52, has served as chief financial officer for Telkonet since February 2003, and is responsible for all financial operations of the company. Mr. Smith is a certified public accountant and senior financial executive with diversified experience in both public and private companies. He has more than 15 years of executive management experience with Safeguard Scientifics, Inc. and their partnership companies, including: ThinAirApps, Inc. (wireless application provider), Interactive Marketing Venture (database marketing) and Tangram Enterprise Solutions, Inc. (asset management software). Mr. Smith has also held the position of vice president of finance and administration for U.S. Golf Management, vice president of finance for International Communications Research and treasurer for the Chilton Company (publishing). Mr. Smith’s experience includes six years with Deloitte & Touche.

David Powell Chief Operating Officer

David Powell, 52, is the chief operating officer of Telkonet, responsible for growing Telkonet’s business by developing, marketing and selling the

company’s high-speed Internet access systems worldwide. Prior to joining Telkonet in 2003, Mr. Powell served as the senior vice president of the Network Enhancing Technologies Solutions division of Tellabs from 1999 to 2003, developing leading-edge voice-enhancement and echo cancellation solutions for telecommunications networks worldwide. From 1990 to 1998, Mr. Powell served in various management positions at Coherent Communications Systems Corporation before it was acquired by Tellabs in 1998, including president and chief operating officer, and vice president and managing director of Coherent’s European subsidiary, Coherent Communications Systems Limited. Prior to Coherent, Mr. Powell spent seven years at England-based Tech Nel Data Products Ltd as general sales manager.

Stephen L. Sadle Senior Vice President, Director and Co-Founder

Stephen L. Sadle, 57, is the senior vice president and co-founder of Telkonet. Prior to Telkonet, Mr. Sadle served as senior vice president and general sales manager of Internos, a provider of web-based vertical extranet applications for the construction and transportation industries. From 1986 to 1999, Mr. Sadle was vice president of business development and sales for The Driggs Corporation, a major heavy and infrastructure contracting firm. For 17 years, Mr. Sadle served as president and founder of a successful construction and consulting company, and was awarded Small Businessman of the Year award for the Washington Metropolitan Area. Mr. Sadle brings more than 33 years of management, contracting and entrepreneurial experience to the company.


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James F. Landry Vice President of Engineering

James F. Landry, 48, has served as vice president of engineering for Telkonet since 2001, and is responsible for the product development process, architecture and design. Mr. Landry has more than 20 years of experience in developing communications products for the enterprise/carrier market with 3Com, US Robotics, Penril Datacomm and Data General. While at 3Com/US Robotics from 1994 to 2001, Mr. Landry was a senior member of the technical staff, responsible for the development of the xDSL product line as well as a number of modems, T1, ISDN, and DDS products. From 1990 to 1994 at Penril, Mr. Landry was the product development leader for the Series 1544 multiplexer/channel bank. From 1983 to 1990 at Data General, Mr. Landry was technical leader and system architect for ISDN WAN, multiplexer and DACS. Mr. Landry brings a wealth of practical design leadership and a solid history of delivering products to the marketplace. He holds four U.S. patents.

Robert P. Crabb Secretary

Robert P. Crabb, 56, is the secretary of Telkonet and is responsible for Telkonet’s public company administration and corporate governance. Mr. Crabb joined Telkonet in 1999 and is a former director. Mr. Crabb has more than 35 years of sales, marketing and corporate management experience, including 15 years with the Metropolitan Life Insurance Company. Mr. Crabb’s entrepreneurial expertise also includes public company administration, financial consulting and commercial/residential real estate development.


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GROWTH ASSUMPTIONS

CASH FLOW ANALYSIS For a developmental stage company, the cash burn rate is an important calculation derived from cash flow analysis. To determine the cash burn rate, we calculate the derived Net Cash Flow from Operations (NCFO). This metric differs from the Cash Flow from Operations provided in the Statement of Changes in Cash from the company. For a developmental stage company with no revenues, the difference between the two cash flow metrics can be negligible. However, the NCFO provides a consistent metric to measure management’s operational skills as TKO begins to generate revenue.

Calculating NCFO begins with revenues and adjusts for the change in receivables to determine the gross cash collections. Operating expenses are added to changes in working capital accounts to determine a total cash outlay. The total cash expense is netted against gross cash collections to determine NCFO. For TKO, the NCFO is a good measure of the cash burn rate. For the past three quarters it has ranged

from $1 million to $2 million per quarter. A primary reason for the large fluctuation in the cash burn rate is the change in working capital. Specifically, the changes in accounts payable and notes payable have caused the large swing in NCFO during the first three quarters of FY03. This is the result of the inventory build required due to the company’s shift from a developmental stage company to a revenue producing commercial entity. Such swings in working capital requirements are normal in the course of a young company establishing the business model. In the 4Q03, working capital accounts were more stable. The higher operating expenses in 4Q03 with a minimal increase in offsetting revenues caused the NCFO to be more negative than what we forecast for the coming year. We expect the cash burn rate in the coming year to be approximately $1.3 million per quarter during FY04. The Company’s focus on a service model versus a product sale business model will delay the onset of positive NCFO and positive earnings. The benefit of the service model over product sales is that the service model provides a much higher certainty of revenues and cash flow in future time periods. In the long term, the service model also provides higher returns on capital. The Company’s business model with projections is further discussed in Forecasts and Valuation.

Net Cash Flow from Operations

($ Thousands)

Dec 03 Sep 03 Jun 03 Mar 03Gross Cash Collections from Operations 25.46 10.00 0.00 0.00Total Operating Expenses 1,861.63 1,383.00 1,408.00 801.00Total Changes in Working Capital 71.46 762.00 (333.00) 472.00Net Cash Flow from Operations (NCFO) (1,907.63) (2,135.00) (1,075.00) (1,273.00)

Working capital in the NCFO calculation excludes receivables because receivables are incorporated into the gross cash collection from operations. Working

capital in this application is computed as a use of cash, thus, a positive change in working capital is a use of cash. A negative value for the change in working capital indicates that working capital


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accounts, exclusive of receivables, generated cash for the Company. As revenues grow during the next several quarters, it will be important to observe how working capital accounts are managed.

Increasing demand will require a ramp up of manufactured product. The Company’s recent private placement of $12.8 million provides the funds necessary for the initial manufacturing, installation training and service expansion. We expect cash in 1Q04 to be approximately $20 million, and the annual cash burn rate in FY04 to be $5.2 to $5.8 million.

Another cash flow metric that is insightful is the Free Cash Flow to Assets ratio. For a developmental company such as TKO, we expect this metric to be negative. The trend, rather than the absolute value is more important for this metric. When improving, the trend indicates that management is creating value. That is, for every investment dollar, the company is receiving a higher return in the form of cash flow. The trend of this metric is highly correlated to the trend in the stock price for many companies.

Free Cash Flow/Assets

($ Thousands)

Dec 03 Sep 03 Jun 03 Mar 03 Dec 02Net Cash Flow (CF-Div) (2,197.95) (1,971.00) (1,971.00) (1,407.00) (1,407.00)Free Cash Flow (2,234.98) (2,008.00) (1,993.00) (1,414.00) (1,409.00)Net Cash Flow/Assets -35.59% -25.93% -36.31% -104.69% -473.74%Free Cash Flow/Assets -36.18% -26.41% -36.71% -105.21% -474.41%

The trend in the Free Cash Flow/Assets metric has been positive in the past year. Quarter to quarter fluctuations are expected in this metric. Although we expect this metric to remain negative during the next year, the trend will most likely be positive. We expect cash flows to become positive in 2Q of FY05. Although revenue growth will be high, positive cash flow is delayed due to the impact of the service model versus a product sale model. The military market is the product sale customer. If military based revenues are larger than forecasted, positive cash flows may begin earlier than 2Q05. The lease/service business model for the MDU and hospitality markets will drive the cash flows in FY05 and beyond. As the customer base grows for the lease/service customers, the certainty of future cash flows improves. The Company’s competitive

pricing model will open up the market for Telkonet products, and the lease/service model will provide positive returns for many years after installation of the Telkonet solution.

LIQUIDITY AND LEVERAGE The exercise of the conversion feature of the debentures has caused debt to equity ratios to improve during FY03. We expect this to continue as more debenture holders and note holders exercise their conversion rights.


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Leverage Ratios

During 1Q04, $2.54 million of the Senior Notes and $64,480 of convertible debentures were converted to equity. These transactions reduced total long term debt by 83% to $528,725. Combined with the warrants exercised and a private placement discussed in Capitalization-Equity, the Company’s Leverage and Liquidity ratios are vastly improved from the most recent reporting date. We indicate a pro-forma data as if the capitalization transactions had occurred prior to 12/31/2003 to provide and indication of how dramatically the leverage ratios have improved.

The Company’s liquidity position improved dramatically in the second half of FY03. This improvement was primarily the result of the exercise of warrants, which raised $3.8 million. Inventory management displays improvement during FY03 as the company transitions itself from a developmental company to commercial delivery of products.

The pro-forma data in the following liquidity table include the recent capitalization transactions into the 12/31/2003 report.

Liquidity Ratios

Future liquidity will be influenced by the timing of the exercise of warrants and stock options outstanding. Cash balances at 4Q03 were $5.2 million, and will be close to $20 million in 1Q04. Current cash levels are more than sufficient to cover the cash burn beyond the end of FY05. We believe the company will be cash flow positive in 2Q05, and not require any additional financing.

CAPITALIZATION

Capitalization – Debt

In November 2001, the company issued 3-year convertible promissory notes, Debenture-1, to company officers, shareholders and sophisticated investors. The company received $940,000, accrues interest at 8% annually, and is payable and due three years from the date of issue. Noteholders have the

Pro-Forma Dec 03 Dec 03 Sep 03 Jun 03 Mar 03 Dec 02 Total Debt / Total Capital 2.4% 56.74% 44.91% 152.25% 182.75% -331.36%LTD / Assets 2.0% 50.71% 40.94% 118.88% 85.42% 290.57%

Pro-FormaDec 03 Dec 03 Sep 03 Jun 03 Mar 03 Dec 02

Current Ratio 34.6 9.07 11.12 3.93 1.27 0.07Cash / Total Assets 95.6% 83.8% 89.5% 84.4% 49.4% 6.4%Inventory / Total Assets 2.7% 9.9% 8.0% 8.3% 20.5% 13.5%Working Capital/Total Debt 41.62 1.69 2.19 0.56 0.16 -0.76


27

option to convert the principal together with accrued and unpaid interest to the Company’s common a $0.50 per share.

In connection with the placement of these notes, the Company issued non-detachable warrants granting the holders the right to acquire 940,000 shares of common as $1.00 per share. The warrants have a three year life.

Another tranche of the Debenture-1 was issued in May, 2001 with the same covenants as described. Net proceeds to the company were $749,100. The interest accrues at 8% annually, and is convertible into stock within three years at $0.50 per share. The Company issued non-detachable warrants granting the holders the right to purchase 749,100 shares of common at $1.00 per share with a 3 year life.

In October and December 2002, the Company issued convertible promissory notes, Series B Debenture, to Company officers, shareholders and sophisticated investors. Interest accrues at 8% annually and is payable and due three yeas from the date of issue. Noteholders have the option of converting any unpaid principal together with accrued interest into common at $0.55 per share. The Company also issued non-detachable warrants granting holders the right to acquire 472,900 shares of common at $1.00 per share. In May 2002, the company raised $1.7 million with an 8% three year convertible debenture offering.

As of the end of the first quarter 2004, all but approximately 600,000 of the above debt has been converted into equity.

Capitalization – Equity

In August, 2000, Comstock Coal was merged into Telkonet. In August 2000, the Company issued 21.775 million shares in conjunction with the merger of Comstock Coal Company Inc. In connection with the transaction, the company retired the 21,225 shares previously issued by Telkonet Communications, Inc. In 2000, the Company issued 40,000 shares in exchange of warrants. In 2001, the Company had a private placement for 300,000 shares of common at $0.50 per share.

In January, 2002, the Company re-organized its capital structure. The Company purchased 8.94 million shares of common stock held by the Founders and canceled certain vested options held by the Founders to purchase the Company’s common stock. In exchange, the company issued options to purchase 3.5 million shares of common at an exercise price of $1.00, with an expiration date of January 2012. In connection with this transaction, the Company issued 5.25 million shares of common to founders and canceled 13.5 million shares of previously issued common. The net effect was to reduce shares outstanding from 22.1 million to 13.9 million shares.

Comstock Coal has 1.57 million shares of the TKO common stock. Telkonet Communications is a wholly owned subsidiary of Telkonet, Inc.

As of December 2003, there were 30.7 million shares outstanding. As of December 2003, there were 8.3 million stock options outstanding issued to employees and 3.3 million stock options outstanding issued to non-employees. As of December 2003, there were 5.2 million warrants outstanding.


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Remaining Life of Outstanding Warrants and Options as of 12/31/03

Currently Weighted Shares Exercisable Weighted Avg Price

(million) (million) Life (yrs) Per ShareEmployee Stock Options 8.293 3.031 8.94 $1.19Non-Employee Stock Options 3.2675 2.28 8.93 $1.00Warrants Outstanding 5.1595 5.1595 2.03 $1.01Totals 16.72 10.4705

Shares outstanding almost doubled in FY03, from 15.72 million in December 2002 to 30.7 million in December 2003. Exercise of options and warrants

along with debt conversion and non-cash payment to consultants contributed to the increase in shares outstanding. The following table describes the issuance of shares during FY03.

Share Issuance in FY2003

Date Shares Event Price/ShareApr-03 40 K Debenture - 1 conversion $0.50Apr-03 50 K Consultant Services $1.54Jun-03 83.3 K Employee Stock Option $1.00Jun-03 83.3 K Non-Employee Stock Option, Consultant $1.00Jul-03 178.9 K Consultant Warrant exercised $0.66Jul-03 partial from Consultant Warrants $0.53Jul-03 143.7 K Warrants from Convertible Debt $1.00

Aug-03 7.67 Mil Debt Conversion $0.50Aug-03 83.3 K Non-Employee Stock Option, Consultant $1.00Sep-03 3.6 Mil Warrants from Convertible Debt $1.00Sep-03 500 K Warrants from Convertible Debt $0.50Sep-03 2.0 Mil Warrants from Notes $1.00Sep-03 114 K Consultant Services $2.50Oct-03 315 K Employee Stock Option $0.50Oct-03 14.3 K Convertible Debenture Interest Payment $0.57Nov-03 20 K Employee Stock Option $1.00Nov-03 20.8 K Non-Employee Stock Option, Consultant $1.00Nov-03 2 K Warrants to Consultant $1.00Dec-03 6 K Employee Stock Option $1.25Dec-03 18.5 K Common Stock to Consultant $1.17

Total 14.95 Mil

As of December 2003, the Company had authorized 15 million shares of preferred stock. However, there is no preferred issued and outstanding. The

Company has authorized 100 million shares of common.


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During 1Q04, senior note holders converted most of the convertible note into 1.2 million shares and convertible debenture holders converted a portion of their holding into approximately 300,000 shares. Warrants and option s exercised raised $3.9 million in exchange for 4.3 million shares. Additionally, Telkonet raised $12.8 million in a private placement and issued 6.39 million shares.

As of March 24, 2004, the Company had 38.7 million shares outstanding, and a total of 12.42 million warrants and options to by common outstanding. The warrants and options represent a 32% dilution factor to the shares outstanding on 3/24/04. Although these warrants and options will raise over $12 million for the Company, it is impossible to predict the timing of exercise. The Company is well capitalized. Based on our projections outlined below, Telkonet will not require additional financing. Telkonet will become cash flow positive in 2Q05 and has more than sufficient cash to meet cash requirements for the expected growth through the end of FY05.

FORECASTS AND VALUATION There are many variables that contribute to a company’s success and Telkonet is beginning to enter the phase of its growth where these management variables will become more evident.

Perhaps the largest single factor determining future performance is the adoption rate for the PLC technology by the hospitality, MDU, commercial and military markets.

Hoteliers are certainly primed to add the service due to competitive forces. Existing players in the industry have discussed the increasing rate of new contracts and installations for HSIA. As some hotels in an area install HSIA, others will follow. We believe that within three to five years, virtually all

hotels on commonly used travel routes will have HSIA.

There are 45,000 hotels in the U.S. We believe that at least 40,000 hotels will eventually have HSIA. In the next five years, we forecast that 20,000 hotels will install HSIA.

We believe that TKO will dominate the mid range hotels, which consists of 70% of all hotels in the U.S. Competitive pressures and mandates will cause these hotels to install HSIA, something they would rather not do. Telkonet has begun an advertising campaign to make their products known. As TKO becomes known for the quality, reliability and prices of their products, we believe that a significant number of hotels in the largest sector of the hotel industry will select TKO as the HSIA vendor. Telkonet will also have some success in the high end. These hotels may be slower to implement a system that is different from their own competitor, particularly since their guests gladly pay for the HSIA service.

Due to the competitive positioning of the Telkonet offering, we believe that the PlugPlusInternet™ system will gain traction this year and within the three to five year time frame, will be the dominant supplier of HSIA to the hospitality industry with a 50% market share based on number of hotels. Our base forecast assumes that 20,000 hotels will have HSIA in five years and TKO will have 10,000 hotels. Revenue per hotel is forecasted to be $295 - $495 per month.


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Hospitality Industry Revenue Forecast

($ Thousands)

Several assumptions are made in making this revenue forecast. We assume that Fee Revenues are not collected during the quarter in which installation is made. Fee revenues begin in the quarter following installation. This revenue forecast assumes that half the modems deployed are purchased and half are leased for 24 months. The number of modems selected begins at 8% of available rooms, and increases every year to reach 20% at the end of 2008. Average number of rooms per hotel are forecasted to remain constant at 110 rooms.

The recent agreement with Leviton, which already has 120 salespeople addressing the target MDU and other markets, gives us confidence in forecasting strong revenue growth in the MDU market. Our estimates for the worldwide MDU marketplace are very conservative. Over the next five years, we project that Telkonet will install their technology in 1.1% of the targeted 3 million MDU structures worldwide with over 100 units. Although we believe that Telkonet can gain a much higher market share, the revenue data from higher projections is staggering, and we choose to remain conservative until the company gains traction in the marketplace. The European market in the MDU space may expand quickly due to the higher concentration of

older buildings which are typically difficult to re-wire for HSIA. Once traction is gained in the MDU market in the next few quarters, we believe growth will accelerate both domestically and internationally.

The business model for the MDU market does not have any equipment purchases. Telkonet supplies the equipment at no charge and the building owner/manager or ISP only needs to pay an electrician for installation. Telkonet collects $195 per month per building for ongoing support. The iBridge modems are charged on a sliding scale of $6.75 per month during the first year, $5.75 the second year and $4.75 in the third through fifth year. The ISP receives support for the monthly fee, and remits the modem fees to Telkonet. TKO plans on requiring a minimum of 20% of units per building having modems available, and incurring the monthly modem fee.

With a fixed fee of $195 per month and a variable fee based on the number of users, this business model provides an incentive for the ISP to have as many units as possible using that ISP. The contract structure also provides for improving ISP margins in the second through fifth years from the step down in modem fees. The ISP will charge the user a $40 to $55 per month charge, for example, and remit the

Dec-08 Dec-07 Dec-06 Dec-05 Dec-04New Installs 3,000 3,000 2,400 1,500 325Total Installs 10,235 7,235 4,235 1,835 335Fee Revenue 50,160 32,160 15,960 5,085 328iBridge Rental Revenue 4,798 3,230 1,808 676 83iBridge Purchase Revenue 5,271 4,482 2,940 1,427 389Annual Rev 60,230 39,872 20,708 7,188 799Rev Growth 51% 93% 188% 799% 2098%


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modem fee and building fee to Telkonet. The ISP does not incur any upfront equipment fees, and the whole building can be “lit” for HSIA in a day.

Our base forecast assumes that only the minimum 20% of units use the ISP, and the average MDU size

is 100 units. Fee revenue is forecasted to begin in the quarter following installation. These forecast parameters are conservative.

MDU Industry Revenue Forecast

($ Thousands)

The Anteon agreement opens up the military market. After successful tests in US Navy ships, we believe our ship installment forecasts are very conservative. The military will purchase equipment and not lease, which is very advantageous to margins in the short term. The positive margins associated with the purchase of equipment will offset the negative margins during the first year of the lease/service business model in the MDU and hospitality industries. The US Navy has over 100,000 facilities, and Anteon has the contract to make certain that HSIA is available where required. Anteon is a sub contractor on the EDS contract to provide internet services to the military. We believe our Military

forecasts are very conservative because we anticipate major opportunities in the military related markets.

The US Navy has over 1,000 ships and 100,000 onshore facilities that Anteon can address. We assume that Telkonet solutions will be installed in 101 ships by FY08, and in 4,000 onshore facilities. For forecast purposes, each onshore facility is considered to be one Gateway/Coupler installation. Modems per Gateway/Coupler installation are forecast to be 20 for the onshore facilities and 40 for the ship installations.

Military Industry Revenue Forecasts

($thousands)

Dec-08 Dec-07 Dec-06 Dec-05 Dec-04# of New Bldgs 17,500 11,500 5,500 2,600 680# of Existing Bldgs 37,780 20,280 8,780 3,280 680MDU Revenue 102,963 51,216 19,937 6,025 356

Dec-08 Dec-07 Dec-06 Dec-05 Dec-04Military Facilities (G/C) 4000 3700 2600 1800 375Total Ships Installed To-Date 101 61 29 9 2Total Military Revenue 44,200 40,110 27,800 18,185 3,873


32

The final market we forecast is the satellite to internet market that is addressed through the agreement with Hughes. We believe this market will be the most lumpy with respect to a quarterly order rate over time. We are aware of increasing interest from prospective satellite to internet users in

the international markets. Without any history, we have kept our forecasts very conservative. We believe that the military markets can be enormous in the future.

Satellite to Internet Revenue Forecasts

($thousands)

We combine the market forecasts for each market segment to determine our total revenue forecast.

The combined revenue and free cash flow forecast through FY08 is displayed below. The TKO business model assumes an average of cost of

$2,400 incurred for each hotel and MDU installation.

Combined Forecast

($ Thousands)

Our forecast indicates that Telkonet will generate positive cash flows during FY05. On quarterly basis, cash flows and earnings will become positive during 2Q05. Capital expenditures will be large in FY04 for aplanned office relocation. The outsourcing of manufacturing will keep capital expenditures modest relative to revenue growth. Final assembly, minimal inventory storage and

infrastructure for the support team are the main drivers of capital expenditures. Change in non-cash working capital is estimated to fluctuate in a normal manner.

Due to the disruptive capacity of the PLC technology it is difficult, we construct two additional forecasts, an optimistic and pessimistic forecast to determine a range of target prices based on different

Dec-08 Dec-07 Dec-06 Dec-05 Dec-04Total # of Buildings Installed 355 275 195 115 35Revenues 560 560 560 560 385

Dec 08 Dec 07 Dec 06 Dec 05 Dec 04Y + 5 Y + 4 Y + 3 Y + 2 Y + 1

Revenues 207,949 131,756 69,004 31,958 5,412Operating Income 110,213 61,925 24,151 5,547 (6,466)

CAPX (208) (198) (207) (256) (300)Depreciation 150 150 180 200 150

Chg in Non-Cash WC (1,040) 659 (345) 160 27Free Cash Flow 78,131 42,641 22,054 5,332 (6,635)


33

forecast scenarios. The optimistic and pessimistic scenarios vary in the adoption rate of Telkonet solutions as outlined in the following table.

Scenario Forecast Differences

In the Hospitality industry, the only difference among the scenarios is the number of installations. In the MDU marketplace, the optimistic case assumes more installations and 25 modems per building. The pessimistic case assumes fewer installations with the same number of modems per building (20) as the base case. In the military market, the optimistic scenario assumes more ships and facilities with the same number of modems per Gateway/Coupler installation. The pessimistic case assumes fewer ships and half the number of modems per Gateway/Coupler installation. The only difference among the scenarios in the satellite market is the number of installations.

The military and satellite markets are both forecasted using a purchase business model, while the MDU and hospitality industry is forecasted using a lease/service model. The lease/service model has a

higher degree of certainty of future cash flows. However, the cash flows in the first year of the installation are less than the cost to install the equipment. Margins in the lease/service model are much higher over time. The lease/service model provides investors with a high degree of certainty of future cash flows because contracts are typically 3 years and it is highly likely that over 90% to 95% will renew. The combination of these two business models provides more immediate cash flow from the purchase business model initially, and a forecasted certainty of future cash flows from the leased service model during the longer term.

The tables below outline the implications to revenue, operating margins, earnings per share and free cash flow for the three scenarios.

Revenue Growth

Note: Pessimistic Case, 2006, shows higher forecasted growth due to the much lower revenue base in 2005.

FY08 FY08 FY08 FY08 FY08 FY08Installed Installed MDU Installed Military Bldg with

Hotels MDU Modems Ships Facilities SatelliteOptimistic 12,370 38,475 836,875 205 24,730 465

Base 10,235 33,775 575,500 101 12,475 355Pessimistic 7,385 12,890 221,800 74 5,655 345

Dec 08 Dec 07 Dec 06 Dec 05 Dec 04Optimistic 54% 74% 118% 536% 8500%

Base 58% 91% 116% 491% 5678%Pessimistic 60% 90% 195% 395% 2280%


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Operating Margins

Note: In Dec 2008, the Pessimistic Case’s Operating Margins are forecasted to be higher than the Base Case due to the product mix between lease service and purchase business models. The growth in the lease/service business for the pessimistic case slows in FY08. Consequently, the initial year costs of the service business in FY08 are lower for the pessimistic case than for the base case.

Earnings per Share

(shares in 000)

Note: In 2005, the pessimistic case forecasts negative earnings because of an assumed reduction in revenues from the markets serviced by the purchased business model.

Free Cash Flow

($ Thousands)

To determine an appropriate valuation, we apply a present valuation formulation to the forecasted free cash flows. The two main components of the present value formulation are the cash flows during the forecast period and the terminal value assessed at the end of the forecast period. Both are discounted back to today. The discount rate used is based on the current 10 year Treasury bond yield of 4.3%, the equity risk premium and the perceived volatility in the stock. Although the stock has a limited trading history, we assume that it will be 100% more volatile than the market (Beta = 2.0). Our calculations assign a discount rate of 12.3% to Telkonet today. We discount the stream of cash

flows in the forecast period using a present valuation formulation. Then we add the present value of the terminal value. With the large cash flows in the fourth and fifth years of the forecast period relative to the first two years, any change in growth rate perceptions during the forecast period will impact the stock. We believe we have adequately addressed this with a high Beta of 2.0 and a high discount rate of 12.3%. Additionally, the three scenarios describe a wide range in growth rates for earnings and cash flows.

Dec 08 Dec 07 Dec 06 Dec 05 Dec 04Optimistic 123,137 68,575 31,901 9,939 (106)

Base 78,164 42,657 22,078 5,519 (6,537)Pessimistic 42,103 24,201 6,665 (4,526) (6,837)

Dec 08 Dec 07 Dec 06 Dec 05 Dec 04Optimistic $2.30 $1.34 $0.61 $0.22 $0.00

Base $1.46 $0.83 $0.43 $0.12 -$0.15Pessimistic $0.79 $0.47 $0.13 -$0.09 -$0.15Shares Out 53,000 52,000 51,000 47,500 44,125

Dec 08 Dec 07 Dec 06 Dec 05 Dec 04Optimistic 58% 51% 40% 20% 1%

Base 53% 47% 35% 17% -120%Pessimistic 56% 44% 20% -40% -300%


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The implications for the stock price based on the three scenarios and present valuation formulation parameters is displayed in the chart below.

The Y+5 growth rate is the multiple applied to the FY08 free cash flow in determining the terminal value. The terminal value is instrumental in calculating a target stock price range. For Telkonet, the positive free cash flows from FY05 through FY08 cause the value given to the stock to be highly associated with the growth of cash flows after FY04.

We believe the market will assess a long term growth rate of approximately 20% towards the end of the forecast period. We use a growth rate range of 18% to 23% as a plausible range that investors will place on TKO in FY08. For the base case scenario, this describes a target price range of $17.80 to $22.20 per share.

It is interesting to note that given our pessimistic scenario, the stock is undervalued. This valuation analysis also can be used to interpret investors current perception for Telkonet. Based on this valuation analysis, investors are assigning a growth rate lower than 10% to TKO and assuming a forecast similar to our pessimistic growth scenario. We believe this is due to the lack of the Company’s

operating history. As revenues gain traction in the coming quarters, investors will take notice.

The current stock price reflects the uncertainty over the acceptance of the Telkonet technology in the marketplace. We believe that Telkonet will report traction in ramping up revenues in each market segment during FY04. As this occurs, there will be more clarity surrounding the potential for Telkonet products. We believe that our base case target price range described by an 18% to 23% growth rate in FY08 will be recognized by investors within the FY05 timeframe.

As the marketplace accepts the nascent technology of providing internet access through the existing electrical infrastructure, investors will take notice. The disruptive nature of TKO’s technology, may cause investors to push the stock beyond our price targets once the size of the addressable market is clearly understood.

Price Targets for 3 Scenarios based on Y+5 Growth Rate

$0.0

$5.0

$10.0

$15.0

$20.0

$25.0

$30.0

$35.0

$40.0

Long Term Growth Rate

Optimistic $17.1 $21.3 $24.1 $28.3 $31.1 $35.2 $38.0

Base $10.7 $13.4 $15.2 $17.8 $19.6 $22.2 $24.0

Pessimistic $5.2 $6.5 $7.4 $8.7 $9.6 $11.0 $11.8

10 13 15 18 20 23 25


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Bull Case

TKO has developed a disruptive technology.

Agreements with two VARs allows TKO to partner with strong players in the MDU (Leviton), military (Anteon-ANT), and satellite markets (Hughes Network Systems – agreement so to be completed).

Performance is equal to or better than other HSIA at a significantly lower cost.

Hotels or Building Managers do not incur any up front costs to install the equipment.

For a commercial building, TKO has the capability to design Virtual Private Networks (VPN) within the building for any number of tenants.

The TKO system is secure and reliable, especially appealing to the prospective military and government customers.

Telkonet will not need to build the support infrastructure that competitors require because the company’s system is much easier to install.

Telkonet will command the lion’s share of market share in the hospitality industry because of the low cost of entry and low cost of operations.

Telkonet’s business model for the hospitality industry does not require a revenue share component from the hotel.

Bear Case

The company has only two reported quarters of revenues.

The company has only 80 installations. The three largest competitors in the hospitality industry have 600 to 700 installations each.

The Company needs to train VARs to install the TKO system.

TKO must build a support infrastructure.

TKO needs to contract for the manufacturing of equipment. With high demand, it is unknown whether TKO can meet that demand in a timely manner.

The Company will be challenged to control its installation costs since it is not receiving any revenues for installing the Telkonet system.

TKO will be cash flow negative in FY04 and FY05.

The Company may require additional financing before it becomes cash flow positive.

CONCLUSION We believe the PLC technology has displacement potential in the HSIA market for commercial buildings, multiple dwelling units, hotels, apartments and the military. New methodologies with potential widespread impact are sometimes referred to as disruptive technologies. Telkonet’s PlugPlusInternet™ system has the qualities of a disruptive technology because it will cause many HSIA users to re-think the manner in which they are accessing the Internet.

Telkonet’s success will require building the appropriate service structure. TKO’s products take a large step towards commoditizing access to the Internet. As Internet access becomes more of a commodity, differentiating factors among ISP’s and the medium/mode of access will be service and reliability. Telkonet has yet to build its support infrastructure.

The installation and ongoing costs of the Telkonet’s PlugPlus™ system are very competitive. We


37

believe that Telkonet will become the largest provider of HSIA service to the hospitality industry. Additionally, Telkonet will penetrate the commercial building and MDU market. The recent announcement with Hughes will provide visibility and validity to the Telkonet solutions, and open up the satellite to Internet connection market. Telkonet has scored big in making agreements with Anteon to service the military marketplace and Leviton for manufacturing and addressing the MDU market.

Our growth forecasts for the MDU and military markets are purposely conservative. As the market ramps up in these segments during the next year we believe that actual growth in these two markets will be greater than our current forecasts.

The Company’s lease/service business model can be very successful in the HSIA industry. It is attractive for building managers to install the TKO system since there are no installation charges. Offsetting the lease/service business model is the purchase model preferred by the military, and predominant in the international satellite market. Positive margins from the purchase business model will offset the negative margins during the first year of the lease/service business model. The benefit of the lease/service model is that it creates a high degree of certainty of strong cash flows and high margins in the second year of the contract and beyond. We believe that at least 95% of three year contracts will be renewed.

The combination of the purchase and lease business models will provide positive earnings and cash flows beginning in 2Q05. Growth in cash flow and earnings in FY05 through FY08 will be stronger than growth in revenues. Strong cash flow and

earnings growth is due to the high margins associated with the lease business after the first year of the installation.

In the long term, the on-going revenue stream from the lease/service customers will serve as an annuity to the company, providing a high degree of certainty of revenues, cash flows and earnings. High earnings multiples are typically awarded to companies with a high certainty of earnings. As the hospitality, MDU and commercial building installations grow, we believe TKO will gain the status of a high multiple company.

The FCC and the utility industry are developing a set of guidelines to allow electric utility companies the opportunity to provide Internet access over the power grid. Telkonet's current products focus on a buildings internal power grid to distribute Internet connections. If the electric utilities are allowed to offer Internet access, the iBridge technology will be in high demand. Whether or not TKO develops products to assist the utility industry in providing Internet access, any news in this arena will tend to highlight TKO’s success to date.

When investor attention is focused on new technologies with potential disruptive capacity, the stock price typically moves beyond the fair value range. We recommend shares of TKO common for long term growth investment.

GG/Cohen Independent Research Group, Inc. Tel: 415 454 6985 Fax: 415 455 0295

Email: [email protected] www.cohenindependentresearchgroup.com


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Quarterly Historical and Forecasted Sales

0

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sand

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Quarterly Historical and Forecasted EPS

(0.15)

(0.10)

(0.05)

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Actual EPS & House Estimates


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Quarterly Liquidity Metrics

0%

20%

40%

60%

80%

100%

120%

Mar-03 Jun-03 Sep-03 Dec-03

Cash / Total Assets Cash / Current AssetsCurrent Assets / Total Assets Receivables / Current AssetsInventory / Current Assets

Quarterly Leverage

-400%

-300%

-200%

-100%

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Total Debt/Equity Total Debt/CapitalTotal LT Liab/Total Assets


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ANNUAL BALANCE SHEET: TELKONET, INC. (TKO)

Pro-Forma ($ Thousands)Assets Dec 03 Dec 03 Dec 02 Dec 01Cash & Marketable Securities 21,896 5,178 19 22Receivables 58 58 2 0Inventories 609 609 40 0Notes Receivable 0 0 0 0Other Current Assets 108 108 5 0Total Current Assets 22,671 5,953 66 22

Gross Property/Plant/Equipment 191 191 74 55Accumulated Depreciation 68 68 35 28Net Property/Plant/Equipment 124 124 39 27Investments & Advances 0 0 0 0Deferred Charges 0 0 0 0Intangibles 0 0 0 0Other Non-Current Assets 0 0 193 183Other Assets 100 100 0 0Total Assets 22,895 6,177 298 232

Liabilities & Shareholders EquityAccounts Payable 630 630 519 117Notes Payable 0 0 310 400Current Long-Term Debt 0 0 0 0Current Capital Leases 15 15 0 0Accrued Expenses 0 0 0 0Income Taxes Payable 0 0 0 0Other Current Liabilities 11 11 130 8Total Current Liabilities 656 656 959 525

Mortgages 0 0 0 0Deferred Charges 0 0 0 0Non-Current Capital Leases 0 0 0 0Minority Interest 0 0 0 0Convertible Debt 79 143 863 126Total Long-Term Debt 450 3,132 863 126Other Long-Term Liabilities 0 0 0 0 Total Long Term Liabilities 529 3,275 1,726 252Total Liabilities 1,185 3,788 1,822 651

Preferred Stock 0 0 0 0Net Common Stock 31 31 16 22Capital Surplus 33,407 16,474 4,916 2,244Retained Earnings (14,117) (14,117) (6,459) (2,860)Other Equity Adjustments 0 0 0 0Common Equity 2,388 2,388 (1,527) (594)Treasury Stock 0 0 0 0Shareholders' Equity 21,709 2,388 (1,527) (594)

Total Liabilities and Equity 22,894 6,177 295 57


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QUARTERLY BALANCE SHEET ($ Thousands)

Assets Dec 03 Sep 03 Jun 03 Mar 03Cash & Marketable Securities 5,178 6,807 4,581 664Receivables 58 4 0 0Inventories 609 606 449 276Notes Receivable 0 0 0 12Other Current Assets 108 55 76 101Total Current Assets 5,953 7,472 5,106 1,053

Gross Property/Plant/Equipment 191 173 161 80Accumulated Depreciation 68 63 55 37Net Property/Plant/Equipment 124 110 106 43Investments & Advances 0 0 0 0Deferred Charges 0 0 0 0Intangibles 0 0 0 0Other Non-Current Assets 0 20 217 248Other Assets 100 0 0 0Total Assets 6,177 7,602 5,429 1,344

Liabilities & Shareholders EquityAccounts Payable 630 630 981 571Notes Payable 0 0 309 250Current Long-Term Debt 0 0 0 0Current Capital Leases 15 34 0 0Accrued Expenses 0 0 0 0Income Taxes Payable 0 0 0 0Other Current Liabilities 11 8 8 8Total Current Liabilities 656 672 1,298 829

Mortgages 0 0 0 0Deferred Charges 0 0 0 0Non-Current Capital Leases 0 0 0 0Minority Interest 0 2,989 5,000 0Convertible Debt 143 123 1,454 1,148Total Long-Term Debt 3,132 3,112 6,454 1,148Other Long-Term Liabilities 0 0 0 0 Total Long Term Liabilities 3,275 0 0 0Total Liabilities 3,788 3,784 7,752 1,977

Preferred Stock 0 0 0 0Net Common Stock 31 30 16 16Capital Surplus 16,474 15,696 7,581 7,250Retained Earnings (14,117) (11,908) (9,918) (7,899)Other Equity Adjustments 0 0 0 0Common Equity 2,388 3,818 (2,321) (633)Treasury Stock 0 0 0 0Shareholders' Equity 2,388 3,818 (2,321) (633)

Total Liabilities and Equity 6,177 7,602 5,431 1,344


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Annual Income Statement

($ Thousands)

Dec 05 Dec 04 Dec 03 Dec 02Net Sales 31,958 5,412 94 0COGS 18,861 4,848 105 0Depreciation 200 150 111 84Gross Profit 12,897 414 -122 -84S,G&A 6,350 5,900 4,089 2,791Research & Development 1,000 1,000 1,371 280EBITDA 5,747 -6,336 -5,471 -3,071Interest Expense (-) 0.00 0.00 1093.61 626.00Operating Income 5,547 -6,486 -6,676 -3,781Non-Operating Income (Expense) (+) 0.00 0.00 0.00 3.00Pretax Income 5,547 -6,486 -6,676 -3,778Provision for Income Taxes (-) 0.00 0.00 0.00 0.00Minority Interest (-) 0.00 0.00 0.00 0.00Investment Gains/Losses (+) 0.00 0.00 0.00 0.00Other Income (+) 0.00 0.00 0.00 0.00Income from Continuing Operations 5,547 -6,486 -6,676 -3,778Extras & Discontinued Operations (+) 0.00 0.00 0.00 0.00Net Income 5,547 -6,486 -7,658 -3,778Basic Earnings Per Share 0.12 -0.15 -0.37 -0.22Diluted Net EPS 0.12 -0.15 -0.37 -0.22Diluted EPS (Before Non-recurring items) 0.12 -0.15 -0.37 -0.22Common Dividend 0.00 0.00 0.00 0.00Dividend per Share 0.00 0.00 0.00 0.00Average Basic Shares 47,500 44,125 20,702 17,120Average Diluted Shares 47,500 44,125 20,702 17,120

Dec 05 Sep 05 Jun 05 Mar 05 Dec 04 Sep 04 Jun 04 Mar 04Net Sales 10,418 9,057 7,788 4,695 3,427 1,517 396 72COGS 5,501 5,262 4,525 3,573 2,790 1,437 536 86Depreciation 50 50 50 50 50 40 35 25Gross Profit 4,867 3,745 3,213 1,072 587 40 -175 -39S,G&A 1,600 1,600 1,600 1,550 1,550 1,500 1,450 1,400Research & Development 250 250 250 250 250 250 250 250EBITDA 3,027 1,905 1,373 -718 -1,203 -1,700 -1,865 -1,664Interest Expense (-) 0 0 0 0 0 0 0 0Operating Income 3,017 1,895 1,363 -728 -1,213 -1,710 -1,875 -1,689Non-Operating Income (Expense) (+) 0 0 0 0 0 0 0 0Pretax Income 3,017 1,895 1,363 -728 -1,213 -1,710 -1,875 -1,689Provision for Income Taxes (-) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00Minority Interest (-) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00Investment Gains/Losses (+) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00Other Income (+) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00Income from Continuing Operations 3,017 1,895 1,363 -728 -1,213 -1,710 -1,875 -1,689Extras & Discontinued Operations (+) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00Net Income 3,017 1,895 1,363 -728 -1,213 -1,710 -1,875 -1,689Basic Earnings Per Share 0.06 0.04 0.03 -0.02 -0.03 -0.04 -0.04 -0.04Diluted Net EPS 0.06 0.04 0.03 -0.02 -0.03 -0.04 -0.04 -0.04Diluted EPS (Before Non-recurring items) 0.06 0.04 0.03 -0.02 -0.03 -0.04 -0.04 -0.04Common Dividend 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00Dividend per Share 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00Average Basic Shares 49,000 48,000 47,000 46,000 45,000 44,500 44,000 43,000Average Diluted Shares 49,000 48,000 47,000 46,000 45,000 44,500 44,000 43,000


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STATEMENT OF CHANGES IN CASH Annual ($ Thousands)

Dec-03 Dec-02 Dec-01Net Income ($mil) (7,658) (5,450) (3,460)Depreciation ($mil) 111 101 82Cash from Discontinued Oper ($mil) 0 0 0Net Other Adjustments ($mil) 2,627 2,018 975Net Ch in Oper Assets and Liabilities (677) (508) (17)Net Cash from Oper Activities $mil (5,596) (3,839) (2,420)Property/Plant/Equipment ($mil) (103) (66) (29)Subsidiaries ($mil) 0 0 0Investments ($mil) (34) 0 0Cash Inflow from Invest Activites $mil 0 0 0Net Cash by Invest Activities $mil (137) (66) (29)Issuance of Equity Shares ($mil) 1 1 0Issuance of Debt Securities ($mil) 0 0 0Bank and Other Borrowings ($mil) 0 0 0Dividends and Distributions ($mil) 0 0 0Other Cash from Finan Activities $mil 0 0 0Net Cash by Finan Activities ($mil) 10,893 10,692 7,011Exchange Rate Effect ($mil) 0 0 0Net Change in Cash ($mil) 5,159 6,789 4,562Beginning Cash ($mil) 19 19 19Ending Cash ($mil) 5,178 6,807 4,581

STATEMENT OF CHANGES IN CASHQuarterly ($Thousands)

Dec 03 Sep 03 Jun 03 Mar 03Net Income ($mil) (2,208) (1,990) (2,019) (1,441)Depreciation ($mil) 10 19 48 34Cash from Discontinued Oper ($mil) 0 0 0 0Net Other Adjustments ($mil) 609 1,043 470 505Net Ch in Oper Assets and Liabilities (169) (491) 263 (280)Net Cash from Oper Activities $mil (1,757) (1,419) (1,238) (1,182)Property/Plant/Equipment ($mil) (37) (37) (22) (7)Subsidiaries ($mil) 0 0 0 0Investments ($mil) (34) 0 0 0Cash Inflow from Invest Activites $mil 0 0 0 0Net Cash by Invest Activities $mil (71) (37) (22) (7)Issuance of Equity Shares ($mil) (0) 1 0 0Issuance of Debt Securities ($mil) 0 0 0 0Bank and Other Borrowings ($mil) 0 0 0 0Dividends and Distributions ($mil) 0 0 0 0Other Cash from Finan Activities $mil 0 0 0 0Net Cash by Finan Activities ($mil) 201 3,681 5,177 1,834Exchange Rate Effect ($mil) 0 0 0 0Net Change in Cash ($mil) (1,628) 2,225 3,939 645Beginning Cash ($mil) 6,828 4,603 664 19Ending Cash ($mil) 5,200 6,828 4,603 664


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Buy Recommendations: = 100%


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