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<SEC-DOCUMENT>0000944075-06-000063.txt : 20061113
<SEC-HEADER>0000944075-06-000063.hdr.sgml : 20061113
<ACCEPTANCE-DATETIME>20061113152416
ACCESSION NUMBER:		0000944075-06-000063
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		6
CONFORMED PERIOD OF REPORT:	20060930
FILED AS OF DATE:		20061113
DATE AS OF CHANGE:		20061113

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:		061208607

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

	MAIL ADDRESS:	
		STREET 1:		37400 CENTRAL COURT
		CITY:			NEWARK
		STATE:			CA
		ZIP:			94560
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>q3-2006.htm
<TEXT>
<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.0 Transitional//EN">
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<META content="MSHTML 5.50.4522.1800" name=GENERATOR></HEAD>
<BODY bgColor=white>
<DIV align=left> </DIV>
<DIV align=left> </DIV>
<P align=center><font face="Times New Roman, Times, serif" size="3">UNITED STATES<BR>
  SECURITIES AND EXCHANGE COMMISSION<BR>
  WASHINGTON, DC 20549<BR>
  </font></P>
<P align=center><font face="Times New Roman, Times, serif" size="3"><STRONG>FORM
  10-Q</STRONG></font></P>
<TABLE cols=2 width="100%">
  <TR>
    <TD vAlign=top width="5%"><FONT size=3><STRONG>
      <CENTER>
        [X]
      </CENTER>
      </STRONG></FONT></TD>
    <TD vAlign=top width="95%"><FONT size=3><STRONG><FONT
      face="Times New Roman, Times, serif"><b>QUARTERLY REPORT PURSUANT TO SECTION
      13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</b> </FONT></STRONG></FONT></TD>
  </TR>
</TABLE>
<P align=center><font face="Times New Roman, Times, serif" size="3"><strong>&nbsp;&nbsp;</strong>For
  the quarterly period ended September 30, 2006</font></P>
<P align=center><font size="3" face="Times New Roman, Times, serif">OR</font></P>
<TABLE cols=2 width="100%">
  <TR>
    <TD vAlign=top width="5%"><FONT size=3><STRONG>
      <CENTER>
        <FONT face="Times New Roman, Times, serif">[&nbsp;&nbsp;&nbsp;] </FONT>
      </CENTER>
      </STRONG></FONT></TD>
    <TD vAlign=top width="95%"><FONT face="Times New Roman, Times, serif"
      size=3><STRONG><b>TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
      SECURITIES EXCHANGE ACT OF 1934</b> &nbsp;&nbsp;</STRONG><BR>
      <BR>
      For the transition period ____________ to ____________ </FONT></TD>
  </TR>
</TABLE>
<P align=center><font face="Times New Roman, Times, serif" size="3"><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 height="15"><FONT size=3><STRONG>
      <CENTER>
        <FONT face="Times New Roman, Times, serif" size=3>Delaware </FONT>
      </CENTER>
      </STRONG></FONT></TD>
    <TD height="15"><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) </font></P>
<P align=left><br>
  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 [ ]</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 &quot;accelerated
  filer&quot; and &quot;large accelerated filer&quot; 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 October
  31, 2006: 31,851,285 shares</p>
<p style="PAGE-BREAK-BEFORE: always">
<hr width="100%">
<P>&nbsp; </P>
<div align="center"></div>
<P align=left><font face="Times New Roman, Times, serif" size="3"><a name="tab"></a></font></P>
<table width="80%" border="0" cellspacing="0" cellpadding="0" align="center">
  <tr>
    <td colspan="3">
      <div align="center"></div>
      <p align=center><font face="Times New Roman, Times, serif" size="3"><strong>INDEX
        </strong></font></p>
    </td>
  </tr>
  <tr>
    <td width="27">&nbsp;</td>
    <td width="807">&nbsp;</td>
    <td width="56">
      <div align="center"><font face="Times New Roman, Times, serif" size="3"><u>PAGE
        <br>
        NO.</u></font></div>
    </td>
  </tr>
  <tr>
    <td colspan="3"><font face="Times New Roman, Times, serif" size="3">PART I.
      Financial information </font></td>
  </tr>
  <tr>
    <td colspan="3">&nbsp;</td>
  </tr>
  <tr>
    <td colspan="3"><font face="Times New Roman, Times, serif" size="3">Item 1.
      Consolidated Financial Statements (Unaudited): </font></td>
  </tr>
  <tr>
    <td width="27">&nbsp;</td>
    <td width="807">&nbsp;</td>
    <td width="56" align="center" valign="bottom">&nbsp;</td>
  </tr>
  <tr>
    <td width="27">&nbsp;</td>
    <td width="807"><font face="Times New Roman, Times, serif" size="3"><a
  href="#bs">Condensed Consolidated Balance Sheets - September 30, 2006 and December
      31, 2005 </a></font></td>
    <td width="56" align="center" valign="bottom">
      <div align="center"><font face="Times New Roman, Times, serif" size="3">1</font></div>
    </td>
  </tr>
  <tr>
    <td width="27" height="10">&nbsp;</td>
    <td width="807" height="10">&nbsp;</td>
    <td width="56" height="10" align="center" valign="bottom">&nbsp;</td>
  </tr>
  <tr>
    <td width="27" height="10">&nbsp;</td>
    <td width="807" height="10"><font face="Times New Roman, Times, serif" size="3"><a
  href="#ops">Condensed Consolidated Statements of Operations - Three Months and
      Nine Months Ended September 30, 2006 and 2005</a></font></td>
    <td width="56" height="10" align="center" valign="bottom">
      <div align="center"> <font face="Times New Roman, Times, serif" size="3">2</font></div>
    </td>
  </tr>
  <tr>
    <td width="27">&nbsp;</td>
    <td width="807">&nbsp;</td>
    <td width="56" align="center" valign="bottom">&nbsp;</td>
  </tr>
  <tr>
    <td width="27">&nbsp;</td>
    <td width="807"><font face="Times New Roman, Times, serif" size="3"><a
  href="#flows">Condensed Consolidated Statements of Cash Flows - Nine Months
      Ended </a><a
  href="#ops">September 30, 2006 and 2005</a></font></td>
    <td width="56" align="center" valign="bottom">
      <div align="center"><font face="Times New Roman, Times, serif" size="3">3</font></div>
    </td>
  </tr>
  <tr>
    <td width="27">&nbsp;</td>
    <td width="807">&nbsp;</td>
    <td width="56" align="center" valign="bottom">&nbsp;</td>
  </tr>
  <tr>
    <td width="27">&nbsp;</td>
    <td width="807"><font face="Times New Roman, Times, serif" size="3"><a
  href="#notes">Notes to Condensed Consolidated Financial Statements</a> </font></td>
    <td width="56" align="center" valign="bottom">
      <div align="center"><font face="Times New Roman, Times, serif" size="3">4</font></div>
    </td>
  </tr>
  <tr>
    <td colspan="2">&nbsp;</td>
    <td width="56">&nbsp;</td>
  </tr>
  <tr>
    <td colspan="2"><font face="Times New Roman, Times, serif" size="3"><a
href="#mda">Item 2. Management's Discussion and Analysis of Financial Condition
      and Results of Operations</a> </font></td>
    <td width="56">
      <div align="center"><font face="Times New Roman, Times, serif" size="3">11</font></div>
    </td>
  </tr>
  <tr>
    <td colspan="2">&nbsp;</td>
    <td width="56">&nbsp;</td>
  </tr>
  <tr>
    <td colspan="2"><font face="Times New Roman, Times, serif" size="3"><a
href="#qqd">Item 3. Quantitative and Qualitative Disclosures about Market Risk</a>
      </font></td>
    <td width="56">
      <div align="center">19</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">20</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">PART
        II. Oter information</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">21</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"><font face="Times New Roman, Times, serif" size="3">32</font></div>
    </td>
  </tr>
  <tr>
    <td colspan="2">&nbsp;</td>
    <td width="56">&nbsp;</td>
  </tr>
  <tr>
    <td colspan="2"><font face="Times New Roman, Times, serif" size="3"><a
href="#ind">Index to Exhibits</a></font></td>
    <td width="56">
      <div align="center"><font face="Times New Roman, Times, serif" size="3">33</font></div>
    </td>
  </tr>
</table>
<P align=left>&nbsp; </P>
<P align="center">&nbsp;
<HR width="100%">
<font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a>
<a
name=bs></a> <BR>
</font>
<P align=left><font face="Times New Roman, Times, serif" size="3">Item 1. Financial
  Statements (Unaudited) </font>
<P align=center>
<P align=center>
<table cellspacing=1 cellpadding=1 width=85% align=center border=1>
  <tr valign=bottom>
    <td colspan=3><font size=2><b>
      <p align=center><font face="Times New Roman, Times, serif" size="2">SOCKET
        COMMUNICATIONS, INC. <br>
        CONDENSED CONSOLIDATED BALANCE SHEETS </font></p>
      </b></font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%" height=19><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></td>
    <td width="18%" height=19 align="center"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2"> September
        30, 2006<br>
        (Unaudited) </font></p>
      </font></td>
    <td width="16%" height=19 valign="top"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">&nbsp;
        December 31, 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" size="2">ASSETS
        </font></p>
      </font></b></td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font size=2>
      <p><font face="Times New Roman, Times, serif" size="2">Current assets: </font></p>
      </font></td>
    <td width="18%"><font face="Times New Roman, Times, serif" size="2">&nbsp;</font></td>
    <td width="16%"><font face="Times New Roman, Times, serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font size=2>
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;Cash
        and cash equivalents </font></p>
      </font></td>
    <td width="18%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 6,228,529
        </font></p>
      </font></td>
    <td width="16%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 6,833,193
        </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font size=2>
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;Accounts
        receivable, net </font></p>
      </font></td>
    <td width="18%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2"> 3,333,953
        </font></p>
      </font></td>
    <td width="16%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">2,952,429
        </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font size=2>
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;Inventories
        </font></p>
      </font></td>
    <td width="18%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">2,562,075
        </font></p>
      </font></td>
    <td width="16%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">2,195,394
        </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font size=2>
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;Prepaid
        expenses and other current assets</font></p>
      </font></td>
    <td width="18%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">187,451
        </font></p>
      </font></td>
    <td width="16%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">315,287
        </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font size=2>
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;Total
        current assets </font></p>
      </font></td>
    <td width="18%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">12,312,008
        </font></p>
      </font></td>
    <td width="16%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">12,296,303
        </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td colspan=3><font face="Times New Roman, Times, serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font size=2>
      <p><font face="Times New Roman, Times, serif" size="2">Property and equipment:
        </font></p>
      </font></td>
    <td width="18%"><font face="Times New Roman, Times, serif" size="2">&nbsp;</font></td>
    <td width="16%"><font face="Times New Roman, Times, serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font size=2>
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;Machinery
        and office equipment </font></p>
      </font></td>
    <td width="18%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">1,974,842
        </font></p>
      </font></td>
    <td width="16%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">1,821,367
        </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font size=2>
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;Computer
        equipment </font></p>
      </font></td>
    <td width="18%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">1,017,970
        </font></p>
      </font></td>
    <td width="16%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">913,389
        </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font size=2>
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
      </font></td>
    <td width="18%" height="5"><font size=2>
      <p align=center><font size="2" face="Times New Roman, Times, serif">2,992,812
        </font></p>
      </font></td>
    <td width="16%" height="5"><font size=2>
      <p align=center><font size="2" face="Times New Roman, Times, serif">2,734,756
        </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font size=2>
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;Accumulated
        depreciation </font></p>
      </font></td>
    <td width="18%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">(2,219,200)
        </font></p>
      </font></td>
    <td width="16%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">(2,106,914)
        </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font size=2>
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;Property
        and equipment, net</font></p>
      </font></td>
    <td width="18%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">773,612
        </font></p>
      </font></td>
    <td width="16%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">627,842
        </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td colspan="3"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font><font size="2" face="Times New Roman, Times, serif">&nbsp;</font><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font face="Times New Roman, Times, serif" size="2">Intangible
      technology, net </font></td>
    <td width="18%">
      <div align=center><font face="Times New Roman, Times, serif" size="2">642,299
        </font></div>
    </td>
    <td width="16%">
      <div align=center><font face="Times New Roman, Times, serif" size="2">748,937
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font face="Times New Roman, Times, serif" size="2">Goodwill
      </font></td>
    <td width="18%">
      <div align=center><font face="Times New Roman, Times, serif" size="2">9,797,946
        </font></div>
    </td>
    <td width="16%">
      <div align=center><font face="Times New Roman, Times, serif" size="2">9,797,946
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font size=2> <font face="Times New Roman, Times, serif" size="2">Other
      assets </font></font></td>
    <td width="18%">
      <div align="center"><font size=2> <font face="Times New Roman, Times, serif" size="2">174,871
        </font></font></div>
    </td>
    <td width="16%">
      <div align="center"><font size=2> <font face="Times New Roman, Times, serif" size="2">163,754
        </font></font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font size="2"> <font face="Times New Roman, Times, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total
      assets </font></font></td>
    <td width="18%">
      <div align="center"><font size="2"> <font face="Times New Roman, Times, serif">$
        23,700,736 </font></font></div>
    </td>
    <td width="16%">
      <div align="center"><font size="2"> <font face="Times New Roman, Times, serif">$
        23,634,782 </font></font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td colspan=3><font face="Times New Roman, Times, serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign=bottom>
    <td colspan=3 height="12">
      <div align="center"><font size="2" face="Times New Roman, Times, serif"><b>LIABILITIES
        AND STOCKHOLDERS' EQUITY</b></font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font size=2>
      <p><font face="Times New Roman, Times, serif" size="2">Current liabilities:
        </font></p>
      </font></td>
    <td width="18%"><font face="Times New Roman, Times, serif" size="2">&nbsp;</font></td>
    <td width="16%"><font face="Times New Roman, Times, serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font size=2>
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp; Accounts
        payable and accrued expenses </font></p>
      </font></td>
    <td width="18%"><font size=2>
      <p align=center><font size="2" face="Times New Roman, Times, serif">$ 2,742,316
        </font></p>
      </font></td>
    <td width="16%"><font size=2>
      <p align=center><font size="2" face="Times New Roman, Times, serif">$ 2,616,421
        </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font size=2>
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp; Accrued
        payroll and related expenses </font></p>
      </font></td>
    <td width="18%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">785,829
        </font></p>
      </font></td>
    <td width="16%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">729,768
        </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%" height="7"><font size=2>
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp; Bank
        line of credit </font></p>
      </font></td>
    <td width="18%" height="7"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">2,219,394
        </font></p>
      </font></td>
    <td width="16%" height="7"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">2,308,771
        </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font size=2>
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp; Deferred
        income on shipments to distributors</font></p>
      </font></td>
    <td width="18%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">1,207,280
        </font></p>
      </font></td>
    <td width="16%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">1,114,450
        </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font size=2><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font></font><font face="Times New Roman, Times, serif" size="2">Current
      portion of deferred rent and capital leases</font></td>
    <td width="18%">
      <div align=center><font face="Times New Roman, Times, serif" size="2">18,222
        </font></div>
    </td>
    <td width="16%">
      <div align=center><font face="Times New Roman, Times, serif" size="2">42,639
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font size=2>
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;
        Total current liabilities </font></p>
      </font></td>
    <td width="18%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">6,973,041
        </font></p>
      </font></td>
    <td width="16%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">6,812,049
        </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td colspan=3><font face="Times New Roman, Times, serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%">
      <div align="left"><font size="2" face="Times New Roman, Times, serif">Long
        term portion of deferred rent and capital leases</font></div>
    </td>
    <td width="18%">
      <div align=center><font face="Times New Roman, Times, serif" size="2">852
        </font></div>
    </td>
    <td width="16%">
      <div align=center><font face="Times New Roman, Times, serif" size="2">8,372
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td colspan="3"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font size=2>
      <p><font face="Times New Roman, Times, serif" size="2">Commitments and contingencies
        </font></p>
      </font></td>
    <td width="18%"><font face="Times New Roman, Times, serif" size="2">&nbsp;</font></td>
    <td width="16%"><font face="Times New Roman, Times, serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign=bottom>
    <td colspan="3"><font face="Times New Roman, Times, serif" size="2">&nbsp;</font><font size=2></font></td>
  </tr>
  <tr valign=bottom>
    <td colspan="3"><font size=2><font face="Times New Roman, Times, serif" size="2">Stockholders'
      equity:</font></font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%" height="9"><font face="Times New Roman, Times, serif" size="2">&nbsp;</font><font size=2></font></td>
    <td width="18%" height="9"><font face="Times New Roman, Times, serif" size="2">&nbsp;</font></td>
    <td width="16%" height="9"><font face="Times New Roman, Times, serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%" height="17"><font size=2>
      <p><font size="2" face="Times New Roman, Times, serif">&nbsp;&nbsp; Series
        F Convertible Preferred Stock, $0.001 par value: </font><font size=2><font size="2" face="Times New Roman, Times, serif">
        </font></font><font size="2" face="Times New Roman, Times, serif">Authorized
        shares - 276,269, Issued and outstanding shares - </font><font size=2><font size=2><font size="2" face="Times New Roman, Times, serif">
        </font></font><font size="2" face="Times New Roman, Times, serif"></font></font><font size="2" face="Times New Roman, Times, serif">none
        at </font><font size="2" face="Times New Roman, Times, serif">September
        30, 2006 and 82,330 at December 31, 2005</font></p>
      </font></td>
    <td width="18%" height="17"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">-- </font></p>
      </font></td>
    <td width="16%" height="17"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">82 </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%" height="14"><font size=2><font size="2" face="Times New Roman, Times, serif">&nbsp;&nbsp;
      </font></font><font size="2" face="Times New Roman, Times, serif">Common
      stock, $0.001 par value: Authorized shares - </font><font size=2><font size="2" face="Times New Roman, Times, serif">
      </font></font><font size="2" face="Times New Roman, Times, serif">100,000,000,
      Issued and outstanding shares - </font><font size=2><font size="2" face="Times New Roman, Times, serif">
      </font></font><font size="2" face="Times New Roman, Times, serif">31,851,285
      </font><font size=2><font size="2" face="Times New Roman, Times, serif">
      </font></font><font size="2" face="Times New Roman, Times, serif">at September
      30, 2006 </font><font size="2" face="Times New Roman, Times, serif">and
      30,223,709 at December 31, 2005</font></td>
    <td width="18%" height="14"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">31,851
        </font></p>
      </font></td>
    <td width="16%" height="14"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">30,224
        </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font size=2>
      <p><font face="Times New Roman, Times, serif" size="2">Additional paid-in
        capital</font></p>
      </font></td>
    <td width="18%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">52,250,763
        </font></p>
      </font></td>
    <td width="16%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">50,673,487
        </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%" height="19"><font size=2>
      <p><font face="Times New Roman, Times, serif" size="2">Accumulated deficit
        </font></p>
      </font></td>
    <td width="18%" height="19"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">(35,555,771)
        </font></p>
      </font></td>
    <td width="16%" height="19"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">(33,889,432)
        </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%" height=23><font size=2>
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;Total
        stockholders' equity</font></p>
      </font></td>
    <td width="18%" height=23><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">16,726,843
        </font></p>
      </font></td>
    <td width="16%" height=23><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">16,814,361
        </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font size=2>
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total
        liabilities and stockholders' equity</font></p>
      </font></td>
    <td width="18%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 23,700,736
        </font></p>
      </font></td>
    <td width="16%"><font size=2>
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 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" size="2">_________________________
        </font></p>
      </font></td>
  </tr>
  <tr valign=bottom>
    <td colspan=3 height="23"><font size=2>
      <p><font face="Times New Roman, Times, serif" size="2">*Derived from audited
        consolidated financial statements </font></p>
      </font></td>
  </tr>
</table>
<P align=center><font face="Times New Roman, Times, serif" size="3">See accompanying
  notes. </font><font face="Times New Roman, Times, serif" size="3"> <BR>
  1</font>
<P align=center>&nbsp;
<p style="PAGE-BREAK-BEFORE: always">
<HR width="100%">
<font face="Times New Roman, Times, serif" size="3"><BR>
<a href="#TAB">(Index)</a> <a name=ops></a><BR>
</font>
<P align=center>
<TABLE cellSpacing=1 cellPadding=1 width=85% align=center border=1>
  <tr valign=bottom>
    <td colspan=5 height="33"><font size=2>
      <p align=center><b><font face="Times New Roman, Times, serif" size="2">SOCKET
        COMMUNICATIONS, INC. <br>
        CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS</font><font size="2"><br>
        </font></b><font size="2">(Unaudited) </font></p>
      </font></td>
  </tr>
  <TR vAlign=bottom>
    <TD height=17 width="36%">
      <P><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></P>
    </TD>
    <TD colspan="2" height=17>
      <div align="center"><font face="Times New Roman, Times, serif" size="2">Three
        Months Ended <br>
        September 30,</font></div>
    </TD>
    <TD colspan="2" height=17>
      <div align="center"><font face="Times New Roman, Times, serif" size="2">Nine
        Months Ended <br>
        September 30,</font></div>
    </TD>
  </TR>
  <TR vAlign=bottom>
    <TD width="36%" height=17>
      <P><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp; </font></P>
    </TD>
    <TD width="15%" height=17>
      <P align=center><font face="Times New Roman, Times, serif" size="2"><u>2006
        </u></font></P>
    </TD>
    <td width="15%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2"><u>2005
        </u></font></p>
    </td>
    <td width="17%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2"><u>2006</u>
        </font></p>
    </td>
    <td width="17%" 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="36%" height=17>
      <P><font face="Times New Roman, Times, serif" size="2">Revenues </font></P>
    </TD>
    <TD width="15%" height=17>
      <P align=center><font face="Times New Roman, Times, serif" size="2">$ 5,974,319
        </font> </P>
    </TD>
    <td width="15%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 6,547,894
        </font> </p>
    </td>
    <td width="17%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 19,588,038
        </font></p>
    </td>
    <td width="17%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 19,110,504
        </font></p>
    </td>
  </TR>
  <TR vAlign=bottom>
    <TD width="36%" 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">3,151,352
        </font></P>
    </TD>
    <td width="15%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">3,265,803
        </font></p>
    </td>
    <td width="17%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">9,990,419
        </font></p>
    </td>
    <td width="17%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">9,468,863
        </font></p>
    </td>
  </TR>
  <TR vAlign=bottom>
    <TD width="36%" 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">2,822,967
        </font></P>
    </TD>
    <td width="15%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">3,282,091
        </font></p>
    </td>
    <td width="17%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">9,597,619
        </font></p>
    </td>
    <td width="17%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">9,641,641
        </font></p>
    </td>
  </TR>
  <TR vAlign=bottom>
    <TD height=18 width="36%">
      <P><font face="Times New Roman, Times, serif" size="2"> </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
        </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
        </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
        &nbsp;&nbsp; &nbsp;&nbsp;</font></P>
    </TD>
    <TD height=18 width="15%"><font face="Times New Roman, Times, serif" size="2">
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      &nbsp;&nbsp; &nbsp;&nbsp;</font></TD>
    <td height=18 width="15%"><font face="Times New Roman, Times, serif" size="2">
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      &nbsp;&nbsp; &nbsp;&nbsp;</font></td>
    <TD height=18 width="17%"><font face="Times New Roman, Times, serif" size="2">
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      &nbsp;&nbsp; &nbsp;&nbsp;</font></TD>
    <td height=18 width="17%"><font face="Times New Roman, Times, serif" size="2">
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      &nbsp;&nbsp; &nbsp;&nbsp;</font></td>
  </TR>
  <TR vAlign=bottom>
    <TD height=24 width="36%">
      <P><font face="Times New Roman, Times, serif" size="2">Operating expenses:
        </font></P>
    </TD>
    <TD height=24 width="15%"><font face="Times New Roman, Times, serif" size="2">
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      &nbsp;&nbsp; &nbsp;&nbsp;</font><font size="2"></font></TD>
    <td height=24 width="15%"><font face="Times New Roman, Times, serif" size="2">
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      &nbsp;&nbsp; &nbsp;&nbsp;</font><font size="2"></font></td>
    <td height=24 width="17%"><font face="Times New Roman, Times, serif" size="2">
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      &nbsp;&nbsp; &nbsp;&nbsp;</font><font size="2"></font></td>
    <td height=24 width="17%"><font face="Times New Roman, Times, serif" size="2">
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      &nbsp;&nbsp; &nbsp;&nbsp;</font><font size="2"></font></td>
  </TR>
  <TR vAlign=bottom>
    <TD width="36%" 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">1,238,875
        </font></P>
    </TD>
    <td width="15%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">848,009
        </font></p>
    </td>
    <td width="17%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">3,754,223
        </font></p>
    </td>
    <td width="17%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">2,635,019
        </font></p>
    </td>
  </TR>
  <TR vAlign=bottom>
    <TD width="36%" 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">1,838,660
        </font></P>
    </TD>
    <td width="15%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">1,654,139
        </font></p>
    </td>
    <td width="17%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">5,441,797
        </font></p>
    </td>
    <td width="17%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">4,846,349
        </font></p>
    </td>
  </TR>
  <TR vAlign=bottom>
    <TD width="36%" 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">594,932
        </font></P>
    </TD>
    <td width="15%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">563,225
        </font></p>
    </td>
    <td width="17%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">2,078,675
        </font></p>
    </td>
    <td width="17%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">1,975,105
        </font></p>
    </td>
  </TR>
  <TR vAlign=bottom>
    <TD width="36%" 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">34,552
        </font></DIV>
    </TD>
    <td width="15%" height=17>
      <div align=center><font face="Times New Roman, Times, serif" size="2">36,044
        </font></div>
    </td>
    <td width="17%" height=17>
      <div align=center><font face="Times New Roman, Times, serif" size="2">106,638
        </font></div>
    </td>
    <td width="17%" height=17>
      <div align=center><font face="Times New Roman, Times, serif" size="2">166,999
        </font></div>
    </td>
  </TR>
  <TR vAlign=bottom>
    <TD width="36%" 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">3,707,019
        </font></P>
    </TD>
    <td width="15%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">3,101,417
        </font></p>
    </td>
    <td width="17%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">11,381,333
        </font></p>
    </td>
    <td width="17%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">9,623,472
        </font></p>
    </td>
  </TR>
  <TR vAlign=bottom>
    <TD width="36%" height=9>&nbsp;</TD>
    <TD width="15%" height=9>&nbsp;</TD>
    <td width="15%" height=9>&nbsp;</td>
    <td width="17%" height=9>&nbsp;</td>
    <td width="17%" height=9>&nbsp;</td>
  </TR>
  <TR vAlign=bottom>
    <TD width="36%" height=18>
      <P><font face="Times New Roman, Times, serif" size="2">Operating income
        (loss) </font></P>
    </TD>
    <TD width="15%" height=18>
      <P align=center><font face="Times New Roman, Times, serif" size="2">(884,052)
        </font></P>
    </TD>
    <td width="15%" height=18>
      <p align=center><font face="Times New Roman, Times, serif" size="2">180,674
        </font></p>
    </td>
    <td width="17%" height=18>
      <p align=center><font face="Times New Roman, Times, serif" size="2">(1,783,714)</font></p>
    </td>
    <td width="17%" height=18>
      <p align=center><font face="Times New Roman, Times, serif" size="2">18,169</font></p>
    </td>
  </TR>
  <TR vAlign=bottom>
    <TD height=17 width="36%"><font face="Times New Roman, Times, serif" size="2">
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      &nbsp;&nbsp; &nbsp;&nbsp;</font><font size="2"></font><font size="2"></font><font size="2"></font><font size="2"></font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      &nbsp;&nbsp;</font><font size="2"></font></TD>
    <TD height=17 width="15%"><font face="Times New Roman, Times, serif" size="2">
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      &nbsp;&nbsp; &nbsp;&nbsp;</font></TD>
    <td height=17 width="15%"><font face="Times New Roman, Times, serif" size="2">
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      &nbsp;&nbsp; &nbsp;&nbsp;</font></td>
    <TD height=17 width="17%"><font face="Times New Roman, Times, serif" size="2">
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      &nbsp;&nbsp; &nbsp;&nbsp;</font></TD>
    <td height=17 width="17%"><font face="Times New Roman, Times, serif" size="2">
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      &nbsp;&nbsp; &nbsp;&nbsp;</font></td>
  </TR>
  <TR vAlign=bottom>
    <TD width="36%" height=17>
      <P><font face="Times New Roman, Times, serif" size="2">Interest income and
        other </font> </P>
    </TD>
    <TD width="15%" height=17>
      <P align=center><font face="Times New Roman, Times, serif" size="2">47,499
        </font></P>
    </TD>
    <td width="15%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">27,362
        </font></p>
    </td>
    <td width="17%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">134,092
        </font></p>
    </td>
    <td width="17%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">58,837
        </font></p>
    </td>
  </TR>
  <TR vAlign=bottom>
    <TD width="36%" height=17>
      <P><font face="Times New Roman, Times, serif" size="2">Interest expense
        </font></P>
    </TD>
    <TD width="15%" height=17>
      <P align=center><font face="Times New Roman, Times, serif" size="2">(1,783)
        </font></P>
    </TD>
    <td width="15%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">(764)
        </font></p>
    </td>
    <td width="17%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">(6,064)
        </font></p>
    </td>
    <td width="17%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">(3,360)
        </font></p>
    </td>
  </TR>
  <TR vAlign=bottom>
    <TD height=17 width="36%"><font face="Times New Roman, Times, serif" size="2">
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      &nbsp;&nbsp; &nbsp;&nbsp;</font><font size="2"></font><font size="2"></font><font size="2"></font><font size="2"></font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      &nbsp;&nbsp;</font><font size="2"></font></TD>
    <TD height=17 width="15%"><font face="Times New Roman, Times, serif" size="2">
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      &nbsp;&nbsp; &nbsp;&nbsp;</font></TD>
    <td height=17 width="15%"><font face="Times New Roman, Times, serif" size="2">
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      &nbsp;&nbsp; &nbsp;&nbsp;</font></td>
    <TD height=17 width="17%"><font face="Times New Roman, Times, serif" size="2">
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      &nbsp;&nbsp; &nbsp;&nbsp;</font></TD>
    <td height=17 width="17%"><font face="Times New Roman, Times, serif" size="2">
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      &nbsp;&nbsp; &nbsp;&nbsp;</font></td>
  </TR>
  <TR vAlign=bottom>
    <TD width="36%" height=17>
      <P><font face="Times New Roman, Times, serif" size="2">Net income (loss)
        </font></P>
    </TD>
    <TD width="15%" height=17>
      <P align=center><font face="Times New Roman, Times, serif" size="2">(838,336)</font></P>
    </TD>
    <td width="15%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">207,272</font></p>
    </td>
    <td width="17%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">(1,655,686)
        </font></p>
    </td>
    <td width="17%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">73,646
        </font></p>
    </td>
  </TR>
  <tr valign=bottom>
    <td valign=top width="36%" 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">-- </font></p>
    </td>
    <td width="15%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">(12,087)
        </font></p>
    </td>
    <td width="17%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">(10,653)
        </font></p>
    </td>
    <td width="17%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">(36,461)
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td valign=top width="36%" height=17>
      <p><font face="Times New Roman, Times, serif" size="2">Net income (loss)
        applicable to common stockholders</font></p>
    </td>
    <td width="15%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ (838,336)
        </font></p>
    </td>
    <td width="15%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 195,185
        </font></p>
    </td>
    <td width="17%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ (1,666,339)
        </font></p>
    </td>
    <td width="17%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 37,185
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td valign=top width="36%" height=17>&nbsp;</td>
    <td width="15%" height=17>&nbsp;</td>
    <td width="15%" height=17>&nbsp;</td>
    <td width="17%" height=17>&nbsp;</td>
    <td width="17%" height=17>&nbsp;</td>
  </tr>
  <tr valign=bottom>
    <td valign=top width="36%" height=17>
      <p><font face="Times New Roman, Times, serif" size="2">Net income (loss)
        per share applicable to common stockholders:</font></p>
    </td>
    <td width="15%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font>
        <font face="Times New Roman, Times, serif" size="2"> </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
        </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
        &nbsp;&nbsp; &nbsp;&nbsp;</font> </p>
    </td>
    <td width="15%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font>
        <font face="Times New Roman, Times, serif" size="2"> </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
        </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
        &nbsp;&nbsp; &nbsp;&nbsp;</font> </p>
    </td>
    <td width="17%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2"> </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
        </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
        &nbsp;&nbsp; &nbsp;&nbsp;</font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font>
      </p>
    </td>
    <td width="17%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2"> </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
        </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
        &nbsp;&nbsp; &nbsp;&nbsp;</font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font>
      </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td valign=top width="36%" 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">$ (0.03)
        </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="17%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ (0.05)
        </font></p>
    </td>
    <td width="17%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 0.00
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td valign=top width="36%" 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">$ (0.03)
        </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="17%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ (0.05)
        </font></p>
    </td>
    <td width="17%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 0.00
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="36%" height=7>
      <p><font face="Times New Roman, Times, serif" size="2">Weighted average
        shares outstanding:</font></p>
    </td>
    <td width="15%" height=7>
      <p align=center><font size="2"></font><font face="Times New Roman, Times, serif" size="2">
        </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
        </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
        &nbsp;&nbsp; &nbsp;&nbsp;</font></p>
    </td>
    <td width="15%" height=7>
      <p align=center><font size="2"></font><font face="Times New Roman, Times, serif" size="2">
        </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
        </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
        &nbsp;&nbsp; &nbsp;&nbsp;</font></p>
    </td>
    <td width="17%" height=7>
      <p align=center><font size="2"></font><font face="Times New Roman, Times, serif" size="2">
        </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
        </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
        &nbsp;&nbsp; &nbsp;&nbsp;</font></p>
    </td>
    <td width="17%" height=7>
      <p align=center><font size="2"></font><font face="Times New Roman, Times, serif" size="2">
        </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
        </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
        &nbsp;&nbsp; &nbsp;&nbsp;</font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td valign=top width="36%" 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">31,846,451</font></p>
    </td>
    <td width="15%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">30,197,768
        </font></p>
    </td>
    <td width="17%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">31,312,593
        </font></p>
    </td>
    <td width="17%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">30,171,251
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td valign=top width="36%" 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">31,846,451</font></p>
    </td>
    <td width="15%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">32,375,678
        </font></p>
    </td>
    <td width="17%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">31,312,593
        </font></p>
    </td>
    <td width="17%" height=17>
      <p align=center><font face="Times New Roman, Times, serif" size="2">32,543,295
        </font></p>
    </td>
  </tr>
</TABLE>
<P></P>
<P align=center><font face="Times New Roman, Times, serif" size="3">See accompanying
  notes. </font><font face="Times New Roman, Times, serif" size="3"> <BR>
  2</font><font face="Times New Roman, Times, serif" size="3"></font>
<P align=center>&nbsp;
<p style="PAGE-BREAK-BEFORE: always">
<HR width="100%">
<p><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
  <font face="Times New Roman, Times, serif" size="3"><a
name=flows></a></font> </p>
<table cellspacing=1 cellpadding=1 width=85% align=center border=1>
  <tr valign=bottom>
    <td colspan=3>
      <p align=center><font face="Times New Roman, Times, serif" size="2"><b>SOCKET
        COMMUNICATIONS, INC. <br>
        CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS</b> <br>
        (Unaudited) </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%" height="18">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></p>
    </td>
    <td colspan=2 height="18">
      <p align=center><font face="Times New Roman, Times, serif" size="2">Nine
        Months Ended September 30, </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;</font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">2006</font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">2005
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><b>
      <p><font face="Times New Roman, Times, serif" size="2">Operating activities</font>
      </p>
      </b></td>
    <td colspan=2>
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;Net income
        (loss)</font> </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ (1,655,686)
        </font> </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 73,646
        </font> </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%" height="9">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;Adjustments
        to reconcile net 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="66%">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;Stock-based
        compensation </font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">934,018
        </font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">-- </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;Depreciation
        and amortization</font> </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">530,054
        </font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">331,602
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;
      Amortization of intangibles</font></td>
    <td width="17%">
      <div align=center><font face="Times New Roman, Times, serif" size="2">106,638
        </font></div>
    </td>
    <td width="17%">
      <div align=center><font face="Times New Roman, Times, serif" size="2">166,999
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;(Gain)
        loss on foreign currency translations</font> </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(70,669)
        </font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">115,846
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;
      (Gain) loss on forward exchange contracts</font></td>
    <td width="17%">
      <div align=center><font face="Times New Roman, Times, serif" size="2">23,585
        </font></div>
    </td>
    <td width="17%">
      <div align=center><font face="Times New Roman, Times, serif" size="2">(71,617)
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;
      Change in deferred rent</font></td>
    <td width="17%">
      <div align=center><font face="Times New Roman, Times, serif" size="2">(24,768)</font></div>
    </td>
    <td width="17%">
      <div align=center><font face="Times New Roman, Times, serif" size="2">(24,765)
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td colspan="3"><font face="Times New Roman, Times, serif" size="2"> </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      &nbsp;&nbsp; &nbsp;&nbsp;</font><font size="2"></font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;
        Changes in operating assets and liabilities:</font> </p>
    </td>
    <td colspan=2>
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts
        receivable</font> </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(335,336)
        </font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">329,096
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories</font>
      </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(366,681)
        </font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">544,484
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prepaid
        expenses and other current assets</font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">127,836
        </font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(81,388)
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other
        assets</font> </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(11,117)
        </font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(7,674)
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts
        payable and accrued expenses</font> </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">130,813
        </font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">290,868
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued
        payroll and related expenses</font> </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">63,761
        </font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">15,397
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred
        income on shipments to distributors</font> </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">92,830
        </font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">80,381
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net
        cash provided by (used for) operating activities</font> </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(454,722)
        </font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">1,762,875
        </font> </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td colspan=3>
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><b>
      <p><font face="Times New Roman, Times, serif" size="2">Investing activities</font>
      </p>
      </b></td>
    <td colspan=2>
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;
        Purchase of equipment and tooling</font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(675,824)
        </font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(383,228)
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net
        cash used in investing activities</font> </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(675,824)
        </font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(383,228)
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td colspan=3>
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><b>
      <p><font face="Times New Roman, Times, serif" size="2">Financing activities</font>
      </p>
      </b></td>
    <td colspan=2>
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;
        Payments on capital leases and equipment financing notes</font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(7,169)
        </font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(6,839)
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;
        Gross proceeds from bank line of credit</font> </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">7,192,928
        </font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">7,763,136
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%">
      <p><font face="Times New Roman, Times, serif" size="2"> &nbsp;&nbsp;&nbsp;
        Gross payments on bank line of credit</font> </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(7,282,305)</font>
      </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(8,458,572)
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%">
      <p><font face="Times New Roman, Times, serif" size="2"> &nbsp;&nbsp;&nbsp;
        Proceeds from stock options exercised</font> </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">60,701
        </font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">46,869
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%">
      <p><font face="Times New Roman, Times, serif" size="2"> &nbsp;&nbsp;&nbsp;
        Proceeds from warrants exercised</font> </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">584,102</font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">-- </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%" height="10">
      <p><font face="Times New Roman, Times, serif" size="2"> &nbsp;&nbsp;&nbsp;
        Dividends paid </font></p>
    </td>
    <td width="17%" height="10">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(22,682)
        </font> </p>
    </td>
    <td width="17%" height="10">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(36,574)</font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net
        cash provided by (used for) financing activities</font> </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">525,575
        </font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(691,980)
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td colspan=3>
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%">
      <p><font face="Times New Roman, Times, serif" size="2">Effect of exchange
        rate changes on cash and cash equivalents</font> </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">307
        </font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(48,520)
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%">
      <p><font face="Times New Roman, Times, serif" size="2">Net increase (decrease)
        in cash and cash equivalents</font> </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(604,664)
        </font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">639,147
        </font> </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%" height="22"><font face="Times New Roman, Times, serif" size="2">
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      &nbsp;&nbsp; &nbsp;&nbsp;</font><font size="2"></font></td>
    <td width="17%" height="22"><font face="Times New Roman, Times, serif" size="2">
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      &nbsp;&nbsp; &nbsp;&nbsp;</font><font size="2"></font></td>
    <td width="17%" height="22"><font face="Times New Roman, Times, serif" size="2">
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      &nbsp;&nbsp; &nbsp;&nbsp;</font><font size="2"></font></td>
  </tr>
  <tr valign=bottom>
    <td width="66%">
      <p><font face="Times New Roman, Times, serif" size="2">Cash and cash equivalents
        at beginning of period</font> </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">6,833,193
        </font> </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">5,931,752
        </font> </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%">
      <p><font face="Times New Roman, Times, serif" size="2">Cash and cash equivalents
        at end of period</font> </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 6,228,529
        </font> </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 6,570,899
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td colspan=3>
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%"><b>
      <p><font face="Times New Roman, Times, serif" size="2">Supplemental cash
        flow information</font> </p>
      </b></td>
    <td colspan=2>
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="66%">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;
        Cash paid for interest</font> </p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 1,783
        </font></p>
    </td>
    <td width="17%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 765
        </font> </p>
    </td>
  </tr>
</table>
<p align="center"><font face="Times New Roman, Times, serif" size="3">See accompanying
  notes. </font><font face="Times New Roman, Times, serif" size="3"> <BR>
  3</font></p>
<p style="PAGE-BREAK-BEFORE: always">
<HR width="100%">
<P align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
  <font face="Times New Roman, Times, serif" size="3"><a name=notes></a></font>
<P align=center><font face="Times New Roman, Times, serif" size="3"><b>SOCKET
  COMMUNICATIONS, INC.<br>
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS<br>
  </b>(Unaudited) </font>
<p><b>NOTE 1 - Basis of Presentation</b></p>
<p>The accompanying unaudited consolidated financial statements of Socket Communications,
  Inc. and its wholly owned subsidiaries (the &quot;Company&quot;) 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><br>
  <b>NOTE 2 - Summary of Significant Accounting Policies</b></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 Statement of Financial Accounting Standards
  No. 123R, &quot;Share-Based Payment,&quot; (&quot;SFAS 123R&quot;), 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 123R 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. </p>
<p align="center"><font face="Times New Roman, Times, serif" size="3">4</font></p>
<p style="PAGE-BREAK-BEFORE: always">
<hr width="100%">
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
  <font face="Times New Roman, Times, serif" size="3"><a name=notes></a></font>
<p><br>
  <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 September 30, 2006, options issued to employees for 8,961,920 shares were
  outstanding, of which 6,705,619 were exercisable. The weighted average fair
  value of the individual options issued and outstanding during the three and
  nine months ended September 30, 2006 was estimated at $1.64 and $1.71 per share,
  respectively. The fair values were determined using a binomial lattice valuation
  model for options granted during the first nine months 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 and
  nine months ended September 30, 2006 are shown below:</p>
<p align=left>&nbsp;
<table cellspacing=1 cellpadding=1 width=80% align=center border=1>
  <tr valign=bottom>
    <td width="43%" height="18"><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font></td>
    <td colspan="2" height="18">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">Three
        Months Ended<br>
        September 30, 2006</font></div>
    </td>
    <td colspan="2" height="18" width="28%">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">Nine
        Months Ended <br>
        September 30, 2006</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="43%">
      <p><font face="Times New Roman, Times, serif" size="2">Risk-free interest
        rate (%)</font> </p>
    </td>
    <td colspan="2">
      <p align=center><font face="Times New Roman, Times, serif" size="2">3.54%
        </font> </p>
    </td>
    <td colspan="2" width="28%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">3.49%
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="43%">
      <p><font face="Times New Roman, Times, serif" size="2">Dividend yield</font>
      </p>
    </td>
    <td colspan="2">
      <p align=center><font face="Times New Roman, Times, serif" size="2">-- </font>
      </p>
    </td>
    <td colspan="2" width="28%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">-- </font>
      </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="43%">
      <p><font face="Times New Roman, Times, serif" size="2">Volatility factor</font>
      </p>
    </td>
    <td colspan="2">
      <p align=center><font face="Times New Roman, Times, serif" size="2">1.2</font>
      </p>
    </td>
    <td colspan="2" width="28%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">1.2</font>
      </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="43%">
      <p><font face="Times New Roman, Times, serif" size="2">Expected option life
        (years) </font> </p>
    </td>
    <td colspan="2">
      <p align=center><font face="Times New Roman, Times, serif" size="2">4.7
        </font> </p>
    </td>
    <td colspan="2" width="28%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">4.8
        </font> </p>
    </td>
  </tr>
</table>
<br>
<p>Total stock-based compensation expense recognized in our consolidated statement
  of operations for the three and nine months ended September 30, 2006 are as
  follows:<br>
  <br>
</p>
<table cellspacing=1 cellpadding=1 width=80% align=center border=1>
  <tr valign=bottom>
    <td width="43%" height="11"><font size="2">Income Statement Classification</font></td>
    <td colspan="2" height="11">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">Three
        Months Ended <br>
        September 30, 2006</font></div>
    </td>
    <td colspan="2" height="11" width="28%">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">Nine
        Months Ended <br>
        September 30, 2006</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="43%" height="8">
      <p><font face="Times New Roman, Times, serif" size="2">Cost of revenue</font></p>
    </td>
    <td colspan="2" height="8">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 27,141</font>
      </p>
    </td>
    <td colspan="2" height="8" width="28%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 74,832</font>
      </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="43%" height="12">
      <p><font face="Times New Roman, Times, serif" size="2">Research and development</font></p>
    </td>
    <td colspan="2" height="12">
      <p align=center><font face="Times New Roman, Times, serif" size="2">65,228
        </font> </p>
    </td>
    <td colspan="2" height="12" width="28%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">247,924
        </font> </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="43%">
      <p><font face="Times New Roman, Times, serif" size="2">Sales and marketing</font>
      </p>
    </td>
    <td colspan="2">
      <p align=center><font face="Times New Roman, Times, serif" size="2">113,232
        </font> </p>
    </td>
    <td colspan="2" width="28%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">353,799
        </font> </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="43%" height="17">
      <p><font face="Times New Roman, Times, serif" size="2">General and administrative</font></p>
    </td>
    <td colspan="2" height="17">
      <p align=center><font face="Times New Roman, Times, serif" size="2">91,973
        </font> </p>
    </td>
    <td colspan="2" height="17" width="28%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">257,463
        </font> </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="43%">
      <p><font face="Times New Roman, Times, serif" size="2">Total</font> </p>
    </td>
    <td colspan="2">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 297,574
        </font> </p>
    </td>
    <td colspan="2" width="28%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 934,018</font></p>
    </td>
  </tr>
</table>
<br>
<p>Prior to January 1, 2006 the Company accounted for employee stock options in
  accordance with Accounting Principles Board Opinion No. 25, &quot;Accounting
  for Stock Issued to Employees&quot; (&quot;APB 25&quot;), and the Company adopted
  the disclosure-only alternative described in Statement of Financial Accounting
  Standards No. 123, &quot;Accounting for Stock-Based Compensation&quot; (&quot;SFAS
  123&quot;). 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 stockholders
  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 align="center"><font face="Times New Roman, Times, serif" size="3">5</font></p>
<p style="PAGE-BREAK-BEFORE: always">
<hr width="100%">
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
  <font face="Times New Roman, Times, serif" size="3"><a name=notes></a></font>
<p>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 three and nine months ended September 30, 2005 would have changed to
  the pro forma net loss amounts indicated below:</p>
<p><br>
  <br>
  <br>
</p>
<table cellspacing=1 cellpadding=1 width=80% align=center border=1>
  <tr valign=bottom>
    <td width="43%" height="11"><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></td>
    <td colspan="2" height="11">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">Three
        Months Ended <br>
        September 30, 2005</font></div>
    </td>
    <td colspan="2" height="11" width="28%">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">Nine
        Months Ended <br>
        September 30, 2005</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="43%" height="8">
      <p><font face="Times New Roman, Times, serif" size="2">Net income (loss)
        applicable to common stockholders, as reported</font></p>
    </td>
    <td colspan="2" height="8">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 195,185</font>
      </p>
    </td>
    <td colspan="2" height="8" width="28%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 37,185</font>
      </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="43%" height="10">
      <p><font face="Times New Roman, Times, serif" size="2">Stock-based employee
        compensation expense determined under fair value based method</font> </p>
    </td>
    <td colspan="2" height="10">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(360,567)
        </font> </p>
    </td>
    <td colspan="2" height="10" width="28%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">(1,923,018)
        </font> </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="43%">
      <p><font face="Times New Roman, Times, serif" size="2">Pro forma net loss
        applicable to common stockholders</font> </p>
    </td>
    <td colspan="2">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ (165,382)
        </font> </p>
    </td>
    <td colspan="2" width="28%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ (1,885,833)
        </font> </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="43%" height="9">&nbsp;</td>
    <td colspan="2" height="9">&nbsp;</td>
    <td colspan="2" height="9" width="28%">&nbsp;</td>
  </tr>
  <tr valign=bottom>
    <td width="43%" height="9">
      <p><font face="Times New Roman, Times, serif" size="2">Basic net income
        (loss) per share, as reported</font></p>
    </td>
    <td colspan="2" height="9">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 0.01</font>
      </p>
    </td>
    <td colspan="2" height="9" width="28%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ (0.01)</font>
      </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="43%" height="17">
      <p><font face="Times New Roman, Times, serif" size="2">Diluted net income
        (loss) per share, as reported</font></p>
    </td>
    <td colspan="2" height="17">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 0.01
        </font> </p>
    </td>
    <td colspan="2" height="17" width="28%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ (0.01)
        </font> </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="43%">
      <p><font face="Times New Roman, Times, serif" size="2">Pro forma basic and
        diluted net loss per share</font> </p>
    </td>
    <td colspan="2">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ (0.01)
        </font> </p>
    </td>
    <td colspan="2" width="28%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ (0.06)
        </font> </p>
    </td>
  </tr>
</table>
<br>
<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
  and nine months ended September 30, 2005 is presented below:</p>
<table cellspacing=1 cellpadding=1 width=80% align=center border=1>
  <tr valign=bottom>
    <td width="43%" height="18"><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;
      </font></td>
    <td colspan="2" height="18">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">Three
        Months Ended<br>
        September 30, 2005</font></div>
    </td>
    <td colspan="2" height="18" width="28%">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">Nine
        Months Ended <br>
        September 30, 2005</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="43%">
      <p><font face="Times New Roman, Times, serif" size="2">Risk-free interest
        rate (%)</font> </p>
    </td>
    <td colspan="2">
      <p align=center><font face="Times New Roman, Times, serif" size="2">4.07%
        </font> </p>
    </td>
    <td colspan="2" width="28%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">3.92%
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="43%">
      <p><font face="Times New Roman, Times, serif" size="2">Dividend yield</font>
      </p>
    </td>
    <td colspan="2">
      <p align=center><font face="Times New Roman, Times, serif" size="2">-- </font>
      </p>
    </td>
    <td colspan="2" width="28%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">-- </font>
      </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="43%">
      <p><font face="Times New Roman, Times, serif" size="2">Volatility factor</font>
      </p>
    </td>
    <td colspan="2">
      <p align=center><font face="Times New Roman, Times, serif" size="2">0.8</font>
      </p>
    </td>
    <td colspan="2" width="28%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">0.9</font>
      </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="43%">
      <p><font face="Times New Roman, Times, serif" size="2">Expected option life
        (years) </font> </p>
    </td>
    <td colspan="2">
      <p align=center><font face="Times New Roman, Times, serif" size="2">4.5
        </font> </p>
    </td>
    <td colspan="2" width="28%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">4.5
        </font> </p>
    </td>
  </tr>
</table>
<br>
<p><font face="Times New Roman, Times, serif" size="3"><b>NOTE 4 - Inventories</b></font></p>
<p>Inventories consist principally of raw materials and sub-assemblies, which
  are stated at the lower of cost (first-in, first-out) or market.<br>
  <br>
</p>
<table cellspacing=1 cellpadding=1 width=80% align=center border=1>
  <tr valign=bottom>
    <td><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></td>
    <td width="28%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">September
        30, 2006 </font></p>
    </td>
    <td width="28%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">December
        31, 2005 </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td>
      <p><font face="Times New Roman, Times, serif" size="2">Raw materials and
        subassemblies </font></p>
    </td>
    <td width="28%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 2,280,129
        </font></p>
    </td>
    <td width="28%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 1,910,653
        </font> </p>
    </td>
  </tr>
  <tr valign=bottom>
    <td height="21">
      <p><font face="Times New Roman, Times, serif" size="2">Finished goods</font></p>
    </td>
    <td width="28%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">281,946
        </font></p>
    </td>
    <td width="28%">
      <p align=center><font face="Times New Roman, Times, serif" size="2">284,741
        </font></p>
    </td>
  </tr>
  <tr valign=bottom>
    <td height="11">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;
        </font> </p>
    </td>
    <td width="28%" height="11">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 2,562,075
        </font></p>
    </td>
    <td width="28%" height="11">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 2,195,394
        </font></p>
    </td>
  </tr>
</table>
<p><br>
</p>
<p align="center"><font face="Times New Roman, Times, serif" size="3">6</font>
</p>
<hr width="100%">
<font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p><b>NOTE 5 - Bank Financing Arrangements</b></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 September
  30, 2006 were 8.75% on both the domestic and international lines. At September
  30, 2006, outstanding amounts borrowed under the lines were $1,382,916 and $836,478,
  respectively, which were the approximate amounts available on the lines. These
  amounts outstanding at September 30, 2006 were repaid in October 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 three fiscal quarters
  in 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 quarterly tangible net worth requirement
  for each of the first three fiscal quarters of 2006.</p>
<p><br>
  <b>NOTE 6 - Series F Convertible Preferred Stock Financing</b></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 &quot;Series F Preferred Stock&quot;) 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 was 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>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.</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. Final dividends on the Series F Preferred Stock up through the date
  of mandatory conversion in the first quarter 2006 were $10,653, and were paid
  in cash prior to the end of the first quarter. Dividends for the three and nine
  months ended September 30, 2005 were $12,087 and $36,461, respectively, which
  were paid in cash subsequent to the end of each of the respective quarters.</p>
<p align="center"><font face="Times New Roman, Times, serif" size="3">7</font></p>
<p style="PAGE-BREAK-BEFORE: always">
<hr width="100%">
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
  <font face="Times New Roman, Times, serif" size="3"><a name=notes></a></font>
<p><b><br>
  NOTE 7 - Intangible Assets</b></p>
<p>Intangible assets at September 30, 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>
<p>Amortization of all intangible assets for the three and nine months ended September
  30, 2006 was $34,552 and $106,638, respectively, compared to $36,044 and $166,999,
  respectively, for the same periods in 2005. Intangible assets as of September
  30, 2006 consisted of the following:</p>
<p><br>
  <br>
</p>
<table cellspacing=1 cellpadding=1 width=78% align=center border=1>
  <tr valign=bottom>
    <td width="472">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp; </font></p>
    </td>
    <td width="169">
      <p align=center><font face="Times New Roman, Times, serif" size="2">Gross<br>
        Assets </font></p>
    </td>
    <td width="138">
      <div align="center"><font size="2" face="Times New Roman, Times, serif">Accumulated
        Amortization</font></div>
    </td>
    <td width="162">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">Net
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="472">
      <p><font face="Times New Roman, Times, serif" size="2">Patent</font></p>
    </td>
    <td width="169">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ 600,000
        </font></p>
    </td>
    <td width="138">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        (135,000) </font></div>
    </td>
    <td width="162">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        465,000 </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="472">
      <p><font face="Times New Roman, Times, serif" size="2">Project management
        tools </font></p>
    </td>
    <td width="169">
      <p align=center><font face="Times New Roman, Times, serif" size="2">570,750
        </font></p>
    </td>
    <td width="138">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">(402,882)
        </font></div>
    </td>
    <td width="162">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">167,868
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="472">
      <p><font face="Times New Roman, Times, serif" size="2">Licensing agreement</font></p>
    </td>
    <td width="169">
      <p align=center><font face="Times New Roman, Times, serif" size="2">114,342
        </font></p>
    </td>
    <td width="138">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">(104,911)
        </font></div>
    </td>
    <td width="162">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">9,431
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="472">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;Intangible
        technology </font></p>
    </td>
    <td width="169">
      <p align=center><font face="Times New Roman, Times, serif" size="2">$1,285,092
        </font></p>
    </td>
    <td width="138">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        (642,793) </font></div>
    </td>
    <td width="162">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        642,299 </font></div>
    </td>
  </tr>
</table>
<br>
<p align=left>Based on definite lived intangible assets recorded at September
  30, 2006, and assuming no subsequent impairment of the underlying assets, the
  annual amortization expense is expected to be as follows:<br>
  <br>
  <br>
<table cellspacing=1 cellpadding=1 width=60% align=center border=1>
  <tr valign=bottom>
    <td colspan="3">
      <p align="left"><font face="Times New Roman, Times, serif" size="2">Year
        </font></p>
    </td>
    <td width="226" align="center">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">Amount</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td colspan="3">
      <div align="left"><font face="Times New Roman, Times, serif" size="2">2006
        (three months remaining)</font></div>
    </td>
    <td width="226" align="center">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        33,808 </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="226" align="center">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">134,557
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td colspan="3">
      <div align="left"><font face="Times New Roman, Times, serif" size="2">2008
        </font></div>
    </td>
    <td width="226" align="center">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">127,147
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td colspan="3">
      <div align="left"><font face="Times New Roman, Times, serif" size="2">2009
        </font></div>
    </td>
    <td width="226" align="center">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">76,787
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td colspan="3">
      <div align="left"><font face="Times New Roman, Times, serif" size="2">2010
        </font></div>
    </td>
    <td width="226" align="center">
      <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="226" align="center">
      <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="226" align="center">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        642,299 </font></div>
    </td>
  </tr>
</table>
<p>&nbsp;</p>
<p align=center>8 <br>
  <br>
<hr width="100%">
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p align=left><font face="Times New Roman, Times, serif" size="3"><b>NOTE 8 -
  Net Income (Loss) Per Share </b></font>
<p>The Company calculates earnings per share in accordance with Financial Accounting
  Standards Board Statement No. 128, Earnings per Share.</p>
<p>The following table sets forth the computation of basic and diluted net income
  (loss) per share:<br>
  <br>
</p>
<table cellspacing=1 cellpadding=1 width=80% align=center border=1>
  <tr valign=top>
    <td width=412 height="22"><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></td>
    <td colspan=2 height="22">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">Three
        Months Ended <br>
        September 30,</font></div>
    </td>
    <td colspan=2 height="22">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">Nine
        Months Ended <br>
        September 30,</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width=412 height="2"><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></td>
    <td width="120">
      <div align="center"><font size="2">2006</font></div>
    </td>
    <td width="120">
      <div align="center"><font size="2">2005</font></div>
    </td>
    <td width="120">
      <div align="center"><font size="2">2006</font></div>
    </td>
    <td width="120">
      <div align="center"><font size="2">2005</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="412">
      <p><font face="Times New Roman, Times, serif" size="2">Numerator: </font></p>
    </td>
    <td width="120">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">&nbsp&nbsp&nbsp</font></div>
    </td>
    <td width="120">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">&nbsp&nbsp&nbsp</font></div>
    </td>
    <td width="120">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">&nbsp&nbsp&nbsp</font></div>
    </td>
    <td width="120">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">&nbsp&nbsp&nbsp</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width=412 height="14">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp&nbsp&nbspNet
        income (loss)</font></p>
    </td>
    <td width="120" height="14">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        (838,336)</font></div>
    </td>
    <td width="120" height="14">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        207,272</font></div>
    </td>
    <td width="120" height="14">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        (1,655,686) </font></div>
    </td>
    <td width="120" height="14">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        73,646</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width=412 height="18">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp&nbsp&nbspPreferred
        stock dividends</font></p>
    </td>
    <td width="120" height="18">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">--
        </font><font face="Times New Roman, Times, serif" size="2"> </font></div>
    </td>
    <td width="120" height="18">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">(12,087)
        </font><font face="Times New Roman, Times, serif" size="2"> </font></div>
    </td>
    <td width="120" height="18">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">(10,653)
        </font><font face="Times New Roman, Times, serif" size="2"> </font></div>
    </td>
    <td width="120" height="18">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">(36,461)
        </font><font face="Times New Roman, Times, serif" size="2"> </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width=412 height="13">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp&nbsp&nbspNet
        income (loss) applicable to common stockholders </font></p>
    </td>
    <td width="120" height="13">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        (838,336)</font></div>
    </td>
    <td width="120" height="13">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        195,185</font></div>
    </td>
    <td width="120" height="13">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        (1,666,339) </font></div>
    </td>
    <td width="120" height="13">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        37,185</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width="412" height="4">&nbsp;</td>
    <td width="120" height="4">&nbsp;</td>
    <td width="120" height="4">&nbsp;</td>
    <td width="120" height="4">&nbsp;</td>
    <td width="120" height="4">&nbsp;</td>
  </tr>
  <tr valign=bottom>
    <td width="412" height="4">
      <p><font face="Times New Roman, Times, serif" size="2">Denominator: </font></p>
    </td>
    <td width="120" height="4">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">&nbsp&nbsp&nbsp</font></div>
    </td>
    <td width="120" height="4">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">&nbsp&nbsp&nbsp</font></div>
    </td>
    <td width="120" height="4">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">&nbsp&nbsp&nbsp</font></div>
    </td>
    <td width="120" height="4">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">&nbsp&nbsp&nbsp</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td width=412 height="2" valign="top">
      <p><font face="Times New Roman, Times, serif" size="2">&nbsp&nbsp&nbspWeighted
        average common shares outstanding used&nbspin computing net income (loss)
        per share</font></p>
    </td>
    <td width="120" height="2">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">&nbsp&nbsp&nbsp</font></div>
    </td>
    <td width="120" height="2">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">&nbsp&nbsp&nbsp</font></div>
    </td>
    <td width="120" height="2" valign="bottom">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">&nbsp&nbsp&nbsp</font></div>
    </td>
    <td width="120" height="2" valign="bottom">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">&nbsp&nbsp&nbsp</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td align=left width=412 height="12">
      <p align="left"><font face="Times New Roman, Times, serif" size="2">&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbspBasic
        </font></p>
    </td>
    <td width="120" height="12">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">31,846,451</font><font face="Times New Roman, Times, serif" size="2">
        </font></div>
    </td>
    <td width="120" height="12">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">30,197,768</font><font face="Times New Roman, Times, serif" size="2">
        </font></div>
    </td>
    <td width="120" height="12">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">31,312,593</font><font face="Times New Roman, Times, serif" size="2">
        </font></div>
    </td>
    <td width="120" height="12">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">30,171,251</font><font face="Times New Roman, Times, serif" size="2">
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td align=left width=412>
      <p align="left"><font face="Times New Roman, Times, serif" size="2"> &nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbspDiluted
        </font></p>
    </td>
    <td width="120">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">31,846,451
        </font></div>
    </td>
    <td width="120">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">32,375,678
        </font></div>
    </td>
    <td width="120">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">31,312,593
        </font></div>
    </td>
    <td width="120">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">32,543,295
        </font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td align=left width=412>&nbsp;</td>
    <td width="120">&nbsp;</td>
    <td width="120">&nbsp;</td>
    <td width="120">&nbsp;</td>
    <td width="120">&nbsp;</td>
  </tr>
  <tr valign=bottom>
    <td align=left width=412>
      <p align="left"><font face="Times New Roman, Times, serif" size="2">Basic
        net income (loss) per share applicable to common stockholders</font></p>
    </td>
    <td width="120">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        (0.03)</font></div>
    </td>
    <td width="120">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        0.01</font></div>
    </td>
    <td width="120">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        (0.05)</font></div>
    </td>
    <td width="120">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        0.00</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td align=left width=412>
      <p align="left"><font face="Times New Roman, Times, serif" size="2">Diluted
        net income (loss) per share applicable to common stockholders</font></p>
    </td>
    <td width="120">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        (0.03)</font></div>
    </td>
    <td width="120">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        0.01</font></div>
    </td>
    <td width="120">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        (0.05)</font></div>
    </td>
    <td width="120">
      <div align="center"><font face="Times New Roman, Times, serif" size="2">$
        0.00</font></div>
    </td>
  </tr>
</table>
<br>
<p>For the three and nine months ended September 30, 2006, the diluted net loss
  per share applicable to common stockholders is equivalent to the basic net loss
  per share applicable to common stockholders, because the Company experienced
  losses in these periods and thus no potential common shares underlying stock
  options or warrants have been included in the net loss per share calculation
  as their effect is anti-dilutive. Therefore, options and warrants to purchase
  9,951,632 shares of common stock at September 30, 2006 from the exercise of
  stock options and warrants have been omitted from the net loss per share calculation.</p>
<p><b><br>
  NOTE 9 - Income Taxes</b></p>
<p>There were no provisions for income taxes for the three and nine months ended
  September 30, 2006 due to the year to date net losses. 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 align=center>9<br>
  <br>
<hr width="100%">
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p> <b><br>
  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 and nine months ended September 30,
  2006 and 2005 are as follows:</p>
<p><br>
  <br>
</p>
<CENTER>
  <TABLE cellSpacing=1 cellPadding=1 width=80% 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 height="22" colSpan=2>
        <div align="center"><font face="Times New Roman, Times, serif" size="2">Three
          Months Ended <br>
          September 30,</font></div>
      </TD>
      <TD colSpan=2 height="22">
        <P align=center><font face="Times New Roman, Times, serif" size="2">Nine
          Months Ended <br>
          September 30,</font></P>
      </TD>
    </TR>
    <TR vAlign=bottom>
      <TD width=378>
        <P><font face="Times New Roman, Times, serif" size="2">Revenues: </font></P>
      </TD>
      <td width=160>
        <p align=center><font face="Times New Roman, Times, serif" size="2">2006
          </font></p>
      </td>
      <td width=160>
        <p align=center><font face="Times New Roman, Times, serif" size="2">2005
          </font></p>
      </td>
      <TD width=160>
        <P align=center><font face="Times New Roman, Times, serif" size="2">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">$
          4,024,945 </font></p>
      </td>
      <td width=160>
        <p align=center><font face="Times New Roman, Times, serif" size="2">$
          4,491,693 </font></p>
      </td>
      <TD width=160>
        <P align=center><font face="Times New Roman, Times, serif" size="2">$13,738,995
          </font></P>
      </TD>
      <td width=160>
        <p align=center><font face="Times New Roman, Times, serif" size="2">$
          12,540,501 </font></p>
      </td>
    </TR>
    <TR vAlign=bottom>
      <TD width=378 height="6">
        <P><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;Europe
          </font></P>
      </TD>
      <td width=160 height="6">
        <p align=center><font face="Times New Roman, Times, serif" size="2">1,357,209
          </font></p>
      </td>
      <td width=160 height="6">
        <p align=center><font face="Times New Roman, Times, serif" size="2">1,289,987
          </font></p>
      </td>
      <TD width=160 height="6">
        <P align=center><font face="Times New Roman, Times, serif" size="2">4,201,895
          </font></P>
      </TD>
      <td width=160 height="6">
        <p align=center><font face="Times New Roman, Times, serif" size="2">4,649,879
          </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">592,165
          </font></p>
      </td>
      <td width=160>
        <p align=center><font face="Times New Roman, Times, serif" size="2">766,214
          </font></p>
      </td>
      <TD width=160>
        <P align=center><font face="Times New Roman, Times, serif" size="2">1,647,148
          </font></P>
      </TD>
      <td width=160>
        <p align=center><font face="Times New Roman, Times, serif" size="2">1,920,124
          </font></p>
      </td>
    </TR>
    <TR vAlign=bottom>
      <TD width=378>
        <P><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;Total
          revenues </font></P>
      </TD>
      <td width=160>
        <p align=center><font face="Times New Roman, Times, serif" size="2">$
          5,974,319</font></p>
      </td>
      <td width=160>
        <p align=center><font face="Times New Roman, Times, serif" size="2">$
          6,547,894</font></p>
      </td>
      <TD width=160>
        <P align=center><font face="Times New Roman, Times, serif" size="2">$
          19,588,038</font></P>
      </TD>
      <td width=160>
        <p align=center><font face="Times New Roman, Times, serif" size="2">$
          19,110,504</font></p>
      </td>
    </TR>
  </TABLE>
  <br>
</CENTER>
<P></P>
<P><font face="Times New Roman, Times, serif" size="3"><BR>
  Export revenues are attributable to countries based on the location of the customers.
  The Company does not hold long-lived assets in foreign locations.</font></P>
<p>Major customers who accounted for at least 10% of the Company's total revenues
  during the three and nine months ended September 30, 2006 and 2005 were as follows:<br>
  <br>
</p>
<P align=center>
<CENTER>
  <TABLE cellSpacing=1 cellPadding=1 width=80% align=center border=1>
    <TR vAlign=bottom>
      <TD width="32%" height=16><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></TD>
      <td colspan=2 height=16>
        <p align=center><font face="Times New Roman, Times, serif" size="2">Three
          Months Ended <br>
          September 30, </font></p>
      </td>
      <TD colSpan=2 height=16>
        <P align=center><font face="Times New Roman, Times, serif" size="2">Nine
          Months Ended <br>
          September 30, </font></P>
      </TD>
    </TR>
    <TR vAlign=bottom>
      <TD width="32%"><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font></TD>
      <td width="16%">
        <p align=center><font face="Times New Roman, Times, serif" size="2">2006
          </font></p>
      </td>
      <td width="16%">
        <p align=center><font face="Times New Roman, Times, serif" size="2">2005
          </font></p>
      </td>
      <TD width="16%">
        <P align=center><font face="Times New Roman, Times, serif" size="2">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">21%
          </font></p>
      </td>
      <td width="16%" height=23>
        <p align=center><font face="Times New Roman, Times, serif" size="2">32%
          </font></p>
      </td>
      <td width="16%" height=23>
        <p align=center><font face="Times New Roman, Times, serif" size="2">27%
          </font></p>
      </td>
      <td width="16%" height=23>
        <p align=center><font face="Times New Roman, Times, serif" size="2">31%
          </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">11%
          </font></p>
      </td>
      <td width="16%" height=23>
        <p align=center><font face="Times New Roman, Times, serif" size="2">16%
          </font></p>
      </td>
      <td width="16%" height=23>
        <p align=center><font face="Times New Roman, Times, serif" size="2">13%
          </font></p>
      </td>
      <td width="16%" height=23>
        <p align=center><font face="Times New Roman, Times, serif" size="2">14%
          </font></p>
      </td>
    </tr>
  </TABLE>
</CENTER>
<P></P>
<p>&nbsp;</p>
<p>Revenues for our major distributors fell in the three months ended September
  30, 2006 due primarily to a reduction in the level of corporate deployments
  by one of our North American channel partners.</p>
<p><b> NOTE 11 - Subsequent Event, New Facilities Lease</b></p>
<p>On October 24, 2006, the Company entered into a commercial building lease agreement.
  The sixty-four month lease, estimated to begin on or about January 24, 2007,
  provides for the lease by the Company of approximately 37,131 square feet of
  space in Newark, California. Base annual rent is initially set at approximately
  $27,300 per month. Total base rent payable over the lease period is $1,755,554.
  The Company has one option to extend the term of the lease for an additional
  five year period with respect to the entire premises.</p>
<p align=center>10<br>
  <br>
<hr width="100%">
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
  <font face="Times New Roman, Times, serif" size="3"><a
name=mda></a></font>
<p align=left><b>Item 2. Management's Discussion and Analysis of Financial Condition
  and Results of Operations </b>
<p><i>This Quarterly Report contains forward-looking statements within the meaning
  of Section 27A of the Securities Act of 1933, as emended, and Section 21E of
  the Securities Exchange Act of 1934, as amended. 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 &quot;Management's Discussion
  and Analysis of Financial Condition and Results of Operations.&quot; Words such
  as &quot;may,&quot; &quot;will,&quot; &quot;predicts,&quot; &quot;anticipates,&quot;
  &quot;expects,&quot; &quot;intends,&quot; &quot;plans,&quot; believes,&quot;
  &quot;seeks,&quot; &quot;estimates,&quot; 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. Factors
  that could cause actual results and outcomes to differ materially 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 &quot;Item 1A. Risk Factors&quot; and
  recent Form 8-K and Form 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></p>
<p><i>You should read the following discussion in conjunction with the interim
  condensed consolidated financial statements and notes included elsewhere in
  this report, the Company's annual financial statements in the Form 10-K, and
  other information contained in other reports and documents filed from time to
  time with the Securities and Exchange Commission.</i></p>
<p><b>Revenue</b></p>
<p>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 built into 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 revenue for the three and
  nine months ended September 30, 2006 of $6.0 million and $19.6 million, respectively,
  represented a decrease of 9% and an increase of 2% from revenue of $6.5 million
  and $19.1 million for the corresponding periods one year ago.</p>
<p align=center>11<br>
  <br>
<hr width="100%">
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<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 and write
    to RFID tags; 3) a combination plug-in bar code scanner and RFID reader-writer;
    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 Card plug-in bar code scanners for linear and
    two-dimensional bar code scanning, a stand alone hand held bar code scanner
    that connects to computing devices using the Bluetooth standard for short-range
    wireless connectivity, and a cordless ring scanner using Bluetooth wireless
    technology. Data collection products represented approximately 42% and 39%
    of our revenue for the three and nine month periods ended September 30, 2006.<br>
    <br>
  </li>
  <li>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 and cordless serial adapter connectivity products utilize Bluetooth
    wireless technology as a connection mechanism to work with other Bluetooth-enabled
    products. Connectivity products represented approximately 23% and 28% of our
    revenue for the three and nine month periods ended September 30, 2006.<br>
    <br>
  </li>
  <li>Our <i>OEM embedded products and services</i> consist of Bluetooth cards
    and modules, WLAN cards, interface chips, and engineering design services.
    Our Bluetooth cards and modules, and our 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 fourth quarter of 2006. Embedded
    products and services represented approximately 26% and 23% of our revenue
    in the three and nine month periods ended September 30, 2006.<br>
    <br>
  </li>
  <li>Our <i>serial products</i> add connection ports to a notebook, tablet or
    handheld computer that allow users to connect these portable computers to
    standard peripherals or to other electronic devices with serial connections
    over cables or using Bluetooth wireless technology for short-range wireless
    connectivity. Serial products represented approximately 9% and 10% of our
    revenue for the three and nine month periods ended September 30, 2006.</li>
</ul>
<p>&nbsp;</p>
<p align=center>12<br>
  <br>
<hr width="100%">
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p>Our data collection product revenues were $2.5 million for the three months
  ended September 30, 2006, an increase of 1% compared to the same period one
  year ago. Revenue increases totaling $0.6 million were from increased sales
  of our Cordless Hand Scanner and from 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 In-Hand Scan Imager card and our SDIO In-Hand
  Scan card. Our data collection product revenues were $7.6 million for the nine
  month period ended September 30, 2006, an increase of 2% compared to $7.5 million
  for the same period one year ago. Revenue increases totaling $0.6 million were
  due to increases in sales of our Cordless Ring Scanner and Cordless Hand Scanner,
  partially offset by declines in sales of our SDIO In-Hand Scan card, and our
  In-Hand Scan Imager card. Data collection revenues in 2006 have been slowed
  by the introduction of an operating system upgrade, Windows Mobile 5.0, announced
  in September 2005 by the major PDA manufacturers, which slowed customer deployments
  through the first nine months of 2006, as third party applications continued
  to be modified and tested with the operating system. Transition to lead-free
  products in the second quarter of 2006 to comply with the Reduction of Hazardous
  Substances (RoHS) rules implemented in Europe and around the world, limited
  the availability of units by the major PDA manufacturers until late in the second
  quarter of 2006. Third quarter 2006, traditionally our slowest quarter, was
  adversely affected by a reduction in deployments by a key North American channel
  partner. 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 were $1.4 million for the three months ended
  September 30, 2006, a decrease of 36% compared to $2.2 million for the same
  period one year ago. Revenue declines for the comparable three months are attributed
  to declines of $0.2 million each in sales of our Modem plug-in products, Bluetooth
  plug-in products, Wireless LAN products, and our Cordless GPS receiver with
  navigation kit. Sales of our Ethernet plug-in products were flat in the comparable
  three month periods. Our connectivity product revenues were $5.5 million for
  the nine months ended September 30, 2006, a decline of 15% compared to $6.4
  million for the same period one year ago. Revenue declines for the comparable
  nine months are attributed to declines of $0.7 million in sales of Cordless
  GPs receiver with navigation kit, declines totaling $0.3 million in sales of
  our Ethernet plug-in products, Bluetooth plug-in products, and Wireless LAN
  plug-in products combined. Partially offsetting these declines were slight increases
  in sales of our Modem plug-in products. Connectivity revenues in 2006 have been
  slowed by the introduction of an operating system upgrade, Windows Mobile 5.0,
  announced in September 2005 by the major PDA manufacturers, which slowed customer
  deployments through the first nine months of 2006, as third party applications
  continued to be modified and tested with the operating system. Transition to
  lead-free products in the second quarter of 2006 to comply with the Reduction
  of Hazardous Substances (RoHS) rules implemented in Europe and around the world,
  limited the availability of units by the major PDA manufacturers until late
  in the second quarter of 2006. Third quarter 2006, traditionally our slowest
  quarter, was adversely affected by a reduction in deployments by a key North
  American channel partner.</p>
<p align=center>13<br>
  <br>
<hr width="100%">
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<p>Our OEM embedded products and services revenues were $1.5 million for the three
  months ended September 30, 2006, an increase of 72% compared to $0.9 million
  in the same period one year ago. Our OEM embedded products and services revenues
  were $4.6 million for the nine month period ended September 30, 2006, an increase
  of 84% compared to $2.5 million for the same period one year ago. Revenue growth
  of $0.7 million and $2.2 million for the three and nine month periods in 2006
  from sales of our Bluetooth modules was due to increased manufacturing volumes
  of industrial ruggedized PDAs 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 and onward due to limited marketability
  of this ASIC solution.</p>
<p>Our serial product revenues were $0.5 million for the three months ended September
  30, 2006, a decrease of 38% compared to $0.8 million for the same period one
  year ago. Our serial product revenues were $1.9 million for the nine month period
  ended September 30, 2006, a decrease of 23% compared to $2.5 million for the
  same period one year ago. Revenue decreases of $0.2 million and $0.6 million
  from the three and nine month comparable periods in 2005, were from declining
  sales of our standard serial PC Card products. Sales of our cordless Bluetooth
  serial adapter decreased slightly in the comparable periods. Overall serial
  product revenues have declined in the first nine months of fiscal 2006 from
  2005 levels, continuing a trend reflecting the gradual replacement of serial
  technology with USB and other newer connection technologies. Standard peripheral
  connection cards are primarily sold to connect peripheral devices or other electronic
  equipment to notebook computers.</p>
<p><b>Gross Margins</b></p>
<p>Gross margins for the three and nine month periods ended September 30, 2006
  were 47% and 49%, compared to margins of 50% in the comparable periods in 2005.
  Margin reductions in the third quarter of 2006 are due to a product mix reflecting
  growth in products with lower than average margins, combined with lower initial
  margins on new products which began shipping in the third quarter of 2006. Additional
  impacts on margins for the nine month period ending September 30, 2006 are related
  to higher accruals for inventory reserves compared to the same period in 2005,
  reflecting estimates for excess non-RoHS compliant inventories. We generally
  price our products as a markup from our cost, and we offer discount pricing
  for higher volume purchases.</p>
<p><b>Research and Development Expense</b></p>
<p>Research and development expense for the three months ended September 30, 2006
  was $1.2 million, an increase of 46% compared to research and development expense
  of $0.8 million in the corresponding period one year ago. Research and development
  expense for the nine months ended September 30, 2006 was $3.8 million, a 42%
  increase compared to research and development expense of $2.6 million in the
  corresponding period one year ago. Personnel costs increased by $0.2 million
  and $0.5 million in the three and nine months ended September 30, 2006, of which
  approximately half was related to the recognition of stock-based compensation
  expense resulting from the adoption and implementation of SFAS 123R beginning
  January 1, 2006. Additional increases were from increased equipment costs, outside
  services, and consulting and professional fees reflecting increased development
  activities. Expenses are expected to increase in the fourth quarter of 2006
  from third quarter levels due to anticipated development activities.</p>
<p align=center>14<br>
  <br>
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<p><b>Sales and Marketing Expense</b></p>
<p>Sales and marketing expense for the three months ended September 30, 2006 was
  $1.8 million, an increase of 11% compared to sales and marketing expense of
  $1.7 million in the corresponding period one year ago. Sales and marketing expense
  for the nine month period ended September 30, 2006 was $5.4 million, an increase
  of 12% compared to sales and marketing expense of $4.8 million in the corresponding
  period one year ago. Over half of the overall increase in the comparable three
  and nine month periods was related to stock-based compensation expense recognized
  in 2006 resulting from the adoption and implementation of SFAS 123R beginning
  January 1, 2006. Remaining increases were from increased personnel expenses
  reflecting increased personnel and higher sales activities compared to the comparable
  periods in 2005. Expenses are expected to be flat in the fourth quarter of 2006
  with third quarter levels.</p>
<p><b>General and Administrative Expense</b></p>
<p>General and administrative expense for the three months ended September 30,
  2006 was $0.6 million, an increase of 6% compared to the corresponding period
  one year ago. General and administrative expense for the nine month period ended
  September 30, 2006 was $2.1 million, an increase of 5% compared to $2.0 million
  in the corresponding period one year ago. Increases in personnel costs of $0.1
  million and $0.3 million in the three and nine months ended September 30, 2006
  were from stock-based compensation expense recognized in the first three quarters
  of 2006 resulting from the adoption and implementation of SFAS 123R beginning
  January 1, 2006. Partially offsetting these increases in the comparable three
  and nine month periods were reduced professional fees related to Sarbanes-Oxley
  compliance requirements in 2005, and reduced business insurance costs. Expenses
  are expected to increase in the fourth quarter of 2006 from third quarter levels
  due primarily to increased consulting and profession fees related to our annual
  audit, historically charged during the fourth and first quarters.</p>
<p><b>Amortization of Intangibles</b></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 all acquired intangibles for
  the three and nine months ended September 30, 2006 were $35,000 and $107,000,
  respectively, compared to $36,000 and $167,000, for the same periods one year
  ago. The lower amortization charges in 2006 are due to components of intangible
  property becoming fully amortized.</p>
<p align=center>15<br>
  <br>
<hr width="100%">
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p><b>Interest Income, Interest Expense, Net</b></p>
<p>Interest income reflects interest earned on cash balances. Interest income
  of $47,000 and $134,000 for the three and nine month periods ended September
  30, 2006, respectively, compared to interest income of $27,000 and $59,000,
  respectively, for the comparable periods one year ago. Higher levels of interest
  income reflects higher average levels of cash on hand combined with higher rates
  of return in the three and nine months of 2006 compared to the same periods
  in 2005.</p>
<p>Interest expense of $1,800 and $6,100 for the three and nine months ended September
  30, 2006 respectively, compared to interest expense of $800 and $3,400, respectively,
  for the comparable periods one year ago. 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 three fiscal quarters of 2006, and the end of each quarter in fiscal 2005.
  Higher interest expense in 2006 is due to higher interest rates on our lines
  of credit in 2006 compared to 2005.</p>
<p><b>Preferred Stock Dividends</b></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. Preferred stock dividends for the nine months ended September 30, 2006
  reflect dividends of $10,700 on the Series F Preferred Stock up through the
  date of mandatory conversion in the first quarter 2006, which were paid prior
  to the end of the first quarter. 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. Dividends on the Series F
  Preferred Stock for the three and nine month periods ended September 30, 2005
  were $12,100 and $36,500, respectively, which were paid in cash subsequent to
  the end of each of those respective quarters.</p>
<p><b>Income Taxes</b></p>
<p>There were no provisions for income taxes for the three and nine months ended
  September 30, 2006 due to our year-to-date net losses. We were not profitable
  in fiscal 2005, profitable in fiscal 2004, and not profitable in fiscal 2003
  and all prior periods. We have maintained a full valuation allowance for all
  deferred tax assets.</p>
<p><b>Liquidity and Capital Resources</b></p>
<p>We were unprofitable in each of the first three quarters of fiscal 2006 due
  in part to the negative impact of the adoption of SFAS 123R on January 1, 2006,
  which does not require the use of cash. We were profitable in two of the quarters
  in fiscal year 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 align=center>16<br>
  <br>
<hr width="100%">
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<p>Cash used in operating activities was $0.5 million in the first nine months
  of 2006, compared to cash provided of $1.8 million in the first nine months
  of 2005. Cash used in the first nine months of 2006 from our net loss adjusted
  for non-cash items was $0.2 million, compared to cash provided from our net
  income adjusted for non-cash items of $0.4 million in the first nine months
  of 2005. 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 January 1, 2006, stock-based
  compensation, totaled $1.5 million in the first nine months of 2006, compared
  to $0.5 million in the first nine months of 2005. Changes in working capital
  balances in the first nine months of 2006 resulted in a use of cash of $0.3
  million, which was primarily from increases in inventory and accounts receivable,
  partially offset by increases in payables and deferred revenue, and decreases
  in prepaid and other current assets. Changes in working capital balances in
  the first nine months of 2005 resulted in a source of cash of $1.2 million,
  and were primarily from reductions in levels of inventory, decreases in receivables
  due to early collections from key distributors, and increases in payables, partially
  offset by increases in prepaid assets.</p>
<p>Cash used in investing activities was $0.7 million in the first nine months
  of 2006 compared to $0.4 million in the first nine months 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 from financing activities was $0.5 million in the first nine
  months of 2006, compared to cash used of $0.7 million during the first nine
  months of 2005. Financing activities in the first nine months of 2006 consisted
  primarily of proceeds from the exercise of warrants and stock options, partially
  offset by a net decrease in the amounts drawn on our bank lines of credit, and
  the final dividend payments on Series F Preferred Stock. Financing activities
  in the first nine months of 2005 consisted primarily of a net decrease in the
  amounts drawn on our bank lines of credit, payment of cash dividends, and payments
  on capital leases partially offset by proceeds from the exercise of stock options.</p>
<p>Our cash balances at September 30, 2006 were $6.2 million, including cash of
  $2.2 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 September 30, 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>17<br>
  <br>
<hr width="100%">
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p></p>
<p></p>
<p></p>
<p>Our contractual cash obligations at September 30, 2006 are outlined in the
  table below:</p>
<p align=left>&nbsp;
<table cellspacing=1 cellpadding=1 width=80% align=center border=1>
  <tr>
    <td width=275>
      <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=275 valign="bottom">
      <div align="left"><font face="Times New Roman, Times, serif" size="2">Contractual
        Obligations</font></div>
    </td>
    <td valign=bottom align=middle width=163>
      <div align=center><font face="Times New Roman, Times, serif" size="2">Total
        </font></div>
    </td>
    <td valign=bottom align=middle width=134>
      <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=121>
      <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=121>
      <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=141>
      <div align="center"><font face="Times New Roman, Times, serif" size="2">More
        than<br>
        5 years</font></div>
    </td>
  </tr>
  <tr>
    <td width=275><font face="Times New Roman, Times, serif" size="2">Capital
      leases </font></td>
    <td valign=bottom align=middle width=163>
      <div align=center><font face="Times New Roman, Times, serif" size="2">$
        10,800</font></div>
    </td>
    <td valign=bottom align=middle width=134>
      <div align=center><font face="Times New Roman, Times, serif" size="2">$
        10,000</font></div>
    </td>
    <td valign=bottom align=middle width=121>
      <div align=center><font face="Times New Roman, Times, serif" size="2">$
        800 </font></div>
    </td>
    <td valign=bottom align=middle width=121>
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ --
        </font></p>
    </td>
    <td valign=bottom align=middle width=141>
      <p align=center><font face="Times New Roman, Times, serif" size="2">$ --
        </font></p>
    </td>
  </tr>
  <tr>
    <td width=275><font face="Times New Roman, Times, serif" size="2">Operating
      leases</font></td>
    <td valign=bottom align=middle width=163>
      <div align=center><font face="Times New Roman, Times, serif" size="2">94,800
        </font></div>
    </td>
    <td valign=bottom align=middle width=134>
      <div align=center><font face="Times New Roman, Times, serif" size="2">94,800
        </font></div>
    </td>
    <td valign=bottom align=middle width=121>
      <div align=center><font face="Times New Roman, Times, serif" size="2">--</font></div>
    </td>
    <td valign=bottom align=middle width=121>
      <div align=center><font face="Times New Roman, Times, serif" size="2"> --</font></div>
    </td>
    <td valign=bottom align=middle width=141>
      <div align="center"><font face="Times New Roman, Times, serif" size="2">
        --</font></div>
    </td>
  </tr>
  <tr>
    <td align=left width=275><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=163>
      <div align=center><font face="Times New Roman, Times, serif" size="2">1,171,700
        </font></div>
    </td>
    <td valign=bottom align=middle width=134>
      <div align=center><font face="Times New Roman, Times, serif" size="2">1,171,700
        </font></div>
    </td>
    <td valign=bottom align=middle width=121>
      <div align=center><font face="Times New Roman, Times, serif" size="2">--</font></div>
    </td>
    <td valign=bottom align=middle width=121>
      <div align=center><font face="Times New Roman, Times, serif" size="2">--</font></div>
    </td>
    <td valign=bottom align=middle width=141>
      <div align="center"><font face="Times New Roman, Times, serif" size="2">--</font></div>
    </td>
  </tr>
  <tr>
    <td width=275><font face="Times New Roman, Times, serif" size="2">Total contractual
      cash obligations</font></td>
    <td valign=bottom align=middle width=163>
      <div align=center><font face="Times New Roman, Times, serif" size="2">$
        1,277,300</font></div>
    </td>
    <td valign=bottom align=middle width=134>
      <div align=center><font face="Times New Roman, Times, serif" size="2">$
        1,276,500</font></div>
    </td>
    <td valign=bottom align=middle width=121>
      <div align=center><font face="Times New Roman, Times, serif" size="2">$
        800 </font></div>
    </td>
    <td valign=bottom align=middle width=121>
      <div align=center><font face="Times New Roman, Times, serif" size="2">--</font></div>
    </td>
    <td valign=bottom align=middle width=141>
      <div align="center"><font face="Times New Roman, Times, serif" size="2">--</font></div>
    </td>
  </tr>
</table>
<p>On October 24, 2006, we entered into a commercial building lease agreement.
  The sixty-four month lease is estimated to begin on or about January 24, 2007.
  Base annual rent is initially set at approximately $27,300 per month. Total
  base rent payable over the lease period is $1,755,554. The Company has one option
  to extend the term of the lease for an additional five year period with respect
  to the entire premises.</p>
<p><b>Off-Balance Sheet Arrangements</b></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 $298,000
  and $934,000 for the three and nine months ended September 30, 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>
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<p></p>
<p><b>Item 3. Quantitative and Qualitative Disclosures About Market Risk</b></p>
<p><b>Interest Rate Risk</b></p>
<p>Our exposure to market risk for changes in interest rates relates primarily
  to invested cash. Our cash is invested in short-term money market investments
  backed by U.S. Treasury notes and other investments that mature within one year
  and whose principal is not subject to market rate fluctuations. Accordingly,
  interest rate declines would adversely affect our interest income but would
  not affect the carrying value of our cash investments. Based on a sensitivity
  analysis of our cash investments during the quarter ended September 30, 2006,
  a decline of 1% in interest rates would reduce our quarterly interest income
  by approximately $16,000.</p>
<p>Our bank credit line facilities of up to $4.0 million have variable interest
  rates based upon the lender's index rate plus 0.5% for both the domestic line
  (up to $2.5 million) and the international line (up to $1.5 million). Accordingly,
  interest rate increases would increase our interest expense on outstanding credit
  line balances. We utilized our credit line facility only at the end of the first
  three fiscal quarters of 2006, and the end of each quarter in fiscal 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 against our bank credit facility,
  if outstanding for the entire year, or a maximum of $40,000 if we utilized our
  entire credit line.</p>
<p><b>Foreign Currency Risk</b></p>
<p>A substantial majority of our revenue, expense and purchasing activities are
  transacted in US 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 September 30, 2006, an
  adverse change of 10% in exchange rates would result in a decrease in our net
  income for the second quarter of approximately $63,000, if left unprotected.
  For the third 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 $5,000. 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>
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<p><b>Item 4. Controls and Procedures</b></p>
<p>(a) Evaluation of disclosure controls and procedures</p>
<p>Our management evaluated, with the participation of our Chief Executive Officer
  and our Chief Financial Officer, the effectiveness of our disclosure controls
  and procedures as of the end of the period covered by this Quarterly Report
  on Form 10-Q. Based on this evaluation, our Chief Executive Officer and our
  Chief Financial Officer have concluded that our disclosure controls and procedures
  are effective to ensure that information we are required to disclose in reports
  that we file or submit under the Securities Exchange Act of 1934 is (i) recorded,
  processed, summarized and reported within the time periods specified in Securities
  and Exchange Commission rules and forms, and (ii) accumulated and communicated
  to our management, including our Chief Executive Officer and our Chief Financial
  Officer, as appropriate to allow timely decisions regarding required disclosure.</p>
<p>(b) Changes in internal control over financial reporting</p>
<p>There was no change in our internal control over financial reporting that occurred
  during the period covered by this Quarterly Report on Form 10-Q that has materially
  affected, or is reasonably likely to materially affect, our internal control
  over financial reporting.</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
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<p> <b>PART II. OTHER INFORMATION</b></p>
<p><b>Item 1A. Risk Factors</b></p>
<p>There are no material changes to the risk factors described in Part I, &quot;Item
  1A. Risk Factors,&quot; in our Annual Report on Form 10-K for the fiscal year
  ended December 31, 2005. The risk factor below titled, &quot;<i>Failure to maintain
  effective internal controls could have a material adverse effect on our business,
  operating results and stock price</i>,&quot; 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: &quot;<i>A
  significant portion of our revenue currently comes from two distributors, and
  any decrease in revenue from these distributors could harm our business;&quot;
  &quot;Our operating results could be harmed by economic, political, regulatory
  and other risks associated with export sales;&quot; &quot;The sale of a substantial
  number of shares of common stock could cause the market price of our common
  stock to decline;&quot; and &quot;Volatility in the trading price of our common
  stock could negatively impact the price of our common stock</i>,&quot; have
  been updated to reflect information for the nine month period ending September
  30, 2006.</p>
<p>The risks described in our Annual Report on Form 10-K, as updated in this Quarterly
  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>
<p><b>We have a history of operating losses and may not achieve ongoing profitability.</b></p>
<p>We were unprofitable in each of the first three quarters 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 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. 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. 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>
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<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 nine months 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 to 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> identify emerging standards in the field of mobile computing products;
  </li>
  <li>enhance our products by adding additional features; </li>
  <li>invest significant resources in research and development, sales and marketing,
    and customer support;</li>
  <li> maintain superior or competitive performance in our products; and</li>
  <li> anticipate our end users' needs and technological trends accurately. </li>
</ul>
<p>We cannot be sure that we will have sufficient resources to make adequate investments
  in research and development or that we will be able to identify trends or make
  the technological advances necessary to be competitive.</p>
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<p> <b>Beginning January 1, 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 three quarters of fiscal 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><b>A significant portion of our revenue currently comes from two distributors,
  and any decrease in revenue from these distributors could harm our business.</b></p>
<p>A significant portion of our revenue comes from two distributors, Tech Data
  Corp. and Ingram Micro, Inc., which together represented approximately 40% and
  42% of our worldwide revenue in the first nine months 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 our competitors' products.
  If we lose our relationship with Tech Data Corp. or Ingram Micro, Inc., we would
  experience disruption and delays in marketing our products. Revenues related
  to these two major distributors fell in the third quarter 2006 to 32%, due primarily
  to a reduction in the level of corporate deployments by one of our North American
  channel partners.</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 nine months 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>
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<p><b>We could face increased competition in the future, which would adversely
  affect our financial performance.</b></p>
<p>The market for handheld computers in which we operate is very competitive.
  Our future financial performance is contingent on a number of unpredictable
  factors, including that:</p>
<ul>
  <li>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.</p>
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<p>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>
<p>We allow our distribution channels to return a portion of their inventory to
  us for full credit against other purchases. In addition, in the event we reduce
  our prices, we credit our distributors for the difference between the purchase
  price of products remaining in their inventory and our reduced price for such
  products. Actual returns and price protection may adversely affect future operating
  results, particularly since we seek to continually introduce new and enhanced
  products and are likely to face increasing price competition.</p>
<p><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>
<p>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>
<p>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>
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<p></p>
<p><b>Our intellectual property and proprietary rights may be insufficient to
  protect our competitive position.</b></p>
<p>Our business depends on our ability to protect our intellectual property. We
  rely primarily on patent, copyright, trademark, trade secret laws, and other
  restrictions on disclosure to protect our proprietary technologies. We cannot
  be sure that these measures will provide meaningful protection for our proprietary
  technologies and processes. We cannot be sure that any patent issued to us will
  be sufficient to protect our technology. The failure of any patents to provide
  protection to our technology would make it easier for our competitors to offer
  similar products. In connection with our participation in the development of
  various industry standards, we may be required to license certain of our patents
  to other parties, including our competitors, that develop products based upon
  the adopted standards.</p>
<p>We also generally enter into confidentiality agreements with our employees,
  distributors, and strategic partners, and generally control access to our documentation
  and other proprietary information. Despite these precautions, it may be possible
  for a third-party to copy or otherwise obtain and use our products, services,
  or technology without authorization, develop similar technology independently,
  or design around our patents.</p>
<p>Effective copyright, trademark, and trade secret protection may be unavailable
  or limited in certain foreign countries. Furthermore, certain of our customers
  have entered into agreements with us which provide that the customers have the
  right to use our proprietary technology in the event we default in our contractual
  obligations, including product supply obligations, and fail to cure the default
  within a specified period of time.</p>
<p><b>We may become subject to claims of intellectual property rights infringement,
  which could result in substantial liability.</b></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>
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<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><b>Undetected flaws and defects in our products may disrupt product sales and
  result in expensive and time-consuming remedial action.</b></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>
<ul>
  <li>the demand for our products;</li>
  <li>the size and timing of customer orders;<br>
  </li>
  <li>unanticipated delays or problems in our introduction of new products and
    product enhancements;<br>
  </li>
  <li>the introduction of new products and product enhancements by our competitors;<br>
  </li>
  <li>the timing of the introduction of new products that work with our connection
    products;<br>
  </li>
  <li>changes in the proportion of revenues attributable to royalties and engineering
    development services;<br>
  </li>
  <li>product mix;<br>
  </li>
  <li>timing of software enhancements;<br>
  </li>
  <li>changes in the level of operating expenses;<br>
  </li>
  <li>competitive conditions in the industry including competitive pressures resulting
    in lower average selling prices; and<br>
  </li>
  <li>timing of distributors' shipments to their customers.</li>
</ul>
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<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,
  or a combination, our results of operations in any given quarter may be below
  the expectations of public market analysts or investors, in which case the market
  price of our common stock would be adversely affected.</p>
<p><b>The loss of one or more of our senior personnel could harm our existing
  business.</b></p>
<p>A number of our officers and senior managers have been employed for 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><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></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 align=center>28 <br>
  <br>
<hr width="100%">
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p><b>We may be unable to manufacture our products, because we are dependent on
  a limited number of qualified suppliers for our components.</b></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
  33% of our revenue in the first nine months of 2006 and 35% 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>longer payment cycles;<br>
  </li>
  <li>unexpected changes in regulatory requirements, import and export restrictions
    and tariffs;<br>
  </li>
  <li>difficulties in managing foreign operations;<br>
  </li>
  <li>the burdens of complying with a variety of foreign laws;<br>
  </li>
  <li>greater difficulty or delay in accounts receivable collection;<br>
  </li>
  <li>potentially adverse tax consequences; and<br>
  </li>
  <li>political and economic instability.</li>
</ul>
<p>Our export sales are primarily 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 if left unhedged.</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.</p>
<p align=center>29<br>
  <br>
<hr width="100%">
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p><b>Failure to maintain effective internal controls could have a material adverse
  effect on our business, operating results and stock price. </b></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 October 31, 2006, we had 31,851,285 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 October 31, 2006, we had 8,965,602 shares subject to outstanding options
  under our stock option plans, and 741,306 shares were available for future issuance
  under the plans. We have registered the shares of common stock subject to outstanding
  options and reserved for issuance under our stock option plans. Accordingly,
  shares underlying vested options will be eligible for resale in the public market
  as soon as the options are exercised.</p>
<p>As of October 31, 2006, we had warrants outstanding to purchase a total of
  989,712 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 October 31, 2006, our common
  stock price fluctuated between a high of $1.94 and a low of $0.79. The trading
  price of our common stock could be subject to wide fluctuations in response
  to many factors, some of which are beyond our control, including general economic
  conditions and the outlook of securities analysts and investors on our industry.
  In addition, the stock markets in general, and the markets for high technology
  stocks in particular, have experienced high volatility that has often been unrelated
  to the operating performance of particular companies. These broad market fluctuations
  may adversely affect the trading price of our common stock.</p>
<p align=center>30 <br>
  <br>
<hr width="100%">
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
  <font face="Times New Roman, Times, serif" size="3"><a
name=item6></a></font>
<p align="left"><b><font face="Times New Roman, Times, serif" size="3">PART II.
  OTHER INFORMATION</font></b></p>
<p><font face="Times New Roman, Times, serif" size="3"><b>Item 6. Exhibits</b></font></p>
<p><font face="Times New Roman, Times, serif" size="3"> Exhibits</font></p>
<p> 10.10 Standard Lease Agreement by and between Del Norte Farms, Inc. and the
  Company dated October 24, 2006.</p>
<p>10.11 Addendum to the Standard Lease Agreement by and between Del Norte Farms,
  Inc. and the Company dated October 24, 2006.</p>
<p>31.1 Certification of Chief Executive Officer pursuant to Section 302 of the
  Sarbanes-Oxley Act of 2002.</p>
<p>31.2 Certification of Chief Financial Officer pursuant to Section 302 of the
  Sarbanes-Oxley Act of 2002.</p>
<p>32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant
  to Section 906 of the Sarbanes-Oxley Act of 2002.</p>
<p></p>
<p></p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p align="center"><font face="Times New Roman, Times, serif" size="3">31</font>
</p>
<p style="PAGE-BREAK-BEFORE: always">
<hr width="100%">
<p><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a><a
name=sig></a></font></p>
<p align="center"><font face="Times New Roman, Times, serif" size="3"><b>SIGNATURES</b></font></p>
<P>&nbsp;</P>
<P>Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant
  has duly caused this report to be signed on its behalf by the undersigned thereunto
  duly authorized.</P>
<P>&nbsp;</P>
<P align=center><font face="Times New Roman, Times, serif" size="3"><U>SOCKET
  COMMUNICATIONS, INC.<BR>
  </U>Registrant</font></P>
<P>&nbsp;
<TABLE cols=2 width="100%">
  <TR>
    <TD width="38%"><FONT face="Times New Roman, Times, serif" size=3>Date: November
      10, 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: November
      10, 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
        <br>
        (Duly Authorized Officer and Principal Financial and Accounting Officer)
        </font></div>
    </td>
  </tr>
</TABLE>
<P>&nbsp;</P>
<P>&nbsp;</P>
<p align="center">32 </p>
<p style="PAGE-BREAK-BEFORE: always">
<hr width="100%">
<p><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
  <font face="Times New Roman, Times, serif" size="3"><a
name=ind></a></font> </p>

<p align=center><font face="Times New Roman, Times, serif" size="3"><b>Index to
  Exhibits</b><br>
  <br>
  </font>
<table cellspacing=0 cellpadding=0 width=80% align=center border=0>
  <tr>
    <td valign=bottom width="10%" height=48>
      <p align=center><font face="Times New Roman, Times, serif" size=3>Exhibit
        <u>Number</u></font></p>
    </td>
    <td valign=bottom width="90%" height=48>
      <p align=center><font face="Times New Roman, Times, serif"
      size=3><u>Description </u></font></p>
    </td>
  </tr>
  <tr>
    <td valign=top width="10%" height=30>
      <p align=center><font face="Times New Roman, Times, serif"
      size=3>10.10&nbsp;</font> </p>
    </td>
    <td valign=top width="90%" height=30>
      <p>Standard Lease Agreement by and between Del Norte Farms, Inc. and the
        Company dated October 24, 2006.</p>
    </td>
  </tr>
  <tr>
    <td valign=top width="10%" height=12>&nbsp;</td>
    <td valign=top width="90%" height=12>&nbsp;</td>
  </tr>
  <tr>
    <td valign=top width="10%" height=30>
      <p align=center><font face="Times New Roman, Times, serif"
      size=3>10.11&nbsp;</font> </p>
    </td>
    <td valign=top width="90%" height=30>
      <p>Addendum to the Standard Lease Agreement by and between Del Norte Farms,
        Inc. and the Company dated October 24, 2006.</p>
    </td>
  </tr>
  <tr>
    <td valign=top width="10%" height=12>&nbsp;</td>
    <td valign=top width="90%" height=12>&nbsp;</td>
  </tr>
  <tr>
    <td valign=top width="10%" height=30>
      <p align=center><font face="Times New Roman, Times, serif"
      size=3>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=12>&nbsp;</td>
    <td valign=top width="90%" height=12>&nbsp;</td>
  </tr>
  <tr>
    <td valign=top width="10%" height=30>
      <p align=center><font face="Times New Roman, Times, serif"
      size=3>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=12>&nbsp;</td>
    <td valign=top width="90%" height=12>&nbsp;</td>
  </tr>
  <tr>
    <td valign=top width="10%" height=30>
      <p align=center><font face="Times New Roman, Times, serif"
      size=3>32.1&nbsp;</font> </p>
    </td>
    <td valign=top width="90%" height=30>
      <p>Certification of Chief Executive Officer and Chief Financial Officer
        pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.</p>
    </td>
  </tr>
  <tr>
    <td valign=top width="10%" height=12>&nbsp;</td>
    <td valign=top width="90%" height=12>&nbsp;</td>
  </tr>
</table>
<P>&nbsp;</P>
<P>&nbsp;</P>
<P>&nbsp;</P>
<P>&nbsp;</P>
<P>&nbsp;</P>
<P>&nbsp;</P>
<p align=center><font face="Times New Roman, Times, serif" size="3">33</font><font face="Times New Roman, Times, serif" size="3"><br>
  </font>
<p style="PAGE-BREAK-BEFORE: always">
<p align=center>
<br>
<hr width="100%">
<p align=left>
<p align=left>&nbsp;
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<p align="right"><font face="Times New Roman, Times, serif" size="3">Exhibit 31.1</font></p>
<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><font face="Times New Roman, Times, serif" size="3">(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</font></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: November
      10, 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>&nbsp;</p>
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<p align="right"><font face="Times New Roman, Times, serif" size="3">Exhibit 31.2</font></p>
<p align="center"><font face="Times New Roman, Times, serif" size="3"><br>
  <b>CERTIFICATION</b></font></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><font face="Times New Roman, Times, serif" size="3">(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</font></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>
<p><font face="Times New Roman, Times, serif" size="3"></font></p>
<table cols=2 width="96%">
  <tr>
    <td width="38%"><font face="Times New Roman, Times, serif" size=3>Date: November
      10, 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>
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<p align="right"><font face="Times New Roman, Times, serif" size="3"> Exhibit
  32.1</font></p>
<p align="center"><font face="Times New Roman, Times, serif" size="3"><br>
  CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER<br>
  PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002</font></p>
<p><font face="Times New Roman, Times, serif" size="3"><br>
  I, Kevin J. Mills, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
  to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report
  of Socket Communications, Inc. on Form 10-Q for the quarter ended September
  30, 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>
<p></p>
<table cols=2 width="43%" align="center">
  <tr>
    <td width="41%">
      <div align=left><font face="Times New Roman, Times, serif"
      size=3><u>By: &nbsp;&nbsp;/s/ Kevin J. Mills</u></font></div>
    </td>
  </tr>
  <tr>
    <td valign=top align=middle width="41%">
      <div align=left><font face="Times New Roman, Times, serif" size=3>Name:
        Kevin J. Mills<br>
        Title: &nbsp&nbspPresident and Chief Executive Officer <br>
        &nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp(Principal Executive
        Officer)<br>
        Date: &nbspNovember 10, 2006</font></div>
    </td>
  </tr>
</table>
<p>&nbsp;</p>
<p></p>
<p><font face="Times New Roman, Times, serif" size="3">I, David W. Dunlap, certify,
  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
  Sarbanes-Oxley Act of 2002, that the Quarterly Report of Socket Communications,
  Inc. on Form 10-Q for the quarter ended September 30, 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>
<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%" height="105">
      <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&nbspand Chief Financial
        Officer <br>
        &nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp(Principal Financial
        Officer)<br>
        Date:&nbsp&nbsp&nbsp&nbspNovember 10, 2006</font></div>
    </td>
  </tr>
</table>
<p>&nbsp;</p>
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</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>5
<FILENAME>exhibit10-10stdeaseagreement.htm
<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 10.10
  </font>
<p align="center"><b>STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE - NET<br>
  AIR COMMERCIAL REAL ESTATE ASSOCIATION </b></p>
<p>1. <b>Basic Provisions ("Basic Provisions")</b>.</p>
<p> 1.1 <b>Parties</b>: This Lease ("Lease"), dated for reference purposes only
  <u>October 24, 2006______</u> , is made by and between <u>Del Norte Farms, Inc.,
  a California Corporation </u>__________("Lessor") and <u>Socket Communications,
  Inc., a Delaware Corporation __________(</u>"Lessee"), (Collectively the "Parties",
  or individually a "Party"). </p>
<p>1.2(a) <b>Premises</b>: That certain portion of the Project (as defined below),
  including all improvements therein or to be provided by Lessor under the terms
  of this Lease, commonly known by the street address of <u>39700 Eureka Drive___</u>
  , located in the City of <u>Newark___</u> , County of <u>Alameda</u>___ , State
  of <u>California</u>___ , with zip code 94560 , as outlined on Exhibit <u>A___</u>
  attached hereto ("<b>Premises</b>") and generally described as (describe briefly
  the nature of Premises): <u>approximately 37,131 square feet of space within
  a 69,609 square foot building</u>___ .<br>
  In addition to Lessee's rights to use and occupy the Premises as hereinafter
  specified, Lessee shall have non-exclusive rights to the any utility raceways
  of the building containing the Premises ("<b>Building</b>") and to the common
  areas (as defined in Paragraph 2.7 below), but shall not have any rights to
  the roof or exterior walls of the Building or to any other buildings in the
  Project. The Premises, the Building, the Common Areas, the land upon which they
  are located, along with all other building and improvements thereon, are herein
  collectively referred to as the "<b>Project</b>." (See also Paragraph 2) </p>
<p>1.2(b) <b>Parking</b>: <u>one hundred eleven (111)</u> unreserved vehicle parking
  spaces. (See also Paragraph 2.6)</p>
<p>1.3 <b>Term</b>: Five (5) years and four (4) months ("<b>Original Term</b>")
  commencing <u>See Addendum</u> ("<b>Commencement Date</b>") and ending See Addendum
  ("<b>Expiration Date</b>"). (See also Paragraph 3)</p>
<p>1.4 <b>Early Possession</b>: <u>See Addendum</u> ("<b>Early Possession Date</b>").
  (See also Paragraphs 3.2 and 3.3)</p>
<p>1.5 <b>Base Rent</b>: $ <u>See Addendum</u> per month ("<b>Base Rent</b>"),
  payable on the <u>First (1st) day</u> day of each month commencing <u>See Addendum</u>.
  (See also Paragraph 4)</p>

  [X] If this box is checked, there are provisions in this Lease for the Base
Rent to be adjusted.
<p><br>
  1.6 <b>Lessee's Share of Common Area Operating Expenses</b>: <u>Fifty Three
  and</u> 34/100 percent (<u>53.34%</u>) ("Lessee's Share"). Lessee's Share has
  been calculated by dividing the approximate square footage of the Premises by
  the approximate square footage of the Project. In the event that the size of
  the Premises and/or the Project are modified during the term of this Lease,
  Lessor shall recalculate Lessee's Share to reflect such modification.</p>
<p>1.7 <b>Base Rent and Other Monies Paid Upon Execution</b>: <br>
  (a) <b>Base Rent</b>: <u>$27,291.88 for the period Fifth (5) month of the Original
  Term.</u><br>
  (b) <b>Common Area Operating Expenses</b>: $________________for the __________.
  <br>
  (c) <b>Security Deposit</b>: <u>$ 62,602.86</u>___ ("<b>Security Deposit</b>").
  (See also Paragraph 5) <br>
  (d) <b>Other</b>: $____________________ for __________________________________
  ________________________________________________________________ <br>
  (e) <b>Total Due Upon Execution of this Lease</b>: <u>$89,894.74</u>___ . </p>
<p>1.8 <b>Agreed Use</b>: <u>Research and development, light assembly, testing,
  sales, and distribution of software and electronics products and related administrative
  uses</u>___ . (See also Paragraph 6) </p>
<p>1.9 <b>Insuring Party</b>: Lessor is the "<b>Insuring Party</b>". (See also
  Paragraph 8) </p>
<p>1.10 <b>Real Estate Brokers</b>: (See also Paragraph 15) </p>
<p>&nbsp;</p>
<table cols=2 width="100%" align="center">
  <tr>
    <td width="47%">__________</td>
    <td width="47%">
      <div align="right">__________</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="22">__________</td>
    <td width="47%" height="22">
      <div align="right">__________</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="20">
      <p>INITIALS</p>
    </td>
    <td width="47%" height="20">
      <p align="right">INITIALS</p>
    </td>
  </tr>
</table>
<p>&nbsp; </p>
<p>&nbsp;</p>
<p align="center"><b>PAGE 1 OF 22</b></p>
<p align="center"><b>&copy;1999 - AIR COMMERCIAL REAL ESTATE ASSOCIATION FORM MTN-4-8/04E</b></p>
<hr>
<p>&nbsp;</p>
<p align="left">(a) <b>Representation</b>: The following real estate brokers (the
  "<b>Brokers</b>") and brokerage relationships exist in this transaction </p>
<p align="left">(check applicable boxes): </p>
<p> [ ]________________________________________________ represents Lessor exclusively
  ("<b>Lessor's Broker</b>"); </p>
<p> [ ] ______________________________________________ represents Lessee exclusively
  ("<b>Lessee's Broker</b>"); or </p>

  [X] <u>NAI BT Commercial_______ </u>represents both Lessor and Lessee ("<b>Dual
Agency</b>").
<p>(b) <b>Payment to Brokers</b>: Upon execution and delivery of this Lease by
  both Parties, Lessor shall pay to the Brokers the brokerage fee agreed to in
  a separate written agreement. </p>
<p>1.11 <b>Guarantor</b>. The obligations of the Lessee under this Lease are to
  be guaranteed by <u>None </u> ("<b>Guarantor</b>"). (See also Paragraph 37)
</p>
<p>1.12 Attachments. Attached hereto are the following, all of which constitute
  a part of this Lease</p>


<p>[X] an Addendum consisting of Paragraphs <u>1 </u> <u> </u> <u> </u> <u> </u>
  through<u> 22</u>____ ; </p>
<p> [X] a floor plan depicting the Premises; </p>
<p> [X] a site plan depicting the Project; </p>
<p> [X] a current set of the Rules and Regulations of the Project; </p>
<p> [ ] a current set of the Rules and Regulations adopted by the owner's association;
</p>
<p>[X] a Work Letter <i>Agreement</i>; </p>
<p>[ ] other (specify); _____________________________________________________________________________
</p>
<p><br>
  2. <b>Premises</b>.</p>
<p>2.1 <b>Letting</b>. Lessor hereby leases to Lessee, and Lessee hereby leases
  from Lessor, the Premises, for the term, at the rental, and upon all of the
  terms, covenants and conditions set forth in this Lease. Any statement of size
  set forth in this Lease, or that may have been used in calculating Rent, is
  an approximation which the Parties agree is reasonable and any payments based
  thereon are not subject to revision whether or not the actual size is more or
  less.<b> NOTE: Lessee is advised to verify the actual size prior to executing
  this Lease</b>.</p>
<p>2.2 <b>Condition</b>. Lessor shall deliver that portion of the Premises contained
  within the Building ("<b>Unit</b>") to Lessee broom clean and free of debris
  on the Commencement Date or the Early Possession Date, whichever first occurs
  ("<b>Start Date</b>"), warrants that the Premises, including the existing electrical,
  plumbing, fire sprinkler, lighting, heating, ventilating and air conditioning
  systems ("<b>HVAC</b>"), loading doors, sump pumps, if any, and all other such
  elements in the Unit, other than those constructed by Lessee, shall be in good
  operating condition on said date, that the roof, bearing walls and foundation
  of the Unit shall be free of material defects, and that the Unit does not contain
  hazardous levels of any mold or fungi defined as toxic under applicable state
  or federal law. If a non-compliance with such warranty exists as of the Start
  Date, or if one of such systems or elements should malfunction or fail within
  the appropriate warranty period, Lessor shall, as Lessor's sole obligation with
  respect to such matter, except as otherwise provided in this Lease, promptly
  after receipt of written notice from Lessee setting forth with specificity the
  nature and extent of such non-compliance, malfunction or failure, rectify same
  at Lessor's expense. The warranty periods shall be as follows: (i) 6 months
  as to the HVAC system and roof (except for routine roof maintenance items for
  which there shall be no warranty), and (ii) 60 days as to the remaining systems
  and other elements of the Unit. If Lessee does not give Lessor the required
  notice within the appropriate warranty period, correction of any such non-compliance,
  malfunction or failure shall be the respective obligation of Lessor or Lesse
  as set forth in Section 7.2 or 7.1, as applicable.</p>
<p>2.3 <b>Compliance</b>. Lessor warrant that the improvements on the Premises
  and the Common Areas comply with the building codes that were in effect at the
  time that each such improvement, or portion thereof, was constructed, and also
  with all applicable laws, covenants or restrictions of record, regulations,
  and ordinances in effect on the Start Date ("<b>Applicable Requirements</b>").
  Said warranty does not apply to the particular use to which Lessee will put
  the Premises, modifications which may be required by the Americans with Disabilities
  Act of any similar laws as a result of Lessee's particular use (see Paragraph
  49), or to any Alterations or Utility Installations (as defined in Paragraph
  7.3(a)) made or to be made by Lessee. <b>Note: Lessee is responsible for determining
  whether or not the Applicable Requirements and especially the zoning are appropriate
  for Lessee's intended use, and acknowledges that past uses of the Premises may
  no longer be allowed</b>. If the Premises do not comply with said warranty,
  Lessor shall, except as otherwise provided, promptly after receipt of written
  notice from Lessee setting forth with specificity the nature and extent of such
  non-compliance, rectify the same at Lessor's expense. If the Applicable Requirements
  are hereafter changed so as to require during the term of this Lease the construction
  of an addition to or an alteration of the Unit, Premises and/or Building, the
  remediation of any Hazardous Substance, or the reinforcement or other physical
  modification of the Unit, Premises and/or Building ("<b>Capital Expenditure</b>"),
  Lessor and Lessee shall allocate the cost of such work as follows:</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<table cols=2 width="100%" align="center">
  <tr>
    <td width="47%">__________</td>
    <td width="47%">
      <div align="right">__________</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="22">__________</td>
    <td width="47%" height="22">
      <div align="right">__________</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="20">
      <p>INITIALS</p>
    </td>
    <td width="47%" height="20">
      <p align="right">INITIALS</p>
    </td>
  </tr>
</table>
<p>&nbsp; </p>
<p>&nbsp;</p>
<p align="center"><b>PAGE 2 OF 22</b></p>
<p align="center"><b>&copy;1999 - AIR COMMERCIAL REAL ESTATE ASSOCIATION FORM MTN-4-8/04E</b></p>
<hr>
<p>(a) Subject to Paragraph 2.3(c) below, if such Capital Expenditures are required
  as a result of the specific and unique use of the Premises by Lessee as compared
  with uses by tenants in general, Lessee shall be fully responsible for the cost
  thereof, provided, however that if such Capital Expenditure is required during
  the last 18 months of this Lease and the cost thereof exceeds 6 months' Base
  Rent, Lessee may instead terminate this Lease unless Lessor notifies Lessee,
  in writing, within 10 days after receipt of Lessee's termination notice that
  Lessor has elected to pay the difference between the actual cost thereof and
  the amount equal to 6 months' Base Rent. If Lessee elects termination, Lessee
  shall immediately cease the use of the Premises which requires such Capital
  Expenditure and deliver to Lessor written notice specifying a termination date
  at least 90 days thereafter. Such termination date shall, however, in no event
  be earlier than the last day that Lessee could legally utilize the Premises
  without commencing such Capital Expenditure.</p>
<p>(b) If such Capital Expenditure is not the result of the specific and unique
  use of the Premises by Lessee (such as, governmentally mandated seismic modifications),
  the Lessor and Lessee shall allocate the obligation to pay for the portion of
  such costs reasonably attributable to the Premises pursuant to the formula set
  out in Paragraph 7.1(d); provided, however, that if such Capital Expenditure
  is requrired during the last 18 months of this Lease or if Lessor reasonably
  determines that it is not economically feasible to pay its share thereof, Lessor
  shall have the option to terminate this Lease upon 180 days prior written notice
  to Lessee unless Lessee notifies Lessor, in writing, within 10 days after receipt
  of Lessor's termination notice that Lessee will pay for such Capital Expenditure.
  If Lessor does not elect to terminate, and fails to tender its share of any
  such Capital Expenditure, Lessee may advance such funds and deduct same, with
  interest, from Rent until Lessor's share of such costs have been fully paid.
  If Lessee is unable to finance Lessor's share, or if the balance of the Rent
  due and payable for the remainder of this Lease is not sufficient to fully reimburse
  Lessee on an offset basis, Lessee shall have the right to terminate this Lease
  upon 30 days written notice to Lessor. </p>
<p>(c) Notwithstanding the above, the provisions concerning Capital Expenditures
  are intended to apply only to non-voluntary, unexpected, and new Applicable
  Requirements. If the Capital Expenditure are instead triggered by Lessee as
  a result of an actual or proposed change in use, change in intensity of use,
  or modification to the Premises then, and in that event, Lessee shall either:
  (i) immediately cease such changed use or intensity of use and/or take such
  other steps as may be necessary to eliminate the requirement for such Capital
  Expenditure, or (ii) complete such Capital Expenditure at its own expense. Lessee
  shall not have any right to terminate this Lease.</p>
<p>2.4 <b>Acknowledgements</b>. Lessee acknowledges that: (a) it has been advised
  by Lessor and/or Brokers to satisfy itself with respect to the condition of
  the Premises (including but not limited to the electrical, HVAC and fire sprinkler
  systems, security, environmental aspects, and compliance with Applicable Requirements
  and the Americans with Disabilities Act), and their suitability for Lessee's
  intended use, and (b) neither Lessor, Lessor's agents nor Brokers have made
  any oral or written representations or warranties with respect to said matters
  other than as set forth in this Lease. In addition, Lessor acknowledges that:
  (i) Brokers have made no representations, promises or warranties concerning
  Lessee's ability to honor the Lease or suitability to occupy the Premises, and
  (ii) it is Lessor's sole responsibility to investigate the financial capability
  and/or suitability of all proposed tenants. </p>
<p>2.6 <b>Vehicle Parking</b>. Lessee shall be entitled to use the number of parking
  spaces specified in Paragraph 1.2(b) on those portions of the Common Areas designated
  from time to time by Lessor for parking and exclusive use of the loading area
  adjacent to the Premises. Lessee shall not use more parking spaces than said
  number. Said parking spaces shall be used for parking by vehicles no larger
  that full-size passenger automobiles or pick-up trucks, herein called "<b>Permitted
  Size Vehicles</b>." Lessor may regulate the loading and unloading of vehicles
  by adopting Rules and Regulations as provided in Paragraph 2.9. No vehicles
  other than Permitted Size Vehicles may be parked in Common Area without the
  prior written permission of Lessor, In addition: </p>
<p>(a) Lessee shall not permit or allow any vehicles that belong to or are not
  controlled by Lessee or Lessee's employees, suppliers, shippers, customers,
  contractors or invitees to be loaded, unloaded, or parked in areas other than
  those designated by Lessor for such activities. </p>
<p>(b) Lessee shall not service or store any vehicles in the Common Areas. </p>
<p>(c) If Lessee permits or allows any of the prohibited activities described
  in this Paragraph 2.6, then Lessor shall have the right, without notice, in
  addition to such other rights and remedies that it may have, to remove or tow
  away the vehicle involved and charge the cost to Lessee, which cost shall be
  immediately payable upon demand by Lessor. </p>
<p>2.7 <b>Common Areas - Definition</b>. The term "<b>Common Areas</b>" is defined
  as all areas and facilities outside the Premises and within the exterior boundary
  line of the Project and interior utility raceways and installations within the
  Unit that are provided and designated by the Lessor from time to time for the
  general non-exclusive use of Lessor, Lessee and other tenants of the Project
  and their respective employees, suppliers, shippers, customers, contractors
  and invitees, including parking areas, loading and unloading areas, trash areas,
  roadways, walkways, driveways and landscaped areas and the electrical room and
  roof access ladder located within the building. </p>
<p>2.8 <b>Common Areas - Lessee's Rights</b>. Lessor grants to Lessee, for the
  benefit of Lessee and its employees, suppliers, shippers, contractors, customers
  and invitees, during the term of this Lease, the non-exclusive right to use,
  in common with others entitled to such use, the Common Areas as they exist from
  time to time, subject to any rights, powers, and privileges reserved by Lessor
  under the terms hereof or under the terms of any rules and regulations or restrictions
  governing the use of the project. Under no circumstances shall the right herein
  granted to use the Common Areas be deemed to include the right to store any
  property, temporarily or permanently, in the Common Areas. Any such storage
  shall be permitted only by the prior written consent of Lessor or Lessor's designated
  agent, which consent may be revoked at any time. In the event that any unauthorized
  storage shall occur then Lessor shall have the right, without notice, in addition
  to such other rights an remedies that it may have, to remove the property and
  charge the cost to Lessee, which cost shall be immediately payable upon demand
  by Lessor.</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<table cols=2 width="100%" align="center">
  <tr>
    <td width="47%">__________</td>
    <td width="47%">
      <div align="right">__________</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="22">__________</td>
    <td width="47%" height="22">
      <div align="right">__________</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="20">
      <p>INITIALS</p>
    </td>
    <td width="47%" height="20">
      <p align="right">INITIALS</p>
    </td>
  </tr>
</table>
<p>&nbsp; </p>
<p>&nbsp;</p>
<p align="center"><b>PAGE 3 OF 22</b></p>
<p align="center"><b>&copy;1999 - AIR COMMERCIAL REAL ESTATE ASSOCIATION FORM MTN-4-8/04E</b></p>
<hr>
<p>2.9 <b>Common Areas - Rules and Regulations</b>. Lessor or such other person(s)
  as Lessor may appoint shall have the exclusive control and management of the
  Common Areas and shall have the right, from time to time, to establish, modify,
  amend and enforce reasonable rules and regulations ("<b>Rules and Regulations</b>")
  for the management, safety, care, and cleanliness of the grounds, the parking
  and unloading of vehicles and the preservation of good order, as well as for
  the convenience of other occupants or tenants of the Building and the Project
  and their invitees. Lessee agrees to abide by and conform to all such Rules
  and Regulations, and shall use its best efforts to cause its employees, suppliers,
  shippers, customers, contractors and invitees to so abide and conform. Lessor
  shall not be responsible to Lessee for the non-compliance with said Rules and
  Regulations by other tenants of the Project. </p>
<p>2.10 <b>Common Areas - Changes</b>. Lessor shall have the right, in Lessor's
  sole discretion, from time to time: </p>
<p>(a) To make changes to the Common Areas, including, without limitation, changes
  in the location, size, shape and number of driveways, entrances, parking spaces,
  parking areas, loading and unloading areas, ingress, egress, direction of traffic,
  landscaped areas, walkways and utility raceways; </p>
<p>(b) To close temporarily any of the Common Areas for maintenance purposes so
  long as reasonable access to the Premises remains available; </p>
<p>(c) To designate other land outside the boundaries of the Project to be a part
  of the Common Areas; </p>
<p>(d) To add additional buildings and improvements to the Common Areas; </p>
<p>(e) To use the Common Areas while engaged in making additional improvements,
  repairs or alterations to the Project, or any portion thereof; and </p>
<p>(f) To do and perform such other acts and make such other changes in, to or
  with respect to the Common Areas and Project as Lessor may, in the exercise
  of sound business judgment, deem to be appropriate.</p>
<p> 3. <b>Term</b>. </p>
<p>3.1 <b>Term</b>. The Commencement Date, Expiration Date and Original Term of
  this Lease are as specified in Paragraph 1.3. </p>
<p>3.2 <b>Early Possession</b>. If Lessee totally or partially occupies the Premises
  prior to the Commencement Date, the obligation to pay Base Rent shall be abated
  for the period of such early possession. All other terms of this Lease (including
  but not limited to the obligations to pay Lessee's Share of Common Area Operating
  Expenses, Real Property Taxes and insurance premiums and to maintain the Premises)
  shall be in effect during such period. Any such early possession shall not affect
  the Expiration Date. </p>
<p>3.3 <b>Delay in Possession</b>. Lessor agrees to use its best commercially
  reasonable efforts to deliver possession of the Premises to Lessee by the Commencement
  Date. If, despite said efforts, Lessor is unable to deliver possession as agreed,
  Lessor shall not be subject to any liability therefor, nor shall such failure
  affect the validity of this Lease or change the Expiration Date. Lessee shall
  not, however, be obligated to pay Rent or perform its other obligations until
  Lessor delivers possession of the Premises and any period of rent abatement
  that Lessee would otherwise have enjoyed shall run from the date of the delivery
  of possession and continue for a period equal to what Lessee would otherwise
  have enjoyed, but minus any days of delay caused by the acts or omissions of
  Lessee. </p>
<p>3.4 <b>Lessee Compliance</b>. Lessor shall not be required to tender possession
  of the Premises to Lessee until Lesse complies with its obligation to provide
  evidence of insurance (Paragraph 8.5). Pending delivery of such evidence, Lessee
  shall be required to perform all of its obligations under this Lease from and
  after the Start Date, including the payment of Rent, notwithstanding Lessor's
  election to withhold possession pending receipt of such evidence of insurance.
  Further, if Lessee is required to perform any other conditions prior to or concurrent
  with the Start date, the Start Date shall occur but Lessor may elect to withhold
  possession until such conditions are satisfied. </p>
<p>4. <b>Rent</b>. </p>
<p>4.1 <b>Rent Defined</b>. All monetary obligations of Lessee to Lessor under
  the terms of this Lease (except for the Security Deposit) are deemed to be rent
  ("<b>Rent</b>"). </p>
<p>4.2 <b>Common Area Operating Expenses</b>. Lessee shall pay to Lessor during
  the term hereof, in addition to the Base Rent, Lessee's share (as specified
  in Paragraph 1.6) of all Common Area Operating Expenses, as hereinafter defined,
  during each calendar year of the term of this Lease, in accordance with the
  following provisions: </p>
<p>(a) "<b>Common Area Operating Expenses</b>" are defined, for purposes of this
  Lease, as all costs incurred by Lessor relating to the ownership and operation
  of the Project, including, but not limited to, the following: </p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<table cols=2 width="100%" align="center">
  <tr>
    <td width="47%">__________</td>
    <td width="47%">
      <div align="right">__________</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="22">__________</td>
    <td width="47%" height="22">
      <div align="right">__________</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="20">
      <p>INITIALS</p>
    </td>
    <td width="47%" height="20">
      <p align="right">INITIALS</p>
    </td>
  </tr>
</table>
<p>&nbsp; </p>
<p>&nbsp;</p>
<p align="center"><b>PAGE 4 OF 22</b></p>
<p align="center"><b>&copy;1999 - AIR COMMERCIAL REAL ESTATE ASSOCIATION FORM MTN-4-8/04E</b></p>
<hr>
<p>(i) The operation, repair and maintenance, in neat, clean, good order and condition,
  and if necessary the replacement, of the following: </p>
<p>(aa) The Common Areas and Common Area improvements, including parking areas,
  loading and unloading areas, trash areas, roadways, parkways, walkways, driveways,
  landscaped areas, bumpers, irrigation systems, Common Area lighting facilities,
  fences and gates, roofs, and roof drainage systems. </p>
<p>(bb) Exterior signs and any tenant directories. </p>
<p>(cc) Any fire sprinkler systems including fire alarm monitoring and related
  telephone lines. </p>
<p>(ii) The cost of water, gas, electricity and telephone to service the Common
  Areas and any utilities not separately metered. </p>
<p>(iii) Trash disposal, pest control services, property management, security
  services, owners' association dues and fees, the cost to repaint the exterior
  of any structures and the cost of any environmental inspections. </p>
<p>(v) Real Property Taxes (as defined in Paragraph 10). </p>
<p>(vi) The cost of the premiums for the insurance maintained by the Lessor pursuant
  to Paragraph 8. </p>
<p>(vii) Any deductible portion of an insured loss concerning the Building or
  the Common Areas. </p>
<p>(viii) Auditors', accountants' and attorneys' fees and costs related to the
  operation, maintenance, repair and replacement of the Project. </p>
<p>(ix) The cost of any capital improvements to the Building or the Project not
  covered under the provisions of Paragraph 2.3 provided; however, that Lessor
  shall allocate the cost of any such capital improvement over the useful life
  of the capital item. </p>
<p>(x) Any other services to be provided by Lessor that are stated elsewhere in
  this Lease to be a Common Area Operating Expense. </p>
<p>(xi) Any other costs or expenses applicable to the ownership, leasing and/or
  management of the Building and/or Project including, without limitation, management
  fees, Lessee's share of which shall not exceed 3% of Base Rent. </p>
<p>(xii) Maintenance repair and/or replacement to roof membrane </p>
<p>(b) Any Common Area Operating Expenses and Real Property Taxes that are specifically
  attributable to the Unit, the Building or to any other Building in the Project
  or to the operation, repair and maintenance thereof, shall be allocated entirely
  to such Unit, Building, or other building. However, any Common Area Operating
  Expenses and Real Property Taxes that are not specifically attributable to the
  Building or to any other building or to the operation, repair and maintenance
  thereof, shall be equitably allocated by Lessor to all buildings in the Project.
</p>
<p>(c) The inclusion of the improvements, facilities and services set forth in
  Subparagraph 4.2(a) shall not be deemed to impose an obligation upon Lessor
  to either have said improvements or facilities or to provide those services
  unless the Project already has the same, Lessor already provides the services,
  or Lessor has agreed elsewhere in this Lease to provide the same or some of
  them. </p>
<p>(d) Lessee's share of Common Area Operating Expenses is payable monthly on
  the same day as the Base Rent is due hereunder. The amount of such payment shall
  be based on Lessor's estimate of the annual Common Area Operating Expenses.
  Within 60 days after written request (but not more than once each year) Lessor
  shall deliver to Lessee a reasonably detailed statement showing Lessee's share
  of the actual Common Area Operating Expenses incurred during the preceding year.
  If Lessee's payments during such year exceed Lessee's share, Lessor shall credit
  the amount of such over-payment against Lessee's future payments. If Lessee's
  payments during such year were less than Lessee's share, Lessee shall pay to
  Lessor the amount of the deficiency within 30 days after delivery by Lessor
  to Lessee of the statement. </p>
<p>(e) Common Area Operating Expenses shall not include any expenses paid by any
  tenant directly to third parties, or as to which Lessor is otherwise reimbursed
  by any third party, other tenant, or insurance proceeds. </p>
<p>4.3 <b>Payment</b>. Lessee shall cause payment of Rent to be received by Lessor
  in lawful money of the United States, without offset or deduction (except as
  specifically permitted in this Lease), on or before the day on which it is due.
  In the event that any invoice prepared by Lessor is inaccurate such inaccuracy
  shall not constitute a waiver and Lessee shall be obligated to pay the amount
  set forth in this Lease. Rent for any period during the term hereof which is
  for less than one full calendar month shall be prorated based upon the actual
  number of days of said month. Payment of Rent shall be made to Lessor at its
  address stated herein or to such other persons or place as Lessor may from time
  to time designate in writing. Acceptance of a payment whish is less than the
  amount then due shall not be a waiver of Lessor's rights to the balance of such
  Rent, regardless of Lessor's endorsement of any check so stating. In the event
  that any check, draft, or other instrument of payment given by Lessee to Lessor
  is dishonored for any reason, Lessee agrees to pay to Lessor the sum of $25
  in addition to any Late Charge. Payments will be applied first to accrued late
  charges and attorney's fees, second to accrued interest, then to Base Rent and
  Common Area Operating Expenses, and any remaining amount to any other outstanding
  charges or costs. </p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<table cols=2 width="100%" align="center">
  <tr>
    <td width="47%">__________</td>
    <td width="47%">
      <div align="right">__________</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="22">__________</td>
    <td width="47%" height="22">
      <div align="right">__________</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="20">
      <p>INITIALS</p>
    </td>
    <td width="47%" height="20">
      <p align="right">INITIALS</p>
    </td>
  </tr>
</table>
<p>&nbsp; </p>
<p>&nbsp;</p>
<p align="center"><b>PAGE 5 OF 22</b></p>
<p align="center"><b>&copy;1999 - AIR COMMERCIAL REAL ESTATE ASSOCIATION FORM MTN-4-8/04E</b></p>
<hr>
<p>5. <b>Security Deposit</b>. Lessee shall deposit with Lessor upon execution
  hereof the Security Deposit as security for Lessee's faithful performance of
  its obligations under this Lease. If Lessee fails to pay Rent, or otherwise
  Defaults under this Lease, Lessor may use, apply or retain all or any portion
  of said Security Deposit for the payment of any amount due Lessor or to reimburse
  or compensate Lessor for any liability, expense, loss or damage which Lessor
  may suffer or incur by reason thereof. If Lessor uses or applies all or any
  portion of the Security Deposit, Lessee shall within 10 days after written request
  therefor deposit monies with Lessor sufficient to restore said Security Deposit
  to the full amount required by this Lease. Lessor shall not be required to keep
  the Security Deposit separate from its general accounts. Within 14 days after
  the expiration or termination of this Lease, if Lessor elects to apply the Security
  Deposit only to unpaid Rent, and otherwise with 30 days after the Premises have
  been vacated pursuant to Paragraph 7.4(c) below, Lessor shall return that portion
  of the Security Deposit not used or applied by Lessor. No part of the Security
  Deposit shall be considered to be held in trust, to bear interest or to be prepayment
  for any monies to be paid by Lessee under this Lease. </p>
<p>6. <b>Use</b>. </p>
<p>6.1 <b>Use</b>. Lessee shall use and occupy the Premises only for the Agreed
  use, and for no other purpose. Lessee shall not use or permit the use of the
  Premises in a manner that is unlawful, creates damage, waste or a nuisance,
  or that disturbs occupants of or causes damage to neighboring premises or properties.
  Other than guide, signal and seeing eye dogs, Lessee shall not keep or allow
  in the Premises any pets, animals, birds, fish, or reptiles. </p>
<p>6.2 <b>Hazardous Substances</b>. </p>
<p>(a) <b>Reportable Uses Require Consent</b>. The term "<b>Hazardous Substance</b>"
  as used in this Lease shall mean any product, substance, or waste whose presence,
  use, manufacture, disposal, transportation, or release, is either; (i) potentially
  injurious to the public health, safety or welfare, the environment or the Premises,
  (ii) regulated or monitored by any governmental authority, or (iii) a basis
  for potential liability of Lessor to any governmental agency or third party
  under any applicable statute or common law theory. Hazardous Substances shall
  include, but not be limited to, hydrocarbons, petroleum, gasoline, and/or crude
  oil or any products, by-products or fraction thereof. Lessee shall not engage
  in any activity in or on the Premises which constitutes a Reportable Use of
  Hazardous Substances without the express prior written consent of Lessor and
  timely compliance (at Lessee's expense) with all Applicable Requirements. "<b>Reportable
  Use</b>" shall mean (i) the installation or use of any above or below ground
  storage tank, (ii) the generation, possession, storage, use, transportation,
  or disposal of a Hazardous Substance that requires a permit from, or with respect
  to which a report, notice, registration or business plan is required to be filed
  with, any governmental authority, and/or (iii) the presence at the premises
  of a Hazardous Substance with respect to which any Applicable Requirements requires
  that a notice be given to persons entering or occupying the Premises or neighboring
  properties. Notwithstanding the foregoing, Lessee may use any ordinary and customary
  materials reasonably required to be used in the normal course of the Agreed
  Use, even if it is a Reportable Use, ordinary office supplies, (copier toner,
  liquid paper, glue, etc.) and common household cleaning materials, so long as
  such use is in compliance with all Applicable Requirements, Lessor consents
  in writing to such use, and such use does not expose the Premises or neighboring
  property to any meaningful risk of contamination or damage or expose Lessor
  to any liability therefor. In addition, Lessor may condition its consent to
  any Reportable Use upon receiving such additional assurances as Lessor reasonably
  deems necessary to protect itself, the public, the Premises and/or the environment
  against damage, contamination, injury and/or liability, including, but not limited
  to, the installation (and removal on or before Lease expiration or termination)
  of protective modifications (such as concrete encasements) and/or increasing
  the Security Deposit. </p>
<p>(b) <b>Duty to Inform Lessor</b>. If Lessee knows, or has reasonable cause
  to believe, that a Hazardous Substance has come to be located in, on, under
  or about the Premises, other than as previously consented to by Lessor, Lessee
  shall immediately give written notice of such fact to Lessor, and provide Lessor
  with a copy of any report, notice, claim or other documentation which it has
  concerning the presence of such Hazardous Substance. </p>
<p>(c) <b>Lessee Remediation</b>. Lessee shall not cause or permit any Hazardous
  Substance to be spilled or released in, on, under, or about the Premises (including
  through the plumbing or sanitary sewer system) and shall promptly, at Lessee's
  expense, comply with all Applicable Requirements and take all investigatory
  and/or remedial action reasonably recommended, whether or not formally ordered
  or required, for the cleanup of any contamination of, and for the maintenance,
  security and/or monitoring of the Premises or neighboring properties, to the
  extent caused or materially contributed to by Lessee, or pertaining to or involving
  any Hazardous Substance brought onto the Premises during the term of this Lease,
  by or for Lessee, or any third party. </p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<table cols=2 width="100%" align="center">
  <tr>
    <td width="47%">__________</td>
    <td width="47%">
      <div align="right">__________</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="22">__________</td>
    <td width="47%" height="22">
      <div align="right">__________</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="20">
      <p>INITIALS</p>
    </td>
    <td width="47%" height="20">
      <p align="right">INITIALS</p>
    </td>
  </tr>
</table>
<p>&nbsp; </p>
<p>&nbsp;</p>
<p align="center"><b>PAGE 6 OF 22</b></p>
<p align="center"><b>&copy;1999 - AIR COMMERCIAL REAL ESTATE ASSOCIATION FORM MTN-4-8/04E</b></p>
<hr>
<p>(d) <b>Lessee Indemnification</b>. Lessee shall indemnify, defend and hold
  Lessor, its agents, employees, lenders and ground lessor, if any, harmless from
  and against any and all loss of rents and/or damages, liabilities, judgments,
  claims, expenses, penalties, and attorney's and consultants' fees arising out
  of or involving any Hazardous Substances brought onto the Premises by or for
  Lessee, or any third party (provided, however, that Lessee shall have no liability
  under this Lease with respect to underground migration of any Hazardous Substances
  under the Premises from areas outside of the Project not caused or contributed
  to by Lessee). Lessee's obligations shall include, but not be limited to, the
  effects of any contamination or injury to person, property or the environment
  created or suffered by Lessee, and the cost of investigation, removal, remediation,
  restoration and/or abatement, and shall survive the expiration or termination
  of this Lease. No termination, cancellation or release agreement entered into
  by Lessor and Lessee shall release Lessee from its obligations under this Lease
  with respect to Hazardous Substances, unless specifically so agreed by Lessor
  in writing at the time of such agreement. </p>
<p>(e) <b>Lessor Indemnification</b>. Lessor and its successors and assigns shall
  indemnify, defend, reimburse and hold Lessee, its employees and lenders, harmless
  from and against any and all environmental damages, including the cost of remediation,
  which are suffered as a direct result of Hazardous Substances placed on the
  Premises by Lessor. Lessor's obligations, as and when required by the Applicable
  Requirements, shall include, but not be limited to, the cost of investigation,
  removal, remediation, restoration and/or abatement, and shall survive the expiration
  or termination of this Lease. </p>
<p>(f) <b>Investigations and Remediations</b>. Lessor shall retain the responsibility
  and pay for any investigations or remediation measure required by governmental
  entities having jurisdiction with respect to the existence of Hazardous Substances
  on the Premises prior to the Lessee taking possession, unless such remediation
  measure is required as a result of Lessee's particular use (including "Alterations",
  as defined in paragraph 7.3(a) below) of the Premises, in which event Lessee
  shall be responsible for such payment. Lessee shall cooperate fully in any such
  activities at the request of Lessor, including allowing Lessor and Lessor's
  agents to have reasonable access to the Premises at reasonable times in order
  to carry out Lessor's investigative and remedial responsibilities. </p>
<p>(g) <b>Lessor Termination Option</b>. If a Hazardous Substance Condition (see
  Paragraph 9.1(e)) occurs during the term of this Lease, unless Lessee is legally
  responsible therefor, and/or required pursuant to the terms of this Lease (in
  which case Lessee shall make the investigation and remediation thereof required
  by the Applicable Requirements and this Lease shall continue in full force and
  effect, but subject to Lessor's rights under Paragraph 6.2(d) and Paragraph
  13), Lessor may, at Lessor's option, either (i) investigate and remediate such
  Hazardous Substance Condition, if required, as soon as reasonably possible at
  Lesso'r expense, in which event this Lease shall continue in full force and
  effect, or (ii) if the estimate cost to remediate such condition exceeds 12
  times the then monthly Base Rent or $ 100,000, whichever is greater, give written
  notice to Lessee, within 30 days after receipt by Lessor of knowledge of the
  occurrence of such Hazardous Substance Condition, of Lessor's desire to terminate
  this Lease as of the date 180 days following the date of such notice. In the
  event Lessor elects to give termination notice, Lessee may, within 10 days thereafter,
  give written notice to Lessor of Lessee's commitment to pay the amount by which
  the cost of the remediation of such Hazardous Substance Condition exceed an
  amount equal to 12 times the then monthly Base Rent or $ 100,000, whichever
  is greater. Lessee shall provide Lessor with said funds or satisfactory assurance
  thereof within 30 days following such commitment. In such event, this Lease
  shall continue in full force and effect, and Lessor shall proceed to make such
  remediation as soon as reasonably possible after the required funds are available.
  If Lessee does not give such notice and provide the required funds or assurance
  thereof within the time provided, this Lease shall terminate as of the date
  specified in Lessor's notice of termination. </p>
<p>6.3 <b>Lessee's Compliance with Applicable Requirements</b>. Except as otherwise
  provided in this Lease, Lessee shall, at Lessee's sole expense, fully, diligently
  and in a timely manner, materially comply with all Applicable Requirements,
  the requirements of any applicable fire insurance underwriter or rating bureau,
  and the recommendations of Lessor's engineers and/or consultants which relate
  in any manner to such Requirements, without regard to whether said Requirements
  are now in effect or become effective after the Start Date. Lessee shall, within
  10 days after receipt of Lessor's written request, provide Lessor with copies
  of all permits and other documents, and other information evidencing Lessee's
  compliance with any Applicable Requirements specified by Lessor, and shall immediately
  upon receipt, notify Lessor in writing (with copies of any documents involved)
  of any threatened or actual claim, notice, citation, warning, complaint or report
  pertaining to or involving the failure of Lessee or the Premises to comply with
  any Applicable Requirements. Likewise, Lessee shall immediately give written
  notice to Lessor of: (i) any water damage tot the Premises and any suspected
  seepage, pooling, dampness or other condition to the production of mold; or
  (ii) any mustiness or other odors that might indicate the presence of mold in
  the Premises. </p>
<p>6.4 <b>Inspection; Compliance</b>. Lessor and Lessor's "<b>Lender</b>" (as
  defined in Paragraph 30) and consultants shall have the right to enter into
  the Premises at any time, in the case of an emergency, and otherwise at reasonable
  times after reasonable notice, for the purpose of inspecting the condition of
  the Premises and for verifying compliance by Lessee with this Lease. The cost
  of any such inspection shall be paid by Lessor, unless a violation of Applicable
  Requirements, or a Hazardous Substance Condition (see Paragraph 9.1) is found
  to exist or be imminent, or the inspection is requested or ordered by a governmental
  authority. In such case, Lessee shall upon request reimburse Lessor for the
  cost of such inspection, so long as such inspection is reasonably related to
  the violation or contamination. In addition, Lessee shall provide copies of
  all relevant material safety data sheets (<b>MSDS</b>) to Lessor within 10 days
  of the receipt of written request therefore. </p>
<p>7. <b>Maintenance; Repairs, Utility Installations; Trade Fixtures and Alterations</b>.
</p>
<p>7.1 <b>Lessee's Obligations</b>. </p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<table cols=2 width="100%" align="center">
  <tr>
    <td width="47%">__________</td>
    <td width="47%">
      <div align="right">__________</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="22">__________</td>
    <td width="47%" height="22">
      <div align="right">__________</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="20">
      <p>INITIALS</p>
    </td>
    <td width="47%" height="20">
      <p align="right">INITIALS</p>
    </td>
  </tr>
</table>
<p>&nbsp; </p>
<p>&nbsp;</p>
<p align="center"><b>PAGE 7 OF 22</b></p>
<p align="center"><b>&copy;1999 - AIR COMMERCIAL REAL ESTATE ASSOCIATION FORM MTN-4-8/04E</b></p>
<hr>
<p>(a) <b>In General</b>. Subject to the provisions of Paragraph 2.2 (Condition),
  2.3 (Compliance), 6.3 (Lessee's Compliance with Applicable Requirements), 7.2
  (Lessor's Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee
  shall, at Lessee's sole expense, keep the Premises, Utility Installations (intended
  for Lessee's exclusive use, no matter where located), and Alterations in good
  order, condition and repair (whether or not the portion of the Premises requiring
  repairs, or the means of repairing the same, are reasonably or readily accessible
  to Lessee, and whether or not the need for such repairs occurs as a result of
  Lessee's use, any prior use, the elements or the age of such portion of the
  Premises), including, but not limited to, all equipment or facilities, such
  as plumbing, HVAC equipment, electrical, lighting facilities, boilers, pressure
  vessels, fixtures, interior walls, interior surfaces of exterior walls, ceilings,
  floors, windows, doors, plate glass, but excluding any items which are the responsibility
  of Lessor pursuant to Paragraph 7.2. Lessee, in keeping the Premises in good
  order, condition and repair, shall exercise and perform good maintenance practices,
  specifically including the procurement and maintenance of the service contracts
  required by Paragraph 7.1(b) below. Lessee's obligations shall include restorations,
  replacements or renewals when necessary to keep the Premises and all improvements
  thereon or a part thereof in good order, condition and state of repair. </p>
<p>(b) <b>Service Contracts</b>. Lessee shall, at Lessee's sole expense, procure
  and maintain contracts, with copies to Lessor, in customary form and substance
  for, and with contractors specializing and experienced in the maintenance of
  the following equipment and improvements, if any, if and when installed on the
  Premises: (i) HVAC equipment. However, Lessor reserves the right, upon notice
  to Lessee, to procure and maintain any or all of such service contracts, and
  Lessee shall reimburse Lessor, upon demand, for the cost thereof. </p>
<p>(c) <b>Failure to Perform</b>. If Lessee fails to perform Lessee's obligations
  under this Paragraph 7.1, Lessor may enter upon the Premises after 10 days'
  prior written notice to Lessee (except in the case of an emergency, in which
  case no notice shall be required), perform such obligations on Lessee's behalf,
  and put the premises in good order, condition and repair, and Lessee shall promptly
  pay to Lessor a sum equal to 115% of the cost thereof. </p>
<p>(d) <b>Replacement</b>. Subject to Lessee's indemnification of Lessor as set
  forth in Paragraph 8.7 below, and without relieving Lessee of liability resulting
  from Lessee's failure to exercise and perform good maintenance practices, if
  an item described in Paragraph 7.1(b) (other than HVAC equipment, the repairs
  and replacements of which shall be the sole obligation of the Lessee) cannot
  be repaired other than at a cost which is in excess of 50% of the cost of replacing
  such item, then such item shall be replaced by Lessor, and the cost thereof
  shall be prorated between the Parties and Lessee shall only be obligated to
  pay, each month during the remainder of the term of this Lease, on the date
  on which Base Rent is due, an amount equal to the product of multiplying the
  cost of such replacement by a fraction, the numerator of which is one, and the
  denominator of which is the useful life of such item. Lessee shall pay Interest
  on the unamortized balance but may prepay its obligation at any time. </p>
<p>7.2 <b>Lessor's Obligations</b>. Subject to the provision of Paragraphs 2.2
  (Condition), 2.3(Compliance), 4.2 (Common Area Operating Expenses), 6 (Use),
  7.1 (Lessee's Obligations), 9 (Damage or Destruction) and 14 (Condemnation),
  Lessor, subject to reimbursement pursuant to Paragraph 4.2, shall keep in good
  order, condition and repair the foundations, exterior walls, concrete sheer
  walls, underground utilities, structural condition of interior bearing walls,
  exterior roof, fire sprinkler system, Common Area fire alarm and/or smoke detection
  systems, fire hydrants, parking lots, walkways, parkways, driveways, landscaping,
  fences, sign and utility systems serving the Common Areas and all part thereof,
  as well as providing the services for which there is a Common Area Operating
  Expense pursuant to Paragraph 4.2. Lessor shall not be obligated to paint the
  exterior or interior surfaces of exterior walls nor shall Lessor be obligated
  to maintain, repair or replace windows, doors or plate glass of the Premises.
  Lessee expressly waives the benefit of any statute now or hereafter in effect
  to the extent it is inconsistent with the terms of this Lease. </p>
<p>7.3 <b>Utility Installations; Trade Fixtures; Alterations</b>. </p>
<p>(a) <b>Definitions</b>. The term "<b>Utility Installations</b>" refers to all
  floor and window coverings, air and/or vacuum lines, power panels, electrical
  distribution, security and fire protection systems, communication cabling, lighting
  fixtures, HVAC equipment, plumbing, and fencing in or on the Premises. The term
  "<b>Trade Fixtures</b>" shall mean Lessee's machinery and equipment that can
  be removed without doing material damage to the Premises. The term "<b>Alterations</b>"
  shall mean any modification of the improvements, other than Utility Installations
  or Trade Fixtures, whether by addition or deletion. "<b>Lessee Owned Alterations
  and/or Utility Installations</b>" are defined as Alterations and/or Utility
  Installations made by Lessee that are not yet owned by Lessor pursuant to Paragraph
  7.4(a). </p>
<p>(b) <b>Consent</b>. Lessee shall not make any Alterations or Utility Installations
  to the Premises without Lessor's prior written consent. Lessee may, however,
  make non-structural Utility Installations to the interior of the Premises (excluding
  the roof) without such consent but upon notice to Lessor, as long as they are
  not visible from the outside, do not involve puncturing, relocating or removing
  the roof or any existing walls, will not affect the electrical, plumbing, HVAC,
  and/or life safety systems, and the cumulative cost thereof during this Lease
  as extended does not exceed a sum equal to 5 month's Base Rent in the aggregate
  or a sum equal to one month's Base Rent in any one year. Notwithstanding the
  foregoing, Lessee shall not make or permit any roof penetrations and/or install
  anything on the roof without the prior written approval of Lessor. Lessor may,
  as a precondition to granting such approval, require Lessee to utilize a contractor
  chosen and/or approved by Lessor. Any alterations or Utility Installations that
  Lessee shall desire to make and which require the consent of the Lessor shall
  be presented to Lessor in written form with detailed plans. Consent shall be
  deemed conditioned upon Lessee's: (i) acquiring all applicable governmental
  permits, (ii) furnishing Lessor with copies of both the permits and the plans
  and specifications prior to commencement of the work, and (iii) compliance with
  all conditions of said permits and other Applicable Requirements in a prompt
  and expeditious manner. Any Alterations or Utility Installations shall be performed
  in a workmanlike manner with good and sufficient materials. Lessee shall promptly
  upon completion furnish Lessor with as-built plans and specifications. For work
  which cost an amount in excess of one month's Base Rent, Lessor may condition
  its consent upon Lessee providing a lien and completion bond in an amount equal
  to 150% of the estimated cost of such Alteration or Utility Installation and/or
  upon Lessee's posting Deposit with Lessor. </p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<table cols=2 width="100%" align="center">
  <tr>
    <td width="47%">__________</td>
    <td width="47%">
      <div align="right">__________</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="22">__________</td>
    <td width="47%" height="22">
      <div align="right">__________</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="20">
      <p>INITIALS</p>
    </td>
    <td width="47%" height="20">
      <p align="right">INITIALS</p>
    </td>
  </tr>
</table>
<p>&nbsp; </p>
<p>&nbsp;</p>
<p align="center"><b>PAGE 8 OF 22</b></p>
<p align="center"><b>&copy;1999 - AIR COMMERCIAL REAL ESTATE ASSOCIATION FORM MTN-4-8/04E</b></p>
<hr>
<p>(c) <b>Liens; Bonds</b>. Lessee shall pay, when due, all claims for labor or
  materials furnished or alleged to have been furnished or alleged to have been
  furnished to or for Lessee at or for use on the Premises, which claims are or
  may be secured by any mechanic's or materialman's lien against the Premises
  or any interest therein. Lessee shall give Lessor not less than 10 days notice
  prior to the commencement of any work in, on or about the Premises, and Lessor
  shall have the right to post notices of non-responsibility. If Lessee shall
  contest the validity of any such lien, claim or demand, then Lessee shall, at
  its sole expense defend and protect itself, Lessor and the Premises against
  the same and shall pay and satisfy any such adverse judgment that may be rendered
  thereon before the enforcement thereof. If Lessor shall require, Lessee shall
  furnish a surety bond in an amount equal to 150% of the amount of such contested
  lien, claim or demand, indemnifying Lessor against liability for the same. If
  Lessor elects to participate in any such action, Lessee shall pay Lessor's attorneys'
  fees and costs. </p>
<p>7.4 <b>Ownership; Removal; Surrender; and Restoration</b>. </p>
<p>(a) <b>Ownership</b>. Subject to Lessor's right to require removal or elect
  ownership as hereinafter provided, all Alterations and Utility Installations
  made by Lessee shall be the property of Lessee, but considered a part of the
  Premises. Lessor may, at any time, elect in writing to be the owner of all or
  any specified part of the Lessee Owned Alterations and Utility Installations.
  Unless otherwise instructed in Paragraph 7.4(b) hereof, all Lessee Owned Alterations
  and Utility Installations shall, at the expiration or termination of this Lease,
  become the property of Lessor and be surrendered by Lessee with the Premises.
</p>
<p>(b) <b>Removal</b>. By delivery to Lessee of written notice from Lessor at
  the time it consents hereto. Lessor may require that any or all Lessee Owned
  Alterations or Utility Installations be removed by the expiration or termination
  of this Lease. Lessor may require the removal at any time of all or any part
  of any Lessee Owned Alterations or Utility Installations made without the required
  consent. </p>
<p>(c) <b>Surrender; Restoration</b>. Lessee shall surrender the Premises by the
  Expiration Date or any earlier termination date, with all of the improvements,
  part and surfaces thereof broom clean and free of debris, and in the same operating
  order, condition and state of repair as on Start Date, ordinary wear and tear
  and damage by casualty or condemnation which Lessee is not required to repair
  under this Lease excepted. "Ordinary wear and tear" shall not include any damage
  or deterioration that would have been prevented by good maintenance practice.
  Lessee shall repair any damage occasioned by the installation, maintenance or
  removal of Trade Fixtures, Lessee owned Alterations and/or Utility Installations,
  furnishings, and equipment as well as the removal of any storage tank installed
  by or for Lessee. Lessee shall also completely remove from the Premises any
  and all Hazardous Substances brought onto the Premises by or for Lessee, or
  any third party during the term (except Hazardous Substances which were deposited
  via underground migration from areas outside of the Project) even if such removal
  would require Lessee to perform or pay for work that exceeds statutory requirements.
  Trade Fixtures shall remain the property of Lessee and shall be removed by Lessee.
  Any personal property of Lessee not removed on or before the Expiration Date
  or any earlier termination date shall be deemed to have been abandoned by Lessee
  and may de disposed of or retained by Lessor as Lessor may desire. The failure
  by Lessee to timely vacate the Premises pursuant to this Paragraph 7.4(c) without
  the express written consent of Lessor shall constitute a holdover under the
  provisions of Paragraph 26 below. </p>
<p>8. <b>Insurance; Indemnity</b>. </p>
<p>8.1 <b>Payment of Premiums</b>. The cost of the premiums for the insurance
  policies required to be carried by Lessor, pursuant to Paragraphs 8.2(b), 8.3(a)
  and 8.3(b), shall be a Common Area Operating Expense. Premiums for policy periods
  commencing prior to, or extending beyond, the term of this Lease shall be prorated
  to coincide with the corresponding Start Date or Expiration Date. </p>
<p>8.2 <b>Liability Insurance</b>. </p>
<p>(a) <b>Carried by Lessee</b>. Lessee shall obtain and keep in force in a Commercial
  General Liability policy of insurance protecting Lessee and Lessor as an additional
  insured against claims for bodily injury, personal injury and property damage
  based upon or arising out of the ownership, use, occupancy or maintenance of
  the Premises and all areas appurtenant thereto. Such insurance shall be on an
  occurrence basis providing single limit coverage in an amount not less than
  $ 3,000,000 per occurrence with an annual aggregate or not less than $ 5,000,000.
  Lessee shall add Lessor as an additional insured and coverage shall also be
  extended to include damage caused by heat, smoke or fumes from a hostile fire.
  The policy shall not contain any intra-insured exclusions as between insured
  persons or organizations, but shall include coverage for liability assumed under
  this Lease as an "<b>insured contract</b>" for the performance of Lessee's indemnity
  obligations under this Lease. The limits of said insurance shall not, however,
  limit the liability of Lessee nor relieve Lessee of any obligation hereunder.
  Lessee shall provide an endorsement on its liability policy(ies) which provides
  that its insurance shall be primary to and not contributory with any similar
  insurance carried by Lessor, whose insurance shall be considered excess insurance
  only. </p>
<p>(b) <b>Carried by Lessor</b>. Lessor shall maintain liability insurance as
  described in Paragraph 8.2(a), in addition to, and not in lieu of, the insurance
  required to be maintained by Lessee. Lessee shall not be named as an additional
  insured therein. </p>
<p>8.3 <b>Property Insurance - Building, Improvements and Rental Value.</b></p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<table cols=2 width="100%" align="center">
  <tr>
    <td width="47%">__________</td>
    <td width="47%">
      <div align="right">__________</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="22">__________</td>
    <td width="47%" height="22">
      <div align="right">__________</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="20">
      <p>INITIALS</p>
    </td>
    <td width="47%" height="20">
      <p align="right">INITIALS</p>
    </td>
  </tr>
</table>
<p>&nbsp; </p>
<p>&nbsp;</p>
<p align="center"><b>PAGE 9 OF 22</b></p>
<p align="center"><b>&copy;1999 - AIR COMMERCIAL REAL ESTATE ASSOCIATION FORM MTN-4-8/04E</b></p>
<hr>
<p>(a) <b>Building and Improvements</b>. Lessor shall obtain and keep in force
  a policy or policies of insurance in the name of Lessor, with loss payable to
  Lessor, any ground-lessor, and to any Lender insuring loss or damage to the
  Premises. The amount of such insurance shall be equal to the full insurable
  replacement cost of the Premises, as the same shall exist from time to time,
  or the amount required by any Lender, but in no event more than the commercially
  reasonable and available insurable value thereof. Lessee Owned Alterations and
  Utility Installations, Trade Fixtures, and Lessee's personal property shall
  be insured by Lessee under Paragraph 8.3(d) below. If the coverage is available
  and commercially appropriate, such policy or policies shall insure against all
  risks of direct physical loss or damage (including the perils of flood and/or
  earthquake), including coverage for debris removal and the enforcement of any
  Applicable Requirements requiring the upgrading, demolition, reconstruction
  or replacement of any portion of the Premises as the result of a covered loss.
  Notwithstanding the foregoing, in no event shall the Insuring Party be required
  to maintain flood and/or earthquake insurance. Said policy or policies shall
  also contain an agreed valuation provision in lieu of any coinsurance clause,
  waiver of subrogation, and inflation guard protection causing an increase in
  the annual property insurance coverage amount by a factor of not less than the
  adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers
  for the city nearest to where the premises are located. </p>
<p>(b) <b>Rental Value</b>. Lessor may also obtain and keep in force a policy
  or policies in the name of Lessor with loss payable to Lessor and any Lender,
  insuring the loss of the full Rent for one year with an extended period of indemnity
  for an additional 180 days ("<u>Rental Value insurance</u>"). Said insurance
  shall contain an agreed valuation provision in lieu of any coinsurance clause,
  and the amount of coverage shall be adjusted annually to reflect the projected
  Rent otherwise payable by Lessee, for the next 12 month period. </p>
<p>(c) <b>Adjacent Premises</b>. Lessee shall pay for any increase in the premiums
  for the property insurance of the Building and for the Common Areas or other
  buildings in the Project if said increase is caused by Lessee's acts, omissions,
  use or occupancy of the Premises. </p>
<p>(d) <b>Lessee's Improvements</b>. Since Lessor is the Insuring Party, Lessor
  shall not be required to insure Lessee Owned Alterations and Utility Installations
  unless the item in question has become the property of Lessor under the terms
  of Lease. </p>
<p>8.4 <b>Lessee's Property; Business Interruption Insurance</b>. </p>
<p>(a) <b>Property Damage</b>. Lessee shall obtain and maintain insurance coverage
  on all of Lessee's personal property, Trade Fixtures, and Lessee Owned Alterations
  and Utility Installations. Such insurance shall be full replacement cost coverage
  with a deductible of not to exceed $10,000 per occurrence. The proceeds from
  any such insurance may be used by Lessee for the replacement of personal property,
  Trade Fixtures and Lessee Owned Alterations and Utility Installations. Lessee
  shall provide Lessor with written evidence that such insurance is in force.
</p>
<p>(b) <b>Business Interruption</b>. Lessee shall obtain and maintain loss of
  income and extra expense insurance in amounts as will reimburse Lessee for direct
  or indirect loss of earnings attributable to all perils commonly insured against
  by prudent lessees in the business of Lessee or attributable to prevention of
  access to the Premises as a result of such perils. </p>
<p>(c) <b>NO Representation of Adequate Coverage</b>. Lessor makes no representation
  that the limits or forms of coverage of insurance specified herein are adequate
  to cover Lessee's property, business operations or obligations under this Lease.
</p>
<p>8.5 <b>Insurance Policies</b>. Insurance required herein shall be by companies
  duly licensed or admitted to transact business in the state where the Premises
  are located, and maintaining during the policy term a "General Policyholders
  Rating" of at least A-, VI, as set forth in the most current issue of "Best's
  Insurance Guide", or such other rating as may be required by a Lender. Lessee
  shall not do or permit to be done anything which invalidates the required insurance
  policies. Lessee shall, prior to the Start Date, deliver to Lessor certified
  copies of policies of such insurance or certificates evidencing the existence
  and amounts of the required insurance. No such policy shall be cancelable or
  subject to modification except after 30 days (10 days for non-payment of premiums)
  prior written notice to Lessor. Lessee shall, at least 5 business days prior
  to the expiration of such policies, furnish Lessor with evidence of renewals
  or "insurance binders" evidencing renewal thereof, or Lessor may order such
  insurance and charge the cost thereof to Lessee, which amount shall be payable
  by Lessee to Lessor upon demand. Such policies shall be for a term of at least
  one year, or the length of the remaining term of this Lease, whichever is less.
  If either Party shall fail to procure and maintain the insurance required to
  be carried by it, the other Party may, but shall not be required to, procure
  and maintain the same. </p>
<p>8.6 <b>Waiver of Subrogation</b>. Notwithstanding anything to the contrary
  herein, Lessee and Lessor each herby release and relieve the other, and waive
  their entire right to recover damages against the other, for loss of or damage
  to its property arising out of or incident to the perils required to be insured
  against herein. The effect of such releases and waivers is not limited by the
  amount of insurance carried or required, or by any deductibles applicable hereto.
  The Parties agree to have their respective property damage insurance carriers
  waive any right to subrogation that such companies may have against Lessor or
  Lessee, as the case may be, so long as the insurance is not invalidated thereby.
</p>
<p>8.7 <b>Indemnity</b>. Except for Lessor's negligence or willful misconduct
  or breach of this Lease, Lessee shall indemnify, protect, defend and hold harmless
  the Premises, Lessor and its agents, Lessor's master or ground lessor, partners
  and Lenders, from and against any and all claims, loss of rents and/or damages,
  liens, judgments, penalties, attorneys' and consultants' fees, expenses and/or
  liabilities arising out of, involving, or in connection with, the use and/or
  occupancy of the Premises by Lessee. If any action or proceeding is brought
  against Lessor by reason of any of the foregoing matters, Lessee shall upon
  notice defend the same at Lessee's expense by counsel reasonably satisfactory
  to Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need
  not have first paid any such claim in order to be defended or indemnified. </p>
<p>8.8 <b>Exemption of Lessor from Liability</b>. Subject to Section 8.6, and
  except for Lessor's negligence, misconduct or breach of this Lease, Lessor shall
  not be liable for injury or damage to the person or goods, wares, merchandise
  or other property of Lessee, Lessee's employees, contractors, invitees, customers,
  or any other person in or about the Premises, whether such damage or injury
  is caused by or results from fire, steam, electricity, gas, water or rain, indoor
  air quality, the presence of mold or from the breakage, leakage, obstruction
  or other defect of pipes, fire sprinklers, wires, appliances, plumbing, HVAC
  or lighting fixtures, or form any other cause, whether the said injury or damage
  results from conditions arising upon the Premises or upon other portions of
  the Building, or from other sources or places. Lessor shall not be liable for
  any damages arising from any act or neglect of any other tenant of Lessor nor
  from the failure of Lessor to enforce the provisions of any other lease in the
  Project. Notwithstanding Lessor's negligence or breach of this Lease, Lessor
  shall under no circumstances be liable for consequential damage or punitive
  damages or for injury to Lessee's business or for any loss of income or profit
  therefrom.</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<table cols=2 width="100%" align="center">
  <tr>
    <td width="47%">__________</td>
    <td width="47%">
      <div align="right">__________</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="22">__________</td>
    <td width="47%" height="22">
      <div align="right">__________</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="20">
      <p>INITIALS</p>
    </td>
    <td width="47%" height="20">
      <p align="right">INITIALS</p>
    </td>
  </tr>
</table>
<p>&nbsp; </p>
<p>&nbsp;</p>
<p align="center"><b>PAGE 10 OF 22</b></p>
<p align="center"><b>&copy;1999 - AIR COMMERCIAL REAL ESTATE ASSOCIATION FORM MTN-4-8/04E</b></p>
<hr>
<p>8.9 <b>Failure to Provide Insurance</b>. Lessee acknowledges that any failure
  on its part to obtain or maintain the insurance required herein will expose
  Lessor to risks and potentially cause Lessor to incur costs not contemplated
  by this Lease, the extent of which will be extremely difficult to ascertain.
  In addition to all other rights and remedies available to Lessor, Lessor shall
  have the right (but shall not be obligated) to obtain such insurance, at Lessee's
  sole cost and expense plus an administrative fee of ten percent (10%). </p>
<p>9. <b>Damage or Destruction</b>. </p>
<p>9.1 <b>Definitions</b>. </p>
<p>(a) <b>"Premises Partial Damage"</b> shall mean damage or destruction to the
  improvements on the Premises, other than Lessee Owned Alterations and Utility
  Installations, which can reasonably be repaired in 12 months or less from the
  date or the damage or destruction. Lessor shall notify Lessee in writing within
  30 days from the date of the damage or destruction as to whether or not the
  damage is Partial or Total. Notwithstanding the foregoing, Premises Partial
  Damage shall not include damage to windows, doors, and/or other similar items
  which Lessee has the responsibility to repair or replace pursuant to the provisions
  of Paragraph 7.1. </p>
<p>(b) <b>"Premises Total Destruction"</b> shall mean damage or destruction to
  the improvements on the Premises, other than Lessee Owned Alterations and Utility
  Installations and Trade Fixtures, which cannot reasonably be repaired in 12
  months or less from the date of the damage or destruction. Lessor shall notify
  Lessee in writing within 30 days from the date of the damage or destruction
  as to whether or not the damage is Partial or Total. </p>
<p>(c) <b>"Insured Loss"</b> shall mean damage or destruction to improvements
  on the Premises, other than Lessee Owned Alterations and Utility Installations
  and Trade Fixtures, which was caused by an event required to be covered by the
  insurance described in Paragraph 8.3(a), irrespective of any deductible amounts
  or coverage limits involved. </p>
<p>(d) <b>"Replacement Cost"</b> shall mean the cost to repair or rebuild the
  improvements owned by Lessor at the time of the occurrence to their condition
  existing immediately prior thereto, including demolition, debris removal and
  upgrading required by the operation of Applicable Requirements, and without
  deduction for depreciation. </p>
<p>(e) <b>"Hazardous Substance Condition"</b> shall mean the occurrence or discovery
  of a condition involving the presence of, or a contamination by, a Hazardous
  Substance as defined in Paragraph 6.2(a), in , on, or under the Premises which
  requires repair, remediation, or restoration. </p>
<p>9.2 <b>Partial Damage - Insured Loss</b>. If a Premises Partial Damage that
  is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such
  damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
  Installations) as soon as reasonably possible and this Lease shall continue
  in full force and effect. Notwithstanding the foregoing, if the required insurance
  was not in force or the insurance proceeds are not sufficient to effect such
  repair, the Insuring Party shall promptly contribute the shortage in proceeds
  and as when required to complete said repairs. In the event, however, such shortage
  was due to the fact that, by reason of the unique nature of the improvements,
  full replacement cost insurance coverage was not commercially reasonable and
  available, Lessor shall have no obligations to pay for the shortage in insurance
  proceeds or to fully restore the unique aspects of the Premises unless Lessee
  provides Lessor with the funds to cover same, or adequate assurance thereof,
  within 10 days following receipt of written notice of such shortage and request
  therefor. If Lessor receives said funds or adequate assurance thereof within
  said 10 day period, the party responsible for making the repairs shall complete
  them as soon as reasonably possible and this Lease shall remain in full force
  and effect. If such funds or assurance are not received, Lessor may nevertheless
  elect by written notice to Lessee within 10 days thereafter to: (i) make such
  restoration and repair as is commercially reasonable with Lessor paying any
  shortage in proceeds, in which case this Lease shall remain in full force and
  effect, or (ii) have this Lease terminate 30 days thereafter. Lessee shall not
  be entitled to reimbursement of any funds contributed by Lessee to repair any
  such damage or destruction. Premises Partial Damage due to flood or earthquake
  shall be subject to Paragraph 9.3, notwithstanding that there may be some insurance
  coverage, but the net proceeds of any such insurance shall be made available
  for the repairs if made by either Party. </p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<table cols=2 width="100%" align="center">
  <tr>
    <td width="47%">__________</td>
    <td width="47%">
      <div align="right">__________</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="22">__________</td>
    <td width="47%" height="22">
      <div align="right">__________</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="20">
      <p>INITIALS</p>
    </td>
    <td width="47%" height="20">
      <p align="right">INITIALS</p>
    </td>
  </tr>
</table>
<p>&nbsp; </p>
<p>&nbsp;</p>
<p align="center"><b>PAGE 11 OF 22</b></p>
<p align="center"><b>&copy;1999 - AIR COMMERCIAL REAL ESTATE ASSOCIATION FORM MTN-4-8/04E</b></p>
<hr>
<p>9.3 <b>Partial Damage</b> <b>- Uninsured Loss</b>. If a Premises Partial Damage
  that is not an Insured Loss occurs, (and such Premises Partial Damage is not
  otherwise covered by any other insurance which may be carried by Lessor), unless
  caused by a negligent or willful act of Lessee (in which event Lessee shall
  make the repairs at Lessee's expense), Lessor will repair such damage as soon
  as reasonably possible at Lessor's expense, in which event this Lease shall
  continue in full force and effect, provided that if the cost to repair such
  Premise Partial Damage exceeds 12 times the monthly Base Rent, then Lessor may
  terminate this Lease by giving written notice to Lessee within 30 days after
  receipt by Lessor of knowledge of the occurrence of such damage. Such termination
  shall be effective 60 days following the date of such notice. In the event Lessor
  elects to terminate this Lease, Lessee shall have the right within 10 days after
  receipt of the termination notice to give written notice to Lessor of Lessee's
  commitment to pay for the repair of such damage without reimbursement from Lessor.
  Lessee shall provide Lessor with said funds or satisfactory assurance thereof
  within 30 days after making such commitment. In such event this Lease shall
  continue in full force and effect, and Lessor shall proceed to make such repairs
  as soon as reasonably possible after the required funds are available. If Lessee
  does not make the required commitment, this Lease shall terminate as of the
  date specified in the termination notice. </p>
<p>9.4 <b>Total Destruction</b>. Notwithstanding any other provision hereof, if
  a Premises Total Destruction Occurs, this Lease shall terminate 60 days following
  such Destruction. If the damage or destruction was caused by the negligence
  or willful misconduct of Lessee, and such damage or destruction is not an Insured
  Loss and is not otherwise covered by any other insurance which may be carried
  by Lessor, Lessor shall have the right to recover Lessor's damages from Lessee,
  except as provided in Paragraph 8.6. </p>
<p>9.5 <b>Damage Near End of Term</b>. If at any time during the last 6 months
  of this Lease there is damage for which the cost to repair exceeds one month's
  Base Rent, whether or not an Insured Loss, each of Lessee and Lessor may terminate
  this Lease effective 60 days following the date of occurrence of such damage
  by giving a written termination notice to the other party within 30 days after
  the date of occurrence of such damage. Notwithstanding the foregoing, if Lessee
  elects to so terminate this Lease and Lessee at that time has an exercisable
  option to extend this Lease or to purchase the Premises, then Lessee may preserve
  this lease by, (a) exercising such option and (b) providing Lessor with any
  shortage in insurance proceeds (or adequate assurance thereof) needed to make
  the repairs on or before the earlier of (i) the date which is 10 days after
  Lessee's receipt of Lessor's written notice purporting to terminate this Lease,
  or (ii) the day prior to the date upon which such option expires. If Lessee
  duly exercises such option during such period and provides Lessor with funds
  (or adequate assurance thereof) to cover any shortage in insurance proceeds,
  Lessor shall, at Lessor's commercially reasonable expense, repair such damage
  as soon as reasonably possible and this Lease shall continue in full force and
  effect. If Lessee fails to exercise such option and provide such funds or assurance
  during such period, then this Lease shall terminate on the date specified in
  the termination notice and Lessee's option shall be extinguished. </p>
<p>9.6 <b>Abatement of Rent; Lessee's Remedies</b>. </p>
<p>(a) <b>Abatement</b>. In the event of Premises Partial Damage or Premises Total
  Destruction or a Hazardous Substance Condition for which Lessee is not responsible
  under this Lease, the Rent payable by Lessee for the period required for the
  repair, remediation or restoration of such damage shall be abated in proportion
  to the degree to which Lessee's use of the Premises is impaired. All other obligations
  of Lessee hereunder shall be performed by Lessee, and Lessor shall have no liability
  for any such damage, destruction, remediation, repair or restoration except
  as provided herein. </p>
<p>(b) <b>Remedies</b>. If Lessor shall be obligated to repair or restore the
  Premises and does not commence, in a substantial and meaningful way, such repair
  or restoration within 90 days after receipt of insurance proceeds sufficient
  to cover the cost of such repairs Lessee may, at any time prior to the commencement
  of such repair or restoration, give written notice to Lessor and to any Lenders
  of which Lessee has actual notice, of Lessee's election to terminate this Lease
  on a date not less than 60 days following the giving of such notice. If Lessee
  gives such notice and such repair or restoration is not commenced within 30
  days thereafter, this Lease shall terminate as of the date specified in said
  notice. If the repair or restoration is commenced within such 30 days, this
  Lease shall continue in full force and effect. "Commence" shall mean either
  the unconditional authorization of the preparation of the required plans, or
  the beginning of the actual work on the Premises, whichever first occurs. </p>
<p>9.7 <b>Termination; Advance Payments</b>. Upon termination of this Lease pursuant
  to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be made concerning
  advance Base Rent and any other advance payments made by Lessee to Lessor. Lessor
  shall, in addition, return to Lessee so much of Lessee's Security Deposit as
  has not been, or is not then required to be, used by Lessor. </p>
<p>9.8 <b>Waive Statutes</b>. Lessor and Lessee agree that the terms of this Lease
  shall govern the effect of any damage to or destruction of the Premises with
  respect to the termination of this Lease and herby waive the provisions of any
  present or future statute to the extent inconsistent herewith. </p>
<p>10 <b>Real Property Taxes</b>. </p>
<p>10.1 <b>Definition</b>. As used herein, the term "<b>Real Property Taxes</b>"
  shall include any form of assessment; real estate, general, special, ordinary
  or extraordinary, or rental levy or tax (other than inheritance, personal income
  or estate taxes); improvement bond; and/or license fee imposed upon or levied
  against any legal or equitable interest of Lessor in the Project, Lessor's right
  to other income therefrom, and/or Lessor's business of leasing, by any authority
  having the direct or indirect power to tax and where the funds are generated
  with reference to the Project address and where the proceeds so generated are
  to be applied by the city, county or other local taxing authority of a jurisdiction
  within which the Project is located. The term "Real Property Taxes" shall also
  include any tax, fee, levy, assessment or charge, or any increase therein; (i)
  imposed by reason of events occurring during the term of this Lease, including
  but not limited to, a change in the ownership of the Project, (ii) a change
  in the improvements thereon, and/or (iii) levied or assessed on machinery or
  equipment provided by Lessor to Lessee pursuant to this Lease. In calculating
  Real Property Taxes for any calendar year, the Real Property Taxes for any real
  ester tax year shall be included in the calculation of Real Property Taxes for
  such calendar year based upon the number of days which such calendar year and
  tax year have in common.</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<table cols=2 width="100%" align="center">
  <tr>
    <td width="47%">__________</td>
    <td width="47%">
      <div align="right">__________</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="22">__________</td>
    <td width="47%" height="22">
      <div align="right">__________</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="20">
      <p>INITIALS</p>
    </td>
    <td width="47%" height="20">
      <p align="right">INITIALS</p>
    </td>
  </tr>
</table>
<p>&nbsp; </p>
<p>&nbsp;</p>
<p align="center"><b>PAGE 12 OF 22</b></p>
<p align="center"><b>&copy;1999 - AIR COMMERCIAL REAL ESTATE ASSOCIATION FORM MTN-4-8/04E</b></p>
<hr>
<p>10.2 <b>Payment of Taxes</b>. Except as otherwise provided in Paragraph 10.3,
  Lessor shall pay the Real Property Taxes applicable to the Project, and said
  payments shall be included in the calculation of Common Area Operating Expenses
  in accordance with the provisions of Paragraph 4.2. </p>
<p>10.3 <b>Additional Improvements</b>. Common Area Operating Expenses shall not
  include Real Property Taxes specified in the tax assessor's records and work
  sheets as being caused by additional improvements placed upon the Project by
  other lessees or by Lessor for the exclusive enjoyment of such other lessees.
  Notwithstanding Paragraph 10.2 hereof, Lessee shall, however, pay to Lessor
  at the time Common Area Operating Expenses are payable under Paragraph 4.2,
  the entirety of any increase in Real Property Taxes if assessed solely by reason
  of Alterations, Trade Fixtures or Utility Installations placed upon the Premises
  by Lessee or at Lessee's request or by reason of any alterations or improvements
  to the Premises made by Lessor subsequent to the execution of this Lease by
  the parties. </p>
<p>10.4 <b>Joint Assessment</b>. If the building is not separately assessed, Real
  Property Taxes allocated to the Building shall be an equitable proportion of
  the Real Property Taxes for all of the land and improvements included within
  the tax parcel assessed, such proportion to be determined by Lessor from the
  respective valuations assigned in the assessor's work sheets or such other information
  as may be reasonably available. Lessor's reasonable determination thereof, in
  good faith, shall be conclusive. </p>
<p>10.5 <b>Personal Property Taxes</b>. Lessee shall pay prior to delinquency
  all taxes assessed against and levied upon Lessee Owned Alterations and Utility
  Installations, Trade Fixtures, furnishings, equipment and all personal property
  of Lessee contained on Premises. When possible, Lessee shall cause its Lessee
  Owned Alterations and Utility Installations, Trade Fixtures, furnishings, equipment
  and all other personal property to be assessed and billed separately from the
  real property of Lessor. If any of Lessee's said property shall be assessed
  with Lessor's real property, Lessee shall pay Lessor the taxes attributable
  to Lessee's property within 10 days after receipt of a written statement setting
  forth the taxes applicable to Lessee's property. </p>
<p>11. <b>Utilities and Services</b>. Lessee shall pay for all water, gas, heat,
  light, power, telephone, trash disposal and other utilities and services supplied
  to the Premises, together with any taxes thereon. Notwithstanding the provisions
  of Paragraph 4.2, if at any time in Lessor's sole judgment, Lessor determines
  that Lessee is using a disproportionate amount of water, electricity or other
  commonly metered utilities, or that Lessee is generating such a large volume
  of trash as to require an increase in the size of the trash receptacle and/or
  an increase in the number of times per month that it is emptied, then Lessor
  may increase Lessee's Base Rent by an amount equal to such increased cost. There
  shall be no abatement of Rent and Lessor shall not be liable in any respect
  whatsoever for the inadequacy, stoppage, interruption or discontinuance of any
  utility or service due to riot, strike, labor dispute, breakdown, accident,
  repair or other cause beyond Lessor's reasonable control or in cooperation with
  governmental request or directions. </p>
<p>12. <b>Assignment and Subletting</b>. </p>
<p>12.1 <b>Lessor's Consent Required</b>. </p>
<p>(a) Lessee shall not voluntarily or by operation of law assign, transfer, mortgage
  or encumber (collectively, "<b>assign or assignment</b>") or sublet all or any
  part of Lessee's interest in this Lease or in the Premises without Lessor's
  prior written consent. </p>
<p>(b) Unless Lessee is a corporation and its stock is publicly traded on a national
  stock exchange, a change in the control of Lessee shall constitute an assignment
  requiring consent. The transfer, on a cumulative basis, of 49% or more of the
  voting control of Lessee shall constitute a change in control for this purpose.
</p>
<p>(d) An assignment or subletting without consent shall, at Lessor's option,
  be a Default curable after notice per Paragraph 13.1(c), or a noncurable Breach
  without the necessity of any notice and grace period. If Lessor elects to treat
  such unapproved assignment or subletting as a noncurable Breach, Lessor may,
  in addition to all other rights and remedies available to Lessor, may terminate
  this Lease. </p>
<p>(e) Lessee's remedy for any breach of Paragraph 12.1 by Lessor shall be limited
  to injunctive relief. </p>
<p>(f) Lessor may reasonably withhold consent to a proposed assignment or subletting
  if Lessee is in Default at the time consent is requested. </p>
<p>(g) Notwithstanding the foregoing, allowing a diminimus portion of the Premises,
  ie. 20 square feet or less, to be used by a third party vendor in connection
  with the installation of a vending machine or payphone shall not constitute
  subletting. </p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<table cols=2 width="100%" align="center">
  <tr>
    <td width="47%">__________</td>
    <td width="47%">
      <div align="right">__________</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="22">__________</td>
    <td width="47%" height="22">
      <div align="right">__________</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="20">
      <p>INITIALS</p>
    </td>
    <td width="47%" height="20">
      <p align="right">INITIALS</p>
    </td>
  </tr>
</table>
<p>&nbsp; </p>
<p>&nbsp;</p>
<p align="center"><b>PAGE 13 OF 22</b></p>
<p align="center"><b>&copy;1999 - AIR COMMERCIAL REAL ESTATE ASSOCIATION FORM MTN-4-8/04E</b></p>
<hr>
<p>12.2 <b>Terms and Conditions Applicable to Assignment and Subletting</b>. </p>
<p>(a) Regardless of Lessor's consent, no assignment or subletting shall; (i)
  be effective without the express written assumption by such assignee or sublessee
  of the obligations of Lessee under this Lease, (ii) release Lessee of any obligations
  hereunder, or (iii) alter the primary liability of Lessee for the payment of
  Rent of for the performance of any other obligations to be performed by Lessee.
</p>
<p>(b) Lessor may accept Rent of performance of Lessee's obligations from any
  person other than Lessee pending approval or disapproval of an assignment. Neither
  a delay in the approval or disapproval of such assignment nor the acceptance
  of Rent of performance shall constitute a waiver or estoppel of Lessor's right
  to exercise it remedies for Lessee's Default or Breach. </p>
<p>(c) Lessor's consent to any assignment or subletting shall not constitute consent
  to any subsequent assignment or subletting. </p>
<p>(d) In the event of any Default or Breach by Lessee, Lessor may proceed directly
  against Lessee, any Guarantors or anyone else responsible for the performance
  of Lessee's obligation sunder this Lease, including any assignee or sublessee,
  without first exhausting Lessor's remedies against any other person or entity
  responsible therefore to Lessor, or any security held by Lessor. </p>
<p>(e) Each request for consent to an assignment or subletting shall be in writing,
  accompanied by information relevant to Lessor's determination as to the financial
  and operational responsibility and appropriateness of the proposed assignee
  or sublessee, including but not limited to the intended use and/or required
  modification of the Premises, if any, together with a fee of $500 as consideration
  for Lessor's considering and processing said request. Lessee agrees to provide
  Lessor with such other or additional information and/or documentation as may
  be reasonably requested. (See also Paragraph 36) (f) Any assignee of, or sublessee
  under, this Lease shall, by reason of accepting such assignment, entering into
  such sublease, or entering into possession of the Premises or any portion thereof,
  be deemed to have assumed and agreed to conform and comply with each and every
  term, covenant, condition and obligation herein to be observed or performed
  by Lessee during the term of said assignment or sublease, other than such obligations
  as are contrary to or inconsistent with provisions of an assignment or sublease
  to which Lessor has specifically consented to in writing. </p>
<p>(g) Lessor's consent to any assignment or subletting shall not transfer to
  the assignee or sublessee any Option granted to the original Lessee by this
  Lease unless such transfer is specifically consented to by Lessor in writing.
  (See Paragraph 39.2) </p>
<p>12.3 <b>Additional Terms and Conditions Applicable to Subletting</b>. The following
  terms and conditions shall apply to any subletting by Lessee of all or any part
  of the Premises and shall be deemed included in all subleases under this Lease
  whether or not expressly incorporated therein: </p>
<p>(a) Lessee herby assign and transfers to Lessor all of Lessee's interest in
  all Rent payable on any sublease, and Lessor may collect such Rent and apply
  same toward Lessee's obligations under this Lease; provided, however, that until
  a Breach shall occur in the performance of Lessee's obligations, Lessee may
  collect said rent. In the event that the amount collected by Lessor exceeds
  Lessee's then outstanding obligations any such excess shall be refunded to Lessee.
  Lessor shall not, by reason of the foregoing or any assignment of such sublease,
  nor by reason of the collection or Rent, be deemed liable to the sublessee for
  any failure of Lessee to perform an comply with any of Lessee's obligations
  to such sublessee. Lessee herby irrevocably authorizes and directs any such
  sublessee, upon receipt of a written notice from Lessor stating that a Breach
  exists in the performance of Lessee's obligations under this Lease, to pay to
  Lessor all Rent due and to become due under the sublease. Sublessee shall rely
  upon any such notice from Lessor and shall pay all Rents to Lessor without any
  obligation or right to inquire as to whether such Breach exists, notwithstanding
  any claim from Lessee to the contrary. </p>
<p>(b) In the event of a Breach by Lessee, Lessor may, at its option, require
  sublessee to attorn to Lessor, in which event Lessor shall undertake the obligations
  of the sublessor under such sublease from the time of the exercise of said option
  to the expiration of such sublease; provided, however, Lessor shall not be liable
  for any prepaid rents or security deposit paid by such sublessee to such sublessor
  or for any prior Defaults or Breaches of such sublessor. </p>
<p>(c) Any matter requiring the consent of the sublessor under a sublease shall
  also require the consent of Lessor. </p>
<p>(d) No sublessee shall further assign or sublet all or any part of the Premises
  without Lessor's prior written consent. </p>
<p>(e) Lessor shall deliver a copy of any notice of Default or Breach by Lessee
  to the sublessee, who shall have the right to cure the Default of Lessee within
  the grace period, if any, specified in such notice. The sublessee shall have
  a right of reimbursement and offset from and against Lessee for any such Defaults
  cured by the sublessee. </p>
<p>13. <b>Default; Breach; Remedies</b>. </p>
<p>13.1 <b>Default; Breach</b>. A "<b>Default</b>" is defined as a failure by
  the Lessee to comply with or perform any of the terms, covenants, conditions
  or Rules and Regulations under this Lease. A "<b>Breach</b>" is defined as the
  occurrence of one or more of the following Defaults, and the failure of Lessee
  to cure such Default within any applicable grace period: </p>
<p>(a) The abandonment of the Premises; or the vacating of the Premises without
  providing a commercially reasonable level of security, or where the coverage
  of the property insurance described in Paragraph 8.3 is jeopardized as a result
  thereof, or without providing reasonable assurances to minimize potential vandalism.
</p>
<p>(b) The failure of Lessee to make any payment of Rent of any Security Deposit
  required to be made by Lessee hereunder, whether to Lessor or to a third party,
  when due, to provide reasonable evidence of insurance of surety bond, or to
  fulfill any obligation under this Lease which endangers or threatens life or
  property, in each case where such failure contnues for a period of 3 business
  days following written notice to Lessee. </p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<table cols=2 width="100%" align="center">
  <tr>
    <td width="47%">__________</td>
    <td width="47%">
      <div align="right">__________</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="22">__________</td>
    <td width="47%" height="22">
      <div align="right">__________</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="20">
      <p>INITIALS</p>
    </td>
    <td width="47%" height="20">
      <p align="right">INITIALS</p>
    </td>
  </tr>
</table>
<p>&nbsp; </p>
<p>&nbsp;</p>
<p align="center"><b>PAGE 14 OF 22</b></p>
<p align="center"><b>&copy;1999 - AIR COMMERCIAL REAL ESTATE ASSOCIATION FORM MTN-4-8/04E</b></p>
<hr>
<p>(c) The commission of waste, act or acts constituting public or private nuisance,
  and/or illegal activity on the Premises by Lessee, where such actions continue
  for a period of 10 business days following written notice to Lessee. </p>
<p>(d) The failure by Lessee to provide (i) reasonable written evidence of compliance
  with Applicable Requirements, (ii) the service contracts, (iii) the rescission
  of an unauthorized assignment or subletting, (iv) an Estoppel Certificate, (v)
  a requested subordination, (vi) evidence concerning any guaranty and/or Guarantor,
  (vii) any document requested under Paragraph 41, (viii) material data safety
  sheets (MSDS), or (ix) any other documentation or information which Lessor may
  reasonably require of Lessee under the terms of this Lease, where any such failure
  continues for a period of 10 days following written notice to Lessee. </p>
<p>(e) A Default by Lessee as to the terms, covenants, conditions or provisions
  of this Lease, or of the rules adopted under Paragraph 2.9 hereof, other than
  those described in subparagraphs 13.1(a), (b), (c) or (d), above, where such
  Default continues for a period of 30 days after written notice; provided, however,
  that if the nature of Lessee's Default is such that more than 30 days are reasonably
  required for its cure, then it shall not be deemed to be a Breach if Lessee
  commences such cure within said 30 day period and thereafter diligently prosecutes
  such cure to completion. </p>
<p>(f) The occurrence of any of the following events: (i) the making of any general
  arrangement or assignment for the benefit of creditors; (ii) becoming a "<b>debtor</b>"
  as defined in 11 U.S.C. 101 or any successor statute thereto (unless, in the
  case of a petition filed against Lessee, the same is dismissed within 60 days);
  (iii) the appointment of a trustee or receiver to take possession of substantially
  all of Lessee's assets located at the Premises or of Lessee's interest in this
  Lease, where possession is not restored to Lessee within 30 days; or (iv) the
  attachment, execution or other judicial seizure of substantially all of Lessee's
  assets located at the Premises or of Lessee's interest in this Lease, where
  such seizure is not discharged within 30 days; provided, however, in the event
  that any provision of this subparagraph is contrary to any applicable law, such
  provision shall be of no force or effect, and not affect the validity of the
  remaining provisions. </p>
<p>(g) The discovery that any financial statement of Lessee or of any Guarantor
  given to Lessor was intentionally and materially false. </p>
<p>(h) If the performance of Lessee's obligations under this Lease is guaranteed:
  (i) the death of a Guarantor, (ii) the termination of a Guarantor's liability
  with respect to this Lease other than in accordance with the terms of such guaranty,
  (iii) a Guarantor's becoming insolvent or the subject of a bankruptcy filing,
  (iv) a Guarantor's refusal to honor the guaranty, or (v) a Guarantor's breach
  of its guaranty obligations on an anticipatory basis, and Lessee's failure,
  within 60 days following written notice of any such event, to provide written
  alternative assurance or security, which, when coupled with the then existing
  resources of Lessee, equals or exceeds the combined financial resources of Lessee
  and the Guarantors that existed at the time of execution of this Lease. </p>
<p>13.2 <b>Remedies</b>. If Lessee fails to perform any of its affirmative duties
  or obligations, within 10 days after written notice (or in case of an emergency,
  without notice), Lessor may, at its option, perform such duty or obligation
  on Lessee's behalf, including but not limited to the obtaining of reasonably
  required bonds, insurance policies, or governmental licenses, permits or approvals.
  Lessee shall pay to Lessor an amount equal to 110% of the costs and expenses
  incurred by Lessor in such performance upon receipt of an invoice therefor.
  In the event of a Breach, Lessor may, with or without further notice or demand,
  and without limiting Lessor in the exercise of any right or remedy which Lessor
  may have by reason of such Brach: </p>
<p>(a) Terminate Lessee's right to possession of the Premises by any lawful means,
  in which case this Lease shall terminate and lessee shall immediately surrender
  possession to Lessor. In such event Lessor shall be entitled to recover from
  Lessee: (i) the unpaid Rent which had been earned at the time of termination;
  (ii) the worth at the time of award of the amount by which the unpaid rent which
  would have been earned after termination until the time of award exceeds the
  amount of such rental loss that the Lessee proves could have been reasonably
  avoided; (iii) the worth at the time of award of the amount by which the unpaid
  rent for the balance of the terms after the time of award exceeds the amount
  of such rental loss that the Lessee proves could be reasonably avoided; and
  (iv) any other amount necessary to compensate Lessor for all the detriment proximately
  caused by the Lessee's failure to perform its obligations under this Lease or
  which in the ordinary course of things would be likely to result therefrom,
  including but not limited to the cost of recovering possession of the Premises,
  expenses of reletting, including necessary renovation and alteration of the
  Premises, reasonable attorney's fees, and that portion of any leasing commission
  paid by Lessor in connection with this Lease applicable to the unexpired term
  of this Lease. The worth at the time of award of the amount referred to in provision
  (iii) of the immediately preceding sentence shall be computed by discounting
  such amount at the discount rate of the Federal Reserve Bank of the District
  within which the Premises are located at the time of award plus one percent.
  Efforts by Lessor to mitigate damages caused by Lessee's Breach of this Lease
  shall not waive Lessor's right to recover damages under Paragraph 12. If termination
  of this Lease is obtained through the provisional remedy of unlawful detainer,
  Lessor shall have the right to recover in such proceeding any unpaid Rent and
  damages as are recoverable therein, or Lessor may reserve the right to recover
  all or any part thereof in a separate suit. If a notice and grace period required
  under Paragraph 13.1 was not previously given, a notice to pay rent or quit,
  or to perform or quit given to Lessee under the unlawful detainer statute shall
  also constitute the notice required by Paragraph 13.1. In such case, the applicable
  grace period required by Paragraph 13.1 and the unlawful detainer statute shall
  run concurrently, and the failure of Lessee to cure the Default within the greater
  of the two such grace periods shall constitute both an unlawful detainer and
  a Breach of this Lease entitling Lessor to the remedies provided for in this
  Lease and/or by said statute. </p>
<p>(b) Continue the Lease and Lessee's right to possession and recover the Rent
  as it becomes due, in which event Lessee may sublet or assign, subject only
  to reasonable limitations. Acts of maintenance, efforts to relet, and/or the
  appointment of a receiver to protect the Lessor's interests, shall not constitute
  a termination of the Lessee's right to possession. </p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<table cols=2 width="100%" align="center">
  <tr>
    <td width="47%">__________</td>
    <td width="47%">
      <div align="right">__________</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="22">__________</td>
    <td width="47%" height="22">
      <div align="right">__________</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="20">
      <p>INITIALS</p>
    </td>
    <td width="47%" height="20">
      <p align="right">INITIALS</p>
    </td>
  </tr>
</table>
<p>&nbsp; </p>
<p>&nbsp;</p>
<p align="center"><b>PAGE 15 OF 22</b></p>
<p align="center"><b>&copy;1999 - AIR COMMERCIAL REAL ESTATE ASSOCIATION FORM MTN-4-8/04E</b></p>
<hr>
<p>(c) Pursue any other remedy now or hereafter available under the laws of judicial
  decisions of the state wherein the Premises are located. The expiration of termination
  of this Lease and/or the termination of Lessee's right to possession shall not
  relieve Lessee from liability under any indemnity provisions of this Lease as
  to matters occurring or accruing during the term hereof or by reason of Lessee's
  occupancy of the Premises. </p>
<p>13.4 <b>Late Charges</b>. Lessee hereby acknowledges that late payment by Lessee
  of Rent will cause Lessor to incur costs not contemplated by this Lease, the
  exact amount of which will be extremely difficult to ascertain. Such costs include,
  but are not limited to, processing and accounting charges, and late charges
  which may be imposes upon Lessor by any Lender. Accordingly, if any Rent shall
  not be received by Lessor within 5 days after such amount shall be due, then,
  without any requirement for notice to Lessee, Lessee shall immediately pay to
  Lessor a one-time late charge equal to 7.5% of each such overdue amount or $100,
  whichever is greater. The parties herby agree that such late charge represents
  a fair and reasonable estimate of the costs Lessor will incur by reason of such
  late payment. Acceptance of such late charge by Lessor shall in no event constitute
  a waiver of Lessee's Default or Breach with respect to such overdue amount,
  nor prevent the exercise of any of the other rights and remedies granted hereunder.
</p>
<p>13.5 <b>Interest</b>. Any monetary payment due Lessor hereunder, other than
  late charges, not received by Lessor, when due as to scheduled payments (such
  as Base Rent) or within 30 days following the date on which it was due for non-scheduled
  payment, shall bear interest from the date when due, as to scheduled payments,
  or the 31st day after it was due as to non-scheduled payments. The interest
  ("<b>interest</b>") charged shall be computed at the rate of 10% per annum but
  shall not exceed the maximum rate allowed by law. Interest is payable in addition
  to the potential late charge provided in Paragraph 13.4. </p>
<p>13.6 <b>Breach by Lessor</b>. </p>
<p>(a) <b>Notice of Breach</b>. Lessor shall not be deemed in breach of this Lease
  unless Lessor fails within a reasonable time to perform an obligation required
  to be performed by Lessor. For purposes of this Paragraph, a reasonable time
  shall in no event be less than 30 days after receipt by Lessor, and any Lender
  whose name and address shall have been furnished Lessee in writing for such
  purpose, of written notice specifying wherein such obligation of Lessor has
  not been performed; provided, however, that if the nature of Lessor's obligation
  is such that more than 30 days are reasonably required for its performance,
  then Lessor shall not be in breach if performance is commenced within such 30
  day period and thereafter diligently pursued to completion. </p>
<p>(b) <b>Performance by Lessee on Behalf of Lessor</b>. In the event that neither
  Lessor nor Lender cures said breach within 30 days after receipt of said notice,
  or if having commenced said cure they do not diligently pursue it to completion,
  then Lessee may elect to cure said breach at Lessee's expense and offset form
  Rent the actual and reasonable cost to perform such cure, provided however,
  that such offset shall not exceed an amount equal to the grater of one month's
  Base Rent or the Security Deposit, reserving Lessee's right to reimbursement
  from Lessor for any such expense in excess of such offset. Lessee shall document
  the cost of said cure and supply said documentation to Lessor. In no event shall
  the Lessee have the right to terminate this Lease due to a breach by Lessor.
</p>
<p>14. <b>Condemnation</b>. If the Premises or any portion thereof are taken under
  the power of eminent domain or sold under the threat of the exercise of said
  power (collectively "<b>Condemnation</b>"), this Lease shall terminate as to
  the part taken as of the date the condemning authority takes title or possession,
  whichever first occurs. If more than 10% of the floor area of the Unit, or more
  than 25% of Lessee's Reserved Parking spaces, is taken by Condemnation, Lessee
  may, at Lessee's option, to be exercised in writing within 10 days after Lessor
  shall have given Lessee written notice of such taking (or in the absence of
  such notice, within 10 days after the condemning authority shall have taken
  possession) terminate this Lease as of the date the condemning authority takes
  such possession. If Lessee does not terminate this Lease in accordance with
  the foregoing, this Lease shall remain in full force and effect as to the portion
  of the Premises remaining, except that the Base Rent (and the square footage
  of the Premises for purposes of determining Lessee's share) shall be reduced
  in proportion to the reduction in utility of the Premises caused by such Condemnation.
  Condemnation awards and/or payments shall be the property of Lessor, whether
  such award shall be made as compensation for diminution in value of the leasehold,
  the value of the part taken, or for severance damages; provided, however, that
  Lessee shall be entitled to any compensation for Lessee's relocation expenses,
  loss of business goodwill and/or Trade Fixtures, and alterations paid for by
  Lessee without regard to whether or not this Lease is terminated pursuant to
  the provisions of this Paragraph. All alterations and Utility Installations
  made to the Premises by Lessee, for purposes of Condemnation only, shall be
  considered the property of Lessee and Lessee shall be entitled to any and all
  compensation which is payable therefor. In the event that this Lease is not
  terminated by reason of the Condemnation, Lessor shall repair any damage to
  the Premises caused by such Condemnation. </p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<table cols=2 width="100%" align="center">
  <tr>
    <td width="47%">__________</td>
    <td width="47%">
      <div align="right">__________</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="22">__________</td>
    <td width="47%" height="22">
      <div align="right">__________</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="20">
      <p>INITIALS</p>
    </td>
    <td width="47%" height="20">
      <p align="right">INITIALS</p>
    </td>
  </tr>
</table>
<p>&nbsp; </p>
<p>&nbsp;</p>
<p align="center"><b>PAGE 16 OF 22</b></p>
<p align="center"><b>&copy;1999 - AIR COMMERCIAL REAL ESTATE ASSOCIATION FORM MTN-4-8/04E</b></p>
<hr>
<p>15.3 <b>Representations and Indemnities of Broker Relationships</b>. Lessee
  and Lessor each represent and warrant to the other that it has had no dealings
  with any person, firm, broker or finder (other than the Brokers, if any) in
  connection with this Lease, and that no one other than said named Brokers is
  entitled to any commission of finder's fee in connection herewith. Lessee and
  Lessor do each hereby agree to indemnify, protect, defend and hold the other
  harmless from and against liability for compensation or charges which may be
  claimed by any such unnamed broker, finder or other similar party by reason
  of any dealings or actions of the indemnifying Party, including any costs, expenses,
  attorneys' fees reasonably incurred with respect thereto. </p>
<p>16. <b>Estoppel Certificates</b>. </p>
<p>(a) Each Party (as "<b>Responding Party</b>") shall within 10 days after written
  notice from the other Party (the "<b>Requesting Party</b>") execute, acknowledge
  and deliver to the Requesting Party a statement in writing in form similar to
  the then most current "<b>Estoppel Certificate</b>" form published by the AIR
  Commercial Real Estate Association, plus such additional information, confirmation
  and/or statements as may be reasonably requested by the Requesting Party. </p>
<p>(b) If the Responding Party shall fail to execute or deliver the Estoppel Certificate
  within such 10 day period, the Requesting Party may execute an Estoppel Certificate
  stating that; (i) the Lease is in full force and effect without modification
  except as may be represented by the Requesting Party, (ii) there are no uncured
  defaults in the Requesting Party's performance, and (iii) if Lessor is the Requesting
  Party, not more than one month's rent has been paid in advance. Prospective
  purchasers and encumbrancers may rely upon the Requesting Party's Estoppel Certificate,
  and the Responding Party shall be estopped from denying the truth of the facts
  contained in said Certificate. </p>
<p>(c) If Lessor desires to finance, refinance, or sell the Premises, or any part
  thereof, Lessee and all Guarantors shall deliver to any potential lender or
  purchaser designated by Lessor such financial statements as may be reasonably
  required by such lender or purchaser, including but not limited to Lessee's
  financial statements for the past 3 years. All such financial statements shall
  be received by Lessor and such lender or purchaser in confidence and shall be
  used only for the purposes herein set forth. </p>
<p>17. <b>Definition of Lessor</b>. The term "<b>Lessor</b>" as used herein shall
  mean the owner or owners at the time in question of the fee title to the Premises,
  or, if this is a sublease, of the Lessee's interest in the prior lease. In the
  event of a transfer of Lessor's title or interest in the Premises or this Lease,
  Lessor shall deliver to the transferee or assignee (in cash or by credit) any
  unused Security Deposit held by Lessor. Except as provided in Paragraph 15,
  upon such transfer or assignment and delivery of the Security Deposit, as aforesaid,
  the prior Lessor shall be relieved of all liability with respect to the obligations
  and/or covenant under this Lease thereafter to be performed by the Lessor. Subject
  to the foregoing, the obligations and/or covenants in this Lease to be performed
  by the Lessor shall be binding only upon the Lessor as hereinabove defined.
</p>
<p>18. <b>Severability</b>. The invalidity of an provision of this Lease, as determined
  by a court of competent jurisdiction, shall in no way affect the validity of
  any other provision hereof. </p>
<p>19. <b>Days</b>. Unless otherwise specifically indicated to the contrary, the
  word "<b>days</b>" as used in this Lease shall mean and refer to calendar days.
</p>
<p>20. <b>Limitation on Liability</b>. The obligations of Lessor under this Lease
  shall not constitute personal obligations of Lessor, or its partners, members,
  directors, officers or shareholders, and Lessee shall look to the Premises,
  and to no other assets of Lessor, for the satisfaction of any liability of Lessor
  with respect to this Lease, and shall not seek resources against Lessor's partners,
  members, directors, officers or shareholders, or any of their personal assets
  for such satisfaction. </p>
<p>21. <b>Time of Essence</b>. Time is of the essence with respect to the performance
  of all obligations to be performed or observed by the Parties under this Lease.
</p>
<p>22. <b>No Prior or Other Agreements; Broker Disclaimer</b>. This Lease contains
  all agreements between the Parties with respect to any matter mentioned herein,
  and no other prior or contemporaneous agreement or understanding shall be effective.
  Lessor and Lessee each represents and warrants to the Brokers that it has made,
  and is relying solely upon, its own investigation as to the nature, quality,
  character and financial responsibility of the other Party to this Lease and
  as to the use, nature, quality and character of the Premises. Brokers have no
  responsibility with respect thereto or with respect to any default or breach
  hereof by either Party. The liability (including court costs and attorneys'
  fees), of any Broker with respect to negotiation, execution, delivery or performance
  by either Lessor or Lessee under this Lease or any amendment or modification
  hereto shall be limited to an amount up to the fee received by such Broker pursuant
  to this Lease; provided, however, that the foregoing limitation on each Broker's
  liability shall not be applicable to any gross negligence or willful misconduct
  of such Broker. </p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<table cols=2 width="100%" align="center">
  <tr>
    <td width="47%">__________</td>
    <td width="47%">
      <div align="right">__________</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="22">__________</td>
    <td width="47%" height="22">
      <div align="right">__________</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="20">
      <p>INITIALS</p>
    </td>
    <td width="47%" height="20">
      <p align="right">INITIALS</p>
    </td>
  </tr>
</table>
<p>&nbsp; </p>
<p>&nbsp;</p>
<p align="center"><b>PAGE 17 OF 22</b></p>
<p align="center"><b>&copy;1999 - AIR COMMERCIAL REAL ESTATE ASSOCIATION FORM MTN-4-8/04E</b></p>
<hr>
<p>23. <b>Notices</b>. </p>
<p>23.1 <b>Notice Requirements</b>. All notices required or permitted by this
  Lease or applicable law shall be in writing and may be deliver in person (by
  hand or by courier) or may be sent by regular, certified or registered mail
  or U.S. Postal Service Express Mail, or other overnight delivery service, with
  postage prepaid, and shall be deemed sufficiently given if served in a manner
  specified in this Paragraph 23. The addresses noted adjacent to a Party's signature
  on this Lease shall be that Party's address for delivery or mailing of notices.
  Either Party may by written notice to the other specify a different address
  for notice, except that upon Lessee's taking possession of the Premise, the
  Premises shall constitute Lessee's address for notice, until such time as Lessee
  provides Lessor with another notice address by notice as provided in this Section
  23.1, and notices to Lessee shall be sent to the attention of its Chief Financial
  Officer. A copy of all notices to Lessor shall be concurrently transmitted to
  such party or parties at such addresses as Lessor may form time to time hereafter
  designate in writing. </p>
<p>23.2 <b>Date of Notice</b>. Any notice sent by registered or certified mail,
  return receipt requested, shall be deemed given on the date of delivery shown
  on the receipt card, or if no delivery date is shown, the postmark thereon.
  If sent by regular mailed the notice shall be deemed given three (3) business
  days after the same is addressed as required herein and mailed with postage
  prepaid. Notices delivered by United States Express Mail or overnight courier
  that guarantee next day delivery shall be deemed given 24 hours after delivery
  of the same to the Postal Service or courier. If notice is received on a Saturday,
  Sunday or legal holiday, it shall be deemed received on the next business day.
</p>
<p>24. <b>Waivers</b>. No waiver by Lessor of the Default or Breach of any term,
  covenant or condition hereof by Lessee, shall be deemed a waiver of any other
  term, covenant or condition hereof, or of any subsequent Default or Breach by
  Lessee of the same or of any other term, covenant or condition hereof. Lessor's
  consent to, or approval of, any act shall not be deemed to render unnecessary
  the obtaining of Lessor's consent to, or approval of, any subsequent or similar
  act by Lessee, or be constructed as the basis of an estoppel to enforce the
  provision or provisions of this Lease requiring such consent. The acceptance
  of Rent by Lessor shall not be a waiver of any Default or Breach of Lessee.
  Any payment by Lessee may be accepted by Lessor on account of moneys or damages
  due Lessor, notwithstanding any qualifying statements or conditions made by
  Lessee in connection therewith, which such statements and/or conditions shall
  be of no force or effect whatsoever unless specifically agreed to in writing
  by Lessor at or before the time of deposit of such payment. </p>
<p>25. <b>Disclosures Regarding The Nature of a Real Estate Agency Relationship</b>.
</p>
<p>(a) When entering into a discussion with a real estate agent regarding a real
  estate transaction, a Lessor or Lessee should from the outset understand what
  type of agency relationship or representation it has with the agent or agents
  in the transaction. Lessor and Lessee acknowledge being advised by the Brokers
  in this transaction, as follows: </p>
<p>(i) <i>Lessor's Agent</i>. A Lessor's agent under a listing agreement with
  the Lessor acts as the agent for the Lessor only. A Lessor's agent or subagent
  has the following affirmative obligations: <u>To the Lessor</u>: A fiduciary
  duty of utmost care, integrity, honesty, and loyalty in dealing with the Lessor.
  <u>To the Lessee and the Lessor</u>: (a) Diligent exercise of reasonable skills
  and care in performance of the agent's duties. (b) A duty of honest and fair
  dealing and good faith. (c) A duty to disclose all facts known to the agent
  materially affecting the value or desirability of the property that are not
  known to, or within the diligent attention and observation of, the Parties.
  An agent is not obligated to reveal to either Party any confidential information
  obtained from the other Party which does not involve the affirmative duties
  set forth above. </p>
<p>(ii) <i>Lessee's Agent</i>. An agent can agree to act as agent for the Lessee
  only. In these situations, the agent is not the Lessor's agent, even if by agreement
  the agent may receive compensation for services rendered, either in full or
  in part from the Lessor. An agent acting only for a Lessee has the following
  affirmative obligations. <u>To the Lessee</u>: A fiduciary duty of utmost care,
  integrity, honesty, and loyalty in dealings with the Lessee. <u>To the Lessee
  and the Lessor</u>: (a) Diligent exercise of reasonable skills and care in performance
  of the agent's duties. (b) A duty of honest and fair dealing and good faith.
  (c) A duty to disclose all facts known to the agent materially affecting the
  value or desirability of the property that are not known to, or within the diligent
  attention and observation of, the Parties. An agent is not obligated to reveal
  to either Party any confidential information obtained from the other Party which
  does not involve the affirmative duties set forth above. </p>
<p>(iii) <u><i>Agent Representing Both Lessor and Lessee</i></u>. A real estate
  agent, either acting directly or through one or more associate licenses, can
  legally be the agent of both the Lessor and the Lessee in a transaction, but
  only with the knowledge and consent of both the Lessor and the Lessee. In a
  dual agency situation, the agent has the following affirmative obligations to
  both the Lessor and the Lessee: (a) A fiduciary duty of utmost care, integrity,
  honesty, and loyalty in dealings with either Lessor or the Lessee. (b) Other
  duties to the Lessor and the lessee as stated above in subparagraphs (i) or
  (ii). In representing both Lessor and Lessee, the agent may not without the
  express permission of the respective Party, disclose to the other Party that
  the Lessor will accept rent in an amount less than that indicated in the listing
  or that the Lessee is willing to pay a higher rent than that offered. The above
  duties of the agent in a real estate transaction do not relieve a Lessor or
  Lessee form the responsibility to protect their own interests. Lessor and Lessee
  should carefully read all agreements to assure that they adequately express
  their understanding of the transaction. A real estate agent is a person qualified
  to advice about real estate. If legal or tax advice is desired, consult a competent
  professional. </p>
<p>(b) Brokers have no responsibility with respect to any Default or Breach hereof
  by either Party. </p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<table cols=2 width="100%" align="center">
  <tr>
    <td width="47%">__________</td>
    <td width="47%">
      <div align="right">__________</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="22">__________</td>
    <td width="47%" height="22">
      <div align="right">__________</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="20">
      <p>INITIALS</p>
    </td>
    <td width="47%" height="20">
      <p align="right">INITIALS</p>
    </td>
  </tr>
</table>
<p>&nbsp; </p>
<p>&nbsp;</p>
<p align="center"><b>PAGE 18 OF 22</b></p>
<p align="center"><b>&copy;1999 - AIR COMMERCIAL REAL ESTATE ASSOCIATION FORM MTN-4-8/04E</b></p>
<hr>
<p>(c) Buyer and Seller agree to identify to Brokers as "Confidential" any communication
  or information given Brokers that is considered by such Party to be confidential.
</p>
<p>26. <b>No Right To Holdover</b>. Lessee has no right to retain possession of
  the Premises or any part thereof beyond the expiration or termination of this
  Lease. In the event that Lessee holds over, then the Base Rent shall be increased
  to 150% of the Base Rent applicable immediately preceding the expiration or
  termination. Nothing contained herein shall be construed as consent by Lessor
  to any holding over by Lessee. </p>
<p>27. <b>Cumulative Remedies</b>. No remedy or election hereunder shall be deemed
  exclusive but shall, wherever possible, be cumulative with all other remedies
  at law or in equity. </p>
<p>28. <b>Covenants and Conditions; Construction of Agreement</b>. All provisions
  of this Lease to be observed or performed by Lessee are both covenants and conditions.
  In construing this Lease, all headings and titles are for the convenience of
  the Parties only and shall not be considered a part of this Lease. Whenever
  required by the context, the singular shall include the plural and vice versa.
  This Lease shall not be constructed as if prepared by one of the Parties, but
  rather according to its fair meaning as a whole, as if both Parties had prepared
  it. </p>
<p>29. <b>Binding Effect</b>; Choice of Law. This Lease shall be binding upon
  the parties, their personal representatives, successors an assigns and be governed
  by the laws of the State in which the Premises are located without regard to
  such State's choice of Law provisions. Any litigation between the Parties hereto
  concerning this Lease shall be initiated in the county in which the Premises
  are located. </p>
<p>30. <b>Subordination; Attornment; Non-Disturbance</b>. </p>
<p>30.1 <b>Subordination</b>. This Lease and any Option granted hereby shall be
  subject and subordinate to any ground lease, mortgage, deed of trust, or other
  hypothecation or security device (collectively, "<b>Security Device</b>"), now
  or hereafter placed upon the Premises, to any and all advances made on the security
  thereof, and to all renewals, modifications, and extensions thereof. Lessee
  agrees that the holders of any such Security Devices (in this Lease together
  referred to as "<b>Lender</b>") shall have no liability or obligation to perform
  any of the obligations of Lessor under this Lease. Any Lender may elect to have
  this Lease and/or any Option granted herby superior to the lien of its Security
  Device by giving written notice thereof to Lessee, whereupon this Lease and
  such Options shall be deemed prior to such Security Device, notwithstanding
  the relative dates of the documentation of recordation thereof. </p>
<p>30.2 <b>Attornment</b>. In the event that Lessor transfers title to the Premises,
  or the Premises are acquired by another upon the foreclosure or termination
  of a Security Device to which this Lease is subordinated (i) Lessee shall, subject
  to the non-disturbance provisions of Paragraph 30.3, attorn to such new owner,
  and upon request, enter into a new lease, containing all of the terms and provisions
  of this Lease, with such new owner for the remainder of the term hereof, or,
  at the election of the new owner, this Lease will automatically become a new
  lease between Lessee and such new owner, and (ii) Lessor shall thereafter be
  relieved of any further obligations hereunder and such new owner shall assume
  all of Lessor's obligations, except that such new owner shall not: (a) be liable
  for any act or omission of any prior Lessor or with respect to events occurring
  prior to acquisition of ownership; (b) be subject to any offsets or defenses
  which Lessee might have against any prior Lessor, (c) be bound by prepayment
  of more than one month's rent, or (d) be liable for the return of any security
  deposit paid to any prior lessor. </p>
<p>30.3 <b>Non-Disturbance</b>. With respect to Security Devices entered into
  by Lessor after the execution of this Lease, Lessee's subordination of this
  Lease shall be subject to receiving a commercially reasonable non-disturbance
  agreement (a "<b>Non-Disturbance Agreement</b>") from the Lender which Non-Disturbance
  Agreement provides that Lessee's possession of the Premises, and this Lease,
  including any options to extend the term hereof, will not be disturbed so long
  as Lessee is not in Breach hereof and attorns to the record owner of the Premises.
  Further, within 60 days after the execution of this Lease, Lessor shall obtain
  a Non-Disturbance Agreement from the holder of any pre-existing Security Device
  which is secured by the Premises. In the event that Lessor is unable to provide
  the Non-Disturbance Agreement within said 60 days, then Lessee may, at Lessee's
  option, directly contact Lender and attempt to negotiate for the execution and
  delivery of a Non-Disturbance Agreement. </p>
<p>30.4 <b>Self-Executing</b>. The agreements contained in this Paragraph 30 shall
  be effective without the execution of any further documents; provided, however,
  that, upon written request from Lessor or a Lender in connection with a sale,
  financing or refinancing of the Premises, Lessee and Lessor shall execute such
  further writings as may be reasonably required to separately document any subordination,
  attornment and/or Non-Disturbance Agreement provided for herein. </p>
<p>31. <b>Attorney's Fees</b>. If any Party or Broker brings an action or proceeding
  involving the Premises whether founded in tort, contact or equity, or to declare
  rights hereunder, the Prevailing Party (as hereafter defined) in any such proceeding,
  action, or appeal thereon, shall be entitled to reasonable attorneys' fees.
  Such fees may be awarded in the same suit or recovered in a separate suit, whether
  or not such action or proceeding is pursued to decision or judgment. The term,
  "<b>Prevailing Party</b>" shall include, without limitation, a Party or Broker
  who substantially obtains or defeats the relief sought, as the case may be,
  whether by compromise, settlement, judgment, or the abandonment by the other
  Party or Broker of its claim or defense. The attorneys' fees award shall not
  be computed in accordance with any court fee schedule, but shall be such as
  to fully reimburse all attorneys' fees reasonably incurred. In addition, Lessor
  shall be entitled to actual out-of-pocket, costs and expenses reasonably incurred
  in the preparation and service of notices of Default and consultations in connection
  therewith (including, without limitation, reasonable attorneys' fees), whether
  of not a legal action is subsequently commenced in connection with such Default
  or resulting Breach. </p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<table cols=2 width="100%" align="center">
  <tr>
    <td width="47%">__________</td>
    <td width="47%">
      <div align="right">__________</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="22">__________</td>
    <td width="47%" height="22">
      <div align="right">__________</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="20">
      <p>INITIALS</p>
    </td>
    <td width="47%" height="20">
      <p align="right">INITIALS</p>
    </td>
  </tr>
</table>
<p>&nbsp; </p>
<p>&nbsp;</p>
<p align="center"><b>PAGE 19 OF 22</b></p>
<p align="center"><b>&copy;1999 - AIR COMMERCIAL REAL ESTATE ASSOCIATION FORM MTN-4-8/04E</b></p>
<hr>
<p>32. <b>Lessor's Access; Showing Premises; Repairs</b>. Lessor and Lessor's
  agents shall have the right to enter the Premises at any time, in the case of
  an emergency, and otherwise at reasonable times after reasonable prior notice
  for the purpose of showing the same to prospective purchasers, lenders, or tenants,
  and making such alterations, repairs, improvements or additions to the Premises
  as Lessor may deem necessary or desirable and the erecting, using and maintaining
  of utilities, services, pipes and conduits through the Premises and/or other
  premises as long as there is no material adverse effect on Lessee's use of the
  Premises. All such activities shall be without abatement of rent or liability
  to Lessee. </p>
<p>33. <b>Auctions</b>. Lessee shall not conduct, not permit to be conducted,
  any auction upon the Premises without Lessor's prior written consent. Lessor
  shall not be obligated to exercise any standard of reasonableness in determining
  whether to permit an auction. </p>
<p>34. <b>Signs</b>. Lessor may place on the common areas of the Project ordinary
  "For Sale" signs at any time and ordinary "For Lease" signs during the last
  5 months of the term hereof. Except for ordinary "For Sublease" sign which may
  be placed only on the Premises, Lessee shall not place any sign upon the Project
  without Lessor's prior written consent. All signs must comply with all Applicable
  Requirements. </p>
<p>35. <b>Termination; Merger</b>. Unless specifically stated otherwise in writing
  by Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
  termination or cancellation hereof, or a termination hereof by Lessor for Breach
  by Lessee, shall automatically terminate any sublease or lesser estate in the
  premises; provided, however, that Lessor may elect to continue any one or all
  existing subtenancies. Lessor's failure to within 10 days following any such
  event to elect to the contrary by written notice to the holder of any such lesser
  interest, shall constitute Lessor's election to have such event constitute the
  termination of such interest. </p>
<p>36. <b>Consents</b>. Except as otherwise provide herein, wherever in this Lease
  the consent of a Party is required to an act by of for the other Party, such
  consent shall not be unreasonably withheld or delayed. Lessor's actual reasonable
  costs and expenses (including but not limited to architects; attorneys'; engineers'
  and other consultants' (fees) incurred in the consideration of, or response
  to, a request by Lessee for any Lessor consent, including but not limited to
  consents to an assignment, a subletting or the presence or use of a Hazardous
  Substance, shall be paid by Lessee upon receipt of an invoice and supporting
  documentation therefor. Lessor's consent to any act, assignment or subletting
  shall not constitute an acknowledgment that no Default or Breach by Lessee of
  this Lease exists, nor shall such consent be deemed a waiver of any then existing
  Default or Breach, except as may be otherwise specifically stated in writing
  by Lessor at the time of consent. The failure to specify herein any particular
  condition to Lessor's consent shall not preclude the imposition by Lessor at
  the time of consent of such further or other conditions as are then reasonable
  with reference to the particular matter for which consent is being given. In
  the event that either Party disagrees with any determination made by the other
  hereunder and reasonably requests the reasons for such determination, the determining
  party shall furnish its reasons in writing and in reasonable detail within 10
  business days following such request. </p>
<p>37. <b>Guarantor</b>. </p>
<p>37.1 <b>Execution</b>. The Guarantors, if any, shall each execute a guaranty
  in the form most recently published by the AIR Commercial Real Estate Association.
</p>
<p>37.2 <b>Default</b>. It shall constitute a Default of the Lessee if any Guarantor
  fails or refuses, upon request to provide: (a) evidence of the execution of
  the guaranty, including the authority of the party signing on Guarantor's behalf
  to obligate Guarantor, and in the case of a corporate Guarantor, a certified
  copy of a resolution of its board of directors authorizing the making of such
  guaranty, (b) current financial statements, (c) an Estoppel Certificate, or
  (d) written confirmation that the guaranty is still in effect. </p>
<p>38. <b>Quiet Possession</b>. Subject to payment by Lessee of the Rent and performance
  of all of the covenants, conditions and provisions on Lessee's part to be observed
  and performed under this Lease, Lessee shall have quiet possession and quiet
  enjoyment of the Premises during the term hereof. </p>
<p>39. <b>Options</b>. If Lessee is granted an option, as defined below, then
  the following provisions shall apply. </p>
<p>39.1 <b>Definition</b>. "<b>Option</b>" shall mean: (a) the right to extend
  the term of or renew this Lease. </p>
<p>39.2 <b>Options Personal To Original Lessee</b>. Any Option granted to Lessee
  in this Lease is personal to the original Lessee or "<i>Permitted Transferee</i>"
  (as defined in the Addendum to this Lease), and cannot be assigned or exercised
  by anyone other than said original Lessee or <i>Permitted Transferee</i>. </p>
<p>39.3 <b>Multiple Options</b>. In the event that Lessee has any multiple Options
  to extend or renew this Lease, a later Option cannot be exercised unless the
  prior Options have been validly exercised. </p>
<p>39.4 <b>Effect of Default on Options</b>. </p>
<p>(a) Lessee shall have no right to exercise an Option: (i) during the period
  commencing with the giving of any notice of Default and continuing until said
  Default is cured, (iii) during the time Lessee is in Breach of this Lease, or
  (iv) in the event that Lessee has been given 3 or more notices of separate Default,
  whether or not the Defaults are cured, during the 12 month period immediately
  preceding the exercise of the Option. </p>
<p>(b) The period of time within which an Option may be exercised shall not be
  extended or enlarged by reason of Lessee's inability to exercise an Option because
  of the provisions of Paragraph 39.4(a). </p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<table cols=2 width="100%" align="center">
  <tr>
    <td width="47%">__________</td>
    <td width="47%">
      <div align="right">__________</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="22">__________</td>
    <td width="47%" height="22">
      <div align="right">__________</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="20">
      <p>INITIALS</p>
    </td>
    <td width="47%" height="20">
      <p align="right">INITIALS</p>
    </td>
  </tr>
</table>
<p>&nbsp; </p>
<p>&nbsp;</p>
<p align="center"><b>PAGE 20 OF 22</b></p>
<p align="center"><b>&copy;1999 - AIR COMMERCIAL REAL ESTATE ASSOCIATION FORM MTN-4-8/04E</b></p>
<hr>
<p>(c) An Option shall terminate and be of no further force or effect, notwithstanding
  Lessee's due and timely exercise of the Option, if, after such exercise and
  prior to the commencement of the extended term or completion of the purchase,
  Lessee commits a Breach of this Lease. </p>
<p>40. <b>Security Measures</b>. Lessee hereby acknowledges that the Rent payable
  to Lessor hereunder does not include the cost of guard service or other security
  measures, and that Lessor shall have no obligation whatsoever to provide the
  same. Lessee assumes all responsibility for the protection of the Premises,
  Lessee, its agents and invitees and their property from the acts of third parties.
</p>
<p>41. <b>Reservations</b>. Lessor reserves the right: (i) to grant, without the
  consent or joinder of Lessee, such easements, rights and dedications that Lessor
  deems necessary, (ii) to cause the recordation of parcel maps and restriction,
  and (iii) to cerate and/or install new utility raceways, so long as such easements,
  rights, dedications, maps, restrictions, and utility raceways do not unreasonably
  interfere with the use of the Premises by Lessee. Lessee agrees to sign any
  documents reasonably requested by Lessor to effectuate such rights. </p>
<p>42. <b>Performance Under Protest</b>. If at any time a dispute shall arise
  as to any amount or sum of money to be paid by one Party to the other under
  the provisions hereof, the Party against whom the obligation to pay the money
  is asserted shall have the right to make payment "under protest" and such payment
  shall not be regarded as a voluntary payment and there shall survive the right
  on the part of said Party to institute suit for recovery of such sum. If it
  shall be adjudged that there was no legal obligation on the part of said Party
  to pay such sum or any part thereof, said Party shall be entitled to recover
  such sum or so much thereof as it was not legally required to pay. A Party who
  does not initiate suit for the recovery of sums paid "under protest" within
  6 months shall be deemed to have waived its right to protest such payment. </p>
<p>43. <b>Authority; Multiple Parties; Execution</b>. </p>
<p>(a) If either Party hereto is a corporation, trust, limited liability company,
  partnership, or similar entity, each such Party represents that the individual
  executing this Lease on behalf of such entity is duly authorized to execute
  and deliver this Lease on its behalf. Each Party shall, within 30 days after
  request, deliver to the other Party satisfactory evidence of such authority.
</p>
<p>(b) If this Lease is executed by more than one person or entity as "Lessee",
  each such person or entity shall be jointly and severally liable hereunder.
  It is agreed that any one of the named Lessees shall be empowered to execute
  any amendment to this Lease, or other document ancillary thereto and bind all
  of the named Lessees, and Lessor may rely on the same as if all of the named
  Lessees had executed such document. </p>
<p>(c) This Lease may be executed by the Parties in counterparts, each of which
  shall be deemed an original and all of which together shall constitute one and
  the same instrument. </p>
<p>44. <b>Conflict</b>. Any conflict between the printed provisions of this Lease
  and the typewritten or handwritten provisions shall be controlled by the typewritten
  or handwritten provisions. </p>
<p>45. <b>Offer</b>. Preparation of this Lease by either party or their agent
  and submission of same to the other Party shall not be deemed an offer to lease
  to the other Party. This Lease is not intended to be binding until executed
  and delivered by all Parties hereto. </p>
<p>46. <b>Amendments</b>. This Lease may be modified only in writing, signed by
  the Parties in interest at the time of the modification. As long as they do
  not materially change Lessee's obligations hereunder, Lessee agrees to make
  such reasonable non-monetary modifications to this Lease as may be reasonably
  required by a Lender in connection with obtaining or normal financing or refinancing
  of the Premises. </p>
<p>47. <b>Waiver of Jury Trial. THE PARITIES HEREBY WAIVE THEIR RESPETIVE RIGHTS
  TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING INVOLVING THE PROPERTY OR ARISING
  OUT OF THIS AGREEMENT</b>. </p>
<p>48. <b>Mediation and Arbitration of Disputes</b>. An addendum requiring the
  Mediation and/or the Arbitration of all disputes between the Parties and/or
  Brokers arising out of this Lease </p>


<p> [ ] is</p>
<p> [X is not attached to this Lease.</p>
<p>49. <b>Americans with Disabilities Act</b>. Since compliance with the Americans
  with Disabilities Act (ADA) is dependent upon Lessee's specific use of the Premises,
  except as set forth in Section 2.3, Lessor makes no warranty or representation
  as to whether or not Premises comply with ADA or any similar legislation. In
  the event that Lessee's particular use of the Premises requires modifications
  or additions to the Premises in order to be in ADA compliance, Lessee agrees
  to make any such necessary modifications and/or additions at Lessee's expense.
</p>
<p>&nbsp;</p>
<p>LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM
  AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
  INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
  TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
  AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
  PREMISES. </p>
<p>ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AIR COMMERCIAL
  REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY, LEGAL
  EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES.
  THE PARTIES ARE URGED TO: </p>
<p>1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
</p>
<p>2. RETAIN APPROPRIATE CONSULATANTS TO REVIEW AND INVESTIGATE THE CONDITION
  OF THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMTED TO: THE
  POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE STRUCTURAL
  INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, COMPLIANCE WITH
  THE AMERICANS WITH DISABILITIES ACT AND THE SUITABILITY OF THE PREMISES FOR
  LESSEE'S INTENDED USE. </p>
<p>WARNING: IF THE PREMISES ARE LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN
  PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE
  STATE IN WHICH THE PREMISES ARE LOCATED. </p>
<p>The parties hereto have executed this Lease at the place and on the dates specified
  above their respective signatures. </p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<table cols=2 width="100%" align="center">
  <tr>
    <td width="47%">__________</td>
    <td width="47%">
      <div align="right">__________</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="22">__________</td>
    <td width="47%" height="22">
      <div align="right">__________</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="20">
      <p>INITIALS</p>
    </td>
    <td width="47%" height="20">
      <p align="right">INITIALS</p>
    </td>
  </tr>
</table>
<p>&nbsp; </p>
<p>&nbsp;</p>
<p align="center"><b>PAGE 21 OF 22</b></p>
<p align="center"><b>&copy;1999 - AIR COMMERCIAL REAL ESTATE ASSOCIATION FORM MTN-4-8/04E</b></p>
<hr>
<p>&nbsp;</p>
<table cols=2 width="100%" align="center" bordercolorlight="#000000" bordercolordark="#000000" bordercolor="#000000" bgcolor="#FFFFFF" border="1">
  <tr>
    <td width="47%">Executed at: Ventura County, California</td>
    <td width="47%">
      <div align="left">Executed at: </div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="22">On:<u> October 30, 2006</u></td>
    <td width="47%" height="22">
      <div align="left">On:</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="20">
      <p>&nbsp;</p>
    </td>
    <td width="47%" height="20">
      <p align="left">&nbsp;</p>
    </td>
  </tr>
  <tr>
    <td width="47%" height="20"><b>By Lessor</b>:</td>
    <td width="47%" height="20">
      <div align="left"><b>By Lessee</b>:</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="20"><u>Del Norte Farms, Inc., a California </u></td>
    <td width="47%" height="20">
      <div align="left">Socket Communications, Inc., a Delaware</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="20"><u>corporation </u></td>
    <td width="47%" height="20">
      <div align="left">Corporation</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="20">&nbsp;</td>
    <td width="47%" height="20">
      <div align="left"></div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="20">By: </td>
    <td width="47%" height="20">By:</td>
  </tr>
  <tr>
    <td width="47%" height="20">Name </td>
    <td width="47%" height="20">Name Printed:</td>
  </tr>
  <tr>
    <td width="47%" height="20"> Title: </td>
    <td width="47%" height="20">Title:</td>
  </tr>
  <tr>
    <td width="47%" height="20">&nbsp;</td>
    <td width="47%" height="20">
      <div align="left"></div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="2">By: /s/ Bernard Huberman</td>
    <td width="47%" height="2">By: /s/ David Dunlap</td>
  </tr>
  <tr>
    <td width="47%" height="20">Name Printed: Bernard Huberman</td>
    <td width="47%" height="20">Name Printed: David W. Dunlap</td>
  </tr>
  <tr>
    <td width="47%" height="20">Title: President</td>
    <td width="47%" height="20">Title: CFO</td>
  </tr>
  <tr>
    <td width="47%" height="20">Address: 501 Spectrum Circle </td>
    <td width="47%" height="20">
      <div align="left">Address: 37400 Central Court</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="20">Oxnard, California 93030</td>
    <td width="47%" height="20">
      <div align="left">Newark, CA 94560</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="20">&nbsp;</td>
    <td width="47%" height="20">
      <div align="left">Attn: Chief Financial Officer</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="20">Telephone: (805) 278-8220</td>
    <td width="47%" height="20">
      <div align="left">Telephone: (510) 744-2735</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="20">Facsimile: (805) 278-8221</td>
    <td width="47%" height="20">
      <div align="left">Facsimile: (510) 744-2727</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="20">Federal ID No.</td>
    <td width="47%" height="20">
      <div align="left">Federal ID No.</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="20">&nbsp;</td>
    <td width="47%" height="20">
      <div align="left"></div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="20"><b>BROKER</b>:</td>
    <td width="47%" height="19">
      <div align="left"><b>BROKER</b>:</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="19">NAI BT commercial</td>
    <td width="47%" height="20">
      <div align="left">NAI BT commercial</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="20">&nbsp;</td>
    <td width="47%" height="20">&nbsp;</td>
  </tr>
  <tr>
    <td width="47%" height="20">Attn: Michael E. Karp</td>
    <td width="47%" height="20">
      <div align="left">Attn: Steven C. Kapp</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="20">Title: Vice President</td>
    <td width="47%" height="20">
      <div align="left">Title: Partner</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="20">Address: 565 12th Street </td>
    <td width="47%" height="20">
      <div align="left">Address: 565 12th Street</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="20">Suite 1400 Oakland, CA 94607</td>
    <td width="47%" height="20">
      <div align="left">Suite 1400 Oakland, CA 94607</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="20">Telephone: (____)</td>
    <td width="47%" height="20">
      <div align="left">Telephone: (____)</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="20">Facsimile: (____)</td>
    <td width="47%" height="20">
      <div align="left">Facsimile: (____)</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="20">Email:</td>
    <td width="47%" height="20">
      <div align="left"></div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="20">Federal ID No.</td>
    <td width="47%" height="20">
      <div align="left"></div>
    </td>
  </tr>
</table>
<p>&nbsp; </p>
<p align="center"><b>These forms are often modified to meet changing requirements
  of law and needs of industry. Always write or call to make sure you are utilizing
  the most current form: AIR COMMERCIAL REAL ESTATE ASSOCIATION, 700 South Flower
  Street, Suite 600, Los Angeles, CA 90017. (213) 687-8777. </b></p>
<p align="center"><b>&copy;Copyright 1999 By AIR Commercial Real Estate Association.<br>
  </b><b>All rights reserved. <br>
  No part of these works may be reproduced in any form without permission in writing.
  </b></p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<table cols=2 width="100%" align="center">
  <tr>
    <td width="47%">__________</td>
    <td width="47%">
      <div align="right">__________</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="22">__________</td>
    <td width="47%" height="22">
      <div align="right">__________</div>
    </td>
  </tr>
  <tr>
    <td width="47%" height="20">
      <p>INITIALS</p>
    </td>
    <td width="47%" height="20">
      <p align="right">INITIALS</p>
    </td>
  </tr>
</table>
<p>&nbsp; </p>
<p>&nbsp;</p>
<p align="center"><b>PAGE 22 OF 22</b></p>
<p align="center"><b>&copy;1999 - AIR COMMERCIAL REAL ESTATE ASSOCIATION FORM MTN-4-8/04E</b></p>
<p>&nbsp; </p>
</body>
</html>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>6
<FILENAME>exhibit10-11addendum.htm
<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 </font>
  10.11
<p align="center"><font face="Times New Roman, Times, serif" size="3"><b>ADDENDUM
  TO STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE-NET</b></font></p>
<p align="center">&nbsp;</p>
<p>This Addendum to Standard Industrial/Commercial Multi-Tenant Lease- Net (the
  "Addendum") is made a part of the certain Standard Industrial/Commercial Multi-Tenant
  Lease - Net (the "Lease") dated as of October 24, 2006, by and between Del Norte
  Farms, Inc., a California corporation ("Lessor"), and Socket Communications,
  Inc., a Delaware corporation ("Lessee"). All capitalized terms used herein not
  otherwise defined shall have the respective meanings ascribed to them in the
  Lease. </p>
<p>1. <u>Original Term</u>. The Original Term of the Lease shall be sixty four
  (64) months, commencing on such date that Lessor delivers to Lessee written
  notice of "Substantial Completion" (as defined in the Work Letter Agreement)
  of the "Tenant Improvements" (as defined in the Work Letter Agreement) and tenders
  possession of the Premises to Lessee in the required condition (the "Commencement
  Date"), and ending sixty four (64) months thereafter (the "Expiration Date").
  Notwithstanding the foregoing, if the Commencement Date falls on any day other
  than the first day of a calendar month then without limiting Lessee's obligations
  to commence paying rent as of the Commencement Date, the Original Term of this
  Lease will be measured from the first day of the month following the month in
  which the Commencement Date occurs. Lessor's Notice of Lease Term Dates ("Notice"),
  in the form of Exhibit "B" attached to the Lease, will set forth the Commencement
  Date and the date upon which the Original Term of this Lease shall end and will
  be delivered to Lessee after Lessor delivers possession of the Premises to Lessee
  in accordance with the terms of this Lease. The Notice will be binding upon
  Lessee unless Lessee objects to the Notice in writing within ten (10) days of
  Lessee's receipt of the Notice.</p>
<p>2. <u>Early Possession</u>. At any time after both Lessor and Lessee have been
  delivered a fully signed copy of this Lease, and before the Commencement Date,
  Lessee may enter into the Premises for the purposes of performing any work on
  the Premises which Lessee desires to perform and which is in conformity with
  all the provisions of this Lease, provided that each of the conditions is satisfied:
  (i) Lessee's entry on and early possession of the Premises does not in any way
  interfere with the construction of the Tenant Improvements or with any other
  work or construction or other improvement work scheduled for any part of the
  Building or the property on which the Building is located; (ii) Lessee delivers
  to Lessor before entering on the Premises evidence of the insurance coverage
  required under this Lease; (iii) Lessee at all times during Lessee's early possession
  keeps the Premises and the property free of all mechanics' and material men's
  liens and otherwise complies with the provisions of paragraph 7.3 of the Lease;
  (iv) Lessee's early possession in the manner provided in this paragraph shall
  be subject to and governed by all the terms and conditions of this Lease, excluding
  the payment of rent, taxes, and common area maintenance costs, if any; and (v)
  Lessee complies with, at Lessee's sole expense, all applicable laws relating
  to Lessee's possession. In no event shall Lessee be entitled to conduct any
  business from the Premises until the Commencement Date. Such early entry, notwithstanding
  the provisions of Section 3.2 of the Lease, shall be without any obligation
  to pay Rent.</p>
<p>3. <u>Monthly Base Rent</u>. Monthly Base Rent during the Original Term shall
  be as follows:</p>
<p>&nbsp;</p>
<table cols=2 width="53%" align="center">
  <tr>
    <td width="47%">Months:</td>
    <td width="53%">Monthly Base Rent:</td>
  </tr>
  <tr>
    <td width="47%">Months 1-4 (the "Abatement Period")</td>
    <td width="53%">
      <div align="left">Waived </div>
    </td>
  </tr>
  <tr>
    <td width="47%">Months 5 - 12</td>
    <td width="53%">
      <div align="left">$27,291.29</div>
    </td>
  </tr>
  <tr>
    <td width="47%">Months 13-24</td>
    <td width="53%">
      <div align="left">$28,219.56</div>
    </td>
  </tr>
  <tr>
    <td width="47%">Months 25-36</td>
    <td width="53%">
      <div align="left">$29,222.10</div>
    </td>
  </tr>
  <tr>
    <td width="47%">Months 37-48</td>
    <td width="53%">
      <div align="left">$30,261.77</div>
    </td>
  </tr>
  <tr>
    <td width="47%">Months 49-64</td>
    <td width="53%">
      <div align="left">$31,301.43</div>
    </td>
  </tr>
</table>
<p>&nbsp;</p>
<p>During the Abatement Period, Lessee shall pay all additional rent provided
  for in the Lease and perform or observe all other obligations of the Lessee
  pursuant to the Lease, including but not limited to payment of all charges for
  utilities services used in the Premises and separately metered to the Premises.
</p>
<p>4. <u>Option to Renew Original Term</u>. Subject to the terms and provisions
  of Paragraph 39 of the Lease, Lessee shall have one (1) option (the "Option"),
  to extend the term of the Lease for a period of five (5) years with respect
  to the entire Premises (the "Option Term"), upon giving Lessor written notice
  (the "Option Notice") no less than 215 days prior to the expiration of the Original
  Term. All terms and conditions of this Lease shall apply to the Option Term,
  except for (i) the amount of initial Base Rent, (ii) the Option granted pursuant
  to this Paragraph 4, (iii) the obligation of Lessor to construct the Tenant
  Improvement pursuant to the terms of the Work Letter Agreement, and (iv) Lessee's
  right to receive four (4) months free rent pursuant to Paragraph 3 of this Addendum.
  During the Option Term, the initial Base Rent shall be adjusted to equal to
  95% of the then prevailing "Fair Market Value." For purposes of this Addendum,
  Fair Market Value ?shall mean an amount equal to the rate being charged to new
  lessees for comparable space in the Project and in similar buildings, taking
  into consideration the value of the existing improvements within the Premises
  (other than improvements paid for by Lessee) and taking into consideration that
  the Option Term will not have any free rent, tenant improvement allowance or
  other concessions. If Lessor and Lessee fail to reach agreement on the option
  rent then each party shall make a separate determination of the applicable option
  rent within thirty (30) days after Lessor's receipt of the Option Notice, concurrently
  exchange such determinations and, unless Lessee withdraws the Option Notice
  within five (5) business days of receipt of Lessor's determination (which Lessee
  shall have the right to do by delivering written notice thereof to Lessor),
  such determinations shall be submitted to "Baseball Arbitration" as set forth
  herein. Unless Lessee so withdraws the Option Notice, Lessor and Lessee shall
  each appoint an arbitrator who shall be a licensed MAI appraiser who shall have
  been active over the five-year period ending on the date of such appointment
  in the appraisal of commercial properties of a similar nature to the Premises.
  The two arbitrators so appointed shall within ten (10) days of the date of such
  appointment agree upon and appoint a third arbitrator who shall be qualified
  under the same criteria set forth hereinabove for qualification of the initial
  two arbitrators. The determination by the arbitrators shall be limited solely
  to the issue of whether Lessor's or Lessee's submitted option rent is the closest
  to the actual option rent as determined by the three (3) arbitrators, taking
  into account the requirements set forth herein. The three (3) arbitrators shall
  within thirty (30) days of the appointment of the third arbitrator reach a decision
  as to whether the parties shall use Lessor's or Lessee's submitted option rent.
  The decision of a majority of the three (3) arbitrators shall be final and binding
  upon Lessor and Lessee and a judgment on such decision may be rendered in a
  court of competent jurisdiction. The costs of arbitration shall be paid by Lessor
  and Lessee equally. Notwithstanding anything to the contrary contained herein,
  the Base Rent during the Option Term shall increase each year during such option
  term by such amount as determined by the parties or pursuant to the arbitration
  procedure set forth above. </p>
<p>5. <u>Signage</u>. Lessee shall have the non-exclusive right to install (a)
  one (1) building top identity sign on the Building (it being agreed that (i)
  such building top signage shall be located as depicted on Exhibit "D" attached
  hereto, (ii) except for signage containing the address of the Premises and/or
  Building and any other signage required by a government entity, Lessee shall
  have the exclusive right to signage on the portion of the roof of the Building
  above the Premises, , and (iii) signage on the roof of the Building shall be
  limited to the names of the occupants of the Building) and (b) one (1) identity
  sign on the monument sign (the "Monument Sign") for the Project. The Lessor
  shall construct, at its expense, the Monument Sign, and Lessee shall, at its
  expense, fabricate and install its identity sign on the Monument Sign. All building
  top and monument signage must (a) comply with all applicable governmental requirements
  and (b) be approved in advance in writing by Lessor based upon sign drawings
  prepared by and submitted by Lessee. In addition, Lessee shall be solely responsible,
  both as to performance and payment of the costs thereof, to: obtain all governmental
  permits and approvals required with respect to Lessee's signage; fabricate and
  install Lessee's signage; clean, maintain and repair and replace Lessee's signage
  as necessary to maintain the same in a clean and good condition; remove and
  discard the same upon the expiration or any earlier termination of this Lease;
  and repair any damage to the buildings and/or monument(s) occasioned by Lessee's
  signage or removal thereof, excluding normal wear and tear due to natural elements.</p>
<p>6. <u>HVAC Maintenance and Repair</u>. In accordance with the terms and provisions
  of the Lease, Lessee's maintenance obligations include the maintenance, repair
  and replacement of the heating, ventilating and air conditioning system in or
  serving the Premises (the "HVAC System"). Notwithstanding the foregoing to the
  contrary, if Lessee fails to properly maintain the HVAC System, Lessor may elect,
  by written notice to Lessee, to maintain, repair and replace the HVAC System.
  Lessee shall reimburse Lessor for Lessor's costs so incurred, together with
  an amount equal to ten percent (10%) of such costs to cover Lessor's administrative
  expenses. In the event Lessor makes the foregoing election, the remainder of
  the terms of this Paragraph 6 shall apply. Such reimbursement may be, at Lessor's
  election, retrospective or in advance based upon Lessor's estimate of the costs
  to be incurred and may be in periodic installments not more frequent than monthly.
  If Lessor elects to collect such reimbursement in advance based upon an estimate
  of costs, at the end of each lease year Lessor shall adjust as necessary the
  estimated amounts paid by Lessee to actual costs with a billing to Lessee for
  any additional amount due or a credit to Lessee against the next amounts due
  under the Lease equal to any amount paid by Lessee in excess of the actual costs
  of Lessor hereunder. Lessor may cause the maintenance services hereunder to
  be performed by a service which maintains the system in the Premises and systems
  located in other tenant premises in the Project. Unless the provider of such
  services allocates its charges among individual tenant premises, Lessee's obligation
  hereunder shall be to reimburse Lessor for a portion of the total cost charged
  as reasonably determined by Lessor. The amounts to be reimbursed by Lessee pursuant
  to this Section shall be additional rent. Lessor may at any time by written
  notice to Lessee elect to cease providing maintenance of the HVAC System. After
  such notice, Lessee shall maintain, repair and replace the system at Lessee's
  cost.</p>
<p>7. <u>Assignment and Subletting</u>. Notwithstanding anything to the contrary
  contained in Paragraph 12 of the Lease, as reasonable consideration for Lessor's
  consent to any assignment of this Lease or subletting of all or a portion of
  the Premises, Lessee shall pay to Lessor fifty percent (50%) of any "Transfer
  Premium." For purposes of this Lease, Transfer Premium means all base rent,
  additional rent and other sums and other consideration in whatever form or nature
  paid by the transferee to Lessee after deducting (i) the rent payable by Lessee
  under this Lease (excluding the Transfer Premium) for the space which is the
  subject of the assignment or subletting, and (ii) expenses for verifiable reasonable
  and customary brokerage commissions, lease concessions, tenant improvement costs,
  attorneys' fees and other out-of-pocket expenses actually and reasonably incurred
  by Lessee in connection with the assignment or subletting and paid to third
  parties. Lessee shall deliver to Lessor at the time Lessee requests Lessor's
  consent pursuant to Paragraph 12 of the Lease, a complete statement, certified
  by Lessee, describing in detail the computation of any Transfer Premium that
  Lessee has derived or will derive from any assignment or subletting. Notwithstanding
  the foregoing to the contrary, in no event shall Lessor be entitled to any Transfer
  Premium in connection with the assignment of this Lease or the sublet of all
  or any portion of the Premises to an "Affiliate" or "Permitted Transferee" (as
  hereinafter defined) of Lessee. For purposes of this Lease, an "Affiliate" shall
  mean an entity which controls, is controlled by or under common control with
  Lessee. In addition, in no event shall Lessor's consent be required in connection
  with the assignment of this Lease or the sublet of all or any portion of the
  Premises to the following types of entities (a "Permitted Transferee"): (a)
  any Affiliate of Lessee; (b) any corporation, limited partnership, limited liability
  partnership, limited liability company or other business entity in which or
  with which Lessee, an Affiliate of Lessee, or their respective corporate successors
  or assigns, is merged or consolidated, in accordance with applicable statutory
  provisions governing merger and consolidation of business entities, so long
  as Lessee's obligations hereunder are assumed by the Permitted Transferee and
  such Permitted Transferee has sufficient financial ability to fully perform
  the obligations of Lessee under the Lease; or (c) any corporation, limited partnership,
  limited liability partnership, limited liability company or other business entity
  which acquires all or substantially all of Lessee's assets and/or ownership
  interests, so long as such Permitted Transferee has sufficient financial ability
  to fully perform the obligations of Lessee under the Lease. Lessee shall promptly
  notify Lessor of any such Permitted Transfer. Lessee shall remain liable for
  the performance of all of the obligations of Lessee hereunder, or if Lessee
  no longer exists because of a merger, consolidation, or acquisition, the surviving
  or acquiring entity shall expressly assume in writing, the obligations of Lessee
  hereunder. Additionally, the Permitted Transferee shall comply with all of the
  terms and conditions of this Lease. No later than the effective date of any
  Permitted Transfer, Lessee agrees to furnish Lessor with (1) copies of the instrument
  effecting any of the foregoing Transfers, (2) documentation establishing Lessee's
  satisfaction of the requirements set forth above applicable to any such Transfer,
  and (3) evidence of insurance as required under this Lease with respect to the
  Permitted Transferee. The occurrence of a Permitted Transfer shall not waive
  Lessor's rights as to any subsequent Transfers. No assignment of this Lease
  and/or the sublease of the Premises with or without Lessor's consent, as applicable,
  shall (x) release Lessee of any obligations under this Lease, or (y) alter the
  primary liability of Lessee for the payment of Rent or for the performance of
  any other obligations to be performed by Lessee.</p>
<p>8. <u>Additional Waivers</u>. Lessee expressly waives and releases its right
  to make repairs at Lessor's expense under Sections 1932(1) and 1942 of the California
  Civil Code or any other statute or rule of law now or hereafter in effect.</p>
<p>9. <u>Tenant Improvements</u>. Lessor shall construct certain improvements
  to the Premises in accordance with the terms and provision of the Work Letter
  Agreement attached hereto as Exhibit "E." Construction of the Tenant Improvements
  shall be in accordance with all Applicable Requirements in a good and workmanlike
  manner, free of defects and using new materials of good quality.</p>
<p>10. <u>No Representations Regarding Lessee's Intended Use</u>. Notwithstanding
  anything to the contrary contained in the Lease or herein, Lessor's participation
  in the preparation of the "Plans" (as defined in the Work Letter Agreement)
  or any other plans, drawings and specifications and the construction of the
  Premises shall not constitute any representation or warranty, express or implied,
  that the Premises will be suitable for Lessee's intended purpose. Lessor's sole
  obligation shall be to arrange the construction of the Tenant Improvements in
  accordance with the requirements of Work Letter Agreement. Any additional costs
  or expense required for the modification thereof to more adequately meet Lessee's
  use, whether during or after Lessor's construction thereof, shall be borne entirely
  by Lessee except as otherwise provided herein.</p>
<p>11. <u>Building Renovations</u>. It is specifically understood and agreed that
  Lessor has made no representation or warranty to Lessee and has no obligation
  and has made no promises to alter, remodel, improve, renovate, repair or decorate
  the Premises, Building, or any part thereof and that no representations respecting
  the condition of the Premises or the Building have been made by Lessor to Lessee
  except as specifically set forth herein or in the Work Letter Agreement. However,
  Lessee hereby acknowledges that Lessor is currently constructing or may during
  the Term renovate, improve, alter, or modify (collectively, the "Renovations")
  the Project, the Building and/or the Premises including without limitation the
  parking, common areas, systems and equipment, roof, and structural portions
  of the same, which Renovations may include, without limitation, (i) installing
  sprinklers in the Building common areas and tenant spaces, (ii) modifying the
  common areas and tenant spaces to comply with applicable laws and regulations,
  including regulations relating to the physically disabled, seismic conditions,
  and building safety and security, and (iii) installing new floor covering, lighting,
  and wall coverings in the Building common areas, and in connection with any
  Renovations, Lessor may, among other things, erect scaffolding or other necessary
  structures in the Building, limit or eliminate access to portions of the Project,
  including portions of the common areas, or perform work in the Building, which
  work may create noise, dust or leave debris in the Building. Lessee hereby agrees
  that such Renovations and Lessor's actions in connection with such Renovations
  shall in no way constitute a constructive eviction of Lessee nor entitle Lessee
  to any abatement of Rent. Lessor shall have no responsibility or for any reason
  be liable to Lessee for any direct or indirect injury to or interference with
  Lessee's business arising from the Renovations, nor shall Lessee be entitled
  to any compensation or damages from Lessor for loss of the use of the whole
  or any part of the Premises or of Lessee's personal property or improvements
  resulting from the Renovations or Lessor's actions in connection with such Renovations,
  or for any inconvenience or annoyance occasioned by such Renovations or Lessor's
  actions; provided, however, that Lessor shall remain liable for personal injury
  and property damage resulting from any Renovations to the extent caused by Lessor's
  negligence or willful misconduct. Notwithstanding anything in this Paragraph
  11, Lessor shall perform all Renovations in a good workmanlike manner and in
  a manner that will minimize any material, adverse or unreasonable interference
  with Lessee's business operations from the Premises for the Permitted Use.</p>
<p>12. <u>Limitation of Liability</u>. In consideration of the benefits accruing
  hereunder, Lessee on behalf of itself and all successors and assigns of Lessee
  covenants and agrees that, in the event of any actual or alleged failure, breach
  or default hereunder by Lessor: (a) Lessee's recourse against Lessor for monetary
  damages will be limited to the amount of Lessor's interest in the Building including,
  subject to the prior rights of any mortgagee, Lessor's interest in the rents
  of the Building and any insurance, condemnation and sales proceeds payable to
  Lessor; (b) Except as may be necessary to secure jurisdiction of the partnership
  or company, no shareholder, officer, director, partner or member of Lessor shall
  be sued or named as a party in any suit or action and no service of process
  shall be made against any partner or member of Lessor; (c) No shareholder, officer,
  director, partner or member of Lessor shall be required to answer or otherwise
  plead to any service of process; (d) No judgment will be taken against any shareholder,
  officer, director, partner or member of Lessor and any judgment taken against
  any partner or member of Lessor may be vacated and set aside at any time after
  the fact; (e) No writ of execution will be levied against the assets of any
  shareholder, officer, director, partner or member of Lessor; (f) The obligations
  under this Lease do not constitute personal obligations of the individual members,
  partners, directors, officers or shareholders of Lessor, and Lessee shall not
  seek recourse against the individual members, partners, directors, officers
  or shareholders of Lessor or any of their personal assets for satisfaction of
  any liability in respect to this Lease; and (g) These covenants and agreements
  are enforceable both by Lessor and also by any partner or member of Lessor.</p>
<p>13. <u>Cooperation with Transportation System Management Plan</u>. Lessee agrees
  to use its reasonable, good faith efforts to cooperate in the Transportation
  System Management Plan applicable to the Project, which may be undertaken by
  Lessor independently, or in cooperation with local municipalities or governmental
  agencies or other property owners in the vicinity of the Building; provided
  the same does not unreasonably interfere with Lessee's use of the Premises for
  the Permitted Use or materially increase Lessee's obligations or decrease Lessee's
  rights hereunder. </p>
<p>14. <u>Rules and Regulations</u>. Lessee agrees to faithfully observe and comply
  with the "Rules and Regulations," a copy of which is attached hereto and incorporated
  herein by this reference as Exhibit "C," and all reasonable and nondiscriminatory
  modifications thereof and additions thereto from time to time put into effect
  by Lessor. Lessor will not be responsible to Lessee for the violation or non-performance
  by any other tenant or occupant of the Building of any of the Rules and Regulations.
  Notwithstanding the foregoing, Lessee shall not be required to comply with any
  new rule or regulation unless the same does not unreasonably interfere with
  Lessee's use of the Premises for the Permitted Use or Lessee's parking rights
  and does not materially increase the obligations or decrease the rights of Lessee
  under the Lease.</p>
<p>15. <u>Parking</u>. So long as this Lease is in effect, Lessor grants to Lessee
  and Lessee's Authorized Users (as defined below) a license to use one hundred
  eleven (111) unreserved parking spaces within the Project, subject to the terms
  and conditions of this Paragraph 15 and the Rules and Regulations regarding
  parking contained in Exhibit "C" attached hereto. Lessee agrees to submit to
  Lessor or, at Lessor's election, directly to Lessor's parking operator with
  a copy to Lessor, written notice in a form reasonably specified by Lessor containing
  the names, office addresses and telephone numbers of those persons who are authorized
  by Lessee to use Lessee's parking permits on a monthly basis ("Lessee's Authorized
  Users") and shall use its good faith efforts to identify each vehicle of Lessee's
  Authorized Users by make, model and license number. Lessee agrees to deliver
  such notice prior to the beginning of the Term of this Lease and to periodically
  update such notice as well as upon specific request by Lessor or Lessor's parking
  operator to reflect changes to Lessee's Authorized Users or their vehicles.</p>
<p>16. <u>Compliance with Recorded Covenants</u>. Lessee shall comply with the
  requirements of any and all recorded covenants, conditions and/or restrictions
  applicable to the Premises as of the mutual execution of the Lease, including,
  without limitation, that certain Declaration of Covenants, Conditions, and Restrictions
  for Stevenson Point Tech Park dated as of February 2, 2000 and that certain
  Agreement to Supplemental Covenants dated as of July 10, 2000. Without limiting
  the foregoing, Lessee shall participate in and comply with the terms of the
  annual City of Newark Community Service Fee program directed by the City of
  Newark and made applicable to the Premises. </p>
<p>17. <u>Hazardous Substances</u>. In addition to Lessee's obligations pursuant
  to the terms and provisions of the Lease with respect to Hazardous Substances,
  Lessee shall comply with the terms and provisions of this Paragraph 17. Lessee
  shall, within five (5) days after receipt thereof, furnish to Lessor copies
  of all notices and other communications received by Lessee with respect to any
  actual or alleged release or discharge of any hazardous material in or about
  the Premises or the Project and shall, whether or not Lessee receives any such
  notice or communication, notify Lessor in writing of any discharge or release
  of Hazardous Substances by Lessee or anyone for whom Lessee is responsible in
  or about the Premises or the Project. In the event that Lessee is required to
  maintain any hazardous materials license or permit in connection with any use
  conducted by Lessee or any equipment operated by Lessee in the Premises, copies
  of each such license or permit, each renewal thereof and any communication relating
  to suspension, renewal or revocation thereof shall be furnished to Lessor within
  five (5) days after receipt thereof by Lessee. Compliance by Lessee with the
  two immediately preceding sentences shall not relieve Lessee of any obligation
  of Lessee pursuant to this Paragraph and/or the other terms and provisions of
  the Lease. Within 180 days prior to the expiration of this Lease (or within
  thirty (30) days after any earlier expiration), Lessor may at its election retain
  a hazardous materials consultant to conduct a survey or audit of the Premises
  to determine whether or not Hazardous Substances introduced by Lessee or its
  agents, employees or contractors are present in or about the Premises. Lessee
  shall cooperate fully with Lessor and such consultant in the conduct of any
  such survey or audit and shall reimburse Lessor, as additional rent, for the
  costs and fees of such consultant within ten (10) days after receipt of Lessor's
  invoice therefor if the consultant determines that Lessee has violated the terms
  of the Lease regarding Hazardous Substances. If the audit or survey discloses
  the presence of Hazardous Substances introduced by Lessee, Lessee's remediation
  and indemnity obligations set forth in the Lease shall apply to such Hazardous
  Substances. To the actual knowledge of Lessor as of the date of this Lease,
  no Hazardous Substance is present at the Project or the soil, surface water
  or groundwater thereof which is in violation of Applicable Laws in existence
  as of, and as interpreted as of, the date of this Lease. Subject to Section
  6.2 and the other provisions of the Lease, Lessor hereby consents to Lessee's
  use of the Hazardous Substances as described in Exhibit "F" hereto and of normal
  office and cleaning supplies, in all cases in amounts and otherwise in compliance
  with Applicable Laws. </p>
<p>18. <u>Delay in Possession</u>. In addition to the terms and provisions of
  Section 3.3 of the Lease, in the event that Lessor does not deliver possession
  of the Premises to Lessee on or before January 24, 2007 (the "Anticipated Completion
  Date") with the Tenant Improvements Substantially Completed, which date shall
  be extended by one (1) day for each day the Commencement Date is actually delayed
  due to "Tenant Delays" (as defined in the Work Letter), Lessor shall not be
  in default hereunder, but for the period from and after the Anticipated Completion
  Date (as extended) until the date which is seven (7) days after Lessor delivers
  possession of the Premises to Lessee with the Tenant Improvements Substantially
  Completed (such period shall be referred to herein as the "Holdover Period"),
  Lessor shall reimburse Lessee for the "holdover rent" actually paid by Lessee
  during the Holdover Period, not to exceed Thirty Thousand Dollars ($30,000.00)
  per month. For purposes of this Section 18, "holdover rent" shall mean the increased
  portion of the base rent paid by Lessee for its premises located at 37400 Central
  Court, Newark, CA (the "Former Premises") as a result of Lessee occupying the
  Former Premises beyond the Anticipated Completion Date. Lessor acknowledges
  that rather than holding over without the consent of the landlord of the Former
  Premises, Lessee may (a) negotiate an extension of its lease thereof to cover
  the holdover period, or (b) lease space at another location, in which event
  Lessor shall reimburse Lessee for the rent actually paid by Lessee during the
  Holdover Period pursuant to such extension or new lease up to the amount of
  the "holdover rent" which would have been paid for the Former Premises pursuant
  to Lessee's existing lease agreement for the Former Premises, not to exceed
  Thirty Thousand Dollars ($30,000.00) per month. </p>
<p>Lessee will use commercially reasonable, good faith efforts to coordinate its
  holdover with the landlord for the Former Premises so that Lessee's holdover
  and holdover rental obligations will terminate upon the date which is seven
  (7) days after Lessor delivers possession of the Premises to Lessee with the
  Tenant Improvements Substantially Completed (the "Delivery Date"), however the
  parties acknowledge that, despite Lessee's commercially reasonable, good faith
  efforts, Lessee may be required to pay holdover rent for periods beyond the
  Delivery Date. If (a) Lessor delivers possession of the Premises to Lessee with
  the Tenant Improvements Substantially Completed, and (b) Lessee is obligated
  to pay holdover rent for the Former Premises beyond the Delivery Date, then
  the Abatement Period shall be extended, on the terms and conditions set forth
  in Section 3 of this Addendum, by 1 day for each day beyond the Delivery Date
  that Lessee is obligated to pay holdover rent for the Former Premises, not to
  exceed an aggregate of thirty (30) days. </p>
<p>19. <u>Reasonable Expenditures</u>. Any expenditure by a party permitted or
  required under the Lease, for which such party is entitled to demand and does
  demand reimbursement from the other party, shall be limited to the fair market
  value of the goods and services involved, shall be reasonably incurred, and
  shall be substantiated by documentary evidence available for inspection and
  review by the other party or its representative during normal business hours.</p>
<p>20. <u>Notices</u>. A copy of all notices delivered to Lessor pursuant to Section
  23 of the Lease shall be delivered to: Friedman & Solomon LLP, 9665 Wilshire
  Boulevard, Suite 810, Beverly Hills, CA 90212, Attention: Robert E. Solomon,
  Esq. </p>
<p>21. <u>Modifications to Other Lease Terms</u>. The following provisions of
  the Lease are amended on the terms set forth below:</p>
<p> 2.10 Common Areas - Changes. In the exercise of Lessor's right to make changes
  to the Common Area, Lessor shall make such changes in a manner that will minimize
  any material, adverse or unreasonable interference with Lessee's business operations
  from the Premises for the Permitted Use.</p>
<p>4.2 <u>Common Area Operating Expenses</u>. "Common Area Operating Expenses"
  shall not include and Lessee shall in no event have any obligation to perform
  or to pay directly, or to reimburse Lessor for, all or any portion of the following
  repairs, maintenance, improvements, replacements, premiums, claims, losses,
  fees, charges, costs and expenses (collectively, "Costs"): (a) Costs occasioned
  by casualties or condemnation; (b) Costs to correct any construction defect
  in the Project or to comply with any Applicable Requirements applicable to the
  Project on the Commencement Date; (c) Costs incurred in connection with the
  presence of any Hazardous Substance located in, on or about the Project except
  to the extent caused by Lessee or its employees, agents, invitees or contractors
  (which costs shall be solely the responsibility of Lessee); (d) Costs which
  could properly be capitalized under generally accepted accounting principles,
  except to the extent amortized over the useful life of the capital item in question;
  (e) any management fee except as expressly permitted under Section 4.2 of the
  Lease; (f) earthquake insurance premiums (except that if earthquake insurance
  coverage is required by any lender of Lessor, then, notwithstanding the foregoing,
  the premiums for such coverage shall be included in Common Area Operating Expenses),
  insurance deductibles in excess of $25,000 and co-insurance payments; (g) Costs
  to repair the structural portions of the Building; and (h) reserves. In addition,
  Lessee's Share of Common Area Operating Expenses for the 2007 Calendar Year
  shall not exceed $91,342.26 per annum, in the aggregate. </p>
<p>7.2. <u>Maintenance</u>. Lessor shall maintain, repair and replace any portions
  of the electrical, plumbing, sewer or mechanical systems that (a) are located
  outside the demising walls of the Premises and (b) do not exclusively serve
  the Premises, and in all other cases Lessee shall maintain, repair and replace
  such systems at Lessee's sole cost and expense. To the extent that a repair
  or replacement to the Building is covered by a warranty, Lessor shall use commercially
  reasonable efforts to enforce that warranty.</p>
<p>9. <u>Damage; Condemnation</u>. If the Premises are damaged by any peril, Lessee
  shall have the option to terminate the Lease if the Premises cannot be (as reasonably
  estimated by a contractor engaged by Lessor), or are not in fact, fully restored
  by Lessor to their prior condition (except for Lessee's Trade Fixtures or Lessee
  owned Alterations and Utility Installations) within three hundred sixty (360)
  days after the condemnation or damage (the "Outside Restoration Date") by written
  notice delivered to Lessor within thirty (30) days after Lessee's receipt of
  a written estimate from Lessor's contractor of the restoration period, or within
  ten (10) days after the Outside Restoration Date (but prior to such restoration
  of the Premises), as applicable. </p>
<p>10.1. <u>Real Property Taxes</u>. If Lessor may pay any special assessment
  in installments without incurring penalty, charges, or other out-of-pocket costs
  (other than normal interest costs), then Lessor agrees to so pay such special
  assessment in installments. </p>
<p>13.3 <u>Inducement Recapture</u>. If there is a Breach by Lessee and Lessor
  terminates the Lease as a result thereof (a) during the first 12 months of the
  Lease, then the aggregate Monthly Base Rent waived by Lessor during the Abatement
  Period shall be immediately due and payable by Lessee; (b) during the 2nd lease
  year of the Lease, then 3/4ths of the aggregate Monthly Base Rent waived by
  Lessor during the Abatement Period shall be immediately due and payable by Lessee;
  (c) during the 3rd lease year of the Lease, then 1/2 of the aggregate Monthly
  Base Rent waived by Lessor during the Abatement Period shall be immediately
  due and payable by Lessee, and (d) during the 4th lease year of the Lease, then
  1/4th of the aggregate Monthly Base Rent waived by Lessor during the Abatement
  Period shall be immediately due and payable by Lessee. Lessee's obligations
  hereunder shall survive the termination of the Lease.</p>
<p>13.4 <u>Late Charge</u>. Lessor shall not assess a late charge or interest
  for the first time in any twelve (12) month period that Lessee fails to pay
  an amount owed by Lessee under the Lease when due, provided Lessee pays the
  same within three (3) business days after written notice from Lessor that such
  amount was not paid when due.</p>
<p>22. <u>Conflicts</u>. To the extent of any conflicts or inconsistencies between
  the terms and provisions of this Addendum and the terms and provisions of the
  Lease, the terms and provisions of this Addendum shall control.</p>
<p align="center"><b>[Signatures on Next Page]</b></p>
<p align="left">&nbsp;</p>
<table width="75%" border="1" align="center">
  <tr>
    <td width="50%"><b>LESSOR:</b></td>
    <td width="50%"><b>LESSEE:</b></td>
  </tr>
  <tr>
    <td width="50%">&nbsp;</td>
    <td width="50%">&nbsp;</td>
  </tr>
  <tr>
    <td width="50%">Del Norte Farms, Inc., a </td>
    <td width="50%">Socket Communications, Inc., a </td>
  </tr>
  <tr>
    <td width="50%">California corporation</td>
    <td width="50%">Delaware corporation</td>
  </tr>
  <tr>
    <td width="50%">&nbsp;</td>
    <td width="50%">&nbsp;</td>
  </tr>
  <tr>
    <td width="50%">By: /s/ Bernard Huberman</td>
    <td width="50%">By: /s/ David Dunlap</td>
  </tr>
  <tr>
    <td width="50%">Name: Bernard Huberman</td>
    <td width="50%">Name: David W. Dunlap</td>
  </tr>
  <tr>
    <td width="50%">Title: President</td>
    <td width="50%">Title: CFO</td>
  </tr>
  <tr>
    <td width="50%">&nbsp;</td>
    <td width="50%">&nbsp;</td>
  </tr>
  <tr>
    <td width="50%">By: </td>
    <td width="50%">By: </td>
  </tr>
  <tr>
    <td width="50%">Name:</td>
    <td width="50%">Name: </td>
  </tr>
  <tr>
    <td width="50%">Title:</td>
    <td width="50%">Title: </td>
  </tr>
</table>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p align="center"><b><u>EXHIBIT "B"</u></b></p>
<p align="center"><u><b> NOTICE OF LEASE TERM DATES</b> </u></p>
<p>&nbsp;</p>
<p>To:_________________________________________________ </p>
<p>Date:_______________________________________________ </p>
<p>Re: Lease dated __________________________________, 20___ (the "<b>Lease</b>"),
  between ______________________________, Lessor, and __________________________,
  Lessee, concerning </p>
<p>Suite _________ located at ________________________________ (the "<b>Premises</b>").</p>
<p>&nbsp;</p>
<p>To Whom It May Concern:</p>
<p>In accordance with the subject Lease, we wish to advise and/or confirm as follows:</p>
<p>1. That the Premises have been accepted by the Lessee as being substantially
  complete in accordance with the subject Lease and that there is no deficiency
  in construction except as may be indicated on the "Punch-List" prepared by Lessor
  and Lessee, a copy of which is attached hereto.</p>
<p>2. That the Lessee has possession of the subject Premises and acknowledges
  that under the provisions of the Lease the Commencement Date is ____________________,
  and the Original Term of the Lease will expire on ________________________.</p>
<p>3. That in accordance with the Lease, rent commenced to accrue on ___________________.</p>
<p>4. Rent is due and payable in advance on the first day of each and every month
  during the Term of the Lease. Your rent checks should be made payable to _________________________
  ______________________ at _____________________________________________</p>
<div align="center"></div>
<table cols=2 width="26%" align="center">
  <tr>
    <td width="47%">LESSOR:</td>
  </tr>
  <tr>
    <td width="47%">&nbsp;</td>
  </tr>
  <tr>
    <td width="47%">Del Norte Farms, Inc., a California corporation</td>
  </tr>
  <tr>
    <td width="47%">&nbsp;</td>
  </tr>
  <tr>
    <td width="47%" height="14">By: __________________________________</td>
  </tr>
  <tr>
    <td width="47%">Print Name:____________________________</td>
  </tr>
  <tr>
    <td width="47%">Print Title:_____________________________ </td>
  </tr>
</table>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p align="center">SAMPLE ONLY</p>
<p align="center"> [NOT FOR EXECUTION] </p>
<p align="center">&nbsp;</p>
<p align="center">&nbsp;</p>
<p align="center"><b><u>EXHIBIT "C"</u></b></p>
<p align="center"><u><b>RULES AND REGULATIONS </b></u></p>
<p align="left">A. <u><b>General Rules and Regulations</b></u>. The following
  rules and regulations govern the use of the Building and the Common Areas. Lessee
  will be bound by such rules and regulations and agrees to cause Lessee's Authorized
  Users, its employees, subtenants, assignees, contractors, suppliers, customers
  and invitees to observe the same.</p>
<p align="left">1. Except as specifically provided in the Lease to which these
  Rules and Regulations are attached, no sign, placard, picture, advertisement,
  name or notice may be installed or displayed on any part of the outside of the
  Building without the prior written consent of Lessor. Lessor will have the right
  to remove, at Lessee's expense and without notice, any sign installed or displayed
  in violation of this rule. All approved signs or lettering on doors and walls
  are to be printed, painted, affixed or inscribed at the expense of Lessee and
  under the direction of Lessor by a person or company designated or approved
  by Lessor.</p>
<p align="left">2. If Lessor objects in writing to any curtains, blinds, shades,
  screens or hanging plants or other similar objects attached to or used in connection
  with any window or door of the Premises, or placed on any windowsill, which
  is visible from the exterior of the Premises, Lessee will immediately discontinue
  such use. Lessee agrees not to place anything against or near glass partitions
  or doors or windows, which may appear unsightly from outside the Premises including
  from within any interior common areas.</p>
<p align="left">3. Lessee will not obstruct any sidewalks, halls, passages, exits,
  entrances or stairways of the Building. The halls, passages, exits, entrances
  and stairways are not open to the public, but are open, subject to reasonable
  regulations, to Lessee's business invitees. Lessor will in all cases retain
  the right to control and prevent access thereto of all persons whose presence
  in the reasonable judgment of Lessor would be prejudicial to the safety, character,
  reputation and interest of the Project and its Lessees, provided that nothing
  herein contained will be construed to prevent such access to persons with whom
  any Lessee normally deals in the ordinary course of its business, unless such
  persons are engaged in illegal or unlawful activities. Except in connection
  with the maintenance of the HVAC Systems, no Lessee and no employee or invitee
  of any Lessee will go upon the roof of the Building.</p>
<p align="left">4. Lessor expressly reserves the right to absolutely prohibit
  solicitation, canvassing, distribution of handbills or any other written material,
  peddling, sales and displays of products, goods and wares in all portions of
  the Building except as may be expressly permitted under the Lease. Lessor reserves
  the right to restrict and regulate the use of the common areas of the Building
  by invitees of Lessees providing services to Lessees on a periodic or daily
  basis. Such restrictions may include limitations on time, place, manner and
  duration of access to a Lessee's premises for such purposes. Without limiting
  the foregoing, Lessor may require that such parties use halls, passageways and
  stairways for such purposes to preserve access within the Building for Lessees
  and the general public.</p>
<p align="left">5. Intentionally Omitted.. </p>
<p align="left">6. Lessee will be responsible for all persons for whom it requests
  passes and will be liable to Lessor for all acts of such persons. Lessor will
  not be liable for damages for any error with regard to the admission to or exclusion
  from the Building of any person. Lessor reserves the right to prevent access
  to the Building in case of invasion, mob, riot, public excitement or other commotion
  by closing the doors or by other appropriate action.</p>
<p align="left">7. The directory of the Building, if any, will be provided exclusively
  for the display of the name and location of Lessees only and Lessor reserves
  the right to exclude any other names therefrom.</p>
<p align="left">8. Lessor will furnish Lessee, free of charge, with two keys to
  each entry door lock in the Premises. Lessor may make a reasonable charge for
  any additional keys. Lessor shall not alter any lock or install a new additional
  lock or bolt on any door of the Premises without providing Lessor with a key
  for the same. Lessee, upon the termination of its tenancy, will deliver to Lessor
  the keys to all doors which have been furnished to Lessee, and in the event
  of loss of any keys so furnished, will pay Lessor therefor.</p>
<p align="left">9. If Lessee requires telegraphic, telephonic, burglar alarm,
  satellite dishes, antennae or similar services, it will first obtain Lessor's
  approval, and comply with, Lessor's reasonable rules and requirements applicable
  to such services, which may include separate licensing by, and fees paid to,
  Lessor (provided there will be no separate licensing or fees for normal security
  or telephone systems).</p>
<p align="left">10. Intentionally Omitted.</p>
<p align="left">11. Lessee will not place a load upon any floor of the Premises,
  which exceeds the load per square foot, which such floor was designed to carry
  and which is allowed by law. Lessor will have the right to reasonably prescribe
  the weight, size and position of all safes, heavy equipment, files, materials,
  furniture or other property brought into the Building. Heavy objects will, if
  considered necessary by Lessor, stand on such platforms as determined by Lessor
  to be necessary to properly distribute the weight, which platforms will be provided
  at Lessee's expense. Business machines and mechanical equipment belonging to
  Lessee, which cause noise or vibration that may be transmitted to the structure
  of the Building or to any space therein to such a degree as to be objectionable
  to any Lessees in the Building or Lessor, are to be placed and maintained by
  Lessee, at Lessee's expense, on vibration eliminators or other devises sufficient
  to eliminate noise or vibration. Lessee will be responsible for all structural
  engineering required to determine structural load, as well as the expense thereof.
  The persons employed to move such equipment in or out of the Building must be
  reasonably acceptable to Lessor. Lessor will not be responsible for loss of,
  or damage to, any such equipment or other property from any cause, and all damage
  done to the Building by maintaining or moving such equipment or other property
  will be repaired at the expense of Lessee.</p>
<p align="left">12. Lessee will not use or keep in the Premises any kerosene,
  gasoline or inflammable or combustible fluid or material other than those limited
  quantities necessary for the operation or maintenance of office equipment. Lessee
  will not use or permit to be used in the Premises any foul or noxious gas or
  substance, or permit or allow the Premises to be occupied or used in a manner
  offensive or objectionable to Lessor or other occupants of the Building by reason
  of noise, odors or vibrations, nor will Lessee bring into or keep in or about
  the Premises any birds or animals.</p>
<p align="left">13. Without the prior written consent of Lessor, which Lessor
  may deny with or without cause, Lessee will not use the name, photograph or
  likeness of the Building in connection with or in promoting or advertising the
  business of Lessee except as Lessee's address.</p>
<p align="left">14. Lessee will close and lock the doors of its Premises and entirely
  shut off all water faucets or other water apparatus, and lighting or gas before
  Lessee and its employees leave the Premises. Lessee will be responsible for
  any damage or injuries sustained by other Lessees or occupants of the Building
  or by Lessor for noncompliance with this rule.</p>
<p align="left">15. The toilet rooms, toilets, urinals, wash bowls and other apparatus
  will not be used for any purpose other than that for which they were constructed
  and no foreign substance of any kind whatsoever shall be thrown therein. The
  expense of any breakage, stoppage or damage resulting from any violation of
  this rule will be borne by the Lessee who, or whose employees or invitees, break
  this rule. Cleaning of equipment of any type is prohibited. Shaving is prohibited.</p>
<p align="left">16. Lessee will not use the Premises for any business or activity
  other than that specifically provided for in this Lease. Lessee will not conduct,
  nor permit to be conducted, either voluntarily or involuntarily, any auction
  upon the Premises without first having obtained Lessor's prior written consent,
  which consent Lessor may withhold in its sole and absolute discretion.</p>
<p align="left">17. Lessee will not install any radio or television antenna, loudspeaker,
  satellite dishes or other devices on the roof(s) or exterior walls of the Building.</p>
<p align="left">18. Except for the ordinary hanging of pictures and wall decorations,
  Lessee will not mark, drive nails, screw or drill into the partitions, woodwork
  or plaster or in any way deface the Premises or any part thereof, except in
  accordance with the provisions of the Lease pertaining to alterations. Lessor
  reserves the right to direct electricians as to where and how telephone and
  telegraph wires are to be introduced to the Premises. Lessee will not cut or
  bore holes for wires. Lessee will not affix any floor covering to the floor
  of the Premises in any manner except as approved by Lessor or as permitted under
  the Lease. Lessee shall repair any damage resulting from noncompliance with
  this rule.</p>
<p align="left">19. Lessee will not install, maintain or operate upon the Premises
  any vending machines without the written consent of Lessor.</p>
<p align="left">20. Lessee will not place in any trash box or receptacle any material,
  which cannot be disposed of in the ordinary and customary manner of trash and
  garbage disposal. </p>
<p align="left">21. The Premises will not be used for lodging or for the storage
  of merchandise held for sale to the general public, or for lodging or for manufacturing
  of any kind, nor shall the Premises be used for any improper, immoral or objectionable
  purpose. No cooking will be done or permitted on the Premises without Lessor's
  consent, except the use by Lessee of Underwriters' Laboratory approved equipment
  for brewing coffee, tea, hot chocolate and similar beverages shall be permitted,
  and the use of a microwave oven for employees use will be permitted, provided
  that such equipment and use is in accordance with all applicable federal, state,
  county and city laws, codes, ordinances, rules and regulations.</p>
<p align="left">22. Intentionally Omitted. </p>
<p align="left">23. Lessee agrees to comply with all safety, fire protection and
  evacuation procedures and regulations established by Lessor or any governmental
  agency.</p>
<p align="left">24. Lessee assumes any and all responsibility for protecting its
  Premises from theft, robbery and pilferage, which includes keeping doors locked
  and other means of entry to the Premises closed.</p>
<p align="left">25. To the extent Lessor reasonably deems it necessary to exercise
  exclusive control over any portions of the Common Areas for the mutual benefit
  of the lessees in the Building, Lessor may do so subject to reasonable, non-discriminatory
  additional rules and regulations.</p>
<p align="left">26. Lessor may prohibit smoking in the Building and may require
  Lessee and any of its employees, agents, clients, customers, invitees and guests
  who desire to smoke, to smoke within designated smoking areas within the Project.</p>
<p align="left">27. These Rules and Regulations are in addition to, and will not
  be construed to in any way modify or amend, in whole or in part, the terms,
  covenants, agreements and conditions of the Lease. Lessor may waive any one
  or more of these Rules and Regulations for the benefit of Lessee or any other
  Lessee, but no such waiver by Lessor will be construed as a waiver of such Rules
  and Regulations in favor of Lessee or any other Lessee, nor prevent Lessor from
  thereafter enforcing any such Rules and Regulations against any or all of the
  Lessees of the Building.</p>
<p align="left">28. Lessor reserves the right to make such other and reasonable
  and non-discriminatory Rules and Regulations as, in its judgment, may from time
  to time be needed for safety and security, for care and cleanliness of the Building
  and for the preservation of good order therein. Lessee agrees to abide by all
  such Rules and Regulations herein above stated and any additional reasonable
  and non-discriminatory rules and regulations, which are adopted. Lessee is responsible
  for the observance of all of the foregoing rules by Lessee's employees, agents,
  clients, customers, invitees and guests.</p>
<p align="left">B. <u><b>Parking Rules and Regulations</b></u>. The following
  rules and regulations govern the use of the parking facilities, which serve
  the Building. Lessee will be bound by such rules and regulations and agrees
  to cause its employees, subtenants, assignees, contractors, suppliers, customers
  and invitees to observe the same:</p>
<p align="left">1. Lessee will not permit or allow any vehicles that belong to
  or are controlled by Lessee or Lessee's employees, subtenant, customers or invitees
  to be loaded, unloaded or parked in areas other than those designated by Lessor
  for such activities. No vehicles are to be left in the parking areas overnight
  for extended periods and no vehicles are to be parked in the parking areas other
  than normally sized passenger automobiles, motorcycles and pick-up trucks (although
  trucks or shipping containers may be parked in the loading areas). No extended
  term storage of vehicles is permitted.</p>
<p align="left">2. Vehicles must be parked entirely within painted stall lines
  of a single parking stall.</p>
<p align="left">3. All directional signs and arrows must be observed.</p>
<p align="left">4. The speed limit within all parking areas shall be five (5)
  miles per hour.</p>
<p align="left">5. Parking is prohibited: (a) in areas not striped for parking;
  (b) in aisles or on ramps; (c) where "no parking" signs are posted; (d) in cross-hatched
  areas; and (e) in such other areas as may be designated from time to time by
  Lessor.</p>
<p align="left">6. Lessor reserves the right, without cost or liability to Lessor,
  to tow any vehicle if such vehicle's audio theft alarm system remains engaged
  for an unreasonable period of time.</p>
<p align="left">7. Washing, waxing, cleaning or servicing of any vehicle in any
  area not specifically reserved for such purpose is prohibited.</p>
<p align="left">8. Lessor may refuse to permit any person to park in the parking
  facilities who violates these rules with unreasonable frequency, and any violation
  of these rules shall subject the violator's car to removal, at such car owner's
  expense. Lessee agrees to use its best efforts to acquaint its employees, subtenants,
  assignees, contractors, suppliers, customers and invitees with these parking
  provisions, rules and regulations.</p>
<p align="left">9. Parking stickers, access cards, or any other device or form
  of identification, if any, supplied by Lessor as a condition of use of the parking
  facilities shall remain the property of Lessor. Parking identification devices,
  if utilized by Lessor, must be displayed as requested and may not be mutilated
  in any manner. The serial number of the parking identification device may not
  be obliterated. Parking identification devices, if any, are not transferable
  and any device in the possession of an unauthorized holder will be void. </p>
<p align="left">10. Lessor has the right to exclude any vehicle from the parking
  facilities that does not have a parking identification device or valid access
  card. Any parking identification device or access card which is reported lost
  or stolen and which is subsequently found in the possession of an unauthorized
  person will be confiscated and the illegal holder will be subject to prosecution.</p>
<p align="left">11. All damage or loss claimed to be the responsibility of Lessor
  must be reported, itemized in writing and delivered to Lessor within ten (10)
  business days after any claimed damage or loss occurs. Any claim not so made
  is waived. Lessor is not responsible for damage by water or fire, or for the
  acts or omissions of others, or for articles left in vehicles. In any event,
  the total liability of Lessor, if any, is limited to Two Hundred Fifty Dollars
  ($250.00) for all damages or loss to any car. Lessor is not responsible for
  loss of use.</p>
<p align="left">12. Lessor reserves the right, without cost or liability to Lessor,
  to tow any vehicles, which are used or parked in violation of these rules and
  regulations.</p>
<p align="left">13. Lessor reserves the right from time to time to modify and/or
  adopt such other reasonable and non-discriminatory rules and regulations for
  the parking facilities as it deems reasonably necessary for the operation of
  the parking facilities.</p>
<p align="left">&nbsp;</p>
<p align="left">&nbsp;</p>
<p align="left">&nbsp;</p>
<p align="center"><b>EXHIBIT "D"</b></p>
<p align="center"><b>SIGNAGE LOCATION</b></p>
<p align="center">[SEE ATTACHED]</p>
<p align="center">&nbsp;</p>
<p align="center">&nbsp;</p>
<p align="center">&nbsp;</p>
<p align="center">&nbsp;</p>
<p align="center"><b><u>EXHIBIT "E"</u></b></p>
<p align="center"><u><b>WORK LETTER AGREEMENT </b></u></p>
<p align="center">&nbsp;</p>
<p align="left">1. <b><u>TENANT IMPROVEMENTS</u></b>. Lessor shall construct and,
  except as provided below to the contrary, pay for the entire cost of constructing
  the tenant improvements ("<b>Tenant Improvements</b>") described by the plans
  and criteria specifications identified in Schedule "1" attached hereto (the
  "<b>Plans</b>"). Lessee may request changes to the Plans provided that (a) the
  changes shall not be of a lesser quality than Lessor's standard specifications
  for tenant improvements for the Building (the "<b>Standards</b>"); (b) the changes
  conform to applicable governmental regulations and necessary governmental permits
  and approvals can be secured; (c) the changes do not require building service
  beyond the levels normally provided to other tenants in the Building; (d) the
  changes do not have any adverse affect on the structural integrity or systems
  of the Building; (e) the changes will not, in Lessor's opinion, unreasonably
  delay construction of the Tenant Improvements; and (f) Lessor has determined
  in its reasonable discretion that the changes are of a nature and quality consistent
  with the overall objectives of Lessor for the Building. If Lessee requests a
  change in the Plans, then Lessor shall provide Lessee with an estimate of the
  increase in the total cost of the Tenant Improvements and any delay in the Substantial
  Completion of the Tenant Improvements as a result thereof. As a condition to
  the effectiveness of Lessor's approval of Lessee's requested change, Lessee
  shall pay to Lessor upon demand by Lessor the actual increased cost of the Tenant
  Improvements attributable to such change and upon Lessor's receipt of such payment,
  Lessor shall proceed with such change. To the extent any such change results
  in a delay of completion of construction of the Tenant Improvements, then such
  delay shall constitute a delay caused by Lessee as described below. Tenant Improvements
  does not include Lessee's signage, furniture, trade fixtures and/or equipment.</p>
<p align="left">2. <u><b>CONSTRUCTION OF TENANT IMPROVEMENTS</b></u>. Upon Lessee's
  payment to Lessor of the total amount of the increased cost of the Tenant Improvements
  due to any changes to the Plans, if any, and Lessor's receipt of all required
  building permits, Lessor's contractor shall commence and diligently proceed
  with the construction of the Tenant Improvements, subject to Tenant Delays (as
  described in Section 4 below) and Force Majeure Delays (as described in Section
  5 below). Promptly upon the commencement of the Tenant Improvements, Lessor
  shall furnish Lessee with a construction schedule letter setting forth the projected
  completion dates therefor and showing the reasonable deadlines for any actions
  required to be taken by Lessee during such construction, and Lessor may from
  time to time during construction of the Tenant Improvements reasonably modify
  such schedule.</p>
<p align="left">3. <u><b>SUBSTANTIAL COMPLETION; DELIVERY OF POSSESSION</b></u>.</p>
<p align="left">(a) <b>Substantial Completion; Punch-List</b>. The Tenant Improvements
  shall be deemed to be "<b>substantially completed</b>" when Lessor: (a) is able
  to provide Lessee reasonable access to the Premises; (b) has substantially completed
  the Tenant Improvements in accordance with the Plans, other than decoration
  and minor "punch-list" type items and adjustments which do not materially interfere
  with Lessee's access to or use of the Premises; and (c) has obtained a temporary
  certificate of occupancy or other required equivalent approval from the local
  governmental authority permitting occupancy of the Premises; provided, however,
  that if substantial completion of the Tenant Improvements is delayed as a result
  of any Tenant Delays described in Section 4 below then, notwithstanding anything
  in the Lease or this Addendum to the contrary and subject to the Abatement Period,
  Lessee's rental obligations and the time period for calculating the term of
  the Lease shall commence as of the date the Tenant Improvements would have been
  substantially completed but for such Tenant Delays, and provided further that
  if substantial completion of the Tenant Improvements is delayed as a result
  of any Force Majeure Delays described in Section 5 below, then the substantial
  completion of the Tenant Improvements shall be subject to extension for such
  Force Majeure Delays. Within five (5) business days after such substantial completion,
  Lessee shall conduct a walk-through inspection of the Premises with Lessor and
  provide to Lessor a written punch-list specifying those decoration and other
  punch-list items which require completion, which items Lessor shall thereafter
  diligently complete; provided, however, that Lessee shall be responsible, at
  Lessee's sole cost and expense, for the remediation of any items on the punch-list
  caused by Lessee's acts or omissions. The term "<b>substantial completion</b>"
  shall have the same meaning as the term "substantially completed."</p>
<p align="left">(b) <b>Delivery of Possession</b>. Lessor agrees to deliver possession
  of the Premises to Lessee when the Tenant Improvements have been substantially
  completed in accordance with Section (a) above. </p>
<p align="left">4. <u><b>TENANT DELAYS</b></u>. For purposes of this Work Letter
  Agreement, "<b>Tenant Delays</b>" shall mean any delay in the completion of
  the Tenant Improvements resulting from any or all of the following: (a) Lessee's
  failure to timely perform any of its obligations pursuant to this Work Letter
  Agreement, including any failure to complete, on or before the due date therefor,
  any action item which is Lessee's responsibility pursuant to the Work Schedule
  or any schedule delivered by Lessor to Lessee pursuant to this Work Letter Agreement;
  (b) Lessee's changes to the Plans; (c) Lessee's request for materials, finishes,
  or installations which are not readily available or which are incompatible with
  the Standards; (d) any delay of Lessee in making payment to Lessor for Lessee's
  share of any costs in excess of the cost of the Tenant Improvements as described
  in the Plans; or (e) any other act or failure to act by Lessee, Lessee's employees,
  agents, architects, independent contractors, consultants and/or any other person
  performing or required to perform services on behalf of Lessee which continues
  for more than one (1) business day after written notice from Lessor.</p>
<p align="left">5. <u><b>FORCE MAJEURE DELAYS</b></u>. For purposes of this Work
  Letter, "<b>Force Majeure Delays</b>" shall mean any actual delay beyond the
  reasonable control of Lessor in the construction of the Tenant Improvements,
  which is not a Tenant Delay and which is caused by any of the causes described
  in Section 28.D of the Lease.</p>
<p align="left">&nbsp;</p>
<p align="left">&nbsp;</p>
<p align="left">&nbsp;</p>
<p align="center"><b><u>SCHEDULE "1"</u></b></p>
<p align="center"><u><b>to</b></u></p>
<p align="center"><u><b>EXHIBIT E</b></u></p>
<p align="center"><u><b>PLANS </b></u></p>
<p align="center">&nbsp;</p>
<p align="left">1. Sheet P-2, Floor Plan (Scheme 5), prepared by CRJ Architects,
  Inc., dated 9/28/06.</p>
<p align="left">2. Sheet P-3, Ceiling Plan (Scheme 5), prepared by CRJ Architects,
  Inc., dated 9/28/06.</p>
<p align="left">&nbsp;</p>
<p align="left">&nbsp;</p>
<p align="center"><b><u>EXHIBIT F</u></b></p>
<p align="center"><u><b>PERMITTED HAZARDOUS SUBSTANCES </b></u></p>
<p align="center">&nbsp;</p>
<p align="left">Acetone </p>
<p align="left">Nitrous-Oxide </p>
<p align="left">Rubbing Alcohol </p>
<p align="left">Solder Flux </p>
<p align="left">Flux Cleaner </p>
<p align="left">Super Glue </p>
<p align="left">Silicon Sealer </p>
<p align="left">Spray paint </p>
<p align="left">Goo-Gone Adhesive Cleaner </p>
<p align="left">Radio Shack Anti-Static Glass and Plastic Cleaner </p>
<p align="left">"Static Guard" Lens Cleaner </p>
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<p align="center">&nbsp; </p>
<p align="center">&nbsp;</p>
<p align="right">&nbsp; </p>
<p>&nbsp;</p>
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