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20374
Seneca Meadows Pkwy.
Germantown,
MD 20876-7004
Phone:
240.912.1800
Fax:
240.912.1839
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December
1, 2006
To
our
Valued Shareholders,
2006
has
been an exciting year for Telkonet. We are continuing to reinforce the Company
as the leader in powerline communications technology by adding new capabilities
to our product platform, such as energy management, and by developing key
strategic relationships. We have invested over two years in the development
and
positioning of our products for sale within the government sector and, as a
result, we believe the Company is finally poised to reap the benefits of these
efforts within the federal, state and local government markets. As the year
comes to a close, we are reflecting on our significant accomplishments in the
past twelve months, anticipating that they will act as a springboard for
additional success in the coming year.
U.S.
Government
Telkonet’s
U.S. government (USG) certified products, which were successfully integrated
within the 500,000-user Navy Marine Corps Intranet (NMCI) enclave, have now
been
operating for one year. The deployment began under Interim Authority to Test
(IATT), with subsequent deployment under full Department of the Navy (DoN)
Enterprise Authority To Operate (EATO). Telkonet is the only secure networking
technology to receive an EATO in such a manner from the DoN since the beginning
of NMCI.
As
a
result of the successful NMCI integration, a tier one government contractor
has
included Telkonet’s products in its NMCI solutions catalog, making these
products available for government purchase for NMCI seat deployment and other
government contracts being performed by this government contractor. The products
are also listed in multiple General Services Administration (GSA) schedules
and
are therefore available for broader, government-wide purchase. Management
believes that the listing of the Company’s products on the GSA schedules,
together with the Company’s relationship with a number of tier one government
contractors, position Telkonet favorably for growth in the government
sector.
Telkonet’s
products have been evaluated and approved by the U.S. Army Information Systems
Engineering Command for use by the Army and the Department of Homeland Security
(DHS) networking environments in programs such as the Hi-Speed Operational
Connectivity (Hi-SOC), Transportation Worker identification Credential and
US-VISIT. Telkonet’s USG certified products, which have been installed into
multiple Transportation Security Administration (TSA) departments over the
past
six months, will be deployed at multiple Category II-IV level U.S. airports
beginning in December of 2006 in anticipation of the next installment of the
Hi-SOC program due to begin rolling out in early 2007. Since Hi-SOC Phase II
encompasses the deployment of secure data and voice connectivity in
approximately 400 airports nationwide, U.S. Army approval of the Telkonet
product creates a significant opportunity for the Company to sell and market
its
products within the government sector, which it intends to vigorously pursue
in
2007.
Government
- State, Local and Education
In
2006,
Telkonet made significant progress with state and local government sales. This
year, Telkonet began delivering mobile networking connectivity to three middle
schools in the Hamilton Township School District in New Jersey. The Company
intends to pursue deployment of the system in the remaining 25 schools in that
school district. Based on its experience in New Jersey, Telkonet has decided
to
explore similar opportunities in the education market in other states in the
coming year.
Another
successful application where Telkonet’s system has recently been deployed is in
convention centers. These successful deployments have generated interest in
networking solutions for additional applications, such as historical facilities
and difficult-to-deploy facilities, which the Company will continue to pursue
in
2007.
Energy
Management
Telkonet
has moved ahead in its product development efforts by expanding its product
portfolio into energy management. The new Telkonet Smart Energy (TSE) system
is
an innovative Internet Protocol-based energy management and monitoring system
that can be deployed across the Telkonet iWire System™.
The
TSE
system
provides a web-based energy monitoring, control and management system that
continuously samples energy usage and costs. The TSE overcomes many energy
management challenges, including automatically learning and monitoring occupancy
patterns and room characteristics, eliminating unnecessary heating and cooling
of empty rooms and increasing the efficiency of HVAC operations. The system
also
enables the monitoring and analyzing of energy data from a centralized database.
As a result, companies can significantly reduce energy consumption, resulting
in
lower utility bills and lower operating, maintenance and repair costs for
heating, ventilating and air-conditioning (HVAC).
In
October, Telkonet completed the first installation of the Telkonet Smart Energy
system at a 500-unit luxury, eco-friendly apartment complex on New York’s
Roosevelt Island. Telkonet’s system measures the amount of energy generated from
the solar panels that are mounted on the property’s roof towers. The Telkonet
iWire System transports the collected data over the building’s internal
electrical wiring. It enables the energy output from the building’s solar panels
to be monitored remotely and on-site by building management and the New York
State Energy Research and Development Authority (NYSERDA), which has agreed
to
supply up to $250,000 in funding for the project.
Management
believes that the Telkonet iWire System is an ideal energy management solution
for utility substations. The system monitors the performance and activities
of a
power substation, thus maintaining the stability of the electric grid, enabling
energy supply management and efficiency.
MDU
Telkonet
and a national internet services provider (ISP) are providing broadband over
power line access and Internet voice service to nine apartment complexes in
the
Washington, D.C. metro area. The Telkonet iWire System, as the platform, enables
high-speed Internet and data access to the ISP as part of a home networking
package that includes caller ID, voicemail and three-way calling bundled with
high-speed Internet access.
Telkonet
has also partnered with a midwestern utility company to deliver broadband
Internet access to multi-dwelling units in Missouri and Illinois. A local ISP
is
responsible for providing the Internet signal to the buildings, while Telkonet
delivers Internet access within the buildings via the Telkonet iWire System.
The
ISP is also providing business management software, account setup, network
implementation, monitoring and maintenance, 24/7 technical support and customer
care, hosting and email services.
Microwave
Satellite Technologies (MST), a Telkonet subsidiary, added several marquis
properties to its growing list of residential customers in New York City. A
premier New York-based real estate development company has selected MST to
provide a diverse range of communications and entertainment services to
residents in over 1,100 residential units and building management with a
comprehensive suite of in-room amenities, including 100% digital satellite
access with HDTV, voice over Internet protocol (VoIP), Internet access and
Wi-Fi
connectivity, which delivers a quadruple play. Residents of these properties
now
have the ability to “mix and match” and select the best offerings at the best
prices.
MST
is
committed to delivering digital convergence, and has started deployment to
beta
customers of its Internet Protocol Television (IPTV) service in New York City.
IPTV is a method of distributing television content over IP that enables a
more
user-defined, on-demand and interactive experience. The MST IPTV service
delivers traditional cable TV programming and enables subscribers to surf the
Internet, receive on-demand content and perform a host of Internet-based
functions via their TV sets.
Hospitality
Telkonet
is now working with one of the leading providers of high-speed Internet access
solutions for the hospitality market. This partner has been very successful
in
penetrating the hospitality market, but was unable to cost-effectively deliver
wireless Internet access. By working with Telkonet, this partner can provide
more affordable solutions by using the Telkonet iWire System as the IP platform,
which supports both wired and wireless Internet access, eliminating the need
for
CAT-5 cabling. The combined system has proven to be an extremely effective
solution, which, management believes, will open many new doors for both
companies by satisfying customer needs for value and performance.
Telkonet
is pursuing further penetration of the timeshare market through its relationship
with a major developer and marketer of one of the world’s largest vacation
ownership programs. The Telkonet iWire System enables wired high-speed Internet
access and Wi-Fi hot spots throughout a timeshare’s public areas and convention
space. In addition, it can act as a platform to support printing from the rooms
and a billing system. The Telkonet solution provides a hands-off system that
requires minimal front desk or technical support, and acts as a dynamic platform
to support future services, such as energy management and voice over IP
(VoIP).
We
will
continue to achieve significant milestones in implementing our focused marketing
strategies and appreciate your continued support.
Sincerely,
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Pete
Musser, Chairman
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Ron
Pickett, President and CEO
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