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<SEC-DOCUMENT>0000944075-05-000023.txt : 20050510
<SEC-HEADER>0000944075-05-000023.hdr.sgml : 20050510
<ACCEPTANCE-DATETIME>20050510132423
ACCESSION NUMBER:		0000944075-05-000023
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		1
CONFORMED PERIOD OF REPORT:	20050331
FILED AS OF DATE:		20050510
DATE AS OF CHANGE:		20050510

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:		05815172

	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>q1-2005.htm
<TEXT>
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<META content="MSHTML 5.50.4522.1800" name=GENERATOR></HEAD>
<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 March 31, 2005</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><b>SOCKET
  COMMUNICATIONS, INC.</b> </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[X] NO[&nbsp;&nbsp;]</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 April 29, 2005 was 30,158,421 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 - March 31, 2005 and December
      31, 2004 </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 Ended
      March 31, 2005 and 2004</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 - Three Months
      Ended </a><a
  href="#ops">March 31, 2005 and 2004</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">11</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">26</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">27</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="#sub">Item 4. Submission of Matters to a Vote of Security Holders</a></font></td>
    <td width="56">
      <div align="center"><font face="Times New Roman, Times, serif" size="3">28</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">28</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">29</font></div>
    </td>
  </tr>
  <tr>
    <td colspan="2">&nbsp;</td>
    <td width="56">&nbsp;</td>
  </tr>
  <tr>
    <td colspan="2"><font face="Times New Roman, Times, serif" size="3"><a
href="#ind">Index to Exhibits</a></font></td>
    <td width="56">
      <div align="center"><font face="Times New Roman, Times, serif" size="3">30</font></div>
    </td>
  </tr>
</table>
<P align=left>&nbsp; </P>
<P align="center"><font face="Times New Roman, Times, serif" size="3"><BR>
  <BR>
  1</font>
<HR width="100%">
<font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a>
<a
name=bs></a> <BR>
<BR>
</font>
<P align=left>&nbsp;
<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"> March 31, </font><font face="Times New Roman, Times, serif"><br>
        2005<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, 2004* </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">$ 7,181,089 </font></p>
      </font></td>
    <td width="15%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">$ 5,931,752 </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"> 4,028,098 </font></p>
      </font></td>
    <td width="15%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">4,009,631 </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">2,527,374 </font></p>
      </font></td>
    <td width="15%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">2,941,211 </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">171,801 </font></p>
      </font></td>
    <td width="15%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">159,747 </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">13,908,362 </font></p>
      </font></td>
    <td width="15%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">13,042,341 </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">1,818,953 </font></p>
      </font></td>
    <td width="15%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">1,865,400 </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">799,591 </font></p>
      </font></td>
    <td width="15%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">761,933 </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>2,618,544 </p>
      </font></td>
    <td width="15%" height="5"><font size=2>
      <p align=center>2,627,333 <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">(2,140,095) </font></p>
      </font></td>
    <td width="15%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">(2,148,335) </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;Property
        and equipment, net</font></p>
      </font></td>
    <td width="20%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">478,449 </font></p>
      </font></td>
    <td width="15%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">478,998 </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>857,066 </font></div>
    </td>
    <td width="15%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>951,979 </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">127,828 </font></p>
      </font></td>
    <td width="15%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">128,633 </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">$ 25,169,651
        </font></p>
      </font></td>
    <td width="15%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">$ 24,399,897
        </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>$ 3,062,633 </font></font></p>
      </font></td>
    <td width="15%"><font size=2>
      <p align=center><font size=2><font face="Times New Roman, Times, serif">$
        2,668,649 </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">677,849 </font></p>
      </font></td>
    <td width="15%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">680,501 </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="65%" height="7"><font size=2>
      <p><font face="Times New Roman, Times, serif">&nbsp;&nbsp; Bank line of
        credit </font></p>
      </font></td>
    <td width="20%" height="7"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>3,213,300 </font></p>
      </font></td>
    <td width="15%" height="7"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">2,949,272 </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">1,568,687 </font></p>
      </font></td>
    <td width="15%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">1,056,177 </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 deferred rent and capital leases</font></font></td>
    <td width="20%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>42,303 </font></div>
    </td>
    <td width="15%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>42,193 </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">8,564,772 </font></p>
      </font></td>
    <td width="15%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">7,396,792 </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%">
      <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>40,393 </font></div>
    </td>
    <td width="15%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>51,011 </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 March 31, 2005 and December 31, 2004</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">84 </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 - 30,157,893 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">March 31, 2005 and 30,141,444 at December
      31, 2004</font> </font></td>
    <td width="20%" height="52"><font size=2>
      <p align=center><font
      face="Times New Roman, Times, serif">30,158 </font></p>
      </font></td>
    <td width="15%" height="52"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">30,141 </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">50,612,419 </font></p>
      </font></td>
    <td width="15%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">50,596,136 </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">(34,078,175)
        </font></p>
      </font></td>
    <td width="15%" height="19"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">(33,674,267)
        </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">16,564,486 </font></p>
      </font></td>
    <td width="15%" height=23><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">16,952,335 </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">$ 25,169,651
        </font></p>
      </font></td>
    <td width="15%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">$ 24,399,897
        </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 height="12"><font size=2>
      <p><font face="Times New Roman, Times, serif">*Derived from audited consolidated
        financial statements </font></p>
      </font></td>
  </tr>
</table>
<P></P>
<font face="Times New Roman, Times, serif" size="3"><BR>
</font>
<P align=center><font face="Times New Roman, Times, serif" size="3">See accompanying
  notes. <BR>
  <BR>
  2</font>
<HR width="100%">
<font face="Times New Roman, Times, serif" size="3"><BR>
<a href="#TAB">(Index)</a> <a name=ops></a><BR>
</font>
<P align=center>
<TABLE cellSpacing=1 cellPadding=1 width=695 align=center border=1>
  <tr valign=bottom>
    <td colspan=3 height="33"><font size=2><b>
      <p align=center><font face="Times New Roman, Times, serif">SOCKET COMMUNICATIONS,
        INC. <br>
        CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS</font><br>
        (Unaudited) </p>
      </b></font></td>
  </tr>
  <TR vAlign=bottom>
    <TD height=17 width="33%">
      <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>
        March 31,</font></div>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="33%" height=17>
      <P><FONT face="Times New Roman, Times, serif">&nbsp;&nbsp; </FONT></P>
    </TD>
    <TD width="15%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif" size=2><u>2005
        </u></FONT></P>
    </TD>
    <TD width="12%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif" size=2><u>2004</u>
        </FONT></P>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="33%" height=17>
      <P><FONT face="Times New Roman, Times, serif" size=2>Revenues </FONT></P>
    </TD>
    <TD width="15%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif" size=2>$ 5,982,196
        </FONT> </P>
    </TD>
    <TD width="12%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif" size=2>$ 6,743,228
        </FONT></P>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="33%" height=17>
      <P><FONT face="Times New Roman, Times, serif" size=2>Cost of revenue </FONT></P>
    </TD>
    <TD width="15%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>2,934,304 </FONT></P>
    </TD>
    <TD width="12%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>3,311,666 </FONT></P>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="33%" height=17>
      <P><FONT face="Times New Roman, Times, serif" size=2>Gross profit </FONT></P>
    </TD>
    <TD width="15%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>3,047,892 </FONT></P>
    </TD>
    <TD width="12%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>3,431,562 </FONT></P>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="33%" height=17>
      <P><FONT face="Times New Roman, Times, serif">&nbsp;&nbsp;<FONT size=2>
        </FONT></FONT></P>
    </TD>
    <TD width="15%" height=17><FONT face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp; </FONT></TD>
    <TD width="12%" height=17><FONT face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp; </FONT></TD>
  </TR>
  <TR vAlign=bottom>
    <TD height=26 width="33%">
      <P><FONT face="Times New Roman, Times, serif" size=2>Operating expenses:
        </FONT></P>
    </TD>
    <TD height=26 width="15%">&nbsp;</TD>
    <TD height=26 width="12%">&nbsp;</TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="33%" height=17>
      <P><FONT face="Times New Roman, Times, serif" size=2>&nbsp;&nbsp;Research
        and development </FONT></P>
    </TD>
    <TD width="15%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>889,128 </FONT></P>
    </TD>
    <TD width="12%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>924,152 </FONT></P>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="33%" height=17>
      <P><FONT face="Times New Roman, Times, serif" size=2>&nbsp;&nbsp;Sales and
        marketing </FONT></P>
    </TD>
    <TD width="15%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>1,634,506 </FONT></P>
    </TD>
    <TD width="12%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>1,519,037 </FONT></P>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="33%" height=17>
      <P><FONT face="Times New Roman, Times, serif" size=2>&nbsp;&nbsp;General
        and administrative </FONT></P>
    </TD>
    <TD width="15%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>832,821 </FONT></P>
    </TD>
    <TD width="12%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>846,924 </FONT></P>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="33%" height=17><FONT face="Times New Roman, Times, serif"
      size=2>&nbsp; Amortization of intangible technology</FONT></TD>
    <TD width="15%" height=17>
      <DIV align=center><FONT face="Times New Roman, Times, serif"
      size=2>94,913 </FONT></DIV>
    </TD>
    <TD width="12%" height=17>
      <DIV align=center><font face="Times New Roman, Times, serif"
      size=2>91,787 </font></DIV>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="33%" height=17>
      <P><FONT face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp;&nbsp;Total operating expenses </FONT></P>
    </TD>
    <TD width="15%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>3,451,368 </FONT></P>
    </TD>
    <TD width="12%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>3,381,900 </FONT></P>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="33%" height=17>
      <P><FONT face="Times New Roman, Times, serif" size=2>Operating income (loss)
        </FONT></P>
    </TD>
    <TD width="15%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>(403,476) </FONT></P>
    </TD>
    <TD width="12%" height=17>
      <P align=center><font face="Times New Roman, Times, serif"
      size=2>49,662 </font></P>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="33%" height=17>&nbsp;</TD>
    <TD width="15%" height=17>&nbsp;</TD>
    <TD width="12%" height=17>&nbsp;</TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="33%" height=17>
      <P><FONT face="Times New Roman, Times, serif" size=2>Interest income and
        other </FONT> </P>
    </TD>
    <TD width="15%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>13,507 </FONT></P>
    </TD>
    <TD width="12%" height=17>
      <P align=center><font face="Times New Roman, Times, serif"
      size=2>10,660 </font></P>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="33%" height=17>
      <P><FONT face="Times New Roman, Times, serif" size=2>Interest expense </FONT></P>
    </TD>
    <TD width="15%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif" size=2>(1,739)
        ) </FONT></P>
    </TD>
    <TD width="12%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif" size=2>(6,932)
        </FONT></P>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="33%" height=17>&nbsp;</TD>
    <TD width="15%" height=17>&nbsp;</TD>
    <TD width="12%" height=17>&nbsp;</TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="33%" height=17>
      <P><FONT face="Times New Roman, Times, serif" size=2>Net income (loss) </FONT></P>
    </TD>
    <TD width="15%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif" size=2>(391,708)</FONT></P>
    </TD>
    <TD width="12%" height=17>
      <P align=center><font face="Times New Roman, Times, serif" size=2>53,390
        </font></P>
    </TD>
  </TR>
  <tr valign=bottom>
    <td valign=top width="33%" height=17>
      <p><font face="Times New Roman, Times, serif" size=2>Preferred stock dividends</font></p>
    </td>
    <td width="15%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size=2>(12,200)
        </font></p>
    </td>
    <td width="12%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size=2>(13,078)
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td valign=top width="33%" height=17>
      <p><font face="Times New Roman, Times, serif" size=2>Net income (loss) applicable
        to common stockholders</font></p>
    </td>
    <td width="15%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size=2>$ (403,908)
        </font></p>
    </td>
    <td width="12%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size=2>$ 40,312
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td valign=top width="33%" 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="15%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size=2> </font></p>
    </td>
    <td width="12%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size=2> </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td valign=top width="33%" height=17>
      <p><font face="Times New Roman, Times, serif" size=2> &nbsp;&nbsp;Basic</font></p>
    </td>
    <td width="15%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size=2>$ (0.01)
        </font></p>
    </td>
    <td width="12%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size=2>$ 0.00
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td valign=top width="33%" height=17>
      <p><font face="Times New Roman, Times, serif" size=2>&nbsp;&nbsp;Diluted</font></p>
    </td>
    <td width="15%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size=2>$ (0.01)
        </font></p>
    </td>
    <td width="12%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size=2>$ 0.00
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="33%" height=7>
      <p><font face="Times New Roman, Times, serif" size=2>Weighted average shares
        outstanding:</font></p>
    </td>
    <td width="15%" height=7>
      <p align=center>&nbsp;</p>
    </td>
    <td width="12%" height=7>
      <p align=center>&nbsp;</p>
    </td>
  </tr>
  <tr valign=bottom>
    <td valign=top width="33%" height=17>
      <p><font face="Times New Roman, Times, serif" size=2>&nbsp;&nbsp;Basic</font></p>
    </td>
    <td width="15%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size=2>30,154,992
        </font></p>
    </td>
    <td width="12%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size=2>29,933,603
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td valign=top width="33%" height=17>
      <p><font face="Times New Roman, Times, serif" size=2>&nbsp;&nbsp;Diluted</font></p>
    </td>
    <td width="15%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size=2>30,154,992
        </font></p>
    </td>
    <td width="12%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size=2>34,478,732
        </font></p>
    </td>
  </tr>
</TABLE>
<P></P>
<font face="Times New Roman, Times, serif" size="3"><BR>
</font>
<P align=center><font face="Times New Roman, Times, serif" size="3">See accompanying
  notes. <BR>
  <BR>
  </font>
<P align=center>
<P align=center><font face="Times New Roman, Times, serif" size="3"> 3 </font>
<HR width="100%">
<p><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=flows></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>Three
        Months Ended <br>
        March 31, </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>2005 </font></p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif" size=2>2004 </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>$ (391,708)
        </font> </p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif" size=2>$ 53,390
        </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 income (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>118,324 </font></p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>108,298 </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <p><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp;&nbsp;Loss on foreign currency translations</font>
      </p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>55,968 </font></p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>18,427 </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 contracts</font></td>
    <td width="12%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>(38,461) </font></div>
    </td>
    <td width="16%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>(44,090) </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>-- </font></div>
    </td>
    <td width="16%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>43,560 </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>94,913 </font></div>
    </td>
    <td width="16%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>91,787 </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>(5,502)</font></div>
    </td>
    <td width="16%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>5,503 </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>(56,159) </font></p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(720,218) </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>413,837 </font></p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>12,400 </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
        and other current assets</font></p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(12,054) </font></p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(51,580) </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>805 </font></p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>6,368 </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>432,445 </font></p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>142,173 </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>(2,652) </font></p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>7,354 </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 income on
        shipments to distributors</font> </p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>512,510 </font></p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>43,204 </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 (used) in operating activities</font> </p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>1,122,266 </font></p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(283,424) </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>(117,775) </font></p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(95,765) </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>(117,775) </font></p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(95,765) </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></p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(5,006) </font></p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(9,301) </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>--</font> </p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(337,088) </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 line of credit</font>
      </p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>3,213,300 </font></p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>3,455,903 </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 line of credit</font>
      </p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(2,949,272)</font> </p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(1,567,390) </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>16,300 </font></p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>43,797 </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>--</font></p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>54,372 </font></p>
    </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>(12,200) </font> </p>
    </td>
    <td width="16%" height="10">
      <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
        provided by financing activities</font> </p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>263,122 </font></p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>1,640,293 </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>(18,276) </font></p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>11,994 </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <p><font face="Times New Roman, Times, serif" size=2>Net increase in cash
        and cash equivalents</font> </p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>1,249,337 </font></p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>1,273,098 </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>5,931,752 </font> </p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>6,421,425 </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>$ 7,181,089
        </font> </p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif" size=2>$ 7,694,523
        </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>$ 1,739
        </font></p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif" size=2>$ 6,932
        </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>
  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>
  <font face="Times New Roman, Times, serif" size="3"><a name=notes></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, 2004.</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 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 per share results
  would have changed to the pro forma net loss amounts indicated below:</p>
<p>&nbsp;</p>
<table cellspacing=1 cellpadding=1 width=712 align=center border=1>
  <tr valign=bottom>
    <td width="41%" height="11"><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></td>
    <td colspan="2" height="11">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">Three
        Months Ended March 31,</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">2005
        </font></p>
    </td>
    <td width="14%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">2004
        </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 stockholders</font><font size="2">, as reported</font></p>
    </td>
    <td width="14%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ (403,908)</font>
      </p>
    </td>
    <td width="14%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 40,312</font>
      </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="41%" height="10">
      <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="10">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(1,177,780)
        </font> </p>
    </td>
    <td width="14%" height="10">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(707,912)
        </font> </p>
    </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 stockholders</font> </p>
    </td>
    <td width="14%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ (1,581,688)
        </font> </p>
    </td>
    <td width="14%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ (667,600)
        </font> </p>
    </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">$ (0.01)</font>
      </p>
    </td>
    <td width="14%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 0.00</font>
      </p>
    </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">$ (0.01)
        </font> </p>
    </td>
    <td width="14%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 0.00
        </font> </p>
    </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">$ (0.05)
        </font> </p>
    </td>
    <td width="14%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ (0.02)
        </font> </p>
    </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 comparable
  three month periods presented are as follows:</p>
<table cellspacing=1 cellpadding=1 width=700 align=center border=1>
  <tr valign=bottom>
    <td width="44%" height="14"><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font></td>
    <td colspan="2" height="14">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">Three
        Months Ended March 31,</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">2005
        </font></p>
    </td>
    <td width="13%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">2004
        </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">3.71%
        </font> </p>
    </td>
    <td width="13%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">2.93%
        </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>
  </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">1.0
        </font> </p>
    </td>
    <td width="13%">
      <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">4.5
        </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>On April 14, 2005, the Securities and Exchange Commission (SEC) announced a
  delay in implementing the option expensing requirements set forth in Financial
  Accounting Standards Board Statement No. 123(R), "Share-Based Payment" ("SFAS
  123R"). The new effective date for compliance with the provisions of SFAS 123R
  is the first quarter of a public entity's first fiscal year beginning after
  June 15, 2005. The Company expects to adopt the provisions of SFAS 123R in its
  first quarter of fiscal 2006. Previously the Company expected to adopt SFAS
  123R in its third quarter of fiscal 2005. SFAS 123R, will replace SFAS No. 123,
  "Accounting for Stock-Based Compensation" ("SFAS 123") and supercedes APB Opinion
  No. 25, "Accounting for Stock Issued to Employees." SFAS 123R requires all share-based
  awards to employees, including grants of employee stock options, to be recognized
  in the financial statements based on their fair values. The pro forma disclosures
  previously permitted under SFAS 123 will no longer be an alternative to financial
  statement recognition. Under SFAS 123R, the Company must determine the appropriate
  fair value model to be used for valuing share-based awards, the amortization
  method for compensation cost and the transition method to be used at date of
  adoption. The transition methods include prospective and retroactive adoption
  options. Under the retroactive options, prior periods may be restated either
  as of the beginning of the year of adoption or for all periods presented. The
  prospective method requires that compensation expense be recorded for all unvested
  stock options and restricted stock at the beginning of the first quarter of
  adoption of SFAS 123R, while the retroactive methods would record compensation
  expense for all unvested stock options and restricted stock beginning with the
  first period restated. The Company is evaluating the requirements of SFAS 123R
  and expects that the adoption of SFAS 123R will have a material adverse impact
  on its consolidated results of operations and earnings per share. The Company
  has not yet determined the method of adoption or the effect of adopting SFAS
  123R, and has not determined whether the adoption will result in amounts that
  are similar to the current pro forma disclosures under SFAS 123.</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">March
        31,<br>
        2005 </font></p>
    </td>
    <td width="23%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">December
        31, <br>
        2004 </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">$ 2,277,511
        </font></p>
    </td>
    <td width="23%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 2,613,384
        </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">299,863
        </font></p>
    </td>
    <td width="23%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">327,827
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="49%" height="27">
      <p>&nbsp;</p>
    </td>
    <td width="28%" height="27">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 2,527,374
        </font></p>
    </td>
    <td width="23%" height="27">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 2,941,211
        </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 7, 2005, the Company agreed with its bank to extend the term of the
  existing credit facility by an additional year which will now expire on March
  4, 2007. The credit facility under the 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 March 31, 2005 were 6.25%
  on both the domestic and international lines. At March 31, 2005, outstanding
  amounts borrowed from the lines were $2,310,300 and $903,000, respectively,
  which were the approximate amounts available from the lines. These amounts outstanding
  at March 31, 2005 were repaid in April 2005. Under the credit agreement, the
  Company must maintain quarterly minimum tangible net worth equal to $5,100,000,
  plus 75% of quarterly net profits and 75% of net proceeds from equity and subordinated
  debt financing transactions beginning September 30, 2004. At March 31, 2004,
  outstanding amounts borrowed from the Company's bank lines were $2,358,144 and
  $1,097,759, respectively, which were the approximate amounts available from
  those lines. The amounts outstanding at March 31, 2004 were repaid in April
  2004.</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 equity 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, $296,494 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 months ended March 31, 2005 and 2004 were $12,200, and $13,078,
  respectively, which were paid in cash subsequent to the end of the quarter.
  During the first quarter of 2005 none of the holders of Series F Preferred Stock
  elected to convert their shares into common stock. During the first quarter
  of 2004, holders of 5,013 shares of Series F Preferred Stock elected to convert
  their shares into 50,130 shares of common stock, leaving 87,893 shares of Series
  F Preferred Stock outstanding at March 31, 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 <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 is being amortized on a straight line basis
  over its estimated useful life of ten years.</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 at the time of acquisition ranged from one
  to three years. During the first quarter of 2005, the Company completed amortization
  of the remaining acquired Nokia intangibles. Intangible assets of $835,125 from
  a prior acquisition in 2000 consist of developed software and technology with
  estimated lives at the time of acquisition ranging from 2.5 to 8.5 years. At
  December 31, 2004, a licensing agreement with a book value of $37,733 was reclassified
  as an intangible asset and will be amortized over its remaining life of three
  years.</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">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>Amortization of all intangible assets in the first quarter of 2005 was $94,913
  compared to $91,787 in the first quarter of 2004. Intangible assets as of March
  31, 2005 consisted of the following:</p>
<table cellspacing=1 cellpadding=1 width=700 align=center border=1>
  <tr valign=bottom>
    <td width="331">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp; </font></p>
    </td>
    <td width="118">
      <p align=center><font face="Times New Roman, Times, serif" size="2">Gross<br>
        Assets </font></p>
    </td>
    <td width="115">
      <div align="center"><font size="2" face="Times New Roman, Times, serif">Accumulated
        Amortization</font></div>
    </td>
    <td width="109">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">Net
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="331">
      <p><font face="Times New Roman, Times, serif" size="2">Patent</font></p>
    </td>
    <td width="118">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 600,000
        </font></p>
    </td>
    <td width="115">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        (45,000) </font></div>
    </td>
    <td width="109">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        555,000 </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">(302,162)
        </font></div>
    </td>
    <td width="109">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">268,588
        </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">Licensing agreement</font></p>
    </td>
    <td width="118">
      <p align=center><font face="Times New Roman, Times, serif" size="2">114,342
        </font></p>
    </td>
    <td width="115">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">(80,864)
        </font></div>
    </td>
    <td width="109">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">33,478
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="331">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;Intangible
        technology </font></p>
    </td>
    <td width="118">
      <p align=center><font face="Times New Roman, Times, serif" size="2">1,438,092
        </font></p>
    </td>
    <td width="115">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">(581,026)
        </font></div>
    </td>
    <td width="109">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        857,066 </font></div>
    </td>
  </tr>
</table>
<P>Based on definite lived intangible assets recorded at March 31, 2005, 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="left"><font face="Times New Roman, Times, serif" size="2">Year
        </font></p>
    </td>
    <td width="374">
      <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="left"><font face="Times New Roman, Times, serif" size="2">2005
        (nine months remaining)</font></div>
    </td>
    <td width="374">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        108,129 </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td colspan="3">
      <div align="left"><font face="Times New Roman, Times, serif" size="2">2006
        </font></div>
    </td>
    <td width="374">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">140,446
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td colspan="3">
      <div align="left"><font face="Times New Roman, Times, serif" size="2">2007
        </font></div>
    </td>
    <td width="374">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">134,557
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td colspan="3">
      <div align="left"><font face="Times New Roman, Times, serif" size="2">2008
        </font></div>
    </td>
    <td width="374">
      <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="left"><font face="Times New Roman, Times, serif" size="2">2009
        </font></div>
    </td>
    <td width="374">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">76,787
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td colspan="3">
      <div align="left"><font face="Times New Roman, Times, serif" size="2">2010
        and beyond </font></div>
    </td>
    <td width="374">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">270,000
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td colspan="3">
      <div align="left"><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;
        </font></div>
    </td>
    <td width="374">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        857,066 </font></div>
    </td>
  </tr>
</table>
<p align=center>&nbsp;
<p align=left><font face="Times New Roman, Times, serif" size="3"><b>NOTE 7 -
  Net Income (Loss) Per Share Applicable to Common Stockholders</b></font>
<p>The Company calculates earnings per share in accordance with Financial Accounting
  Standards Board Statement No. 128, <i>Earnings per Share</i>.</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=610 align=center border=1>
  <tr valign=bottom>
    <td width=312><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></td>
    <td colspan=4>
      <p align=center><font face="Times New Roman, Times, serif" size="2">Three
        Months Ended <br>
        March 31,</font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width=312 height="2"><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></td>
    <td colspan=3>
      <div align="center"><font size="2">2005</font></div>
    </td>
    <td width="130">
      <div align="center"><font size="2">2004</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="312">
      <p><font face="Times New Roman, Times, serif" size="2">Numerator: </font></p>
    </td>
    <td colspan=3>
      <div align="center">&nbsp</div>
    </td>
    <td width="130">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">&nbsp
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width=312 height="14">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp&nbsp&nbspNet
        income (loss)</font></p>
    </td>
    <td colspan=3 height="14">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        (391,708) </font><font face="Times New Roman, Times, serif" size="2">
        </font><font face="Times New Roman, Times, serif" size="2"> </font><font face="Times New Roman, Times, serif" size="2">
        </font></div>
    </td>
    <td width="130" height="14">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">53,390
        </font><font face="Times New Roman, Times, serif" size="2"></font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width=312 height="18">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp&nbsp&nbspPreferred
        stock dividends</font></p>
    </td>
    <td colspan=3 height="18">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">(12,200)
        </font><font face="Times New Roman, Times, serif" size="2"> </font></div>
    </td>
    <td width="130" height="18">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">(13,078)
        </font><font face="Times New Roman, Times, serif" size="2"> </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width=312 height="13">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp&nbsp&nbspNet
        income (loss) applicable to common stockholders </font></p>
    </td>
    <td colspan=3 height="13">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">(403,908)
        </font><font face="Times New Roman, Times, serif" size="2"> </font></div>
    </td>
    <td width="130" height="13">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">40,312
        </font><font face="Times New Roman, Times, serif" size="2"> </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="312" height="4">
      <p><font face="Times New Roman, Times, serif" size="2">Denominator: </font></p>
    </td>
    <td colspan=3 height="4">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">&nbsp
        </font></div>
    </td>
    <td width="130" height="4">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">&nbsp
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width=312 height="2" valign="top">
      <p><font face="Times New Roman, Times, serif" size="2">Weighted average
        common shares outstanding used&nbspin <br>
        computing &nbspnet income (loss) per share </font></p>
    </td>
    <td colspan="3" height="2" valign="bottom">
      <div align="center"> <font face="Times New Roman, Times, serif" size="2">&nbsp
        </font></div>
    </td>
    <td width="130" height="2" valign="bottom">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">&nbsp
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td align=left width=312 height="12">
      <p align="left"><font face="Times New Roman, Times, serif" size="2">&nbsp&nbsp&nbsp&nbsp&nbsp&nbspBasic
        </font></p>
    </td>
    <td colspan="3" height="12">
      <p align=center><font face="Times New Roman, Times, serif" size="2">30,154,992</font><font face="Times New Roman, Times, serif" size="2">
        </font></p>
    </td>
    <td width=130 height="12">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">29,933,603
        </font><font face="Times New Roman, Times, serif" size="2"> </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td align=left width=312>
      <p align="left"><font face="Times New Roman, Times, serif" size="2"> &nbsp&nbsp&nbsp&nbsp&nbsp&nbspDiluted
        </font></p>
    </td>
    <td colspan="3">
      <p align=center><font face="Times New Roman, Times, serif" size="2">30,154,992
        </font></p>
    </td>
    <td width=130>
      <div align="center"><font face="Times New Roman, Times, serif" size="2">34,478,732
        </font><font face="Times New Roman, Times, serif" size="2"> </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td align=left width=312>
      <p align="left"><font face="Times New Roman, Times, serif" size="2">Basic
        net income (loss) per share</font></p>
    </td>
    <td colspan="3">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ (0.01)
        </font></p>
    </td>
    <td width=130>
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        0.00 </font><font face="Times New Roman, Times, serif" size="2"> </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td align=left width=312>
      <p align="left"><font face="Times New Roman, Times, serif" size="2">Diluted
        net income (loss) per share </font></p>
    </td>
    <td colspan="3">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ (0.01)
        </font></p>
    </td>
    <td width=130>
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        0.00 </font> <font face="Times New Roman, Times, serif" size="2"> </font></div>
    </td>
  </tr>
</table>
<p>&nbsp;</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">9<br>
  </font>
<p align=center>
<hr width="100%">
<p>&nbsp;</p>
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<P>For the quarter ended March 31, 2005 the diluted net loss per share is equivalent
  to the basic net loss per share because the Company experienced a net loss in
  this quarter, and thus a potential 9,624,791 shares of common stock from the
  exercise of stock options, warrants, and conversion of preferred stock at March
  31, 2005 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 9 - Income Taxes</b></font></p>
<p>There were no provisions for federal or state income taxes for the quarter
  ended March 31, 2005 due to the net losses incurred for the quarter. The Company
  had immaterial net income in 2004, its first profitable year, 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><font face="Times New Roman, Times, serif" size="3"><b>NOTE 10 - Segment
  Information</b></font></p>
<p>The Company operates in one segment, data collection and connection solutions
  for mobile 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 months ended March 31, 2005 and 2004
  are as follows: </p>
<CENTER>
  <TABLE cellSpacing=1 cellPadding=1 width=703 align=center border=1>
    <TR vAlign=bottom>
      <TD width=378 height="22"><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></TD>
      <TD colSpan=2 height="22">
        <P align=center><font face="Times New Roman, Times, serif" size="2">Three
          Months Ended March 31,</font></P>
      </TD>
    </TR>
    <TR vAlign=bottom>
      <TD width=378>
        <P><font face="Times New Roman, Times, serif" size="2">Revenues: </font></P>
      </TD>
      <TD width=160>
        <P align=center><font face="Times New Roman, Times, serif" size="2">2005
          </font></P>
      </TD>
      <td width=144>
        <p align=center><font face="Times New Roman, Times, serif" size="2">2004
          </font></p>
      </td>
    </TR>
    <TR vAlign=bottom>
      <TD width=378>
        <P><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;United
          States </font></P>
      </TD>
      <TD width=160>
        <P align=center><font face="Times New Roman, Times, serif" size="2">$
          4,035,542 </font></P>
      </TD>
      <td width=144>
        <p align=center><font face="Times New Roman, Times, serif" size="2">$
          4,049,171 </font></p>
      </td>
    </TR>
    <TR vAlign=bottom>
      <TD width=378>
        <P><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;Europe
          </font></P>
      </TD>
      <TD width=160>
        <P align=center><font face="Times New Roman, Times, serif" size="2">1,365,479
          </font></P>
      </TD>
      <td width=144>
        <p align=center><font face="Times New Roman, Times, serif" size="2">1,758,303
          </font></p>
      </td>
    </TR>
    <TR vAlign=bottom>
      <TD width=378>
        <P><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;Asia
          and rest of world </font></P>
      </TD>
      <TD width=160>
        <P align=center><font face="Times New Roman, Times, serif" size="2">581,175
          </font></P>
      </TD>
      <td width=144>
        <p align=center><font face="Times New Roman, Times, serif" size="2">935,754
          </font></p>
      </td>
    </TR>
    <TR vAlign=bottom>
      <TD width=378>
        <P><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;Total
          revenues </font></P>
      </TD>
      <TD width=160>
        <P align=center><font face="Times New Roman, Times, serif" size="2">$
          5,982,196 </font></P>
      </TD>
      <td width=144>
        <p align=center><font face="Times New Roman, Times, serif" size="2">$
          6,743,228 </font></p>
      </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 Company's
  customers. The Company does not hold long-lived assets in foreign locations.</font></P>
<p>Major customers who accounted for at least 10% of the Company's total revenues
  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=16><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></TD>
      <TD colSpan=2 height=16>
        <P align=center><font face="Times New Roman, Times, serif" size="2">Three
          Months Ended March 31, </font></P>
      </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">2005
          </font></P>
      </TD>
      <td width="16%">
        <p align=center><font face="Times New Roman, Times, serif" size="2">2004
          </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">30%
          </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">12%
          </font></p>
      </td>
      <td width="16%" height=23>
        <p align=center><font face="Times New Roman, Times, serif" size="2">18%
          </font></p>
      </td>
    </tr>
  </TABLE>
</CENTER>
<P></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">10<br>
  </font>
<p align=center>
<hr width="100%">
<p>&nbsp; </p>
<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=mda></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.
  Such forward-looking statements are based on current expectations, estimates,
  and projections about our industry, management's beliefs, and assumptions made
  by management. Words such as "may," "will," "predicts," "anticipates," "expects,"
  "intends," "plans," believes," "seeks," "estimates," variations of such words,
  and similar expressions are intended to identify such forward-looking statements.
  These forward-looking statements are not guarantees of future performance and
  are subject to certain risks, uncertainties, and assumptions that are difficult
  to predict; therefore, actual results and outcomes may differ materially from
  what is expressed or forecasted in any such forward looking statements. Factors
  that might cause such a difference include, but are not limited to, statements
  forecasting future financial results and operating activities, market acceptance
  of our products, expectations for general market growth of handheld computers
  and other mobile computing devices, growth in demand for our products, expansion
  of the markets that we serve, expansion of the distribution channels for our
  products, adoption of our embedded products by third-party manufacturers of
  electronic devices, and the timing of the introduction and availability of new
  products, as well as those discussed under "Management's Discussion and Analysis
  of Financial Condition and Results of Operations." Such factors include but
  are not limited to, the risk of delays in the availability of new products due
  to technological, market or financial factors including the availability of
  necessary working capital, our ability to successfully introduce and market
  future products, our ability to effectively manage and contain our operating
  costs, the availability of announced handheld computer hardware and software,
  product delays associated with new model introductions and product changeovers,
  continued growth in demand for handheld computers, market acceptance of emerging
  standards such as Bluetooth and Wireless LAN and of our related connection and
  data collection products, the ability of our strategic partnerships to benefit
  our business as expected, our ability to enter into additional distribution
  relationships, or other factors described in this Form 10-Q including "Other
  Factors Affecting Future Operations" and recent 10-K and 10-Q reports filed
  with the Securities and Exchange Commission. 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>Revenue<br>
  </b></font><br>
  We design, manufacture and sell data collection and connection products for
  use with mobile electronic devices, including handheld computers, tablet computers,
  notebook computers, and Smartphones. We also offer serial products that connect
  electronic devices and embedded products that are designed to be installed inside
  third party mobile electronic devices. Total revenues for the first quarter
  of 2005 were $6.0 million, a decrease of 11% over revenue of $6.7 million in
  the first quarter of 2004.</p>
<p align="center"><font face="Times New Roman, Times, serif" size="3">11<br>
  </font> </p>
<p align=center>
<hr width="100%">
<p>&nbsp;</p><p>Our products may be classified into four broad product families:</p>
<ul>
  <li>Our <i>data collection products</i> consist of bar code scanning products
    that plug into or connect wirelessly to handheld computers, tablet computers,
    notebook computers and Smartphones and turn these devices into portable bar
    code scanners that can be used in various retail and industrial workplaces.
    We have developed extensive bar code scanning software called SocketScan that
    supports all of our bar code scanning products, and have software developer
    kits that assist developers in integrating our SocketScan software into their
    applications. Our bar code scanning products include CompactFlash and SDIO
    plug-in bar code scanners for linear and two-dimensional bar code scanning,
    a laser bar code scanning gun connected over a cabled plug-in connection,
    and a stand alone hand bar code scanner that connects using the Bluetooth
    standard for short-range wireless connectivity. We are also developing plug-in
    products to read Radio Frequency Identification (RFID) tags using our SocketScan
    software and have released a software developers kit to assist developers
    in developing applications using our RFID products. Data collection products
    represented approximately 37 percent of our revenue for the quarter ended
    March 31, 2005.</li>
</ul>
<ul>
  <li><font face="Times New Roman, Times, serif" size="3"> Our <i>connectivity
    products</i> are connection devices that can be plugged into standard expansion
    slots in handheld computers, tablet computers, notebook computers and Smartphones
    or connect to these devices over wireless and wired 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, other handheld, tablet and notebook computers,
    Smartphones and printers. Wireless connection products include plug-in cards
    using the Bluetooth standard for short-range wireless connectivity, and plug-in
    cards for connecting to local wireless networks using the Wireless LAN 802.11b
    (or Wi-Fi) standard along with extensive communications software enabling
    the use of these products. Cable connection products include modems for telephone
    connections and Ethernet cards for local area network connections. Our Bluetooth
    technology products are of two types, those that add Bluetooth technology
    to mobile devices, and those that work with devices that are Bluetooth-enabled.
    Those that add Bluetooth technology include our CompactFlash and SDIO Bluetooth
    plug-in cards, our Bluetooth embedded modules, and our Bluetooth USB adapter
    for Windows notebooks and desktops. Bluetooth functions are becoming more
    widely built into mobile devices which will reduce demand for this category
    of product. Connectivity products which utilize Bluetooth as a connection
    mechanism and work with other Bluetooth-enabled products consist of our Cordless
    GPS receiver and our Cordless modem. Our GPS receiver collects and sends satellite
    positioning signals to a PDA or notebook for use with GPS maps and routing
    software. Connectivity products represented approximately 35 percent of our
    revenue for the quarter ended March 31, 2005.<br>
    <br>
    </font></li>
  <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 using the Bluetooth standard for short-range wireless
    connectivity. Our interface chips allow manufacturers of wide area network
    cards and other devices to transfer information to and from handheld or notebook
    computers. Embedded products and services represented approximately 14 percent
    of our revenue for the quarter ended March 31, 2005.</font>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.<br>
    <br>
  </li>
  <li>Our <i>serial products</i> add connection ports to a notebook, tablet or
    handheld computer that allow users to connect these portable computers to
    standard peripherals or to other electronic devices with serial connections
    over cables or using the Bluetooth standard for short-range wireless connectivity.
    Serial products represented approximately 14 percent of our revenue for the
    quarter ended March 31, 2005.<br>
    <br>
  </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>
<p>Our bar code scanning product revenues in the first quarter of 2005 were $2.1
  million, a decrease of 12% compared to revenues of $2.4 million in the first
  quarter of 2004. Revenue declines of $0.5 million were due to our primary scanning
  product, the In-Hand Scan card. Partially offsetting these declines were increases
  of $0.2 million in sales of our Cordless Hand Scanner which began shipping to
  customers in the second quarter of 2004. Our bar code revenues in the first
  quarter of 2005 were affected by the transitions to new models by the major
  PDA manufacturers begun in the latter half of 2004, and unexpected compatibility
  issues with some new models ultimately affecting the timing of enterprise implementation
  decisions. 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 lightweight portable scanning.</p>
<p>Our network connection product revenues in the first quarter of 2005 were $2.1
  million, a decline of 19% compared to revenues of $2.6 million in the first
  quarter of 2004. Revenue declines in the first quarter of 2005 can be attributed
  to a decline of $0.4 million in sales of our Bluetooth plug-in products and
  a decline of $0.2 million in sales of our Wireless LAN plug-in products, which
  reflected a shift in new Pocket PCs introduced in late 2004 that have a higher
  percentage of these technologies built in. Additional declines in the first
  quarter of 2005 of $0.2 million in sales were from our new Cordless GPS receiver
  with navigation kit which we began shipping in latter Q3 of 2004. Partially
  offsetting these declines were increases of $0.2 million in sales of our Modem
  plug-in products, and modest increases in sales of our Ethernet plug-in products
  and our accessory products, including the Mobile Power Pak introduced in the
  fourth quarter of 2004. Network connection revenues in the first quarter of
  2005 were slowed by transitions to new models by the major PDA manufacturers
  which began in late 2004, and unexpected compatibility issues with some new
  models ultimately delaying implementation and purchase decisions.</p>
<p>Our embedded products and services revenues in the first quarter of 2005 were
  $0.9 million, an increase of 6% compared to $0.8 million for the first quarter
  of 2004. Revenue growth of $0.2 million was due to increased sales of our Bluetooth
  modules. Partially offsetting these increases were declines in sales of our
  proprietary ASIC chip and engineering service revenues.</p>
<p>Our serial product revenue in the first quarter of 2004 and 2003 was $0.9 million.
  Standard peripheral connection cards are primarily sold to connect peripheral
  devices or other electronic equipment to notebook computers.</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>
<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>Gross Margins</b></font></p>
<p>Our gross margin for the first quarter of 2005 and 2004 was 51%. We generally
  price our products as a markup from our cost, and we offer discount pricing
  for higher volume purchases. Slight margin improvements across most of our product
  lines were offset by increased overhead expenses.</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>Research and Development
  Expense</b></font></p>
<p>Research and development expense in the first quarter of 2005 was $0.9 million,
  a decrease of 4% compared to the first quarter of 2004. Decreases in outside
  services in the first quarter of 2005 were partially offset by increases in
  consulting and professional fees. Expenses are expected to remain at similar
  levels in the second quarter of 2005.</p>
<p align=left><font face="Times New Roman, Times, serif" size="3"><b>Sales and
  Marketing Expense</b></font>
<p>Sales and marketing expense for the first quarter of 2005 was $1.6 million,
  an increase of 8% compared to $1.5 million in the first quarter of 2004. Approximately
  one half of the increase was due to increased staffing of sales and marketing
  personal in 2004, during which time we staffed for anticipated growth. Remaining
  increases are due to increased advertising and promotional activities, and increased
  travel. Expenses are expected to remain at similar levels in the second 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 first quarter of 2005 was $0.8 million,
  a decline of 2% compared to general and administrative expense in the first
  quarter of 2004. Decreases of $0.2 million in the first quarter of 2005 were
  due to reduced legal and professional fees related to the patent infringement
  complaint by Khyber Technologies Corporation which was settled in the beginning
  of the third quarter of 2004. Additional decreases in the first quarter of 2005
  were from reduced costs of business insurance. Offsetting these decreases were
  increases of $0.2 million in professional fees related to Sarbanes-Oxley compliance
  requirements, and increased investor relations activities as a result of changing
  the 2005 annual shareholder meeting to April from our historical June timeframe.
  Expenses are expected to decline in the second 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 is being amortized on a straight line basis
  over a ten year period. Amortization charges for the first quarter of 2005 were
  $15,000. 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 at the time of acquisition ranged from one
  to three years. At March 31, 2005 all components of the acquired Nokia intangibles
  were fully amortized. Intangible assets of $835,125 from a prior acquisition
  in 2000 consist of developed software and technology with estimated lives at
  the time of acquisition ranging from 2.5 to 8.5 years. At December 31, 2004,
  a licensing agreement with a book value of $38,000 was reclassified as an intangible
  asset and will be amortized over its remaining life of three years. Amortization
  charges for the first quarter of 2005 for all acquired intangibles were $95,000.
  Total amortization charges for the first quarter of 2004 were $92,000.</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><font face="Times New Roman, Times, serif" size="3"><b>Interest and Other Income,
  Interest Expense, Net</b></font></p>
<p>Interest income reflects interest earned on cash balances. Interest income
  of $13,500 in the first quarter of 2005 as compared to interest income of $10,200
  in the first quarter of 2004, reflects higher average rates of return on cash
  balances on hand during the first quarter of 2005 compared to the first quarter
  of 2004. Other income in 2004 included $500 of net currency gain on the Euro
  note payable to Nokia partially offset by the loss on the foreign currency contracts.</p>
<p>Interest expense in the first quarter of 2005 of $1,700 is related to interest
  on equipment lease financing obligations. Interest expense in the first quarter
  of 2004 of $6,900 is related to interest on equipment lease financing obligations
  and the outstanding note payable balance due to Nokia for acquisition of their
  Bluetooth CompactFlash Card business and related product line technology in
  March 2002. Lower interest expense in the first quarter of 2005 reflects the
  completion of repayment of the note payable to Nokia in 2004 and the completion
  of lease financing obligations in 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 in the first quarter of 2005 reflect dividends of
  $12,200 accrued at the rate of 8% per annum on Series F Preferred Stock issued
  in March 2003. Dividends on the Series F Preferred Stock in the first quarter
  of 2004 were $13,100. Dividends were paid in cash subsequent to the quarter
  for each of the first quarters in 2005 and 2004.</p>
<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 for the first quarter
  of 2005 due to the net losses incurred for the quarter. We had immaterial net
  income in 2004, our first profitable year, and continued earnings are not assured.
  We have 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>Our operating loss in the first quarter of 2005 follows our first profitable
  year, fiscal 2004, which included our first profitable quarter, first quarter
  of 2004. 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 2004 we incurred significant quarterly and annual operating losses in every
  fiscal period. Ongoing profitability is not assured.</p>
<p>Cash provided by operating activities was $1.1 million in the first quarter
  of 2005 compared to cash used of $0.3 million in the first quarter of 2004.
  Cash used in the first quarter of 2005 from our net loss adjusted for non-cash
  items was $0.2 million compared to cash provided of $0.3 million in the first
  quarter of 2004 from our net income adjusted for non-cash items. Adjustments
  for non-cash items, including depreciation and amortization, amortization of
  intangibles, gains and losses on the foreign currency forward exchange contracts,
  foreign currency gains and losses on the Euro note payable to Nokia, and changes
  in deferred rent, totaled $0.2 million in the first quarter of 2005 and 2004.
  Changes in working capital balances in the first quarter of 2005 resulted in
  a source of cash of $1.3 million, and were primarily from increases in deferred
  revenue on shipments to distributors and payables, and decreases in levels of
  inventories. Changes in working capital balances in the first quarter of 2004
  resulted in a use of cash of $0.6 million, and were primarily from increases
  in receivables and prepaids partially offset by increases in payables and accrued
  payroll and decreases in inventories.</p>
<p>Cash used in investing activities was $118,000 in the first quarter of 2005
  as compared to $96,000 in the first quarter of 2004. Investing activities in
  both 2005 and 2004 primarily reflect the cost 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">15<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<P>Cash provided by financing activities was $0.3 million in the first quarter
  of 2005, as compared to $1.6 million during the first quarter of 2004. Financing
  activities in the first quarter of 2005 consisted primarily of a net increase
  in the amounts drawn on our bank lines of credit and proceeds from the exercise
  of stock options, partially offset by the payment of cash dividends and payments
  on capital leases. Financing activities in 2004 consisted primarily of a net
  increase in the amounts drawn on our bank lines of credit, proceeds from the
  exercise of stock options and warrants, partially offset by payments on the
  note payable to Nokia.</P>
<p>Our cash balances at March 31, 2005 were $7.2 million, including cash of $3.2
  million drawn against our bank line of credit. In March 2004, we extended our
  bank line of credit agreement which will now expire on March 4, 2007. 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 bank line, will be sufficient to meet our funding requirements at least
  through December 31, 2005. If we maintain and increase annual 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 March 31, 2005 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">$
        24,900 </font></div>
    </td>
    <td valign=bottom align=middle width=84>
      <div align=center><font face="Times New Roman, Times, serif" size="2">$
        9,300 </font></div>
    </td>
    <td valign=bottom align=middle width=72>
      <div align=center><font face="Times New Roman, Times, serif" size="2">$
        15,600 </font></div>
    </td>
    <td valign=bottom align=middle width=71>
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ --
        </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">773,900
        </font></div>
    </td>
    <td valign=bottom align=middle width=84>
      <div align=center><font face="Times New Roman, Times, serif" size="2">442,200
        </font></div>
    </td>
    <td valign=bottom align=middle width=72>
      <div align=center><font face="Times New Roman, Times, serif" size="2">331,700
        </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">1,039,600
        </font></div>
    </td>
    <td valign=bottom align=middle width=84>
      <div align=center><font face="Times New Roman, Times, serif" size="2">1,039,600
        </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">$
        1,838,400 </font></div>
    </td>
    <td valign=bottom align=middle width=84>
      <div align=center><font face="Times New Roman, Times, serif" size="2">$
        1,491,100 </font></div>
    </td>
    <td valign=bottom align=middle width=72>
      <div align=center><font face="Times New Roman, Times, serif" size="2">$
        447,300 </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>
</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">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><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>We incurred a net loss of $404,000 in the first quarter of 2005. For the fiscal
  year ended December 31, 2004, we were profitable but only to the extent of $288,000,
  and for the fiscal year ended December 31, 2003 we incurred net losses of $1,952,000.
  Prior to 2003 we incurred significant operating losses in each financial period
  since our inception. To maintain annual 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 annual profitability. If we cannot achieve 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>We will be required beginning in the first quarter of 2006 to expense options
  granted under our employee stock plans as compensation, and as a result we expect
  our net income and earnings per share will be reduced, we may have net losses,
  and may find it necessary 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. The expensing of employee
  stock options will adversely affect our net income and earnings per share and
  we may record net losses. In particular, we would not have been profitable in
  any of the quarters in fiscal 2004, or for the entire year if we had been required
  to expense options during that period. In addition, we may decide in response
  to the effects of expensing stock options on our operating results 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. In addition,
  the availability of our bank line is dependent upon our meeting certain covenants
  including a tangible net worth covenant, and future operating losses could cause
  us to lose the availability of our bank line as a result of becoming non-compliant
  with these covenants. </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><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 42 percent
  of our worldwide revenue in the first three months of fiscal 2005, and 43 percent
  of our worldwide revenue in fiscal year 2004. 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. 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, tablets and Smartphones.
  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 PalmOne and the adoption of Smartphones for business use. 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">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>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, GPS, or bar
    code scanners into their products.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. </li>
</ul>
<p><font face="Times New Roman, Times, serif" size="3">Increased competition could
  result in price reductions, fewer customer orders, reduced margins, and loss
  of market share. Our failure to compete successfully against current or future
  competitors could harm our business, operating results and financial condition.
  </font></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>enhance our products by adding additional features; <font face="Times New Roman, Times, serif" size="3"><br>
    </font></li>
  <li>invest significant resources in research and development, sales and marketing,
    and customer support;<font face="Times New Roman, Times, serif" size="3"><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><b>If we do not correctly anticipate demand for our products, our operating
  results will suffer. </b></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 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>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, Smartphones using Windows Mobile and Symbian System 60 and
  80 operating systems, and handheld computers from Research-in-Motion. 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, Palm, Symbian or Research-in-Motion are obligated to
  continue the collaboration or to support the products produced from the collaboration.
  Consequently, these organizations may terminate their collaborations with us
  for a variety of reasons including our failure to meet agreed-upon standards
  or for reasons beyond our control, such as changing market conditions, increased
  competition, discontinued product lines, and product obsolescence.</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>We rely primarily on
  distributors, resellers, retailers and original equipment manufacturers to sell
  our products, and our sales would suffer if any of these third parties stops
  selling our products effectively.</b></font></p>
<p>Because we sell our products primarily through distributors, resellers, retailers
  and original equipment manufacturers, we are subject to risks associated with
  channel distribution, such as risks related to their inventory levels and support
  for our products. Our distribution channels may build up inventories in anticipation
  of growth in their sales. If such growth in their sales does not occur as anticipated,
  the inventory build up could contribute to higher levels of product returns.
  The lack of sales by any one significant participant in our distribution channels
  could result in excess inventories and adversely affect our operating results.</p>
<p>Our agreements with distributors, resellers, retailers and original equipment
  manufacturers are generally nonexclusive and may be terminated on short notice
  by them without cause. Our distributors, resellers, retailers and original equipment
  manufacturers are not within our control, are not obligated to purchase products
  from us, and may offer competitive lines of products simultaneously. 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 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 align=left>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><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"> </font>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 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>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. </font></p>
<p><font face="Times New Roman, Times, serif" size="3"><b>Undetected flaws and
  defects in our products may disrupt product sales and result in expensive and
  time-consuming remedial action.</b></font></p>
<p>Our hardware and software products may contain undetected flaws, which may
  not be discovered until customers have used the products. From time to time,
  we may temporarily suspend or delay shipments or divert development resources
  from other projects to correct a particular product deficiency. Efforts to identify
  and correct errors and make design changes may be expensive and time consuming.
  Failure to discover product deficiencies in the future could delay product introductions
  or shipments, require us to recall previously shipped products to make design
  modifications, or cause unfavorable publicity, any of which could adversely
  affect our business and operating results.</p>
<p 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>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 new products and product enhancements;<br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">the introduction of
    new products and product enhancements by our competitors;<br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">the timing of the introduction
    of new products that work with our connection products;<br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">changes in the proportion
    of revenues attributable to royalties and engineering development services;<br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">product mix;<br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">timing of software enhancements;<br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">changes in the level
    of operating expenses;<br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">competitive conditions
    in the industry including competitive pressures resulting in lower average
    selling prices; and<br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">timing of distributors'
    shipments to their customers.</font></li>
</ul>
<p>Because we base our staffing and other operating expenses on anticipated revenue,
  delays in the receipt of orders can cause significant variations in operating
  results from quarter to quarter. As a result of any of the foregoing factors,
  our results of operations in any given quarter may be below the expectations
  of public market analysts or investors, in which case the market price of our
  Common Stock would be adversely affected.</p>
<p><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
  thirteen 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 Development Services. Our future success
  will depend upon the continued service of key officers and senior managers.
  Competition for officers and senior managers is intense, and there can be no
  assurance that we will be able to retain our existing senior personnel. The
  loss of key senior personnel could adversely affect our ability to compete.</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>If we are unable to
  attract and retain highly skilled sales and marketing and product development
  personnel, our ability to develop new products and product enhancements will
  be adversely affected. </b></font></p>
<p>We believe our ability to achieve increased revenues and to develop successful
  new products and product enhancements will depend in part upon our ability to
  attract and retain highly skilled sales and marketing and product development
  personnel. Our products involve a number of new and evolving technologies, and
  we frequently need to apply these technologies to the unique requirements of
  mobile connection products. Our personnel must be familiar with both the technologies
  we support and the unique requirements of the products to which our products
  connect. Competition for such personnel is intense, and we may not be able to
  attract and retain such key personnel. In addition, our ability to hire and
  retain such key personnel will depend upon our ability to raise capital or achieve
  increased revenue levels to fund the costs associated with such key personnel.
  Failure to attract and retain such key personnel will adversely affect our ability
  to develop new products and product enhancements.</p>
<p>&nbsp;</p>
<p align="center"><font face="Times New Roman, Times, serif" size="3">23<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 not be able to
  collect revenues from customers who experience financial difficulties.</b></font></p>
<p>Our accounts receivable are derived primarily from distributors and original
  equipment manufacturers. We perform ongoing credit evaluations of our customers'
  financial conditions but generally require no collateral from our customers.
  Reserves are maintained for potential credit losses, and such losses have historically
  been within such reserves. However, many of our customers may be thinly capitalized
  and may be prone to failure in adverse market conditions. Although our collection
  history has been good, from time to time a customer may not pay us because of
  financial difficulty, bankruptcy or liquidation.</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>We may be unable to
  manufacture our products, because we are dependent on a limited number of qualified
  suppliers for our components. </b></font></p>
<p>Several of our component parts, including our serial interface chip, our Ethernet
  chip, and our bar code scanning modules, are produced by one or a limited number
  of suppliers. Shortages could occur in these essential components due to an
  interruption of supply or increased demand in the industry. If we are unable
  to procure certain component parts, we could be required to reduce our operations
  while we seek alternative sources for these components, which could have a material
  adverse effect on our financial results. To the extent that we acquire extra
  inventory stocks to protect against possible shortages, we would be exposed
  to additional risks associated with holding inventory, such as obsolescence,
  excess quantities, or loss. </p>
<p><font face="Times New Roman, Times, serif" size="3"><b>Our operating results
  could be harmed by economic, political, regulatory and other risks associated
  with export sales.</b></font></p>
<p>Export sales (sales to customers outside the United States) accounted for approximately
  33 percent of our revenue in the first three months of fiscal 2005 and 37 percent
  of our revenue in the fiscal year 2004. 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.<br>
  <br>
</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>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. Should a disaster be
  widespread, such as a major earthquake, or result in the loss of key personnel,
  we may not be able to implement our disaster recovery plan in a timely manner.
  Any losses or damages incurred by us as a result of these events could have
  a material adverse effect on our business.</p>
<p><b>The sale of a substantial number of shares of Common Stock could cause the
  market price of our Common Stock to decline.</b></p>
<p>Sales of a substantial number of shares of our Common Stock in the public market
  could adversely affect the market price for our Common Stock. The market price
  of our Common Stock could also decline if one or more of our significant stockholders
  decided for any reason to sell substantial amounts of our Common Stock in the
  public market.</p>
<p>As of April 29, 2005, we had 30,158,421 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 April 29, 2005, 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 April 29, 2005, we had 7,906,589 shares subject to outstanding options
  under our stock option plans, and 928,698 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 April 29, 2005, we had warrants outstanding to purchase a total of 1,717,674
  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, 2004 through April 30, 2005, our Common Stock
  price fluctuated between a high of $4.40 and a low of $1.01. 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">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>
  <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 March 31, 2005, a
  decline of 1% in interest rates would reduce our quarterly interest income by
  approximately $10,000.</p>
<p>Our bank credit line facilities of up to $4.0 million have variable interest
  rates based upon the lender's index rate plus 0.5% for both the domestic line
  (up to $2.5 million) and the international line (up to $1.5 million). Accordingly,
  interest rate increases would increase our interest expense on outstanding credit
  line balances. We utilized our credit line facility only at the end of the quarter
  in the first quarter of 2005 and each of the quarters in 2004, 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 we have not been subjected to significant losses from material foreign
  currency fluctuations. Based on a sensitivity analysis of our net foreign currency
  denominated assets and subsidiary expenses at the beginning, during and at the
  end of the quarter ended March 31, 2005, an adverse change of 10% in exchange
  rates would result in a decrease in our net income for the first quarter of
  approximately $109,000, if left unprotected. For the first quarter of 2005 the
  total net adjustment for the effects of changes in foreign currency on cash
  balances, collections, payables, and derivatives was a net loss of $18,000.
  We hedge a portion of our 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">26<br>
  </font>
<p align=center>
<hr width="100%">
<p><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a><a
name=item4></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 (i) recorded,
  processed, summarized and reported within the time periods specified in Securities
  and Exchange Commission rules and forms, and (ii) accumulated and communicated
  to our management, including our Chief Executive Officer and our Chief Financial
  Officer, as appropriate to allow timely decisions regarding required disclosure.</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">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>
  <font face="Times New Roman, Times, serif" size="3"><a
name=sub></a><a
name=item6></a></font>
<p>&nbsp;</p>
<p></p>
<p></p>
<p></p>
<p align="left"> <font face="Times New Roman, Times, serif" size="3"><br>
  <b>PART II. OTHER INFORMATION</b></font></p>
<p><font face="Times New Roman, Times, serif" size="3"><br>
  <b>Item 4. Submission of Matters to a Vote of Security Holders</b> </font></p>
<p>At the Annual Meeting of Stockholders of the Company, held at the Company's
  Newark, California, facilities on April 21, 2005, the stockholders elected seven
  directors to serve until the next annual meeting of stockholders (Item 1), and
  ratified the appointment of Moss Adams LLP to serve as the independent public
  accountants of the Company for the fiscal year ending December 31, 2005 (Item
  2). Total voting shares on the record date of February 21, 2005 consisted of
  30,157,893 common shares and 83,823 shares of Series F preferred stock issued
  and outstanding. Each share of common stock was entitled to one vote, and each
  share of Series F was entitled to ten votes, for an aggregate total of 30,996,123
  voting shares. A total of 26,789,997 shares or 86.43% of outstanding shares
  were present or voting by proxy. Results of the stockholder vote were as follows:</p>
<p>&nbsp;</p>
<table cellspacing=1 cellpadding=1 width=627 align=center border=1>
  <tr valign=bottom>
    <td width="222" height=25><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font>
      <p align=left>ITEM 1:<font face="Times New Roman, Times, serif" size="2">
        </font></p>
    </td>
    <td height=25 width="117">
      <div align="center">FOR</div>
    </td>
    <td width="177" height=25>
      <div align="center">WITHHELD</div>
    </td>
    <td width="84" height=25>
      <div align="center">RESULT</div>
    </td>
  </tr>
  <tr valign=bottom>
    <td height=21 width="222"><u>Election of Directors:</u></td>
    <td height=21 width="117">&nbsp;</td>
    <td width="177" height=21>
      <div align="center">&nbsp</div>
    </td>
    <td width="84" height=21>
      <div align="center">Elected</div>
    </td>
  </tr>
  <tr valign=bottom>
    <td height=16 width="222">Charlie Bass (1)(3)</td>
    <td height=21 width="117" valign="bottom">
      <div align="center">25,382,243</div>
    </td>
    <td width="177" height=21 valign="bottom">
      <div align="center">1,407,754</div>
    </td>
    <td width="84" height=16>
      <div align="center">Elected</div>
    </td>
  </tr>
  <tr valign=bottom>
    <td height=14 width="222">Kevin Mills</td>
    <td height=16 width="117" valign="bottom">
      <div align="center">26,256,211</div>
    </td>
    <td width="177" height=16 valign="bottom">
      <div align="center">533,786</div>
    </td>
    <td width="84" height=14>
      <div align="center">Elected</div>
    </td>
  </tr>
  <tr valign=bottom>
    <td height=15 width="222">Micheal Gifford</td>
    <td height=14 width="117" valign="bottom">
      <div align="center">26,267,407</div>
    </td>
    <td width="177" height=14 valign="bottom">
      <div align="center">522,590</div>
    </td>
    <td width="84" height=15>
      <div align="center">Elected</div>
    </td>
  </tr>
  <tr valign=bottom>
    <td height=23 width="222">Gianluca Rattazzi (2)(3)</td>
    <td height=15 width="117" valign="bottom">
      <div align="center">26,336,207</div>
    </td>
    <td width="177" height=15 valign="bottom">
      <div align="center">453,790</div>
    </td>
    <td width="84" height=23>
      <div align="center">Elected</div>
    </td>
  </tr>
  <tr valign=bottom>
    <td height=23 width="222">Leon Malmed (1)(3)</td>
    <td height=23 width="117" valign="bottom">
      <div align="center">26,343,107</div>
    </td>
    <td width="177" height=23 valign="bottom">
      <div align="center">446,890</div>
    </td>
    <td width="84" height=23>
      <div align="center">Elected</div>
    </td>
  </tr>
  <tr valign=bottom>
    <td height=27 width="222">Enzo Torresi (2)(3)</td>
    <td height=23 width="117" valign="bottom">
      <div align="center">26,344,807</div>
    </td>
    <td width="177" height=27>
      <div align="center">445,190</div>
    </td>
    <td width="84" height=27>
      <div align="center">Elected</div>
    </td>
  </tr>
  <tr valign=bottom>
    <td height=15 width="222">Peter Sealey (1)(3)</td>
    <td height=15 width="117">
      <div align="center">26,345,107</div>
    </td>
    <td width="177" height=15>
      <div align="center">444,890</div>
    </td>
    <td width="84" height=15>
      <div align="center">Elected</div>
    </td>
  </tr>
  <tr valign=bottom>
    <td height=45 colspan="4">
      <p>(1) Denotes member of Audit Committee<br>
        (2) Denotes member of Compensation Committee<br>
        (3) Denotes member of Nominating Committee</p>
    </td>
  </tr>
</table>
<p>&nbsp;</p>
<table cellspacing=1 cellpadding=1 width=627 align=center border=1>
  <tr valign=bottom>
    <td width="211" height=25><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font>
      <p align=left>ITEM 2:<font face="Times New Roman, Times, serif" size="2">
        </font></p>
    </td>
    <td height=25 width="95">
      <div align="center">FOR</div>
    </td>
    <td width="112" height=25>
      <div align="center">AGAINST</div>
    </td>
    <td width="95" height=25>
      <div align="center">ABSTAIN</div>
    </td>
    <td width="81" height=25>
      <div align="center">RESULT</div>
    </td>
  </tr>
  <tr valign=bottom>
    <td height=21 width="211">Appoint Moss Adams LLP as the Company's independent
      auditors for the 2005 fiscal year. Required approval of a majority of votes
      cast for approval.</td>
    <td height=21 width="95" align="center" valign="middle">
      <div align="center">26,688,528</div>
    </td>
    <td height=21 width="95" align="center" valign="middle">
      <div align="center">77,520</div>
    </td>
    <td height=21 width="95" align="center" valign="middle">
      <div align="center">23,949</div>
    </td>
    <td height=21 width="95" align="center" valign="middle">
      <div align="center">Approved</div>
    </td>
  </tr>
</table>
<p>&nbsp;</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>Item 6. Exhibits</b></font></p>
<p><font face="Times New Roman, Times, serif" size="3"> Exhibits</font></p>
<p>31.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant
  to Section 302 of the Sarbanes-Oxley Act of 2002.</p>
<p>32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant
  to Section 906 of the Sarbanes-Oxley Act of 2002.</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">28<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
  <font face="Times New Roman, Times, serif" size="3"><a
name=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="89%">
  <TR>
    <TD width="38%"><FONT face="Times New Roman, Times, serif" size=3>Date: May
      6, 2005 </FONT></TD>
    <TD width="21%">
      <CENTER>
      </CENTER>
    </TD>
    <TD width="41%">
      <DIV align=left><FONT face="Times New Roman, Times, serif"
      size=3><U>&nbsp;&nbsp;/s/ Kevin J. Mills</U></FONT></DIV>
    </TD>
  </TR>
  <tr>
    <td width="38%">&nbsp;</td>
    <td width="21%">
      <center>
        <font face="Times New Roman, Times, serif" size=3>&nbsp; </font>
      </center>
    </td>
    <td valign=top align=middle width="41%">
      <div align=left>
        <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="21%" height="44">&nbsp;</td>
    <td width="41%" height="44">&nbsp;</td>
  </tr>
  <tr>
    <td width="38%"><font face="Times New Roman, Times, serif" size=3>Date: May
      6, 2005 </font></td>
    <td width="21%">
      <center>
      </center>
    </td>
    <td width="41%">
      <div align=left><font face="Times New Roman, Times, serif"
      size=3><u>&nbsp;&nbsp;/s/ David W. Dunlap&nbsp;&nbsp;</u></font></div>
    </td>
  </tr>
  <tr>
    <td width="38%">&nbsp;</td>
    <td width="21%">
      <center>
        <font face="Times New Roman, Times, serif" size=3>&nbsp; </font>
      </center>
    </td>
    <td valign=top align=middle width="41%">
      <div align=left><font face="Times New Roman, Times, serif" size=3>David
        W. Dunlap<br>
        Vice President of Finance and Administration and Chief Financial Officer
        (Duly Authorized Officer and Principal Financial and Accounting Officer)
        </font></div>
    </td>
  </tr>
</TABLE>
<P>&nbsp;</P>
<P>&nbsp;</P>
<p align=center><font face="Times New Roman, Times, serif" size="3">29<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
  <font face="Times New Roman, Times, serif" size="3"><a
name=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>31.1 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>32.1 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">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=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-15(e)
  and 15d-15(e)) and internal control over financial reporting (as defined in
  Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) Designed such internal
  control over financial reporting, or caused such internal control over financial
  reporting to be designed under our supervision, to provide reasonable assurance
  regarding the reliability of financial reporting and the preparation of financial
  statements for external purposes in accordance with generally accepted accounting
  principles;</font></p>
<p><font face="Times New Roman, Times, serif" size="3">(c) 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>(d) 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</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: May
      6, 2005 </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 align="center"><font face="Times New Roman, Times, serif" size="3"><b>CERTIFICATIONS</b></font><br>
</p>
<p align="center">&nbsp; </p>
<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-15(e)
  and 15d-15(e)) and internal control over financial reporting (as defined in
  Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) Designed such internal
  control over financial reporting, or caused such internal control over financial
  reporting to be designed under our supervision, to provide reasonable assurance
  regarding the reliability of financial reporting and the preparation of financial
  statements for external purposes in accordance with generally accepted accounting
  principles;</font></p>
<p><font face="Times New Roman, Times, serif" size="3">(c) 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>(d) 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</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: May
      6, 2005 </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 March 31,
  2005 fully complies with the requirements of Section 13(a) or 15(d) of the Securities
  Exchange Act of 1934 and that information contained in such Quarterly Report
  on Form 10-Q fairly presents in all material respects the financial condition
  and results of operations of Socket Communications, Inc. </font></p>
<table 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: &nbspMay 6, 2005</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 March
  31, 2005 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&nbspMay 6, 2005</font></div>
    </td>
  </tr>
</table>
<p>&nbsp;</p>
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<p>&nbsp;</p>
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