Telkonet Sends Shareholders' Letter.

GERMANTOWN, Md. -- Telkonet, Inc. (Amex:TKO), the leader in commercial powerline communications (PLC), announced the Company's shareholders' letter was sent out today (see below).

About Telkonet

Telkonet's products provide connectivity over existing electrical wiring and do not require the costly installation of additional wiring or major disruption of business activity. In many situations, the Telkonet system can be implemented more quickly and less expensively than adding dedicated wiring or installing a wireless system. The Telkonet PlugPlus(TM) family of networking and internetworking products offers a viable and cost-effective alternative to the challenges of hardwiring and wireless local area networks (LANs). Telkonet PlugPlus products are designed for use in commercial and residential applications, including multi-dwelling units and the hospitality and government markets. For more information, please visit www.telkonet.com.

Statements included in this release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve a number of risks and uncertainties such as competitive factors, technological development, market demand and the Company's ability to obtain new contracts and accurately estimate net revenues due to variability in size, scope and duration of projects, and internal issues in the sponsoring client. Further information on potential factors that could affect the Company's financial results, can be found in the Company's Registration Statement and in its Reports on Forms 8-K filed with the Securities and Exchange Commission (SEC).

To Our Shareholders:

Telkonet has executed an agreement with Electronic Data Systems
(EDS - NYSE) pursuant to which Telkonet has agreed to support U.S.
Navy and Marine Corps projects that EDS may service now or in the
future on a right-of-first refusal basis. This relationship, coupled
with our recently announced agreement with GTSI and potential teaming
agreements with other Tier 1 government contractors, presents
interesting challenges and opportunities. For example, Telkonet's
performance under these agreements is contingent upon the
certification of Telkonet's products as suitable for government and
military applications. Although we are far advanced in this process,
significant revenues from government and military solutions cannot
begin until final certification is obtained and there can be no
assurance that the Telkonet product will be certified.

Another challenge facing Telkonet is the recruitment of additional
personnel. We are pleased that Mark Lavoie and Liz Tarquin have
recently joined the Government Systems Unit and will be dedicated to
EDS and GTSI, respectively. Mark most recently was working for TAIC, a
government contractor, assigned to assist the Director of the Navy and
Marine Corps Intranet. Liz most recently was program manager for
Computer and High Tech Management, a government IT contractor.

To further support the government and military efforts, we have leased
office space in Crystal City, Virginia. Crystal City hosts many
military and military contractors' offices and is convenient to other
office centers in Washington as well as the U.S. government. A
specialist with government contracting expertise, as well as a public
relations firm with lobbying credentials, have been retained to
consult and advise the company. For the next few months, our CEO will
be temporarily working out of the Crystal City office a few days per
week to oversee and monitor business development in the Government
Systems Unit.

On another front, we have received many inquiries regarding the status
of the international product development. Presently, we are
facing challenges in the international sector similar to those we are
confronting in the government sector. Our main challenge is obtaining
required certifications from the European Union (EU), which are
required before we can sell and permanently install our products in EU
countries. Last fall we received safety approval from the EU and our
engineering team is pursuing final regulatory approval of our products
from the appropriate EU authorities. Again, no assurance can be given
that final certification from the EU will be obtained. In addition to
EU certification, countries outside the EU may require additional
certifications. Telkonet is currently pursuing those approvals in
Eastern Europe, Mexico, and other selected jurisdictions. Telkonet
products have been installed for demonstration purposes in Mexico,
Brazil, England, Spain, France, Germany, Iraq, Netherlands, Russia,
Turkey and India, but no assurance can be given that any approvals
required in these jurisdictions can or will be obtained.

Successful certifications in the government and the EU will result in
three uniquely different product solutions to be offered by
Telkonet - commercial products for hotel and apartment connectivity,
commercial products for hotels, apartments and military and government
in foreign countries, and U.S. government and military networking. We
are excited about the opportunities. We are committed to meeting the
challenges. We thank you for your continued support.

Sincerely,

Pete Musser, Chairman                   Ron Pickett, President