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<SEC-DOCUMENT>0000944075-04-000026.txt : 20041109
<SEC-HEADER>0000944075-04-000026.hdr.sgml : 20041109
<ACCEPTANCE-DATETIME>20041109120620
ACCESSION NUMBER:		0000944075-04-000026
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		1
CONFORMED PERIOD OF REPORT:	20040930
FILED AS OF DATE:		20041109
DATE AS OF CHANGE:		20041109

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:		041128157

	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>q3-2004.htm
<TEXT>
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<BODY bgColor=white>
<DIV align=left> </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>
  </font></P>
<P align=center><font face="Times New Roman, Times, serif" size="3"><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 September 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 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 check mark
  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[ &nbsp] 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 November 1, 2004 was 30,139,835 shares.</font></P>
<hr width="100%">
<P>&nbsp; </P>
<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 - September 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
      Nine Months Ended September 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 - Nine Months
      Ended </a><a
  href="#ops">September 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">29</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">30</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="#item6">Item 6. Exhibits</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="#sig">Signatures</a></font></td>
    <td width="56">
      <div align="center"><font face="Times New Roman, Times, serif" size="3">32</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">33</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"><STRONG>PART
  I. FINANCIAL INFORMATION</STRONG> </font>
<P align=left><font face="Times New Roman, Times, serif" size="3">Item 1. Financial
  Statements (Unaudited) </font>
<P align=center>
<P align=center>
<table cellspacing=1 cellpadding=1 width=774 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="65%" height=19><font
      face="Times New Roman, Times, serif">&nbsp;&nbsp;</font></td>
    <td width="20%" height=19><font size=2>
      <p align=center><font face="Times New Roman, Times, serif"> September 30,
        </font><font face="Times New Roman, Times, serif"><br>
        2004<br>
        </font><font size=2><font size=2><font face="Times New Roman, Times, serif">(Unaudited)</font></font></font><font face="Times New Roman, Times, serif">
        </font></p>
      </font></td>
    <td width="15%" height=19 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="65%"><font size=2>
      <p><font face="Times New Roman, Times, serif">Current assets: </font></p>
      </font></td>
    <td width="20%"><font
face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="15%"><font
  face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr valign=bottom>
    <td width="65%"><font size=2>
      <p><font face="Times New Roman, Times, serif">&nbsp;&nbsp;Cash and cash
        equivalents </font></p>
      </font></td>
    <td width="20%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">$ 5,895,569</font></p>
      </font></td>
    <td width="15%"><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="65%"><font size=2>
      <p><font face="Times New Roman, Times, serif">&nbsp;&nbsp;Accounts receivable,
        net </font></p>
      </font></td>
    <td width="20%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">3,164,632 </font></p>
      </font></td>
    <td width="15%"><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="65%"><font size=2>
      <p><font face="Times New Roman, Times, serif">&nbsp;&nbsp;Inventories </font></p>
      </font></td>
    <td width="20%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">3,177,602</font></p>
      </font></td>
    <td width="15%"><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="65%"><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="20%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">273,581 </font></p>
      </font></td>
    <td width="15%"><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="65%"><font size=2>
      <p><font
      face="Times New Roman, Times, serif">&nbsp;&nbsp;&nbsp;&nbsp;Total current
        assets </font></p>
      </font></td>
    <td width="20%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">12,511,384</font></p>
      </font></td>
    <td width="15%"><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="65%"><font size=2>
      <p><font face="Times New Roman, Times, serif">Property and equipment: </font></p>
      </font></td>
    <td width="20%"><font
face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="15%"><font
  face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr valign=bottom>
    <td width="65%"><font size=2>
      <p><font face="Times New Roman, Times, serif">&nbsp;&nbsp;Machinery and
        office equipment </font></p>
      </font></td>
    <td width="20%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">1,876,185</font></p>
      </font></td>
    <td width="15%"><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="65%"><font size=2>
      <p><font face="Times New Roman, Times, serif">&nbsp;&nbsp;Computer equipment
        </font></p>
      </font></td>
    <td width="20%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">718,009 </font></p>
      </font></td>
    <td width="15%"><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="65%" height="5"><font size=2><font face="Times New Roman, Times, serif">&nbsp;</font></font></td>
    <td width="20%" height="5"><font size=2>
      <p align=center>2,594,194</p>
      </font></td>
    <td width="15%" height="5"><font size=2>
      <p align=center>2,392,316<font size=2><font face="Times New Roman, Times, serif">
        </font></font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="65%"><font size=2>
      <p><font face="Times New Roman, Times, serif">&nbsp;&nbsp;Accumulated depreciation
        </font></p>
      </font></td>
    <td width="20%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">(2,074,312) </font></p>
      </font></td>
    <td width="15%"><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="65%"><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="20%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">519,882</font></p>
      </font></td>
    <td width="15%"><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="65%">&nbsp;</td>
    <td width="20%">&nbsp;</td>
    <td width="15%">&nbsp;</td>
  </tr>
  <tr valign=bottom>
    <td width="65%"><font
      face="Times New Roman, Times, serif"><font size=2>Intangible technology,
      net </font></font></td>
    <td width="20%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>1,021,033</font></div>
    </td>
    <td width="15%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>711,394</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="65%"><font
      face="Times New Roman, Times, serif"><font size=2>Goodwill </font></font></td>
    <td width="20%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>9,797,946</font></div>
    </td>
    <td width="15%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>9,797,946</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="65%"><font size=2>
      <p><font face="Times New Roman, Times, serif">Other assets </font></p>
      </font></td>
    <td width="20%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">154,638 </font></p>
      </font></td>
    <td width="15%"><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="65%"><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="20%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">$ 24,004,883
        </font></p>
      </font></td>
    <td width="15%"><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="12">
      <div 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></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="65%"><font size=2>
      <p><font face="Times New Roman, Times, serif">Current liabilities: </font></p>
      </font></td>
    <td width="20%"><font
face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="15%"><font
  face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr valign=bottom>
    <td width="65%"><font size=2>
      <p><font face="Times New Roman, Times, serif">&nbsp;&nbsp; Accounts payable
        and accrued expenses </font></p>
      </font></td>
    <td width="20%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif"> </font><font size=2><font face="Times New Roman, Times, serif"
      size=2>$ 3,269,357</font></font></p>
      </font></td>
    <td width="15%"><font size=2>
      <p align=center><font size=2><font face="Times New Roman, Times, serif">$
        3,057,007 </font></font><font face="Times New Roman, Times, serif"> </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="65%"><font size=2>
      <p><font face="Times New Roman, Times, serif">&nbsp;&nbsp; Accrued payroll
        and related expenses </font></p>
      </font></td>
    <td width="20%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">635,778 </font></p>
      </font></td>
    <td width="15%"><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="65%"><font size=2>
      <p><font face="Times New Roman, Times, serif">&nbsp;&nbsp; Bank line of
        credit </font></p>
      </font></td>
    <td width="20%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>1,997,481</font></p>
      </font></td>
    <td width="15%"><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="65%"><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="20%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">1,186,258 </font></p>
      </font></td>
    <td width="15%"><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="65%"><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="20%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>9,066</font></div>
    </td>
    <td width="15%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>20,882</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="65%"><font
      face="Times New Roman, Times, serif">&nbsp;&nbsp;<font size=2>Note payable</font></font></td>
    <td width="20%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>--</font></div>
    </td>
    <td width="15%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>504,714</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="65%"><font size=2>
      <p><font
      face="Times New Roman, Times, serif">&nbsp;&nbsp;&nbsp;&nbsp; Total current
        liabilities </font></p>
      </font></td>
    <td width="20%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">7,097,940</font></p>
      </font></td>
    <td width="15%"><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="65%"><font face="Times New Roman, Times, serif"
      size=2>Long term liabilities:</font></td>
    <td width="20%">&nbsp;</td>
    <td width="15%">&nbsp;</td>
  </tr>
  <tr valign=bottom>
    <td width="65%">
      <div align="left"><font size=2><font
      face="Times New Roman, Times, serif">&nbsp;&nbsp;&nbsp;&nbsp;Long term portion
        of deferred rent and capital leases</font></font></div>
    </td>
    <td width="20%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>80,861</font></div>
    </td>
    <td width="15%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>71,191</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td colspan="3">&nbsp;</td>
  </tr>
  <tr valign=bottom>
    <td width="65%"><font size=2>
      <p><font face="Times New Roman, Times, serif">Commitments and contingencies
        </font></p>
      </font></td>
    <td width="20%"><font
face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="15%"><font
  face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr valign=bottom>
    <td width="65%"><font
  face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="20%"><font
  face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="15%"><font
  face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr valign=bottom>
    <td width="65%"><font size=2>
      <p><font face="Times New Roman, Times, serif">Stockholders' equity: </font></p>
      </font></td>
    <td width="20%"><font
face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="15%"><font
  face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr valign=bottom>
    <td width="65%" 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">83,823
        at September 30, 2004 and 92,906 at December 31, 2003</font></p>
      </font></td>
    <td width="20%" height="50"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">84</font></p>
      </font></td>
    <td width="15%" 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="65%" 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 - 30,130,334 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">September 30, 2004 and 29,827,029 at
      December 31, 2003</font> </font></td>
    <td width="20%" height="52"><font size=2>
      <p align=center><font
      face="Times New Roman, Times, serif">30,130</font></p>
      </font></td>
    <td width="15%" 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="65%"><font size=2>
      <p><font face="Times New Roman, Times, serif">Additional paid-in capital
        </font></p>
      </font></td>
    <td width="20%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">50,585,836 </font></p>
      </font></td>
    <td width="15%"><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="65%" height="19"><font size=2>
      <p><font face="Times New Roman, Times, serif">Accumulated deficit </font></p>
      </font></td>
    <td width="20%" height="19"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">(33,789,968)
        </font></p>
      </font></td>
    <td width="15%" height="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="65%" 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="20%" height=23><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">16,826,082</font></p>
      </font></td>
    <td width="15%" 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="65%"><font size=2>
      <p><font
      face="Times New Roman, Times, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total
        liabilities and stockholders' equity </font></p>
      </font></td>
    <td width="20%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">$ 24,004,883
        </font></p>
      </font></td>
    <td width="15%"><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 included in The Company's Annual Report on Form 10-K
        for the year ended December 31, 2003, filed with the Securities Exchange
        Commission.</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="35%">
      <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>
        September 30,</font></div>
    </TD>
    <TD colspan="2" height=17>
      <div align="center"><font face="Times New Roman, Times, serif" size=2>Nine
        Months Ended <br>
        September 30,</font></div>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="35%" 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="14%" 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="35%" 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>$ 6,203,748</FONT>
      </P>
    </TD>
    <TD width="14%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif" size=2>$ 5,652,028
        </FONT></P>
    </TD>
    <TD width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif" size=2>$
        19,678,167</font></div>
    </TD>
    <TD width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif" size=2>$
        15,605,428</font></div>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="35%" 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>2,962,379</FONT></P>
    </TD>
    <TD width="14%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>2,821,567</FONT></P>
    </TD>
    <TD width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif"
      size=2>9,590,287</font></div>
    </TD>
    <TD width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif"
      size=2>7,882,399</font></div>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="35%" 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>3,241,369</FONT></P>
    </TD>
    <TD width="14%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>2,830,461</FONT></P>
    </TD>
    <TD width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif"
      size=2>10,087,880</font></div>
    </TD>
    <TD width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif"
      size=2>7,723,029</font></div>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="35%" 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="14%" 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="35%">
      <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="14%">&nbsp;</TD>
    <td height=26 width="17%">&nbsp;</td>
    <td height=26 width="17%">&nbsp;</td>
  </TR>
  <TR vAlign=bottom>
    <TD width="35%" 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>906,234</FONT></P>
    </TD>
    <TD width="14%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>866,111</FONT></P>
    </TD>
    <TD width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif"
      size=2>2,740,031</font></div>
    </TD>
    <TD width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif"
      size=2>2,580,262</font></div>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="35%" 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>1,423,404</FONT></P>
    </TD>
    <TD width="14%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>1,363,754</FONT></P>
    </TD>
    <TD width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif"
      size=2>4,412,005</font></div>
    </TD>
    <TD width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif"
      size=2>3,875,381</font></div>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="35%" 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>711,290</FONT></P>
    </TD>
    <TD width="14%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>656,240</FONT></P>
    </TD>
    <TD width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif"
      size=2>2,454,475</font></div>
    </TD>
    <TD width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif"
      size=2>2,066,787</font></div>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="35%" 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>106,787</FONT></DIV>
    </TD>
    <TD width="14%" 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>290,361</font></div>
    </TD>
    <TD width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif"
      size=2>318,504</font></div>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="35%" 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>3,147,715</FONT></P>
    </TD>
    <TD width="14%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>2,987,173</FONT></P>
    </TD>
    <TD width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif"
      size=2>9,896,872</font></div>
    </TD>
    <TD width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif"
      size=2>8,840,934</font></div>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="35%" height=17>
      <P><FONT face="Times New Roman, Times, serif" size=2>Operating income (loss)
        </FONT></P>
    </TD>
    <TD width="17%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>93,654</FONT></P>
    </TD>
    <TD width="14%" height=17>
      <P align=center><font face="Times New Roman, Times, serif"
      size=2>(156,712)</font></P>
    </TD>
    <TD width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif"
      size=2>191,008</font></div>
    </TD>
    <TD width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif"
      size=2>(1,117,905)</font></div>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="35%" height=17>
      <P><FONT face="Times New Roman, Times, serif" size=2>Interest income and
        other </FONT> </P>
    </TD>
    <TD width="17%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>7,696</FONT></P>
    </TD>
    <TD width="14%" height=17>
      <P align=center><font face="Times New Roman, Times, serif"
      size=2>9,022</font></P>
    </TD>
    <TD width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif"
      size=2>26,867</font></div>
    </TD>
    <TD width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif"
      size=2>22,798</font></div>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="35%" 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>(371)
        </FONT></P>
    </TD>
    <TD width="14%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif" size=2>(15,332)
        </FONT></P>
    </TD>
    <TD width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif" size=2>(7,893)
        </font></div>
    </TD>
    <TD width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif" size=2>(63,087)
        </font></div>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="35%" height=17>&nbsp;</TD>
    <TD width="17%" height=17>&nbsp;</TD>
    <TD width="14%" height=17>&nbsp;</TD>
    <TD width="17%" height=17>&nbsp;</TD>
    <TD width="17%" height=17>&nbsp;</TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="35%" 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>100,979</FONT></P>
    </TD>
    <TD width="14%" height=17>
      <P align=center><font face="Times New Roman, Times, serif" size=2>(163,022)</font></P>
    </TD>
    <TD width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif" size=2>209,982</font></div>
    </TD>
    <TD width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif" size=2>(1,158,194)</font></div>
    </TD>
  </TR>
  <tr valign=bottom>
    <td valign=top width="35%" 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>(12,288)
        </font></p>
    </td>
    <td width="14%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size=2>(29,605)
        </font></p>
    </td>
    <td width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif" size=2>(37,905)
        </font></div>
    </td>
    <td width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif" size=2>(119,864)
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td valign=top width="35%" height=17>
      <p><font face="Times New Roman, Times, serif" size=2>Preferred stock accretion
        </font></p>
    </td>
    <td width="17%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size=2>-- </font></p>
    </td>
    <td width="14%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size=2>(79,401)
        </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=17>
      <div align="center"><font face="Times New Roman, Times, serif" size=2>(565,307)
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td valign=top width="35%" 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>$ 88,691
        </font></p>
    </td>
    <td width="14%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size=2>$ (272,028)
        </font></p>
    </td>
    <td width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif" size=2>$
        172,077 </font></div>
    </td>
    <td width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif" size=2>$
        (1,843,365) </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td valign=top width="35%" height=17>
      <p><font face="Times New Roman, Times, serif" size=2>Net income (loss) per
        share applicable to common stockholders</font></p>
    </td>
    <td width="17%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size=2> </font></p>
    </td>
    <td width="14%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size=2> </font></p>
    </td>
    <td width="17%" height=17>
      <div align="center"></div>
    </td>
    <td width="17%" height=17>
      <div align="center"></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td valign=top width="35%" height=17>
      <p><font face="Times New Roman, Times, serif" size=2> &nbsp;&nbsp;Basic</font></p>
    </td>
    <td width="17%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size=2>$ 0.00</font></p>
    </td>
    <td width="14%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size=2>$ (0.01)</font></p>
    </td>
    <td width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif" size=2>$
        0.01</font></div>
    </td>
    <td width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif" size=2>$
        (0.07)</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td valign=top width="35%" height=17>
      <p><font face="Times New Roman, Times, serif" size=2>&nbsp;&nbsp;Diluted</font></p>
    </td>
    <td width="17%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size=2>$ 0.00</font></p>
    </td>
    <td width="14%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size=2>$ (0.01)</font></p>
    </td>
    <td width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif" size=2>$
        0.01</font></div>
    </td>
    <td width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif" size=2>$
        (0.07)</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="35%" height=7>
      <p><font face="Times New Roman, Times, serif" size=2>Weighted average shares
        outstanding</font> </p>
    </td>
    <td width="17%" height=7>
      <p align=center>&nbsp;</p>
    </td>
    <td width="14%" height=7>
      <p align=center>&nbsp;</p>
    </td>
    <td width="17%" height=7>
      <div align="center"></div>
    </td>
    <td width="17%" height=7>
      <div align="center"></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td valign=top width="35%" height=17>
      <p><font face="Times New Roman, Times, serif" size=2>&nbsp;&nbsp;Basic</font></p>
    </td>
    <td width="17%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size=2>30,111,484</font></p>
    </td>
    <td width="14%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size=2>27,127,580</font></p>
    </td>
    <td width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif" size=2>30,035,076</font></div>
    </td>
    <td width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif" size=2>25,289,212</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td valign=top width="35%" height=17>
      <p><font face="Times New Roman, Times, serif" size=2>&nbsp;&nbsp;Diluted</font></p>
    </td>
    <td width="17%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size=2>33,951,172</font></p>
    </td>
    <td width="14%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size=2>27,127,580</font></p>
    </td>
    <td width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif" size=2>34,120,841</font></div>
    </td>
    <td width="17%" height=17>
      <div align="center"><font face="Times New Roman, Times, serif" size=2>25,289,212</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>
<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="72%">
      <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>Nine Months
        Ended <br>
        September 30, </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <p><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp;</font></p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif" size=2>2004 </font></p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif" size=2>2003 </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%"><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="72%">
      <p><font face="Times New Roman, Times, serif" size=2>&nbsp;&nbsp;Net income
        (loss)</font> </p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif" size=2>$ 209,982</font>
      </p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif" size=2>$ (1,158,194)</font>
      </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%" height="9">
      <p><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;Adjustments to reconcile net loss to net cash used in
        operating activities: </font></p>
    </td>
    <td colspan=2 height="9">
      <p><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;</font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <p><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp;&nbsp;Depreciation and amortization</font> </p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>341,877</font></p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>440,793</font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <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="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>35,416</font></p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(38,422)</font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%"><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp; Gain on forward exchange contract</font></td>
    <td width="12%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>(55,430)</font></div>
    </td>
    <td width="16%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>(73,270)</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%"><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp; Foreign currency exchange loss on note payable</font></td>
    <td width="12%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>61,421</font></div>
    </td>
    <td width="16%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>62,750</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%"><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp; Amortization of intangibles</font></td>
    <td width="12%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>290,361</font></div>
    </td>
    <td width="16%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>318,504</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%"><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp; Change in deferred rent</font></td>
    <td width="12%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>16,510</font></div>
    </td>
    <td width="16%">
      <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="72%">
      <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="72%">
      <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="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>443,781</font></p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(995,114)</font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <p><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories</font>
      </p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(1,440,636)</font></p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>630,779</font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <p><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prepaid expenses</font></p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(124,830)</font></p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>37,889</font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <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="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(371)</font></p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>32,437</font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <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="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>199,935</font></p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(684,746)</font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <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="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(58,662)</font></p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>209,598</font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <p><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred revenue</font>
      </p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>334,590</font></p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>266,413</font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <p><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash
        provided by (used in) operating activities</font> </p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>253,944</font> </p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(950,583)</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="72%"><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="72%">
      <p><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp; Purchase of equipment</font> </p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(276,475)</font></p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(212,473)</font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <p><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp; Acquisition of patent</font> </p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(600,000)</font></p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>--</font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <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="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(876,475)</font></p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(212,473)</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="72%"><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="72%">
      <p><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp; Payments on capital leases and equipment financing
        notes</font>, <font size="2" face="Times New Roman, Times, serif">net</font></p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(18,656)</font></p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(23,237)</font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <p><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp; Payments on notes payable</font> </p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(449,284)</font></p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(934,801)</font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <p><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp; Gross proceeds from sale of foreign exchange contract</font>
      </p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>--</font></p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>310,800</font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <p><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp; Gross proceeds from bank lines of credit</font>
      </p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>8,417,447</font></p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>4,662,491</font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <p><font face="Times New Roman, Times, serif"
      size=2> &nbsp;&nbsp;&nbsp; Gross payments on bank lines of credit</font>
      </p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(7,987,356)</font> </p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(4,921,501)</font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <p><font face="Times New Roman, Times, serif"
      size=2> &nbsp;&nbsp;&nbsp; Proceeds from stock options exercised</font>
      </p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>74,291</font></p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>27,641</font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <p><font face="Times New Roman, Times, serif"
      size=2> &nbsp;&nbsp;&nbsp; Proceeds from warrants exercised</font> </p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>81,379</font></p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>301,612</font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%"><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="12%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>--</font></div>
    </td>
    <td width="16%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>1,507,605</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%"><font face="Times New Roman, Times, serif"
      size=2> &nbsp;&nbsp;&nbsp; Net proceeds from sale of common stock and warrants
      to <br>
      &nbsp;&nbsp;&nbsp; purchase common stock</font></td>
    <td width="12%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>--</font></div>
    </td>
    <td width="16%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>3,674,503</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%"><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp; Redemption payments on Series E redeemable convertible
      <br>
      &nbsp;&nbsp;&nbsp; preferred stock</font></td>
    <td width="12%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>--</font></div>
    </td>
    <td width="16%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>(200,000)</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%" height="10">
      <p><font face="Times New Roman, Times, serif"
      size=2> &nbsp;&nbsp;&nbsp; Dividends paid </font></p>
    </td>
    <td width="12%" height="10">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(25,617)</font> </p>
    </td>
    <td width="16%" height="10">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(51,551)</font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <p><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash
        provided by (used in ) financing activities</font> </p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>92,204</font></p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>4,353,562</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="72%">
      <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="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>4,471</font></p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>31,196</font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <p><font face="Times New Roman, Times, serif" size=2>Net increase (decrease)
        in cash and cash equivalents</font> </p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(525,856)</font></p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>3,221,702</font> </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%">&nbsp;</td>
    <td width="12%">&nbsp;</td>
    <td width="16%">&nbsp;</td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <p><font face="Times New Roman, Times, serif" size=2>Cash and cash equivalents
        at beginning of period</font> </p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>6,421,425</font> </p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>3,146,483</font> </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <p><font face="Times New Roman, Times, serif" size=2>Cash and cash equivalents
        at end of period</font> </p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif" size=2>$ 5,895,569</font>
      </p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif" size=2>$ 6,368,185</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="72%"><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="72%">
      <p><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp; Cash paid for interest</font> </p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif" size=2>$ 7,363</font>
      </p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif" size=2>$ 63,087</font>
      </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <p><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp; Dividends paid in common stock</font> </p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif" size=2>$ 39,923</font>
      </p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif" size=2>$ 39,923</font>
      </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <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="12%">
      <p align=center><font face="Times New Roman, Times, serif" size=2>$ --</font></p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif" size=2>$ 366,333</font>
      </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <p><font face="Times New Roman, Times, serif"
      size=2> &nbsp;&nbsp;&nbsp; Warrants issued in conjunction with common stock
        financing</font> </p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif" size=2>$ --</font>
      </p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif" size=2>$ 446,330</font>
      </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%"><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;
      Conversion of Series E preferred stock to common stock</font></td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif" size=2>$ --</font>
      </p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif" size=2>$ 800,000</font>
      </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%"><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;
      Conversion of Series F preferred stock to common stock</font></td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif" size=2>$ 65,568</font>
      </p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif" size=2>$ 1,022,528</font>
      </p>
    </td>
  </tr>
</table>
<p>&nbsp; </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>
<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" (SFAS 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 SFAS 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 SFAS 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 align=center><font face="Times New Roman, Times, serif" size="3">5<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>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 SFAS 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="41%"><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>
        September 30,</font></div>
    </td>
    <td colspan="2">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">Nine
        Months Ended <br>
        September 30,</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="41%">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
    </td>
    <td width="14%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">2004
        </font></p>
    </td>
    <td width="14%">
      <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="16%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">2003
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="41%">
      <p><font face="Times New Roman, Times, serif" size="2">Net income (loss)
        applicable to common shareholders</font><font size="2">, as reported</font></p>
    </td>
    <td width="14%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 88,691</font>
      </p>
    </td>
    <td width="14%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ (272,028)</font>
      </p>
    </td>
    <td width="15%">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        172,077</font></div>
    </td>
    <td width="16%">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        (1,843,365)</font> </div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="41%" height="61">
      <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="14%" height="61">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(574,074)</font>
      </p>
    </td>
    <td width="14%" height="61">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(632,394)</font>
      </p>
    </td>
    <td width="15%" height="61">
      <div align="center"><font size="1"><font size="2"><font size="3"><font size="1"><font face="Times New Roman, Times, serif" size="2">(2,040,257)</font></font></font></font></font></div>
    </td>
    <td width="16%" height="61">
      <div align="center"><font size="1"><font size="2"><font size="3"><font size="1"><font face="Times New Roman, Times, serif" size="2">(1,778,997)</font></font></font></font></font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="41%">
      <p><font face="Times New Roman, Times, serif" size="2">Pro forma net loss
        applicable to common shareholders</font> </p>
    </td>
    <td width="14%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ (485,383)</font>
      </p>
    </td>
    <td width="14%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ (904,422)</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">$
        (1,868,180)</font> </font></font></font></font></div>
    </td>
    <td width="16%">
      <div align="center"><font size="1"><font size="2"><font size="3"><font size="1"><font face="Times New Roman, Times, serif" size="2">$
        (3,622,362)</font> </font></font></font></font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="41%">
      <p><font face="Times New Roman, Times, serif" size="2">Basic net income
        (loss) per share, as reported</font></p>
    </td>
    <td width="14%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 0.00</font>
      </p>
    </td>
    <td width="14%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ (0.01)</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">$
        0.01 </font></font></font></font></font></div>
    </td>
    <td width="16%">
      <div align="center"><font size="1"><font size="2"><font size="3"><font size="1"><font face="Times New Roman, Times, serif" size="2">$
        (0.07)</font> </font></font></font></font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="41%">
      <p><font face="Times New Roman, Times, serif" size="2">Diluted net income
        (loss) per share, as reported</font></p>
    </td>
    <td width="14%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 0.00</font>
      </p>
    </td>
    <td width="14%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ (0.01)</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">$
        0.01</font></font></font></font></font></div>
    </td>
    <td width="16%">
      <div align="center"><font size="1"><font size="2"><font size="3"><font size="1"><font face="Times New Roman, Times, serif" size="2">$
        (0.07)</font> </font></font></font></font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="41%">
      <p><font face="Times New Roman, Times, serif" size="2">Pro forma basic and
        diluted net loss per share</font> </p>
    </td>
    <td width="14%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ (0.02)</font>
      </p>
    </td>
    <td width="14%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ (0.03)</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">$
        (0.06)</font> </font></font></font></font></div>
    </td>
    <td width="16%">
      <div align="center"><font size="1"><font size="2"><font size="3"><font size="1"><font face="Times New Roman, Times, serif" size="2">$
        (0.14)</font> </font></font></font></font></div>
    </td>
  </tr>
</table>
<p>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:</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>
        September 30,</font></div>
    </td>
    <td colspan="2">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">Nine
        Months Ended <br>
        September 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">2.75%</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>&nbsp;</p>
<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>Inventories consist principally of raw materials and sub-assemblies, which
  are stated at the lower of cost (first-in, first-out) or market.</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">September
        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
        sub-assemblies </font></p>
    </td>
    <td width="28%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 2,751,594</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">426,008
        </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">$ 3,177,602</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>&nbsp;</p>
<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
  September 30, 2004 were 5.25% on both the domestic and international lines.
  At September 30, 2004, outstanding amounts borrowed under the lines were $1,258,405
  and $739,076, respectively, which were the approximate amounts available on
  the lines. These amounts outstanding at September 30, 2004 were repaid in October
  2004. Under the new credit agreement, the Company must maintain quarterly minimum
  tangible net worth equal to $5,000,000, plus 75% of quarterly net profits beginning
  March 31, 2004. The Company was in compliance with this requirement at the end
  of the third quarter.</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 align=center><font face="Times New Roman, Times, serif" size="3">7<br>
  </font>
<p align=center>
<hr width="100%">
<p><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
</p>
<p align=left>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 nine months ended September 30, 2004 were $12,288, and $37,905,
  respectively, which were paid in cash subsequent to each of the respective quarters.
  Dividends for the three and nine months ended September 30, 2003 were $28,500,
  and $72,774, respectively. Additional dividends for the three and nine months
  ended September 30, 2003 related to Series E Redeemable Convertible Preferred
  Stock were $1,105 and $47,090, respectively. During the third quarter of 2004,
  holders of 1,131 shares of Series F Preferred Stock elected to convert their
  shares into 11,310 shares of common stock, leaving 83,823 shares of Series F
  Preferred Stock outstanding at September 30, 2004.
<p align=left><font face="Times New Roman, Times, serif" size="3"><b>NOTE 6 -
  Intangible Assets</b></font>
<p>On July 15, 2004 the Company acquired U.S. Patent 5,902,991 entitled Card Shaped
  Computer Peripheral Device from Khyber Technologies, Inc. The patent covers
  the design and functioning of plug-in bar code scanners, bar code imagers and
  RFID products. The patent was purchased for $600,000 and has been capitalized
  as an intangible asset. The patent will be amortized on a straight line basis
  over a ten year period. Khyber Technologies also agreed to discontinue the patent
  infringement litigation it initiated in June 2003.</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 in 2000 consist of developed software
  and technology, and have estimated lives ranging form 2.5 to 8.5 years.</p>
<p>Amortization of these intangible assets for the three and nine months ended
  September 30, 2004 were $106,787 and $290,361 compared to $101,068 and $318,504
  for the same periods in 2003.</p>
<p><font face="Times New Roman, Times, serif" size="3"><br>
  </font></p>
<p align=center><font face="Times New Roman, Times, serif" size="3">8<br>
  </font>
<p align=center>
<hr width="100%">
<p>&nbsp; </p>
<p><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
</p>
<p>Intangible assets as of September 30, 2004 consisted of the following:</p>
<table cellspacing=1 cellpadding=1 width=700 align=center border=1>
  <tr valign=bottom>
    <td width="331">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp; </font></p>
    </td>
    <td width="118">
      <p align=center><font face="Times New Roman, Times, serif" size="2">Gross<br>
        Assets </font></p>
    </td>
    <td width="115">
      <div align="center"><font size="2" face="Times New Roman, Times, serif">Accumulated
        Amortization</font></div>
    </td>
    <td width="109">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">Net
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="331">
      <p><font face="Times New Roman, Times, serif" size="2">Project management
        tools </font></p>
    </td>
    <td width="118">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 570,750
        </font></p>
    </td>
    <td width="115">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        (268,588) </font></div>
    </td>
    <td width="109">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        302,162</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">(766,129)
        </font></div>
    </td>
    <td width="109">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">133,871
        </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">Patent</font></p>
    </td>
    <td width="118">
      <p align=center><font face="Times New Roman, Times, serif" size="2">600,000
        </font></p>
    </td>
    <td width="115">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">(15,000)
        </font></div>
    </td>
    <td width="109">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">585,000
        </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">2,415,125
        </font></p>
    </td>
    <td width="115">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">(1,394,092)
        </font></div>
    </td>
    <td width="109">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        1,021,033</font></div>
    </td>
  </tr>
</table>
<P>Based on definite lived intangible assets recorded at September 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
        (three months remaining)</font></div>
    </td>
    <td width="314">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        106,787 </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">186,017
        </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">127,147
        </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">127,147
        </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">473,935
        </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">$
        1,021,033 </font></div>
    </td>
  </tr>
</table>
<p align=center>&nbsp;
<p align=center><font face="Times New Roman, Times, serif" size="3">9<br>
  </font>
<p align=center>
<hr width="100%">
<p align=center>&nbsp;
<p><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
</p>
<P><font face="Times New Roman, Times, serif" size="3"><b>NOTE 7 - Net 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>
        September 30,</font></p>
    </td>
    <td colspan=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">Nine
        Months Ended <br>
        September 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=98>
      <p align=center><font face="Times New Roman, Times, serif" size="2">2004
        </font></p>
    </td>
    <td width=104>
      <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="98">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></div>
    </td>
    <td width="104">
      <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">$ 100,979
        </font></p>
    </td>
    <td width=93 height="19">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ (163,022)
        </font></p>
    </td>
    <td width=98 height="19">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        209,982 </font></div>
    </td>
    <td width=104 height="19">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        (1,158,194) </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">(12,288)
        </font></p>
    </td>
    <td width=93 height="19">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(29,605)
        </font></p>
    </td>
    <td width=98 height="19">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">
        (37,905) </font></div>
    </td>
    <td width=104 height="19">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        (119,864) </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">(79,401)
        </font></p>
    </td>
    <td width="98">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">--</font></div>
    </td>
    <td width=104 height="19">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        (565,307) </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">$ 88,691</font></p>
    </td>
    <td width=93 height="15">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ (272,028)</font></p>
    </td>
    <td width=98 height="15">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        172,077 </font></div>
    </td>
    <td width=104 height="15">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        (1,843,365) </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="98" height="40">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></div>
    </td>
    <td width="104" 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">30,111,484
        </font></p>
    </td>
    <td width=93>
      <p align=center><font face="Times New Roman, Times, serif" size="2">27,127,580
        </font></p>
    </td>
    <td width=98>
      <div align="center"><font face="Times New Roman, Times, serif" size="2">30,035,609</font></div>
    </td>
    <td width=104>
      <div align="center"><font face="Times New Roman, Times, serif" size="2">25,289,212
        </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">33,951,172
        </font></p>
    </td>
    <td width=93>
      <p align=center><font face="Times New Roman, Times, serif" size="2">27,127,580</font></p>
    </td>
    <td width=98>
      <div align="center"><font face="Times New Roman, Times, serif" size="2">34,120,841
        </font></div>
    </td>
    <td width=104>
      <div align="center"><font face="Times New Roman, Times, serif" size="2">25,289,212
        </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">$ (0.01)
        </font></p>
    </td>
    <td width=98>
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        0.01 </font></div>
    </td>
    <td width=104>
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        (0.07) </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">$ (0.01)
        </font></p>
    </td>
    <td width=98>
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        0.01 </font></div>
    </td>
    <td width=104>
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        (0.07) </font></div>
    </td>
  </tr>
</table>
<p>&nbsp;</p>
<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 these
  quarters, and thus a potential 9,624,986 shares of common stock from the exercise
  of stock options, warrants, and conversion of preferred stock at September 30,
  2003 have been omitted from the net loss per share calculation as their effect
  is antidilutive.</P>
<p><font face="Times New Roman, Times, serif" size="3"><br>
  <b>NOTE 8 - Income Taxes</b></font></p>
<p>There were no provisions for federal or state income taxes for the three and
  nine months ended September 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 nine months ended September 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>
  </font></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"><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 nine months ended September 30,
  2004 and 2003 are as follows:</p>
<p align=left>&nbsp;
<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>
          September 30,</font></P>
      </TD>
      <TD colSpan=2 height="46">
        <div align="center"><font face="Times New Roman, Times, serif" size="2">Nine
          Months Ended <br>
          September 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=103>
        <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=103>
        <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">$
          4,254,279</font></P>
      </TD>
      <td width=103>
        <p align=center><font face="Times New Roman, Times, serif" size="2">$
          3,339,676</font></p>
      </td>
      <TD width=97>
        <div align="center"><font face="Times New Roman, Times, serif" size="2">$
          12,487,354</font></div>
      </TD>
      <td width=97>
        <div align="center"><font face="Times New Roman, Times, serif" size="2">$
          9,304,321 </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">278,578</font></p>
      </td>
      <td width=103>
        <p align=center><font face="Times New Roman, Times, serif" size="2">782,915
          </font></p>
      </td>
      <td width=97>
        <div align="center"><font face="Times New Roman, Times, serif" size="2">853,007</font></div>
      </td>
      <td width=97>
        <div align="center"><font face="Times New Roman, Times, serif" size="2">1,645,258</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">1,122,067</font></P>
      </TD>
      <td width=103>
        <p align=center><font face="Times New Roman, Times, serif" size="2">1,155,123</font></p>
      </td>
      <TD width=97>
        <div align="center"><font face="Times New Roman, Times, serif" size="2">4,681,863</font></div>
      </TD>
      <td width=97>
        <div align="center"><font face="Times New Roman, Times, serif" size="2">3,466,129</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">548,824
          </font></P>
      </TD>
      <td width=103>
        <p align=center><font face="Times New Roman, Times, serif" size="2">374,314
          </font></p>
      </td>
      <TD width=97>
        <div align="center"><font face="Times New Roman, Times, serif" size="2">1,655,943</font></div>
      </TD>
      <td width=97>
        <div align="center"><font face="Times New Roman, Times, serif" size="2">1,189,720</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">$
          6,203,748</font></P>
      </TD>
      <td width=103>
        <p align=center><font face="Times New Roman, Times, serif" size="2">$
          5,652,028</font></p>
      </td>
      <TD width=97>
        <div align="center"><font face="Times New Roman, Times, serif" size="2">$
          19,678,167</font></div>
      </TD>
      <td width=97>
        <div align="center"><font face="Times New Roman, Times, serif" size="2">$
          15,605,428</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 any significant long-lived assets in foreign locations.</font></P>
<p>The customers who account for at least 10% of total revenues during the three
  and nine months ended September 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>
          September 30, </font></P>
      </TD>
      <TD colSpan=2 height=17>
        <div align="center"><font face="Times New Roman, Times, serif" size="2">Nine
          Months Ended <br>
          September 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="16%">
        <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="16%">
        <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">Tech Data</font></p>
      </td>
      <td width="16%" height=23>
        <p align=center><font face="Times New Roman, Times, serif" size="2">34%
          </font></p>
      </td>
      <td width="16%" height=23>
        <p align=center><font face="Times New Roman, Times, serif" size="2">31%
          </font></p>
      </td>
      <td width="16%" height=23>
        <p align=center><font face="Times New Roman, Times, serif" size="2">29%
          </font></p>
      </td>
      <td width="16%" height=23>
        <p align=center><font face="Times New Roman, Times, serif" size="2">27%
          </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">13%
          </font></p>
      </td>
      <td width="16%" height=23>
        <p align=center><font face="Times New Roman, Times, serif" size="2">13%
          </font></p>
      </td>
      <td width="16%" 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">14%
          </font></p>
      </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><font face="Times New Roman, Times, serif" size="3">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 September 30, 2004 and 2003. The Company received no services during
  the nine months ended September 30, 2004 and the three months ended September
  30, 2003. The Company received services valued at $106,250 for the nine months
  ended September 30, 2003.<br>
  </font></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"><b>Revenues</b></font></p>
<p>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 revenues for the three
  and nine months ended September 30, 2004 of $6.2 million and $19.7 million,
  respectively, represented increases of 10% and 26% over revenues of $5.7 million
  and $15.6 million, respectively, for the corresponding periods a year ago.</p>
<p>Our products cover a wide range of connection solutions in four product families:</p>
<ul>
  <li>Our <i>bar code scanning products</i> plug into or connect wirelessly to
    handheld or notebook computers and turn handheld or notebook computers into
    mobile bar code scanners that can be used in mobile environments. Our bar
    code products include the In-Hand Scan card, which is a laser scanner incorporated
    into a CompactFlash card, the SDIO In-Hand Scan card, our In-Hand Scan Imager
    card, our bar code laser scanner system which is a laser gun attached via
    a cord to a CompactFlash card with PC adapter, and our Bluetooth cordless
    hand scanner.</li>
</ul>
<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></li>
</ul>
<p align="center"><font face="Times New Roman, Times, serif" size="3">12<br>
  </font> </p>
<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>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.</li>
</ul>
<ul>
  <li><font face="Times New Roman, Times, serif" size="3"> 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.</font></li>
</ul>
<p>Our bar code scanning product revenues were $2.8 million for the three months
  ended September 30, 2004 compared to $1.9 million for the same period one year
  ago. Revenue growth for the comparable three months of $0.7 million was due
  to our SDIO In-Hand Scan card, which began shipping to customers in the third
  quarter of 2003, and growth of $0.3 million from custom bar code product sales,
  partially offset by declines in sales of our In-Hand Scan Imager. Our bar code
  scanning product revenues were $7.6 million for the nine month period ended
  September 30, 2004 compared to $4.7 million for the same period one year ago.
  Revenue growth in the first nine months of 2004 of $0.8 million was due to our
  primary scanning product, the In-Hand Scan card, and growth of $2.4 million
  from our SDIO In-Hand Scan card partially offset by declines from our bar code
  laser scanner system. 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>
<p>Our network connection product revenues were $1.6 million for the three months
  ended September 30, 2004 compared to $2.3 million for the same period one year
  ago. Revenue declines for the comparable three months included $0.5 million
  resulting from delays in shipping our new Cordless GPS receiver, and flat or
  slight declines in our other connection products in the third quarter of 2004.
  Our network connection product revenues were $6.5 million for the nine months
  ended September 30, 2004 compared to $6.2 million for the same period a year
  ago. Revenue growth in the comparable nine months of 2004 of $0.6 million in
  our Wireless LAN product line were from our Secure Digital IO (SDIO) Wireless
  LAN card, which began shipping in the third quarter of 2003. Additional revenue
  growth of $0.5 million in our Bluetooth plug-in card product line was primarily
  attributed to our SDIO Bluetooth plug-in card, which began shipping in only
  modest quantities in the comparable period of 2003, and revenue growth of $0.2
  million from sales of our modem cards. Revenue growth from these products were
  partially offset by declines in revenue of $0.8 million from our Bluetooth GPS
  receiver with navigation kit due primarily to delays in shipping our new GPS,
  and modest declines of $0.2 million in revenue from our digital phone cards
  and Ethernet plug-in cards.</p>
<p>&nbsp;</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">13<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>Our peripheral connection card revenues were $1.0 million for the three months
  ended September 30, 2004 compared to $0.9 million for the same period one year
  ago. The revenue increase for the comparable three months was due primarily
  to sales of our cordless Bluetooth serial adapter, which began shipping in the
  third quarter of 2003. Our peripheral connection card revenues were $2.9 million
  for the nine months ended September 30, 2004 compared to $2.8 million for the
  same period one year ago. The revenue increase for the comparable nine month
  periods resulted from an increase of $0.2 million in sales of our cordless Bluetooth
  serial adapter offset by declines in sales volumes for both our standard serial
  PC Card products and custom serial card sales.</p>
<p>Our embedded products and services revenues were $0.8 million for the three
  months ended September 30, 2004 compared to $0.6 million for the same period
  a year ago. Revenues were $2.7 million for the nine months ended September 30,
  2004, compared to $1.9 million for the same period a year ago. Revenue growth
  in the comparable three and nine month periods of $0.4 million and $1.2 million,
  respectively, was due to increased sales of our embedded Bluetooth modules and
  cards. Partially offsetting these increases were declines in the sales of our
  proprietary ASIC chip in each of the comparable periods.</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>Gross Margins</b></font></p>
<p>Gross margins for the three and nine month periods ended September 30, 2004
  were 52% and 51%, respectively, compared to margins of 50% and 49% for the 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 Bluetooth cards,
  our modems, and additional cost reductions on our third generation lower cost
  proprietary ASIC chip which we introduced in the third quarter of 2003 resulted
  in improved margins for the three and nine month periods in 2004 compared to
  the same periods one year ago.</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>Research and Development
  Expense</b></font></p>
<p>Research and development expense for the three months ended September 30, 2004
  was $0.9 million, an increase of 5% compared to research and development expense
  for the corresponding period one year ago. Increases in the third quarter were
  primarily in consulting and professional fees and personnel expenses, which
  were partially offset by reductions in outside services compared to the same
  quarter a year ago. Research and development expense for the nine months ended
  September 30, 2004 was $2.7 million, an increase of 6% compared to research
  and development expense of $2.6 million for the corresponding period one year
  ago. Increases for the comparable nine 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 moderately increase in the fourth quarter.</p>
<p>&nbsp;</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>
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<p><font face="Times New Roman, Times, serif" size="3"><b>Sales and Marketing
  Expense</b></font></p>
<p>Sales and marketing expense for the three months ended September 30, 2004 was
  $1.4 million, an increase of 4% compared to sales and marketing expense in the
  corresponding period one year ago. Increases in the comparable three month periods
  were primarily from increased levels of advertising and promotion, and travel.
  Sales and marketing expense for the nine month period ended September 30, 2004
  was $4.4 million, an increase of 14% compared to sales and marketing expense
  of $3.9 million in the corresponding period one year ago. Increases in the comparable
  nine month periods was due to increased staffing of sales and marketing personnel
  beginning in the second half of 2003, increased advertising and promotional
  activities, travel, and outside sales and marketing services, partially offset
  by reductions in occupancy costs. Expenses are expected to moderately increase
  in the fourth quarter.</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>General and Administrative
  Expense</b></font></p>
<p>General and administrative expense for the three months ended September 30,
  2004 was $0.7 million, an increase of 8% compared to the general and administrative
  expense in the corresponding period one year ago. General and administrative
  expense for the nine months ended September 30, 2004 was $2.5 million, an increase
  of 19% compared to general and administrative expense of $2.1 million for the
  same period one year ago. The increase for the comparable periods is primarily
  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 fourth quarter.</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>Amortization of Goodwill
  and Intangibles</b></font></p>
<p>On July 15, 2004 the Company acquired U.S. Patent 5,902,991 entitled <i>Card
  Shaped Computer Peripheral Device</i> from Khyber Technologies, Inc. The patent
  covers the design and functioning of plug-in bar code scanners, bar code imagers
  and RFID products. The patent was purchased for $600,000 and has been capitalized
  as an intangible asset. The patent will be amortized on a straight line basis
  over a ten year period. Amortization charges for the three months ended September
  30, 2004 were $15,000.</p>
<p>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.
</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>
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<p>Amortization charges for the three and nine month periods ended September 30,
  2004 and 2003 were $75,000 and $225,000, respectively.</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 months ended September 30, 2004 were $17,000 compared to $26,000
  for the same period one year ago. Amortization charges for the nine months ended
  September 30, 2004 were $50,000 compared to $94,000 for the same period one
  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 and
  Other, Interest Expense</b></font></p>
<p>Interest income reflects interest earned on cash balances. Interest income
  for the three month period ended September 30, 2004 was $7,700 compared to $7,600
  for the same period one year ago. Interest income for the nine month period
  ended September 30, 2004 was $26,400 compared to $12,300 for the same period
  one year ago. Increased interest income reflects higher average levels of cash
  on hand during 2004 compared to the same periods in 2003. Higher levels of cash
  on hand in 2004 were primarily from our offering of common stock in August 2003.
  Other income for the nine months ended September 30, 2004 included $500 of net
  currency gains on the Euro note payable to Nokia partially offset by the loss
  on the foreign currency contracts. Other income of $1,400 and $10,500, respectively,
  for the three and nine month periods ended September 30, 2003 was the result
  of net currency gains on foreign currency contracts partially offset by a currency
  loss on the Euro note payable to Nokia.</p>
<p>Interest expense for the three month period ended September 30, 2004 was $400
  compared to $15,300 for the same period one year ago. Interest expense for the
  nine month period ended September 30, 2004 was $7,900 compared to $63,000 for
  the same period one year ago. Interest expense is related to interest on equipment
  lease financing obligations assumed from 3rd Rail Engineering, and interest
  on the outstanding note payable balance 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.</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>Preferred Stock Dividends
  and Accretion of Preferred Stock</b></font></p>
<p>Preferred stock dividends for the three and nine months ended September 30,
  2004 reflect dividends of $12,300 and $37,900, respectively, accrued at the
  rate of 8% per annum on Series F Preferred Stock issued in March 2003. Dividends
  for each of the quarters in 2004 were paid in cash subsequent to the quarter.
  Preferred stock dividends for the three and nine months ended September 30,
  2003, reflect dividends of $28,500 and $72,800, respectively on Series F Preferred
  Stock, and dividends of $1,100 and $47,200, 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 three
  quarters of 2003. Dividends for Series F for the first and third quarters were
  paid in cash, and for the second quarter were paid in common stock. Preferred
  stock accretion for the three and nine months ended September 30, 2003 was $79,400
  and $268,800, 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.</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><font face="Times New Roman, Times, serif" size="3"><b>Income Taxes </b></font></p>
<p>There were no provisions for federal or state income taxes as the Company has
  incurred net operating losses prior to 2004, earnings in the first nine months
  of 2004 have not been 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"><b>Liquidity and Capital
  Resources</b></font></p>
<p>The first three 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 three quarters of 2004 have been
  profitable, continued ongoing profitability is not assured.</p>
<p>Cash provided from operating activities was $0.3 million in the first nine
  months of 2004 compared to cash used in operating activities of $1.0 million
  in the same period one year ago. The source of cash in 2004 resulted from our
  net income of $0.2 million in the first nine months of 2004, and the use of
  cash in 2003 resulted from financing our net loss of $1.2 million in the first
  nine months of 2003. Adjustments for non-cash items, including depreciation
  and amortization, amortization of intangibles, gains on foreign currency forward
  exchange contracts, and foreign currency losses on the Euro note payable to
  Nokia totaled a positive $0.7 million in both the first nine months of 2004
  and 2003. Changes in working capital balances resulted in a use of cash of $0.6
  million in the first nine months of 2004, which was primarily from increases
  in inventories and prepaid expenses, partially offset by reductions in accounts
  receivables and increases in deferred revenue and payables. Changes in working
  capital balances resulted in a use of cash of $0.5 million in the first nine
  months of 2003, which was primarily from increases in accounts receivables and
  decreases in payables partially offset by decreases in inventories and increases
  in deferred revenue and accrued payroll and related expenses. </p>
<p>Cash used in investing activities was $0.9 million in the first nine months
  of 2004 compared to $0.2 million in the first nine months of 2003. Investing
  activities in the first nine months of 2004 primarily reflect the purchase costs
  of a patent of $0.6 million in July of 2004. Additional investing activities
  in both 2004 and 2003 reflect the costs of new computer hardware and software,
  and tooling costs.</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>Cash provided by financing activities in the first nine months of 2004 and
  2003 was $0.1 million and $4.4 million, respectively. Financing activities in
  2004 consist primarily of a net increase in the amounts drawn on our bank lines
  of credit at the end of the quarter and 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 consisted primarily of the net proceeds from the
  issuance of Series F Preferred Stock, net proceeds from the issuance of common
  stock, the exercise of previously issued warrants, and proceeds from the sales
  of foreign exchange contracts, 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 September 30, 2004 were $5.9 million including cash
  of $2.0 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 September 30, 2005. 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>The Company's contractual cash obligations at September 30, 2004 are outlined
  in the table below:</p>
<table cellspacing=1 cellpadding=1 width=662 align=center border=1>
  <tr>
    <td width=226>
      <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=226>
      <div align=center><font face="Times New Roman, Times, serif" size="2">Contractual
        Obligations</font></div>
    </td>
    <td valign=bottom align=middle width=80>
      <div align=center><font face="Times New Roman, Times, serif" size="2">Total
        </font></div>
    </td>
    <td valign=bottom align=middle width=84>
      <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=72>
      <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=71>
      <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=90>
      <div align="center"><font face="Times New Roman, Times, serif" size="2">More
        than<br>
        5 years</font></div>
    </td>
  </tr>
  <tr>
    <td width=226><font face="Times New Roman, Times, serif" size="2">Capitalized
      leases </font></td>
    <td valign=bottom align=middle width=80>
      <div align=center><font face="Times New Roman, Times, serif" size="2">$
        29,000</font></div>
    </td>
    <td valign=bottom align=middle width=84>
      <div align=center><font face="Times New Roman, Times, serif" size="2">$
        9,000</font></div>
    </td>
    <td valign=bottom align=middle width=72>
      <div align=center><font face="Times New Roman, Times, serif" size="2">$
        19,000</font></div>
    </td>
    <td valign=bottom align=middle width=71>
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 1,000</font></p>
    </td>
    <td valign=bottom align=middle width=90>
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ --
        </font></p>
    </td>
  </tr>
  <tr>
    <td width=226><font face="Times New Roman, Times, serif" size="2">Operating
      leases</font></td>
    <td valign=bottom align=middle width=80>
      <div align=center><font face="Times New Roman, Times, serif" size="2">1,105,000</font></div>
    </td>
    <td valign=bottom align=middle width=84>
      <div align=center><font face="Times New Roman, Times, serif" size="2">476,000</font></div>
    </td>
    <td valign=bottom align=middle width=72>
      <div align=center><font face="Times New Roman, Times, serif" size="2">629,000</font></div>
    </td>
    <td valign=bottom align=middle width=71>
      <div align=center><font face="Times New Roman, Times, serif" size="2">--</font></div>
    </td>
    <td valign=bottom align=middle width=90>
      <div align="center"><font face="Times New Roman, Times, serif" size="2">
        --</font></div>
    </td>
  </tr>
  <tr>
    <td align=left width=226><font face="Times New Roman, Times, serif" size="2">Unconditional
      purchase obligations with </font><font face="Times New Roman, Times, serif" size="2">contract
      manufacturers</font></td>
    <td valign=bottom align=middle width=80>
      <div align=center><font face="Times New Roman, Times, serif" size="2">1,223,000</font></div>
    </td>
    <td valign=bottom align=middle width=84>
      <div align=center><font face="Times New Roman, Times, serif" size="2">1,223,000</font></div>
    </td>
    <td valign=bottom align=middle width=72>
      <div align=center><font face="Times New Roman, Times, serif" size="2">--</font></div>
    </td>
    <td valign=bottom align=middle width=71>
      <div align=center><font face="Times New Roman, Times, serif" size="2">--</font></div>
    </td>
    <td valign=bottom align=middle width=90>
      <div align="center"><font face="Times New Roman, Times, serif" size="2">--</font></div>
    </td>
  </tr>
  <tr>
    <td width=226><font face="Times New Roman, Times, serif" size="2">Total contractual
      cash obligations</font></td>
    <td valign=bottom align=middle width=80>
      <div align=center><font face="Times New Roman, Times, serif" size="2">$
        2,357,000 </font></div>
    </td>
    <td valign=bottom align=middle width=84>
      <div align=center><font face="Times New Roman, Times, serif" size="2">$
        1,708,000 </font></div>
    </td>
    <td valign=bottom align=middle width=72>
      <div align=center><font face="Times New Roman, Times, serif" size="2">$
        648,000</font></div>
    </td>
    <td valign=bottom align=middle width=71>
      <div align=center><font face="Times New Roman, Times, serif" size="2">$
        1,000 </font></div>
    </td>
    <td valign=bottom align=middle width=90>
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        -- </font></div>
    </td>
  </tr>
</table>
<p>&nbsp;</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>Off-Balance Sheet Arrangements</b></font></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">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><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 incurred significant operating losses in 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 nine months 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><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></p>
<p>Although we do not anticipate the need to raise additional capital during the
  next twelve months to fund our operations, we may incur operating losses in
  future quarters and may need to raise capital to fund these losses. 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>&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>
<p><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> </p>
<p>A significant portion of our revenue comes from two distributors, Tech Data
  Corp. and Ingram Micro, Inc., which together represented approximately 44 percent
  of our worldwide revenue in the first nine 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.</p>
<p><b>If the market for handheld computers fails to grow, we would not achieve
  our sales projections. </b></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><b>Our sales would be hurt if the new technologies used in our products do
  not become widely adopted.</b></p>
<p>Many of our products use new technologies, such as the Bluetooth wireless standard,
  RFID, 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><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></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 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>&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><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></font></p>
<p>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:</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>
  <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.</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>&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><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>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>&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><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. Sales growth
  is 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>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><font face="Times New Roman, Times, serif" size="3"><br>
  </font></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>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>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><font face="Times New Roman, Times, serif" size="3">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.<br>
  </font></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>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.
  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 our 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>&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>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><font face="Times New Roman, Times, serif" size="3"><b>The loss of one or more
  of our senior personnel could harm our existing business. </b></font></p>
<p>A number of our officers and senior managers have been employed for nine 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><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 align="center"><font face="Times New Roman, Times, serif" size="3">26<br>
  </font> </p>
<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 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
  37% of our revenue in the first nine months of 2004 and 39% 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><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"> </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 align=left> <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>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 November 1, 2004, we had 30,139,835 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 November 1, 2004, we had 83,823 shares of Series F Preferred Stock outstanding
  that are convertible into 838,230 shares of Common Stock at $0.722 per share.</p>
<p>As of November 1, 2004, we had 6,548,397 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 November 1, 2004, we had warrants outstanding to purchase a total of
  1,718,105 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 November 1, 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></p>
<p></p>
<p></p>
<p></p>
<p><font face="Times New Roman, Times, serif" size="3"><br>
  </font></p>
<p>&nbsp;</p>
<p></p>
<p></p>
<p></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=qqd></a></font>
<p><font face="Times New Roman, Times, serif" size="3"><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 September 30, 2004,
  a decline of 1% in interest rates would reduce our quarterly interest income
  by approximately $9,700.</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.</p>
<p><font face="Times New Roman, Times, serif" size="3"><br>
  <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 September 30, 2004, an adverse change of 10% in exchange
  rates would result in an increase in our net loss for the quarter of approximately
  $49,000. For the third quarter 2004 the total adjustment for the effects of
  changes in foreign currency on cash balances, collections, payables, and derivatives
  was a net gain of $10,000. 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>&nbsp;</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">29<a
name=item4></a><br>
  </font>
<p align=center>
<hr width="100%">
<p><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font></p>
<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">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=oth></a><a
name=item6></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 6. Exhibits</b></font></p>
<p><font face="Times New Roman, Times, serif" size="3"> Exhibits</font></p>
<p><font face="Times New Roman, Times, serif" size="3">31.1 Certification of Chief
  Executive Officer and Chief Financial Officer pursuant to Section 302 of the
  Sarbanes-Oxley Act of 2002.</font></p>
<p><font face="Times New Roman, Times, serif" size="3">32.1 Certification of Chief
  Executive Officer and Chief Financial Officer pursuant to Section 906 of the
  Sarbanes-Oxley Act of 2002.</font></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">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=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"><b>SIGNATURES</b></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="97%">
  <TR>
    <TD width="38%"><FONT face="Times New Roman, Times, serif" size=3>Date: November
      8, 2004 </FONT></TD>
    <TD width="36%">
      <CENTER>
      </CENTER>
    </TD>
    <TD width="26%">
      <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="36%">
      <center>
        <font face="Times New Roman, Times, serif" size=3>&nbsp; </font>
      </center>
    </td>
    <td valign=top align=middle width="26%">
      <div align=left>
        <p><font face="Times New Roman, Times, serif" size=3>Kevin J. Mills<br>
          President and Chief Executive Officer</font><br>
          (Duly Authorized Officer and Principal Executive Officer)</p>
      </div>
    </td>
  </tr>
  <tr>
    <td width="38%" height="44">&nbsp;</td>
    <td width="36%" height="44">&nbsp;</td>
    <td width="26%" height="44">&nbsp;</td>
  </tr>
  <tr>
    <td width="38%"><font face="Times New Roman, Times, serif" size=3>Date: November
      8, 2004 </font></td>
    <td width="36%">
      <center>
      </center>
    </td>
    <td width="26%">
      <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="36%">
      <center>
        <font face="Times New Roman, Times, serif" size=3>&nbsp; </font>
      </center>
    </td>
    <td valign=top align=middle width="26%">
      <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">32<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=12>&nbsp;</td>
    <td valign=top width="90%" height=12>&nbsp;</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>&nbsp;</P>
<P>&nbsp;</P>
<p align=center><font face="Times New Roman, Times, serif" size="3">33<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 align=right><font face="Times New Roman, Times, serif" size="3">Exhibit 31.1
  </font>
<p align="center"><font face="Times New Roman, Times, serif" size="3"><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-15e
  and 15d-15e) for the registrant and we have:</font></p>
<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>
<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>
<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>
<table cols=2 width="97%">
  <tr>
    <td width="38%"><font face="Times New Roman, Times, serif" size=3>Date: November
      8, 2004 </font></td>
    <td width="17%">
      <center>
      </center>
    </td>
    <td width="45%">
      <div align=left><font face="Times New Roman, Times, serif"
      size=3><u>By: &nbsp;&nbsp;/s/ Kevin J. Mills</u></font></div>
    </td>
  </tr>
  <tr>
    <td width="38%">&nbsp;</td>
    <td width="17%">
      <center>
        <font face="Times New Roman, Times, serif" size=3>&nbsp; </font>
      </center>
    </td>
    <td valign=top align=middle width="45%">
      <div align=left><font face="Times New Roman, Times, serif" size=3>Name:
        Kevin J. Mills<br>
        Title: President and Chief Executive Officer (Principal Executive Officer)</font></div>
    </td>
  </tr>
</table>
<p><font face="Times New Roman, Times, serif" size="3"><br>
  </font></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"><a href="#TAB">(Index)</a></font>
<p><font face="Times New Roman, Times, serif" size="3"> I, David W. Dunlap, 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-15e
  and 15d-15e) for the registrant and we have:</font></p>
<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>
<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>
<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>
<table cols=2 width="96%">
  <tr>
    <td width="38%"><font face="Times New Roman, Times, serif" size=3>Date: November
      8, 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>By: &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>Name:
        David W. Dunlap<br>
        Title: Vice President of Finance and Administration and Chief Financial
        Officer (Principal Financial Officer) </font></div>
    </td>
  </tr>
</table>
<p><font face="Times New Roman, Times, serif" size="3"><br>
  </font></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"><a href="#TAB">(Index)</a></font>
<p align="right"><font face="Times New Roman, Times, serif" size="3">Exhibit 32.1</font></p>
<p align="center">CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL
  OFFICER<br>
  PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 </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 September
  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 cols=2 width="43%" align="center">
  <tr>
    <td width="41%">
      <div align=left><font face="Times New Roman, Times, serif"
      size=3><u>By: &nbsp;&nbsp;/s/ Kevin J. Mills</u></font></div>
    </td>
  </tr>
  <tr>
    <td valign=top align=middle width="41%">
      <div align=left><font face="Times New Roman, Times, serif" size=3>Name:
        Kevin J. Mills<br>
        Title: &nbsp&nbspPresident and Chief Executive Officer <br>
        &nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp(Principal Executive
        Officer)<br>
        Date: &nbspNovember 8, 2004</font></div>
    </td>
  </tr>
</table>
<p>&nbsp;</p>
<p>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 September
  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.</p>
<p></p>
<table cols=2 width="45%" align="center">
  <tr>
    <td width="41%">
      <div align=left><font face="Times New Roman, Times, serif"
      size=3><u>By: &nbsp;&nbsp;/s/ David W. Dunlap&nbsp;&nbsp;</u></font></div>
    </td>
  </tr>
  <tr>
    <td valign=top align=middle width="41%">
      <div align=left><font face="Times New Roman, Times, serif" size=3>Name:
        David W. Dunlap<br>
        Title: &nbsp&nbspVice President of Finance and Administration <br>
        &nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbspand Chief
        Financial Officer (Principal <br>
        &nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbspFinancial
        Officer)<br>
        Date:&nbsp&nbsp&nbsp&nbspNovember 8, 2004</font></div>
    </td>
  </tr>
</table>
<p>&nbsp;</p>
<p align=center>&nbsp;
<p align=center>&nbsp;
<p align=center>&nbsp;
<p align=center>&nbsp;
<p align=center><font face="Times New Roman, Times, serif" size="3"><br>
  </font>
<p align=center>
<hr width="100%">
<p align=center><font face="Times New Roman, Times, serif" size="3"><br>
  </font>
<p align=center>
<p align=left>
<p>&nbsp;</p>
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