-----BEGIN PRIVACY-ENHANCED MESSAGE-----
Proc-Type: 2001,MIC-CLEAR
Originator-Name: webmaster@www.sec.gov
Originator-Key-Asymmetric:
 MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen
 TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB
MIC-Info: RSA-MD5,RSA,
 D0FaJ0ZIpvqq680t8No3cLLoHDDYlYhLjFDeC6qARscgV6Zv4BkpAwMkD6OV2h/Q
 u4rVc1yCQzS/un1z8HC1KA==

<SEC-DOCUMENT>0000944075-04-000022.txt : 20040809
<SEC-HEADER>0000944075-04-000022.hdr.sgml : 20040809
<ACCEPTANCE-DATETIME>20040806202700
ACCESSION NUMBER:		0000944075-04-000022
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		3
CONFORMED PERIOD OF REPORT:	20040630
FILED AS OF DATE:		20040809

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			SOCKET COMMUNICATIONS INC
		CENTRAL INDEX KEY:			0000944075
		STANDARD INDUSTRIAL CLASSIFICATION:	ELECTRONIC COMPUTERS [3571]
		IRS NUMBER:				943155066
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10-Q
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-13810
		FILM NUMBER:		04959276

	BUSINESS ADDRESS:	
		STREET 1:		37400 CENTRAL COURT
		CITY:			NEWARK
		STATE:			CA
		ZIP:			94560
		BUSINESS PHONE:		5107442700

	MAIL ADDRESS:	
		STREET 1:		37400 CENTRAL COURT
		CITY:			NEWARK
		STATE:			CA
		ZIP:			94560
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>q2-2004.htm
<TEXT>
<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.0 Transitional//EN">
<!-- saved from url=(0042)file://N:\STMNTS\SEC\2002_06_Q\q2-2002.htm -->
<!-- saved from url=(0042)file://N:\STMNTS\SEC\2002_03_Q\q1-2002.htm --><HTML><HEAD><TITLE>10q doc</TITLE>

<META content="MSHTML 5.50.4522.1800" name=GENERATOR></HEAD>
<BODY bgColor=white>
<DIV align=left>
  <div align=left>
    <hr align=left width="100%" size=1>
  </div>
  <div align=left>
    <hr align=left width="100%" size=1>
  </div>
  <p>&nbsp;</p>
</DIV>
<DIV align=left> </DIV>
<P align=center><font face="Times New Roman, Times, serif" size="3">UNITED STATES<BR>
  SECURITIES AND EXCHANGE COMMISSION<BR>
  Washington, D.C. 20549<BR>
  <STRONG>FORM 10Q</STRONG></font></P>
<TABLE cols=2 width="100%">
  <TR>
    <TD vAlign=top width="5%"><FONT size=3><STRONG>
      <CENTER>
        [X]
      </CENTER>
      </STRONG></FONT></TD>
    <TD vAlign=top width="95%"><FONT size=3><STRONG><FONT
      face="Times New Roman, Times, serif">QUARTERLY REPORT PURSUANT TO SECTION
      13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 </FONT></STRONG></FONT></TD>
  </TR>
</TABLE>
<P align=center><font face="Times New Roman, Times, serif" size="3"><STRONG>&nbsp;&nbsp;For
  the quarterly period ended June 30, 2004</STRONG></font></P>
<P align=center><font size="3" face="Times New Roman, Times, serif"><STRONG>OR</STRONG></font></P>
<TABLE cols=2 width="100%">
  <TR>
    <TD vAlign=top width="5%"><FONT size=3><STRONG>
      <CENTER>
        <FONT face="Times New Roman, Times, serif">[&nbsp;&nbsp;&nbsp;] </FONT>
      </CENTER>
      </STRONG></FONT></TD>
    <TD vAlign=top width="95%"><FONT face="Times New Roman, Times, serif"
      size=3><STRONG>TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
      SECURITIES EXCHANGE ACT OF 1934 &nbsp;&nbsp;</STRONG><BR>
      <BR>
      For the transition period ____________ to ____________ </FONT></TD>
  </TR>
</TABLE>
<P align=center><font face="Times New Roman, Times, serif" size="3"><STRONG>Commission
  file number 1-13810 </STRONG></font></P>
<P align=center><font face="Times New Roman, Times, serif" size="3"><STRONG>SOCKET
  COMMUNICATIONS, INC. </STRONG><BR>
  (Exact Name of Registrant as Specified in its Charter) </font></P>
<P>&nbsp;
<TABLE cols=2 width="100%">
  <TR>
    <TD><FONT size=3><STRONG>
      <CENTER>
        <FONT face="Times New Roman, Times, serif" size=3>Delaware </FONT>
      </CENTER>
      </STRONG></FONT></TD>
    <TD><FONT size=3><STRONG>
      <CENTER>
        <FONT face="Times New Roman, Times, serif" size=3>94-3155066 </FONT>
      </CENTER>
      </STRONG></FONT></TD>
  </TR>
  <TR>
    <TD><FONT size=2>
      <CENTER>
        <FONT face="Times New Roman, Times, serif" size=3>&nbsp; (State or other
        jurisdiction of<br>
        incorporation or organization)&nbsp; </FONT>
      </CENTER>
      </FONT></TD>
    <TD><FONT size=2>
      <CENTER>
        <FONT face="Times New Roman, Times, serif" size=3>(IRS Employer Identification
        No.) </FONT>
      </CENTER>
      </FONT></TD>
  </TR>
</TABLE>
<font face="Times New Roman, Times, serif" size="3"><BR>
</font>
<P align=center><font face="Times New Roman, Times, serif" size="3"><STRONG>37400
  Central Court, Newark, CA 94560 </STRONG><BR>
  (Address of principal executive offices including zip code) </font></P>
<P align=center><font face="Times New Roman, Times, serif" size="3"><STRONG>(510)
  744-2700 </STRONG><BR>
  (Registrant's telephone number, including area code) <BR>
  <BR>
  <BR>
  </font></P>
<P><font face="Times New Roman, Times, serif" size="3">&nbsp;&nbsp;&nbsp; </font>
<P><font face="Times New Roman, Times, serif" size="3">Indicate by checkmark whether
  the registrant (1) has filed all reports required to be filed by Section 13
  or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
  (or for such shorter period that the registrant was required to file such reports),
  and (2) has been subject to such filing requirements for the past 90 days. YES[X]
  NO[&nbsp;&nbsp;]</font></P>
<P><font face="Times New Roman, Times, serif" size="3">Indicate by check mark
  whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
  the Exchange Act). YES[ ] NO[X]</font> </P>
<P><font face="Times New Roman, Times, serif" size="3">Number of shares of Common
  Stock ($0.001 par value) outstanding as of July 30, 2004 was 30,104,865 shares.</font></P>
<DIV align=left>
  <hr align=left width="100%" size=1>
</DIV>
<DIV align=left>
  <HR align=left width="100%" SIZE=1>
</DIV>
<div align="center"></div>
<P align=left><font face="Times New Roman, Times, serif" size="3"><a name="tab"></a></font></P>
<table width="879" border="0" cellspacing="0" cellpadding="0" align="center">
  <tr>
    <td colspan="3">
      <div align="center"></div>
      <p align=center><font face="Times New Roman, Times, serif" size="3"><strong>INDEX
        </strong></font></p>
    </td>
  </tr>
  <tr>
    <td width="27">&nbsp;</td>
    <td width="807">&nbsp;</td>
    <td width="56">
      <div align="center"><font face="Times New Roman, Times, serif" size="3"><u>PAGE
        <br>
        NO.</u></font></div>
    </td>
  </tr>
  <tr>
    <td colspan="3"><font face="Times New Roman, Times, serif" size="3">PART I.
      Financial information </font></td>
  </tr>
  <tr>
    <td colspan="3">&nbsp;</td>
  </tr>
  <tr>
    <td colspan="3"><font face="Times New Roman, Times, serif" size="3">Item 1.
      Consolidated Financial Statements: </font></td>
  </tr>
  <tr>
    <td width="27">&nbsp;</td>
    <td width="807">&nbsp;</td>
    <td width="56" align="center" valign="bottom">&nbsp;</td>
  </tr>
  <tr>
    <td width="27">&nbsp;</td>
    <td width="807"><font face="Times New Roman, Times, serif" size="3"><a
  href="#bs">Condensed Consolidated Balance Sheets - June 30, 2004 and December
      31, 2003 </a></font></td>
    <td width="56" align="center" valign="bottom">
      <div align="center"><font face="Times New Roman, Times, serif" size="3">2</font></div>
    </td>
  </tr>
  <tr>
    <td width="27" height="10">&nbsp;</td>
    <td width="807" height="10">&nbsp;</td>
    <td width="56" height="10" align="center" valign="bottom">&nbsp;</td>
  </tr>
  <tr>
    <td width="27" height="10">&nbsp;</td>
    <td width="807" height="10"><font face="Times New Roman, Times, serif" size="3"><a
  href="#ops">Condensed Consolidated Statements of Operations - Three Months and
      Six Months Ended June 30, 2004 and 2003</a></font></td>
    <td width="56" height="10" align="center" valign="bottom">
      <div align="center"> <font face="Times New Roman, Times, serif" size="3">3</font></div>
    </td>
  </tr>
  <tr>
    <td width="27">&nbsp;</td>
    <td width="807">&nbsp;</td>
    <td width="56" align="center" valign="bottom">&nbsp;</td>
  </tr>
  <tr>
    <td width="27">&nbsp;</td>
    <td width="807"><font face="Times New Roman, Times, serif" size="3"><a
  href="#flows">Condensed Consolidated Statements of Cash Flows - Six Months Ended
      </a><a
  href="#ops">June 30, 2004 and 2003</a></font></td>
    <td width="56" align="center" valign="bottom">
      <div align="center"><font face="Times New Roman, Times, serif" size="3">4</font></div>
    </td>
  </tr>
  <tr>
    <td width="27">&nbsp;</td>
    <td width="807">&nbsp;</td>
    <td width="56" align="center" valign="bottom">&nbsp;</td>
  </tr>
  <tr>
    <td width="27">&nbsp;</td>
    <td width="807"><font face="Times New Roman, Times, serif" size="3"><a
  href="#notes">Notes to Condensed Consolidated Financial Statements</a> </font></td>
    <td width="56" align="center" valign="bottom">
      <div align="center"><font face="Times New Roman, Times, serif" size="3">5</font></div>
    </td>
  </tr>
  <tr>
    <td colspan="2">&nbsp;</td>
    <td width="56">&nbsp;</td>
  </tr>
  <tr>
    <td colspan="2"><font face="Times New Roman, Times, serif" size="3"><a
href="#mda">Item 2. Management's Discussion and Analysis of Financial Condition
      and Results of Operations</a> </font></td>
    <td width="56">
      <div align="center"><font face="Times New Roman, Times, serif" size="3">12</font></div>
    </td>
  </tr>
  <tr>
    <td colspan="2">&nbsp;</td>
    <td width="56">&nbsp;</td>
  </tr>
  <tr>
    <td colspan="2"><font face="Times New Roman, Times, serif" size="3"><a
href="#qqd">Item 3. Quantitative and Qualitative Disclosures about Market Risk</a>
      </font></td>
    <td width="56">
      <div align="center"><font face="Times New Roman, Times, serif" size="3">27</font></div>
    </td>
  </tr>
  <tr>
    <td colspan="2">&nbsp;</td>
    <td width="56">&nbsp;</td>
  </tr>
  <tr>
    <td colspan="2"><font face="Times New Roman, Times, serif" size="3"><a
href="#item4">Item 4. Controls and Procedures</a></font> </td>
    <td width="56">
      <div align="center"><font face="Times New Roman, Times, serif" size="3">28</font></div>
    </td>
  </tr>
  <tr>
    <td colspan="3">&nbsp;</td>
  </tr>
  <tr>
    <td colspan="3">
      <div align="left"> <font face="Times New Roman, Times, serif" size="3"><a
href="#oth">PART II. Other information</a></font></div>
    </td>
  </tr>
  <tr>
    <td colspan="2">&nbsp;</td>
    <td width="56">&nbsp;</td>
  </tr>
  <tr>
    <td colspan="2"><font face="Times New Roman, Times, serif" size="3"><a
href="#smv">Item 4. Submission of Matters to a Vote of Security Holders</a></font></td>
    <td width="56">
      <div align="center"><font face="Times New Roman, Times, serif" size="3">29</font></div>
    </td>
  </tr>
  <tr>
    <td colspan="2">&nbsp;</td>
    <td width="56">&nbsp;</td>
  </tr>
  <tr>
    <td colspan="2"><font face="Times New Roman, Times, serif" size="3"><a
href="#item6">Item 6. Exhibits and Reports on Form 8-K</a></font></td>
    <td width="56">
      <div align="center"><font face="Times New Roman, Times, serif" size="3">30</font></div>
    </td>
  </tr>
  <tr>
    <td colspan="2">&nbsp;</td>
    <td width="56">&nbsp;</td>
  </tr>
  <tr>
    <td colspan="2"><font face="Times New Roman, Times, serif" size="3"><a
href="#sig">Signatures</a></font></td>
    <td width="56">
      <div align="center"><font face="Times New Roman, Times, serif" size="3">31</font></div>
    </td>
  </tr>
  <tr>
    <td colspan="2">&nbsp;</td>
    <td width="56">&nbsp;</td>
  </tr>
  <tr>
    <td colspan="2"><font face="Times New Roman, Times, serif" size="3"><a
href="#ind">Index to Exhibits</a></font></td>
    <td width="56">
      <div align="center"><font face="Times New Roman, Times, serif" size="3">32</font></div>
    </td>
  </tr>
</table>
<P align=left>&nbsp; </P>
<P align="center"><font face="Times New Roman, Times, serif" size="3"><BR>
  <BR>
  <A
name=bs></A>1</font>
<HR width="100%">
<font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a><BR>
<BR>
</font>
<P align=left><font face="Times New Roman, Times, serif" size="3"><b>Item 1. Financial
  Statements (Unaudited) </b></font>
<P align=center>
<P align=center>
<table cellspacing=1 cellpadding=1 width=670 align=center border=1>
  <tr valign=bottom>
    <td colspan=3><font size=2><b>
      <p align=center><font face="Times New Roman, Times, serif">SOCKET COMMUNICATIONS,
        INC. <br>
        CONDENSED CONSOLIDATED BALANCE SHEETS </font></p>
      </b></font></td>
  </tr>
  <tr valign=bottom>
    <td width="67%" height=31><font
      face="Times New Roman, Times, serif">&nbsp;&nbsp;</font></td>
    <td width="14%" height=31><font size=2>
      <p align=center><font face="Times New Roman, Times, serif"> June 30, <br>
        2004<br>
        (Unaudited) </font></p>
      </font></td>
    <td width="19%" height=31 valign="top"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">&nbsp; December
        31, 2003* </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td colspan=3><b><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">ASSETS </font></p>
      </font></b></td>
  </tr>
  <tr valign=bottom>
    <td width="67%"><font size=2>
      <p><font face="Times New Roman, Times, serif">Current assets: </font></p>
      </font></td>
    <td width="14%"><font
face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="19%"><font
  face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr valign=bottom>
    <td width="67%"><font size=2>
      <p><font face="Times New Roman, Times, serif">&nbsp;&nbsp;Cash and cash
        equivalents </font></p>
      </font></td>
    <td width="14%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">$ 7,557,731</font></p>
      </font></td>
    <td width="19%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">$ 6,421,425</font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="67%"><font size=2>
      <p><font face="Times New Roman, Times, serif">&nbsp;&nbsp;Accounts receivable,
        net </font></p>
      </font></td>
    <td width="14%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif"> 4,205,987 </font></p>
      </font></td>
    <td width="19%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">3,648,173 </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="67%"><font size=2>
      <p><font face="Times New Roman, Times, serif">&nbsp;&nbsp;Inventories </font></p>
      </font></td>
    <td width="14%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">2,695,090</font></p>
      </font></td>
    <td width="19%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">1,736,966 </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="67%"><font size=2>
      <p><font face="Times New Roman, Times, serif">&nbsp;&nbsp;Prepaid expenses
        and other current assets</font></p>
      </font></td>
    <td width="14%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">150,792 </font></p>
      </font></td>
    <td width="19%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">210,172 </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="67%"><font size=2>
      <p><font
      face="Times New Roman, Times, serif">&nbsp;&nbsp;&nbsp;&nbsp;Total current
        assets </font></p>
      </font></td>
    <td width="14%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">14,609,600</font></p>
      </font></td>
    <td width="19%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">12,016,736 </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td colspan=3><font
  face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr valign=bottom>
    <td width="67%"><font size=2>
      <p><font face="Times New Roman, Times, serif">Property and equipment: </font></p>
      </font></td>
    <td width="14%"><font
face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="19%"><font
  face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr valign=bottom>
    <td width="67%"><font size=2>
      <p><font face="Times New Roman, Times, serif">&nbsp;&nbsp;Machinery and
        office equipment </font></p>
      </font></td>
    <td width="14%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">1,811,514</font></p>
      </font></td>
    <td width="19%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">1,699,660 </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="67%"><font size=2>
      <p><font face="Times New Roman, Times, serif">&nbsp;&nbsp;Computer equipment
        </font></p>
      </font></td>
    <td width="14%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">696,005 </font></p>
      </font></td>
    <td width="19%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">692,656 </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="67%"><font size=2><font face="Times New Roman, Times, serif">&nbsp;</font></font></td>
    <td width="14%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">2,507,519 </font></p>
      </font></td>
    <td width="19%"><font size=2>
      <p align=center><font size=2><font face="Times New Roman, Times, serif">2,392,316
        </font></font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="67%"><font size=2>
      <p><font face="Times New Roman, Times, serif">&nbsp;&nbsp;Accumulated depreciation
        </font></p>
      </font></td>
    <td width="14%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">(1,956,357) </font></p>
      </font></td>
    <td width="19%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">(1,807,032) </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="67%"><font size=2>
      <p><font face="Times New Roman, Times, serif">&nbsp;&nbsp;&nbsp;&nbsp;Net
        property and equipment </font></p>
      </font></td>
    <td width="14%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">551,162</font></p>
      </font></td>
    <td width="19%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">585,284 </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="67%"><font
      face="Times New Roman, Times, serif"><font size=2>Intangible technology,
      net</font></font></td>
    <td width="14%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>527,819</font></div>
    </td>
    <td width="19%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>711,394</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="67%"><font
      face="Times New Roman, Times, serif"><font size=2>Goodwill </font></font></td>
    <td width="14%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>9,797,946</font></div>
    </td>
    <td width="19%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>9,797,946</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="67%"><font size=2>
      <p><font face="Times New Roman, Times, serif">Other assets </font></p>
      </font></td>
    <td width="14%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">136,665 </font></p>
      </font></td>
    <td width="19%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">154,267 </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="67%"><font size=2>
      <p><font size=2><font
      face="Times New Roman, Times, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></font><font
      face="Times New Roman, Times, serif">Total assets </font></p>
      </font></td>
    <td width="14%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">$ 25,623,192
        </font></p>
      </font></td>
    <td width="19%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">$ 23,265,627
        </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td colspan=3><font
  face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr valign=bottom>
    <td colspan=3 height="14">
      <p align=center><b><font face="Times New Roman, Times, serif" size="2">LIABILITIES
        </font></b><font face="Times New Roman, Times, serif" size="2"><b>AND
        STOCKHOLDERS' EQUITY</b></font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td colspan="3">
      <div align="center"></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="67%"><font size=2>
      <p><font face="Times New Roman, Times, serif">Current liabilities: </font></p>
      </font></td>
    <td width="14%"><font
face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="19%"><font
  face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr valign=bottom>
    <td width="67%"><font size=2>
      <p><font face="Times New Roman, Times, serif">&nbsp;&nbsp; Accounts payable
        and accrued expenses </font></p>
      </font></td>
    <td width="14%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>$ 3,903,109</font></p>
      </font></td>
    <td width="19%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">$ 3,057,007 </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="67%"><font size=2>
      <p><font face="Times New Roman, Times, serif">&nbsp;&nbsp; Accrued payroll
        and related expenses </font></p>
      </font></td>
    <td width="14%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">737,988 </font></p>
      </font></td>
    <td width="19%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">694,440 </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="67%"><font size=2>
      <p><font face="Times New Roman, Times, serif">&nbsp;&nbsp; Bank line of
        credit </font></p>
      </font></td>
    <td width="14%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>2,964,063</font></p>
      </font></td>
    <td width="19%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">1,567,390 </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="67%"><font size=2>
      <p><font face="Times New Roman, Times, serif">&nbsp;&nbsp; Deferred income
        on shipments to distributors</font></p>
      </font></td>
    <td width="14%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">1,207,285 </font></p>
      </font></td>
    <td width="19%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">851,668 </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="67%"><font
      face="Times New Roman, Times, serif">&nbsp;&nbsp;<font size=2>Current portion
      of capital leases and equipment financing notes</font></font></td>
    <td width="14%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>8,959</font></div>
    </td>
    <td width="19%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>20,882</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="67%"><font
      face="Times New Roman, Times, serif">&nbsp;&nbsp;<font size=2>Note payable</font></font></td>
    <td width="14%" height=20>
      <p align=center><font face="Times New Roman, Times, serif" size=2>-- </font></p>
    </td>
    <td width="19%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>504,714</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="67%"><font size=2>
      <p><font
      face="Times New Roman, Times, serif">&nbsp;&nbsp;&nbsp; Total current liabilities
        </font></p>
      </font></td>
    <td width="14%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">8,821,404 </font></p>
      </font></td>
    <td width="19%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">6,696,101 </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td colspan=3><font
  face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr valign=bottom>
    <td width="67%"><font size=2>
      <p><font face="Times New Roman, Times, serif">Long term liabilities: </font></p>
      </font></td>
    <td width="14%"><font
face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="19%"><font
  face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr valign=bottom>
    <td width="67%"><font size=2>
      <p><font face="Times New Roman, Times, serif">&nbsp;&nbsp; Long term portion
        of deferred rent and capital leases</font></p>
      </font></td>
    <td width="14%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif"> 77,665</font></p>
      </font></td>
    <td width="19%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">71,191 </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td colspan="3">&nbsp;</td>
  </tr>
  <tr valign=bottom>
    <td width="67%"><font size=2>
      <p><font face="Times New Roman, Times, serif">Commitments and contingencies
        </font></p>
      </font></td>
    <td width="14%"><font
face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="19%"><font
  face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr valign=bottom>
    <td width="67%">&nbsp;</td>
    <td width="14%">&nbsp;</td>
    <td width="19%">&nbsp;</td>
  </tr>
  <tr valign=bottom>
    <td width="67%"><font size=2>
      <p><font face="Times New Roman, Times, serif">Stockholders' equity: </font></p>
      </font></td>
    <td width="14%"><font
face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="19%"><font
  face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr valign=bottom>
    <td width="67%" height="50"><font size=2>
      <p><font size=2><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp; </font></font><font face="Times New Roman, Times, serif">Series
        F Convertible Preferred Stock, $0.001 par value: <br>
        </font><font size=2><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp; &nbsp;&nbsp; </font></font><font face="Times New Roman, Times, serif">Authorized
        Shares - 276,269, Issued and outstanding shares - <br>
        </font><font size=2><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp; &nbsp;&nbsp; </font></font><font face="Times New Roman, Times, serif">84,954
        at June 30, 2004 and 92,906 at December 31, 2003</font></p>
      </font></td>
    <td width="14%" height="50"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">85</font></p>
      </font></td>
    <td width="19%" height="50"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">93</font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="67%" height="52"><font size=2> <font size=2><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp; </font></font><font face="Times New Roman, Times, serif">Common
      stock, $0.001 par value: Authorized shares - <br>
      </font><font size=2><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp; &nbsp;&nbsp; </font></font><font face="Times New Roman, Times, serif">100,000,000,
      Issued and outstanding shares - 30,099,748 at <br>
      </font><font size=2><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp; &nbsp;&nbsp; </font></font><font
      face="Times New Roman, Times, serif">June 30, 2004 and 29,827,029 at December
      31, 2003</font> </font></td>
    <td width="14%" height="52"><font size=2>
      <p align=center><font
      face="Times New Roman, Times, serif">30,100</font></p>
      </font></td>
    <td width="19%" height="52"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">29,827 </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="67%"><font size=2>
      <p><font face="Times New Roman, Times, serif">Additional paid-in capital
        </font></p>
      </font></td>
    <td width="14%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">50,572,597 </font></p>
      </font></td>
    <td width="19%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">50,430,460</font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="67%"><font size=2>
      <p><font face="Times New Roman, Times, serif">Accumulated deficit </font></p>
      </font></td>
    <td width="14%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">(33,878,659)
        </font></p>
      </font></td>
    <td width="19%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">(33,962,045)
        </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="67%" height=23><font size=2>
      <p><font
      face="Times New Roman, Times, serif">&nbsp;&nbsp;&nbsp;&nbsp;Total stockholders'
        equity </font></p>
      </font></td>
    <td width="14%" height=23><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">16,724,123</font></p>
      </font></td>
    <td width="19%" height=23><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">16,498,335 </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="67%" height="7"><font size=2>
      <p><font
      face="Times New Roman, Times, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total
        liabilities</font><font size=2><font
      face="Times New Roman, Times, serif">&nbsp;</font></font><font
      face="Times New Roman, Times, serif">and stockholders' equity </font></p>
      </font></td>
    <td width="14%" height="7"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">$ 25,623,192
        </font></p>
      </font></td>
    <td width="19%" height="7"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">$ 23,265,627
        </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td colspan=3><font size=2>
      <p><font face="Times New Roman, Times, serif">___________________________
        </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td colspan=3><font size=2>
      <p><font face="Times New Roman, Times, serif">*Derived from audited consolidated
        financial statements</font></p>
      </font></td>
  </tr>
</table>
<P></P>
<font face="Times New Roman, Times, serif" size="3"><BR>
</font>
<P align=center><font face="Times New Roman, Times, serif" size="3">See accompanying
  notes. <BR>
  <BR>
  <A name=ops></A> 2 </font>
<HR width="100%">
<font face="Times New Roman, Times, serif" size="3"><BR>
<a href="#TAB">(Index)</a><BR>
</font>
<P align=center>
<TABLE cellSpacing=1 cellPadding=1 width=695 align=center border=1>
  <TR vAlign=bottom>
    <TD colSpan=5 height=17>
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2><B>SOCKET COMMUNICATIONS, INC. <BR>
        CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS</B> <BR>
        (Unaudited) </FONT></P>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD height=17 width="32%">
      <P><FONT face="Times New Roman, Times, serif" size=2>&nbsp;&nbsp;</FONT></P>
    </TD>
    <TD colspan="2" height=17>
      <div align="center"><font face="Times New Roman, Times, serif" size=2>Three
        Months Ended <br>
        June 30,</font></div>
    </TD>
    <TD colspan="2" height=17>
      <div align="center"><font face="Times New Roman, Times, serif" size=2>Six
        Months Ended <br>
        June 30,</font></div>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="32%" height=17>
      <P><FONT face="Times New Roman, Times, serif">&nbsp;&nbsp; </FONT></P>
    </TD>
    <TD width="17%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif" size=2>2004 </FONT></P>
    </TD>
    <TD width="17%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif" size=2>2003 </FONT></P>
    </TD>
    <td width="17%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size=2>2004 </font></p>
    </td>
    <td width="17%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size=2>2003 </font></p>
    </td>
  </TR>
  <TR vAlign=bottom>
    <TD width="32%" height=17>
      <P><FONT face="Times New Roman, Times, serif" size=2>Revenues</FONT></P>
    </TD>
    <TD width="17%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif" size=2>$ 6,731,191</FONT>
      </P>
    </TD>
    <TD width="17%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif" size=2>$ 5,074,835
        </FONT></P>
    </TD>
    <TD width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif" size=2>$
        13,474,419</font></div>
    </TD>
    <TD width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif" size=2>$
        9,953,400</font></div>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="32%" height=17>
      <P><FONT face="Times New Roman, Times, serif" size=2>Cost of revenues </FONT></P>
    </TD>
    <TD width="17%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>3,316,242</FONT></P>
    </TD>
    <TD width="17%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>2,584,119</FONT></P>
    </TD>
    <TD width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif"
      size=2>6,627,908</font></div>
    </TD>
    <TD width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif"
      size=2>5,060,832</font></div>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="32%" height=17>
      <P><FONT face="Times New Roman, Times, serif" size=2>Gross profit </FONT></P>
    </TD>
    <TD width="17%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>3,414,949</FONT></P>
    </TD>
    <TD width="17%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>2,490,716</FONT></P>
    </TD>
    <TD width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif"
      size=2>6,846,511</font></div>
    </TD>
    <TD width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif"
      size=2>4,892,568</font></div>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="32%" height=17>
      <P><FONT face="Times New Roman, Times, serif">&nbsp;&nbsp;<FONT size=2>
        </FONT></FONT></P>
    </TD>
    <TD width="17%" height=17><FONT face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp; </FONT></TD>
    <TD width="17%" height=17><FONT face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp; </FONT></TD>
    <td width="17%" height=17><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp; </font></td>
    <td width="17%" height=17><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp; </font></td>
  </TR>
  <TR vAlign=bottom>
    <TD height=26 width="32%">
      <P><FONT face="Times New Roman, Times, serif" size=2>Operating expenses:
        </FONT></P>
    </TD>
    <TD height=26 width="17%">&nbsp;</TD>
    <TD height=26 width="17%">&nbsp;</TD>
    <td height=26 width="17%">&nbsp;</td>
    <td height=26 width="17%">&nbsp;</td>
  </TR>
  <TR vAlign=bottom>
    <TD width="32%" height=17>
      <P><FONT face="Times New Roman, Times, serif" size=2>&nbsp;&nbsp;Research
        and development </FONT></P>
    </TD>
    <TD width="17%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>909,645</FONT></P>
    </TD>
    <TD width="17%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>793,210</FONT></P>
    </TD>
    <TD width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif"
      size=2>1,833,797</font></div>
    </TD>
    <TD width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif"
      size=2>1,714,151</font></div>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="32%" height=17>
      <P><FONT face="Times New Roman, Times, serif" size=2>&nbsp;&nbsp;Sales and
        marketing </FONT></P>
    </TD>
    <TD width="17%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>1,469,564</FONT></P>
    </TD>
    <TD width="17%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>1,228,041</FONT></P>
    </TD>
    <TD width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif"
      size=2>2,988,601</font></div>
    </TD>
    <TD width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif"
      size=2>2,511,627</font></div>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="32%" height=17>
      <P><FONT face="Times New Roman, Times, serif" size=2>&nbsp;&nbsp;General
        and administrative </FONT></P>
    </TD>
    <TD width="17%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>896,261</FONT></P>
    </TD>
    <TD width="17%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>736,753</FONT></P>
    </TD>
    <TD width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif"
      size=2>1,743,185</font></div>
    </TD>
    <TD width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif"
      size=2>1,410,547</font></div>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="32%" height=17><FONT face="Times New Roman, Times, serif"
      size=2>&nbsp; Amortization of intangible technology</FONT></TD>
    <TD width="17%" height=17>
      <DIV align=center><FONT face="Times New Roman, Times, serif"
      size=2>91,787</FONT></DIV>
    </TD>
    <TD width="17%" height=17>
      <DIV align=center><font face="Times New Roman, Times, serif"
      size=2>101,068</font></DIV>
    </TD>
    <TD width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif"
      size=2>183,574</font></div>
    </TD>
    <TD width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif"
      size=2>217,436</font></div>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="32%" height=17>
      <P><FONT face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp;&nbsp;Total operating expenses </FONT></P>
    </TD>
    <TD width="17%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>3,367,257</FONT></P>
    </TD>
    <TD width="17%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>2,859,072</FONT></P>
    </TD>
    <TD width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif"
      size=2>6,749,157</font></div>
    </TD>
    <TD width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif"
      size=2>5,853,761</font></div>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="32%" height=37>
      <P><FONT face="Times New Roman, Times, serif" size=2>Operating income (loss)
        </FONT></P>
    </TD>
    <TD width="17%" height=37>
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>47,692</FONT></P>
    </TD>
    <TD width="17%" height=37>
      <P align=center><font face="Times New Roman, Times, serif"
      size=2>(368,356)</font></P>
    </TD>
    <TD width="17%" height=37>
      <div align="center"><font face="Times New Roman, Times, serif"
      size=2>97,354</font></div>
    </TD>
    <TD width="17%" height=37>
      <div align="center"><font face="Times New Roman, Times, serif"
      size=2>(961,193)</font></div>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="32%" height=32>
      <P><FONT face="Times New Roman, Times, serif" size=2>Interest income and
        other </FONT> </P>
    </TD>
    <TD width="17%" height=32>
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>8,511</FONT></P>
    </TD>
    <TD width="17%" height=32>
      <P align=center><font face="Times New Roman, Times, serif"
      size=2>6,566</font></P>
    </TD>
    <TD width="17%" height=32>
      <div align="center"><font face="Times New Roman, Times, serif"
      size=2>19,171</font></div>
    </TD>
    <TD width="17%" height=32>
      <div align="center"><font face="Times New Roman, Times, serif"
      size=2>13,776</font></div>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="32%" height=17>
      <P><FONT face="Times New Roman, Times, serif" size=2>Interest expense </FONT></P>
    </TD>
    <TD width="17%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif" size=2>(590)
        </FONT></P>
    </TD>
    <TD width="17%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif" size=2>(20,875)
        </FONT></P>
    </TD>
    <TD width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif" size=2>(7,522)
        </font></div>
    </TD>
    <TD width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif" size=2>(47,755)
        </font></div>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="32%" height=17>
      <P><FONT face="Times New Roman, Times, serif" size=2>Net income (loss) </FONT></P>
    </TD>
    <TD width="17%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif" size=2>55,613</FONT></P>
    </TD>
    <TD width="17%" height=17>
      <P align=center><font face="Times New Roman, Times, serif" size=2>(382,665)</font></P>
    </TD>
    <TD width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif" size=2>109,003</font></div>
    </TD>
    <TD width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif" size=2>(995,172)</font></div>
    </TD>
  </TR>
  <tr valign=bottom>
    <td valign=top width="32%" height=17>
      <p><font face="Times New Roman, Times, serif" size=2>Preferred stock dividends</font></p>
    </td>
    <td width="17%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size=2>(12,539)
        </font></p>
    </td>
    <td width="17%" height=20>
      <p align=center><font face="Times New Roman, Times, serif" size=2>(58,259)
        </font></p>
    </td>
    <td width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif" size=2>(25,617)
        </font></div>
    </td>
    <td width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif" size=2>(90,259)
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td valign=top width="32%" height=20>
      <p><font face="Times New Roman, Times, serif" size=2>Preferred stock accretion
        </font></p>
    </td>
    <td width="17%" height=20>
      <p align=center><font face="Times New Roman, Times, serif" size=2>-- </font></p>
    </td>
    <td width="17%" height=20>
      <p align=center><font face="Times New Roman, Times, serif" size=2>(102,008)
        </font></p>
    </td>
    <td width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif" size=2>--
        </font></div>
    </td>
    <td width="17%" height=20>
      <div align="center"><font face="Times New Roman, Times, serif" size=2>(485,906)
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td valign=top width="32%" height=17>
      <p><font face="Times New Roman, Times, serif" size=2>Net income (loss) applicable
        to common stockholders</font></p>
    </td>
    <td width="17%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size=2>$ 43,074
        </font></p>
    </td>
    <td width="17%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size=2>$ (542,932)
        </font></p>
    </td>
    <td width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif" size=2>$
        83,386 </font></div>
    </td>
    <td width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif" size=2>$
        (1,571,337) </font></div>
    </td>
  </tr>
  <TR vAlign=bottom>
    <TD vAlign=top width="32%" height=17>&nbsp;</TD>
    <TD width="17%" height=17>&nbsp;</TD>
    <TD width="17%" height=17>&nbsp;</TD>
    <td width="17%" height=17>&nbsp;</td>
    <td width="17%" height=17>&nbsp;</td>
  </TR>
  <tr valign=bottom>
    <td valign=top width="32%" height=35>
      <p><font face="Times New Roman, Times, serif" size=2>Net income (loss) per
        share applicable to common stockholders:</font></p>
    </td>
    <td colspan="4" height=35>
      <p align=center>&nbsp;</p>
    </td>
  </tr>
  <TR vAlign=bottom>
    <TD vAlign=top width="32%" height=17>&nbsp;</TD>
    <TD width="17%" height=17>&nbsp;</TD>
    <TD width="17%" height=17>&nbsp;</TD>
    <td width="17%" height=17>&nbsp;</td>
    <td width="17%" height=17>&nbsp;</td>
  </TR>
  <tr valign=bottom>
    <td valign=top width="32%" height=12>
      <p><font face="Times New Roman, Times, serif" size=2>&nbsp;&nbsp;Basic</font></p>
    </td>
    <td width="17%" height=12>
      <p align=center><font face="Times New Roman, Times, serif" size=2>$ 0.00</font></p>
    </td>
    <td width="17%" height=12>
      <p align=center><font face="Times New Roman, Times, serif" size=2>$ (0.02)</font></p>
    </td>
    <td width="17%" height=12>
      <div align="center"><font face="Times New Roman, Times, serif" size=2>$
        0.00</font></div>
    </td>
    <td width="17%" height=12>
      <div align="center"><font face="Times New Roman, Times, serif" size=2>$
        (0.06)</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td valign=top width="32%" height=8>
      <p><font face="Times New Roman, Times, serif" size=2>&nbsp;&nbsp;Diluted</font></p>
    </td>
    <td width="17%" height=8>
      <p align=center><font face="Times New Roman, Times, serif" size=2>$ 0.00</font></p>
    </td>
    <td width="17%" height=8>
      <p align=center><font face="Times New Roman, Times, serif" size=2>$ (0.02)</font></p>
    </td>
    <td width="17%" height=8>
      <div align="center"><font face="Times New Roman, Times, serif" size=2>$
        0.00</font></div>
    </td>
    <td width="17%" height=8>
      <div align="center"><font face="Times New Roman, Times, serif" size=2>$
        (0.06)</font></div>
    </td>
  </tr>
  <TR vAlign=bottom>
    <TD width="32%" height=17>&nbsp;</TD>
    <TD width="17%" height=17>&nbsp;</TD>
    <TD width="17%" height=17>&nbsp;</TD>
    <td width="17%" height=17>&nbsp;</td>
    <td width="17%" height=17>&nbsp;</td>
  </TR>
  <tr valign=bottom>
    <td width="32%" height=17>
      <p><font face="Times New Roman, Times, serif" size=2>Weighted average shares
        outstanding</font> </p>
    </td>
    <td colspan="4" height=17>&nbsp;</td>
  </tr>
  <tr valign=bottom>
    <td valign=top width="32%" height=12>
      <p><font face="Times New Roman, Times, serif" size=2>&nbsp;&nbsp;Basic</font></p>
    </td>
    <td width="17%" height=12>
      <p align=center><font face="Times New Roman, Times, serif" size=2>30,013,477</font></p>
    </td>
    <td width="17%" height=12>
      <p align=center><font face="Times New Roman, Times, serif" size=2>24,532,654</font></p>
    </td>
    <td width="17%" height=12>
      <div align="center"><font face="Times New Roman, Times, serif" size=2>29,973,540</font></div>
    </td>
    <td width="17%" height=12>
      <div align="center"><font face="Times New Roman, Times, serif" size=2>24,370,029</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td valign=top width="32%" height=8>
      <p><font face="Times New Roman, Times, serif" size=2>&nbsp;&nbsp;Diluted</font></p>
    </td>
    <td width="17%" height=8>
      <p align=center><font face="Times New Roman, Times, serif" size=2>34,045,476</font></p>
    </td>
    <td width="17%" height=8>
      <p align=center><font face="Times New Roman, Times, serif" size=2>24,532,654</font></p>
    </td>
    <td width="17%" height=8>
      <div align="center"><font face="Times New Roman, Times, serif" size=2>34,195,352</font></div>
    </td>
    <td width="17%" height=8>
      <div align="center"><font face="Times New Roman, Times, serif" size=2>24,370,029</font></div>
    </td>
  </tr>
</TABLE>
<P></P>
<font face="Times New Roman, Times, serif" size="3"><BR>
</font>
<P align=center><font face="Times New Roman, Times, serif" size="3">See accompanying
  notes. <BR>
  <BR>
  </font>
<P align=center>
<P align=center><font face="Times New Roman, Times, serif" size="3"><A
name=flows></A> 3 </font>
<HR width="100%">
<p><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
</p>
<P align=center>
<P align=center>
<P align=center>
<P align=center>
<P align=center>
<P align=center>
<P align=center>
<P align=center>
<TABLE cellSpacing=1 cellPadding=1 width=695 align=center border=1>
  <TR vAlign=bottom>
    <TD colSpan=3>
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2><B>SOCKET COMMUNICATIONS, INC. <BR>
        CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS</B> <BR>
        (Unaudited) </FONT></P>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="67%">
      <P><FONT face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;</FONT></P>
    </TD>
    <TD colSpan=2>
      <P align=center><FONT face="Times New Roman, Times, serif" size=2><u>Six
        Months Ended June 30,</u> </FONT></P>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="67%">
      <P><FONT face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp;</FONT></P>
    </TD>
    <TD width="16%">
      <P align=center><FONT face="Times New Roman, Times, serif" size=2>2004 </FONT></P>
    </TD>
    <TD width="17%">
      <P align=center><FONT face="Times New Roman, Times, serif" size=2>2003 </FONT></P>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="67%"><B>
      <P><FONT face="Times New Roman, Times, serif" size=2>Operating activities</FONT>
      </P>
      </B></TD>
    <TD colSpan=2>
      <P><FONT face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;</FONT></P>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="67%">
      <P><FONT face="Times New Roman, Times, serif" size=2>&nbsp;&nbsp;Net income
        (loss)</FONT> </P>
    </TD>
    <TD width="16%">
      <P align=center><FONT face="Times New Roman, Times, serif" size=2>$ 109,003</FONT>
      </P>
    </TD>
    <TD width="17%">
      <P align=center><FONT face="Times New Roman, Times, serif" size=2>$ (995,172)</FONT>
      </P>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="67%" height="18">
      <P><FONT face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;Adjustments to reconcile net income (loss) to net cash
        used in operating activities: </FONT></P>
    </TD>
    <TD colSpan=2 height="18">
      <P><FONT face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;</FONT></P>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="67%">
      <P><FONT face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp;&nbsp;Depreciation and amortization</FONT> </P>
    </TD>
    <TD width="16%">
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>223,921</FONT></P>
    </TD>
    <TD width="17%">
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>284,940</FONT></P>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="67%">
      <P><FONT face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp;&nbsp;Net (gain) loss on foreign currency translations</FONT>
      </P>
    </TD>
    <TD width="16%">
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>51,342</FONT></P>
    </TD>
    <TD width="17%">
      <P align=center><font face="Times New Roman, Times, serif"
      size=2>(38,298)</font></P>
    </TD>
  </TR>
  <tr valign=bottom>
    <td width="67%"><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp; Gain on forward exchange contract</font></td>
    <td width="16%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>(55,430)</font></div>
    </td>
    <td width="17%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>(74,930)</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="67%"><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp; Foreign currency exchange loss on note payable</font></td>
    <td width="16%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>54,860</font></div>
    </td>
    <td width="17%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>65,840</font></div>
    </td>
  </tr>
  <TR vAlign=bottom>
    <TD width="67%"><FONT face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp; Amortization of intangibles</FONT></TD>
    <TD width="16%">
      <DIV align=center><FONT face="Times New Roman, Times, serif"
      size=2>183,575</FONT></DIV>
    </TD>
    <TD width="17%">
      <DIV align=center><FONT face="Times New Roman, Times, serif"
      size=2>217,436</FONT></DIV>
    </TD>
  </TR>
  <tr valign=bottom>
    <td width="67%"><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp; Change in deferred rent</font></td>
    <td width="16%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>11,006</font></div>
    </td>
    <td width="17%" height="11">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>--</font></div>
    </td>
  </tr>
  <TR vAlign=bottom>
    <TD colspan="3">&nbsp;</TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="67%">
      <P><FONT face="Times New Roman, Times, serif" size=2>&nbsp;&nbsp;&nbsp;
        Changes in operating assets and liabilities:</FONT> </P>
    </TD>
    <TD colSpan=2>
      <P><FONT face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;</FONT></P>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="67%">
      <P><FONT face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts receivable</FONT>
      </P>
    </TD>
    <TD width="16%">
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>(610,463)</FONT></P>
    </TD>
    <TD width="17%">
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>(679,074)</FONT></P>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="67%">
      <P><FONT face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories</FONT>
      </P>
    </TD>
    <TD width="16%">
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>(958,124)</FONT></P>
    </TD>
    <TD width="17%">
      <P align=center><font face="Times New Roman, Times, serif"
      size=2>651,992</font></P>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="67%">
      <P><FONT face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prepaid expenses
        and other current assets</FONT></P>
    </TD>
    <TD width="16%">
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>4,520</FONT></P>
    </TD>
    <TD width="17%">
      <P align=center><font face="Times New Roman, Times, serif"
      size=2>131,975</font></P>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="67%">
      <P><FONT face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other assets</FONT>
      </P>
    </TD>
    <TD width="16%">
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>17,602</FONT></P>
    </TD>
    <TD width="17%">
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>16,214</FONT></P>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="67%">
      <P><FONT face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts payable
        and accrued expenses</FONT> </P>
    </TD>
    <TD width="16%">
      <P align=center><font face="Times New Roman, Times, serif"
      size=2>833,265</font></P>
    </TD>
    <TD width="17%">
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>(281,176)</FONT></P>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="67%">
      <P><FONT face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued payroll and
        related expenses</FONT> </P>
    </TD>
    <TD width="16%">
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>43,548</FONT></P>
    </TD>
    <TD width="17%">
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>143,092</FONT></P>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="67%">
      <P><FONT face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred income on
        shipments to distributors</FONT> </P>
    </TD>
    <TD width="16%">
      <P align=center><font face="Times New Roman, Times, serif"
      size=2>355,617</font></P>
    </TD>
    <TD width="17%">
      <P align=center><font face="Times New Roman, Times, serif"
      size=2>207,637</font></P>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="67%">
      <P><FONT face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash
        used in operating activities</FONT> </P>
    </TD>
    <TD width="16%">
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2> 264,242</FONT> </P>
    </TD>
    <TD width="17%">
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>(349,524)</FONT> </P>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD colSpan=3>
      <P><FONT face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;</FONT></P>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="67%"><B>
      <P><FONT face="Times New Roman, Times, serif" size=2>Investing activities</FONT>
      </P>
      </B></TD>
    <TD colSpan=2>
      <P><FONT face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;</FONT></P>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="67%">
      <P><FONT face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp; Purchase of equipment</FONT> </P>
    </TD>
    <TD width="16%">
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>(189,799)</FONT></P>
    </TD>
    <TD width="17%">
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>(152,592)</FONT></P>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="67%">
      <P><FONT face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash
        used in investing activities</FONT> </P>
    </TD>
    <TD width="16%">
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>(189,799)</FONT></P>
    </TD>
    <TD width="17%">
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>(152,592)</FONT></P>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD colSpan=3>
      <P><FONT face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="67%"><B>
      <P><FONT face="Times New Roman, Times, serif" size=2>Financing activities</FONT>
      </P>
      </B></TD>
    <TD colSpan=2>
      <P><FONT face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;</FONT></P>
    </TD>
  </TR>
  <tr valign=bottom>
    <td width="67%">
      <p><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp; Payments on capital leases and equipment financing
        notes</font></p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(16,455)</font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(15,131)</font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="67%">
      <p><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp; Payments on notes payable</font> </p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(449,284)</font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(603,665)</font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="67%">
      <p><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp; Net proceeds from sale of foreign exchange contract</font>
      </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>--</font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>161,700</font></p>
    </td>
  </tr>
  <TR vAlign=bottom>
    <TD width="67%">
      <P><FONT face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp; Gross proceeds from bank line of credit</FONT>
      </P>
    </TD>
    <TD width="16%">
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>6,419,966</FONT></P>
    </TD>
    <TD width="17%">
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>3,015,501</FONT></P>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="67%">
      <P><FONT face="Times New Roman, Times, serif"
      size=2> &nbsp;&nbsp;&nbsp; Gross payments on bank line of credit</FONT>
      </P>
    </TD>
    <TD width="16%">
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>(5,023,293)</FONT> </P>
    </TD>
    <TD width="17%">
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>(3,401,131)</FONT></P>
    </TD>
  </TR>
  <tr valign=bottom>
    <td width="67%">
      <p><font face="Times New Roman, Times, serif"
      size=2> &nbsp;&nbsp;&nbsp; Proceeds from stock options exercised</font>
      </p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>61,023</font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>12,596</font></p>
    </td>
  </tr>
  <TR vAlign=bottom>
    <TD width="67%">
      <P><FONT face="Times New Roman, Times, serif"
      size=2> &nbsp;&nbsp;&nbsp; Proceeds from warrants exercised</FONT> </P>
    </TD>
    <TD width="16%">
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>81,379</FONT></P>
    </TD>
    <TD width="17%">
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>119,178</FONT></P>
    </TD>
  </TR>
  <tr valign=bottom>
    <td width="67%"><font face="Times New Roman, Times, serif"
      size=2> &nbsp;&nbsp;&nbsp; Net proceeds from sale of preferred stock and
      warrants to <br>
      &nbsp;&nbsp;&nbsp; purchase common stock</font></td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>--</font></p>
    </td>
    <td width="17%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>1,544,838</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="67%" height="11"><font face="Times New Roman, Times, serif"
      size=2> &nbsp;&nbsp;&nbsp; Redemption payments on Series E redeemable convertible
      preferred stock</font></td>
    <td width="17%" height="11">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>--</font></p>
    </td>
    <td width="17%" height="11">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>(200,000)</font></div>
    </td>
  </tr>
  <TR vAlign=bottom>
    <TD width="67%" height="5">
      <P><FONT face="Times New Roman, Times, serif"
      size=2> &nbsp;&nbsp;&nbsp; Dividends paid</FONT></P>
    </TD>
    <TD width="16%" height="5">
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>(13,078)</FONT> </P>
    </TD>
    <TD width="17%" height="5">
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>(50,369)</FONT></P>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="67%">
      <P><FONT face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash
        provided by financing activities</FONT> </P>
    </TD>
    <TD width="16%">
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>1,060,258</FONT></P>
    </TD>
    <TD width="17%">
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>583,517</FONT></P>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD colSpan=3>
      <P><FONT face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;</FONT></P>
    </TD>
  </TR>
  <tr valign=bottom>
    <td width="67%">
      <p><font face="Times New Roman, Times, serif" size=2>Effect of exchange
        rate changes on cash and cash equivalents</font> </p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>1,605</font> </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>31,628</font> </p>
    </td>
  </tr>
  <TR vAlign=bottom>
    <TD width="67%">
      <P><FONT face="Times New Roman, Times, serif" size=2>Net increase in cash
        and cash equivalents</FONT> </P>
    </TD>
    <TD width="16%">
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>1,136,306</FONT></P>
    </TD>
    <TD width="17%">
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>113,029</FONT> </P>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="67%">&nbsp;</TD>
    <TD width="16%">&nbsp;</TD>
    <TD width="17%">&nbsp;</TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="67%">
      <P><FONT face="Times New Roman, Times, serif" size=2>Cash and cash equivalents
        at beginning of period</FONT> </P>
    </TD>
    <TD width="16%">
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>6,421,425</FONT> </P>
    </TD>
    <TD width="17%">
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>3,146,483</FONT> </P>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="67%">
      <P><FONT face="Times New Roman, Times, serif" size=2>Cash and cash equivalents
        at end of period</FONT> </P>
    </TD>
    <TD width="16%">
      <P align=center><FONT face="Times New Roman, Times, serif" size=2>$ 7,557,731</FONT>
      </P>
    </TD>
    <TD width="17%">
      <P align=center><FONT face="Times New Roman, Times, serif" size=2>$ 3,259,512</FONT>
      </P>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD colSpan=3>
      <P><FONT face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;</FONT></P>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="67%"><B>
      <P><FONT face="Times New Roman, Times, serif" size=2>Supplemental cash flow
        information</FONT> </P>
      </B></TD>
    <TD colSpan=2>
      <P><FONT face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;</FONT></P>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="67%">
      <P><FONT face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp; Cash paid for interest</FONT> </P>
    </TD>
    <TD width="16%">
      <P align=center><FONT face="Times New Roman, Times, serif" size=2>$ 7,522</FONT>
      </P>
    </TD>
    <TD width="17%">
      <P align=center><FONT face="Times New Roman, Times, serif" size=2>$47,755</FONT>
      </P>
    </TD>
  </TR>
  <tr valign=bottom>
    <td width="67%">
      <p><font face="Times New Roman, Times, serif"
      size=2> &nbsp;&nbsp;&nbsp; Warrants issued in conjunction with preferred
        stock financing</font> </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size=2>$ --</font>
      </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size=2>$ 662,827</font>
      </p>
    </td>
  </tr>
</TABLE>
<P></P>
<font face="Times New Roman, Times, serif" size="3"><BR>
</font>
<P align=center><font face="Times New Roman, Times, serif" size="3">See accompanying
  notes. <BR>
  <BR>
  <A name=notes></A>4<BR>
  </font>
<P align=center>
<HR width="100%">
<P align=left>
<P align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<P align=center><font face="Times New Roman, Times, serif" size="3"><b>SOCKET
  COMMUNICATIONS, INC.<br>
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS<br>
  (Unaudited)</b> </font>
<p><font face="Times New Roman, Times, serif" size="3"><br>
  <b>NOTE 1 - Basis of Presentation</b></font></p>
<p>The accompanying unaudited consolidated financial statements of Socket Communications,
  Inc. and its wholly owned subsidiaries (the "Company") have been prepared in
  accordance with accounting principles generally accepted in the United States
  for interim financial information and with the instructions to Form 10-Q and
  Article 10 of Regulation S-X. Accordingly, they do not include all of the information
  and footnotes required by accounting principles generally accepted in the United
  States for complete financial statements. In the opinion of management, all
  adjustments (consisting only of normal recurring accruals) considered necessary
  for fair presentation have been included. Certain information and footnote disclosures
  normally included in financial statements prepared in accordance with accounting
  principles generally accepted in the United States have been condensed or omitted.
  These consolidated financial statements should be read in conjunction with the
  audited consolidated financial statements and notes included in the Company's
  Annual Report on Form 10-K for the year ended December 31, 2003.</p>
<p><font face="Times New Roman, Times, serif" size="3"> <b>NOTE 2 - Summary of
  Significant Accounting Policies</b></font></p>
<p>The preparation of financial statements in conformity with accounting principles
  generally accepted in the United States requires management to make estimates
  and assumptions that affect the reported amounts of assets and liabilities,
  the disclosure of contingent assets and liabilities at the date of the financial
  statements, and the reported amounts of revenue and expense during the reporting
  period. Actual results could differ from those estimates, and such differences
  may be material to the financial statements. </p>
<p>The Company makes adjustments to the value of inventory based on estimates
  of potentially excess and obsolete inventory after considering forecasted demand
  and forecasted average selling prices. However, forecasts are subject to revisions,
  cancellations, and rescheduling. Actual demand will inevitably differ from anticipated
  demand, and such differences may have a material effect on the financial statements.
</p>
<p>The Company accounts for employee stock options in accordance with Accounting
  Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
  (APB 25), and the Company has adopted the disclosure-only alternative described
  in Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
  Compensation" (FAS 123). The Company has elected to follow APB No. 25 and related
  interpretations in accounting for its employee stock options because, as discussed
  below, the alternative fair value accounting provided for under FAS 123 requires
  use of option valuation models that were not developed for use in valuing employee
  stock options. Under APB 25, the Company generally does not record compensation
  expense because the exercise price of the Company's employee stock options equals
  the market price of the underlying stock on the date of grant. Pro forma information
  regarding net loss and loss per share available to common shareholders is required
  by FAS 123, and such information has been determined as if the Company had accounted
  for its employee stock options under the fair value method. </p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p align=center><font face="Times New Roman, Times, serif" size="3"><a name=notes></a>5<br>
  </font>
<p align=center>
<hr width="100%">
<p>Had compensation cost for the Company's stock-based compensation plans been
  determined based on the fair value at the grant dates for awards under those
  plans consistent with the method of FAS 123, the Company's net loss per share
  would have increased to the pro forma amounts indicated below: </p>
<p>&nbsp;</p>
<table cellspacing=1 cellpadding=1 width=712 align=center border=1>
  <tr valign=bottom>
    <td width="42%"><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></td>
    <td colspan="2">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">Three
        Months Ended <br>
        June 30,</font></div>
    </td>
    <td colspan="2">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">Six
        Months Ended <br>
        June 30,</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="42%" height="14">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
    </td>
    <td width="15%" height="14">
      <p align=center><font face="Times New Roman, Times, serif" size="2">2004
        </font></p>
    </td>
    <td width="13%" height="14">
      <p align=center><font face="Times New Roman, Times, serif" size="2">2003
        </font></p>
    </td>
    <td width="15%" height="14">
      <p align=center><font face="Times New Roman, Times, serif" size="2">2004
        </font></p>
    </td>
    <td width="15%" height="14">
      <p align=center><font face="Times New Roman, Times, serif" size="2">2003</font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="42%" height="2">
      <p><font face="Times New Roman, Times, serif" size="2">Net income (loss)
        applicable to common stockholders</font></p>
    </td>
    <td width="15%" height="2">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 43,074</font>
      </p>
    </td>
    <td width="13%" height="2">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ (542,932)</font>
      </p>
    </td>
    <td width="15%" height="2">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        83,386</font> </div>
    </td>
    <td width="15%" height="2">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        (1,571,337)</font> </div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="42%" height="44">
      <p><font face="Times New Roman, Times, serif" size="2">Stock-based employee
        compensation expense determined under fair value based method</font> </p>
    </td>
    <td width="15%" height="44">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(758,721)</font>
      </p>
    </td>
    <td width="13%" height="44">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(602,575)</font>
      </p>
    </td>
    <td width="15%" height="44">
      <div align="center"><font size="1"><font size="2"><font size="3"><font size="1"><font face="Times New Roman, Times, serif" size="2">(1,466,633)</font></font></font></font></font></div>
    </td>
    <td width="15%" height="44">
      <div align="center"><font size="1"><font size="2"><font size="3"><font size="1"><font face="Times New Roman, Times, serif" size="2">(1,146,603)</font></font></font></font></font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="42%">
      <p><font face="Times New Roman, Times, serif" size="2">Pro forma net loss
        applicable to common stockholders</font> </p>
    </td>
    <td width="15%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ (715,647)</font>
      </p>
    </td>
    <td width="13%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ (1,145,507)</font>
      </p>
    </td>
    <td width="15%">
      <div align="center"><font size="1"><font size="2"><font size="3"><font size="1"><font face="Times New Roman, Times, serif" size="2">$
        (1,383,247)</font> </font></font></font></font></div>
    </td>
    <td width="15%">
      <div align="center"><font size="1"><font size="2"><font size="3"><font size="1"><font face="Times New Roman, Times, serif" size="2">$
        (2,717,940)</font> </font></font></font></font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="42%" height="7">
      <p><font face="Times New Roman, Times, serif" size="2">Basic net income
        (loss) per share, as reported</font></p>
    </td>
    <td width="15%" height="7">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 0.00</font>
      </p>
    </td>
    <td width="13%" height="7">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ (0.02)</font>
      </p>
    </td>
    <td width="15%" height="7">
      <div align="center"><font size="1"><font size="2"><font size="3"><font size="1"><font face="Times New Roman, Times, serif" size="2">$
        0.00</font></font></font></font></font></div>
    </td>
    <td width="15%" height="7">
      <div align="center"><font size="1"><font size="2"><font size="3"><font size="1"><font face="Times New Roman, Times, serif" size="2">$
        (0.06)</font> </font></font></font></font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="42%" height="7">
      <p><font face="Times New Roman, Times, serif" size="2">Diluted net income
        (loss) per share, as reported</font></p>
    </td>
    <td width="15%" height="7">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 0.00</font>
      </p>
    </td>
    <td width="13%" height="7">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ (0.02)</font>
      </p>
    </td>
    <td width="15%" height="7">
      <div align="center"><font size="1"><font size="2"><font size="3"><font size="1"><font face="Times New Roman, Times, serif" size="2">$
        0.00</font></font></font></font></font></div>
    </td>
    <td width="15%" height="7">
      <div align="center"><font size="1"><font size="2"><font size="3"><font size="1"><font face="Times New Roman, Times, serif" size="2">$
        (0.06)</font> </font></font></font></font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="42%">
      <p><font face="Times New Roman, Times, serif" size="2">Pro forma basic and
        diluted net loss per share</font> </p>
    </td>
    <td width="15%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ (0.02)</font>
      </p>
    </td>
    <td width="13%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ (0.05)</font>
      </p>
    </td>
    <td width="15%">
      <div align="center"><font size="1"><font size="2"><font size="3"><font size="1"><font face="Times New Roman, Times, serif" size="2">$
        (0.05)</font> </font></font></font></font></div>
    </td>
    <td width="15%">
      <div align="center"><font size="1"><font size="2"><font size="3"><font size="1"><font face="Times New Roman, Times, serif" size="2">$
        (0.11)</font> </font></font></font></font></div>
    </td>
  </tr>
</table>
<p><font face="Times New Roman, Times, serif" size="3">The fair value of these
  options was estimated at the date of grant using the Black-Scholes option pricing
  model. Weighted average assumptions for the periods presented are as follows:</font></p>
<table cellspacing=1 cellpadding=1 width=700 align=center border=1>
  <tr valign=bottom>
    <td width="44%"><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font></td>
    <td colspan="2">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">Three
        Months Ended <br>
        June 30,</font></div>
    </td>
    <td colspan="2">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">Six
        Months Ended <br>
        June 30,</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="44%"><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font></td>
    <td width="13%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">2004
        </font></p>
    </td>
    <td width="13%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">2003
        </font></p>
    </td>
    <td width="15%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">2004
        </font></p>
    </td>
    <td width="15%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">2003
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="44%">
      <p><font face="Times New Roman, Times, serif" size="2">Risk-free interest
        rate (%)</font> </p>
    </td>
    <td width="13%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">2.93%</font>
      </p>
    </td>
    <td width="13%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">3.16%</font>
      </p>
    </td>
    <td width="15%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">2.93%</font>
      </p>
    </td>
    <td width="15%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">3.36%</font>
      </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="44%">
      <p><font face="Times New Roman, Times, serif" size="2">Dividend yield</font>
      </p>
    </td>
    <td width="13%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">--</font>
      </p>
    </td>
    <td width="13%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">--</font>
      </p>
    </td>
    <td width="15%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">--</font>
      </p>
    </td>
    <td width="15%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">--</font>
      </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="44%">
      <p><font face="Times New Roman, Times, serif" size="2">Volatility factor</font>
      </p>
    </td>
    <td width="13%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">1.4</font>
      </p>
    </td>
    <td width="13%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">1.3</font>
      </p>
    </td>
    <td width="15%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">1.4</font>
      </p>
    </td>
    <td width="15%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">1.4</font>
      </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="44%">
      <p><font face="Times New Roman, Times, serif" size="2">Expected option life
        (years) </font> </p>
    </td>
    <td width="13%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">4.5</font>
      </p>
    </td>
    <td width="13%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">6.5</font>
      </p>
    </td>
    <td width="15%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">4.5</font>
      </p>
    </td>
    <td width="15%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">6.5</font>
      </p>
    </td>
  </tr>
</table>
<p>The Black-Scholes option valuation model was developed for use in estimating
  the fair value of traded options that have no vesting restrictions and are fully
  transferable. In addition, option valuation models require the input of highly
  subjective assumptions including the expected stock price volatility and expected
  option life. Because the Company's employee stock options have characteristics
  significantly different from those of traded options, and because changes in
  the subjective input assumptions can materially affect the fair value estimate,
  in management's opinion, the existing models do not necessarily provide a reliable
  single measure of the fair value of its employee stock options.</p>
<p>&nbsp;</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">6<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p><font face="Times New Roman, Times, serif" size="3"> <b>NOTE 3 - Inventories</b></font></p>
<p><font face="Times New Roman, Times, serif" size="3">Inventories consist principally
  of raw materials and sub-assemblies, which are stated at the lower of cost (first-in,
  first-out) or market.</font></p>
<p>&nbsp;</p>
<TABLE cellSpacing=1 cellPadding=1 width=700 align=center border=1>
  <TR vAlign=bottom>
    <TD width="49%"><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></TD>
    <TD width="28%">
      <P align=center><font face="Times New Roman, Times, serif" size="2">June
        30,<br>
        2004 </font></P>
    </TD>
    <TD width="23%">
      <P align=center><font face="Times New Roman, Times, serif" size="2">December
        31, <br>
        2003 </font></P>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="49%">
      <P><font face="Times New Roman, Times, serif" size="2">Raw materials and
        subassemblies </font></P>
    </TD>
    <TD width="28%">
      <P align=center><font face="Times New Roman, Times, serif" size="2">$ 2,180,760</font></P>
    </TD>
    <TD width="23%">
      <P align=center><font face="Times New Roman, Times, serif" size="2">$ 1,470,538</font>
      </P>
    </TD>
  </TR>
  <tr valign=bottom>
    <td width="49%" height="21">
      <p><font face="Times New Roman, Times, serif" size="2">Finished goods</font></p>
    </td>
    <td width="28%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">514,330
        </font></p>
    </td>
    <td width="23%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">266,428
        </font></p>
    </td>
  </tr>
  <TR vAlign=bottom>
    <TD width="49%" height="27">
      <P><font face="Times New Roman, Times, serif" size="2">Total inventory</font></P>
    </TD>
    <TD width="28%" height="27">
      <P align=center><font face="Times New Roman, Times, serif" size="2">$ 2,695,090</font></P>
    </TD>
    <TD width="23%" height="27">
      <P align=center><font face="Times New Roman, Times, serif" size="2">$ 1,736,966
        </font></P>
    </TD>
  </TR>
</TABLE>
<P><font face="Times New Roman, Times, serif" size="3"><b>NOTE 4 - Bank Financing
  Arrangements</b></font></P>
<p>On March 5, 2004, the Company entered into a new credit agreement with a bank,
  which will expire on March 5, 2006. This new credit agreement replaced the credit
  agreement previously in effect. The credit facility under the new credit agreement
  allows the Company to borrow up to $4,000,000 based on the level of qualified
  domestic and international receivables, $2,500,000 and $1,500,000, respectively,
  at the lender's index rate based on prime plus 0.5%. The rates in effect at
  June 30, 2004 were 4.5% on both the domestic and international lines. At June
  30, 2004, outstanding amounts borrowed under the lines were $1,832,162 and $1,131,901,
  respectively, which were the approximate amounts available on the lines. These
  amounts outstanding at June 30, 2004 were repaid in July 2004. Under the new
  credit agreement, the Company must maintain quarterly minimum tangible net worth
  equal to $5,500,000, plus 75% of quarterly net profits beginning March 31, 2004.
  At June 30, 2003, outstanding amounts borrowed under the Company's previous
  bank lines were $842,678 and $677,692, respectively, which were the approximate
  amounts available on those lines. The amounts outstanding at June 30, 2003 were
  repaid in July 2003.</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>NOTE 5 - Series F Convertible
  Preferred Stock Financing</b></font></p>
<p>On March 20, 2003, the Company sold 276,269 units at a price of $7.22 per unit
  (total of $2,000,000 gross cash proceeds) in a private placement. Each unit
  consisted of one share of the Company's Series F convertible preferred stock
  (the "Series F Preferred Stock") and a three-year warrant to purchase three
  shares of the Company's common stock. Two directors of the Company invested
  an aggregate of $115,000 in the financing. Each share of Series F Preferred
  Stock is convertible, in whole or in part, into 10 shares of common stock at
  the option of the holder at any time for a period of three years following the
  date of sale, with a mandatory conversion date three years from date of sale.
  The originally issued Series F Preferred Stock was convertible into a total
  of 2,762,690 shares of common stock at a conversion price of $0.722 per share,
  subject to certain adjustments. An additional 828,807 shares of common stock
  were issuable upon exercise of the originally issued warrants at an exercise
  price of $0.722 per share. In addition, the Company issued five-year warrants
  to the placement agent to acquire up to 718,300 shares of common stock at $0.722
  per share. Using a Black-Scholes valuation model with the following assumptions:
  0.0% dividend yield rate, risk free interest rates of 1.9% and 2.81%, respectively,
  for the investors and placement agent, $0.73 per share fair value of common
  stock, $0.722 exercise price, a life of three years and five years, respectively,
  for the investors and placement agent, and a volatility of 0.911, $348,099 of
  the proceeds were attributed to the warrants issued to investors, and the warrants
  issued to the placement agent were valued at $366,333, which was included in
  the cost of the financing. The Company recorded a one-time accretion charge
  of $296,494 in the first quarter of 2003 reflecting the discount from market
  resulting from the allocation of the proceeds to the investor warrants.</p>
<p>&nbsp;</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">7<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p> The Series F Preferred Stock automatically converts into common stock three
  years after sale and automatically converts earlier in the event of a merger
  or consolidation of the Company, subject to certain conditions. The holders
  of Series F Preferred Stock have voting rights equal to the number of shares
  of common stock issuable upon conversion. In the event of liquidation, holders
  of Series F Preferred Stock are entitled to liquidation preferences over common
  stockholders equal to their initial investment plus all accrued but unpaid dividends.
  Dividends accrue at the rate of 8% per annum and are payable quarterly in cash
  or in common stock, at the option of the Company. Dividends for the three and
  six months ended June 30, 2004 were $12,539, and $25,617, respectively, which
  were paid in cash subsequent to each of the respective quarters. Dividends for
  the three and six months ended June 30, 2003 were $39,890, and $44,274, respectively.
  During the second quarter of 2004, holders of 2,939 shares of Series F Preferred
  Stock elected to convert their shares into 29,390 shares of common stock, leaving
  84,954 shares of Series F Preferred Stock outstanding at June 30, 2004.</p>
<p><font face="Times New Roman, Times, serif" size="3"><br>
  <b>NOTE 6 - Intangible Assets </b></font></p>
<p>During the first quarter of 2002, the Company acquired intangible assets in
  conjunction with the acquisition of Nokia's CompactFlash Bluetooth Card business
  and related product line technology. These intangible assets were valued at
  $980,000, and consist of purchased technology and a licensing agreement. Estimated
  useful lives of the acquired assets ranged from one to three years. Intangible
  assets of $835,125 from a prior acquisition consist of developed software and
  technology, and have estimated lives ranging form 2.5 to 8.5 years. Amortization
  of these intangible assets for the three and six months ended June 30, 2004
  were $91,788 and $183,575 compared to $101,068 and $217,436 for the same periods
  in 2003.</p>
<p><font face="Times New Roman, Times, serif" size="3">Intangible assets as of
  June 30, 2004 consisted of the following:</font></p>
<table cellspacing=1 cellpadding=1 width=700 align=center border=1>
  <tr valign=bottom>
    <td width="331">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp; </font></p>
    </td>
    <td width="118">
      <p align=center><font face="Times New Roman, Times, serif" size="2">Gross<br>
        Assets </font></p>
    </td>
    <td width="115">
      <div align="center"><font size="2" face="Times New Roman, Times, serif">Accumulated
        Amortization</font></div>
    </td>
    <td width="109">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">Net
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="331">
      <p><font face="Times New Roman, Times, serif" size="2">Project management
        tools </font></p>
    </td>
    <td width="118">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 570,750
        </font></p>
    </td>
    <td width="115">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        (251,801) </font></div>
    </td>
    <td width="109">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        318,949 </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="331">
      <p><font face="Times New Roman, Times, serif" size="2">Development software</font></p>
    </td>
    <td width="118">
      <p align=center><font face="Times New Roman, Times, serif" size="2">111,375
        </font></p>
    </td>
    <td width="115">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">(111,375)
        </font></div>
    </td>
    <td width="109">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">--</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="331">
      <p><font face="Times New Roman, Times, serif" size="2">Schematic library</font></p>
    </td>
    <td width="118">
      <p align=center><font face="Times New Roman, Times, serif" size="2">153,000
        </font></p>
    </td>
    <td width="115">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">(153,000)
        </font></div>
    </td>
    <td width="109">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">--</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="331">
      <p><font face="Times New Roman, Times, serif" size="2">Bluetooth CompactFlash
        technology </font></p>
    </td>
    <td width="118">
      <p align=center><font face="Times New Roman, Times, serif" size="2">900,000
        </font></p>
    </td>
    <td width="115">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">(691,129)
        </font></div>
    </td>
    <td width="109">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">208,871
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="331">
      <p><font face="Times New Roman, Times, serif" size="2">Licensing agreement</font></p>
    </td>
    <td width="118">
      <p align=center><font face="Times New Roman, Times, serif" size="2">80,000
        </font></p>
    </td>
    <td width="115">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">(80,000)
        </font></div>
    </td>
    <td width="109">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">--
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="331">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;Definite
        lived intangible assets</font></p>
    </td>
    <td width="118">
      <p align=center><font face="Times New Roman, Times, serif" size="2">1,815,125
        </font></p>
    </td>
    <td width="115">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">(1,287,305)
        </font></div>
    </td>
    <td width="109">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">527,820
        </font></div>
    </td>
  </tr>
</table>
<P>&nbsp;</P>
<p align=center><font face="Times New Roman, Times, serif" size="3">8<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<P>Based on definite lived intangible assets recorded at June 30, 2004, and assuming
  no subsequent impairment of the underlying assets, the annual amortization expense
  is expected to be as follows:</P>
<table cellspacing=1 cellpadding=1 width=700 align=center border=1>
  <tr valign=bottom>
    <td colspan="3">
      <p align="center"><font face="Times New Roman, Times, serif" size="2">Year
        </font></p>
    </td>
    <td width="314">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">Amount</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td colspan="3">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">2004
        (Six months remaining)</font></div>
    </td>
    <td width="314">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        183,574 </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td colspan="3">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">2005
        </font></div>
    </td>
    <td width="314">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">126,018
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td colspan="3">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">2006
        </font></div>
    </td>
    <td width="314">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">67,147
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td colspan="3">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">2007
        </font></div>
    </td>
    <td width="314">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">67,147
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td colspan="3">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">2008
        and beyond</font></div>
    </td>
    <td width="314">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">83,934
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td colspan="3">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;
        </font></div>
    </td>
    <td width="314">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        527,820</font></div>
    </td>
  </tr>
</table>
<P><font face="Times New Roman, Times, serif" size="3"><b>NOTE 7 - Net Income
  (Loss) Per Share</b></font></P>
<p><font face="Times New Roman, Times, serif" size="3">The Company calculates
  earnings per share in accordance with Financial Accounting Standards Board Statement
  No. 128, <i>Earnings per Share</i>.</font></p>
<p>The following table sets forth the computation of basic and diluted net income
  (loss) per share:</p>
<TABLE cellSpacing=1 cellPadding=1 width=710 align=center border=1>
  <TR vAlign=bottom>
    <TD width=285><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></TD>
    <TD colSpan=2>
      <P align=center><font face="Times New Roman, Times, serif" size="2">Three
        Months Ended <br>
        June 30,</font></P>
    </TD>
    <td colspan=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">Six
        Months Ended <br>
        June 30,</font></p>
    </td>
  </TR>
  <TR vAlign=bottom>
    <TD width=285><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></TD>
    <TD width=97>
      <P align=center><font face="Times New Roman, Times, serif" size="2">2004
        </font></P>
    </TD>
    <TD width=93>
      <P align=center><font face="Times New Roman, Times, serif" size="2">2003
        </font></P>
    </TD>
    <td width=99>
      <p align=center><font face="Times New Roman, Times, serif" size="2">2004
        </font></p>
    </td>
    <td width=103>
      <p align=center><font face="Times New Roman, Times, serif" size="2">2003
        </font></p>
    </td>
  </TR>
  <TR vAlign=bottom>
    <TD width="285">
      <P><font face="Times New Roman, Times, serif" size="2">Numerator: </font></P>
    </TD>
    <TD width="97">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></div>
    </TD>
    <TD width="93">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></div>
    </TD>
    <td width="99">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></div>
    </td>
    <td width="103">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></div>
    </td>
  </TR>
  <TR vAlign=bottom>
    <TD width=285 height="19">
      <P><font face="Times New Roman, Times, serif" size="2">&nbsp&nbsp&nbspNet
        income (loss) </font></P>
    </TD>
    <TD width=97 height="19">
      <P align=center><font face="Times New Roman, Times, serif" size="2">$ 55,613
        </font></P>
    </TD>
    <TD width=93 height="19">
      <P align=center><font face="Times New Roman, Times, serif" size="2">$ (382,665)
        </font></P>
    </TD>
    <TD width=99 height="19">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        109,003 </font></div>
    </TD>
    <TD width=103 height="19">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        (995,172) </font></div>
    </TD>
  </TR>
  <tr valign=bottom>
    <td width=285 height="19">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp&nbsp&nbspPreferred
        stock dividends</font></p>
    </td>
    <td width=97 height="19">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(12,539)
        </font></p>
    </td>
    <td width=93 height="19">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(58,259)
        </font></p>
    </td>
    <td width=99 height="19">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">
        (25,617) </font></div>
    </td>
    <td width=103 height="19">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        (90,259) </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width=285 height="19">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp&nbsp&nbspPreferred
        stock accretion</font></p>
    </td>
    <td width="97">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">--</font></div>
    </td>
    <td width=93 height="19">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(102,008)
        </font></p>
    </td>
    <td width="99">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">--</font></div>
    </td>
    <td width=103 height="19">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        (485,906) </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width=285 height="15">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp&nbsp&nbspNet
        income (loss) applicable to common<br>
        &nbsp&nbsp&nbspstockholders </font></p>
    </td>
    <td width=97 height="15">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 43,074</font></p>
    </td>
    <td width=93 height="15">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ (542,932)</font></p>
    </td>
    <td width=99 height="15">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        83,386 </font></div>
    </td>
    <td width=103 height="15">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        (1,571,337) </font></div>
    </td>
  </tr>
  <TR vAlign=bottom>
    <TD width="285" height="40">
      <P><font face="Times New Roman, Times, serif" size="2">Denominator: </font></P>
    </TD>
    <TD width="97" height="40">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></div>
    </TD>
    <TD width="93" height="40">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></div>
    </TD>
    <td width="99" height="40">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></div>
    </td>
    <td width="103" height="40">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></div>
    </td>
  </TR>
  <TR vAlign=bottom>
    <TD width=285 height="34" valign="top">
      <P><font face="Times New Roman, Times, serif" size="2">&nbsp&nbsp&nbspWeighted
        average common shares <br>
        &nbsp&nbsp&nbspoutstanding used&nbspin computing <br>
        &nbsp&nbsp&nbspnet income (loss) per share </font></P>
    </TD>
    <TD colspan="4" height="34" valign="top">
      <P align=center><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font><font face="Times New Roman, Times, serif" size="2">
        </font></P>
    </TD>
  </TR>
  <tr valign=bottom>
    <td align=left width=285>
      <p align="left"><font face="Times New Roman, Times, serif" size="2">&nbsp&nbsp&nbsp&nbsp&nbsp&nbspBasic
        </font></p>
    </td>
    <td width=97>
      <p align=center><font face="Times New Roman, Times, serif" size="2">30,013,477
        </font></p>
    </td>
    <td width=93>
      <p align=center><font face="Times New Roman, Times, serif" size="2">24,532,654
        </font></p>
    </td>
    <td width=99>
      <div align="center"><font face="Times New Roman, Times, serif" size="2">29,973,540
        </font></div>
    </td>
    <td width=103>
      <div align="center"><font face="Times New Roman, Times, serif" size="2">24,370,029
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td align=left width=285>
      <p align="left"><font face="Times New Roman, Times, serif" size="2"> &nbsp&nbsp&nbsp&nbsp&nbsp&nbspDiluted
        </font></p>
    </td>
    <td width=97>
      <p align=center><font face="Times New Roman, Times, serif" size="2">34,045,476
        </font></p>
    </td>
    <td width=93>
      <p align=center><font face="Times New Roman, Times, serif" size="2">24,532,654
        </font></p>
    </td>
    <td width=99>
      <div align="center"><font face="Times New Roman, Times, serif" size="2">34,195,352
        </font></div>
    </td>
    <td width=103>
      <div align="center"><font face="Times New Roman, Times, serif" size="2">24,370,029
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td align=left width=285>
      <p align="left"><font face="Times New Roman, Times, serif" size="2">Basic
        net income (loss) per share</font></p>
    </td>
    <td width=97>
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 0.00
        </font></p>
    </td>
    <td width=93>
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ (0.02)
        </font></p>
    </td>
    <td width=99>
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        0.00 </font></div>
    </td>
    <td width=103>
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        (0.06) </font></div>
    </td>
  </tr>
  <TR vAlign=bottom>
    <TD align=left width=285>
      <P align="left"><font face="Times New Roman, Times, serif" size="2">Diluted
        net income (loss) per share </font></P>
    </TD>
    <TD width=97>
      <P align=center><font face="Times New Roman, Times, serif" size="2">$ 0.00
        </font></P>
    </TD>
    <TD width=93>
      <P align=center><font face="Times New Roman, Times, serif" size="2">$ (0.02)
        </font></P>
    </TD>
    <TD width=99>
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        0.00 </font></div>
    </TD>
    <TD width=103>
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        (0.06) </font></div>
    </TD>
  </TR>
</TABLE>
<P>For the 2003 periods presented the diluted net loss per share is equivalent
  to the basic net loss per share because the Company experienced losses in all
  quarters since inception through the year ended 2003, and thus a potential 8,302,569
  shares of common stock from the exercise of stock options, warrants, and conversion
  of preferred stock at June 30, 2003 have been omitted from the net loss per
  share calculation as their effect is antidilutive.</P>
<p></p>
<p>&nbsp;</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">9<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p><font face="Times New Roman, Times, serif" size="3"> <b>NOTE 8 - Income Taxes</b></font></p>
<p>There were no provisions for federal or state income taxes for the three and
  six months ended June 30, 2004 and 2003. The Company has incurred net operating
  losses in all periods prior to the first quarter 2004. Earnings in the three
  and six months ended June 30, 2004 are not material, and continued earnings
  are not assured. The Company has maintained a full valuation allowance for all
  deferred tax assets.</p>
<p><font face="Times New Roman, Times, serif" size="3"><br>
  <b>NOTE 9 - Segment Information</b></font></p>
<p>The Company operates in one segment, connection solutions for mobile computers
  and other electronic devices. The Company markets its products in the United
  States and foreign countries through its sales personnel and distributors. Information
  regarding geographic areas for the three and six months ended June 30, 2004
  and 2003 are as follows:</p>
<CENTER>
  <TABLE cellSpacing=1 cellPadding=1 width=700 align=center border=1>
    <TR vAlign=bottom>
      <TD width=262 height="46"><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></TD>
      <TD colSpan=2 height="46">
        <P align=center><font face="Times New Roman, Times, serif" size="2">Three
          Months Ended <br>
          June 30,</font></P>
      </TD>
      <TD colSpan=2 height="46">
        <div align="center"><font face="Times New Roman, Times, serif" size="2">Six
          Months Ended <br>
          June 30,</font></div>
      </TD>
    </TR>
    <TR vAlign=bottom>
      <TD width=262>
        <P><font face="Times New Roman, Times, serif" size="2">Revenues: </font></P>
      </TD>
      <TD width=103>
        <P align=center><font face="Times New Roman, Times, serif" size="2">2004
          </font></P>
      </TD>
      <TD width=105>
        <P align=center><font face="Times New Roman, Times, serif" size="2">2003
          </font></P>
      </TD>
      <td width=103>
        <p align=center><font face="Times New Roman, Times, serif" size="2">2004
          </font></p>
      </td>
      <td width=105>
        <p align=center><font face="Times New Roman, Times, serif" size="2">2003
          </font></p>
      </td>
    </TR>
    <TR vAlign=bottom>
      <TD width=262>
        <P><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;United
          States </font></P>
      </TD>
      <TD width=103>
        <P align=center><font face="Times New Roman, Times, serif" size="2">$
          4,183,904</font></P>
      </TD>
      <TD width=105>
        <P align=center><font face="Times New Roman, Times, serif" size="2">$
          3,008,939 </font></P>
      </TD>
      <TD width=97>
        <div align="center"><font face="Times New Roman, Times, serif" size="2">$
          8,233,075 </font></div>
      </TD>
      <TD width=100>
        <div align="center"><font face="Times New Roman, Times, serif" size="2">$
          5,964,645 </font></div>
      </TD>
    </TR>
    <tr valign=bottom>
      <td width=262>
        <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;Europe
          </font></p>
      </td>
      <td width=103>
        <p align=center><font face="Times New Roman, Times, serif" size="2">1,801,493</font></p>
      </td>
      <td width=105>
        <p align=center><font face="Times New Roman, Times, serif" size="2">1,117,449</font></p>
      </td>
      <td width=97>
        <div align="center"><font face="Times New Roman, Times, serif" size="2">3,559,796</font></div>
      </td>
      <td width=100>
        <div align="center"><font face="Times New Roman, Times, serif" size="2">2,311,006</font></div>
      </td>
    </tr>
    <tr valign=bottom>
      <td width=262>
        <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;South
          Korea </font></p>
      </td>
      <td width=103>
        <p align=center><font face="Times New Roman, Times, serif" size="2">207,939
          </font></p>
      </td>
      <td width=105>
        <p align=center><font face="Times New Roman, Times, serif" size="2">621,989</font></p>
      </td>
      <td width=97>
        <div align="center"><font face="Times New Roman, Times, serif" size="2">574,429</font></div>
      </td>
      <td width=100>
        <div align="center"><font face="Times New Roman, Times, serif" size="2">862,343</font></div>
      </td>
    </tr>
    <TR vAlign=bottom>
      <TD width=262>
        <P><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;Other
          Asia and rest of world </font></P>
      </TD>
      <TD width=103>
        <P align=center><font face="Times New Roman, Times, serif" size="2">537,855
          </font></P>
      </TD>
      <TD width=105>
        <P align=center><font face="Times New Roman, Times, serif" size="2">326,458</font></P>
      </TD>
      <TD width=97>
        <div align="center"><font face="Times New Roman, Times, serif" size="2">1,107,118</font></div>
      </TD>
      <TD width=100>
        <div align="center"><font face="Times New Roman, Times, serif" size="2">815,406</font></div>
      </TD>
    </TR>
    <TR vAlign=bottom>
      <TD width=262>
        <P><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;Total
          revenues </font></P>
      </TD>
      <TD width=103>
        <P align=center><font face="Times New Roman, Times, serif" size="2">$
          6,731,191</font></P>
      </TD>
      <TD width=105>
        <P align=center><font face="Times New Roman, Times, serif" size="2">$
          5,074,835 </font></P>
      </TD>
      <TD width=97>
        <div align="center"><font face="Times New Roman, Times, serif" size="2">$
          13,474,418 </font></div>
      </TD>
      <TD width=100>
        <div align="center"><font face="Times New Roman, Times, serif" size="2">$
          9,953,400 </font></div>
      </TD>
    </TR>
  </TABLE>
</CENTER>
<P></P>
<P><font face="Times New Roman, Times, serif" size="3"><BR>
  Export revenues are attributable to countries based on the location of the customers.
  The Company does not hold long-lived assets in foreign locations.</font></P>
<p></p>
<p></p>
<p>Major customers who accounted for at least 10% of the Company's total revenues
  during the three and six months ended June 30, 2004 and 2003 were as follows:</p>
<P align=center>
<CENTER>
  <TABLE cellSpacing=1 cellPadding=1 width=700 align=center border=1>
    <TR vAlign=bottom>
      <TD width="32%" height=17><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></TD>
      <TD colSpan=2 height=17>
        <P align=center><font face="Times New Roman, Times, serif" size="2">Three
          Months Ended <br>
          June 30, </font></P>
      </TD>
      <TD colSpan=2 height=17>
        <div align="center"><font face="Times New Roman, Times, serif" size="2">Six
          Months Ended <br>
          June 30, </font></div>
      </TD>
    </TR>
    <TR vAlign=bottom>
      <TD width="32%"><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></TD>
      <TD width="16%">
        <P align=center><font face="Times New Roman, Times, serif" size="2">2004
          </font></P>
      </TD>
      <TD width="19%">
        <P align=center><font face="Times New Roman, Times, serif" size="2">2003
          </font></P>
      </TD>
      <td width="16%">
        <p align=center><font face="Times New Roman, Times, serif" size="2">2004
          </font></p>
      </td>
      <td width="19%">
        <p align=center><font face="Times New Roman, Times, serif" size="2">2003
          </font></p>
      </td>
    </TR>
    <tr valign=bottom>
      <td width="32%" height=23>
        <p><font face="Times New Roman, Times, serif" size="2">Ingram Micro </font></p>
      </td>
      <td width="16%" height=23>
        <p align=center><font face="Times New Roman, Times, serif" size="2">14%
          </font></p>
      </td>
      <td width="19%" height=23>
        <p align=center><font face="Times New Roman, Times, serif" size="2">15%
          </font></p>
      </td>
      <td width="16%" height=23>
        <p align=center><font face="Times New Roman, Times, serif" size="2">16%
          </font></p>
      </td>
      <td width="19%" height=23>
        <p align=center><font face="Times New Roman, Times, serif" size="2">14%
          </font></p>
      </td>
    </tr>
    <tr valign=bottom>
      <td width="32%" height=23>
        <p><font face="Times New Roman, Times, serif" size="2">Tech Data</font></p>
      </td>
      <td width="16%" height=23>
        <p align=center><font face="Times New Roman, Times, serif" size="2">25%
          </font></p>
      </td>
      <td width="19%" height=23>
        <p align=center><font face="Times New Roman, Times, serif" size="2">27%
          </font></p>
      </td>
      <td width="16%" height=23>
        <p align=center><font face="Times New Roman, Times, serif" size="2">26%
          </font></p>
      </td>
      <td width="19%" height=23>
        <p align=center><font face="Times New Roman, Times, serif" size="2">25%
          </font></p>
      </td>
    </tr>
    <TR vAlign=bottom>
      <TD colspan="5" height=23><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></TD>
    </TR>
  </TABLE>
</CENTER>
<P></P>
<p>&nbsp;</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>NOTE 10 - Related Party</b></font></p>
<p>The Company purchases engineering design and consulting services from Impact
  Zone. Impact Zone's principal stockholder, Dale Gifford, is a sibling of Michael
  L. Gifford, Executive Vice President and Director of Socket. The Company had
  no outstanding accounts payable due to Impact Zone at June 30, 2004, and had
  $38,750 of outstanding accounts payable due at June 30, 2003. The Company received
  no services during the three and six months ended June 30, 2004, and received
  services valued at $38,750 and $106,250, respectively, for the three and six
  months ended June 30, 2003.</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">10<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p><font face="Times New Roman, Times, serif" size="3"><br>
  <b>NOTE 11 - Subsequent Event - Legal Issues</b></font></p>
<p>On July 15, 2004 the Company acquired from Khyber Technologies U.S. patent
  5,902,991 entitled Card Shaped Computer Peripheral Device. The patent is a basic
  patent covering the design and functioning of plug-in bar code scanners, bar
  code imagers and RFID products. The patent was purchased for $600,000 and will
  be capitalized as an intangible asset purchase during the third quarter of 2004
  and amortized over future periods. Khyber Technologies has also withdrawn its
  patent infringement lawsuit initiated in June of 2003. </p>
<p>&nbsp; </p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p align=center><font face="Times New Roman, Times, serif" size="3"><a
name=mda></a>11<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p><font face="Times New Roman, Times, serif" size="3"><br>
  </font></p>
<p><font face="Times New Roman, Times, serif" size="3"><b>Item 2. Management's
  Discussion and Analysis of Financial Condition and Results of Operations</b></font></p>
<p><font face="Times New Roman, Times, serif" size="3"><i>This Quarterly Report
  contains forward-looking statements within the meaning of Section 27A of the
  Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
  The forward-looking statements involve risks and uncertainties, including, among
  other things, the uncertainties associated with forecasting future revenues,
  costs and expenses. We use words such as "anticipates", "believes", "plans",
  "expects", "future", "intends", "may", "will", "should", "estimates", "predicts",
  "potential", "continue", "becoming", "transitioning" and similar expressions
  to identify such forward-looking statements. Our forward-looking statements
  include statements as to our business outlook, revenues, expenses, liquidity
  and capital resources sufficiency, and capital expenditures. You are cautioned
  not to place undue reliance on the forward-looking statements, which speak only
  as of the date of this report. Our actual results may differ materially from
  the results discussed in the forward-looking statements. Factors that might
  cause such a difference include, but are not limited to, those discussed below
  and under "Other Factors Affecting Future Operations." We assume no obligation
  to update such forward-looking statements or to update the reasons why actual
  results could differ materially from those anticipated in such forward-looking
  statements.</i></font></p>
<p><font face="Times New Roman, Times, serif" size="3"><i>You should read the
  following discussion in conjunction with the interim condensed consolidated
  financial statements and notes included elsewhere in this report, the Company's
  annual financial statements in the 10-K, and other information contained in
  other reports and documents filed from time to time with the Securities and
  Exchange Commission.</i></font></p>
<p><font face="Times New Roman, Times, serif" size="3"><br>
  <b>Revenue<br>
  </b></font><font face="Times New Roman, Times, serif" size="3"><br>
  We design, manufacture and sell products for connecting handheld and notebook
  computers to computer networks and peripherals, and bar code products for data
  collection using handheld and notebook computers. Total revenue for the three
  and six months ended June 30, 2004 of $6.7 million and $13.5 million, respectively,
  represented increases of 33% and 35% over revenue of $5.1 million and $10.0
  million for the corresponding periods a year ago.</font></p>
<p>Our products cover a wide range of connection solutions in four product families:</p>
<ul>
  <li><font face="Times New Roman, Times, serif" size="3">Our <i>network connection
    products</i> are connection devices that can be plugged into standard expansion
    slots in handheld and notebook computers or connect to handheld and notebook
    computers over wireless connections. These products allow users to connect
    their devices to the Internet via mobile or wired phone services, or to private
    networks, or to communicate with other electronic devices such as desktop
    computers and printers. Our products offer both wireless and cable connections
    to external devices such as mobile phones and printers and Global Positioning
    System receivers. Wireless connection products include cards using the Bluetooth
    standard for short-range wireless connectivity, cards for connecting to local
    wireless networks using the Wireless LAN 802.11b (or WiFi) standard, and Bluetooth
    enabled standalone products to work with handheld and notebook computers including
    a Bluetooth enabled 56K modem and a Bluetooth enabled GPS receiver. Cable
    connection products include modems for telephone connections, Ethernet cards
    for local area network connections and digital phone cards for wide area network
    connections through mobile phones.</font>
    <p align=center>&nbsp;
  </li>
</ul>
<p align="center"><font face="Times New Roman, Times, serif" size="3">12</font>
</p>
<hr width="100%">
<p><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
</p>
<ul>
  <li><font face="Times New Roman, Times, serif" size="3">Our <i>bar code scanning
    products</i> plug into or connect wirelessly to handheld or notebook computers
    and turn handheld or notebook computers into portable bar code scanners that
    can be used in various retail and industrial workplaces.<br>
    <br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">Our <i>peripheral connection
    (serial) products</i> add connection ports to a notebook or handheld computer
    that allow users to connect these portable computers to standard peripherals
    designed primarily for desktop PCs.<br>
    <br>
    </font></li>
  <li>Our <i>embedded products and services</i> consist of Bluetooth modules,
    interface chips, and engineering design services to install these products.
    Our Bluetooth modules allow manufacturers of handheld computers and other
    devices to build wireless connection functions into their products. Our interface
    chips allow manufacturers of wide area network cards and other devices to
    incorporate into their products the capability to transfer information to
    and from handheld or notebook computers.</li>
</ul>
<p>Our network connection product revenues were $2.3 million and $4.9 million,
  respectively, for the three and six month periods ended June 30, 2004, compared
  to $2.0 million and $4.0 million for the same periods a year ago. Revenue growth
  in the first six months of 2004 was due primarily to continued growth in sales
  of products introduced in 2003 and increasing enterprise deployment of Pocket
  PCs. Revenue growth in the first six months of 2004 of $0.7 million in our Wireless
  LAN product line was primarily from our Secure Digital (SDIO) Wireless LAN card,
  which began shipping in the third quarter of 2003. Revenue growth of $0.5 million
  in our Bluetooth plug-in card product line was primarily from our SDIO Bluetooth
  plug-in card, which began shipping in only modest quantities in the comparable
  period of 2003. Additional revenue growth of $0.3 million was from sales of
  our modem cards. Revenue growth from these products were partially offset by
  declines in revenue from our Bluetooth GPS receiver with navigation kit due
  primarily to effects of competitive pricing, and modest declines in revenue
  from our Ethernet plug-in cards and digital phone cards.</p>
<p align=left>Our bar code scanning product revenues were $2.4 million and $4.9
  million, respectively, for the three and six month periods ended June 30, 2004,
  compared to $1.4 million and $2.7 million for the same periods one year ago.
  Revenue growth in the first six months of 2004 of $1.2 million was due to our
  primary scanning product, the In-Hand Scan card, which is a laser scanner incorporated
  into a CompactFlash card that plugs into a Pocket PC, notebook, or other mobile
  computer to turn the computer into a portable laser scanner. Additional revenue
  growth of $1.7 million was due to our SDIO In-Hand Scan card, which began shipping
  to customers in the third quarter of 2003. Partially offsetting this revenue
  growth was a decline in sales of our bar code laser scanner system, which is
  a laser gun attached via a cable to a CompactFlash card with a PC card adaptor.
  Our scanning products are sold both through general distribution and through
  value added resellers who contract with customers to provide scanning solutions.
  Our products are becoming more widely adopted by the value added reseller community
  for light duty portable scanning.
<p>Our peripheral connection (serial ) card revenues were $1.0 million and $1.8
  million, respectively, for the three and six month periods ended June 30, 2004,
  compared to $0.9 million and $1.9 million for the same periods one year ago.
  Peripheral connection cards are primarily used to connect peripheral devices
  or other electronic equipment to notebook computers. The revenue increase for
  the comparable quarters was due primarily to sales of our cordless Bluetooth
  serial adaptor, which began shipping in the third quarter of 2003. The revenue
  decline for the comparable six month periods was due to declines in sales volumes
  for both our standard serial PC Card products and custom serial card sales,
  partially offset by sales of our cordless Bluetooth serial adaptor and increased
  sales of our newer CompactFlash card products.</p>
<p align="center">13</p>
<hr width="100%">
<p><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
</p>
<p>Our embedded products and services revenues were $0.8 million and $1.9 million
  respectively, for the three and six month periods ended June 30, 2004, compared
  to $0.7 million and $1.3 million for the same periods a year ago. Revenue growth
  in the first six months of 2004 of $0.7 million was due to increased sales of
  our embedded Bluetooth modules. Additional modest revenue increases were from
  sales of our embedded Bluetooth cards and engineering services. Partially offsetting
  these increases was a decline in the sales of our proprietary ASIC chip.</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>Gross Margins</b><br>
  <br>
  Gross margins for the three and six month periods ended June 30, 2004 were 51%
  for both periods compared to margins of 49% for both comparable periods in 2003.
  We generally price our products as a markup from our cost, and we offer discount
  pricing for higher volume purchases. Cost reductions on several of our products,
  including our Bluetooth modules and modems, and the introduction of our lower
  cost third generation proprietary ASIC chip in the third quarter of 2003 resulted
  in improved margins for the three and six month periods in 2004 compared to
  the same periods one year ago.</font></p>
<p><font face="Times New Roman, Times, serif" size="3"><b>Research and Development
  Expense</b><br>
  <br>
  Research and development expense in the three and six month periods ended June
  30, 2004 was $0.9 million and $1.8 million, respectively, an increase of 14%
  and 7% compared to research and development expense of $0.8 million and $1.7
  million, respectively, for the corresponding periods in the previous year. Increases
  in the second quarter were primarily in outside services and personnel expenses
  compared to the same quarter a year ago. Increases for the comparable six month
  periods were primarily in outside services and payroll partially offset by lower
  consulting and professional fees and reduced engineering supplies expense from
  the completion of the development of a new proprietary ASIC chip at the end
  of the first quarter of 2003. Expenses are expected to remain at similar levels
  in the third quarter.</font></p>
<p><font face="Times New Roman, Times, serif" size="3"><b>Sales and Marketing
  Expense</b><br>
  <br>
  Sales and marketing expense for the three and six month periods ended June 30,
  2004 was $1.5 million and $3.0 million, respectively, an increase of 20% and
  19% compared to sales and marketing expense of $1.2 million and $2.5 million,
  respectively, in the corresponding periods one year ago. Half of the increase
  in the comparable periods is due to increased staffing of sales and marketing
  personnel, as we staffed for growth. The remaining increases are due to increased
  advertising and promotional activities, travel, and outside sales and marketing
  services, partially offset by reductions in occupancy costs. Expenses are expected
  to remain at similar levels in the third quarter.</font></p>
<p><font face="Times New Roman, Times, serif" size="3"><b>General and Administrative
  Expense</b><br>
  <br>
  General and administrative expense for the three and six month periods ended
  June 30, 2004 was $0.9 million and $1.7 million, respectively, an increase of
  22% and 24% compared to the general and administrative expense of $0.7 million
  and $1.4 million, respectively, for the same periods one year ago. The increase
  for the comparable periods is due to increased legal and professional fees related
  to our response to the patent infringement complaint filed by Khyber Technologies
  Corporation in June 2003. In July 2004 we purchased the related patent from
  Khyber Technologies, and they agreed to discontinue litigation. Partially offsetting
  these fees were reductions in legal and professional fees related to general
  corporate matters from a lower level of activity in 2004 compared to the same
  periods in 2003. Expenses are expected to remain at similar levels in the third
  quarter.</font></p>
<p align=center><font face="Times New Roman, Times, serif" size="3">14<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p><font face="Times New Roman, Times, serif" size="3"><b>Amortization of Intangibles</b><br>
  <br>
  In March 2002, the Company acquired Nokia's CompactFlash Bluetooth Card business
  from Nokia, including a product line and a sole, non-exclusive, non-transferable,
  worldwide license to use, make and sell the related product line technology.
  The total purchase price was $2.6 million, of which approximately $1.0 million
  was attributed to intangible technology and licensing. The intangible assets
  are being amortized over their estimated useful lives of one to three years.
  Amortization charges for the three and six month periods ended June 30, 2004
  and 2003 were $75,000 and $150,000, respectively.</font></p>
<p>In October 2000, the Company acquired 3rd Rail Engineering, an engineering
  services firm specializing in engineering design and integration services of
  embedded systems for Windows CE and other operating system environments. The
  acquisition was valued at $11.3 million, of which approximately $1.1 million
  was attributed to intellectual property. The intellectual property is being
  amortized over estimated useful lives of 3 to 8 years. Amortization charges
  for the three and six month periods ended June 30, 2004 were $17,000 and $34,000,
  respectively, compared to $26,000 and $67,000, respectively, for the same periods
  a year ago. The lower amortization charges in 2004 are due to components of
  intangible property becoming fully amortized.</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>Interest Income, Interest
  Expense, Net</b><br>
  <br>
  Interest income reflects interest earned on cash balances. Interest income of
  $8,500 and $18,700 for the three and six month periods ended June 30, 2004 compared
  to $3,200 and $4,700 for the same periods one year ago, reflecting a higher
  level of cash on hand during the first two quarters of 2004 compared to the
  first two quarters of 2003. Other income for the six months ended June 30, 2004
  included $500 of net currency gain on the Euro note payable to Nokia partially
  offset by the loss on the foreign currency contracts. Other income of $3,400
  and $9,100 for the three and six month periods ended June 30, 2003 were the
  result of net currency gains on foreign currency contracts partially offset
  by the currency loss on the Euro note payable to Nokia. <br>
  <br>
  Interest expense was $600 and $7,500 for the three and six month periods ended
  June 30, 2004 compared to $20,900 and $47,800 for the same periods one year
  ago. Interest expense is related to interest on equipment lease financing obligations
  assumed from 3rd Rail Engineering, and interest on the outstanding notes payable
  balances due to Nokia for acquisition of its Bluetooth CompactFlash Card business
  and related product line technology in March 2002. Lower interest expense in
  2004 reflects lower note payable balances in 2004 compared to the same periods
  in 2003. The final payment on the note payable to Nokia was made in April 2004.<br>
  </font></p>
<p>&nbsp;</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">15<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p><font face="Times New Roman, Times, serif" size="3"><b>Preferred Stock Dividends
  and Accretion of Preferred Stock</b><br>
  <br>
  Preferred stock dividends for the three and six months ended June 30, 2004 reflect
  dividends of $12,500 and $25,700, respectively, accrued at the rate of 8% per
  annum on Series F Preferred Stock issued in March 2003. Dividends for each of
  the first and second quarters of 2004 were paid in cash subsequent to the quarter.
  Preferred stock dividends for the three and six months ended June 30, 2003,
  reflect dividends of $39,900 and $44,300, respectively on Series F Preferred
  Stock, and dividends of $18,400 and $46,000, respectively, accrued at the rate
  of 12% per annum on Series E redeemable convertible preferred stock issued in
  October 2002. Dividends for Series E were paid in cash for each of the first
  and second quarters of 2003. Dividends for Series F were paid in cash in the
  first quarter of 2003, and second quarter dividends were paid in common stock
  resulting in 26,265 shares issued subsequent to the end of the second quarter.
  Preferred stock accretion for the three and six months ended June 30, 2003 was
  $102,000 and $189,400, respectively, arising from the accounting for the redemption
  of the Series E issuance, and a one time accretion charge in the first quarter
  of $296,500 reflecting the discount from market after giving effect to an allocation
  to the investor warrants of $296,500 of the proceeds of the Series F issuance.</font></p>
<p><font face="Times New Roman, Times, serif" size="3"><b>Income Taxes<br>
  </b><br>
  There were no provisions for federal or state income taxes as the Company has
  incurred net operating losses in all periods prior to 2004. Earnings in the
  first six months of 2004 are not material, and continued earnings are not assured.
  The Company has maintained a full valuation allowance for all deferred tax assets.</font></p>
<p><font face="Times New Roman, Times, serif" size="3"><b>Liquidity and Capital
  Resources</b><br>
  <br>
  The first and second quarters of 2004 are our first profitable quarters in our
  history. Historically we have financed our operations through the sale of equity
  securities, equipment financing, and revolving bank lines of credit. Since our
  inception we have raised approximately $51 million in equity capital. Prior
  to the first quarter of 2004 we incurred significant quarterly and annual operating
  losses in every fiscal period, and although the first two quarters of 2004 have
  been profitable, continued ongoing profitability is not assured.</font></p>
<p>Cash provided by operating activities was $0.3 million in the first half of
  2004 compared to cash used of $0.3 million in the first half of 2003. The source
  of cash in 2004 resulted from our net income of $0.1 million in the first half
  of 2004, and the use of cash in 2003 resulted from financing our net loss of
  $1.0 million in the first half of 2003. Adjustments for non-cash items, including
  depreciation and amortization, amortization of intangibles, gains on the foreign
  currency forward exchange contracts, and foreign currency losses on the Euro
  note payable to Nokia totaled a positive $0.5 million in both the first half
  of 2004 and 2003. Changes in working capital balances resulted in a use of cash
  of $0.3 million in the first half of 2004 primarily from increases in inventories
  resulting from increased levels of purchases made in the second quarter for
  shipments scheduled for July 2004, and accounts receivables partially offset
  by increases in payables due to increased inventory purchases in the second
  quarter, deferred revenue, and accrued payroll and related expenses. Changes
  in working capital balances resulting in a source of cash of $0.2 million in
  the first half of 2003 primarily from decreases in inventories and prepaid expenses,
  increases in deferred revenue and accrued payroll and related expenses, partially
  offset by increases in accounts receivables and decreases in payables.</p>
<p>&nbsp;</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">16<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p>Cash used in investing activities was $0.2 million in the first half of 2004
  and 2003. Investing activities in both 2004 and 2003 primarily reflect the cost
  of new computer hardware and software, and tooling costs.</p>
<p>Cash provided by financing activities was $1.1 million in the first half of
  2004 and $0.6 million in the first half of 2003. Financing activities in 2004
  consist primarily of a net increase in the amounts drawn on our bank lines of
  credit, proceeds from the exercise of stock options and warrants, partially
  offset by payments on the note payable to Nokia. In April of 2004 the Company
  made the final payment on the note payable to Nokia. Financing activities in
  2003 consist primarily of the net proceeds from the issuance of Series F Preferred
  Stock and the exercise of previously issued warrants partially offset by payments
  on the note payable to Nokia, redemption payments made on the Series E redeemable
  convertible preferred stock, and reductions of the amount outstanding under
  our bank lines of credit.</p>
<p>Our cash balances as of June 30, 2004 were $7.6 million including cash of $3.0
  million drawn against our bank line of credit. In March 2004 we entered into
  a new bank line of credit agreement which expires on March 5, 2006. We have
  warrants outstanding from our private placement financings and outstanding employee
  stock options that, if exercised, would further increase our cash and equity
  balances. We believe our existing cash, plus our ability to reduce costs, and
  the new bank line will be sufficient to meet our funding requirements at least
  through December 31, 2004. If we maintain and increase profitability from revenue
  growth, we anticipate requirements for cash will include funding of higher receivable
  and inventory balances, and increasing expenses including more employees to
  support our growth and increases in the cost of salaries, benefits, and related
  support costs for employees. If we cannot maintain profitability, we will not
  be able to support our operations from positive cash flows, and we would use
  our existing cash to support operating losses. Should the need arise, we cannot
  assure you that additional capital will be available on acceptable terms, if
  at all, and any such terms may be dilutive to existing stockholders. Although
  we do not anticipate the need to raise additional capital during this time to
  fund operations, we may raise additional capital if market conditions are appropriate.</p>
<p><font face="Times New Roman, Times, serif" size="3">The Company's contractual
  cash obligations at June 30, 2004 are outlined in the table below:<BR>
  </font></p>
<TABLE cellSpacing=1 cellPadding=1 width=662 align=center border=1>
  <TR>
    <TD width=232>
      <DIV align=center><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></DIV>
    </TD>
    <TD colSpan=5>
      <DIV align=center><font face="Times New Roman, Times, serif" size="2">Payments
        Due by Period</font></DIV>
    </TD>
  </TR>
  <TR>
    <TD width=232>
      <DIV align=center><font face="Times New Roman, Times, serif" size="2">Contractual
        Obligations</font></DIV>
    </TD>
    <TD vAlign=bottom align=middle width=86>
      <DIV align=center><font face="Times New Roman, Times, serif" size="2">Total
        </font></DIV>
    </TD>
    <TD vAlign=bottom align=middle width=90>
      <DIV align=center><font face="Times New Roman, Times, serif" size="2">Less
        than <br>
        1 year</font></DIV>
    </TD>
    <TD vAlign=bottom align=middle width=69>
      <DIV align=center><font face="Times New Roman, Times, serif" size="2">1
        to 3 <br>
        years</font></DIV>
    </TD>
    <td valign=bottom align=middle width=86>
      <div align=center><font face="Times New Roman, Times, serif" size="2">4
        to 5 <br>
        years</font></div>
    </td>
    <TD vAlign=bottom align=middle width=60>
      <div align="center"><font face="Times New Roman, Times, serif" size="2">More
        than<br>
        5 years</font></div>
    </TD>
  </TR>
  <tr>
    <td width=232><font face="Times New Roman, Times, serif" size="2">Capitalized
      leases </font></td>
    <td valign=bottom align=middle width=86>
      <div align=center><font face="Times New Roman, Times, serif" size="2">$
        31,000</font></div>
    </td>
    <td valign=bottom align=middle width=90>
      <div align=center><font face="Times New Roman, Times, serif" size="2">$
        9,000</font></div>
    </td>
    <td valign=bottom align=middle width=69>
      <div align=center><font face="Times New Roman, Times, serif" size="2">$
        19,000</font></div>
    </td>
    <td valign=bottom align=middle width=86>
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 3,000</font></p>
    </td>
    <td valign=bottom align=middle width=60>
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ --
        </font></p>
    </td>
  </tr>
  <TR>
    <TD width=232><font face="Times New Roman, Times, serif" size="2">Operating
      leases</font></TD>
    <TD vAlign=bottom align=middle width=86>
      <DIV align=center><font face="Times New Roman, Times, serif" size="2">1,216,000</font></DIV>
    </TD>
    <TD vAlign=bottom align=middle width=90>
      <DIV align=center><font face="Times New Roman, Times, serif" size="2">465,000</font></DIV>
    </TD>
    <TD vAlign=bottom align=middle width=69>
      <DIV align=center><font face="Times New Roman, Times, serif" size="2">751,000</font></DIV>
    </TD>
    <td valign=bottom align=middle width=86>
      <div align=center><font face="Times New Roman, Times, serif" size="2">--</font></div>
    </td>
    <td valign=bottom align=middle width=86>
      <div align="center"><font face="Times New Roman, Times, serif" size="2">
        --</font></div>
    </td>
  </TR>
  <TR>
    <TD align=left width=232><font face="Times New Roman, Times, serif" size="2">Unconditional
      purchase obligations with <br>
      </font><font face="Times New Roman, Times, serif" size="3">&nbsp&nbsp&nbsp</font><font face="Times New Roman, Times, serif" size="2">contract
      manufacturers</font></TD>
    <TD vAlign=bottom align=middle width=86>
      <DIV align=center><font face="Times New Roman, Times, serif" size="2">3,561,000</font></DIV>
    </TD>
    <TD vAlign=bottom align=middle width=90>
      <DIV align=center><font face="Times New Roman, Times, serif" size="2">3,561,000</font></DIV>
    </TD>
    <TD vAlign=bottom align=middle width=69>
      <DIV align=center><font face="Times New Roman, Times, serif" size="2">--</font></DIV>
    </TD>
    <td valign=bottom align=middle width=86>
      <div align=center><font face="Times New Roman, Times, serif" size="2">--</font></div>
    </td>
    <TD vAlign=bottom align=middle width=60>
      <div align="center"><font face="Times New Roman, Times, serif" size="2">--</font></div>
    </TD>
  </TR>
  <TR>
    <TD width=232><font face="Times New Roman, Times, serif" size="2">Total contractual
      cash obligations</font></TD>
    <TD vAlign=bottom align=middle width=86>
      <DIV align=center><font face="Times New Roman, Times, serif" size="2">$
        4,808,000 </font></DIV>
    </TD>
    <TD vAlign=bottom align=middle width=90>
      <DIV align=center><font face="Times New Roman, Times, serif" size="2">$
        4,035,000 </font></DIV>
    </TD>
    <TD vAlign=bottom align=middle width=69>
      <DIV align=center><font face="Times New Roman, Times, serif" size="2">$
        770,000</font></DIV>
    </TD>
    <td valign=bottom align=middle width=86>
      <div align=center><font face="Times New Roman, Times, serif" size="2">$
        3,000 </font></div>
    </td>
    <TD vAlign=bottom align=middle width=60>
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        -- </font></div>
    </TD>
  </TR>
</TABLE>
<P>&nbsp;</P>
<P><b>Off-Balance Sheet Arrangements</b> </P>
<P>The Company has no off-balance sheet arrangements as defined in Item 303 of
  Regulation S-K. </P>
<P>&nbsp;</P>
<p align=center><font face="Times New Roman, Times, serif" size="3">17<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<P><font face="Times New Roman, Times, serif" size="3"><b><u>Other Factors Affecting
  Future Operations</u></b></font></P>
<p><font face="Times New Roman, Times, serif" size="3"><b>We have a history of
  operating losses, and may not achieve ongoing profitability.</b></font></p>
<p>Prior to 2004 we have incurred significant operating losses ion each financial
  period since our inception. For the fiscal year ended December 31, 2003 we incurred
  net losses of $1,249,900. To maintain profitability, we must accomplish numerous
  objectives, including growth in our business and the development of successful
  new products. We cannot foresee with any certainty whether we will be able to
  achieve these objectives in the future. Accordingly, we may not generate sufficient
  net revenue to achieve ongoing profitability. If we cannot achieve ongoing profitability,
  we will not be able to support our operations from positive cash flows, and
  we would use our existing cash to support operating losses. If we are unable
  to secure the necessary capital to replace that cash, we may need to suspend
  some or all of our current operations.</p>
<p><b>If we are required to expense options granted under our employee stock plans
  as compensation, our net income and earnings per share would be significantly
  reduced, and we may be forced to change our business practices to attract and
  retain employees.</b></p>
<p>Historically, we have used stock options as a key component of our employee
  compensation packages. We believe that stock options provide an incentive to
  our employees to maximize long-term stockholder value and, through the use of
  vesting, encourage valued employees to remain with us. Certain proposals related
  to accounting for the grant of an employee stock option as an expense are currently
  under consideration by accounting standards organizations and governmental authorities.
  If such proposals are adopted, our net income and earnings per share will be
  negatively impacted. In particular, we would not have been profitable for the
  first half of fiscal 2004 if we had been required to expense options during
  that period. In addition, we may decide in response to reduce the number of
  stock options granted to employees or to grant options to fewer employees. This
  could adversely affect our ability to retain existing employees and attract
  qualified candidates, and also could increase the cash compensation we would
  have to pay to them.</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>We may require additional
  capital in the future, but that capital may not be available on reasonable terms,
  if at all, or on terms that would not cause substantial dilution to your stock
  holdings.</b></font></p>
<p>Although we do not anticipate the need to raise additional capital during 2004
  to fund our operations, we have historically needed to raise capital to fund
  our operating losses. We may incur operating losses in future quarters. Our
  forecasts are highly dependent on factors beyond our control, including market
  acceptance of our products and sales of handheld computers. If capital requirements
  vary materially from those currently planned, we may require additional capital
  sooner than expected. There can be no assurance that such capital will be available
  in sufficient amounts or on terms acceptable to us, if at all. Any sale of a
  substantial number of additional shares will cause dilution to our stockholders'
  investments and could also cause the market price of our Common Stock to fall.</p>
<p><font face="Times New Roman, Times, serif" size="3"><br>
  </font></p>
<p>&nbsp;</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">18<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p><font face="Times New Roman, Times, serif" size="3"><b>A significant portion
  of our revenue currently comes from two distributors, and any decrease in revenue
  from these distributors could harm our business.</b> </font></p>
<p><font face="Times New Roman, Times, serif" size="3">A significant portion of
  our revenue comes from two distributors, Tech Data Corp. and Ingram Micro, Inc.,
  which together represented approximately 42 percent of our worldwide revenue
  in the first six months of fiscal 2004, and 43 percent of our worldwide revenue
  in fiscal 2003. We expect that a significant portion of our revenue will continue
  to depend on sales to Tech Data Corp. and Ingram Micro, Inc. We do not have
  long-term commitments from Tech Data Corp. or Ingram Micro, Inc. to carry our
  products, and either could choose to stop selling some or all of our products
  at any time, and each of these companies also carry competitive products. If
  we lose our relationship with Tech Data Corp. or Ingram Micro, Inc., we could
  experience disruption and delays in marketing our products.</font></p>
<p><font face="Times New Roman, Times, serif" size="3"><b>If the market for handheld
  computers fails to grow, we would not achieve our sales projections.</b></font></p>
<p>Substantially all of our products are designed for use with mobile personal
  computers, including handhelds, notebook computers and tablets. If the mobile
  personal computer industry does not grow or if its growth slows, we would not
  achieve our sales projections.</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>Our sales would be hurt
  if the new technologies used in our products do not become widely adopted.</b></font></p>
<p>Many of our products use new technologies, such as the Bluetooth wireless standard
  and 2D bar code scanning, which are not yet widely adopted in the market. If
  these technologies fail to become widespread, our sales will suffer.</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>If third parties do
  not produce and sell innovative products with which our products are compatible,
  we may not achieve our sales projections.</b></font></p>
<p>Our success is dependent upon the ability of third parties in the mobile personal
  computer industry to complete development of products that include or are compatible
  with our technology and then to sell these products into the marketplace. Our
  ability to generate increased revenue depends significantly on the commercial
  success of Windows-powered handheld devices, particularly the Pocket PC, and
  other devices, such as the new line of handhelds with expansion options offered
  by Palm. If manufacturers are unable or choose not to ship new products such
  as Pocket PC and other Windows-powered devices or Palm devices on schedule,
  or if these products fail to achieve or maintain market acceptance, the number
  of our potential new customers would be reduced and we would not be able to
  meet our sales expectations.</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>We could face increased
  competition in the future, which would adversely affect our financial performance.</b><br>
  <br>
  The market for handheld computers in which we operate is very competitive. Our
  future financial performance is contingent on a number of unpredictable factors,
  including that:</font></p>
<ul>
  <li><font face="Times New Roman, Times, serif" size="3">Some of our competitors
    have greater financial, marketing, and technical resources than we do; <br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">We periodically face
    intense price competition, particularly when our competitors have excess inventories
    and discount their prices to clear their inventories; and<br>
    </font></li>
</ul>
<p>&nbsp;</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">19<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<ul>
  <li>Certain original equipment manufacturers of personal computers, mobile phones
    and handheld computers may make our products less significant by incorporating
    built-in functions, such as Bluetooth wireless technology, WiFi, or bar code
    scanners into their products.<font face="Times New Roman, Times, serif" size="3">Increased
    competition could result in price reductions, fewer customer orders, reduced
    margins, and loss of market share. Our failure to compete successfully against
    current or future competitors could harm our business, operating results,
    or financial condition. </font></li>
</ul>
<p>Increased competition could result in price reductions, fewer customer orders,
  reduced margins, and loss of market share. Our failure to compete successfully
  against current or future competitors could harm our business, operating results
  and financial condition. </p>
<p><font face="Times New Roman, Times, serif" size="3"><b>If we fail to develop
  and introduce new products rapidly and successfully, we will not be able to
  compete effectively, and our ability to generate sufficient revenues will be
  negatively affected. </b></font></p>
<p>The market for our products is prone to rapidly changing technology, evolving
  industry standards and short product life cycles. If we are unsuccessful at
  developing and introducing new products and services on a timely basis that
  include the latest technologies conforming with the newest standards and that
  are appealing to end users, we will not be able to compete effectively, and
  our ability to generate significant revenues will be seriously harmed.</p>
<p>The development of new products and services can be very difficult and requires
  high levels of innovation. The development process is also lengthy and costly.
  Short product life cycles expose our products to the risk of obsolescence and
  require frequent new product introductions. We will be unable to introduce new
  products and services into the market on a timely basis or compete successfully,
  if we fail to:</p>
<ul>
  <li><font face="Times New Roman, Times, serif" size="3">identify emerging standards
    in the field of mobile computing products; <br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">enhance our products
    by adding additional features; <br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">invest significant resources
    in research and development, sales and marketing, and customer support;<br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">maintain superior or
    competitive performance in our products; and<br>
    </font></li>
  <li>anticipate our end users' needs and technological trends accurately. </li>
</ul>
<p>We cannot be sure that we will have sufficient resources to make adequate investments
  in research and development or that we will be able to make the technological
  advances necessary to be competitive. </p>
<p><font face="Times New Roman, Times, serif" size="3"><b>If we do not correctly
  anticipate demand for our products, our operating results will suffer. </b></font></p>
<p>The demand for our products depends on many factors and is difficult to forecast.
  We expect that it will become more difficult to forecast demand as we introduce
  and support more products and as competition in the market for our products
  intensifies. If demand increases beyond forecasted levels, we would have to
  rapidly increase production at our third-party manufacturers. We depend on suppliers
  to provide additional volumes of components, and suppliers might not be able
  to increase production rapidly enough to meet unexpected demand. Even if we
  were able to procure enough components, our third-party manufacturers might
  not be able to produce enough of our devices to meet our customer demand. In
  addition, rapid increases in production levels to meet unanticipated demand
  could result in higher costs for manufacturing and supply of components and
  other expenses. These higher costs could lower our profit margins. Further,
  if production is increased rapidly, manufacturing yields could decline, which
  may also lower operating results.</p>
<p>&nbsp;</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">20<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p>If demand is lower than forecasted levels, we could have excess production
  resulting in higher inventories of finished products and components, which could
  lead to write-downs or write-offs of some or all of the excess inventories.
  Lower than forecasted demand could also result in excess manufacturing capacity
  at our third-party manufacturers and in our failure to meet some minimum purchase
  commitments, each of which may lower our operating results.</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>We depend on alliances
  and other business relationships with a small number of third parties, and a
  disruption in any one of these relationships would hinder our ability to develop
  and sell our products.</b></font></p>
<p><font face="Times New Roman, Times, serif" size="3">We depend on strategic
  alliances and business relationships with leading participants in various segments
  of the communications and mobile personal computer markets to help us develop
  and market our products. Our strategic partners may revoke their commitment
  to our products or services at any time in the future or may develop their own
  competitive products or services. Accordingly, our strategic relationships may
  not result in sustained business alliances, successful product or service offerings,
  or the generation of significant revenues. Failure of one or more of such alliances
  could result in delay or termination of product development projects, failure
  to win new customers, or loss of confidence by current or potential customers.
  </font></p>
<p>We have devoted significant research and development resources to design activities
  for Windows-powered mobile products and, more recently, to design activities
  for Palm devices. Such design activities have diverted financial and personnel
  resources from other development projects. These design activities are not undertaken
  pursuant to any agreement under which Microsoft or Palm is obligated to continue
  the collaboration or to support the products produced from the collaboration.
  Consequently, Microsoft or Palm may terminate their collaborations with us for
  a variety of reasons including our failure to meet agreed-upon standards or
  for reasons beyond our control, such as changing market conditions, increased
  competition, discontinued product lines, and product obsolescence.</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>We rely primarily on
  distributors, resellers, retailers and original equipment manufacturers to sell
  our products, and our sales would suffer if any of these third parties stops
  selling our products effectively.</b></font></p>
<p>Because we sell our products primarily through distributors, resellers, retailers
  and original equipment manufacturers, we are subject to risks associated with
  channel distribution, such as risks related to their inventory levels and support
  for our products. Our distribution channels may build up inventories in anticipation
  of growth in their sales. If such growth in their sales does not occur as anticipated,
  the inventory build up could contribute to higher levels of product returns.
  The lack of sales by any one significant participant in our distribution channels
  could result in excess inventories and adversely affect our operating results.</p>
<p>Our agreements with distributors, resellers, retailers and original equipment
  manufacturers are generally nonexclusive and may be terminated on short notice
  by them without cause. Our distributors, resellers, retailers and original equipment
  manufacturers are not within our control, are not obligated to purchase products
  from us, and may offer competitive lines of products simultaneously. Our current
  sales growth expectations are contingent in part on our ability to enter into
  additional distribution relationships and expand our retail sales channels.
  We cannot predict whether we will be successful in establishing new distribution
  relationships, expanding our retail sales channels or maintaining our existing
  relationships. A failure to enter into new distribution relationships or to
  expand our retail sales channels could adversely impact our ability to grow
  our sales. </p>
<p>&nbsp;</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">21<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p></p>
<p></p>
<p></p>
<p>We allow our distribution channels to return a portion of their inventory to
  us for full credit against other purchases. In addition, in the event we reduce
  our prices, we credit our distributors for the difference between the purchase
  price of products remaining in their inventory and our reduced price for such
  products. Actual returns and price protection may adversely affect future operating
  results, particularly since we seek to continually introduce new and enhanced
  products and are likely to face increasing price competition.</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>Our intellectual property
  and proprietary rights may be insufficient to protect our competitive position.</b></font></p>
<p>Our business depends on our ability to protect our intellectual property. We
  rely primarily on patent, copyright, trademark, trade secret laws, and other
  restrictions on disclosure to protect our proprietary technologies. We cannot
  be sure that these measures will provide meaningful protection for our proprietary
  technologies and processes. We cannot be sure that any patent issued to us will
  be sufficient to protect our technology. The failure of any patents to provide
  protection to our technology would make it easier for our competitors to offer
  similar products. In connection with our participation in the development of
  various industry standards, we may be required to license certain of our patents
  to other parties, including our competitors, that develop products based upon
  the adopted standards.</p>
<p>We also generally enter into confidentiality agreements with our employees,
  distributors, and strategic partners, and generally control access to our documentation
  and other proprietary information. Despite these precautions, it may be possible
  for a third party to copy or otherwise obtain and use our products, services,
  or technology without authorization, develop similar technology independently,
  or design around our patents. </p>
<p>Effective copyright, trademark, and trade secret protection may be unavailable
  or limited in certain foreign countries. Furthermore, certain of our customers
  have entered into agreements with us which provide that the customers have the
  right to use our proprietary technology in the event we default in our contractual
  obligations, including product supply obligations, and fail to cure the default
  within a specified period of time. </p>
<p><font face="Times New Roman, Times, serif" size="3"><b>We may become subject
  to claims of intellectual property rights infringement, which could result in
  substantial liability.</b></font></p>
<p>In the course of our business, we may receive claims of infringement or otherwise
  become aware of potentially relevant patents or other intellectual property
  rights held by other parties. Many of our competitors have large intellectual
  property portfolios, including patents that may cover technologies that are
  relevant to our business. In addition, many smaller companies, universities,
  and individuals have obtained or applied for patents in areas of technology
  that may relate to our business. The industry is moving towards aggressive assertion,
  licensing, and litigation of patents and other intellectual property rights.</p>
<p>If we are unable to obtain and maintain licenses on favorable terms for intellectual
  property rights required for the manufacture, sale, and use of our products,
  particularly those products which must comply with industry standard protocols
  and specifications to be commercially viable, our results of operations or financial
  condition could be adversely impacted.</p>
<p>&nbsp;</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">22<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p>In addition to disputes relating to the validity or alleged infringement of
  other parties' rights, we may become involved in disputes relating to our assertion
  of our own intellectual property rights. Whether we are defending the assertion
  of intellectual property rights against us or asserting our intellectual property
  rights against others, intellectual property litigation can be complex, costly,
  protracted, and highly disruptive to business operations by diverting the attention
  and energies of management and key technical personnel. Plaintiffs in intellectual
  property cases often seek injunctive relief, and the measures of damages in
  intellectual property litigation are complex and often subjective or uncertain.
  Thus, any adverse determinations in this type of litigation could subject us
  to significant liabilities and costs.</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>New industry standards
  may require us to redesign our products, which could substantially increase
  our operating expenses.</b></font></p>
<p>Standards for the form and functionality of our products are established by
  standards committees. Separate committees establish standards, which evolve
  and change over time, for different categories of our products. We must continue
  to identify and ensure compliance with evolving industry standards so that our
  products are interoperable and we remain competitive. Unanticipated changes
  in industry standards could render our products incompatible with products developed
  by major hardware manufacturers and software developers. Should any major changes,
  even if anticipated, occur, we would be required to invest significant time
  and resources to redesign our products to ensure compliance with relevant standards.
  If our products are not in compliance with prevailing industry standards for
  a significant period of time, we would miss opportunities to have our products
  specified as standards for new hardware components designed by mobile computer
  manufacturers and original equipment manufacturers.</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>Undetected flaws and
  defects in our products may disrupt product sales and result in expensive and
  time-consuming remedial action.</b></font></p>
<p>Our hardware and software products may contain undetected flaws, which may
  not be discovered until customers have used the products. From time to time,
  we may temporarily suspend or delay shipments or divert development resources
  from other projects to correct a particular product deficiency. Efforts to identify
  and correct errors and make design changes may be expensive and time consuming.
  Failure to discover product deficiencies in the future could delay product introductions
  or shipments, require us to recall previously shipped products to make design
  modifications, or cause unfavorable publicity, any of which could adversely
  affect our business and operating results.</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>Our quarterly operating
  results may fluctuate in future periods, which could cause our stock price to
  decline.</b></font></p>
<p>We expect to experience quarterly fluctuations in operating results in the
  future. We generally ship orders as received, and as a result we may have little
  backlog. Quarterly revenue and operating results therefore depend on the volume
  and timing of orders received during the quarter, which are difficult to forecast.
</p>
<p>&nbsp; </p>
<p align=center><font face="Times New Roman, Times, serif" size="3">23<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p>Historically, we have often recognized a substantial portion of our revenue
  in the last month of the quarter. This subjects us to the risk that even modest
  delays in orders may adversely affect our quarterly operating results. Our operating
  results may also fluctuate due to factors such as:</p>
<ul>
  <li><font face="Times New Roman, Times, serif" size="3">the demand for our products;<br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">the size and timing
    of customer orders;<br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">unanticipated delays
    or problems in the introduction of our new products and product enhancements;<br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">the introduction of
    new products and product enhancements by our competitors;<br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">the timing of the introduction
    of new products that work with our connection products;<br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">changes in the proportion
    of revenues attributable to royalties and engineering development services;<br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">product mix;<br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">timing of software enhancements;<br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">changes in the level
    of operating expenses;<br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">competitive conditions
    in the industry including competitive pressures resulting in lower average
    selling prices; and<br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">timing of distributors'
    shipments to their customers.</font></li>
</ul>
<p>Because we base our staffing and other operating expenses on anticipated revenue,
  delays in the receipt of orders can cause significant variations in operating
  results from quarter to quarter. As a result of any of the foregoing factors,
  our results of operations in any given quarter may be below the expectations
  of public market analysts or investors, in which case the market price of our
  Common Stock would be adversely affected.</p>
<p><b>The loss of one or more of our senior personnel could harm our existing
  business. </b> </p>
<p>A number of our officers and senior managers have been employed for seven to
  twelve years by us, including our President, Chief Financial Officer, Chief
  Technical Officer, Vice President of Marketing, and Senior Vice President for
  Business Development/General Manager Embedded Systems Group. Our future success
  will depend upon the continued service of key officers and senior managers.
  Competition for officers and senior managers is intense, and there can be no
  assurance that we will be able to retain our existing senior personnel. The
  loss of key senior personnel could adversely affect our ability to compete.</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>If we are unable to
  attract and retain highly skilled sales and marketing and product development
  personnel, our ability to develop new products and product enhancements will
  be adversely affected. </b></font></p>
<p>We believe our ability to achieve increased revenues and to develop successful
  new products and product enhancements will depend in part upon our ability to
  attract and retain highly skilled sales and marketing and product development
  personnel. Our products involve a number of new and evolving technologies, and
  we frequently need to apply these technologies to the unique requirements of
  mobile connection products. Our personnel must be familiar with both the technologies
  we support and the unique requirements of the products to which our products
  connect. Competition for such personnel is intense, and we may not be able to
  attract and retain such key personnel. In addition, our ability to hire and
  retain such key personnel will depend upon our ability to raise capital or achieve
  increased revenue levels to fund the costs associated with such key personnel.
  Failure to attract and retain such key personnel will adversely affect our ability
  to develop new products and product enhancements.</p>
<p>&nbsp;</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">24<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p><font face="Times New Roman, Times, serif" size="3"><b>We may not be able to
  collect revenues from customers who experience financial difficulties.</b></font></p>
<p>Our accounts receivable are derived primarily from distributors and original
  equipment manufacturers. We perform ongoing credit evaluations of our customers'
  financial conditions but generally require no collateral from our customers.
  Reserves are maintained for potential credit losses, and such losses have historically
  been within such reserves. However, many of our customers may be thinly capitalized
  and may be prone to failure in adverse market conditions. Although our collection
  history has been good, from time to time a customer may not pay us because of
  financial difficulty, bankruptcy or liquidation.</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>We may be unable to
  manufacture our products, because we are dependent on a limited number of qualified
  suppliers for our components. </b></font></p>
<p>Several of our component parts, including our serial interface chip, our Ethernet
  chip, and our bar code scanning modules, are produced by one or a limited number
  of suppliers. Shortages could occur in these essential components due to an
  interruption of supply or increased demand in the industry. If we are unable
  to procure certain component parts, we could be required to reduce our operations
  while we seek alternative sources for these components, which could have a material
  adverse effect on our financial results. To the extent that we acquire extra
  inventory stocks to protect against possible shortages, we would be exposed
  to additional risks associated with holding inventory, such as obsolescence,
  excess quantities, or loss. </p>
<p><font face="Times New Roman, Times, serif" size="3"><b>Our operating results
  could be harmed by economic, political, regulatory and other risks associated
  with export sales.</b></font></p>
<p>Export sales (sales to customers outside the United States) accounted for approximately
  39 percent of our revenue in both the first six months of 2004 and in the fiscal
  year 2003. Accordingly, our operating results are subject to the risks inherent
  in export sales, including:</p>
<ul>
  <li><font face="Times New Roman, Times, serif" size="3">longer payment cycles;<br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">unexpected changes in
    regulatory requirements, import and export restrictions and tariffs;<br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">difficulties in managing
    foreign operations;<br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">the burdens of complying
    with a variety of foreign laws;<br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">greater difficulty or
    delay in accounts receivable collection;<br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">potentially adverse
    tax consequences; and<br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">political and economic
    instability.</font></li>
</ul>
<p>Our export sales are predominately denominated in United States dollars and
  in Euros for our sales to European distributors. Accordingly, an increase in
  the value of the United States dollar relative to foreign currencies could make
  our products more expensive and therefore potentially less competitive in foreign
  markets. Declines in the value of the Euro relative to the United States dollar
  may result in foreign currency losses relating to collection of Euro denominated
  receivables.</p>
<p>&nbsp;</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">25<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p><font face="Times New Roman, Times, serif" size="3"><b>Our operations are vulnerable
  to interruption by fire, earthquake, power loss, telecommunications failure,
  and other events beyond our control.</b></font></p>
<p>Our corporate headquarters are located near an earthquake fault. The potential
  impact of a major earthquake on our facilities, infrastructure, and overall
  business is unknown. Additionally, we may experience electrical power blackouts
  or natural disasters that could interrupt our business. We do not have a detailed
  disaster recovery plan. We do not carry sufficient business interruption insurance
  to compensate us for losses that may occur. Any losses or damages incurred by
  us as a result of these events could have a material adverse effect on our business.</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>The sale of a substantial
  number of shares of Common Stock could cause the market price of our Common
  Stock to decline.</b></font></p>
<p>Sales of a substantial number of shares of our Common Stock in the public market
  could adversely affect the market price for our Common Stock. The market price
  of our Common Stock could also decline if one or more of our significant stockholders
  decided for any reason to sell substantial amounts of our Common Stock in the
  public market.</p>
<p>As of July 30, 2004, we had 30,104,865 shares of Common Stock outstanding.
  Substantially all of these shares are freely tradable in the public market,
  either without restriction or subject, in some cases, only to S-3 or S-8 prospectus
  delivery requirements and, in other cases, only to manner of sale, volume, and
  notice requirements of Rule 144 under the Securities Act.</p>
<p>As of July 30, 2004, we had 84,954 shares of Series F Preferred Stock outstanding
  that are convertible into 849,540 shares of Common Stock at $0.722 per share.</p>
<p>As of July 30, 2004, we had 6,572,556 shares subject to outstanding options
  under our stock option plans, and 950,160 shares were available for future issuance
  under the plans. We have registered the shares of Common Stock subject to outstanding
  options and reserved for issuance under our stock option plans. Accordingly,
  shares underlying vested options will be eligible for resale in the public market
  as soon as the options are exercised.</p>
<p>As of July 30, 2004, we had warrants outstanding to purchase a total of 1,718,751
  shares of our Common Stock at exercise prices ranging from $0.722 to $2.73.
  All such warrants may be exercised at any time, and the shares issuable upon
  exercise may be resold, either without restrictions or subject, in some cases,
  only to S-3 prospectus delivery requirements, and, in some cases, only to manner
  of sale, volume, and notice requirements of Rule 144.</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>Volatility in the trading
  price of our Common Stock could negatively impact the price of our Common Stock.
  </b></font></p>
<p>During the period from January 1, 2003 through July 30, 2004, our Common Stock
  price fluctuated between a high of $4.80 and a low of $0.65. The trading price
  of our Common Stock could be subject to wide fluctuations in response to many
  factors, some of which are beyond our control, including general economic conditions
  and the outlook of securities analysts and investors on our industry. In addition,
  the stock markets in general, and the markets for high technology stocks in
  particular, have experienced high volatility that has often been unrelated to
  the operating performance of particular companies. These broad market fluctuations
  may adversely affect the trading price of our Common Stock.</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">26<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
  <font face="Times New Roman, Times, serif" size="3"><a
name=qqd></a></font>
<p><font face="Times New Roman, Times, serif" size="3"> <br>
  <b>Item 3. Quantitative and Qualitative Disclosures About Market Risk</b></font></p>
<p><font face="Times New Roman, Times, serif" size="3"><b>Interest Rate Risk</b></font></p>
<p>Our exposure to market risk for changes in interest rates relates primarily
  to invested cash. Our cash is invested in short-term money market investments
  backed by U.S. Treasury notes and other investments that mature within one year
  and whose principal is not subject to market rate fluctuations. Accordingly,
  interest rate declines would adversely affect our interest income but would
  not affect the carrying value of our cash investments. Based on a sensitivity
  analysis of our cash investments during the quarter ended June 30, 2004, a decline
  of 1% in interest rates would reduce our quarterly interest income by approximately
  $11,000.</p>
<p>Our bank credit line facilities of up to $4.0 million have variable interest
  rates based upon the lender's index rate plus 0.5% for both the domestic line
  (up to $2.5 million) and the international line (up to $1.5 million). Accordingly,
  interest rate increases would increase our interest expense on outstanding credit
  line balances. We utilized our credit line facility only at the end of each
  quarter in 2004 and each of the quarters in 2003, and therefore did not subject
  ourselves to interest rate exposure. Based on a sensitivity analysis, an increase
  of 1% in the interest rate would increase our borrowing costs by $10,000 for
  each $1 million of borrowings, if outstanding for the entire year, against our
  bank credit facility or a maximum of $40,000 if we utilized our entire credit
  line.<font face="Times New Roman, Times, serif" size="3"><br>
  </font></p>
<p><font face="Times New Roman, Times, serif" size="3"><b>Foreign Currency Risk
  </b></font></p>
<p>A substantial majority of our revenue, expense and purchasing activities are
  transacted in U.S. dollars. However, we require our European distributors to
  purchase our products in Euros, we pay the expenses of our European subsidiary
  in Euros, and we expect to enter into selected future purchase commitments with
  foreign suppliers that may be paid in the local currency of the supplier. To
  date these balances have been small, and we have not been subject to significant
  losses from material foreign currency fluctuations. Based on a sensitivity analysis
  of our net assets and subsidiary expenses at the beginning, during and at the
  end of the quarter ended June 30, 2004, an adverse change of 10% in exchange
  rates would result in an increase in our net loss for the quarter of approximately
  $65,000. For the second quarter 2004 the total adjustment for the effects of
  changes in foreign currency on cash balances, collections, payables, and derivatives
  was a net loss of $33,000. In August 2004 we commenced hedging of European receivable
  balances denominated in Euros to reduce the foreign currency risk associated
  with these assets. We will continue to monitor and assess the risk associated
  with these exposures and may at some point in the future take additional actions
  to mitigate these risks.</p>
<p><font face="Times New Roman, Times, serif" size="3"><a
name=item4></a><br>
  </font></p>
<p align=center><font face="Times New Roman, Times, serif" size="3">27<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p><font face="Times New Roman, Times, serif" size="3"><b>Item 4. Controls and
  Procedures</b></font></p>
<p><font face="Times New Roman, Times, serif" size="3">(a) Evaluation of disclosure
  controls and procedures</font></p>
<p>Our management evaluated, with the participation of our Chief Executive Officer
  and our Chief Financial Officer, the effectiveness of our disclosure controls
  and procedures as of the end of the period covered by this Quarterly Report
  on Form 10-Q. Based on this evaluation, our Chief Executive Officer and our
  Chief Financial Officer have concluded that our disclosure controls and procedures
  are effective to ensure that information we are required to disclose in reports
  that we file or submit under the Securities Exchange Act of 1934 is recorded,
  processed, summarized and reported within the time periods specified in Securities
  and Exchange Commission rules and forms.</p>
<p><font face="Times New Roman, Times, serif" size="3">(b) Changes in internal
  control over financial reporting</font></p>
<p>There was no change in our internal control over financial reporting that occurred
  during the period covered by this Quarterly Report on Form 10-Q that has materially
  affected, or is reasonably likely to materially affect, our internal control
  over financial reporting.</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">28<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
  <font face="Times New Roman, Times, serif" size="3"><a
name=smv></a></font> <font face="Times New Roman, Times, serif" size="3"><a
name=oth></a></font>
<p>&nbsp;</p>
<p></p>
<p></p>
<p></p>
<p align="center"> <font face="Times New Roman, Times, serif" size="3"><br>
  <b>PART II. OTHER INFORMATION</b></font></p>
<p><font face="Times New Roman, Times, serif" size="3"><br>
  <b>Item 4. Submission of Matters to a Vote of Security Holders</b></font></p>
<p>At the Annual Meeting of Stockholders of the Company, held at the Company's
  Newark, California facilities on June 16, 2004, the stockholders elected seven
  directors to serve until the next annual meeting of stockholders (Item 1), ratified
  the appointment of Moss Adams LLP to serve as the independent public accountants
  of the Company for the fiscal year ending December 31, 2004 (Item 2), and approve
  the adoption of the 2004 Equity Incentive Plan (Item 3). Total voting shares
  on the record date of April 19, 2004 consisted of 30,025,600 common shares and
  87,354 shares of Series F preferred stock issued and outstanding. Each share
  of common stock was entitled to one vote, and each share of Series F was entitled
  to ten votes, for a grand total of 30,899,140 voting shares. A total of 26,325,896
  shares or 85.2% of outstanding shares were present or voting by proxy.</p>
<p><font face="Times New Roman, Times, serif" size="3">Results of the stockholder
  vote were as follows:</font></p>
<table width="75%" border="1" align="center">
  <tr>
    <td width="57%"><font size="2">ITEM 1:</font></td>
    <td width="16%">
      <div align="center"><font size="2">FOR</font></div>
    </td>
    <td width="14%">
      <div align="center"><font size="2">WITHHELD</font></div>
    </td>
    <td width="13%">
      <div align="center"><font size="2">RESULT</font></div>
    </td>
  </tr>
  <tr>
    <td width="57%"><font size="2">Election of Directors:</font></td>
    <td width="16%">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></div>
    </td>
    <td width="14%">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></div>
    </td>
    <td width="13%">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></div>
    </td>
  </tr>
  <tr>
    <td width="57%"><font size="2">Charlie Bass (1)(3)</font></td>
    <td width="16%">
      <div align="center"><font size="2">26,191,348</font></div>
    </td>
    <td width="14%">
      <div align="center"><font size="2">134,548</font></div>
    </td>
    <td width="13%">
      <div align="center"><font size="2">Elected</font></div>
    </td>
  </tr>
  <tr>
    <td width="57%"><font size="2">Kevin Mills</font></td>
    <td width="16%">
      <div align="center"><font size="2">25,889,448</font></div>
    </td>
    <td width="14%">
      <div align="center"><font size="2">436,448</font></div>
    </td>
    <td width="13%">
      <div align="center"><font size="2">Elected</font></div>
    </td>
  </tr>
  <tr>
    <td width="57%"><font size="2">Micheal Gifford</font></td>
    <td width="16%">
      <div align="center"><font size="2">26,191,648</font></div>
    </td>
    <td width="14%">
      <div align="center"><font size="2">134,248</font></div>
    </td>
    <td width="13%">
      <div align="center"><font size="2">Elected</font></div>
    </td>
  </tr>
  <tr>
    <td width="57%"><font size="2">Gianluca Rattazzi (2)(3)</font></td>
    <td width="16%">
      <div align="center"><font size="2">25,680,848</font></div>
    </td>
    <td width="14%">
      <div align="center"><font size="2">645,048</font></div>
    </td>
    <td width="13%">
      <div align="center"><font size="2">Elected</font></div>
    </td>
  </tr>
  <tr>
    <td width="57%"><font size="2">Leon Malmed (1)(3)</font></td>
    <td width="16%">
      <div align="center"><font size="2">25,679,848</font></div>
    </td>
    <td width="14%">
      <div align="center"><font size="2">646,048</font></div>
    </td>
    <td width="13%">
      <div align="center"><font size="2">Elected</font></div>
    </td>
  </tr>
  <tr>
    <td width="57%"><font size="2">Enzo Torresi (2)(3)</font></td>
    <td width="16%">
      <div align="center"><font size="2">25,642,248</font></div>
    </td>
    <td width="14%">
      <div align="center"><font size="2">683,648</font></div>
    </td>
    <td width="13%">
      <div align="center"><font size="2">Elected</font></div>
    </td>
  </tr>
  <tr>
    <td width="57%"><font size="2">Peter Sealey (1)(3)</font></td>
    <td width="16%">
      <div align="center"><font size="2">25,680,848</font></div>
    </td>
    <td width="14%">
      <div align="center"><font size="2">645,048</font></div>
    </td>
    <td width="13%">
      <div align="center"><font size="2">Elected</font></div>
    </td>
  </tr>
  <tr>
    <td colspan="4">
      <div align="left"></div>
      <div align="left"></div>
      <div align="left"></div>
      <div align="left"><font size="2">&nbsp&nbsp&nbsp&nbsp(1) Denotes member
        of Audit Committee</font></div>
    </td>
  </tr>
  <tr>
    <td colspan="4">
      <div align="left"></div>
      <div align="left"></div>
      <div align="left"></div>
      <div align="left">
        <div align="left"></div>
        <div align="left"></div>
        <div align="left"></div>
        <div align="left"><font size="2">&nbsp&nbsp&nbsp&nbsp(2) Denotes member
          of Compensation Committee</font></div>
      </div>
    </td>
  </tr>
  <tr>
    <td colspan="4">
      <div align="left"></div>
      <div align="left"></div>
      <div align="left"></div>
      <div align="left">
        <div align="left"></div>
        <div align="left"></div>
        <div align="left"></div>
        <div align="left"><font size="2">&nbsp&nbsp&nbsp&nbsp(3) Denotes member
          of Nominating Committee</font></div>
      </div>
    </td>
  </tr>
</table>
<p>&nbsp;</p>
<table width="75%" border="1" align="center">
  <tr>
    <td width="53%"><font size="2">ITEM 2:</font></td>
    <td width="12%">
      <div align="center"><font size="2">FOR</font></div>
    </td>
    <td width="12%">
      <div align="center"><font size="2">AGAINST</font></div>
    </td>
    <td width="12%">
      <div align="center"><font size="2">ABSTAIN</font></div>
    </td>
    <td width="11%">
      <div align="center"><font size="2">RESULT</font></div>
    </td>
  </tr>
  <tr>
    <td width="53%"><font size="2">Appoint Moss Adams LLP as the Company's independent
      auditors for the 2004 fiscal year. Required approval of a majority of votes
      cast for approval.</font></td>
    <td width="12%" valign="bottom">
      <div align="center"><font size="2">26,274,128</font></div>
    </td>
    <td width="12%" valign="bottom">
      <div align="center"><font size="2">32,226</font></div>
    </td>
    <td width="12%" valign="bottom">
      <div align="center"><font size="2">19,542</font></div>
    </td>
    <td width="11%" valign="bottom">
      <div align="center"><font size="2">Approved</font></div>
    </td>
  </tr>
</table>
<p>&nbsp;</p>
<table width="75%" border="1" align="center">
  <tr>
    <td width="53%"><font size="2">ITEM 3:</font></td>
    <td width="12%">
      <div align="center"><font size="2">FOR</font></div>
    </td>
    <td width="12%">
      <div align="center"><font size="2">AGAINST</font></div>
    </td>
    <td width="12%">
      <div align="center"><font size="2">ABSTAIN</font></div>
    </td>
    <td width="11%">
      <div align="center"><font size="2">RESULT</font></div>
    </td>
  </tr>
  <tr valign="top">
    <td width="53%">
      <p><font size="2">Approval of the 2004 Equity Incentive Plan as described
        in the Annual Meeting Proxy. Required approval of a majority of votes
        cast for approval.</font></p>
      <p><font size="2">(non-votes totaled 17,328,544)</font></p>
    </td>
    <td width="12%" valign="middle">
      <div align="center"><font size="2">6,118,093</font></div>
    </td>
    <td width="12%" valign="middle">
      <div align="center"><font size="2">2,612,186</font></div>
    </td>
    <td width="12%" valign="middle">
      <div align="center"><font size="2">267,073</font></div>
    </td>
    <td width="11%" valign="middle">
      <div align="center"><font size="2">Approved</font></div>
    </td>
  </tr>
</table>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">29<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
  <font face="Times New Roman, Times, serif" size="3"><a
name=item6></a></font>
<p>&nbsp;</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>Item 6. Exhibits and
  Reports on Form 8-K.</b></font></p>
<p><font face="Times New Roman, Times, serif" size="3">(a) Exhibits</font></p>
<p>31.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant
  to Section 302 of the Sarbanes-Oxley Act of 2002. </p>
<p>32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant
  to Section 906 of the Sarbanes-Oxley Act of 2002. </p>
<p>(b) Reports on Form 8-K </p>
<p>On April 21, 2004, we filed a report on Form 8-K, furnishing to the SEC the
  Company's press release, dated April 21, 2004, announcing first quarter 2004
  financial results. </p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">30<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
  <font face="Times New Roman, Times, serif" size="3"><a
name=sig></a></font>
<p>&nbsp;</p>
<div align="center"><font face="Times New Roman, Times, serif" size="3"><BR>
  </font></div>
<P align=center><font face="Times New Roman, Times, serif" size="3">SIGNATURES</font></P>
<P>&nbsp;</P>
<P>Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant
  has duly caused this report to be signed on its behalf by the undersigned thereunto
  duly authorized.</P>
<P>&nbsp;</P>
<P align=center><font face="Times New Roman, Times, serif" size="3"><U>SOCKET
  COMMUNICATIONS, INC.<BR>
  </U>Registrant</font></P>
<P>&nbsp;
<TABLE cols=2 width="81%">
  <TR>
    <TD width="38%"><FONT face="Times New Roman, Times, serif" size=3>Date: August
      6, 2004 </FONT></TD>
    <TD width="21%">
      <CENTER>
      </CENTER>
    </TD>
    <TD width="41%">
      <DIV align=left><FONT face="Times New Roman, Times, serif"
      size=3><U>&nbsp;&nbsp;/s/ Kevin J. Mills</U></FONT></DIV>
    </TD>
  </TR>
  <tr>
    <td width="38%">&nbsp;</td>
    <td width="21%">
      <center>
        <font face="Times New Roman, Times, serif" size=3>&nbsp; </font>
      </center>
    </td>
    <td valign=top align=middle width="41%">
      <div align=left><font face="Times New Roman, Times, serif" size=3>Kevin
        J. Mills<br>
        President and Chief Executive Officer (Duly Authorized Officer and Principal
        Executive Officer)</font></div>
    </td>
  </tr>
  <tr>
    <td width="38%" height="44">&nbsp;</td>
    <td width="21%" height="44">&nbsp;</td>
    <td width="41%" height="44">&nbsp;</td>
  </tr>
  <tr>
    <td width="38%"><font face="Times New Roman, Times, serif" size=3>Date: August
      6, 2004 </font></td>
    <td width="21%">
      <center>
      </center>
    </td>
    <td width="41%">
      <div align=left><font face="Times New Roman, Times, serif"
      size=3><u>&nbsp;&nbsp;/s/ David W. Dunlap&nbsp;&nbsp;</u></font></div>
    </td>
  </tr>
  <tr>
    <td width="38%">&nbsp;</td>
    <td width="21%">
      <center>
        <font face="Times New Roman, Times, serif" size=3>&nbsp; </font>
      </center>
    </td>
    <td valign=top align=middle width="41%">
      <div align=left><font face="Times New Roman, Times, serif" size=3>David
        W. Dunlap<br>
        Vice President of Finance and Administration and Chief Financial Officer
        (Duly Authorized Officer and Principal Financial and Accounting Officer)
        </font></div>
    </td>
  </tr>
</TABLE>
<P>&nbsp;</P>
<P>&nbsp;</P>
<p align=center><font face="Times New Roman, Times, serif" size="3">31<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
  <font face="Times New Roman, Times, serif" size="3"><a
name=ind></a></font>
<P>&nbsp;</P>
<p align=center><font face="Times New Roman, Times, serif" size="3"><b>Index to
  Exhibits</b><br>
  <br>
  </font></p>
<table cellspacing=0 cellpadding=0 width=800 align=center border=0>
  <tr>
    <td valign=bottom width="10%" height=48>
      <p align=center><font face="Times New Roman, Times, serif" size=3>Exhibit
        <u>Number</u></font></p>
    </td>
    <td valign=bottom width="90%" height=48>
      <p align=center><font face="Times New Roman, Times, serif"
      size=3><u>Description </u></font></p>
    </td>
  </tr>
  <tr>
    <td valign=top width="10%" height=25>
      <p align=right>&nbsp;</p>
    </td>
    <td valign=top width="90%" height=25>
      <p>&nbsp;</p>
    </td>
  </tr>
  <tr>
    <td valign=top width="10%" height=30>
      <p align=center><font face="Times New Roman, Times, serif"
      size=3>31.1&nbsp;</font> </p>
    </td>
    <td valign=top width="90%" height=30>
      <p>Certification of Chief Executive Officer and Chief Financial Officer
        pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.</p>
    </td>
  </tr>
  <tr>
    <td valign=top width="10%" height=30>
      <p align=center><font face="Times New Roman, Times, serif"
      size=3>32.1&nbsp;</font> </p>
    </td>
    <td valign=top width="90%" height=30>
      <p>Certification of Chief Executive Officer and Chief Financial Officer
        pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.</p>
    </td>
  </tr>
</table>
<P>&nbsp;</P>
<P>&nbsp;</P>
<P>&nbsp;</P>
<P>&nbsp;</P>
<P>&nbsp;</P>
<P align="center">32</P>
<div align=left>
  <hr align=left width="100%" size=1>
</div>
<div align=left>
  <hr align=left width="100%" size=1>
</div>
<P>&nbsp;</P>
<p align=center><font face="Times New Roman, Times, serif" size="3"><br>
  </font>
<p align=center>
<p align=left>
<p>&nbsp;</p>
</BODY></HTML>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31
<SEQUENCE>2
<FILENAME>exhibit31-1_q2.htm
<TEXT>
<html>
<head>
<title>Untitled Document</title>

</head>

<body bgcolor="#FFFFFF">
<div align="right"><font face="Times New Roman, Times, serif" size="3"><b>Exhibit
  31.1</b></font> </div>
<p align="center"><font face="Times New Roman, Times, serif" size="3"><br>
  <b>CERTIFICATIONS</b></font></p>
<p><font face="Times New Roman, Times, serif" size="3">I, Kevin J. Mills, certify
  that: </font></p>
<p><font face="Times New Roman, Times, serif" size="3">1. I have reviewed this
  quarterly report on Form 10-Q of Socket Communications, Inc.;</font></p>
<p><font face="Times New Roman, Times, serif" size="3">2. Based on my knowledge,
  this report does not contain any untrue statement of a material fact or omit
  to state a material fact necessary to make the statements made, in light of
  the circumstances under which such statements were made, not misleading with
  respect to the period covered by this report; </font></p>
<p><font face="Times New Roman, Times, serif" size="3">3. Based on my knowledge,
  the financial statements, and other financial information included in this report,
  fairly present in all material respects the financial condition, results of
  operations and cash flows of the registrant as of, and for, the periods presented
  in this report; </font></p>
<p><font face="Times New Roman, Times, serif" size="3">4. The registrant's other
  certifying officer(s) and I are responsible for establishing and maintaining
  disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
  and 15d-15(e)) for the registrant and have: </font></p>
<blockquote>
  <p><font face="Times New Roman, Times, serif" size="3">(a) Designed such disclosure
    controls and procedures, or caused such disclosure controls and procedures
    to be designed under our supervision, to ensure that material information
    relating to the registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during the period
    in which this report is being prepared; </font></p>
  <p><font face="Times New Roman, Times, serif" size="3">(b) Evaluated the effectiveness
    of the registrant's disclosure controls and procedures and presented in this
    report our conclusions about the effectiveness of the disclosure controls
    and procedures, as of the end of the period covered by this report based on
    such evaluation; and </font></p>
  <p><font face="Times New Roman, Times, serif" size="3">(c) Disclosed in this
    report any change in the registrant's internal control over financial reporting
    that occurred during the registrant's most recent fiscal quarter (the registrant's
    fourth fiscal quarter in the case of an annual report) that has materially
    affected, or is reasonably likely to materially affect, the registrant's internal
    control over financial reporting; and </font></p>
</blockquote>
<p><font face="Times New Roman, Times, serif" size="3">5. The registrant's other
  certifying officer(s) and I have disclosed, based on our most recent evaluation
  of internal control over financial reporting, to the registrant's auditors and
  the audit committee of the registrant's board of directors (or persons performing
  the equivalent functions): </font></p>
<blockquote>
  <p><font face="Times New Roman, Times, serif" size="3">(a) All significant deficiencies
    and material weaknesses in the design or operation of internal control over
    financial reporting which are reasonably likely to adversely affect the registrant's
    ability to record, process, summarize and report financial information; and
    </font></p>
  <p><font face="Times New Roman, Times, serif" size="3">(b) Any fraud, whether
    or not material, that involves management or other employees who have a significant
    role in the registrant's internal control over financial reporting.</font></p>
</blockquote>
<table width="913" border="0" cellspacing="0" cellpadding="0" align="left">
  <tr>
    <td width="508" valign="top"><font face="Times New Roman, Times, serif" size="3">Date:
      August 6, 2004</font></td>
    <td width="399"><font face="Times New Roman, Times, serif" size="3"><u>/s/
      Kevin J. Mills</u><br>
      Name: Kevin J. Mills<br>
      Title: &nbsp&nbspPresident and Chief Executive Officer &nbsp&nbsp &nbsp&nbsp&nbsp&nbsp<br>
      &nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp (Principal Executive
      Officer)</font></td>
  </tr>
</table>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p align=center><font face="Times New Roman, Times, serif" size="3"><br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3">I, David W.
  Dunlap, certify that: </font>
<p><font face="Times New Roman, Times, serif" size="3">1. I have reviewed this
  quarterly report on Form 10-Q of Socket Communications, Inc.;</font></p>
<p><font face="Times New Roman, Times, serif" size="3">2. Based on my knowledge,
  this report does not contain any untrue statement of a material fact or omit
  to state a material fact necessary to make the statements made, in light of
  the circumstances under which such statements were made, not misleading with
  respect to the period covered by this report; </font></p>
<p><font face="Times New Roman, Times, serif" size="3">3. Based on my knowledge,
  the financial statements, and other financial information included in this report,
  fairly present in all material respects the financial condition, results of
  operations and cash flows of the registrant as of, and for, the periods presented
  in this report; </font></p>
<p><font face="Times New Roman, Times, serif" size="3">4. The registrant's other
  certifying officer(s) and I are responsible for establishing and maintaining
  disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
  and 15d-15(e)) for the registrant and have: </font></p>
<blockquote>
  <p><font face="Times New Roman, Times, serif" size="3">(a) Designed such disclosure
    controls and procedures, or caused such disclosure controls and procedures
    to be designed under our supervision, to ensure that material information
    relating to the registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during the period
    in which this report is being prepared; </font></p>
  <p><font face="Times New Roman, Times, serif" size="3">(b) Evaluated the effectiveness
    of the registrant's disclosure controls and procedures and presented in this
    report our conclusions about the effectiveness of the disclosure controls
    and procedures, as of the end of the period covered by this report based on
    such evaluation; and </font></p>
  <p><font face="Times New Roman, Times, serif" size="3">(c) Disclosed in this
    report any change in the registrant's internal control over financial reporting
    that occurred during the registrant's most recent fiscal quarter (the registrant's
    fourth fiscal quarter in the case of an annual report) that has materially
    affected, or is reasonably likely to materially affect, the registrant's internal
    control over financial reporting; and </font></p>
</blockquote>
<p><font face="Times New Roman, Times, serif" size="3">5. The registrant's other
  certifying officer(s) and I have disclosed, based on our most recent evaluation
  of internal control over financial reporting, to the registrant's auditors and
  the audit committee of the registrant's board of directors (or persons performing
  the equivalent functions): </font></p>
<blockquote>
  <p><font face="Times New Roman, Times, serif" size="3">(a) All significant deficiencies
    and material weaknesses in the design or operation of internal control over
    financial reporting which are reasonably likely to adversely affect the registrant's
    ability to record, process, summarize and report financial information; and
    </font></p>
  <p><font face="Times New Roman, Times, serif" size="3">(b) Any fraud, whether
    or not material, that involves management or other employees who have a significant
    role in the registrant's internal control over financial reporting.</font></p>
</blockquote>
<table width="964" border="0" cellspacing="0" cellpadding="0" align="left">
  <tr>
    <td width="419" valign="top"><font face="Times New Roman, Times, serif" size="3">Date:
      August 6, 2004</font></td>
    <td width="539"> <font face="Times New Roman, Times, serif" size="3"><u>/s/
      David W. Dunlap</u><br>
      Name: David W. Dunlap <br>
      Title: </font><font size="3">&nbsp&nbsp</font><font face="Times New Roman, Times, serif" size="3">Vice
      President of Finance and Administration and <br>
      </font><font size="3">&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp</font><font face="Times New Roman, Times, serif" size="3">Chief
      Financial Officer (Principal Financial Officer)</font></td>
  </tr>
</table>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp; </p>
<p>&nbsp;</p>
<p align=center>&nbsp;
</body>
</html>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32
<SEQUENCE>3
<FILENAME>exhibit32-1_q2.htm
<TEXT>
<html>
<head>
<title>Untitled Document</title>

</head>

<body bgcolor="#FFFFFF">
<p align=right><font face="Times New Roman, Times, serif" size="3"><b>Exhibit
  32.1</b></font>
<p>&nbsp;</p>
<p align="center"><font face="Times New Roman, Times, serif" size="3"><b>CERTIFICATION
  OF THE CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER<br>
  PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002</b></font></p>
<p><font face="Times New Roman, Times, serif" size="3"><br>
  I, Kevin J. Mills, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
  to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report
  of Socket Communications, Inc. on Form 10-Q for the quarter ended June 30, 2004
  fully complies with the requirements of Section 13(a) or 15(d) of the Securities
  Exchange Act of 1934 and that information contained in such Quarterly Report
  on Form 10-Q fairly presents, in all material respects, the financial condition
  and results of operations of Socket Communications, Inc. <br>
  <br>
  </font></p>
<table width="913" border="0" cellspacing="0" cellpadding="0" align="left">
  <tr>
    <td width="508" valign="top">&nbsp;</td>
    <td width="399">
      <p><font face="Times New Roman, Times, serif" size="3"><u>By: /s/ Kevin
        J. Mills</u><br>
        Name: Kevin J. Mills<br>
        Title: &nbsp&nbspPresident and Chief Executive Officer &nbsp&nbsp &nbsp&nbsp&nbsp&nbsp<br>
        &nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp (Principal Executive
        Officer)</font><br>
        Date: <font face="Times New Roman, Times, serif" size="3"> &nbsp&nbsp</font>August
        6, 2004 </p>
    </td>
  </tr>
</table>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p><font face="Times New Roman, Times, serif" size="3"><br>
  <br>
  </font></p>
<p></p>
<p><font face="Times New Roman, Times, serif" size="3">I, David W. Dunlap, certify,
  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
  Sarbanes-Oxley Act of 2002, that the Quarterly Report of Socket Communications,
  Inc. on Form 10-Q for the quarter ended June 30, 2004 fully complies with the
  requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934
  and that information contained in such Quarterly Report on Form 10-Q fairly
  presents, in all material respects, the financial condition and results of operations
  of Socket Communications, Inc.</font></p>
<table width="964" border="0" cellspacing="0" cellpadding="0" align="left">
  <tr>
    <td width="419" valign="top">&nbsp;</td>
    <td width="539"> <font face="Times New Roman, Times, serif" size="3"><u>By:
      /s/ David W. Dunlap</u><br>
      Name: David W. Dunlap <br>
      Title: </font><font size="3">&nbsp&nbsp</font><font face="Times New Roman, Times, serif" size="3">Vice
      President of Finance and Administration and <br>
      </font><font size="3">&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp</font><font face="Times New Roman, Times, serif" size="3">Chief
      Financial Officer (Principal Financial Officer)<br>
      Date: &nbsp&nbspAugust 6, 2004 </font></td>
  </tr>
</table>
<p>&nbsp;</p>
<p></p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p align=left>
<p align=left>&nbsp;
</body>
</html>

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
