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<SEC-DOCUMENT>0000944075-05-000031.txt : 20051109
<SEC-HEADER>0000944075-05-000031.hdr.sgml : 20051109
<ACCEPTANCE-DATETIME>20051108183406
ACCESSION NUMBER:		0000944075-05-000031
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		1
CONFORMED PERIOD OF REPORT:	20050930
FILED AS OF DATE:		20051109
DATE AS OF CHANGE:		20051108

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:		051187424

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

	MAIL ADDRESS:	
		STREET 1:		37400 CENTRAL COURT
		CITY:			NEWARK
		STATE:			CA
		ZIP:			94560
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>q3-2005.htm
<TEXT>
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<BODY bgColor=white>
<DIV align=left> </DIV>
<DIV align=left> </DIV>
<P align=center><font face="Times New Roman, Times, serif" size="3">UNITED STATES<BR>
  SECURITIES AND EXCHANGE COMMISSION<BR>
  WASHINGTON, DC 20549<BR>
  </font></P>
<P align=center><font face="Times New Roman, Times, serif" size="3"><STRONG>FORM
  10-Q</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;</strong>For
  the quarterly period ended September 30, 2005</font></P>
<P align=center><font size="3" face="Times New Roman, Times, serif">OR</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><b>TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
      SECURITIES EXCHANGE ACT OF 1934</b> &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">Commission
  file number 1-13810<STRONG> </STRONG></font></P>
<P align=center><font face="Times New Roman, Times, serif" size="3"><STRONG><b>SOCKET
  COMMUNICATIONS, INC.</b> </STRONG><BR>
  <font size="2">(Exact Name of Registrant as Specified in its Charter)</font>
  </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; <font size="2">(State
        or other jurisdiction of incorporation or organization)</font>&nbsp; </FONT>
      </CENTER>
      </FONT></TD>
    <TD><FONT size=2>
      <CENTER>
        <FONT face="Times New Roman, Times, serif">(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>
  <font size="2">(Address of principal executive offices including zip code)</font>
  </font></P>
<P align=center><font face="Times New Roman, Times, serif" size="3"><STRONG>(510)
  744-2700 </STRONG><BR>
  <font size="2">(Registrant's telephone number, including area code)</font> <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>Indicate by check mark whether the registrant is a shell company (as defined
  in Rule 12b-2 of the Exchange Act). <font face="Times New Roman, Times, serif" size="3">YES[
  &nbsp;] NO[X]</font></P>
<P>Number of shares of Common Stock ($0.001 par value) outstanding as of October
  31, 2005 was 30,203,924 shares.</P>
<p style="PAGE-BREAK-BEFORE: always">
<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="80%" border="0" cellspacing="0" cellpadding="0" align="center">
  <tr>
    <td colspan="3">
      <div align="center"></div>
      <p align=center><font face="Times New Roman, Times, serif" size="3"><strong>INDEX
        </strong></font></p>
    </td>
  </tr>
  <tr>
    <td width="27">&nbsp;</td>
    <td width="807">&nbsp;</td>
    <td width="56">
      <div align="center"><font face="Times New Roman, Times, serif" size="3"><u>PAGE
        <br>
        NO.</u></font></div>
    </td>
  </tr>
  <tr>
    <td colspan="3"><font face="Times New Roman, Times, serif" size="3">PART I.
      Financial information </font></td>
  </tr>
  <tr>
    <td colspan="3">&nbsp;</td>
  </tr>
  <tr>
    <td colspan="3"><font face="Times New Roman, Times, serif" size="3">Item 1.
      Consolidated Financial Statements: </font></td>
  </tr>
  <tr>
    <td width="27">&nbsp;</td>
    <td width="807">&nbsp;</td>
    <td width="56" align="center" valign="bottom">&nbsp;</td>
  </tr>
  <tr>
    <td width="27">&nbsp;</td>
    <td width="807"><font face="Times New Roman, Times, serif" size="3"><a
  href="#bs">Condensed Consolidated Balance Sheets - September 30, 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 and
      Nine Months Ended September 30, 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 - Nine Months
      Ended </a><a
  href="#ops">September 30, 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">12</font></div>
    </td>
  </tr>
  <tr>
    <td colspan="2">&nbsp;</td>
    <td width="56">&nbsp;</td>
  </tr>
  <tr>
    <td colspan="2"><font face="Times New Roman, Times, serif" size="3"><a
href="#qqd">Item 3. Quantitative and Qualitative Disclosures about Market Risk</a>
      </font></td>
    <td width="56">
      <div align="center">29</div>
    </td>
  </tr>
  <tr>
    <td colspan="2">&nbsp;</td>
    <td width="56">&nbsp;</td>
  </tr>
  <tr>
    <td colspan="2"><font face="Times New Roman, Times, serif" size="3"><a
href="#item4">Item 4. Controls and Procedures</a></font> </td>
    <td width="56">
      <div align="center">30</div>
    </td>
  </tr>
  <tr>
    <td colspan="3">&nbsp;</td>
  </tr>
  <tr>
    <td colspan="3">
      <div align="left"> <font face="Times New Roman, Times, serif" size="3"><a
href="#oth">PART II. Other information</a></font></div>
    </td>
  </tr>
  <tr>
    <td colspan="2">&nbsp;</td>
    <td width="56">&nbsp;</td>
  </tr>
  <tr>
    <td colspan="2"><font face="Times New Roman, Times, serif" size="3"><a
href="#item6">Item 6. Exhibits</a></font></td>
    <td width="56">
      <div align="center">30</div>
    </td>
  </tr>
  <tr>
    <td colspan="2">&nbsp;</td>
    <td width="56">&nbsp;</td>
  </tr>
  <tr>
    <td colspan="2"><font face="Times New Roman, Times, serif" size="3"><a
href="#sig">Signatures</a></font></td>
    <td width="56">
      <div align="center"><font face="Times New Roman, Times, serif" size="3">31</font></div>
    </td>
  </tr>
  <tr>
    <td colspan="2">&nbsp;</td>
    <td width="56">&nbsp;</td>
  </tr>
  <tr>
    <td colspan="2"><font face="Times New Roman, Times, serif" size="3"><a
href="#ind">Index to Exhibits</a></font></td>
    <td width="56">
      <div align="center"><font face="Times New Roman, Times, serif" size="3">32</font></div>
    </td>
  </tr>
</table>
<P align=left>&nbsp; </P>
<P align="center"><font face="Times New Roman, Times, serif" size="3"><BR>
  <BR>
  1</font>
<P align="center">&nbsp;
<p style="PAGE-BREAK-BEFORE: always">
<HR width="100%">
<font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a>
<a
name=bs></a> <BR>
</font>
<P align=left><font face="Times New Roman, Times, serif" size="3">Item 1. Financial
  Statements (Unaudited) </font>
<P align=center>
<P align=center>
<table cellspacing=1 cellpadding=1 width=85% align=center border=1>
  <tr valign=bottom>
    <td colspan=3><font size=2><b>
      <p align=center><font face="Times New Roman, Times, serif" size="2">SOCKET
        COMMUNICATIONS, INC. <br>
        CONDENSED CONSOLIDATED BALANCE SHEETS </font></p>
      </b></font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%" height=19><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></td>
    <td width="18%" height=19 align="center"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2"> September
        30, 2005<br>
        (Unaudited) </font></p>
      </font></td>
    <td width="16%" height=19 valign="top"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">&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" size="2">ASSETS
        </font></p>
      </font></b></td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font size=2>
      <p><font face="Times New Roman, Times, serif" size="2">Current assets: </font></p>
      </font></td>
    <td width="18%"><font face="Times New Roman, Times, serif" size="2">&nbsp;</font></td>
    <td width="16%"><font face="Times New Roman, Times, serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font size=2>
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;Cash
        and cash equivalents </font></p>
      </font></td>
    <td width="18%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 6,570,899
        </font></p>
      </font></td>
    <td width="16%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 5,931,752
        </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font size=2>
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;Accounts
        receivable, net </font></p>
      </font></td>
    <td width="18%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2"> 3,604,741
        </font></p>
      </font></td>
    <td width="16%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">4,009,631
        </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font size=2>
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;Inventories
        </font></p>
      </font></td>
    <td width="18%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">2,396,727
        </font></p>
      </font></td>
    <td width="16%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">2,941,211
        </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font size=2>
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;Prepaid
        expenses and other current assets</font></p>
      </font></td>
    <td width="18%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">241,135
        </font></p>
      </font></td>
    <td width="16%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">159,747
        </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font size=2>
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;Total
        current assets </font></p>
      </font></td>
    <td width="18%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">12,813,502
        </font></p>
      </font></td>
    <td width="16%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">13,042,341
        </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td colspan=3><font face="Times New Roman, Times, serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font size=2>
      <p><font face="Times New Roman, Times, serif" size="2">Property and equipment:
        </font></p>
      </font></td>
    <td width="18%"><font face="Times New Roman, Times, serif" size="2">&nbsp;</font></td>
    <td width="16%"><font face="Times New Roman, Times, serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font size=2>
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;Machinery
        and office equipment </font></p>
      </font></td>
    <td width="18%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">1,922,286
        </font></p>
      </font></td>
    <td width="16%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">1,865,400
        </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font size=2>
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;Computer
        equipment </font></p>
      </font></td>
    <td width="18%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">895,565
        </font></p>
      </font></td>
    <td width="16%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">761,933
        </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font size=2>
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;Total
        property and equipment</font></p>
      </font></td>
    <td width="18%" height="5"><font size=2>
      <p align=center><font size="2" face="Times New Roman, Times, serif">2,817,851
        </font></p>
      </font></td>
    <td width="16%" height="5"><font size=2>
      <p align=center><font size="2" face="Times New Roman, Times, serif">2,627,333
        </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font size=2>
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;Accumulated
        depreciation </font></p>
      </font></td>
    <td width="18%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">(2,287,227)
        </font></p>
      </font></td>
    <td width="16%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">(2,148,335)
        </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font size=2>
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;Property
        and equipment, net</font></p>
      </font></td>
    <td width="18%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">530,624
        </font></p>
      </font></td>
    <td width="16%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">478,998
        </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td colspan="3"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font><font size="2" face="Times New Roman, Times, serif">&nbsp;</font><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font face="Times New Roman, Times, serif" size="2">Intangible
      technology, net </font></td>
    <td width="18%">
      <div align=center><font face="Times New Roman, Times, serif" size="2">784,980
        </font></div>
    </td>
    <td width="16%">
      <div align=center><font face="Times New Roman, Times, serif" size="2">951,979
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font face="Times New Roman, Times, serif" size="2">Goodwill
      </font></td>
    <td width="18%">
      <div align=center><font face="Times New Roman, Times, serif" size="2">9,797,946
        </font></div>
    </td>
    <td width="16%">
      <div align=center><font face="Times New Roman, Times, serif" size="2">9,797,946
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font size=2> <font face="Times New Roman, Times, serif" size="2">Other
      assets </font></font></td>
    <td width="18%">
      <div align="center"><font size=2> <font face="Times New Roman, Times, serif" size="2">136,307
        </font></font></div>
    </td>
    <td width="16%">
      <div align="center"><font size=2> <font face="Times New Roman, Times, serif" size="2">128,633
        </font></font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font size="2"> <font face="Times New Roman, Times, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total
      assets </font></font></td>
    <td width="18%">
      <div align="center"><font size="2"> <font face="Times New Roman, Times, serif">$
        24,063,359 </font></font></div>
    </td>
    <td width="16%">
      <div align="center"><font size="2"> <font face="Times New Roman, Times, serif">$
        24,399,897 </font></font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td colspan=3><font face="Times New Roman, Times, serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign=bottom>
    <td colspan=3 height="12">
      <div align="center"><font size="2" face="Times New Roman, Times, serif"><b>LIABILITIES
        AND STOCKHOLDERS' EQUITY</b></font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font size=2>
      <p><font face="Times New Roman, Times, serif" size="2">Current liabilities:
        </font></p>
      </font></td>
    <td width="18%"><font face="Times New Roman, Times, serif" size="2">&nbsp;</font></td>
    <td width="16%"><font face="Times New Roman, Times, serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font size=2>
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp; Accounts
        payable and accrued expenses </font></p>
      </font></td>
    <td width="18%"><font size=2>
      <p align=center><font size="2" face="Times New Roman, Times, serif">$ 2,879,319
        </font></p>
      </font></td>
    <td width="16%"><font size=2>
      <p align=center><font size="2" face="Times New Roman, Times, serif">$ 2,668,649
        </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font size=2>
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp; Accrued
        payroll and related expenses </font></p>
      </font></td>
    <td width="18%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">695,898
        </font></p>
      </font></td>
    <td width="16%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">680,501
        </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%" height="7"><font size=2>
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp; Bank
        line of credit </font></p>
      </font></td>
    <td width="18%" height="7"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">2,253,836
        </font></p>
      </font></td>
    <td width="16%" height="7"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">2,949,272
        </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font size=2>
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp; Deferred
        income on shipments to distributors</font></p>
      </font></td>
    <td width="18%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">1,136,558
        </font></p>
      </font></td>
    <td width="16%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">1,056,177
        </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font size=2><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font></font><font face="Times New Roman, Times, serif" size="2">Current
      portion of deferred rent and capital leases</font></td>
    <td width="18%">
      <div align=center><font face="Times New Roman, Times, serif" size="2">42,525
        </font></div>
    </td>
    <td width="16%">
      <div align=center><font face="Times New Roman, Times, serif" size="2">42,193
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font size=2>
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;
        Total current liabilities </font></p>
      </font></td>
    <td width="18%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">7,008,136
        </font></p>
      </font></td>
    <td width="16%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">7,396,792
        </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td colspan=3><font face="Times New Roman, Times, serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%">
      <div align="left"><font size="2" face="Times New Roman, Times, serif">Long
        term portion of deferred rent and capital leases</font></div>
    </td>
    <td width="18%">
      <div align=center><font face="Times New Roman, Times, serif" size="2">19,075
        </font></div>
    </td>
    <td width="16%">
      <div align=center><font face="Times New Roman, Times, serif" size="2">51,011
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td colspan="3"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font size=2>
      <p><font face="Times New Roman, Times, serif" size="2">Commitments and contingencies
        </font></p>
      </font></td>
    <td width="18%"><font face="Times New Roman, Times, serif" size="2">&nbsp;</font></td>
    <td width="16%"><font face="Times New Roman, Times, serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign=bottom>
    <td colspan="3"><font face="Times New Roman, Times, serif" size="2">&nbsp;</font><font face="Times New Roman, Times, serif" size="2">&nbsp;</font><font face="Times New Roman, Times, serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font size=2>
      <p><font face="Times New Roman, Times, serif" size="2">Stockholders' equity:
        </font></p>
      </font></td>
    <td width="18%"><font face="Times New Roman, Times, serif" size="2">&nbsp;</font></td>
    <td width="16%"><font face="Times New Roman, Times, serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%" height="14"><font size=2>
      <p><font size="2" face="Times New Roman, Times, serif">&nbsp;&nbsp; Series
        F Convertible Preferred Stock, $0.001 par value: </font><font size=2><font size="2" face="Times New Roman, Times, serif">
        </font></font><font size="2" face="Times New Roman, Times, serif">Authorized
        shares - 276,269, Issued and outstanding shares - </font><font size=2><font size=2><font size="2" face="Times New Roman, Times, serif">
        </font></font><font size="2" face="Times New Roman, Times, serif"></font></font><font size="2" face="Times New Roman, Times, serif">83,023
        at September 30, 2005 and 83,823 at December 31, 2004</font></p>
      </font></td>
    <td width="18%" height="14"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">83 </font></p>
      </font></td>
    <td width="16%" height="14"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">84 </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%" height="15"><font size=2><font size="2" face="Times New Roman, Times, serif">&nbsp;&nbsp;
      </font></font><font size="2" face="Times New Roman, Times, serif">Common
      stock, $0.001 par value: Authorized shares - </font><font size=2><font size="2" face="Times New Roman, Times, serif">
      </font></font><font size="2" face="Times New Roman, Times, serif">100,000,000,
      Issued and outstanding shares - </font><font size=2><font size="2" face="Times New Roman, Times, serif">
      </font></font><font size="2" face="Times New Roman, Times, serif">30,202,861
      </font><font size=2><font size="2" face="Times New Roman, Times, serif">
      </font></font><font size="2" face="Times New Roman, Times, serif">at September
      30, 2005 and 30,141,444 at December 31, 2004</font></td>
    <td width="18%" height="15"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">30,203
        </font></p>
      </font></td>
    <td width="16%" height="15"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">30,141
        </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font size=2>
      <p><font face="Times New Roman, Times, serif" size="2">Additional paid-in
        capital</font></p>
      </font></td>
    <td width="18%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">50,642,944
        </font></p>
      </font></td>
    <td width="16%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">50,596,136
        </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%" height="19"><font size=2>
      <p><font face="Times New Roman, Times, serif" size="2">Accumulated deficit
        </font></p>
      </font></td>
    <td width="18%" height="19"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">(33,637,082)
        </font></p>
      </font></td>
    <td width="16%" height="19"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">(33,674,267)
        </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%" height=23><font size=2>
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;Total
        stockholders' equity</font></p>
      </font></td>
    <td width="18%" height=23><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">17,036,148
        </font></p>
      </font></td>
    <td width="16%" height=23><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">16,952,094
        </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font size=2>
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total
        liabilities and stockholders' equity</font></p>
      </font></td>
    <td width="18%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 24,063,359
        </font></p>
      </font></td>
    <td width="16%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 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" size="2">_________________________
        </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td colspan=3 height="23"><font size=2>
      <p><font face="Times New Roman, Times, serif" size="2">*Derived from audited
        consolidated financial statements </font></p>
      </font></td>
  </tr>
</table>
<P align=center><font face="Times New Roman, Times, serif" size="2">See accompanying
  notes.</font><font face="Times New Roman, Times, serif" size="1"> </font><font face="Times New Roman, Times, serif" size="3"><BR>
  2</font>
<P align=center>&nbsp;
<p style="PAGE-BREAK-BEFORE: always">
<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=85% align=center border=1>
  <tr valign=bottom>
    <td colspan=5 height="33"><font size=2>
      <p align=center><b><font face="Times New Roman, Times, serif" size="2">SOCKET
        COMMUNICATIONS, INC. <br>
        CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS</font><font size="2"><br>
        </font></b><font size="2">(Unaudited) </font></p>
      </font></td>
  </tr>
  <TR vAlign=bottom>
    <TD height=17 width="40%">
      <P><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></P>
    </TD>
    <TD colspan="2" height=17>
      <div align="center"><font face="Times New Roman, Times, serif" size="2">Three
        Months Ended <br>
        September 30,</font></div>
    </TD>
    <TD colspan="2" height=17>
      <div align="center"><font face="Times New Roman, Times, serif" size="2">Nine
        Months Ended <br>
        September 30,</font></div>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="40%" height=17>
      <P><font face="Times New Roman, Times, serif" size="2">&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="16%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2"><u>2004</u>
        </font></p>
    </td>
    <td width="14%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2"><u>2005</u>
        </font></p>
    </td>
    <TD width="15%" 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="40%" 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">$6,547,894
        </font> </P>
    </TD>
    <td width="16%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 6,203,748
        </font></p>
    </td>
    <td width="14%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 19,110,504</font></p>
    </td>
    <TD width="15%" height=17>
      <P align=center><font face="Times New Roman, Times, serif" size="2">$ 19,678,167
        </font></P>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="40%" 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">3,265,803
        </font></P>
    </TD>
    <td width="16%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">2,962,379
        </font></p>
    </td>
    <td width="14%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">9,468,863
        </font></p>
    </td>
    <TD width="15%" height=17>
      <P align=center><font face="Times New Roman, Times, serif" size="2">9,590,287
        </font></P>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="40%" 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">3,282,091
        </font></P>
    </TD>
    <td width="16%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">3,241,369
        </font></p>
    </td>
    <td width="14%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">9,641,641
        </font></p>
    </td>
    <TD width="15%" height=17>
      <P align=center><font face="Times New Roman, Times, serif" size="2">10,087,880
        </font></P>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD height=18 width="40%">
      <P><font face="Times New Roman, Times, serif" size="2"> </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
        </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
        </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
        &nbsp;&nbsp; &nbsp;&nbsp;</font></P>
    </TD>
    <TD height=18 width="15%"><font face="Times New Roman, Times, serif" size="2">
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      &nbsp;&nbsp; &nbsp;&nbsp;</font></TD>
    <TD height=18 width="16%"><font face="Times New Roman, Times, serif" size="2">
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      &nbsp;&nbsp; &nbsp;&nbsp;</font></TD>
    <TD height=18 width="14%"><font face="Times New Roman, Times, serif" size="2">
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      &nbsp;&nbsp; &nbsp;&nbsp;</font></TD>
    <TD height=18 width="15%"><font face="Times New Roman, Times, serif" size="2">
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      &nbsp;&nbsp; &nbsp;&nbsp;</font></TD>
  </TR>
  <TR vAlign=bottom>
    <TD height=24 width="40%">
      <P><font face="Times New Roman, Times, serif" size="2">Operating expenses:
        </font></P>
    </TD>
    <TD height=24 width="15%"><font face="Times New Roman, Times, serif" size="2">
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      &nbsp;&nbsp; &nbsp;&nbsp;</font><font size="2"></font></TD>
    <td height=24 width="16%"><font face="Times New Roman, Times, serif" size="2">
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      &nbsp;&nbsp; &nbsp;&nbsp;</font><font size="2"></font></td>
    <td height=24 width="14%"><font face="Times New Roman, Times, serif" size="2">
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      &nbsp;&nbsp; &nbsp;&nbsp;</font><font size="2"></font></td>
    <TD height=24 width="15%"><font face="Times New Roman, Times, serif" size="2">
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      &nbsp;&nbsp; &nbsp;&nbsp;</font><font size="2"></font></TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="40%" height=2>
      <P><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;Research
        and development </font></P>
    </TD>
    <TD width="15%" height=2>
      <P align=center><font face="Times New Roman, Times, serif" size="2">848,009
        </font></P>
    </TD>
    <td width="16%" height=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">906,234
        </font></p>
    </td>
    <td width="14%" height=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">2,635,019</font></p>
      </td>
    <TD width="15%" height=2>
      <P align=center><font face="Times New Roman, Times, serif" size="2">2,740,031
        </font></P>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="40%" 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">1,654,139
        </font></P>
    </TD>
    <td width="16%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">1,423,404
        </font></p>
    </td>
    <td width="14%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">4,846,349
        </font></p>
    </td>
    <TD width="15%" height=17>
      <P align=center><font face="Times New Roman, Times, serif" size="2">4,412,005
        </font></P>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="40%" 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">563,225
        </font></P>
    </TD>
    <td width="16%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">711,290</font></p>
    </td>
    <td width="14%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">1,975,105
        </font></p>
    </td>
    <TD width="15%" height=17>
      <P align=center><font face="Times New Roman, Times, serif" size="2">2,454,475
        </font></P>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="40%" 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">36,044
        </font></DIV>
    </TD>
    <td width="16%" height=17>
      <div align=center><font face="Times New Roman, Times, serif" size="2">106,787
        </font></div>
    </td>
    <td width="14%" height=17>
      <div align=center><font face="Times New Roman, Times, serif" size="2">166,999
        </font></div>
    </td>
    <TD width="15%" height=17>
      <DIV align=center><font face="Times New Roman, Times, serif" size="2">290,361
        </font></DIV>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="40%" 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">3,101,417
        </font></P>
    </TD>
    <td width="16%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">3,147,715
        </font></p>
    </td>
    <td width="14%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">9,623,472
        </font></p>
    </td>
    <TD width="15%" height=17>
      <P align=center><font face="Times New Roman, Times, serif" size="2">9,896,872
        </font></P>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="40%" height=11>
      <P><font face="Times New Roman, Times, serif" size="2">Operating income
        </font></P>
    </TD>
    <TD width="15%" height=11>
      <P align=center><font face="Times New Roman, Times, serif" size="2">180,674
        </font></P>
    </TD>
    <td width="16%" height=11>
      <p align=center><font face="Times New Roman, Times, serif" size="2">93,654
        </font></p>
    </td>
    <td width="14%" height=11>
      <p align=center><font face="Times New Roman, Times, serif" size="2">18,169</font></p>
    </td>
    <TD width="15%" height=11>
      <P align=center><font face="Times New Roman, Times, serif" size="2">191,008</font></P>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD height=17 width="40%"><font face="Times New Roman, Times, serif" size="2">
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      &nbsp;&nbsp; &nbsp;&nbsp;</font><font size="2"></font><font size="2"></font><font size="2"></font><font size="2"></font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      &nbsp;&nbsp;</font><font size="2"></font></TD>
    <TD height=17 width="15%"><font face="Times New Roman, Times, serif" size="2">
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      &nbsp;&nbsp; &nbsp;&nbsp;</font></TD>
    <TD height=17 width="16%"><font face="Times New Roman, Times, serif" size="2">
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      &nbsp;&nbsp; &nbsp;&nbsp;</font></TD>
    <TD height=17 width="14%"><font face="Times New Roman, Times, serif" size="2">
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      &nbsp;&nbsp; &nbsp;&nbsp;</font></TD>
    <TD height=17 width="15%"><font face="Times New Roman, Times, serif" size="2">
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      &nbsp;&nbsp; &nbsp;&nbsp;</font></TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="40%" 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">27,362
        </font></P>
    </TD>
    <td width="16%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">7,696
        </font></p>
    </td>
    <td width="14%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">58,837
        </font></p>
    </td>
    <TD width="15%" height=17>
      <P align=center><font face="Times New Roman, Times, serif" size="2">26,867
        </font></P>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="40%" 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">(764)
        </font></P>
    </TD>
    <td width="16%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">(371)
        </font></p>
    </td>
    <td width="14%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">(3,360)
        </font></p>
    </td>
    <TD width="15%" height=17>
      <P align=center><font face="Times New Roman, Times, serif" size="2">(7,893)
        </font></P>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD height=17 width="40%"><font face="Times New Roman, Times, serif" size="2">
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      &nbsp;&nbsp; &nbsp;&nbsp;</font><font size="2"></font><font size="2"></font><font size="2"></font><font size="2"></font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      &nbsp;&nbsp;</font><font size="2"></font></TD>
    <TD height=17 width="15%"><font face="Times New Roman, Times, serif" size="2">
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      &nbsp;&nbsp; &nbsp;&nbsp;</font></TD>
    <TD height=17 width="16%"><font face="Times New Roman, Times, serif" size="2">
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      &nbsp;&nbsp; &nbsp;&nbsp;</font></TD>
    <TD height=17 width="14%"><font face="Times New Roman, Times, serif" size="2">
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      &nbsp;&nbsp; &nbsp;&nbsp;</font></TD>
    <TD height=17 width="15%"><font face="Times New Roman, Times, serif" size="2">
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      &nbsp;&nbsp; &nbsp;&nbsp;</font></TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="40%" height=17>
      <P><font face="Times New Roman, Times, serif" size="2">Net income</font></P>
    </TD>
    <TD width="15%" height=17>
      <P align=center><font face="Times New Roman, Times, serif" size="2">207,272</font></P>
    </TD>
    <td width="16%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">100,979
        </font></p>
    </td>
    <td width="14%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">73,646
        </font></p>
    </td>
    <TD width="15%" height=17>
      <P align=center><font face="Times New Roman, Times, serif" size="2">209,982
        </font></P>
    </TD>
  </TR>
  <tr valign=bottom>
    <td valign=top width="40%" 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">(12,087)
        </font></p>
    </td>
    <td width="16%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">(12,288)
        </font></p>
    </td>
    <td width="14%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">(36,461)
        </font></p>
    </td>
    <td width="15%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">(37,905)
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td valign=top width="40%" height=17>
      <p><font face="Times New Roman, Times, serif" size="2">Net income applicable
        to common stockholders</font></p>
    </td>
    <td width="15%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 195,185
        </font></p>
    </td>
    <td width="16%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 88,691
        </font></p>
    </td>
    <td width="14%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 37,185
        </font></p>
    </td>
    <td width="15%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 172,077
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td valign=top width="40%" height=17>
      <p><font face="Times New Roman, Times, serif" size="2">Net income 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">&nbsp;&nbsp;</font>
        <font face="Times New Roman, Times, serif" size="2"> </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
        </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
        &nbsp;&nbsp; &nbsp;&nbsp;</font> </p>
    </td>
    <td width="16%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2"> </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
        </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
        &nbsp;&nbsp; &nbsp;&nbsp;</font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font>
      </p>
    </td>
    <td width="14%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2"> </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
        </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
        &nbsp;&nbsp; &nbsp;&nbsp;</font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font>
      </p>
    </td>
    <td width="15%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2"> </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
        </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
        &nbsp;&nbsp; &nbsp;&nbsp;</font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font>
      </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td valign=top width="40%" 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="16%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 0.00
        </font></p>
    </td>
    <td width="14%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 0.00
        </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>
  </tr>
  <tr valign=bottom>
    <td valign=top width="40%" 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="16%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 0.00
        </font></p>
    </td>
    <td width="14%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 0.00
        </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>
  </tr>
  <tr valign=bottom>
    <td width="40%" 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><font size="2"></font><font face="Times New Roman, Times, serif" size="2">
        </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
        </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
        &nbsp;&nbsp; &nbsp;&nbsp;</font></p>
    </td>
    <td width="16%" height=7>
      <p align=center><font size="2"></font><font face="Times New Roman, Times, serif" size="2">
        </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
        </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
        &nbsp;&nbsp; &nbsp;&nbsp;</font></p>
    </td>
    <td width="14%" height=7>
      <p align=center><font size="2"></font><font face="Times New Roman, Times, serif" size="2">
        </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
        </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
        &nbsp;&nbsp; &nbsp;&nbsp;</font></p>
    </td>
    <td width="15%" height=7>
      <p align=center><font size="2"></font><font face="Times New Roman, Times, serif" size="2">
        </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
        </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
        &nbsp;&nbsp; &nbsp;&nbsp;</font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td valign=top width="40%" 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">30,197,768
        </font></p>
    </td>
    <td width="16%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">30,111,484
        </font></p>
    </td>
    <td width="14%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">30,171,251
        </font></p>
    </td>
    <td width="15%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">30,035,076
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td valign=top width="40%" 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">32,375,678
        </font></p>
    </td>
    <td width="16%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">33,951,172
        </font></p>
    </td>
    <td width="14%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">32,543,295
        </font></p>
    </td>
    <td width="15%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">34,120,841
        </font></p>
    </td>
  </tr>
</TABLE>
<P></P>
<font face="Times New Roman, Times, serif" size="3"> </font>
<P align=center><font face="Times New Roman, Times, serif" size="2">See accompanying
  notes.</font><font face="Times New Roman, Times, serif" size="3"> <BR>
  <BR>
  </font>
<P align=center>
<P align=center><font face="Times New Roman, Times, serif" size="3"> 3</font>
<P align=center>&nbsp;
<p style="PAGE-BREAK-BEFORE: always">
<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=85% 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="66%" height="18">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></p>
    </td>
    <td colspan=2 height="18">
      <p align=center><font face="Times New Roman, Times, serif" size="2">Nine
        Months Ended September 30, </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;</font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">2005
        </font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">2004
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><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="66%">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;Net income
        </font> </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 73,646
        </font> </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 209,982
        </font> </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%" height="9">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;Adjustments
        to reconcile net income 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="66%">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;Depreciation
        and amortization</font> </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">331,602
        </font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">341,877
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;Loss
        on foreign currency translations</font> </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">115,846
        </font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">96,837
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;
      Gain on forward exchange contracts</font></td>
    <td width="17%">
      <div align=center><font face="Times New Roman, Times, serif" size="2">(71,617)
        </font></div>
    </td>
    <td width="17%">
      <div align=center><font face="Times New Roman, Times, serif" size="2">(55,430)
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;
      Amortization of intangibles</font></td>
    <td width="17%">
      <div align=center><font face="Times New Roman, Times, serif" size="2">166,999
        </font></div>
    </td>
    <td width="17%">
      <div align=center><font face="Times New Roman, Times, serif" size="2">290,361
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;
      Change in deferred rent</font></td>
    <td width="17%">
      <div align=center><font face="Times New Roman, Times, serif" size="2">(24,765)</font></div>
    </td>
    <td width="17%">
      <div align=center><font face="Times New Roman, Times, serif" size="2">16,510
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td colspan="3"><font face="Times New Roman, Times, serif" size="2"> </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      &nbsp;&nbsp; &nbsp;&nbsp;</font><font size="2"></font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%">
      <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="66%">
      <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="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">329,096
        </font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">443,781
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories</font>
      </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">544,484
        </font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(1,440,636)
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%">
      <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="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(81,388)
        </font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(124,830)
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%">
      <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="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(7,674)
        </font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(371)
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%">
      <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="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">290,868</font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">199,935
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%">
      <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="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">15,397
        </font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(58,662)
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%">
      <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="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">80,381
        </font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">334,590
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net
        cash provided by operating activities</font> </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">1,762,875
        </font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">253,944
        </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="66%"><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="66%">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;
        Purchase of equipment</font> </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(383,228)
        </font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(276,475)
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;
        Patent acquisition</font> </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">--</font>
      </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(600,000)
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%">
      <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="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(383,228)
        </font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(876,475)
        </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="66%"><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="66%">
      <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="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(6,839)
        </font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(18,656)
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;
        Payments on notes payable</font> </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">--</font>
      </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(449,284)
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%">
      <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="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">7,763,136
        </font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">8,417,447
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%">
      <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="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(8,458,572)</font>
      </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(7,987,356)
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%">
      <p><font face="Times New Roman, Times, serif" size="2"> &nbsp;&nbsp;&nbsp;
        Proceeds from stock options exercised</font> </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">46,869
        </font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">74,291
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%">
      <p><font face="Times New Roman, Times, serif" size="2"> &nbsp;&nbsp;&nbsp;
        Proceeds from warrants exercised</font> </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">--</font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">81,379
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%" height="10">
      <p><font face="Times New Roman, Times, serif" size="2"> &nbsp;&nbsp;&nbsp;
        Dividends paid </font></p>
    </td>
    <td width="17%" height="10">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(36,574)
        </font> </p>
    </td>
    <td width="17%" height="10">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(25,617)</font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net
        cash provided by (used in) financing activities</font> </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(691,980)
        </font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">92,204
        </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="66%">
      <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="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(48,520)
        </font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">4,471
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%">
      <p><font face="Times New Roman, Times, serif" size="2">Net increase (decrease)
        in cash and cash equivalents</font> </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">639,147
        </font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(525,856)
        </font> </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font face="Times New Roman, Times, serif" size="2"> </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      &nbsp;&nbsp; &nbsp;&nbsp;</font><font size="2"></font></td>
    <td width="17%"><font face="Times New Roman, Times, serif" size="2"> </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      &nbsp;&nbsp; &nbsp;&nbsp;</font><font size="2"></font></td>
    <td width="17%"><font face="Times New Roman, Times, serif" size="2"> </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      &nbsp;&nbsp; &nbsp;&nbsp;</font><font size="2"></font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%">
      <p><font face="Times New Roman, Times, serif" size="2">Cash and cash equivalents
        at beginning of period</font> </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">5,931,752
        </font> </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">6,421,425
        </font> </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%">
      <p><font face="Times New Roman, Times, serif" size="2">Cash and cash equivalents
        at end of period</font> </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 6,570,899
        </font> </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 5,895,569
        </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="66%"><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="66%">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;
        Cash paid for interest</font> </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 765
        </font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 7,363
        </font> </p>
    </td>
  </tr>
</table>
<p align="center"><font face="Times New Roman, Times, serif" size="2">See accompanying
  notes.</font><font face="Times New Roman, Times, serif" size="3"> <BR>
  <BR>
  4</font></p>
<p style="PAGE-BREAK-BEFORE: always">
<HR width="100%">
<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>
  </b>(Unaudited) </font>
<p><font face="Times New Roman, Times, serif" size="3"><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 align="left">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 align="center"><font face="Times New Roman, Times, serif" size="3">5</font>
</p>
<hr width="100%">
<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>
<table cellspacing=1 cellpadding=1 width=80% align=center border=1>
  <tr valign=bottom>
    <td width="35%" 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 <br>
        September 30,</font></div>
    </td>
    <td colspan="2" height="11">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">Nine
        Months Ended <br>
        September 30,</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="35%">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">2005
        </font></p>
    </td>
    <td width="15%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">2004
        </font></p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">2005
        </font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">2004
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="35%">
      <p><font face="Times New Roman, Times, serif" size="2">Net income applicable
        to common stockholders</font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 195,185</font>
      </p>
    </td>
    <td width="15%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 88,691</font>
      </p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 37,185</font>
      </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 172,077</font>
      </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="35%" 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="17%" height="10">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(360,567)
        </font> </p>
    </td>
    <td width="15%" height="10">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(574,074)
        </font> </p>
    </td>
    <td width="16%" height="10">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(1,923,018)
        </font> </p>
    </td>
    <td width="17%" height="10">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(2,040,257)
        </font> </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="35%">
      <p><font face="Times New Roman, Times, serif" size="2">Pro forma net loss
        applicable to common stockholders</font> </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ (165,382)
        </font> </p>
    </td>
    <td width="15%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ (485,383)
        </font> </p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ (1,885,833)
        </font> </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ (1,868,180)
        </font> </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="35%" height="9">
      <p><font face="Times New Roman, Times, serif" size="2">Basic net income
        per share, as reported</font></p>
    </td>
    <td width="17%" height="9">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 0.01</font>
      </p>
    </td>
    <td width="15%" height="9">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 0.00</font>
      </p>
    </td>
    <td width="16%" height="9">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 0.00</font>
      </p>
    </td>
    <td width="17%" height="9">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 0.01</font>
      </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="35%" height="17">
      <p><font face="Times New Roman, Times, serif" size="2">Diluted net income
        per share, as reported</font></p>
    </td>
    <td width="17%" height="17">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 0.01
        </font> </p>
    </td>
    <td width="15%" height="17">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 0.00
        </font> </p>
    </td>
    <td width="16%" height="17">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 0.00
        </font> </p>
    </td>
    <td width="17%" height="17">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 0.01
        </font> </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="35%">
      <p><font face="Times New Roman, Times, serif" size="2">Pro forma basic and
        diluted net loss per share</font> </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ (0.01)
        </font> </p>
    </td>
    <td width="15%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ (0.02)
        </font> </p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ (0.06)
        </font> </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ (0.06)
        </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 and nine month periods presented are as follows:</p>
<table cellspacing=1 cellpadding=1 width=80% align=center border=1>
  <tr valign=bottom>
    <td width="44%" height="18"><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font></td>
    <td colspan="2" height="18">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">Three
        Months Ended<br>
        September 30,</font></div>
    </td>
    <td colspan="2" height="18">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">Nine
        Months Ended <br>
        September 30,</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="44%"><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font></td>
    <td width="13%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">2005
        </font></p>
    </td>
    <td width="13%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">2004
        </font></p>
    </td>
    <td width="13%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">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">4.07%
        </font> </p>
    </td>
    <td width="13%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">2.93%
        </font> </p>
    </td>
    <td width="13%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">3.92%
        </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>
    <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">0.8
        </font> </p>
    </td>
    <td width="13%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">1.4
        </font> </p>
    </td>
    <td width="13%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">0.9
        </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>
    <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>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 the Company's employee stock options.</p>
<p align="center"><font face="Times New Roman, Times, serif" size="3">6</font>
</p>
<hr width="100%">
<font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<br>
<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. 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
  alternatives. Under the retroactive method, 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><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=80% align=center border=1>
  <tr valign=bottom>
    <td><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></td>
    <td width="28%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">September
        30,<br>
        2005 </font></p>
    </td>
    <td width="28%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">December
        31, <br>
        2004 </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td>
      <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">$ 2,111,939
        </font></p>
    </td>
    <td width="28%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 2,613,384
        </font> </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td 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">284,788
        </font></p>
    </td>
    <td width="28%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">327,827
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td height="11">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;
        Total</font> </p>
    </td>
    <td width="28%" height="11">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 2,396,727
        </font></p>
    </td>
    <td width="28%" height="11">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 2,941,211
        </font></p>
    </td>
  </tr>
</table>
<p align="left"><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, which are $2,500,000 and $1,500,000, respectively, at the lender's
  index rate based on prime plus 0.5%. The rates in effect on September 30, 2005
  were 7.25% for both the domestic and international lines. At September 30, 2005,
  outstanding amounts borrowed from the lines were $1,560,431 and $693,405, respectively,
  which were the approximate amounts available from the lines. These amounts outstanding
  at September 30, 2005 were repaid in October 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 September 30, 2004,
  outstanding amounts borrowed from the Company's bank lines were $1,258,405 and
  $739,076, respectively, which were the approximate amounts available from those
  lines. The amounts outstanding at September 30, 2004 were repaid in October
  2004.</p>
<p align="center"><font face="Times New Roman, Times, serif" size="3">7</font>
</p>
<hr width="100%">
<p><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font></p>
<p><font face="Times New Roman, Times, serif" size="3"><b>NOTE 5 - Series F Convertible
  Preferred Stock Financing</b></font></p>
<p>On March 21, 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 on March 21, 2006. 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=left>The Series F Preferred Stock automatically converts into common
  stock on March 21, 2006 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 accrued for the
  three and nine months ended September 30, 2005 were $12,087 and $36,461, respectively,
  which were paid in cash subsequent to the end of each of the respective quarters.
  During the third quarter of 2005, no holders of Series F Preferred Stock elected
  to convert their shares into common stock, leaving 83,023 shares of Series F
  Preferred Stock outstanding at September 30, 2005. Dividends accrued for the
  three and nine months ended September 30, 2004 were $12,288, and $37,905, respectively,
  which were paid in cash subsequent to each of the respective quarters. During
  the third quarter of 2004, holders of 1,131 shares of Series F Preferred Stock
  elected to convert their shares into 11,310 shares of common stock, leaving
  83,823 shares of Series F Preferred Stock outstanding at September 30, 2004.
<p align=center><font face="Times New Roman, Times, serif" size="3">8</font>
<p align=center>
<hr width="100%">
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p align=left><font face="Times New Roman, Times, serif" size="3"><b>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 consisted 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 all acquired Nokia intangibles. Intangible assets of $723,750 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, existing licensing agreements 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>Amortization of all intangible assets for the three and nine months ended September
  30, 2005 was $36,044 and $166,999, respectively, compared to $106,787 and $290,361,
  respectively, for the same periods in 2004. Intangible assets as of September
  30, 2005 consisted of the following:</p>
<table cellspacing=1 cellpadding=1 width=80% align=center border=1>
  <tr valign=bottom>
    <td width="331">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp; </font></p>
    </td>
    <td width="118">
      <p align=center><font face="Times New Roman, Times, serif" size="2">Gross<br>
        Assets </font></p>
    </td>
    <td width="115">
      <div align="center"><font size="2" face="Times New Roman, Times, serif">Accumulated
        Amortization</font></div>
    </td>
    <td width="109">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">Net
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="331">
      <p><font face="Times New Roman, Times, serif" size="2">Patent</font></p>
    </td>
    <td width="118">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 600,000
        </font></p>
    </td>
    <td width="115">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        (75,000) </font></div>
    </td>
    <td width="109">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        525,000 </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">(335,735)
        </font></div>
    </td>
    <td width="109">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">235,015
        </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 agreements</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">(89,377)
        </font></div>
    </td>
    <td width="109">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">24,965
        </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">$
        (653,112) </font></div>
    </td>
    <td width="109">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        784,980 </font></div>
    </td>
  </tr>
</table>
<p align=left>Based on definite lived intangible assets recorded at September
  30, 2005, and assuming no subsequent impairment of the underlying assets, the
  annual amortization expense is expected to be as follows:
<p align=left><br>
<table cellspacing=1 cellpadding=1 width=60% 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="183" align="center">
      <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
        (three months remaining)</font></div>
    </td>
    <td width="183" align="center">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        36,043 </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="183" align="center">
      <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="183" align="center">
      <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="183" align="center">
      <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="183" align="center">
      <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="183" align="center">
      <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="183" align="center">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        784,980 </font></div>
    </td>
  </tr>
</table>
<p align=center><font face="Times New Roman, Times, serif" size="3">9</font>
<hr width="100%">
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p align=left><font face="Times New Roman, Times, serif" size="3"><b>NOTE 7 -
  Net Income (Loss) Per Share </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
  per share:</p>
<table cellspacing=1 cellpadding=1 width=80% align=center border=1>
  <tr valign=top>
    <td width=412 height="22"><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></td>
    <td colspan=2 height="22">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">Three
        Months Ended <br>
        September 30,</font></div>
    </td>
    <td colspan=2 height="22">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">Nine
        Months Ended <br>
        September 30,</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width=412 height="2"><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></td>
    <td width="120">
      <div align="center"><font size="2">2005</font></div>
    </td>
    <td width="120">
      <div align="center"><font size="2">2004</font></div>
    </td>
    <td width="120">
      <div align="center"><font size="2">2005</font></div>
    </td>
    <td width="120">
      <div align="center"><font size="2">2004</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="412">
      <p><font face="Times New Roman, Times, serif" size="2">Numerator: </font></p>
    </td>
    <td width="120">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">&nbsp&nbsp&nbsp</font></div>
    </td>
    <td width="120">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">&nbsp&nbsp&nbsp</font></div>
    </td>
    <td width="120">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">&nbsp&nbsp&nbsp</font></div>
    </td>
    <td width="120">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">&nbsp&nbsp&nbsp</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width=412 height="14">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp&nbsp&nbspNet
        income</font></p>
    </td>
    <td width="120" height="14">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        207,272 </font></div>
    </td>
    <td width="120" height="14">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        100,979 </font></div>
    </td>
    <td width="120" height="14">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        73,646 </font></div>
    </td>
    <td width="120" height="14">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        209,982 </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width=412 height="18">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp&nbsp&nbspPreferred
        stock dividends</font></p>
    </td>
    <td width="120" height="18">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">(12,087)
        </font><font face="Times New Roman, Times, serif" size="2"> </font></div>
    </td>
    <td width="120" height="18">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">(12,288)
        </font><font face="Times New Roman, Times, serif" size="2"> </font></div>
    </td>
    <td width="120" height="18">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">(36,461)
        </font><font face="Times New Roman, Times, serif" size="2"> </font></div>
    </td>
    <td width="120" height="18">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">(37,905)
        </font><font face="Times New Roman, Times, serif" size="2"> </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width=412 height="13">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp&nbsp&nbspNet
        income applicable to common stockholders </font></p>
    </td>
    <td width="120" height="13">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        195,185 </font></div>
    </td>
    <td width="120" height="13">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        88,691</font></div>
    </td>
    <td width="120" height="13">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        37,185 </font></div>
    </td>
    <td width="120" height="13">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        172,077 </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="412" height="4">
      <p><font face="Times New Roman, Times, serif" size="2">Denominator: </font></p>
    </td>
    <td width="120" height="4">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">&nbsp&nbsp&nbsp</font></div>
    </td>
    <td width="120" height="4">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">&nbsp&nbsp&nbsp</font></div>
    </td>
    <td width="120" height="4">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">&nbsp&nbsp&nbsp</font></div>
    </td>
    <td width="120" height="4">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">&nbsp&nbsp&nbsp</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width=412 height="21" valign="top">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp&nbsp&nbspWeighted
        average common shares outstanding used&nbspin computing net income<br>
        &nbsp&nbsp&nbspper share </font></p>
      </td>
    <td width="120" height="21">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">&nbsp&nbsp&nbsp</font></div>
    </td>
    <td width="120" height="21">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">&nbsp&nbsp&nbsp</font></div>
    </td>
    <td width="120" height="21" valign="bottom">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">&nbsp&nbsp&nbsp</font></div>
    </td>
    <td width="120" height="21" valign="bottom">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">&nbsp&nbsp&nbsp</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td align=left width=412 height="12">
      <p align="left"><font face="Times New Roman, Times, serif" size="2">&nbsp&nbsp&nbsp&nbsp&nbsp&nbspBasic
        </font></p>
    </td>
    <td width="120" height="12">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">30,197,768</font><font face="Times New Roman, Times, serif" size="2">
        </font></div>
    </td>
    <td width="120" height="12">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">30,111,484</font><font face="Times New Roman, Times, serif" size="2">
        </font></div>
    </td>
    <td width="120" height="12">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">30,171,251</font><font face="Times New Roman, Times, serif" size="2">
        </font></div>
    </td>
    <td width="120" height="12">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">30,035,609</font><font face="Times New Roman, Times, serif" size="2">
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td align=left width=412>
      <p align="left"><font face="Times New Roman, Times, serif" size="2"> &nbsp&nbsp&nbsp&nbsp&nbsp&nbspDiluted
        </font></p>
    </td>
    <td width="120">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">32,375,678
        </font></div>
    </td>
    <td width="120">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">33,951,172
        </font></div>
    </td>
    <td width="120">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">32,543,295
        </font></div>
    </td>
    <td width="120">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">34,120,841
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td align=left width=412>
      <p align="left"><font face="Times New Roman, Times, serif" size="2">Basic
        net income per share</font></p>
    </td>
    <td width="120">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        0.01 </font></div>
    </td>
    <td width="120">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        0.00 </font></div>
    </td>
    <td width="120">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        0.00 </font></div>
    </td>
    <td width="120">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        0.01 </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td align=left width=412>
      <p align="left"><font face="Times New Roman, Times, serif" size="2">Diluted
        net income per share </font></p>
    </td>
    <td width="120">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        0.01 </font></div>
    </td>
    <td width="120">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        0.00 </font></div>
    </td>
    <td width="120">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        0.00 </font></div>
    </td>
    <td width="120">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        0.01 </font></div>
    </td>
  </tr>
</table>
<p>&nbsp;</p>
<p align="left"><font face="Times New Roman, Times, serif" size="3"> <b>NOTE 8
  - Income Taxes</b></font></p>
<p>There were no provisions for federal or state income taxes for the three and
  nine months ended September 30, 2005. Earnings in the three and nine months
  ended September 30, 2005 were immaterial and continued earnings are not assured.
  The Company had immaterial net income in 2004, its first profitable year. The
  Company has maintained a full valuation allowance for all deferred tax assets.</p>
<p align="center"><font face="Times New Roman, Times, serif" size="3">10</font></p>
<hr width="100%">
<p><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font></p>
<p><font face="Times New Roman, Times, serif" size="3"><b>NOTE 9 - 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 and nine months ended September 30,
  2005 and 2004 are as follows:</p>
<CENTER>
  <TABLE cellSpacing=1 cellPadding=1 width=80% align=center border=1>
    <TR vAlign=bottom>
      <TD width=378 height="15"><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></TD>
      <TD height="15" colSpan=2>
        <div align="center"><font face="Times New Roman, Times, serif" size="2">Three
          Months Ended <br>
          September 30,</font></div>
      </TD>
      <TD colSpan=2 height="15">
        <P align=center><font face="Times New Roman, Times, serif" size="2">Nine
          Months Ended <br>
          September 30,</font></P>
      </TD>
    </TR>
    <TR vAlign=bottom>
      <TD width=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=160>
        <p align=center><font face="Times New Roman, Times, serif" size="2">2004
          </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">$
          4,491,693 </font></p>
      </td>
      <td width=160>
        <p align=center><font face="Times New Roman, Times, serif" size="2">$
          4,254,279 </font></p>
      </td>
      <TD width=160>
        <P align=center><font face="Times New Roman, Times, serif" size="2">$
          12,540,501 </font></P>
      </TD>
      <td width=144>
        <p align=center><font face="Times New Roman, Times, serif" size="2">$
          12,487,354 </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">1,289,987
          </font></p>
      </td>
      <td width=160>
        <p align=center><font face="Times New Roman, Times, serif" size="2">1,122,067
          </font></p>
      </td>
      <TD width=160>
        <P align=center><font face="Times New Roman, Times, serif" size="2">4,649,879
          </font></P>
      </TD>
      <td width=144>
        <p align=center><font face="Times New Roman, Times, serif" size="2">4,681,863
          </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">766,214
          </font></p>
      </td>
      <td width=160>
        <p align=center><font face="Times New Roman, Times, serif" size="2">827,402
          </font></p>
      </td>
      <TD width=160>
        <P align=center><font face="Times New Roman, Times, serif" size="2">1,920,124
          </font></P>
      </TD>
      <td width=144>
        <p align=center><font face="Times New Roman, Times, serif" size="2">2,508,950
          </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">$
          6,547,894 </font></p>
      </td>
      <td width=160>
        <p align=center><font face="Times New Roman, Times, serif" size="2">$
          6,203,748 </font></p>
      </td>
      <TD width=160>
        <P align=center><font face="Times New Roman, Times, serif" size="2">$
          19,110,504 </font></P>
      </TD>
      <td width=144>
        <p align=center><font face="Times New Roman, Times, serif" size="2">$
          19,678,167 </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 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
  during the three and nine months ended September 30, 2005 and 2004 were as follows:</p>
<P align=center>
<CENTER>
  <TABLE cellSpacing=1 cellPadding=1 width=80% 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 <br>
          September 30, </font></p>
      </td>
      <TD colSpan=2 height=16>
        <P align=center><font face="Times New Roman, Times, serif" size="2">Nine
          Months Ended <br>
          September 30, </font></P>
      </TD>
    </TR>
    <TR vAlign=bottom>
      <TD width="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>
      <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">32%
          </font></p>
      </td>
      <td width="16%" height=23>
        <p align=center><font face="Times New Roman, Times, serif" size="2">34%
          </font></p>
      </td>
      <td width="16%" height=23>
        <p align=center><font face="Times New Roman, Times, serif" size="2">31%
          </font></p>
      </td>
      <td width="16%" height=23>
        <p align=center><font face="Times New Roman, Times, serif" size="2">29%
          </font></p>
      </td>
    </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">16%
          </font></p>
      </td>
      <td width="16%" height=23>
        <p align=center><font face="Times New Roman, Times, serif" size="2">13%
          </font></p>
      </td>
      <td width="16%" height=23>
        <p align=center><font face="Times New Roman, Times, serif" size="2">14%
          </font></p>
      </td>
      <td width="16%" height=23>
        <p align=center><font face="Times New Roman, Times, serif" size="2">15%
          </font></p>
      </td>
    </tr>
  </TABLE>
</CENTER>
<P></P>
<p>&nbsp;</p>
<p align="center"><font face="Times New Roman, Times, serif" size="3">11</font><font face="Times New Roman, Times, serif" size="3">
  </font> </p>
<p align=center>
<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=mda></a></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.
  These statements include 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 other forecasts discussed under
  "Management's Discussion and Analysis of Financial Condition and Results of
  Operations." 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.
  Such forward-looking statements are based on current expectations, estimates,
  and projections about our industry, management's beliefs, and assumptions made
  by management. 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. Such factors include but are not limited to, the risk of delays
  in the availability of our 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 that our products are intended to work with,
  product delays associated with new model introductions and product changeovers
  by the makers of products that our products are intended to work with, 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><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></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 connectivity products for
  use with mobile electronic devices, including handheld computers, tablet computers,
  notebook computers, and Smartphones. We also design, manufacture and sell serial
  products that connect mobile electronic devices to peripheral and other electronic
  devices, and sell embedded products that are designed to be embedded within
  third party mobile electronic devices. Total revenue for the three and nine
  months ended September 30, 2005 of $6.5 million and $19.1 million, respectively,
  represented an increase of 6% and a decrease of 3% from revenue of $6.2 million
  and $19.7 million for the corresponding periods one year ago.<br>
</p>
<p align="center"> <font face="Times New Roman, Times, serif" size="3">12</font></p>
<hr width="100%">
<p><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font></p>
<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 and Radio
    Frequency Identification (RFID) products that plug into or connect cordlessly
    to handheld computers, tablet computers, notebook computers and Smartphones,
    and turn these devices into portable bar code scanners or RFID readers that
    can be used in various retail and industrial workplaces. We have developed
    extensive data collection software called SocketScan that supports all of
    our data collection 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 (1D) and two-dimensional bar code scanning (2D), and a
    stand alone hand bar code scanner that connects using Bluetooth wireless technology
    for short-range cordless connectivity. Our initial RFID product was a CompactFlash
    card for reading RFID tags using our SocketScan software. In the third quarter
    of 2005, we introduced our combination CompactFlash RFID reader/bar code scanning
    card that incorporates both data capture technologies in a single device.
    Data collection products represented approximately 38 percent and 39 percent
    of our revenue for the three and nine months ended September 30, 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 Bluetooth wireless technology for short-range wireless connectivity,
    and plug-in cards for connecting to local wireless networks and "hot spots"
    using the Wireless LAN 802.11 (or Wi-Fi) standard, including extensive communications
    software to enable the use of these products. Cabled connection products include
    modems for telephone connections and Ethernet cards for local area network
    connections. Our products enabled with Bluetooth wireless technology are of
    two types: those that add Bluetooth wireless technology to mobile devices,
    and those that work with devices that are enabled with Bluetooth wireless
    technology. Those that add Bluetooth wireless 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
    wireless technology as a connection mechanism and work with other products
    enabled with Bluetooth wireless technology consist of our Cordless GPS receiver
    and our Cordless modem. Our GPS receiver collects and sends satellite positioning
    data to a PDA or notebook for use with GPS maps and routing software. Connectivity
    products represented approximately 33 percent and 34 percent of our revenue
    for the three and nine months ended September 30, 2005.<br>
    </font><br>
  </li>
</ul>
<p align="center"><font face="Times New Roman, Times, serif" size="3">13 </font></p>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<ul>
  <li>Our <i>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 Bluetooth
    wireless technology 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 and 13 percent of our revenue
    for the three and nine months ended September 30, 2005.</li>
</ul>
<p></p>
<ul>
  <li>Our <i>serial products</i> add connection ports to notebooks, tablets and
    handheld computers that allow users to connect these portable computers to
    standard peripherals and to other electronic devices with serial connections
    over cables or using Bluetooth wireless technology for short-range wireless
    connectivity. Serial products represented approximately 13 percent of our
    revenue for the three and nine months ended September 30, 2005.</li>
</ul>
<p>Our data collection product revenues were $2.5 million for the three months
  ended September 30, 2005, compared to $2.8 million for the same period one year
  ago. A revenue decline from the comparable three months of 2004 of $0.5 million
  for our bar code laser scanner system, and a decline of $0.1 million in sales
  of our SDIO In-Hand Scan card, were partially offset by revenue growth of $0.3
  million from our Cordless Hand Scanner, which began shipping to customers in
  the second quarter of 2004. Revenue from our primary scanning product, the CompactFlash
  In-Hand Scan card, was flat from the comparable three month period one year
  ago. Delays in the transition to new models by the major PDA manufacturers through
  the first half of 2005 and long lead times needed by customers to complete their
  product testing and field trials slowed data collection orders in the third
  quarter of 2005 compared to the same period one year ago. Our data collection
  product revenues were $7.5 million for the nine month period ended September
  30, 2005, compared to $7.6 million for the same period one year ago. Revenue
  declined from the comparable nine months by $0.4 million for our primary scanning
  product, the CompactFlash In-Hand Scan card. We also experienced a decline of
  $0.7 million from our bar code laser scanner system, and a decline of $0.3 million
  in sales of our SDIO In-Hand Scan card. Partially offsetting these declines
  was growth of $1.3 million from our Cordless Hand Scanner. Our data collection
  revenues for the first nine months of 2005 were affected by the transitions
  to new models by the major PDA manufacturers begun in the latter half of 2004,
  which were not fully resolved until late in the second quarter of 2005. In addition,
  the introduction of an operating system upgrade, Windows Mobile 5.0, announced
  in September 2005 by the major PDA manufacturers may continue to slow customer
  deployment of our data collection products until tested with the new operating
  system. Our data collection 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 connectivity product revenues were $2.2 million for the three months ended
  September 30, 2005, compared to $1.6 million for the same period one year ago.
  The revenue increase from the comparable three months of 2004 was attributable
  to increases of $0.2 million in each of our Bluetooth plug-in product and Modem
  plug-in product lines, and an additional revenue increase totaling $0.3 million
  from our Wireless LAN plug-in cards, our Bluetooth GPS receiver with navigation
  kit, and our accessory products, including the Mobile Power Pack introduced
  in the fourth quarter of 2004, were partially offset by decreases in sales of
  our Ethernet plug-in products. Our connectivity product revenues were $6.6 million
  for the nine month period ended September 30, 2005, compared to $6.5 million
  for the same period one year ago. Revenue increases in the comparable nine months
  of 2005 of $0.4 million in our Modem plug-in products, increases of $0.3 million
  in our Ethernet plug-in products, and increases in our accessory products, including
  the Mobile Power Pack, were partially offset by declines of $0.4 million in
  sales of our Wireless LAN plug-in cards, and declines of $0.3 million in sales
  of our Bluetooth plug-in products. Our connectivity revenues for the first nine
  months of 2005 were negatively affected though the first half of 2005 by the
  transitions to new models by the major PDA manufacturers begun in the latter
  half of 2004, which were not fully resolved until late in the second quarter
  of 2005. In addition, the introduction of an operating system upgrade, Windows
  Mobile 5.0, announced in September 2005 by the major PDA manufacturers may continue
  to slow customer deployment of our connectivity products until tested with the
  new operating system.</p>
<p align="center"><font face="Times New Roman, Times, serif" size="3">14</font>
</p>
<p align=center>
<hr width="100%">
<p><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
</p>
<p>Our embedded products and services revenues were $0.9 million for the three
  months ended September 30, 2005, compared to $0.8 million in the same period
  one year ago. The revenue increase for the comparable three months was attributable
  to an increase of $0.3 million from sales of our Bluetooth modules due to higher
  order levels by customers delivering new products, which was partially offset
  by declines of $0.2 million in sales of our proprietary ASIC chip from slowdowns
  in customer orders. Our embedded products and services revenues were $2.5 million
  for the nine month period ended September 30, 2005, compared to $2.7 million
  for the same period a year ago. Revenue declines in the comparable nine months
  of $0.5 million in our proprietary ASIC chip from slowdowns in customer orders
  in each of the three quarters in 2005, and $0.1 million in engineering service
  revenues, were partially offset by increases of $0.4 million in sales of our
  Bluetooth modules. Sales of our embedded Bluetooth cards were flat in each of
  the comparable periods.</p>
<p>Our serial product revenues were $0.9 million for the three months ended September
  30, 2005, compared to $1.0 million for the same period one year ago. Our serial
  product revenues were $2.5 million for the nine month period ended September
  30, 2005, compared to $2.9 million for the same period one year ago. Revenue
  declines of $0.3 million and $0.5 in the three and nine month comparable periods,
  respectively, in sales of our standard serial PC Card products were partially
  offset by increased sales of our cordless Bluetooth serial adapter in each of
  the comparable periods. Our CF Card product sales were relatively flat in each
  of the comparable periods. Standard peripheral connection cards are primarily
  sold to connect peripheral devices or other electronic equipment to notebook
  computers.</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>Gross Margins</b></font></p>
<p>Gross margins for the three and nine month periods ended September 30, 2005
  were 50% in both periods compared to margins of 52% and 51% in the comparable
  periods in 2004. We generally price our products as a markup from our cost,
  and we offer discount pricing to our customers for higher volume purchases.
  Margin reductions in the comparable periods of 2005 from volume sales of our
  data collection products, and overall margin reductions across our remaining
  product lines from a change in product sales mix, were partially offset by margin
  improvements from cost reductions on specific products in each of our product
  lines in the three and nine month comparable periods. Our average target gross
  margin is 50%, and we expect the gross margin to fluctuate within a narrow range
  from quarter to quarter.</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>Research and Development
  Expense</b></font></p>
<p>Research and development expense for the three months ended September 30, 2005
  was $0.8 million, a decrease of 6% compared to research and development expense
  of $0.9 million in the corresponding period one year ago. Research and development
  expense for the nine months ended September 30, 2005 was $2.6 million, a 4%
  decrease compared to research and development expense of $2.7 million in the
  corresponding period one year ago. Reductions in each of the comparable periods
  were primarily attributable to reduced consulting and professional fees and
  outside services related to the timing of development projects. Expenses are
  expected to increase in the fourth quarter of 2005. </p>
<p align=left>&nbsp;
<p align="center"><font face="Times New Roman, Times, serif" size="3">15</font><font face="Times New Roman, Times, serif" size="3">
  <br>
  </font> </p>
<p align=center>
<hr width="100%">
<p><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font></p>
<p><font face="Times New Roman, Times, serif" size="3"><b>Sales and Marketing
  Expense</b></font> </p>
<p>Sales and marketing expense for the three months ended September 30, 2005 was
  $1.7 million, an increase of 16% compared to sales and marketing expense of
  $1.4 million in the corresponding period one year ago. Sales and marketing expense
  for the nine month period ended September 30, 2005 was $4.8 million, an increase
  of 10% compared to sales and marketing expense of $4.4 million in the corresponding
  period one year ago. Half of the increase in each of the comparable periods
  was from increased personnel costs related to staffing key sales and marketing
  positions. Additional increases were from higher levels of advertising and promotion,
  and travel related expense compared to the same periods one year ago. Expenses
  are expected to increase in the fourth quarter of 2005.</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>General and Administrative
  Expense</b></font></p>
<p>General and administrative expense for the three months ended September 30,
  2005 was $0.6 million, a decrease of 21% compared to general and administrative
  expense of $0.7 million in the corresponding period one year ago. General and
  administrative expense for the nine month period ended September 30, 2005 was
  $2.0 million, a decrease of 20% compared to general and administrative expense
  of $2.5 million in the corresponding period one year ago. Decreases of $0.2
  million and $0.6 million, respectively, in the comparable three and nine month
  periods 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. An additional decrease
  in the comparable nine month periods was from reduced costs of business insurance.
  Partially offsetting these decreases in the comparable nine month periods were
  increases of $0.2 million in professional fees related primarily to Sarbanes-Oxley
  compliance requirements completed in the first quarter of 2005. Expenses are
  expected to increase in the fourth quarter of 2005.</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>Amortization of 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. 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 consisted 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
  $723,750 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 three and nine
  months ended September 30, 2005 were $36,000 and $167,000, respectively, compared
  to $107,000 and $290,000 for the same periods one year ago. The lower amortization
  charges in 2005 are due to components of intangible property becoming fully
  amortized.</p>
<p>&nbsp;</p>
<p align="center"><font face="Times New Roman, Times, serif" size="3">16<br>
  </font> </p>
<hr width="100%">
<p><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font></p>
<p><font face="Times New Roman, Times, serif" size="3"><b>Interest Income, Interest
  Expense, Net</b></font></p>
<p>Interest income reflects interest earned on cash balances. Interest income
  was $27,000 and $59,000 for the three and nine month periods ended September
  30, 2005, respectively, compared to interest income of $8,000 and $27,000, respectively,
  for the comparable periods one year ago. Higher levels of interest income reflect
  higher average rates of return on cash balances on hand during the three and
  nine months of 2005 compared to the same periods one year ago.</p>
<p>Interest expense of $800 and $3,400 for the three and nine months ended September
  30, 2005 is related to interest on equipment lease financing obligations. Interest
  expense of $400 and $7,900 for the three and nine months ended September 30,
  2004 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 nine months of 2005 reflects the repayment
  of the note payable to Nokia in April 2004.</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>Preferred Stock Dividends
  and Accretion of Preferred Stock</b></font></p>
<p>Preferred stock dividends for the three and nine months ended September 30,
  2005 were $12,100 and $36,500, respectively, accrued at the rate of 8% per annum
  on Series F Preferred Stock issued in March 2003. Dividends on the Series F
  Preferred Stock for the three and nine months ended September 30, 2004 were
  $12,300 and $37,900, respectively. Lower dividends in the three and nine month
  periods in 2005 reflect lower shares outstanding compared to the same periods
  one year ago. Dividends were paid in cash subsequent to each of the 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 three and
  nine months ended September 30, 2005. Earnings in the three and nine months
  ended September 30, 2005 were immaterial and continued earnings are not assured.
  The Company had immaterial net income in 2004, its first profitable year. The
  Company has maintained a full valuation allowance for all deferred tax assets.</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>Liquidity and Capital
  Resources</b></font></p>
<p>We were profitable in the first nine months of 2005, but only to the extent
  of $37,000. Fiscal 2004 was our first profitable year, which included our first
  profitable quarter, the 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. Adoption of SFAS 123R in the first quarter of 2006 will negatively
  impact our operating results.</p>
<p align="left">&nbsp;</p>
<P align="center"><font face="Times New Roman, Times, serif" size="3">17</font>
</P>
<hr width="100%">
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<P>Cash provided by operating activities was $1.8 million in the first nine months
  of 2005 and $0.3 million in the first nine months of 2004. Cash provided from
  our net income adjusted for non-cash items was $0.6 million in the first nine
  months of 2005 compared to $0.9 million in the first nine months of 2004. Adjustments
  for non-cash items, including depreciation, amortization of intangibles, gains
  and losses on foreign currency forward exchange contracts, foreign currency
  translation losses, and changes in deferred rent, totaled $0.5 million in the
  first nine months of 2005 and $0.7 million in the first nine months of 2004.
  Changes in working capital balances in the first nine months of 2005 resulted
  in a source of cash of $1.2 million, and were primarily from reductions in levels
  of inventory, decreases in receivables due to early collections from key distributors,
  and increases in payables, partially offset by increases in prepaid assets.
  Changes in working capital balances resulted in a use of cash of $0.6 million
  in the first nine months of 2004 primarily from increases in inventories and
  prepaid expenses, partially offset by reductions in accounts receivables and
  increases in deferred revenue and payables.</P>
<p>Cash used in investing activities was $0.4 million in the first nine months
  of 2005 compared to $0.9 million in the first nine months of 2004. Investing
  activities in 2005 primarily reflect the cost of new computer hardware and software,
  and tooling costs. Investing activities in the first nine months of 2004 primarily
  reflect the purchase costs of a patent for $0.6 million in July of 2004, and
  costs of new computer hardware and software, and tooling.</p>
<P>Cash used in financing activities was $0.7 million in the first nine months
  of 2005 compared to cash provided of $0.1 million in the first nine months of
  2004. Financing activities in the first nine months of 2005 consisted primarily
  of a net decrease in the amounts drawn on our bank lines of credit, payment
  of cash dividends, and payments on capital leases partially offset by proceeds
  from the exercise of stock options. Financing activities in 2004 consisted primarily
  of a net increase in the amounts drawn at the end of each quarter 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 September 30, 2005 were $6.6 million, including cash of
  $2.3 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 September 30, 2006. 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 at this time
  to fund our operations, we may raise additional capital if market conditions
  are appropriate.</p>
<p align=left>&nbsp;
<P align="center"><font face="Times New Roman, Times, serif" size="3">18</font><font face="Times New Roman, Times, serif" size="3">
  <br>
  </font> </P>
<p align=center>
<hr width="100%">
<p><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
</p>
<P>The Company's contractual cash obligations at September 30, 2005 are outlined
  in the table below:</P>
<p align=left>&nbsp;
<table cellspacing=1 cellpadding=1 width=80% 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">Capital
      leases </font></td>
    <td valign=bottom align=middle width=80>
      <div align=center><font face="Times New Roman, Times, serif" size="2">$
        20,000 </font></div>
    </td>
    <td valign=bottom align=middle width=84>
      <div align=center><font face="Times New Roman, Times, serif" size="2">$
        9,000 </font></div>
    </td>
    <td valign=bottom align=middle width=72>
      <div align=center><font face="Times New Roman, Times, serif" size="2">$
        11,000 </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">553,000
        </font></div>
    </td>
    <td valign=bottom align=middle width=84>
      <div align=center><font face="Times New Roman, Times, serif" size="2">442,000
        </font></div>
    </td>
    <td valign=bottom align=middle width=72>
      <div align=center><font face="Times New Roman, Times, serif" size="2">111,000
        </font></div>
    </td>
    <td valign=bottom align=middle width=71>
      <div align=center><font face="Times New Roman, Times, serif" size="2"> --
        </font></div>
    </td>
    <td valign=bottom align=middle width=90>
      <div align="center"><font face="Times New Roman, Times, serif" size="2">
        -- </font></div>
    </td>
  </tr>
  <tr>
    <td align=left width=226><font face="Times New Roman, Times, serif" size="2">Unconditional
      purchase obligations with </font><font face="Times New Roman, Times, serif" size="2">contract
      manufacturers</font></td>
    <td valign=bottom align=middle width=80>
      <div align=center><font face="Times New Roman, Times, serif" size="2">964,000
        </font></div>
    </td>
    <td valign=bottom align=middle width=84>
      <div align=center><font face="Times New Roman, Times, serif" size="2">964,000
        </font></div>
    </td>
    <td valign=bottom align=middle width=72>
      <div align=center><font face="Times New Roman, Times, serif" size="2">--</font></div>
    </td>
    <td valign=bottom align=middle width=71>
      <div align=center><font face="Times New Roman, Times, serif" size="2">--
        </font></div>
    </td>
    <td valign=bottom align=middle width=90>
      <div align="center"><font face="Times New Roman, Times, serif" size="2">--
        </font></div>
    </td>
  </tr>
  <tr>
    <td width=226><font face="Times New Roman, Times, serif" size="2">Total contractual
      cash obligations</font></td>
    <td valign=bottom align=middle width=80>
      <div align=center><font face="Times New Roman, Times, serif" size="2">$
        1,537,000 </font></div>
    </td>
    <td valign=bottom align=middle width=84>
      <div align=center><font face="Times New Roman, Times, serif" size="2">$
        1,415,000 </font></div>
    </td>
    <td valign=bottom align=middle width=72>
      <div align=center><font face="Times New Roman, Times, serif" size="2">$
        122,000 </font></div>
    </td>
    <td valign=bottom align=middle width=71>
      <div align=center><font face="Times New Roman, Times, serif" size="2">$
        -- </font></div>
    </td>
    <td valign=bottom align=middle width=90>
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        -- </font></div>
    </td>
  </tr>
</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">19</font>
</p>
<hr width="100%">
<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. We were profitable
  in the first nine months of 2005, but only to the extent of $37,000. 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, and would be required to seek financing which would be dilutive to our
  shareholders. 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 as
  compensation options granted under our employee stock plans, and as a result
  we expect our net income and earnings per share will be reduced, we may have
  net losses, and we may find it necessary to change our business practices to
  attract and retain employees.</b></p>
<p align=left>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
  may cause us to record net losses. In particular, we would not have been profitable
  in the second or third quarter of 2005, nor profitable in any of the quarters
  in fiscal 2004, if we had been required to expense options during those periods.
  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 align=left><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>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">20</font>
  <font face="Times New Roman, Times, serif" size="3"> <br>
  </font> </p>
<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 45 and
  42 percent of our worldwide revenue in the first nine months of fiscal 2005
  and fiscal year 2004, respectively. 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 carries 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 mobile personal 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, if its growth slows,
  or if product changeovers by mobile computer manufacturers and partners cause
  delays in the market, as we experienced in the first half of 2005, we would
  not achieve our sales projections.</p>
<p align=left><b>Our sales would be hurt if the new technologies used in our products
  do not become widely adopted, or are adopted slower than expected.</b>
<p>Many of our products use new technologies, such as and 2D bar code scanning
  and RFID, which are not yet widely adopted in the market. If these technologies
  fail to become widespread, or are adopted slower than expected, our sales will
  suffer.</p>
<p><b>If third parties do not produce and sell innovative products with which
  our products are compatible, we may not achieve our sales projections.</b></p>
<p>Our success is dependent upon the ability of third parties in the mobile personal
  computer industry to complete development of products that include or are compatible
  with our technology and then to sell these products into the marketplace. Our
  ability to generate increased revenue depends significantly on the commercial
  success of Windows-powered handheld devices, particularly the Pocket PC, and
  other devices, such as the line of handhelds with expansion options offered
  by Palm 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 experience difficulties with new product
  transitions that cause delays in the market as we experienced in the first half
  of 2005, or if these products fail to achieve or maintain market acceptance,
  the number of our potential new customers would be reduced and we would not
  be able to meet our sales expectations.</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>We could face increased
  competition in the future, which would adversely affect our financial performance.</b></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>
<p>&nbsp;</p>
<p align="center"><font face="Times New Roman, Times, serif" size="3">21</font><font face="Times New Roman, Times, serif" size="3"><br>
  </font> </p>
<hr width="100%">
<p><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
</p>
<ul>
  <li><font face="Times New Roman, Times, serif" size="3"> 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 offer built in functions, such as Bluetooth
    wireless technology, WiFi, GPS, or bar code scanning, that compete with our
    products.</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><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> </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 and compete successfully,
  if we fail to:</p>
<ul>
  <li><font face="Times New Roman, Times, serif" size="3"> identify emerging standards
    in the field of mobile computing products; <br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3"> enhance our products
    by adding additional features; <br>
    </font></li>
  <li> <font face="Times New Roman, Times, serif" size="3">invest significant
    resources in research and development, sales and marketing, and customer support;<br>
    </font></li>
  <li> maintain superior or competitive performance in our products; and</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 identify trends or make
  the technological advances necessary to be competitive.</p>
<p align="left"><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>&nbsp;</p>
<p align="center"><font face="Times New Roman, Times, serif" size="3">22</font>
  <font face="Times New Roman, Times, serif" size="3"> <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>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 align="left"><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 align=left>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.
<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 align="left"><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 align="left">&nbsp;</p>
<p align="center"><font face="Times New Roman, Times, serif" size="3">23</font><font face="Times New Roman, Times, serif" size="3"><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 align="left">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=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 align="left"><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 operating our business, we may receive claims of intellectual
  property 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="left">&nbsp;</p>
<p align="center"><font face="Times New Roman, Times, serif" size="3">24</font><font face="Times New Roman, Times, serif" size="3"><br>
  <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 align="left">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 align=left>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><font face="Times New Roman, Times, serif" size="3"><b>New industry standards
  may require us to redesign our products, which could substantially increase
  our operating expenses.</b></font></p>
<p>Standards for the form and functionality of our products are established by
  standards committees. These 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 being in compliance with standards for new hardware components
  designed by mobile computer manufacturers and original equipment manufacturers.</p>
<p align="left"><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="left">&nbsp;</p>
<p align="center"><font face="Times New Roman, Times, serif" size="3">25</font><font face="Times New Roman, Times, serif" size="3">
  </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 align="left"><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>timing of distributors' shipments to their customers.<br>
  </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 align="left"><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 one or more of our officers or key senior managers could adversely affect
  our ability to compete.</p>
<p align="left"><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 align=left>&nbsp;
<p align="center"><font face="Times New Roman, Times, serif" size="3">26</font>
  <font face="Times New Roman, Times, serif" size="3"> <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 align=left><b>We may not be able to collect revenues from customers who experience
  financial difficulties.</b>
<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 align="left"><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
  34 percent of our revenue in the first nine 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>political and economic instability.</li>
</ul>
<p align="left">&nbsp;</p>
<p align="center"><font face="Times New Roman, Times, serif" size="3">27</font>
  <font face="Times New Roman, Times, serif" size="3"> <br>
  </font> </p>
<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">Our export sales are predominately denominated in United States
  dollars and in Euros for our sales to European distributors. Accordingly, an
  increase in the value of the United States dollar relative to foreign currencies
  could make our products more expensive and therefore potentially less competitive
  in foreign markets. Declines in the value of the Euro relative to the United
  States dollar may result in foreign currency losses relating to collection of
  Euro denominated receivables.</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>Our operations are vulnerable
  to interruption by fire, earthquake, power loss, telecommunications failure,
  and other events beyond our control.</b></font></p>
<p align="left">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 align="left"><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 October 31, 2005, we had 30,203,924 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 October 31, 2005, we had 83,023 shares of Series F Preferred Stock outstanding
  that are convertible into 830,230 shares of Common Stock, and will be automatically
  converted on March 20, 2006.</p>
<p>As of October 31, 2005 we had 7,905,777 shares subject to outstanding options
  under our stock option plans, and 681,353 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 October 31, 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. A portion of these warrants expire in March 2006 and are expected
  to be exercised. 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 align="left">&nbsp;</p>
<p align="center"><font face="Times New Roman, Times, serif" size="3">28</font>
</p>
<hr width="100%">
<p><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font></p>
<p align="left"><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 align="left">During the period from January 1, 2004 through October 31, 2005,
  our Common Stock price fluctuated between a high of $4.40 and a low of $1.00.
  The trading price of our Common Stock could be subject to wide fluctuations
  in response to many factors, some of which are beyond our control, including
  general economic conditions and the outlook of securities analysts and investors
  on our industry. In addition, the stock markets in general, and the markets
  for high technology stocks in particular, have experienced high volatility that
  has often been unrelated to the operating performance of particular companies.
  These broad market fluctuations may adversely affect the trading price of our
  Common Stock.</p>
<p align="left">&nbsp;</p>
<p align="left"><font face="Times New Roman, Times, serif" size="3"><a
name=qqd></a></font> </p>
<p align="left"><font face="Times New Roman, Times, serif" size="3"><b>Item 3.
  </b></font><b>Quantitative and Qualitative Disclosures About Market Risk</b></p>
<p><font face="Times New Roman, Times, serif" size="3"><b>Interest Rate Risk</b></font></p>
<p>Our exposure to market risk for changes in interest rates relates primarily
  to invested cash. Our cash is invested in short-term money market investments
  backed by U.S. Treasury notes and other investments that mature within one year
  and whose principal is not subject to market rate fluctuations. Accordingly,
  interest rate declines would adversely affect our interest income but would
  not affect the carrying value of our cash investments. Based on a sensitivity
  analysis of our cash investments during the quarter ended September 30, 2005,
  a decline of 1% in interest rates would reduce our quarterly interest income
  by approximately $10,800.</p>
<p>Our bank credit line facilities of up to $4.0 million have variable interest
  rates based upon the lender's index rate plus 0.5% for both the domestic line
  (up to $2.5 million) and the international line (up to $1.5 million). Accordingly,
  interest rate increases would increase our interest expense on outstanding credit
  line balances. We utilized our credit line facility only at the end of each
  quarter in 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"> <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 September 30, 2005, an adverse change of 10% in exchange
  rates would result in a decrease in our net income for the third quarter by
  approximately $55,000, if left unprotected. For the third 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 gain of $5,800. 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 align="center"><font face="Times New Roman, Times, serif" size="3">29</font>
</p>
<p style="PAGE-BREAK-BEFORE: always">
<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=item4></a></font><font face="Times New Roman, Times, serif" size="3"> </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><font face="Times New Roman, Times, serif" size="3"><a
name=oth></a><a
name=item6></a></font></p>
<p><font face="Times New Roman, Times, serif" size="3"><b>PART II. OTHER INFORMATION</b></font></p>
<p><font face="Times New Roman, Times, serif" size="3"> </font><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 align="center">&nbsp;</p>
<p align="center">30 </p>
<p style="PAGE-BREAK-BEFORE: always">
<hr width="100%">
<p><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a><a
name=sig></a></font></p>
<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="100%">
  <TR>
    <TD width="38%"><FONT face="Times New Roman, Times, serif" size=3>Date: November
      7, 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: November
      7, 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>&nbsp;</P>
<P>&nbsp;</P>
<P>&nbsp;</P>
<P>&nbsp;</P>
<p align=center><font face="Times New Roman, Times, serif" size="3">31</font><font face="Times New Roman, Times, serif" size="3"><br>
  </font>
<p style="PAGE-BREAK-BEFORE: always">
<p align=center> <br>
<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"><a
name=ind></a></font> </p>
<p align=center><font face="Times New Roman, Times, serif" size="3"><b>Index to
  Exhibits</b><br>
  <br>
  </font>
<table cellspacing=0 cellpadding=0 width=80% align=center border=0>
  <tr>
    <td valign=bottom width="10%" height=48>
      <p align=center><font face="Times New Roman, Times, serif" size=3>Exhibit
        <u>Number</u></font></p>
    </td>
    <td valign=bottom width="90%" height=48>
      <p align=center><font face="Times New Roman, Times, serif"
      size=3><u>Description </u></font></p>
    </td>
  </tr>
  <tr>
    <td valign=top width="10%" height=25>
      <p align=right>&nbsp;</p>
    </td>
    <td valign=top width="90%" height=25>
      <p>&nbsp;</p>
    </td>
  </tr>
  <tr>
    <td valign=top width="10%" height=30>
      <p align=center><font face="Times New Roman, Times, serif"
      size=3>31.1&nbsp;</font> </p>
    </td>
    <td valign=top width="90%" height=30>
      <p>Certification of Chief Executive Officer and Chief Financial Officer
        pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.</p>
    </td>
  </tr>
  <tr>
    <td valign=top width="10%" height=12>&nbsp;</td>
    <td valign=top width="90%" height=12>&nbsp;</td>
  </tr>
  <tr>
    <td valign=top width="10%" height=30>
      <p align=center><font face="Times New Roman, Times, serif"
      size=3>32.1&nbsp;</font> </p>
    </td>
    <td valign=top width="90%" height=30>
      <p>Certification of Chief Executive Officer and Chief Financial Officer
        pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.</p>
    </td>
  </tr>
</table>
<P>&nbsp;</P>
<P>&nbsp;</P>
<P>&nbsp;</P>
<P>&nbsp;</P>
<P>&nbsp;</P>
<P>&nbsp;</P>
<P>&nbsp;</P>
<P>&nbsp;</P>
<P>&nbsp;</P>
<p align=center><font face="Times New Roman, Times, serif" size="3">32</font><font face="Times New Roman, Times, serif" size="3"><br>
  </font>
<p style="PAGE-BREAK-BEFORE: always">
<p align=center> <br>
<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>&nbsp;
<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 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>
<blockquote>
  <p><font face="Times New Roman, Times, serif" size="3">(a) Designed such disclosure
    controls and procedures, or caused such disclosure controls and procedures
    to be designed under our supervision, to ensure that material information
    relating to the registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during the period
    in which this report is being prepared;</font></p>
  <p><font face="Times New Roman, Times, serif" size="3">(b) 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>
</blockquote>
<p><font face="Times New Roman, Times, serif" size="3">5. The registrant's other
  certifying officer and I have disclosed, based on our most recent evaluation
  of internal control over financial reporting, to the registrant's auditors and
  the audit committee of the registrant's board of directors (or persons performing
  the equivalent functions):</font></p>
<blockquote>
  <p><font face="Times New Roman, Times, serif" size="3">(a) All significant deficiencies
    and material weaknesses in the design or operation of internal control over
    financial reporting which are reasonably likely to adversely affect the registrant's
    ability to record, process, summarize and report financial information; and</font></p>
  <p><font face="Times New Roman, Times, serif" size="3">(b) Any fraud, whether
    or not material, that involves management or other employees who have a significant
    role in the registrant's internal control over financial reporting.</font></p>
</blockquote>
<table cols=2 width="100%">
  <tr>
    <td width="38%"><font face="Times New Roman, Times, serif" size=3>Date: November
      7, 2005 </font></td>
    <td width="10%">
      <center>
      </center>
    </td>
    <td width="52%">
      <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="10%">
      <center>
        <font face="Times New Roman, Times, serif" size=3>&nbsp; </font>
      </center>
    </td>
    <td valign=top align=middle width="52%">
      <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 style="PAGE-BREAK-BEFORE: always">
<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>
<p align=left><font face="Times New Roman, Times, serif" size="3">I, David W.
  Dunlap, certify that:</font>
<p><font face="Times New Roman, Times, serif" size="3">1. I have reviewed this
  quarterly report on Form 10-Q of Socket Communications, Inc.;</font></p>
<p><font face="Times New Roman, Times, serif" size="3">2. Based on my knowledge,
  this report does not contain any untrue statement of a material fact or omit
  to state a material fact necessary to make the statements made, in light of
  the circumstances under which such statements were made, not misleading with
  respect to the period covered by this report;</font></p>
<p><font face="Times New Roman, Times, serif" size="3">3. Based on my knowledge,
  the financial statements, and other financial information included in this report,
  fairly present in all material respects the financial condition, results of
  operations and cash flows of the registrant as of, and for, the periods presented
  in this report;</font></p>
<p><font face="Times New Roman, Times, serif" size="3">4. The registrant's other
  certifying officer 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>
<blockquote>
  <p><font face="Times New Roman, Times, serif" size="3">(a) Designed such disclosure
    controls and procedures, or caused such disclosure controls and procedures
    to be designed under our supervision, to ensure that material information
    relating to the registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during the period
    in which this report is being prepared;</font></p>
  <p><font face="Times New Roman, Times, serif" size="3">(b) 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>
</blockquote>
<p><font face="Times New Roman, Times, serif" size="3">5. The registrant's other
  certifying officer and I have disclosed, based on our most recent evaluation
  of internal control over financial reporting, to the registrant's auditors and
  the audit committee of the registrant's board of directors (or persons performing
  the equivalent functions):</font></p>
<blockquote>
  <p><font face="Times New Roman, Times, serif" size="3">(a) All significant deficiencies
    and material weaknesses in the design or operation of internal control over
    financial reporting which are reasonably likely to adversely affect the registrant's
    ability to record, process, summarize and report financial information; and</font></p>
  <p><font face="Times New Roman, Times, serif" size="3">(b) Any fraud, whether
    or not material, that involves management or other employees who have a significant
    role in the registrant's internal control over financial reporting.</font></p>
</blockquote>
<table cols=2 width="100%">
  <tr>
    <td width="38%"><font face="Times New Roman, Times, serif" size=3>Date: November
      7, 2005 </font></td>
    <td width="15%">
      <center>
      </center>
    </td>
    <td width="47%">
      <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="15%">
      <center>
        <font face="Times New Roman, Times, serif" size=3>&nbsp; </font>
      </center>
    </td>
    <td valign=top align=middle width="47%">
      <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 style="PAGE-BREAK-BEFORE: always">
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p align="right"><font face="Times New Roman, Times, serif" size="3">Exhibit 32.1</font></p>
<p align="center">CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL
  OFFICER<br>
  PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 </p>
<p><font face="Times New Roman, Times, serif" size="3"><br>
  I, Kevin J. Mills, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
  to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report
  of Socket Communications, Inc. on Form 10-Q for the quarter ended September
  30, 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="45%" 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 (Principal Executive
        Officer)<br>
        Date: &nbsp&nbspNovember 7, 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 September
  30, 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">
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    <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%" height="78">
      <div align=left><font face="Times New Roman, Times, serif" size=3>Name:
        David W. Dunlap<br>
        Title: &nbsp&nbspVice President of Finance and </font><font face="Times New Roman, Times, serif" size=3>Administration
        and Chief Financial Officer </font><font face="Times New Roman, Times, serif" size=3>(Principal
        Financial Officer)<br>
        Date: &nbsp&nbspNovember 7, 2005</font></div>
    </td>
  </tr>
</table>
<p align=center>&nbsp;
<p align=center>&nbsp;
<p align=center>&nbsp;
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  </font>
<p align=center>
<p align=left>
<p>&nbsp;</p>
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