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<SEC-DOCUMENT>0000944075-06-000045.txt : 20060515
<SEC-HEADER>0000944075-06-000045.hdr.sgml : 20060515
<ACCEPTANCE-DATETIME>20060512213552
ACCESSION NUMBER:		0000944075-06-000045
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		4
CONFORMED PERIOD OF REPORT:	20060331
FILED AS OF DATE:		20060515
DATE AS OF CHANGE:		20060512

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:		06836822

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

	MAIL ADDRESS:	
		STREET 1:		37400 CENTRAL COURT
		CITY:			NEWARK
		STATE:			CA
		ZIP:			94560
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>q1-2006.htm
<DESCRIPTION>10-Q
<TEXT>
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<BODY bgColor=white>
<DIV align=left> </DIV>
<DIV align=left> </DIV>
<P align=center><font face="Times New Roman, Times, serif" size="3">UNITED STATES<BR>
  SECURITIES AND EXCHANGE COMMISSION<BR>
  Washington, D.C. 20549<BR>
  </font></P>
<P align=center><font face="Times New Roman, Times, serif" size="3"><STRONG>FORM
  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;For
  the quarterly period ended March 31, 2006</STRONG></font></P>
<P align=center><font size="3" face="Times New Roman, Times, serif"><STRONG>OR</STRONG></font></P>
<TABLE cols=2 width="100%">
  <TR>
    <TD vAlign=top width="5%"><FONT size=3><STRONG>
      <CENTER>
        <FONT face="Times New Roman, Times, serif">[&nbsp;&nbsp;&nbsp;] </FONT>
      </CENTER>
      </STRONG></FONT></TD>
    <TD vAlign=top width="95%"><FONT face="Times New Roman, Times, serif"
      size=3><STRONG>TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
      SECURITIES EXCHANGE ACT OF 1934 &nbsp;&nbsp;</STRONG><BR>
      <BR>
      For the transition period ____________ to ____________ </FONT></TD>
  </TR>
</TABLE>
<P align=center><font face="Times New Roman, Times, serif" size="3"><STRONG>Commission
  file number 1-13810 </STRONG></font></P>
<P align=center><font face="Times New Roman, Times, serif" size="3"><STRONG><b>SOCKET
  COMMUNICATIONS, INC.</b> </STRONG><BR>
  (Exact Name of Registrant as Specified in its Charter) </font></P>
<P>&nbsp;
<TABLE cols=2 width="100%">
  <TR>
    <TD><FONT size=3><STRONG>
      <CENTER>
        <FONT face="Times New Roman, Times, serif" size=3>Delaware </FONT>
      </CENTER>
      </STRONG></FONT></TD>
    <TD><FONT size=3><STRONG>
      <CENTER>
        <FONT face="Times New Roman, Times, serif" size=3>94-3155066 </FONT>
      </CENTER>
      </STRONG></FONT></TD>
  </TR>
  <TR>
    <TD><FONT size=2>
      <CENTER>
        <FONT face="Times New Roman, Times, serif" size=3>&nbsp; (State or other
        jurisdiction of incorporation or organization)&nbsp; </FONT>
      </CENTER>
      </FONT></TD>
    <TD><FONT size=2>
      <CENTER>
        <FONT face="Times New Roman, Times, serif" size=3>(IRS Employer Identification
        No.) </FONT>
      </CENTER>
      </FONT></TD>
  </TR>
</TABLE>
<font face="Times New Roman, Times, serif" size="3"><BR>
</font>
<P align=center><font face="Times New Roman, Times, serif" size="3"><STRONG>37400
  Central Court, Newark, CA 94560 </STRONG><BR>
  (Address of principal executive offices including zip code) </font></P>
<P align=center><font face="Times New Roman, Times, serif" size="3"><STRONG>(510)
  744-2700 </STRONG><BR>
  (Registrant's telephone number, including area code) <BR>
  <BR>
  <BR>
  </font></P>
<P><font face="Times New Roman, Times, serif" size="3">&nbsp;&nbsp;&nbsp; </font>
<P><font face="Times New Roman, Times, serif" size="3">Indicate by check mark
  whether the registrant (1) has filed all reports required to be filed by Section
  13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
  (or for such shorter period that the registrant was required to file such reports),
  and (2) has been subject to such filing requirements for the past 90 days. YES[X]
  NO[&nbsp;&nbsp;]</font></P>
<P>Indicate by check mark whether the registrant is a large accelerated filer,
  an accelerated filer, or a non-accelerated filer. See definition of "accelerated
  filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. Large
  accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X]</P>
<P>Indicate by check mark whether the registrant is a shell company (as defined
  in Rule 12b-2 of the Exchange Act). YES [ ] NO [X]</P>
<P>Number of shares of Common Stock ($0.001 par value) outstanding as of April
  28, 2006 was 31,558,992 shares.</P>
<hr width="100%">
<P>&nbsp; </P>
<div align="center"></div>
<P align=left><font face="Times New Roman, Times, serif" size="3"><a name="tab"></a></font></P>
<table width="879" border="0" cellspacing="0" cellpadding="0" align="center">
  <tr>
    <td colspan="3">
      <div align="center"></div>
      <p align=center><font face="Times New Roman, Times, serif" size="3"><strong>INDEX
        </strong></font></p>
    </td>
  </tr>
  <tr>
    <td width="27">&nbsp;</td>
    <td width="807">&nbsp;</td>
    <td width="56">
      <div align="center"><font face="Times New Roman, Times, serif" size="3"><u>PAGE
        <br>
        NO.</u></font></div>
    </td>
  </tr>
  <tr>
    <td colspan="3"><font face="Times New Roman, Times, serif" size="3">Part I.
      Financial information </font></td>
  </tr>
  <tr>
    <td colspan="3">&nbsp;</td>
  </tr>
  <tr>
    <td colspan="3"><font face="Times New Roman, Times, serif" size="3">Item 1.
      Consolidated Financial Statements: </font></td>
  </tr>
  <tr>
    <td width="27">&nbsp;</td>
    <td width="807">&nbsp;</td>
    <td width="56" align="center" valign="bottom">&nbsp;</td>
  </tr>
  <tr>
    <td width="27">&nbsp;</td>
    <td width="807"><font face="Times New Roman, Times, serif" size="3"><a
  href="#bs">Condensed Consolidated Balance Sheets - March 31, 2006 and December
      31, 2005 </a></font></td>
    <td width="56" align="center" valign="bottom">
      <div align="center">1</div>
    </td>
  </tr>
  <tr>
    <td width="27" height="10">&nbsp;</td>
    <td width="807" height="10">&nbsp;</td>
    <td width="56" height="10" align="center" valign="bottom">&nbsp;</td>
  </tr>
  <tr>
    <td width="27" height="10">&nbsp;</td>
    <td width="807" height="10"><font face="Times New Roman, Times, serif" size="3"><a
  href="#ops">Condensed Consolidated Statements of Operations - Three Months Ended
      March 31, 2006 and 2005</a></font></td>
    <td width="56" height="10" align="center" valign="bottom">
      <div align="center"> 2</div>
    </td>
  </tr>
  <tr>
    <td width="27">&nbsp;</td>
    <td width="807">&nbsp;</td>
    <td width="56" align="center" valign="bottom">&nbsp;</td>
  </tr>
  <tr>
    <td width="27">&nbsp;</td>
    <td width="807"><font face="Times New Roman, Times, serif" size="3"><a
  href="#flows">Condensed Consolidated Statements of Cash Flows - Three Months
      Ended </a><a
  href="#ops">March 31, 2006 and 2005</a></font></td>
    <td width="56" align="center" valign="bottom">
      <div align="center">3</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">4</div>
    </td>
  </tr>
  <tr>
    <td colspan="2">&nbsp;</td>
    <td width="56">&nbsp;</td>
  </tr>
  <tr>
    <td colspan="2"><font face="Times New Roman, Times, serif" size="3"><a
href="#mda">Item 2. Management's Discussion and Analysis of Financial Condition
      and Results of Operations</a> </font></td>
    <td width="56">
      <div align="center"><font face="Times New Roman, Times, serif" size="3">11</font></div>
    </td>
  </tr>
  <tr>
    <td colspan="2">&nbsp;</td>
    <td width="56">&nbsp;</td>
  </tr>
  <tr>
    <td colspan="2"><font face="Times New Roman, Times, serif" size="3"><a
href="#qqd">Item 3. Quantitative and Qualitative Disclosures about Market Risk</a>
      </font></td>
    <td width="56">
      <div align="center">18</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">19</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="#risk">Item 1A. Risk Factors</a></font></td>
    <td width="56">
      <div align="center"><font face="Times New Roman, Times, serif" size="3">20</font></div>
    </td>
  </tr>
  <tr>
    <td colspan="2">&nbsp;</td>
    <td width="56">&nbsp;</td>
  </tr>
  <tr>
    <td colspan="2"><font face="Times New Roman, Times, serif" size="3"><a
href="#sub">Item 4. Submission of Matters to a Vote of Security Holders</a></font></td>
    <td width="56">
      <div align="center">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="#item6">Item 6. Exhibits</a></font></td>
    <td width="56">
      <div align="center">31</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">32</div>
    </td>
  </tr>
  <tr>
    <td colspan="2">&nbsp;</td>
    <td width="56">&nbsp;</td>
  </tr>
  <tr>
    <td colspan="2"><font face="Times New Roman, Times, serif" size="3"><a
href="#ind">Index to Exhibits</a></font></td>
    <td width="56">
      <div align="center"><font face="Times New Roman, Times, serif" size="3">33</font></div>
    </td>
  </tr>
</table>
<P align=left>&nbsp; </P>
<P align="center"><font face="Times New Roman, Times, serif" size="3"><BR>
  <BR>
  </font>
<HR width="100%">
<font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a>
<a
name=bs></a> <BR>
<BR>
</font>
<P align=left><font face="Times New Roman, Times, serif" size="3">Item 1. Financial
  Statements (Unaudited) </font>
<P align=center>
<P align=center>
<table cellspacing=1 cellpadding=1 width=774 align=center border=1>
  <tr valign=bottom>
    <td colspan=3><font size=2><b>
      <p align=center><font face="Times New Roman, Times, serif">SOCKET COMMUNICATIONS,
        INC. <br>
        </font><font size=2><b><font face="Times New Roman, Times, serif">CONDENSED</font></b></font>
        <font face="Times New Roman, Times, serif">CONSOLIDATED BALANCE SHEETS
        </font></p>
      </b></font></td>
  </tr>
  <tr valign=bottom>
    <td width="65%" height=19><font
      face="Times New Roman, Times, serif">&nbsp;&nbsp;</font></td>
    <td width="20%" height=19><font size=2>
      <p align=center><font face="Times New Roman, Times, serif"> March 31, </font><font face="Times New Roman, Times, serif"><br>
        2006<br>
        </font><font size=2><font size=2><font face="Times New Roman, Times, serif">(Unaudited)</font></font></font><font face="Times New Roman, Times, serif">
        </font></p>
      </font></td>
    <td width="15%" height=19 valign="top"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">&nbsp; December
        31, 2005* </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td colspan=3><b><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">ASSETS </font></p>
      </font></b></td>
  </tr>
  <tr valign=bottom>
    <td width="65%"><font size=2>
      <p><font face="Times New Roman, Times, serif">Current assets: </font></p>
      </font></td>
    <td width="20%"><font
face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="15%"><font
  face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr valign=bottom>
    <td width="65%"><font size=2>
      <p><font face="Times New Roman, Times, serif">&nbsp;&nbsp;Cash and cash
        equivalents </font></p>
      </font></td>
    <td width="20%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">$ 7,485,842 </font></p>
      </font></td>
    <td width="15%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">$ 6,833,193 </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="65%" height="10"><font size=2>
      <p><font face="Times New Roman, Times, serif">&nbsp;&nbsp;Accounts receivable,
        net</font><font size=2><font face="Times New Roman, Times, serif">&nbsp;</font><font face="Times New Roman, Times, serif">&nbsp;&nbsp;
        </font><font size=2><font face="Times New Roman, Times, serif">&nbsp;&nbsp;</font></font><font face="Times New Roman, Times, serif">
        </font></font><font face="Times New Roman, Times, serif"> </font></p>
      </font></td>
    <td width="20%" height="10"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif"> 3,603,397 </font></p>
      </font></td>
    <td width="15%" height="10"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">2,952,429 </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="65%"><font size=2>
      <p><font face="Times New Roman, Times, serif">&nbsp;&nbsp;Inventories </font></p>
      </font></td>
    <td width="20%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">2,293,905 </font></p>
      </font></td>
    <td width="15%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">2,195,394 </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="65%"><font size=2>
      <p><font face="Times New Roman, Times, serif">&nbsp;&nbsp;Prepaid expenses
        and other current assets</font></p>
      </font></td>
    <td width="20%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">268,332 </font></p>
      </font></td>
    <td width="15%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">315,287 </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="65%"><font size=2>
      <p><font
      face="Times New Roman, Times, serif">&nbsp;&nbsp;&nbsp;&nbsp;Total current
        assets </font></p>
      </font></td>
    <td width="20%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">13,651,476 </font></p>
      </font></td>
    <td width="15%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">12,296,303 </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td colspan=3><font
  face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr valign=bottom>
    <td width="65%"><font size=2>
      <p><font face="Times New Roman, Times, serif">Property and equipment: </font></p>
      </font></td>
    <td width="20%"><font
face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="15%"><font
  face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr valign=bottom>
    <td width="65%"><font size=2>
      <p><font face="Times New Roman, Times, serif">&nbsp;&nbsp;Machinery and
        office equipment </font></p>
      </font></td>
    <td width="20%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">1,994,591 </font></p>
      </font></td>
    <td width="15%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">1,821,367 </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="65%"><font size=2>
      <p><font face="Times New Roman, Times, serif">&nbsp;&nbsp;Computer equipment
        </font></p>
      </font></td>
    <td width="20%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">926,635 </font></p>
      </font></td>
    <td width="15%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">913,389 </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="65%" height="5"><font size=2><font face="Times New Roman, Times, serif">&nbsp;</font></font></td>
    <td width="20%" height="5"><font size=2>
      <p align=center>2,921,226 </p>
      </font></td>
    <td width="15%" height="5"><font size=2>
      <p align=center>2,734,756 <font size=2><font face="Times New Roman, Times, serif">
        </font></font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="65%"><font size=2>
      <p><font face="Times New Roman, Times, serif">&nbsp;&nbsp;Accumulated depreciation
        </font></p>
      </font></td>
    <td width="20%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">(2,154,108) </font></p>
      </font></td>
    <td width="15%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">(2,106,914) </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="65%"><font size=2>
      <p><font face="Times New Roman, Times, serif">&nbsp;&nbsp;&nbsp;&nbsp;Property
        and equipment, net</font></p>
      </font></td>
    <td width="20%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">767,118 </font></p>
      </font></td>
    <td width="15%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">627,842 </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="65%">&nbsp;</td>
    <td width="20%">&nbsp;</td>
    <td width="15%">&nbsp;</td>
  </tr>
  <tr valign=bottom>
    <td width="65%"><font
      face="Times New Roman, Times, serif"><font size=2>Intangible technology,
      net </font></font></td>
    <td width="20%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>712,894 </font></div>
    </td>
    <td width="15%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>748,937 </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="65%"><font
      face="Times New Roman, Times, serif"><font size=2>Goodwill </font></font></td>
    <td width="20%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>9,797,946 </font></div>
    </td>
    <td width="15%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>9,797,946 </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="65%"><font size=2>
      <p><font face="Times New Roman, Times, serif">Other assets </font></p>
      </font></td>
    <td width="20%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">154,031 </font></p>
      </font></td>
    <td width="15%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">163,754 </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="65%"><font size=2>
      <p><font size=2><font
      face="Times New Roman, Times, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></font><font
      face="Times New Roman, Times, serif">Total assets </font></p>
      </font></td>
    <td width="20%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">$ 25,083,465
        </font></p>
      </font></td>
    <td width="15%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">$ 23,634,782
        </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td colspan=3><font
  face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr valign=bottom>
    <td colspan=3 height="12">
      <div align="center"><b><font face="Times New Roman, Times, serif" size="2">LIABILITIES
        </font></b><font face="Times New Roman, Times, serif" size="2"><b>AND
        STOCKHOLDERS' EQUITY</b></font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="65%"><font size=2>
      <p><font face="Times New Roman, Times, serif">Current liabilities: </font></p>
      </font></td>
    <td width="20%"><font
face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="15%"><font
  face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr valign=bottom>
    <td width="65%"><font size=2>
      <p><font face="Times New Roman, Times, serif">&nbsp;&nbsp; Accounts payable
        and accrued expenses </font></p>
      </font></td>
    <td width="20%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif"> </font><font size=2><font face="Times New Roman, Times, serif"
      size=2>$ 3,418,194 </font></font></p>
      </font></td>
    <td width="15%"><font size=2>
      <p align=center><font size=2><font face="Times New Roman, Times, serif">$
        2,616,421 </font></font><font face="Times New Roman, Times, serif"> </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="65%"><font size=2>
      <p><font face="Times New Roman, Times, serif">&nbsp;&nbsp; Accrued payroll
        and related expenses </font></p>
      </font></td>
    <td width="20%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">794,295 </font></p>
      </font></td>
    <td width="15%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">729,768 </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="65%" height="7"><font size=2>
      <p><font face="Times New Roman, Times, serif">&nbsp;&nbsp; Bank line of
        credit </font></p>
      </font></td>
    <td width="20%" height="7"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>2,747,326 </font></p>
      </font></td>
    <td width="15%" height="7"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">2,308,771 </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="65%"><font size=2>
      <p><font face="Times New Roman, Times, serif">&nbsp;&nbsp; Deferred income
        on shipments to distributors</font></p>
      </font></td>
    <td width="20%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">954,404 </font></p>
      </font></td>
    <td width="15%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">1,114,450 </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="65%"><font
      face="Times New Roman, Times, serif">&nbsp;&nbsp;<font size=2>Current portion
      of deferred rent and capital leases</font></font></td>
    <td width="20%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>34,499 </font></div>
    </td>
    <td width="15%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>42,639 </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="65%"><font size=2>
      <p><font
      face="Times New Roman, Times, serif">&nbsp;&nbsp;&nbsp;&nbsp; Total current
        liabilities </font></p>
      </font></td>
    <td width="20%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">7,948,718 </font></p>
      </font></td>
    <td width="15%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">6,812,049 </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td colspan=3><font
  face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr valign=bottom>
    <td width="65%">
      <div align="left"><font size=2><font
      face="Times New Roman, Times, serif">&nbsp;&nbsp;&nbsp;&nbsp;Long term portion
        of deferred rent and capital leases</font></font></div>
    </td>
    <td width="20%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>5,895 </font></div>
    </td>
    <td width="15%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>8,372 </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td colspan="3">&nbsp;</td>
  </tr>
  <tr valign=bottom>
    <td width="65%"><font size=2>
      <p><font face="Times New Roman, Times, serif">Commitments and contingencies
        </font></p>
      </font></td>
    <td width="20%"><font
face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="15%"><font
  face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr valign=bottom>
    <td width="65%"><font
  face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="20%"><font
  face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="15%"><font
  face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr valign=bottom>
    <td width="65%"><font size=2>
      <p><font face="Times New Roman, Times, serif">Stockholders' equity: </font></p>
      </font></td>
    <td width="20%"><font
face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="15%"><font
  face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr valign=bottom>
    <td width="65%" height="50"><font size=2>
      <p><font size=2><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp; </font></font><font face="Times New Roman, Times, serif">Series
        F Convertible Preferred Stock, $0.001 par value: <br>
        </font><font size=2><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp; &nbsp;&nbsp; </font></font><font face="Times New Roman, Times, serif">Authorized
        shares - 276,269, Issued and outstanding shares - <br>
        </font><font size=2><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp; &nbsp;&nbsp; </font></font><font face="Times New Roman, Times, serif">none
        at March 31, 2006 and 82,330 at December 31, 2005</font></p>
      </font></td>
    <td width="20%" height="50"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">--</font></p>
      </font></td>
    <td width="15%" height="50"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">82 </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="65%" height="52"><font size=2> <font size=2><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp; </font></font><font face="Times New Roman, Times, serif">Common
      stock, $0.001 par value: Authorized shares - <br>
      </font><font size=2><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp; &nbsp;&nbsp; </font></font><font face="Times New Roman, Times, serif">100,000,000,
      Issued and outstanding shares - 31,554,992 at <br>
      </font><font size=2><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp; &nbsp;&nbsp; </font></font><font
      face="Times New Roman, Times, serif">March 31, 2006 and 30,223,709 at December
      31, 2005</font> </font></td>
    <td width="20%" height="52"><font size=2>
      <p align=center><font
      face="Times New Roman, Times, serif">31,555 </font></p>
      </font></td>
    <td width="15%" height="52"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">30,224 </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="65%"><font size=2>
      <p><font face="Times New Roman, Times, serif">Additional paid-in capital
        </font></p>
      </font></td>
    <td width="20%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">51,366,495 </font></p>
      </font></td>
    <td width="15%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">50,673,487 </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="65%" height="19"><font size=2>
      <p><font face="Times New Roman, Times, serif">Accumulated deficit </font></p>
      </font></td>
    <td width="20%" height="19"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">(34,269,198)
        </font></p>
      </font></td>
    <td width="15%" height="19"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">(33,889,432)
        </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="65%" height=23><font size=2>
      <p><font
      face="Times New Roman, Times, serif">&nbsp;&nbsp;&nbsp;&nbsp;Total stockholders'
        equity </font></p>
      </font></td>
    <td width="20%" height=23><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">17,128,852 </font></p>
      </font></td>
    <td width="15%" height=23><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">16,814,361 </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="65%"><font size=2>
      <p><font
      face="Times New Roman, Times, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total
        liabilities and stockholders' equity </font></p>
      </font></td>
    <td width="20%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">$ 25,083,465
        </font></p>
      </font></td>
    <td width="15%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif">$ 23,634,782
        </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td colspan=3><font size=2>
      <p><font face="Times New Roman, Times, serif">_________________________
        </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td colspan=3 height="12"><font size=2>
      <p><font face="Times New Roman, Times, serif">*Derived from audited consolidated
        financial statements </font></p>
      </font></td>
  </tr>
</table>
<P></P>
<font face="Times New Roman, Times, serif" size="3"><BR>
</font>
<P align=center><font face="Times New Roman, Times, serif" size="3">See accompanying
  notes. <BR>
  <BR>
  1 </font>
<HR width="100%">
<font face="Times New Roman, Times, serif" size="3"><BR>
<a href="#TAB">(Index)</a> <a name=ops></a><BR>
</font>
<P align=center>
<TABLE cellSpacing=1 cellPadding=1 width=695 align=center border=1>
  <tr valign=bottom>
    <td colspan=3 height="33"><font size=2><b> </b></font>
      <div align="center"><font face="Times New Roman, Times, serif" size="2"><b>SOCKET
        COMMUNICATIONS, INC. <br>
        CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS</b></font></div>
      <div align="center"><font face="Times New Roman, Times, serif" size="2">
        </font> <font face="Times New Roman, Times, serif" size="2">(Unaudited)
        </font></div>
    </td>
  </tr>
  <TR vAlign=bottom>
    <TD height=17 width="33%">
      <P><FONT face="Times New Roman, Times, serif" size=2>&nbsp;&nbsp;</FONT></P>
    </TD>
    <TD colspan="2" height=17>
      <div align="center"><font face="Times New Roman, Times, serif" size=2>Three
        Months Ended <br>
        March 31,</font></div>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="33%" height=17>
      <P><FONT face="Times New Roman, Times, serif">&nbsp;&nbsp; </FONT></P>
    </TD>
    <TD width="15%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif" size=2><u>2006
        </u></FONT></P>
    </TD>
    <TD width="12%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif" size=2><u>2005</u>
        </FONT></P>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="33%" height=17>
      <P><FONT face="Times New Roman, Times, serif" size=2>Revenues </FONT></P>
    </TD>
    <TD width="15%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif" size=2>$ 6,758,691
        </FONT> </P>
    </TD>
    <td width="15%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size=2>$ 5,982,196
        </font> </p>
    </td>
  </TR>
  <TR vAlign=bottom>
    <TD width="33%" height=17>
      <P><FONT face="Times New Roman, Times, serif" size=2>Cost of revenue </FONT></P>
    </TD>
    <TD width="15%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>3,385,144 </FONT></P>
    </TD>
    <td width="15%" height=17>
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>2,934,304 </font></p>
    </td>
  </TR>
  <TR vAlign=bottom>
    <TD width="33%" height=17>
      <P><FONT face="Times New Roman, Times, serif" size=2>Gross profit </FONT></P>
    </TD>
    <TD width="15%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>3,373,547 </FONT></P>
    </TD>
    <td width="15%" height=17>
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>3,047,892 </font></p>
    </td>
  </TR>
  <TR vAlign=bottom>
    <TD width="33%" height=17>
      <P><FONT face="Times New Roman, Times, serif">&nbsp;&nbsp;<FONT size=2>
        </FONT></FONT></P>
    </TD>
    <TD width="15%" height=17><FONT face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp; </FONT></TD>
    <td width="15%" height=17><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp; </font></td>
  </TR>
  <TR vAlign=bottom>
    <TD height=26 width="33%">
      <P><FONT face="Times New Roman, Times, serif" size=2>Operating expenses:
        </FONT></P>
    </TD>
    <TD height=26 width="15%">&nbsp;</TD>
    <td height=26 width="15%">&nbsp;</td>
  </TR>
  <TR vAlign=bottom>
    <TD width="33%" height=17>
      <P><FONT face="Times New Roman, Times, serif" size=2>&nbsp;&nbsp;Research
        and development </FONT></P>
    </TD>
    <TD width="15%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>1,136,557 </FONT></P>
    </TD>
    <td width="15%" height=17>
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>889,128 </font></p>
    </td>
  </TR>
  <TR vAlign=bottom>
    <TD width="33%" height=17>
      <P><FONT face="Times New Roman, Times, serif" size=2>&nbsp;&nbsp;Sales and
        marketing </FONT></P>
    </TD>
    <TD width="15%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>1,762,424 </FONT></P>
    </TD>
    <td width="15%" height=17>
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>1,634,506 </font></p>
    </td>
  </TR>
  <TR vAlign=bottom>
    <TD width="33%" height=17>
      <P><FONT face="Times New Roman, Times, serif" size=2>&nbsp;&nbsp;General
        and administrative </FONT></P>
    </TD>
    <TD width="15%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>842,110 </FONT></P>
    </TD>
    <td width="15%" height=17>
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>832,821 </font></p>
    </td>
  </TR>
  <TR vAlign=bottom>
    <TD width="33%" height=17><FONT face="Times New Roman, Times, serif"
      size=2>&nbsp; Amortization of intangible technology</FONT></TD>
    <TD width="15%" height=17>
      <DIV align=center><FONT face="Times New Roman, Times, serif"
      size=2>36,043 </FONT></DIV>
    </TD>
    <td width="15%" height=17>
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>94,913 </font></div>
    </td>
  </TR>
  <TR vAlign=bottom>
    <TD width="33%" height=17>
      <P><FONT face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp;&nbsp;Total operating expenses </FONT></P>
    </TD>
    <TD width="15%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>3,777,134 </FONT></P>
    </TD>
    <td width="15%" height=17>
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>3,451,368 </font></p>
    </td>
  </TR>
  <TR vAlign=bottom>
    <TD width="33%" height=17>&nbsp;</TD>
    <TD width="15%" height=17>&nbsp;</TD>
    <td width="15%" height=17>&nbsp;</td>
  </TR>
  <TR vAlign=bottom>
    <TD width="33%" height=17>
      <P><FONT face="Times New Roman, Times, serif" size=2>Operating loss</FONT></P>
    </TD>
    <TD width="15%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>(403,587) </FONT></P>
    </TD>
    <td width="15%" height=17>
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(403,476) </font></p>
    </td>
  </TR>
  <TR vAlign=bottom>
    <TD width="33%" height=17>&nbsp;</TD>
    <TD width="15%" height=17>&nbsp;</TD>
    <td width="15%" height=17>&nbsp;</td>
  </TR>
  <TR vAlign=bottom>
    <TD width="33%" height=17>
      <P><FONT face="Times New Roman, Times, serif" size=2>Interest income</FONT>
      </P>
    </TD>
    <TD width="15%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif"
      size=2>36,678 </FONT></P>
    </TD>
    <td width="15%" height=17>
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>13,507 </font></p>
    </td>
  </TR>
  <TR vAlign=bottom>
    <TD width="33%" height=17>
      <P><FONT face="Times New Roman, Times, serif" size=2>Interest expense </FONT></P>
    </TD>
    <TD width="15%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif" size=2>(2,204)
        </FONT></P>
    </TD>
    <td width="15%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size=2>(1,739)
        </font></p>
    </td>
  </TR>
  <TR vAlign=bottom>
    <TD width="33%" height=17>&nbsp;</TD>
    <TD width="15%" height=17>&nbsp;</TD>
    <td width="15%" height=17>&nbsp;</td>
  </TR>
  <TR vAlign=bottom>
    <TD width="33%" height=17>
      <P><FONT face="Times New Roman, Times, serif" size=2>Net loss</FONT></P>
    </TD>
    <TD width="15%" height=17>
      <P align=center><FONT face="Times New Roman, Times, serif" size=2>(369,113)</FONT></P>
    </TD>
    <td width="15%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size=2>(391,708)</font></p>
    </td>
  </TR>
  <tr valign=bottom>
    <td valign=top width="33%" height=17>
      <p><font face="Times New Roman, Times, serif" size=2>Preferred stock dividends</font></p>
    </td>
    <td width="15%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size=2>(10,653)
        </font></p>
    </td>
    <td width="15%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size=2>(12,200)
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td valign=top width="33%" height=17>
      <p><font face="Times New Roman, Times, serif" size=2>Net loss applicable
        to common stockholders</font></p>
    </td>
    <td width="15%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size=2>$ (379,766)
        </font></p>
    </td>
    <td width="15%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size=2>$ (403,908)
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td valign=top width="33%" height=23>&nbsp;</td>
    <td width="15%" height=23>&nbsp;</td>
    <td width="15%" height=23>&nbsp;</td>
  </tr>
  <tr valign=bottom>
    <td valign=top width="33%" height=23>
      <p><font face="Times New Roman, Times, serif" size=2>Net loss per share
        applicable to common stockholders:</font></p>
    </td>
    <td width="15%" height=23>
      <p align=center><font face="Times New Roman, Times, serif" size=2> </font></p>
    </td>
    <td width="15%" height=23>
      <p align=center><font face="Times New Roman, Times, serif" size=2> </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td valign=top width="33%" height=17>
      <p><font face="Times New Roman, Times, serif" size=2> &nbsp;&nbsp;Basic</font></p>
    </td>
    <td width="15%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size=2>$ (0.01)
        </font></p>
    </td>
    <td width="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="33%" height=17>
      <p><font face="Times New Roman, Times, serif" size=2>&nbsp;&nbsp;Diluted</font></p>
    </td>
    <td width="15%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size=2>$ (0.01)
        </font></p>
    </td>
    <td width="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="33%" height=7>
      <p><font face="Times New Roman, Times, serif" size=2>Weighted average shares
        outstanding:</font></p>
    </td>
    <td width="15%" height=7>
      <p align=center>&nbsp;</p>
    </td>
    <td width="15%" height=7>
      <p align=center>&nbsp;</p>
    </td>
  </tr>
  <tr valign=bottom>
    <td valign=top width="33%" height=17>
      <p><font face="Times New Roman, Times, serif" size=2>&nbsp;&nbsp;Basic</font></p>
    </td>
    <td width="15%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size=2>30,395,495
        </font></p>
    </td>
    <td width="15%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size=2>30,154,992
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td valign=top width="33%" height=17>
      <p><font face="Times New Roman, Times, serif" size=2>&nbsp;&nbsp;Diluted</font></p>
    </td>
    <td width="15%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size=2>30,395,495
        </font></p>
    </td>
    <td width="15%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size=2>30,154,992
        </font></p>
    </td>
  </tr>
</TABLE>
<P></P>
<font face="Times New Roman, Times, serif" size="3"><BR>
</font>
<P align=center><font face="Times New Roman, Times, serif" size="3">See accompanying
  notes. <BR>
  <BR>
  </font>
<P align=center>
<P align=center><font face="Times New Roman, Times, serif" size="3"> 2</font>
<HR width="100%">
<p><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
  <font face="Times New Roman, Times, serif" size="3"><a
name=flows></a></font> </p>
<table cellspacing=1 cellpadding=1 width=695 align=center border=1>
  <tr valign=bottom>
    <td colspan=3 height="49">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2><b>SOCKET COMMUNICATIONS, INC. <br>
        CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS</b> <br>
        (Unaudited) </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <p><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;</font></p>
    </td>
    <td colspan=2>
      <p align=center><font face="Times New Roman, Times, serif" size=2>Three
        Months Ended <br>
        March 31, </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <p><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp;</font></p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif" size=2><u>2006</u>
        </font></p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif" size=2><u>2005</u>
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%"><b>
      <p><font face="Times New Roman, Times, serif" size=2>Operating activities</font>
      </p>
      </b></td>
    <td colspan=2>
      <p><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;</font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <p><font face="Times New Roman, Times, serif" size=2>&nbsp;&nbsp;Net loss</font></p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif" size=2>$ (369,113)
        </font> </p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif" size=2>$ (391,708)
        </font> </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%" height="9">
      <p><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;Adjustments to reconcile net loss to net cash used in
        operating activities: </font></p>
    </td>
    <td colspan=2 height="9">
      <p><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;</font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <p><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp;&nbsp;Stock-based compensation</font> </p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>325,813 </font></p>
    </td>
    <td width="12%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>-- </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <p><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp;&nbsp;Depreciation and amortization</font> </p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>126,626 </font></p>
    </td>
    <td width="16%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>118,324 </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%"><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp; Amortization of intangibles</font></td>
    <td width="12%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>36,043 </font></div>
    </td>
    <td width="12%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>94,913 </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <p><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp;&nbsp;Loss on foreign currency translations</font>
      </p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>7,493 </font></p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>55,968 </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%"><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp; Gain on forward exchange contracts</font></td>
    <td width="12%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>(5,307) </font></div>
    </td>
    <td width="12%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>(38,461) </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%"><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp; Change in deferred rent</font></td>
    <td width="12%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>(8,256)</font></div>
    </td>
    <td width="12%">
      <div align=center><font face="Times New Roman, Times, serif"
      size=2>(5,502)</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td colspan="3">&nbsp;</td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <p><font face="Times New Roman, Times, serif" size=2>&nbsp;&nbsp;&nbsp;
        Changes in operating assets and liabilities:</font> </p>
    </td>
    <td colspan=2>
      <p><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;</font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <p><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts receivable</font>
      </p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(648,382) </font></p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(56,159) </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <p><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories</font>
      </p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(98,511) </font></p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>413,837 </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <p><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prepaid expenses
        and other current assets</font></p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>46,955 </font></p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(12,054) </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <p><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other assets</font>
      </p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>9,723 </font></p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>805 </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <p><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts payable
        and accrued expenses</font> </p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>812,890 </font></p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>432,445 </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <p><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued payroll and
        related expenses</font> </p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>64,527 </font></p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(2,652) </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <p><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred income on
        shipments to distributors</font> </p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(160,046) </font></p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>512,510 </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <p><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash
        provided by operating activities</font> </p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>140,455 </font></p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>1,122,266 </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td colspan=3>
      <p><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;</font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%"><b>
      <p><font face="Times New Roman, Times, serif" size=2>Investing activities</font>
      </p>
      </b></td>
    <td colspan=2>
      <p><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;</font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <p><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp; Purchase of equipment</font> </p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(265,902) </font></p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(117,775) </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <p><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash
        used in investing activities</font> </p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(265,902) </font></p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(117,775) </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td colspan=3>
      <p><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%"><b>
      <p><font face="Times New Roman, Times, serif" size=2>Financing activities</font>
      </p>
      </b></td>
    <td colspan=2>
      <p><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;</font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <p><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp; Payments on capital leases and equipment financing
        notes</font></p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(2,361) </font></p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(5,006) </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <p><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp; Gross proceeds from bank line of credit</font>
      </p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>2,747,326 </font></p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>3,213,300 </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <p><font face="Times New Roman, Times, serif"
      size=2> &nbsp;&nbsp;&nbsp; Gross payments on bank line of credit</font>
      </p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(2,308,771)</font> </p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(2,949,272)</font> </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <p><font face="Times New Roman, Times, serif"
      size=2> &nbsp;&nbsp;&nbsp; Proceeds from stock options exercised</font>
      </p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>22,635 </font></p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>16,300 </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <p><font face="Times New Roman, Times, serif"
      size=2> &nbsp;&nbsp;&nbsp; Proceeds from warrants exercised</font> </p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>345,809</font></p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>--</font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%" height="10">
      <p><font face="Times New Roman, Times, serif"
      size=2> &nbsp;&nbsp;&nbsp; Dividends paid </font></p>
    </td>
    <td width="12%" height="10">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(22,682) </font> </p>
    </td>
    <td width="12%" height="10">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(12,200) </font> </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <p><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash
        provided by financing activities</font> </p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>781,956 </font></p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>263,122 </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td colspan=3>
      <p><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;</font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <p><font face="Times New Roman, Times, serif" size=2>Effect of exchange
        rate changes on cash and cash equivalents</font> </p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(3,860) </font></p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>(18,276) </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <p><font face="Times New Roman, Times, serif" size=2>Net increase in cash
        and cash equivalents</font> </p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>652,649 </font></p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>1,249,337 </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%">&nbsp;</td>
    <td width="12%">&nbsp;</td>
    <td width="12%">&nbsp;</td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <p><font face="Times New Roman, Times, serif" size=2>Cash and cash equivalents
        at beginning of period</font> </p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>6,833,193 </font> </p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif"
      size=2>5,931,752 </font> </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <p><font face="Times New Roman, Times, serif" size=2>Cash and cash equivalents
        at end of period</font> </p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif" size=2>$ 7,485,842
        </font> </p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif" size=2>$ 7,181,089
        </font> </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td colspan=3>
      <p><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;</font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%"><b>
      <p><font face="Times New Roman, Times, serif" size=2>Supplemental cash flow
        information</font> </p>
      </b></td>
    <td colspan=2>
      <p><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;</font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="72%">
      <p><font face="Times New Roman, Times, serif"
      size=2>&nbsp;&nbsp;&nbsp; Cash paid for interest</font> </p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif" size=2>$ 2,204
        </font></p>
    </td>
    <td width="12%">
      <p align=center><font face="Times New Roman, Times, serif" size=2>$ 1,739
        </font></p>
    </td>
  </tr>
</table>
<p>&nbsp; </p>
<P align=center>
<P align=center>
<P align=center>
<P align=center>
<P align=center>
<P align=center>
<P align=center>
<P align=center>
<P></P>
<font face="Times New Roman, Times, serif" size="3"><BR>
</font>
<P align=center><font face="Times New Roman, Times, serif" size="3">See accompanying
  notes. <BR>
  <BR>
  3 <BR>
  </font>
<P align=center>
<HR width="100%">
<P align=left>
<P align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
  <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><br>
  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, 2005.</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>On January 1, 2006, the Company adopted Financial Accounting Standard SFAS
  123R, "Share-Based Payment," for the fiscal year ended December 31, 2006. 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. Adoption of SFAS had a material impact on the Company's consolidated
  financial position, results of operations and cash flows. See Note 3 for additional
  information regarding the Company's stock-based compensation assumptions and
  expenses, including pro forma disclosures for prior periods. <br>
  <br>
</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">4<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p><b>NOTE 3 - Stock-Based Compensation</b></p>
<p>On January 1, 2006, the Company adopted SFAS 123R for the fiscal year ended
  December 31, 2006. 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 valuation provisions of SFAS 123R apply to new
  grants and to grants that were outstanding as of the effective date. Under SFAS
  123R, the Company uses a binomial lattice valuation model to estimate fair value
  of stock option grants made on or after January 1, 2006. The binomial lattice
  model incorporates estimates for expected volatility, risk-free interest rates,
  employee exercise patterns and post-vesting employment termination behavior,
  and these estimates will affect the calculation of the fair value of the Company's
  stock option grants. The fair value of stock option grants outstanding as of
  the effective date is estimated using the Black-Scholes option pricing model
  used under SFAS 123. The Company adopted the modified prospective recognition
  method and implemented the provisions of SFAS 123R beginning with the first
  quarter of 2006.</p>
<p>At March 31, 2006, options issued to employees for 9,109,995 shares were outstanding,
  of which 6,321,578 were exercisable. The weighted average fair value of the
  individual options issued and outstanding during the three months ended March
  31, 2006 was estimated at $1.74. The fair values were determined using a binomial
  lattice valuation model for options granted during the first quarter of 2006,
  and a Black-Scholes valuation model for options granted prior to the first quarter
  of 2006. Weighted average assumptions for options issued and outstanding during
  the three months ended March 31, 2006 are shown below:<br>
  <br>
</p>
<table cellspacing=1 cellpadding=1 width=700 align=center border=1>
  <tr valign=bottom>
    <td width="44%" height="14"><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font></td>
    <td height="14">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">Three
        Months Ended <br>
        March 31, 2006</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="44%">
      <p><font face="Times New Roman, Times, serif" size="2">Risk-free interest
        rate (%)</font> </p>
    </td>
    <td width="13%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">3.47%
        </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>
  </tr>
  <tr valign=bottom>
    <td width="44%">
      <p><font face="Times New Roman, Times, serif" size="2">Volatility factor</font>
      </p>
    </td>
    <td width="13%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">1.3
        </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">4.9</font>
      </p>
    </td>
  </tr>
</table>
<p><br>
  <br>
  Total stock-based compensation expense recognized in our consolidated statement
  of income for the quarter ended March 31, 2006 is as follows:</p>
<p>&nbsp; </p>
<table cellspacing=1 cellpadding=1 width=700 align=center border=1>
  <tr valign=bottom>
    <td width="44%" height="14"><font face="Times New Roman, Times, serif" size="2"><u>Income
      Statement Classification</u></font></td>
    <td height="14">
      <div align="center"><font face="Times New Roman, Times, serif" size="2"><u>Stock-Based
        Compensation Expense</u></font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="44%"><font face="Times New Roman, Times, serif" size="2">Cost of
      revenue &nbsp;&nbsp; </font></td>
    <td width="13%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 24,396</font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="44%">
      <p><font face="Times New Roman, Times, serif" size="2">Research and development</font>
      </p>
    </td>
    <td width="13%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">94,967
        </font> </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="44%">
      <p><font face="Times New Roman, Times, serif" size="2">Sales and marketing</font>
      </p>
    </td>
    <td width="13%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">133,256</font>
      </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="44%">
      <p><font face="Times New Roman, Times, serif" size="2">General and administrative</font>
      </p>
    </td>
    <td width="13%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">73,194
        </font> </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="44%">
      <p><font face="Times New Roman, Times, serif" size="2">Total </font> </p>
    </td>
    <td width="13%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 325,813</font>
      </p>
    </td>
  </tr>
</table>
<p>&nbsp;</p>
<p>Prior to January 1, 2006 the Company accounted for employee stock options in
  accordance with Accounting Principles Board Opinion No. 25, "Accounting for
  Stock Issued to Employees" (APB 25), and the Company adopted the disclosure-only
  alternative described in Statement of Financial Accounting Standards No. 123,
  "Accounting for Stock-Based Compensation" (SFAS 123). Under APB 25, the Company
  generally did not record compensation expense, because the exercise price of
  the Company's employee stock options equaled 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 was required by SFAS 123, and such
  information has been determined as if the Company had accounted for its employee
  stock options under the fair value method.</p>
<p>&nbsp;</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">5<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p>Had compensation cost for the Company's stock-based compensation plans been
  determined based on the fair value at the grant dates for awards under those
  plans consistent with the method of SFAS 123, the Company's per share results
  for the quarter ended March 31, 2005 would have changed to the pro forma net
  loss amounts indicated below:</p>
<p>&nbsp;</p>
<table cellspacing=1 cellpadding=1 width=712 align=center border=1>
  <tr valign=bottom>
    <td width="41%" height="11"><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></td>
    <td height="11">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">Three
        Months Ended <br>
        March 31, 2005</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="41%">
      <p><font face="Times New Roman, Times, serif" size="2">Net loss applicable
        to common stockholders</font><font size="2">, as reported</font></p>
    </td>
    <td width="14%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ (403,908)</font>
      </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="41%" height="10">
      <p><font face="Times New Roman, Times, serif" size="2">Stock-based employee
        compensation expense determined <br>
        &nbsp;&nbsp; under fair value based method</font> </p>
    </td>
    <td width="14%" height="10">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(1,177,780)
        </font> </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="41%">
      <p><font face="Times New Roman, Times, serif" size="2">Pro forma net loss
        applicable to common stockholders</font> </p>
    </td>
    <td width="14%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ (1,581,688)
        </font> </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="41%">
      <p><font face="Times New Roman, Times, serif" size="2">Basic net loss per
        share, as reported</font></p>
    </td>
    <td width="14%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ (0.01)</font>
      </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="41%">
      <p><font face="Times New Roman, Times, serif" size="2">Diluted net loss
        per share, as reported</font></p>
    </td>
    <td width="14%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ (0.01)
        </font> </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="41%">
      <p><font face="Times New Roman, Times, serif" size="2">Pro forma basic and
        diluted net loss per share</font> </p>
    </td>
    <td width="14%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ (0.05)
        </font> </p>
    </td>
  </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 three
  months ended March 31, 2005 is presented below: </p>
<table cellspacing=1 cellpadding=1 width=700 align=center border=1>
  <tr valign=bottom>
    <td width="44%" height="14"><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font></td>
    <td height="14">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">Three
        Months Ended <br>
        March 31, 2005</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="44%">
      <p><font face="Times New Roman, Times, serif" size="2">Risk-free interest
        rate (%)</font> </p>
    </td>
    <td width="13%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">3.71%
        </font> </p>
    </td>
  </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>
  </tr>
  <tr valign=bottom>
    <td width="44%">
      <p><font face="Times New Roman, Times, serif" size="2">Volatility factor</font>
      </p>
    </td>
    <td width="13%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">1.0
        </font> </p>
    </td>
  </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>
  </tr>
</table>
<p>&nbsp;</p>
<p><b>NOTE 4 - Inventories</b></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>
<p>&nbsp;</p>
<table cellspacing=1 cellpadding=1 width=700 align=center border=1>
  <tr valign=bottom>
    <td width="49%"><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></td>
    <td width="28%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">March
        31,<br>
        2006 </font></p>
    </td>
    <td width="23%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">December
        31, <br>
        2005 </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="49%">
      <p><font face="Times New Roman, Times, serif" size="2">Raw materials and
        sub-assemblies </font></p>
    </td>
    <td width="28%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 1,847,021
        </font></p>
    </td>
    <td width="23%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 1,910,653
        </font> </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="49%" height="21">
      <p><font face="Times New Roman, Times, serif" size="2">Finished goods</font></p>
    </td>
    <td width="28%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">446,884
        </font></p>
    </td>
    <td width="23%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">284,741
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="49%" height="27">
      <p>&nbsp;</p>
    </td>
    <td width="28%" height="27">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 2,293,905
        </font></p>
    </td>
    <td width="23%" height="27">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 2,195,394
        </font></p>
    </td>
  </tr>
</table>
<p>&nbsp;</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">6<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<P><font face="Times New Roman, Times, serif" size="3"><b>NOTE 5 - Bank Financing
  Arrangements</b></font></P>
<p>On March 3, 2006, 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
  3, 2008. 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, up to a maximum of $2,500,000 and $1,500,000, respectively, at
  the lender's index rate based on prime plus 0.5%. The rates in effect at March
  31, 2006 were 8.25% on both the domestic and international lines. At March 31,
  2006, outstanding amounts borrowed under the lines were $1,935,973 and $811,353,
  respectively, which were the approximate amounts available on the lines. These
  amounts outstanding at March 31, 2006 were repaid in April 2006. At December
  31, 2005, outstanding amounts borrowed under the lines were $1,358,984 and $949,787,
  respectively, which were the approximate amounts available on the lines. These
  amounts outstanding at December 31, 2005 were repaid in January 2006. The Company
  used the credit facility only at the end of the first quarter 2006 and the end
  of each quarter in fiscal year 2005. Under the credit agreement, the Company
  must maintain quarterly minimum tangible net worth equal to $5,400,000, plus
  50% of quarterly net profits and 50% of net proceeds from equity and subordinated
  debt financing transactions beginning with the quarter ending March 31, 2006.
  The Company was in compliance with the tangible net worth requirement at March
  31, 2006.</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>NOTE 6 - Series F Convertible
  Preferred Stock Financing</b></font></p>
<p>On March 21, 2003, the Company sold 276,269 units of securities 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 holders
  of Series F Preferred Stock had voting rights equal to the number of shares
  of common stock issuable upon conversion. 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.</p>
<p>Dividends accrued on the Series F Preferred Stock at the rate of 8% per annum
  and were payable quarterly in cash or in common stock, at the option of the
  Company. Dividends for the three months ended March 31, 2006 and 2005 were $10,653
  and $12,200, respectively, which were paid in cash prior to the end of the first
  quarter 2006 and subsequent to the end of the first quarter 2005. </p>
<p>On March 21, 2006 the remaining outstanding shares of Series F Preferred Stock
  automatically converted into common stock, resulting in the issuance of 823,300
  shares of common stock. During the first quarter of 2006, holders elected to
  exercise the remaining outstanding three-year warrants resulting in the issuance
  of 461,022 shares of common stock. During the first quarter of 2005 none of
  the holders of Series F Preferred Stock elected to convert their shares into
  common stock.<br>
  <br>
</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">7<br>
  </font>
<p align=center>
<hr width="100%">
<p><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
</p>
<p align=left><b>NOTE 7 - Intangible Assets</b>
<p align=left>Intangible assets at March 31, 2006 consist of a patent purchased
  in 2004 for $600,000 covering the design and functioning of plug-in bar code
  scanners, bar code imagers and RFID products, which is being amortized on a
  straight line basis over its estimated life of ten years; intangible assets
  of $570,750 remaining from a prior acquisition in 2000 consisting of developed
  software and technology with estimated lives at the time of acquisition of 8.5
  years; and a licensing agreement with a book value of $38,000, which was reclassified
  as an intangible asset at December 31, 2004 and is being amortized over its
  remaining life of three years.
<p>Amortization of all intangible assets in the first quarter of 2006 was $36,043
  compared to $94,913 in the first quarter of 2005. Intangible assets as of March
  31, 2006 consisted of the following:</p>
<table cellspacing=1 cellpadding=1 width=700 align=center border=1>
  <tr valign=bottom>
    <td width="331">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp; </font></p>
    </td>
    <td width="118">
      <p align=center><font face="Times New Roman, Times, serif" size="2">Gross<br>
        Assets </font></p>
    </td>
    <td width="115">
      <div align="center"><font size="2" face="Times New Roman, Times, serif">Accumulated
        Amortization</font></div>
    </td>
    <td width="109">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">Net
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="331">
      <p><font face="Times New Roman, Times, serif" size="2">Patent</font></p>
    </td>
    <td width="118">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 600,000
        </font></p>
    </td>
    <td width="115">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        (105,000) </font></div>
    </td>
    <td width="109">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        495,000 </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">(369,309)
        </font></div>
    </td>
    <td width="109">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">201,441
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="331">
      <p><font face="Times New Roman, Times, serif" size="2">Licensing agreement</font></p>
    </td>
    <td width="118">
      <p align=center><font face="Times New Roman, Times, serif" size="2">114,342
        </font></p>
    </td>
    <td width="115">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">(97,889)
        </font></div>
    </td>
    <td width="109">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">16,453
        </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">$ 1,285,092
        </font></p>
    </td>
    <td width="115">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        (572,198) </font></div>
    </td>
    <td width="109">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        712,894 </font></div>
    </td>
  </tr>
</table>
<P>Based on definite lived intangible assets recorded at March 31, 2006, and assuming
  no subsequent impairment of the underlying assets, the annual amortization expense
  is expected to be as follows:</P>
<table cellspacing=1 cellpadding=1 width=700 align=center border=1>
  <tr valign=bottom>
    <td colspan="3">
      <p align="left"><font face="Times New Roman, Times, serif" size="2">Year
        </font></p>
    </td>
    <td width="374">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">Amount</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td colspan="3">
      <div align="left"><font face="Times New Roman, Times, serif" size="2">2006
        (nine months remaining)</font></div>
    </td>
    <td width="374">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        104,403 </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td colspan="3">
      <div align="left"><font face="Times New Roman, Times, serif" size="2">2007
        </font></div>
    </td>
    <td width="374">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">134,557
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td colspan="3">
      <div align="left"><font face="Times New Roman, Times, serif" size="2">2008
        </font></div>
    </td>
    <td width="374">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">127,147
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td colspan="3">
      <div align="left"><font face="Times New Roman, Times, serif" size="2">2009
        </font></div>
    </td>
    <td width="374">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">76,787
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td colspan="3">
      <div align="left"><font face="Times New Roman, Times, serif" size="2">2010
        </font></div>
    </td>
    <td width="374">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">60,000
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td colspan="3">
      <div align="left"><font face="Times New Roman, Times, serif" size="2">2011
        and beyond </font></div>
    </td>
    <td width="374">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">210,000
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td colspan="3">
      <div align="left"><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;
        </font></div>
    </td>
    <td width="374">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        712,894 </font></div>
    </td>
  </tr>
</table>
<p align=center>&nbsp;
<p align=center><font face="Times New Roman, Times, serif" size="3">8<br>
  </font>
<p align=center>
<hr width="100%">
<p><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
</p>
<p align=left><b>NOTE 8 - Net Loss Per Share Applicable to Common Stockholders</b>
<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 loss
  per share:</p>
<table cellspacing=1 cellpadding=1 width=610 align=center border=1>
  <tr valign=bottom>
    <td width=312><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></td>
    <td colspan=4>
      <p align=center><font face="Times New Roman, Times, serif" size="2">Three
        Months Ended <br>
        March 31,</font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width=312 height="2"><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></td>
    <td colspan=3>
      <div align="center"><font size="2">2006</font></div>
    </td>
    <td width="130">
      <div align="center"><font size="2">2005</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="312">
      <p><font face="Times New Roman, Times, serif" size="2">Numerator: </font></p>
    </td>
    <td colspan=3>
      <div align="center">&nbsp</div>
    </td>
    <td width="130">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">&nbsp
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width=312 height="14">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp&nbsp&nbspNet
        loss</font></p>
    </td>
    <td colspan=3 height="14">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        (369,113) </font><font face="Times New Roman, Times, serif" size="2">
        </font><font face="Times New Roman, Times, serif" size="2"> </font><font face="Times New Roman, Times, serif" size="2">
        </font></div>
    </td>
    <td width="130" height="14">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        (391,708) </font><font face="Times New Roman, Times, serif" size="2"></font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width=312 height="18">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp&nbsp&nbspPreferred
        stock dividends</font></p>
    </td>
    <td colspan=3 height="18">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">(10,653)
        </font><font face="Times New Roman, Times, serif" size="2"> </font></div>
    </td>
    <td width="130" height="18">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">(12,200)
        </font><font face="Times New Roman, Times, serif" size="2"> </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width=312 height="13">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp&nbsp&nbspNet
        loss applicable to common stockholders </font></p>
    </td>
    <td colspan=3 height="13">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        (379,766) </font><font face="Times New Roman, Times, serif" size="2">
        </font></div>
    </td>
    <td width="130" height="13">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        (403,908) </font><font face="Times New Roman, Times, serif" size="2">
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="312" height="4">&nbsp;</td>
    <td colspan=3 height="4">&nbsp;</td>
    <td width="130" height="4">&nbsp;</td>
  </tr>
  <tr valign=bottom>
    <td width="312" height="4">
      <p><font face="Times New Roman, Times, serif" size="2">Denominator: </font></p>
    </td>
    <td colspan=3 height="4">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">&nbsp
        </font></div>
    </td>
    <td width="130" height="4">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">&nbsp
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width=312 height="2" valign="top">
      <p><font face="Times New Roman, Times, serif" size="2">Weighted average
        common shares outstanding used&nbspin <br>
        &nbsp&nbsp&nbspcomputing &nbspnet loss per share </font></p>
    </td>
    <td colspan="3" height="2" valign="bottom">
      <div align="center"> <font face="Times New Roman, Times, serif" size="2">&nbsp
        </font></div>
    </td>
    <td width="130" height="2" valign="bottom">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">&nbsp
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td align=left width=312 height="12">
      <p align="left"><font face="Times New Roman, Times, serif" size="2">&nbsp&nbsp&nbsp&nbsp&nbsp&nbspBasic
        </font></p>
    </td>
    <td colspan="3" height="12">
      <p align=center><font face="Times New Roman, Times, serif" size="2">30,395,495</font><font face="Times New Roman, Times, serif" size="2">
        </font></p>
    </td>
    <td width=130 height="12">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">30,154,992
        </font><font face="Times New Roman, Times, serif" size="2"> </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td align=left width=312>
      <p align="left"><font face="Times New Roman, Times, serif" size="2"> &nbsp&nbsp&nbsp&nbsp&nbsp&nbspDiluted
        </font></p>
    </td>
    <td colspan="3">
      <p align=center><font face="Times New Roman, Times, serif" size="2">30,395,495
        </font></p>
    </td>
    <td width=130>
      <div align="center"><font face="Times New Roman, Times, serif" size="2">30,154,992
        </font><font face="Times New Roman, Times, serif" size="2"> </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td align=left width=312>
      <p align="left"><font face="Times New Roman, Times, serif" size="2">Basic
        net loss per share</font></p>
    </td>
    <td colspan="3">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ (0.01)
        </font></p>
    </td>
    <td width=130>
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        (0.01) </font><font face="Times New Roman, Times, serif" size="2"> </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td align=left width=312>
      <p align="left"><font face="Times New Roman, Times, serif" size="2">Diluted
        net loss per share </font></p>
    </td>
    <td colspan="3">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ (0.01)
        </font></p>
    </td>
    <td width=130>
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        (0.01) </font> <font face="Times New Roman, Times, serif" size="2"> </font></div>
    </td>
  </tr>
</table>
<p>&nbsp;</p>
<p>For the quarters ended March 31, 2006 and 2005, the diluted net loss per share
  is equivalent to the basic net loss per share, because the Company experienced
  losses in these periods and thus no potential common shares underlying stock
  options, warrants, or convertible preferred stock have been included in the
  net loss per share calculation as their effect is anti-dilutive. Options and
  warrants to purchase 10,348,707 and 9,624,791 shares of common stock at March
  31, 2006 and 2005, respectively, have been omitted from the net loss per share
  calculation as their effect is anti-dilutive.</p>
<p><b>NOTE 9 - Income Taxes</b></p>
<p>There were no provisions for income taxes for the quarter ended March 31, 2006
  due to the net losses incurred for the quarter. The Company was not profitable
  in fiscal 2005, was profitable in 2004, and was not profitable in 2003 and all
  prior periods. The Company has maintained a full valuation allowance for all
  deferred tax assets.</p>
<p>&nbsp;</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">9<br>
  </font>
<p align=center>
<hr width="100%">
<p><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
</p>
<P><b>NOTE 10 - Segment Information</b></P>
<p>The Company operates in one segment, data collection and connection solutions
  for mobile electronic devices. The Company markets its products in the United
  States and foreign countries through its sales personnel and distributors. Information
  regarding geographic areas for the three months ended March 31, 2006 and 2005
  are as follows:</p>
<CENTER>
  <TABLE cellSpacing=1 cellPadding=1 width=703 align=center border=1>
    <TR vAlign=bottom>
      <TD width=378 height="22"><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></TD>
      <TD colSpan=2 height="22">
        <P align=center><font face="Times New Roman, Times, serif" size="2">Three
          Months Ended March 31,</font></P>
      </TD>
    </TR>
    <TR vAlign=bottom>
      <TD width=378>
        <P><font face="Times New Roman, Times, serif" size="2">Revenues: </font></P>
      </TD>
      <TD width=160>
        <P align=center><font face="Times New Roman, Times, serif" size="2">2006
          </font></P>
      </TD>
      <td width=160>
        <p align=center><font face="Times New Roman, Times, serif" size="2">2005
          </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">$
          4,740,123 </font></P>
      </TD>
      <td width=160>
        <p align=center><font face="Times New Roman, Times, serif" size="2">$
          4,035,542 </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">1,384,323
          </font></P>
      </TD>
      <td width=160>
        <p align=center><font face="Times New Roman, Times, serif" size="2">1,365,479
          </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">634,245
          </font></P>
      </TD>
      <td width=160>
        <p align=center><font face="Times New Roman, Times, serif" size="2">581,175
          </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">$
          6,758,691 </font></P>
      </TD>
      <td width=160>
        <p align=center><font face="Times New Roman, Times, serif" size="2">$
          5,982,196 </font></p>
      </td>
    </TR>
  </TABLE>
</CENTER>
<P></P>
<P><font face="Times New Roman, Times, serif" size="3"><BR>
  Export revenues are attributable to countries based on the location of the Company's
  customers. The Company does not hold long-lived assets in foreign locations.</font></P>
<p>Major customers who accounted for at least 10% of the Company's total revenues
  were as follows:</p>
<P align=center>
<CENTER>
  <TABLE cellSpacing=1 cellPadding=1 width=700 align=center border=1>
    <TR vAlign=bottom>
      <TD width="32%" height=16><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></TD>
      <TD colSpan=2 height=16>
        <P align=center><font face="Times New Roman, Times, serif" size="2">Three
          Months Ended March 31, </font></P>
      </TD>
    </TR>
    <TR vAlign=bottom>
      <TD width="32%"><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></TD>
      <TD width="16%">
        <P align=center><font face="Times New Roman, Times, serif" size="2">2006
          </font></P>
      </TD>
      <td width="16%">
        <p align=center><font face="Times New Roman, Times, serif" size="2">2005
          </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">27%
          </font></p>
      </td>
      <td width="16%" height=23>
        <p align=center><font face="Times New Roman, Times, serif" size="2">30%
          </font></p>
      </td>
    </tr>
    <tr valign=bottom>
      <td width="32%" height=23>
        <p><font face="Times New Roman, Times, serif" size="2">Ingram Micro </font></p>
      </td>
      <td width="16%" height=23>
        <p align=center><font face="Times New Roman, Times, serif" size="2">14%
          </font></p>
      </td>
      <td width="16%" height=23>
        <p align=center><font face="Times New Roman, Times, serif" size="2">12%
          </font></p>
      </td>
    </tr>
  </TABLE>
</CENTER>
<P></P>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">10<br>
  </font>
<p align=center>
<hr width="100%">
<p><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 third-party
  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 relationships to benefit our business
  as expected, our ability to enter into additional distribution relationships,
  or other factors described in this Form 10-Q including "Item 1A. Risk Factors"
  and recent 8-K and 10-K reports filed with the Securities and Exchange Commission.
  We assume no obligation to update such forward-looking statements or to update
  the reasons why actual results could differ materially from those anticipated
  in such forward-looking statements.</i></font></p>
<p><font face="Times New Roman, Times, serif" size="3"><i>You should read the
  following discussion in conjunction with the interim condensed consolidated
  financial statements and notes included elsewhere in this report, the Company's
  annual financial statements in the 10-K, and other information contained in
  other reports and documents filed from time to time with the Securities and
  Exchange Commission.</i></font></p>
<p><font face="Times New Roman, Times, serif" size="3"><b>Revenue<br>
  </b></font><br>
  We design, manufacture and sell data collection and connectivity products for
  use with mobile electronic devices, including handheld computers, tablet computers,
  notebook computers, and smartphones. We sell embedded products that are designed
  to be embedded within third-party mobile electronic devices, and we also design,
  manufacture and sell serial products that connect mobile electronic devices
  to peripheral and other electronic devices. Total revenues for the first quarter
  of 2006 were $6.8 million, an increase of 13% over revenue of $6.0 million in
  the first quarter of 2005.<br>
  <br>
</p>
<p align="center"><font face="Times New Roman, Times, serif" size="3">11<br>
  </font> </p>
<p align=center>
<hr width="100%">
<p>Our products may be classified into four broad product families:</p>
<ul>
  <li>Our <i>data collection products</i> consist of: 1) bar code scanning products
    that plug into or connect wirelessly to handheld computers, tablet computers,
    notebook computers and smartphones and turn these devices into portable bar
    code scanners that can be used in various retail and industrial workplaces;
    2) Radio Frequency Identification (RFID) plug-in products that read RFID tags;
    3) a combination plug-in bar code scanner and RFID reader; and 4) a plug-in
    magnetic stripe reader. We have developed extensive bar code scanning 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 and two-dimensional bar code
    scanning, a stand alone hand bar code scanner that connects using the Bluetooth
    standard for short-range wireless connectivity, and a ring scanner using Bluetooth
    wireless technology. Data collection products represented approximately 37
    percent of our revenue for the quarter ended March 31, 2006.</li>
</ul>
<ul>
  <li><font face="Times New Roman, Times, serif" size="3"> Our <i>connectivity
    products</i> are connection devices that can be plugged into standard expansion
    slots in handheld computers, tablet computers, notebook computers and smartphones
    or connect to these devices over wireless and wired connections. These products
    allow users to connect their devices to the Internet via mobile or wired phone
    services, or to private networks, or to communicate with other electronic
    devices such as desktop computers, other handheld, tablet and notebook computers,
    smartphones and printers. Wireless connection products include plug-in cards
    using the Bluetooth standard for short-range wireless connectivity, and plug-in
    cards for connecting to local wireless networks using the Wireless LAN 802.11b/g
    (or Wi-Fi) standards along with extensive communications software enabling
    the use of these products. Cable connection products include modems for telephone
    connections and Ethernet cards for local area network connections. Our Bluetooth
    technology products are of two types, those that add Bluetooth technology
    to mobile devices, and those that work with devices that are Bluetooth-enabled.
    Those that add Bluetooth technology include our CompactFlash and SDIO Bluetooth
    plug-in cards, our Bluetooth embedded modules, and our Bluetooth USB adapter
    for Windows notebooks and desktops. Bluetooth and wireless LAN connection
    functions are built into many mobile devices which may reduce the demand for
    these categories of plug-in products. Our cordless modem connectivity product
    utilizes Bluetooth wireless technology as a connection mechanism to work with
    other Bluetooth-enabled products. Connectivity products represented approximately
    30 percent of our revenue for the quarter ended March 31, 2006.<br>
    </font><font face="Times New Roman, Times, serif" size="3"><br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3"><i>Our OEM embedded
    products and services</i> consist of Bluetooth cards and modules, WLAN cards,
    interface chips, and engineering design services to install these products.
    Our Bluetooth cards and modules, and WLAN cards, allow manufacturers of handheld
    computers and other devices to build wireless connection functions into their
    products using the Bluetooth and WLAN standards for 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.
    We are developing modules using Wireless LAN standards for wireless connectivity
    that are expected to begin shipping in the second half of 2006. Embedded products
    and services represented approximately 22 percent of our revenue for the quarter
    ended March 31, 2006.<br>
    </font><br>
    <p align="center"><font face="Times New Roman, Times, serif" size="3">12<br>
      </font> </p>
    <p align=center>
  </li>
</ul>
<hr width="100%">
<p><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
</p>
<ul>
  <li>Our <i>serial products</i> add connection ports to a notebook, tablet or
    handheld computer that allow users to connect these portable computers to
    standard peripherals or to other electronic devices with serial connections
    over cables or using Bluetooth wireless technology for short-range wireless
    connectivity. Serial products represented approximately 11 percent of our
    revenue for the quarter ended March 31, 2006.<br>
  </li>
</ul>
<p align="left">Our data collection product revenues in the first quarter of 2006
  were $2.5 million, an increase of 17% compared to revenues of $2.1 million in
  the first quarter of 2005. Revenue increases totaling $0.4 million were due
  to increases in sales of our In-Hand Scan card, our In-Hand Scan Imager card,
  our Cordless Hand Scanner, and sales of our Cordless Ring Scanner which began
  shipping in the fourth quarter of 2005. Partially offsetting these increases
  were declines in sales of our SDIO In-Hand Scan card. The introduction of an
  operating system upgrade, Windows Mobile 5.0, announced in September 2005 by
  the major PDA manufacturers, continued to slow sales in the first quarter, and
  may continue to slow customer deployment of our data collection products through
  the second quarter of 2006, until third party applications are modified and
  tested with the new operating system. In addition, transition to lead-free products
  to comply with the Reduction of Hazardous Substances (RoHS) rules being implemented
  in Europe and around the world limited the availability of units by the major
  PDA manufacturers in the first quarter of 2006. Our scanning products are sold
  both through general distribution and through value added resellers who contract
  with customers to provide scanning solutions. Our products are becoming more
  widely adopted by the value added reseller community for lightweight portable
  scanning.</p>
<p>Our connectivity product revenues in the first quarter of 2006 were $2.0 million,
  a decline of 5% compared to revenues of $2.1 million in the first quarter of
  2005. Revenue declines of $0.2 million in sales of our Cordless GPS receiver
  with navigation kit, and slight declines in sales of our Ethernet plug-in products
  and Modem plug-in products, were partially offset by increases in sales of our
  Bluetooth plug-in products. The introduction of an operating system upgrade,
  Windows Mobile 5.0, announced in September 2005 by the major PDA manufacturers,
  continued to slow sales in the first quarter, and may continue to slow customer
  deployment of our connectivity products through at least the second quarter
  of 2006 until third party applications are tested with the new operating system.
  In addition, transition to lead-free products to comply with the RoHS rules
  being implemented in Europe and around the world limited the availability of
  units by the major PDA manufacturers in the first quarter of 2006.</p>
<p>Our OEM embedded products and services revenues in the first quarter of 2006
  were $1.5 million, an increase of 74% compared to $0.9 million in the first
  quarter of 2005. Revenue growth of $0.7 million in sales of our Bluetooth modules
  was due to increased manufacturing volumes of industrial ruggedized PDA's by
  our customers, partially offset by declines in sales of our proprietary ASIC
  chip due to customers choosing higher speed alternative ASIC solutions beginning
  in the latter half of 2005. We expect continued reduced levels of chip sales
  for 2006 due to limited marketability of this ASIC solution.</p>
<p>Our serial product revenues in the first quarter of 2006 were $0.7 million,
  a decline of 13% compared to revenues of $0.9 million in the first quarter of
  2005. Revenue declines of $0.2 million were from sales of our standard serial
  PC Card products. Sales of our cordless Bluetooth serial adapter were flat in
  the comparable periods. Standard peripheral connection cards are primarily sold
  to connect peripheral devices or other electronic equipment to notebook computers.</p>
<p>&nbsp;</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">13<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p><font face="Times New Roman, Times, serif" size="3"><b>Gross Margins</b></font></p>
<p>Our gross margins for the first quarter of 2006 were 50% compared to 51% for
  the first quarter of 2005, primarily reflecting higher accruals for inventory
  reserves in the first quarter of 2006 compared to the first quarter of 2005.
  Higher reserves in the first quarter 2006 reflect excess non-RoHS compliant
  inventories estimated at the end of the first quarter 2006. We generally price
  our products as a markup from our cost, and we offer discount pricing for higher
  volume purchases.</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>Research and Development
  Expense</b></font></p>
<p>Research and development expense in the first quarter of 2006 was $1.1 million,
  an increase of 28% compared to $0.9 million in the first quarter of 2005. Increases
  in personnel costs related primarily to stock-based compensation expense of
  $0.1 million recognized in the first quarter of 2006 resulting from the adoption
  and implementation of SFAS 123R beginning January 1, 2006. Additional increases
  were from increased outside services, consulting and professional fees reflecting
  increased development activities. Expenses are expected to increase in the second
  quarter of 2006.</p>
<p align=left><b>Sales and Marketing Expense</b>
<p>Sales and marketing expense for the first quarter of 2006 was $1.8 million,
  an increase of 8% compared to $1.6 million in the first quarter of 2005. Overall
  increases were related to stock-based compensation expense of $0.1 million recognized
  in the first quarter of 2006 resulting from the adoption and implementation
  of SFAS 123R beginning January 1, 2006. Personnel and advertising and promotion
  expenses also increased reflecting higher sales levels, offset by decreases
  in outside services and reduced travel expenses. Expenses are expected to increase
  in the second quarter of 2006.</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>General and Administrative
  Expense</b></font></p>
<p>General and administrative expense for the first quarter of 2006 was $0.8 million,
  an increase of 1% compared to the first quarter of 2005. Increases of $0.1 million
  in personnel costs were from stock-based compensation expense recognized in
  the first quarter of 2006 resulting from the adoption and implementation of
  SFAS 123R beginning January 1, 2006. Partially offsetting these increases were
  reduced professional fees related to Sarbanes-Oxley startup compliance requirements
  in 2005. Expenses are expected to decline in the second quarter of 2006 from
  first quarter levels due to lower professional fees related to costs of our
  annual audit historically charged over the fourth and first quarters.</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>Amortization of Intangibles</b></font></p>
<p>In July 2004 we acquired a patent which 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. Intangible
  assets of $570,750 remaining from a prior acquisition in 2000 consist of developed
  software and technology with estimated lives at the time of acquisition of 8.5
  years. At December 31, 2004, a licensing agreement with a book value of $38,000
  was reclassified as an intangible asset and is being amortized over its remaining
  life of three years. During the first quarter of 2002, we acquired intangible
  assets in conjunction with the acquisition of Nokia's CompactFlash Bluetooth
  Card business and related product line technology valued at $980,000. 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. Amortization charges for the first quarter of 2006 for
  all acquired intangibles were $36,000 compared to $92,000 for the first quarter
  2005. The lower amortization charges in 2006 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">14<br>
  </font>
<p align=center>
<hr width="100%">
<p><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>Interest Income and
  Expense</b></font></p>
<p>Interest income reflects interest earned on cash balances. Interest income
  of $36,700 in the first quarter of 2006 as compared to interest income of $13,500
  in the first quarter of 2005, reflects higher average levels of cash on hand
  combined with higher rates of return compared to the first quarter of 2005.</p>
<p>Interest expense in the first quarter of 2006 of $2,200 compares to interest
  expense of $1,700 in the first quarter of 2005. Interest expense is related
  to interest on equipment lease financing obligations and interest on amounts
  drawn on our bank lines of credit. We used our bank lines of credit only at
  the end of the first quarter 2006 and the end of each quarter in 2005.</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>Preferred Stock Dividends</b></font></p>
<p>Preferred stock dividends in the first quarter of 2006 reflect dividends of
  $10,700 accrued at the rate of 8% per annum on Series F Preferred Stock issued
  in March 2003. Dividends on the Series F Preferred Stock in the first quarter
  of 2005 were $12,200. Dividends were paid in cash prior to the end of the first
  quarter 2006 and subsequent to the quarter end in each of the quarters in 2005.
  On March 21, 2006 the outstanding shares of Series F Preferred Stock automatically
  converted into common stock resulting in the issuance of 823,300 shares of common
  stock.</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>Income Taxes</b></font></p>
<p>There were no provisions for income taxes for the first quarter of 2006 due
  to the net losses incurred for the quarter. We were not profitable in fiscal
  2005, were profitable in 2004, and were not profitable in 2003 and all prior
  periods. We've maintained a full valuation allowance for all deferred tax assets.</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>Liquidity and Capital
  Resources</b></font></p>
<p>Our operating results were negatively impacted by the adoption of SFAS 123R
  in the first quarter of 2006. We were profitable in two of the quarters in fiscal
  2005, but unprofitable for fiscal year 2005. Historically we have financed our
  operations through the sale of equity securities, equipment financing, and revolving
  bank lines of credit. Since our inception we have raised approximately $51 million
  in equity capital. Prior to the first quarter of 2004, we incurred significant
  quarterly and annual operating losses in every fiscal period. We may continue
  to be unprofitable in the future.</p>
<p>Cash provided by operating activities was $0.1 million in the first quarter
  of 2006 compared to $1.1 million in the first quarter of 2005. Cash provided
  in the first quarter of 2006 from our net loss adjusted for non-cash items was
  $0.1 million compared to cash used of $0.2 million in the first quarter of 2005
  from our net income adjusted for non-cash items. Adjustments for non-cash items,
  including depreciation and amortization, amortization of intangibles, gains
  and losses on foreign currency forward exchange contracts, changes in deferred
  rent, and, beginning in the first quarter of 2006, stock-based compensation,
  totaled $0.5 million in the first quarter of 2006 and $0.2 million in the first
  quarter of 2005. Changes in working capital balances in the first quarter of
  2006 resulted in a source of cash of $27,000, and were primarily from increases
  in payables due to increased overall expense levels and inventory purchases,
  and increases in accrued payroll, partially offset by increases in receivables
  due to the timing of shipments in the latter month of the quarter, increases
  in inventory to meet higher levels of shipments, and decreases in deferred revenue
  on shipments to distributors. Changes in working capital balances in the first
  quarter of 2005 resulted in a source of cash of $1.3 million, and were primarily
  from increases in deferred revenue on shipments to distributors and payables,
  and decreases in levels of inventories. </p>
<p>&nbsp;</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">15<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<P>Cash used in investing activities was $266,000 in the first quarter of 2006
  as compared to $118,000 in the first quarter of 2005. Investing activities in
  both 2006 and 2005 primarily reflect the cost of new computer hardware and software,
  and tooling costs.</P>
<P>Cash provided by financing activities was $0.8 million in the first quarter
  of 2006 as compared to $0.3 million during the first quarter of 2005. Financing
  activities in the first quarter of 2006 consisted primarily of a net increase
  in the amounts drawn on our bank lines of credit, proceeds from the exercise
  of Series F warrants and the exercise of stock options, partially offset by
  the final dividend payments on Series F Preferred Stock. Financing activities
  in the first quarter of 2005 consisted primarily of a net increase in the amounts
  drawn on our bank lines of credit and proceeds from the exercise of stock options,
  partially offset by the payment of cash dividends and payments on capital leases.</P>
<p>Our cash balances at March 31, 2006 were $7.5 million, including cash of $2.8
  million drawn against our bank line of credit. In March 2006, we extended our
  bank line of credit agreement which will now expire on March 3, 2008. 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
  our bank line will be sufficient to meet our funding requirements at least through
  March 31, 2007. If we can return to profitability and 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 salaries, benefits, and related support costs for employees.
  If we cannot return to 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=center><font face="Times New Roman, Times, serif" size="3">16<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p>Our contractual cash obligations at March 31, 2006 are outlined in the table
  below:</p>
<table cellspacing=1 cellpadding=1 width=662 align=center border=1>
  <tr>
    <td width=226>
      <div align=center><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></div>
    </td>
    <td colspan=5>
      <div align=center><font face="Times New Roman, Times, serif" size="2">Payments
        Due by Period</font></div>
    </td>
  </tr>
  <tr>
    <td width=226>
      <div align=center><font face="Times New Roman, Times, serif" size="2">Contractual
        Obligations</font></div>
    </td>
    <td valign=bottom align=middle width=80>
      <div align=center><font face="Times New Roman, Times, serif" size="2">Total
        </font></div>
    </td>
    <td valign=bottom align=middle width=84>
      <div align=center><font face="Times New Roman, Times, serif" size="2">Less
        than <br>
        1 year</font></div>
    </td>
    <td valign=bottom align=middle width=72>
      <div align=center><font face="Times New Roman, Times, serif" size="2">1
        to 3 <br>
        years</font></div>
    </td>
    <td valign=bottom align=middle width=71>
      <div align=center><font face="Times New Roman, Times, serif" size="2">4
        to 5 <br>
        years</font></div>
    </td>
    <td valign=bottom align=middle width=90>
      <div align="center"><font face="Times New Roman, Times, serif" size="2">More
        than<br>
        5 years</font></div>
    </td>
  </tr>
  <tr>
    <td width=226><font face="Times New Roman, Times, serif" size="2">Capital
      leases </font></td>
    <td valign=bottom align=middle width=80>
      <div align=center><font face="Times New Roman, Times, serif" size="2">$
        15,600 </font></div>
    </td>
    <td valign=bottom align=middle width=84>
      <div align=center><font face="Times New Roman, Times, serif" size="2">$
        9,700 </font></div>
    </td>
    <td valign=bottom align=middle width=72>
      <div align=center><font face="Times New Roman, Times, serif" size="2">$
        5,900 </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">331,700
        </font></div>
    </td>
    <td valign=bottom align=middle width=84>
      <div align=center><font face="Times New Roman, Times, serif" size="2">331,700
        </font></div>
    </td>
    <td valign=bottom align=middle width=71>
      <div align=center><font face="Times New Roman, Times, serif" size="2">--
        </font></div>
    </td>
    <td valign=bottom align=middle width=71>
      <div align=center><font face="Times New Roman, Times, serif" size="2">--
        </font></div>
    </td>
    <td valign=bottom align=middle width=90>
      <div align="center"><font face="Times New Roman, Times, serif" size="2">
        -- </font></div>
    </td>
  </tr>
  <tr>
    <td align=left width=226><font face="Times New Roman, Times, serif" size="2">Unconditional
      purchase obligations with </font><font face="Times New Roman, Times, serif" size="2">contract
      manufacturers</font></td>
    <td valign=bottom align=middle width=80>
      <div align=center><font face="Times New Roman, Times, serif" size="2">1,232,900
        </font></div>
    </td>
    <td valign=bottom align=middle width=84>
      <div align=center><font face="Times New Roman, Times, serif" size="2">1,232,900
        </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">$
        1,580,200 </font></div>
    </td>
    <td valign=bottom align=middle width=84>
      <div align=center><font face="Times New Roman, Times, serif" size="2">$
        1,574,300 </font></div>
    </td>
    <td valign=bottom align=middle width=72>
      <div align=center><font face="Times New Roman, Times, serif" size="2">$
        5,900 </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><font face="Times New Roman, Times, serif" size="3"><b>Off-Balance Sheet Arrangements</b></font></p>
<p>We have no off-balance sheet arrangements as defined in Item 303 of Regulation
  S-K.</p>
<P><b>Stock Based Compensation</b></P>
<P>On January 1, 2006, we adopted SFAS 123R for the fiscal year ended December
  31, 2006. 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 valuation provisions of SFAS 123R apply to new
  grants and to grants that were outstanding as of the effective date. Under SFAS
  123R, we use a binomial lattice valuation model to estimate fair value of stock
  option grants made on or after January 1, 2006. The binomial lattice model incorporates
  estimates for expected volatility, risk-free interest rates, employee exercise
  patterns and post-vesting employment termination behavior, and these estimates
  will affect the calculation of the fair value of our stock option grants. The
  fair value of stock option grants outstanding as of the effective date is estimated
  using the Black-Scholes option pricing model used under SFAS 123. We adopted
  the modified prospective recognition method and implemented the provisions of
  SFAS 123R beginning with the first quarter of 2006. </P>
<P>Adoption of SFAS 123R resulted in stock-based compensation expense of $326,000
  in the first quarter of 2006, and had a material impact on our consolidated
  financial position, results of operations and cash flows. We expect that the
  adoption of FAS 123R will continue to have a material impact on our reported
  results in future quarters. See Note 3 for additional information regarding
  our stock-based compensation assumptions and expenses, including pro forma disclosures
  for prior periods.</P>
<P>&nbsp;</P>
<p align=center><font face="Times New Roman, Times, serif" size="3">17<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
  <font face="Times New Roman, Times, serif" size="3"><a
name=qqd></a></font>
<p align=left><b>Item 3. Quantitative and Qualitative Disclosures About Market
  Risk</b>
<p align=left><b>Interest Rate Risk</b>
<p align=left>Our exposure to market risk for changes in interest rates relates
  primarily to invested cash. Our cash is invested in short-term money market
  investments backed by U.S. Treasury notes and other investments that mature
  within one year and whose principal is not subject to market rate fluctuations.
  Accordingly, interest rate declines would adversely affect our interest income
  but would not affect the carrying value of our cash investments. Based on a
  sensitivity analysis of our cash investments during the quarter ended March
  31, 2006, a decline of 1% in interest rates would reduce our quarterly interest
  income by approximately $12,000.
<p align=left>Our bank credit line facilities of up to $4.0 million have variable
  interest rates based upon the lender's index rate plus 0.5% for both the domestic
  line (up to $2.5 million) and the international line (up to $1.5 million). Accordingly,
  interest rate increases would increase our interest expense on outstanding credit
  line balances. We utilized our credit line facility only at the end of the quarter
  in the first quarter of 2006 and the end of each quarter in 2005, 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 align=left><b>Foreign Currency Risk</b>
<p align=left>A substantial majority of our revenue, expense and purchasing activities
  are transacted in U.S. dollars. However, we require our European distributors
  to purchase our products in Euros, we pay the expenses of our European subsidiary
  in Euros, and we expect to enter into selected future purchase commitments with
  foreign suppliers that may be paid in the local currency of the supplier. To
  date these balances have been small, and we have not been subject to significant
  losses from material foreign currency fluctuations. Based on a sensitivity analysis
  of our net foreign currency denominated assets and subsidiary expenses at the
  beginning, during and at the end of the quarter ended March 31, 2006, an adverse
  change of 10% in exchange rates would result in a decrease in our net income
  for the first quarter of approximately $53,000, if left unprotected. For the
  first quarter of 2006 the total net adjustment for the effects of changes in
  foreign currency on cash balances, collections, payables, and derivatives was
  a net gain of $3,000. We hedge a significant 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 align=left>&nbsp;
<p align=center><font face="Times New Roman, Times, serif" size="3">18<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
  <font face="Times New Roman, Times, serif" size="3"><a
name=item4></a></font>
<p align=left><b>Item 4. Controls and Procedures</b>
<p align=left>(a) Evaluation of disclosure controls and procedures
<p align=left>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 align=left>(b) Changes in internal control over financial reporting
<p align=left>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 align=left>&nbsp;
<p align=left>&nbsp;
<p align=center><font face="Times New Roman, Times, serif" size="3">19<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font><font face="Times New Roman, Times, serif" size="3"><a
name=oth></a></font> <font face="Times New Roman, Times, serif" size="3"><a
name=risk></a></font>
<p align=left><b>PART II. OTHER INFORMATION </b>
<p><b>Item 1A. Risk Factors </b></p>
<p align=left>There are no material changes to the risk factors described in Part
  I, "Item 1A. Risk Factors," in our Annual Report on Form 10-K for the fiscal
  year ended December 31, 2005. The risk factor below titled, "<i>Failure to maintain
  effective internal controls could have a material adverse effect on our business,
  operating results and stock price</i>," has been updated to reflect that under
  our current status as a non-accelerated filer, the requirement under Section
  404 of the Sarbanes-Oxley Act that our Independent Registered Public Accounting
  Firm issue a report on the annual assessment by management of the design and
  effectiveness of internal controls over financial reporting, is no longer in
  effect, and therefore the reference has been deleted. The presentation of numerical
  amounts and percentages in the following risk factors below titled: <i>"A significant
  portion of our revenue currently comes from two distributors, and any decrease
  in revenue from these distributors could harm our business;" "Our operating
  results could be harmed by economic, political, regulatory and other risks associated
  with export sales;" "The sale of a substantial number of shares of Common Stock
  could cause the market price of our Common Stock to decline;" and "Volatility
  in the trading price of our Common Stock could negatively impact the price of
  our Common Stock,"</i> have been updated to reflect first quarter 2006 information.
<p align=left>The risks described in our Annual Report on Form 10-K and updated
  in this Report on Form 10-Q, are not the only risks facing our Company. Additional
  risks and uncertainties not currently known to us or that we currently deem
  to be immaterial also may materially adversely affect our business, financial
  condition, and operating results.
<p align=left><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>We were unprofitable in the first quarter of 2006. We were profitable in two
  quarters in 2005, but unprofitable for fiscal year 2005. Fiscal year 2004 was
  our first profitable year in our history, but only to the extent of $288,000.
  Prior to 2004 we have incurred significant operating losses in each financial
  period since our inception. To achieve ongoing profitability, we must accomplish
  numerous objectives, including growth in our business and the development of
  successful new products. We cannot foresee with any certainty whether we will
  be able to achieve these objectives in the future. Accordingly, we may not generate
  sufficient net revenue to achieve ongoing profitability. If we cannot achieve
  ongoing profitability, we will not be able to support our operations from positive
  cash flows, and we would use our existing cash to support operating losses.
  If we are unable to secure the necessary capital to replace that cash, we may
  need to suspend some or all of our current operations.</p>
<p><b>We may require additional capital in the future, but that capital may not
  be available on reasonable terms, if at all, or on terms that would not cause
  substantial dilution to your stock holdings.</b></p>
<p>Although we do not anticipate the need to raise additional capital during the
  next twelve months to fund our operations, we may incur operating losses in
  future quarters and may need to raise capital to fund these losses. Our forecasts
  are highly dependent on factors beyond our control, including market acceptance
  of our products and sales of handheld computers. If capital requirements vary
  materially from those currently planned, we may require additional capital sooner
  than expected. </p>
<p>&nbsp;</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">20<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font><font face="Times New Roman, Times, serif" size="3"></font>
<p>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><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-mobile 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-mobile
  devices or Palm devices on schedule, or experience difficulties with new product
  transitions that cause delays in the market as we experienced in 2005 and the
  first quarter of 2006, 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><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>enhance our products by adding additional features; <font face="Times New Roman, Times, serif" size="3"><br>
    </font></li>
  <li>invest significant resources in research and development, sales and marketing,
    and customer support;<font face="Times New Roman, Times, serif" size="3"><br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">maintain superior or
    competitive performance in our products; and<br>
    </font></li>
  <li>anticipate our end users' needs and technological trends accurately. </li>
</ul>
<p>We cannot be sure that we will have sufficient resources to make adequate investments
  in research and development or that we will be able to identify trends or make
  the technological advances necessary to be competitive.</p>
<p>&nbsp;</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">21<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font><font face="Times New Roman, Times, serif" size="3"></font>
<p><b>In the first quarter of 2006 we began to expense options granted under our
  employee stock plans as compensation, and as a result our net income and earnings
  per share were negatively affected, we may continue to have net losses as a
  result of the requirement to expense options, and may find it necessary to change
  our business practices to attract and retain employees.</b></p>
<p>Historically, we have used stock options as a key component of our employee
  compensation packages. We believe that stock options provide an incentive to
  our employees to maximize long-term stockholder value and, through the use of
  vesting, encourage valued employees to remain with us. The expensing of employee
  stock options has adversely affected our net income and earnings per share in
  the first quarter of 2006, will continue to adversely affect future quarters,
  and will make profitability harder to achieve or make our net losses worse.
  In addition, we may decide in response to the effects of expensing stock options
  on our operating results to reduce the number of stock options granted to employees
  or to grant options to fewer employees. This could adversely affect our ability
  to retain existing employees and attract qualified candidates, and also could
  increase the cash compensation we would have to pay to them.</p>
<p align=left><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><font face="Times New Roman, Times, serif" size="3">A significant portion of
  our revenue comes from two distributors, Tech Data Corp. and Ingram Micro, Inc.,
  which together represented approximately 41 and 42 percent of our worldwide
  revenue in the first quarter of 2006 and fiscal year 2005, 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 would experience disruption and
  delays in marketing our products. </font></p>
<p><b>If the market for mobile computers fails to grow, we will 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 or operating system changeovers by mobile computer manufacturers
  and partners cause delays in the market, as we experienced in 2005 and in the
  first quarter of 2006, we will not achieve our sales projections.</p>
<p><b>Our sales will be hurt if the new technologies used in our products do not
  become widely adopted, or are adopted slower than expected.</b></p>
<p>Many of our products use new technologies, such as 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>&nbsp;</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">22<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p align=left><b>We could face increased competition in the future, which would
  adversely affect our financial performance.</b>
<p align=left>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:
<ul>
  <li>Some of our competitors have greater financial, marketing, and technical
    resources than we do;</li>
  <li>We periodically face intense price competition, particularly when our competitors
    have excess inventories and discount their prices to clear their inventories;
    and </li>
  <li>Certain original equipment manufacturers of personal computers, mobile phones
    and handheld computers offer built-in functions, such as Bluetooth wireless
    technology, Wi-Fi, or bar code scanning, that compete with our products.</li>
</ul>
<p>Increased competition could result in price reductions, fewer customer orders,
  reduced margins, and loss of market share. Our failure to compete successfully
  against current or future competitors could harm our business, operating results
  and financial condition. </p>
<p><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>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 minimum purchase
  commitments, each of which may lower our operating results.</p>
<p><b>We rely primarily on distributors, resellers, 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></p>
<p>Because we sell our products primarily through distributors, resellers, 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.<br>
  <br>
</p>
<p align=left>&nbsp;
<p align=center><font face="Times New Roman, Times, serif" size="3">23<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p align=left>Our agreements with distributors, resellers, and original equipment
  manufacturers are generally nonexclusive and may be terminated on short notice
  by them without cause. Our distributors, resellers, 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 sales channels. We cannot predict whether we will be successful
  in establishing new distribution relationships, expanding our sales channels
  or maintaining our existing relationships. A failure to enter into new distribution
  relationships or to expand our sales channels could adversely impact our ability
  to grow our sales.
<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 align=left><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>
<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 align=left>We have devoted significant research and development resources to
  design activities for Windows-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
  is 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 align=left>&nbsp;
<p align=center><font face="Times New Roman, Times, serif" size="3">24<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p align=left><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>Our business depends on our ability to protect our intellectual property. We
  rely primarily on patent, copyright, trademark, trade secret laws, and other
  restrictions on disclosure to protect our proprietary technologies. We cannot
  be sure that these measures will provide meaningful protection for our proprietary
  technologies and processes. We cannot be sure that any patent issued to us will
  be sufficient to protect our technology. The failure of any patents to provide
  protection to our technology would make it easier for our competitors to offer
  similar products. In connection with our participation in the development of
  various industry standards, we may be required to license certain of our patents
  to other parties, including our competitors, that develop products based upon
  the adopted standards.</p>
<p>We also generally enter into confidentiality agreements with our employees,
  distributors, and strategic partners, and generally control access to our documentation
  and other proprietary information. Despite these precautions, it may be possible
  for a third-party to copy or otherwise obtain and use our products, services,
  or technology without authorization, develop similar technology independently,
  or design around our patents.</p>
<p><font face="Times New Roman, Times, serif" size="3"> </font>Effective copyright,
  trademark, and trade secret protection may be unavailable or limited in certain
  foreign countries. Furthermore, certain of our customers have entered into agreements
  with us which provide that the customers have the right to use our proprietary
  technology in the event we default in our contractual obligations, including
  product supply obligations, and fail to cure the default within a specified
  period of time.</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>We may become subject
  to claims of intellectual property rights infringement, which could result in
  substantial liability.</b></font></p>
<p>In the course of 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>If we are unable to obtain and maintain licenses on favorable terms for intellectual
  property rights required for the manufacture, sale, and use of our products,
  particularly those products which must comply with industry standard protocols
  and specifications to be commercially viable, our results of operations or financial
  condition could be adversely impacted.</p>
<p>In addition to disputes relating to the validity or alleged infringement of
  other parties' rights, we may become involved in disputes relating to our assertion
  of our own intellectual property rights. Whether we are defending the assertion
  of intellectual property rights against us or asserting our intellectual property
  rights against others, intellectual property litigation can be complex, costly,
  protracted, and highly disruptive to business operations by diverting the attention
  and energies of management and key technical personnel. Plaintiffs in intellectual
  property cases often seek injunctive relief, and the measures of damages in
  intellectual property litigation are complex and often subjective or uncertain.
  Thus, any adverse determinations in this type of litigation could subject us
  to significant liabilities and costs.</p>
<p>&nbsp;</p>
<p align="center"><font face="Times New Roman, Times, serif" size="3">25<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><b>New industry standards may require us to redesign our products, which could
  substantially increase our operating expenses.</b></p>
<p>Standards for the form and functionality of our products are established by
  standards committees. These independent 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 sell our products
  for use with new hardware components from mobile computer manufacturers and
  original equipment manufacturers, thus affecting our business.</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>Undetected flaws and
  defects in our products may disrupt product sales and result in expensive and
  time-consuming remedial action.</b></font></p>
<p>Our hardware and software products may contain undetected flaws, which may
  not be discovered until customers have used the products. From time to time,
  we may temporarily suspend or delay shipments or divert development resources
  from other projects to correct a particular product deficiency. Efforts to identify
  and correct errors and make design changes may be expensive and time consuming.
  Failure to discover product deficiencies in the future could delay product introductions
  or shipments, require us to recall previously shipped products to make design
  modifications, or cause unfavorable publicity, any of which could adversely
  affect our business and operating results.</p>
<p><b>Our quarterly operating results may fluctuate in future periods, which could
  cause our stock price to decline.</b></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>
<p>&nbsp;</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">26<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<ul>
  <li><font face="Times New Roman, Times, serif" size="3">the demand for our products;<br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">the size and timing
    of customer orders;<br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">unanticipated delays
    or problems in our introduction of new products and product enhancements;<br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">the introduction of
    new products and product enhancements by our competitors;<br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">the timing of the introduction
    of new products that work with our connection products;<br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">changes in the proportion
    of revenues attributable to royalties and engineering development services;<br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">product mix;<br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">timing of software enhancements;<br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">changes in the level
    of operating expenses;<br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">competitive conditions
    in the industry including competitive pressures resulting in lower average
    selling prices; and<br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">timing of distributors'
    shipments to their customers.</font></li>
</ul>
<p>Because we base our staffing and other operating expenses on anticipated revenue,
  delays in the receipt of orders can cause significant variations in operating
  results from quarter to quarter. As a result of any of the foregoing factors,
  our results of operations in any given quarter may be below the expectations
  of public market analysts or investors, in which case the market price of our
  Common Stock would be adversely affected.</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>The loss of one or more
  of our senior personnel could harm our existing business. </b></font></p>
<p>A number of our officers and senior managers have been employed for ten to
  fourteen 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><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><b>We may not be able to collect revenues from customers who experience financial
  difficulties.</b></p>
<p>Our accounts receivable are derived primarily from distributors and original
  equipment manufacturers. We perform ongoing credit evaluations of our customers'
  financial conditions but generally require no collateral from our customers.
  Reserves are maintained for potential credit losses, and such losses have historically
  been within such reserves. However, many of our customers may be thinly capitalized
  and may be prone to failure in adverse market conditions. Although our collection
  history has been good, from time to time a customer may not pay us because of
  financial difficulty, bankruptcy or liquidation.</p>
<p>&nbsp;</p>
<p align="center"><font face="Times New Roman, Times, serif" size="3">27<br>
  </font> </p>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p><font face="Times New Roman, Times, serif" size="3"><b>We may be unable to
  manufacture our products, because we are dependent on a limited number of qualified
  suppliers for our components.</b></font></p>
<p>Several of our component parts, including our serial interface chip, our Ethernet
  chip, and our bar code scanning modules, are produced by one or a limited number
  of suppliers. Shortages could occur in these essential components due to an
  interruption of supply or increased demand in the industry. If we are unable
  to procure certain component parts, we could be required to reduce our operations
  while we seek alternative sources for these components, which could have a material
  adverse effect on our financial results. To the extent that we acquire extra
  inventory stocks to protect against possible shortages, we would be exposed
  to additional risks associated with holding inventory, such as obsolescence,
  excess quantities, or loss.</p>
<p><b>Our operating results could be harmed by economic, political, regulatory
  and other risks associated with export sales.</b></p>
<p>Export sales (sales to customers outside the United States) accounted for approximately
  30 percent of our revenue in the first quarter of 2006 and 35 percent of our
  revenue in the fiscal year 2005. Accordingly, our operating results are subject
  to the risks inherent in export sales, including:</p>
<ul>
  <li><font face="Times New Roman, Times, serif" size="3">longer payment cycles;<br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">unexpected changes in
    regulatory requirements, import and export restrictions and tariffs;<br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">difficulties in managing
    foreign operations;<br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">the burdens of complying
    with a variety of foreign laws;<br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">greater difficulty or
    delay in accounts receivable collection;<br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">potentially adverse
    tax consequences; and<br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">political and economic
    instability.</font></li>
</ul>
<p>Our export sales are predominately denominated in United States dollars and
  in Euros for our sales to European distributors. Accordingly, an increase in
  the value of the United States dollar relative to foreign currencies could make
  our products more expensive and therefore potentially less competitive in foreign
  markets. Declines in the value of the Euro relative to the United States dollar
  may result in foreign currency losses relating to collection of Euro denominated
  receivables.</p>
<p><b>Our operations are vulnerable to interruption by fire, earthquake, power
  loss, telecommunications failure, and other events beyond our control.</b></p>
<p>Our corporate headquarters are located near an earthquake fault. The potential
  impact of a major earthquake on our facilities, infrastructure, and overall
  business is unknown. Additionally, we may experience electrical power blackouts
  or natural disasters that could interrupt our business. Should a disaster be
  widespread, such as a major earthquake, or result in the loss of key personnel,
  we may not be able to implement our disaster recovery plan in a timely manner.
  Any losses or damages incurred by us as a result of these events could have
  a material adverse effect on our business.<br>
  <br>
</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">28<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p><font face="Times New Roman, Times, serif" size="3"><b>Failure to maintain
  effective internal controls could have a material adverse effect on our business,
  operating results and stock price. </b></font></p>
<p>We have evaluated and will continue to evaluate our internal control procedures
  in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act,
  which requires an annual management assessment of the design and effectiveness
  of our internal controls over financial reporting. If we fail to maintain the
  adequacy of our internal controls, as such standards are modified, supplemented
  or amended from time to time, we may not be able to ensure that we can conclude
  on an ongoing basis that we have effective internal controls over financial
  reporting in accordance with Section 404 of the Sarbanes-Oxley Act. Moreover,
  effective internal controls, particularly those related to revenue recognition,
  are necessary for us to produce reliable financial reports and are important
  to helping prevent financial fraud. If we cannot provide reliable financial
  reports or prevent fraud, our business and operating results could be harmed,
  investors could lose confidence in our reported financial information, and the
  trading price of our stock could drop significantly.</p>
<p><b>The sale of a substantial number of shares of Common Stock could cause the
  market price of our Common Stock to decline.</b></p>
<p>Sales of a substantial number of shares of our Common Stock in the public market
  could adversely affect the market price for our Common Stock. The market price
  of our Common Stock could also decline if one or more of our significant stockholders
  decided for any reason to sell substantial amounts of our Common Stock in the
  public market.</p>
<p>As of April 28, 2006, we had 31,558,992 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 prospectus
  delivery requirements and, in other cases, only to manner of sale, volume, and
  notice requirements of Rule 144 under the Securities Act.</p>
<p>As of April 28, 2006, we had 9,105,995 shares subject to outstanding options
  under our stock option plans, and 644,206 shares were available for future issuance
  under the plans. We have registered the shares of Common Stock subject to outstanding
  options and reserved for issuance under our stock option plans. Accordingly,
  shares underlying vested options will be eligible for resale in the public market
  as soon as the options are exercised.</p>
<p>As of April 28, 2006, we had warrants outstanding to purchase a total of 1,238,712
  shares of our Common Stock at exercise prices ranging from $0.722 to $2.73.
  All such warrants may be exercised at any time, and the shares issuable upon
  exercise may be resold, either without restrictions or subject, in some cases,
  only to S-3 prospectus delivery requirements, and, in some cases, only to manner
  of sale, volume, and notice requirements of Rule 144.</p>
<p><b>Volatility in the trading price of our Common Stock could negatively impact
  the price of our Common Stock. </b></p>
<p>During the period from January 1, 2005 through April 28, 2006, our Common Stock
  price fluctuated between a high of $2.04 and a low of $0.88. The trading price
  of our Common Stock could be subject to wide fluctuations in response to many
  factors, some of which are beyond our control, including general economic conditions
  and the outlook of securities analysts and investors on our industry. In addition,
  the stock markets in general, and the markets for high technology stocks in
  particular, have experienced high volatility that has often been unrelated to
  the operating performance of particular companies. These broad market fluctuations
  may adversely affect the trading price of our Common Stock.</p>
<p></p>
<p></p>
<p></p>
<p></p>
<p><font face="Times New Roman, Times, serif" size="3"><br>
  </font></p>
<p>&nbsp;</p>
<p></p>
<p></p>
<p></p>
<p align=center><font face="Times New Roman, Times, serif" size="3">29<br>
  </font>
<p align=center>
<p align=center><font face="Times New Roman, Times, serif" size="3"><br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
  <font face="Times New Roman, Times, serif" size="3"><a
name=sub></a></font>
<p><font face="Times New Roman, Times, serif" size="3"> <b>Item 4. Submission
  of Matters to a Vote of Security Holders</b></font></p>
<p>At the Annual Meeting of Stockholders of the Company, held at the Company's
  Newark, California, facilities on April 19, 2006, the stockholders elected seven
  directors to serve until the next annual meeting of stockholders (Item 1), and
  ratified the appointment of Moss Adams LLP to serve as the independent public
  accountants of the Company for the fiscal year ending December 31, 2006 (Item
  2). Total voting shares on the record date of February 21, 2006 consisted of
  30,228,709 common shares and 82,330 shares of Series F preferred stock issued
  and outstanding. Each share of common stock was entitled to one vote, and each
  share of Series F was entitled to ten votes, for an aggregate total of 31,052,009
  voting shares. A total of 24,356,061 shares or 78.44% of outstanding shares
  were present or voting by proxy. Results of the stockholder vote were as follows:<br>
  <br>
</p>
<table cellspacing=1 cellpadding=1 width=627 align=center border=1>
  <tr valign=bottom>
    <td width="222" height=25><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font>
      <p align=left>ITEM 1:<font face="Times New Roman, Times, serif" size="2">
        </font></p>
    </td>
    <td height=25 width="117">
      <div align="center">FOR</div>
    </td>
    <td width="177" height=25>
      <div align="center">WITHHELD</div>
    </td>
    <td width="84" height=25>
      <div align="center">RESULT</div>
    </td>
  </tr>
  <tr valign=bottom>
    <td height=21 width="222"><u>Election of Directors:</u></td>
    <td height=21 width="117">&nbsp;</td>
    <td width="177" height=21>
      <div align="center">&nbsp</div>
    </td>
    <td width="84" height=21>
      <div align="center"></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td height=16 width="222">Charlie Bass (1)(3)</td>
    <td height=21 width="117" valign="bottom">
      <div align="center">23,741,524</div>
    </td>
    <td width="177" height=21 valign="bottom">
      <div align="center">614,537</div>
    </td>
    <td width="84" height=16>
      <div align="center">Elected</div>
    </td>
  </tr>
  <tr valign=bottom>
    <td height=14 width="222">Kevin Mills</td>
    <td height=16 width="117" valign="bottom">
      <div align="center">23,890,364</div>
    </td>
    <td width="177" height=16 valign="bottom">
      <div align="center">465,697</div>
    </td>
    <td width="84" height=14>
      <div align="center">Elected</div>
    </td>
  </tr>
  <tr valign=bottom>
    <td height=15 width="222">Micheal Gifford</td>
    <td height=14 width="117" valign="bottom">
      <div align="center">23,994,625</div>
    </td>
    <td width="177" height=14 valign="bottom">
      <div align="center">361,436</div>
    </td>
    <td width="84" height=15>
      <div align="center">Elected</div>
    </td>
  </tr>
  <tr valign=bottom>
    <td height=23 width="222">Gianluca Rattazzi (1)(3)</td>
    <td height=15 width="117" valign="bottom">
      <div align="center">24,039,750</div>
    </td>
    <td width="177" height=15 valign="bottom">
      <div align="center">316,311</div>
    </td>
    <td width="84" height=23>
      <div align="center">Elected</div>
    </td>
  </tr>
  <tr valign=bottom>
    <td height=23 width="222">Leon Malmed (1)(3)</td>
    <td height=23 width="117" valign="bottom">
      <div align="center">24,027,550</div>
    </td>
    <td width="177" height=23 valign="bottom">
      <div align="center">328,511</div>
    </td>
    <td width="84" height=23>
      <div align="center">Elected</div>
    </td>
  </tr>
  <tr valign=bottom>
    <td height=27 width="222">Enzo Torresi (2)(3)</td>
    <td height=23 width="117" valign="bottom">
      <div align="center">23,938,170</div>
    </td>
    <td width="177" height=27>
      <div align="center">417,891</div>
    </td>
    <td width="84" height=27>
      <div align="center">Elected</div>
    </td>
  </tr>
  <tr valign=bottom>
    <td height=15 width="222">Peter Sealey (2)(3)</td>
    <td height=15 width="117">
      <div align="center">23,936,785</div>
    </td>
    <td width="177" height=15>
      <div align="center">419,276</div>
    </td>
    <td width="84" height=15>
      <div align="center">Elected</div>
    </td>
  </tr>
  <tr valign=bottom>
    <td height=45 colspan="4">
      <p>(1) Denotes member of Audit Committee<br>
        (2) Denotes member of Compensation Committee<br>
        (3) Denotes member of Nominating Committee</p>
    </td>
  </tr>
</table>
<p>&nbsp;</p>
<table cellspacing=1 cellpadding=1 width=627 align=center border=1>
  <tr valign=bottom>
    <td width="211" height=25><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font>
      <p align=left>ITEM 2:<font face="Times New Roman, Times, serif" size="2">
        </font></p>
    </td>
    <td height=25 width="95">
      <div align="center">FOR</div>
    </td>
    <td width="112" height=25>
      <div align="center">AGAINST</div>
    </td>
    <td width="95" height=25>
      <div align="center">ABSTAIN</div>
    </td>
    <td width="81" height=25>
      <div align="center">RESULT</div>
    </td>
  </tr>
  <tr valign=bottom>
    <td height=21 width="211">Appoint Moss Adams LLP as the Company's independent
      auditors for the 2006 fiscal year. Required approval of a majority of votes
      cast for approval.</td>
    <td height=21 width="95" align="center" valign="middle">
      <div align="center">24,322,107</div>
    </td>
    <td height=21 width="95" align="center" valign="middle">
      <div align="center">27,870</div>
    </td>
    <td height=21 width="95" align="center" valign="middle">
      <div align="center">6,084</div>
    </td>
    <td height=21 width="95" align="center" valign="middle">
      <div align="center">Approved</div>
    </td>
  </tr>
</table>
<p>&nbsp;</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">30<br>
  </font>
<p align=center>
<p align=center><font face="Times New Roman, Times, serif" size="3"><br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
  <font face="Times New Roman, Times, serif" size="3"><a
name=item6></a></font>
<p><font face="Times New Roman, Times, serif" size="3"><b>Item 6. Exhibits</b></font></p>
<p><font face="Times New Roman, Times, serif" size="3"> Exhibits</font></p>
<p>31.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant
  to Section 302 of the Sarbanes-Oxley Act of 2002.</p>
<p>31.2 Certification of Chief Executive Officer and Chief Financial Officer pursuant
  to Section 906 of the Sarbanes-Oxley Act of 2002.</p>
<p>32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant
  to Section 906 of the Sarbanes-Oxley Act of 2002.</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">31<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
  <font face="Times New Roman, Times, serif" size="3"><a
name=sig></a></font>
<p>&nbsp;</p>
<div align="center"><font face="Times New Roman, Times, serif" size="3"><BR>
  </font></div>
<P align=center><font face="Times New Roman, Times, serif" size="3"><b>SIGNATURES</b></font></P>
<P>&nbsp;</P>
<P>Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant
  has duly caused this report to be signed on its behalf by the undersigned thereunto
  duly authorized.</P>
<P>&nbsp;</P>
<P align=center><font face="Times New Roman, Times, serif" size="3"><U>SOCKET
  COMMUNICATIONS, INC.<BR>
  </U>Registrant</font></P>
<P>&nbsp;
<TABLE cols=2 width="89%">
  <TR>
    <TD width="38%"><FONT face="Times New Roman, Times, serif" size=3>Date: May
      12, 2006 </FONT></TD>
    <TD width="21%">
      <CENTER>
      </CENTER>
    </TD>
    <TD width="41%">
      <DIV align=left><FONT face="Times New Roman, Times, serif"
      size=3><U>&nbsp;&nbsp;/s/ Kevin J. Mills</U></FONT></DIV>
    </TD>
  </TR>
  <tr>
    <td width="38%">&nbsp;</td>
    <td width="21%">
      <center>
        <font face="Times New Roman, Times, serif" size=3>&nbsp; </font>
      </center>
    </td>
    <td valign=top align=middle width="41%">
      <div align=left>
        <p><font face="Times New Roman, Times, serif" size=3>Kevin J. Mills<br>
          President and Chief Executive Officer</font><br>
          (Duly Authorized Officer and Principal Executive Officer)</p>
      </div>
    </td>
  </tr>
  <tr>
    <td width="38%" height="44">&nbsp;</td>
    <td width="21%" height="44">&nbsp;</td>
    <td width="41%" height="44">&nbsp;</td>
  </tr>
  <tr>
    <td width="38%"><font face="Times New Roman, Times, serif" size=3>Date: May
      12, 2006 </font></td>
    <td width="21%">
      <center>
      </center>
    </td>
    <td width="41%">
      <div align=left><font face="Times New Roman, Times, serif"
      size=3><u>&nbsp;&nbsp;/s/ David W. Dunlap&nbsp;&nbsp;</u></font></div>
    </td>
  </tr>
  <tr>
    <td width="38%">&nbsp;</td>
    <td width="21%">
      <center>
        <font face="Times New Roman, Times, serif" size=3>&nbsp; </font>
      </center>
    </td>
    <td valign=top align=middle width="41%">
      <div align=left><font face="Times New Roman, Times, serif" size=3>David
        W. Dunlap<br>
        Vice President of Finance and Administration and Chief Financial Officer
        (Duly Authorized Officer and Principal Financial and Accounting Officer)
        </font></div>
    </td>
  </tr>
</TABLE>
<P>&nbsp;</P>
<P>&nbsp;</P>
<p align=center><font face="Times New Roman, Times, serif" size="3">32<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
  <font face="Times New Roman, Times, serif" size="3"><a
name=ind></a></font>
<P>&nbsp;</P>
<p align=center><font face="Times New Roman, Times, serif" size="3"><b>Index to
  Exhibits</b><br>
  <br>
  </font></p>
<table cellspacing=0 cellpadding=0 width=800 align=center border=0>
  <tr>
    <td valign=bottom width="10%" height=48>
      <p align=center><font face="Times New Roman, Times, serif" size=3>Exhibit
        <u>Number</u></font></p>
    </td>
    <td valign=bottom width="90%" height=48>
      <p align=center><font face="Times New Roman, Times, serif"
      size=3><u>Description </u></font></p>
    </td>
  </tr>
  <tr>
    <td valign=top width="10%" height=25>
      <p align=right>&nbsp;</p>
    </td>
    <td valign=top width="90%" height=25>
      <p>&nbsp;</p>
    </td>
  </tr>
  <tr>
    <td valign=top width="10%" height=30>
      <p align=center><font face="Times New Roman, Times, serif"
      size=3>31.1&nbsp;</font> </p>
    </td>
    <td valign=top width="90%" height=30>
      <p>Certification of Chief Executive Officer pursuant to Section 302 of the
        Sarbanes-Oxley Act of 2002.</p>
    </td>
  </tr>
  <tr>
    <td valign=top width="10%" height=30>
      <p align=center><font face="Times New Roman, Times, serif"
      size=3>31.2&nbsp;</font> </p>
    </td>
    <td valign=top width="90%" height=30>
      <p>Certification of Chief Financial Officer pursuant to Section 302 of the
        Sarbanes-Oxley Act of 2002.</p>
    </td>
  </tr>
  <tr>
    <td valign=top width="10%" height=30>
      <p align=center><font face="Times New Roman, Times, serif"
      size=3>32.1&nbsp;</font> </p>
    </td>
    <td valign=top width="90%" height=30>
      <p>Certification of Chief Executive Officer and Chief Financial Officer
        pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.</p>
    </td>
  </tr>
</table>
<P>&nbsp;</P>
<P>&nbsp;</P>
<P>&nbsp;</P>
<P>&nbsp;</P>
<P>&nbsp;</P>
<P>&nbsp;</P>
<P>&nbsp;</P>
<p align=center><font face="Times New Roman, Times, serif" size="3">33<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left>&nbsp;
</BODY></HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31
<SEQUENCE>2
<FILENAME>exhibit311.htm
<DESCRIPTION>EXHIBIT 31.1
<TEXT>
<html>
<head>
<title>Untitled Document</title>
</head>

<body bgcolor="#FFFFFF">
<p align=left>
<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>CERTIFICATION</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 have:</font></p>
<p><font face="Times New Roman, Times, serif" size="3">(a) Designed such disclosure
  controls and procedures, or caused such disclosure controls and procedures to
  be designed under our supervision, to ensure that material information relating
  to the registrant, including its consolidated subsidiaries, is made known to
  us by others within those entities, particularly during the period in which
  this report is being prepared;</font></p>
<p><font face="Times New Roman, Times, serif" size="3">(b) Designed such internal
  control over financial reporting, or caused such internal control over financial
  reporting to be designed under our supervision, to provide reasonable assurance
  regarding the reliability of financial reporting and the preparation of financial
  statements for external purposes in accordance with generally accepted accounting
  principles;</font></p>
<p><font face="Times New Roman, Times, serif" size="3">(c) Evaluated the effectiveness
  of the registrant's disclosure controls and procedures and presented in this
  report our conclusions about the effectiveness of the disclosure controls and
  procedures as of the end of the period covered by this report based on such
  evaluation; and</font></p>
<p>(d) Disclosed in this report any change in the registrant's internal control
  over financial reporting that occurred during the registrant's most recent fiscal
  quarter (the registrant's fourth fiscal quarter in the case of an annual report)
  that has materially affected, or is reasonably likely to materially affect,
  the registrant's internal control over financial reporting; and</p>
<p><font face="Times New Roman, Times, serif" size="3">5. The registrant's other
  certifying officer and I have disclosed, based on our most recent evaluation
  of internal control over financial reporting, to the registrant's auditors and
  the audit committee of the registrant's board of directors (or persons performing
  the equivalent functions):</font></p>
<p><font face="Times New Roman, Times, serif" size="3">(a) All significant deficiencies
  and material weaknesses in the design or operation of internal control over
  financial reporting which are reasonably likely to adversely affect the registrant's
  ability to record, process, summarize and report financial information; and</font></p>
<p><font face="Times New Roman, Times, serif" size="3">(b) Any fraud, whether
  or not material, that involves management or other employees who have a significant
  role in the registrant's internal control over financial reporting.</font></p>
<table cols=2 width="97%">
  <tr>
    <td width="38%"><font face="Times New Roman, Times, serif" size=3>Date: May
      12, 2006 </font></td>
    <td width="17%">
      <center>
      </center>
    </td>
    <td width="45%">
      <div align=left><font face="Times New Roman, Times, serif"
      size=3><u>By: &nbsp;&nbsp;/s/ Kevin J. Mills</u></font></div>
    </td>
  </tr>
  <tr>
    <td width="38%">&nbsp;</td>
    <td width="17%">
      <center>
        <font face="Times New Roman, Times, serif" size=3>&nbsp; </font>
      </center>
    </td>
    <td valign=top align=middle width="45%">
      <div align=left><font face="Times New Roman, Times, serif" size=3>Name:
        Kevin J. Mills<br>
        Title: President and Chief Executive Officer (Principal Executive Officer)</font></div>
    </td>
  </tr>
</table>
<p><font face="Times New Roman, Times, serif" size="3"><br>
  </font></p>
<p align=center><font face="Times New Roman, Times, serif" size="3"></font>
</body>
</html>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31
<SEQUENCE>3
<FILENAME>exhibit312.htm
<DESCRIPTION>EXHIBIT 31.2
<TEXT>
<html>
<head>
<title>Untitled Document</title>
</head>

<body bgcolor="#FFFFFF">
<p align=right><font face="Times New Roman, Times, serif" size="3">Exhibit 31.2
  </font>
<p align="center"><font face="Times New Roman, Times, serif" size="3"><b>CERTIFICATION</b></font><br>
</p>
<p align="center">&nbsp; </p>
<p><font face="Times New Roman, Times, serif" size="3">I, David W. Dunlap, certify
  that:</font></p>
<p><font face="Times New Roman, Times, serif" size="3">1. I have reviewed this
  quarterly report on Form 10-Q of Socket Communications, Inc.;</font></p>
<p><font face="Times New Roman, Times, serif" size="3">2. Based on my knowledge,
  this report does not contain any untrue statement of a material fact or omit
  to state a material fact necessary to make the statements made, in light of
  the circumstances under which such statements were made, not misleading with
  respect to the period covered by this report;</font></p>
<p><font face="Times New Roman, Times, serif" size="3">3. Based on my knowledge,
  the financial statements, and other financial information included in this report,
  fairly present in all material respects the financial condition, results of
  operations and cash flows of the registrant as of, and for, the periods presented
  in this report;</font></p>
<p><font face="Times New Roman, Times, serif" size="3">4. The registrant's other
  certifying officer 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 have:</font></p>
<p><font face="Times New Roman, Times, serif" size="3">(a) Designed such disclosure
  controls and procedures, or caused such disclosure controls and procedures to
  be designed under our supervision, to ensure that material information relating
  to the registrant, including its consolidated subsidiaries, is made known to
  us by others within those entities, particularly during the period in which
  this report is being prepared;</font></p>
<p><font face="Times New Roman, Times, serif" size="3">(b) Designed such internal
  control over financial reporting, or caused such internal control over financial
  reporting to be designed under our supervision, to provide reasonable assurance
  regarding the reliability of financial reporting and the preparation of financial
  statements for external purposes in accordance with generally accepted accounting
  principles;</font></p>
<p><font face="Times New Roman, Times, serif" size="3">(c) Evaluated the effectiveness
  of the registrant's disclosure controls and procedures and presented in this
  report our conclusions about the effectiveness of the disclosure controls and
  procedures as of the end of the period covered by this report based on such
  evaluation; and</font></p>
<p>(d) Disclosed in this report any change in the registrant's internal control
  over financial reporting that occurred during the registrant's most recent fiscal
  quarter (the registrant's fourth fiscal quarter in the case of an annual report)
  that has materially affected, or is reasonably likely to materially affect,
  the registrant's internal control over financial reporting; and</p>
<p><font face="Times New Roman, Times, serif" size="3">5. The registrant's other
  certifying officer and I have disclosed, based on our most recent evaluation
  of internal control over financial reporting, to the registrant's auditors and
  the audit committee of the registrant's board of directors (or persons performing
  the equivalent functions):</font></p>
<p><font face="Times New Roman, Times, serif" size="3">(a) All significant deficiencies
  and material weaknesses in the design or operation of internal control over
  financial reporting which are reasonably likely to adversely affect the registrant's
  ability to record, process, summarize and report financial information; and</font></p>
<p><font face="Times New Roman, Times, serif" size="3">(b) Any fraud, whether
  or not material, that involves management or other employees who have a significant
  role in the registrant's internal control over financial reporting.</font></p>
<table cols=2 width="96%">
  <tr>
    <td width="38%"><font face="Times New Roman, Times, serif" size=3>Date: May
      12, 2006 </font></td>
    <td width="21%">
      <center>
      </center>
    </td>
    <td width="41%">
      <div align=left><font face="Times New Roman, Times, serif"
      size=3><u>By: &nbsp;/s/ David W. Dunlap&nbsp;&nbsp;</u></font></div>
    </td>
  </tr>
  <tr>
    <td width="38%">&nbsp;</td>
    <td width="21%">
      <center>
        <font face="Times New Roman, Times, serif" size=3>&nbsp; </font>
      </center>
    </td>
    <td valign=top align=middle width="41%">
      <div align=left><font face="Times New Roman, Times, serif" size=3>Name:
        David W. Dunlap<br>
        Title: Vice President of Finance and Administration and Chief Financial
        Officer (Principal Financial Officer) </font></div>
    </td>
  </tr>
</table>
<p><font face="Times New Roman, Times, serif" size="3"><br>
  </font></p>
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<DOCUMENT>
<TYPE>EX-32
<SEQUENCE>4
<FILENAME>exhibit321.htm
<DESCRIPTION>EXHIBIT 32.1
<TEXT>
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<p align=right><font face="Times New Roman, Times, serif" size="3">Exhibit 32.1</font>
<p align="center">CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL
  OFFICER<br>
  PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 </p>
<p><font face="Times New Roman, Times, serif" size="3"><br>
  I, Kevin J. Mills, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
  to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report
  of Socket Communications, Inc. on Form 10-Q for the quarter ended March 31,
  2006 fully complies with the requirements of Section 13(a) or 15(d) of the Securities
  Exchange Act of 1934 and that information contained in such Quarterly Report
  on Form 10-Q fairly presents in all material respects the financial condition
  and results of operations of Socket Communications, Inc.</font></p>
<table cols=2 width="43%" align="center">
  <tr>
    <td width="41%">
      <div align=left><font face="Times New Roman, Times, serif"
      size=3><u>By: &nbsp;&nbsp;/s/ Kevin J. Mills</u></font></div>
    </td>
  </tr>
  <tr>
    <td valign=top align=middle width="41%">
      <div align=left><font face="Times New Roman, Times, serif" size=3>Name:
        Kevin J. Mills<br>
        Title: &nbsp&nbspPresident and Chief Executive Officer <br>
        &nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp(Principal Executive
        Officer)<br>
        Date: &nbspMay 12, 2006</font></div>
    </td>
  </tr>
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<p>&nbsp;</p>
<p>I, David W. Dunlap, certify, pursuant to 18 U.S.C. Section 1350, as adopted
  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly
  Report of Socket Communications, Inc. on Form 10-Q for the quarter ended March
  31, 2006 fully complies with the requirements of Section 13(a) or 15(d) of the
  Securities Exchange Act of 1934 and that information contained in such Quarterly
  Report on Form 10-Q fairly presents in all material respects the financial condition
  and results of operations of Socket Communications, Inc.</p>
<p></p>
<table cols=2 width="45%" align="center">
  <tr>
    <td width="41%">
      <div align=left><font face="Times New Roman, Times, serif"
      size=3><u>By: &nbsp;&nbsp;/s/ David W. Dunlap&nbsp;&nbsp;</u></font></div>
    </td>
  </tr>
  <tr>
    <td valign=top align=middle width="41%">
      <div align=left><font face="Times New Roman, Times, serif" size=3>Name:
        David W. Dunlap<br>
        Title: &nbsp&nbspVice President of Finance and Administration <br>
        &nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbspand Chief
        Financial Officer (Principal <br>
        &nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbspFinancial
        Officer)<br>
        Date:&nbsp&nbsp&nbsp&nbspMay 12, 2006</font></div>
    </td>
  </tr>
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<p>&nbsp;</p>
<p align=center>&nbsp;
<p align=center>&nbsp;
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