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<SEC-DOCUMENT>0000944075-07-000027.txt : 20070515
<SEC-HEADER>0000944075-07-000027.hdr.sgml : 20070515
<ACCEPTANCE-DATETIME>20070515170154
ACCESSION NUMBER:		0000944075-07-000027
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		4
CONFORMED PERIOD OF REPORT:	20070331
FILED AS OF DATE:		20070515
DATE AS OF CHANGE:		20070515

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:		07854461

	BUSINESS ADDRESS:	
		STREET 1:		39700 EUREKA DRIVE
		CITY:			NEWARK
		STATE:			CA
		ZIP:			94560-4808
		BUSINESS PHONE:		5109333000

	MAIL ADDRESS:	
		STREET 1:		39700 EUREKA DRIVE
		CITY:			NEWARK
		STATE:			CA
		ZIP:			94560-4808
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>q1-2007.htm
<DESCRIPTION>QUARTERLY REPORT
<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, D.C. 20549<BR>
  </font></P>
<P align=center><font face="Times New Roman, Times, serif" size="3"><STRONG>FORM
  10-Q</STRONG></font></P>
<TABLE cols=2 width="100%">
  <TR>
    <TD vAlign=top width="5%"><FONT size=3><STRONG>
      <CENTER>
        [X]
      </CENTER>
      </STRONG></FONT></TD>
    <TD vAlign=top width="95%"><FONT size=3><STRONG><FONT
      face="Times New Roman, Times, serif">QUARTERLY REPORT PURSUANT TO SECTION
      13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 </FONT></STRONG></FONT></TD>
  </TR>
</TABLE>
<P align=center><font face="Times New Roman, Times, serif" size="3"><STRONG>&nbsp;&nbsp;For
  the quarterly period ended March 31, 2007</STRONG></font></P>
<P align=center><font size="3" face="Times New Roman, Times, serif"><STRONG>OR</STRONG></font></P>
<TABLE cols=2 width="100%">
  <TR>
    <TD vAlign=top width="5%"><FONT size=3><STRONG>
      <CENTER>
        <FONT face="Times New Roman, Times, serif">[&nbsp;&nbsp;&nbsp;] </FONT>
      </CENTER>
      </STRONG></FONT></TD>
    <TD vAlign=top width="95%"><FONT face="Times New Roman, Times, serif"
      size=3><STRONG>TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
      SECURITIES EXCHANGE ACT OF 1934 &nbsp;&nbsp;</STRONG><BR>
      <BR>
      For the transition period ____________ to ____________ </FONT></TD>
  </TR>
</TABLE>
<P align=center><font face="Times New Roman, Times, serif" size="3"><STRONG>Commission
  file number 1-13810 </STRONG></font></P>
<P align=center><font face="Times New Roman, Times, serif" size="3"><STRONG><b>SOCKET
  COMMUNICATIONS, INC.</b> </STRONG><BR>
  (Exact name of registrant as specified in its charter) </font></P>
<P>&nbsp;
<TABLE cols=2 width="100%">
  <TR>
    <td width="47%"><font size=3><strong>
      <center>
        <font face="Times New Roman, Times, serif" size=3>Delaware </font>
      </center>
      </strong></font></td>
    <TD width="17%">&nbsp;</TD>
    <TD width="36%"><FONT size=3><STRONG>
      <CENTER>
        <FONT face="Times New Roman, Times, serif" size=3>94-3155066 </FONT>
      </CENTER>
      </STRONG></FONT></TD>
  </TR>
  <TR>
    <td width="47%"><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 width="17%">&nbsp;</TD>
    <TD width="36%"><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>39700
  Eureka Drive, 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)
  933-3000 </STRONG><BR>
  (Registrant's telephone number, including area code) <BR>
  </font></P>
<P><font face="Times New Roman, Times, serif" size="3">&nbsp;&nbsp;&nbsp; </font>
<P>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 "accelerated
  filer" and "large accelerated filer" in Rule 12b-2 of the Exchange Act. Large
  accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X]</P>
<P>Indicate by check mark whether the registrant is a shell company (as defined
  in Rule 12b-2 of the Exchange Act). YES [ ] NO [X]</P>
<P>Number of shares of Common Stock ($0.001 par value) outstanding as of April
  30, 2007 was 31,913,386 shares.</P>
<hr width="100%">
<div align="center"></div>
<P align=left><font face="Times New Roman, Times, serif" size="3"><a name="tab"></a></font></P>
<table width="879" border="0" cellspacing="0" cellpadding="0" align="center">
  <tr>
    <td colspan="3">
      <div align="center"></div>
      <p align=center><font face="Times New Roman, Times, serif" size="3"><strong>INDEX
        </strong></font></p>
    </td>
  </tr>
  <tr>
    <td width="27">&nbsp;</td>
    <td width="807">&nbsp;</td>
    <td width="56">
      <div align="center"><font face="Times New Roman, Times, serif" size="3"><u>PAGE
        <br>
        NO.</u></font></div>
    </td>
  </tr>
  <tr>
    <td colspan="3">Part I. Financial information</td>
  </tr>
  <tr>
    <td colspan="3">&nbsp;</td>
  </tr>
  <tr>
    <td colspan="3">Item 1. Consolidated Financial Statements:</td>
  </tr>
  <tr>
    <td width="27">&nbsp;</td>
    <td width="807">&nbsp;</td>
    <td width="56" align="center" valign="bottom">&nbsp;</td>
  </tr>
  <tr>
    <td width="27">&nbsp;</td>
    <td width="807"><font face="Times New Roman, Times, serif" size="3"><a
  href="#bs">Condensed Consolidated Balance Sheets - March 31, 2007 and December
      31, 2006 </a></font></td>
    <td width="56" align="center" valign="bottom">
      <div align="center">1</div>
    </td>
  </tr>
  <tr>
    <td width="27" height="10">&nbsp;</td>
    <td width="807" height="10">&nbsp;</td>
    <td width="56" height="10" align="center" valign="bottom">&nbsp;</td>
  </tr>
  <tr>
    <td width="27" height="10">&nbsp;</td>
    <td width="807" height="10"><font face="Times New Roman, Times, serif" size="3"><a
  href="#ops">Condensed Consolidated Statements of Operations - Three Months Ended
      March 31, 2007 and 2006</a></font></td>
    <td width="56" height="10" align="center" valign="bottom">
      <div align="center"> 2</div>
    </td>
  </tr>
  <tr>
    <td width="27">&nbsp;</td>
    <td width="807">&nbsp;</td>
    <td width="56" align="center" valign="bottom">&nbsp;</td>
  </tr>
  <tr>
    <td width="27">&nbsp;</td>
    <td width="807"><font face="Times New Roman, Times, serif" size="3"><a
  href="#flows">Condensed Consolidated Statements of Cash Flows - Three Months
      Ended </a><a
  href="#ops">March 31, 2007 and 2006</a></font></td>
    <td width="56" align="center" valign="bottom">
      <div align="center">3</div>
    </td>
  </tr>
  <tr>
    <td width="27">&nbsp;</td>
    <td width="807">&nbsp;</td>
    <td width="56" align="center" valign="bottom">&nbsp;</td>
  </tr>
  <tr>
    <td width="27">&nbsp;</td>
    <td width="807"><font face="Times New Roman, Times, serif" size="3"><a
  href="#notes">Notes to Condensed Consolidated Financial Statements</a> </font></td>
    <td width="56" align="center" valign="bottom">
      <div align="center">4</div>
    </td>
  </tr>
  <tr>
    <td colspan="2">&nbsp;</td>
    <td width="56">&nbsp;</td>
  </tr>
  <tr>
    <td colspan="2"><font face="Times New Roman, Times, serif" size="3"><a
href="#mda">Item 2. Management's Discussion and Analysis of Financial Condition
      and Results of Operations</a> </font></td>
    <td width="56">
      <div align="center"><font face="Times New Roman, Times, serif" size="3">11</font></div>
    </td>
  </tr>
  <tr>
    <td colspan="2">&nbsp;</td>
    <td width="56">&nbsp;</td>
  </tr>
  <tr>
    <td colspan="2"><font face="Times New Roman, Times, serif" size="3"><a
href="#qqd">Item 3. Quantitative and Qualitative Disclosures about Market Risk</a>
      </font></td>
    <td width="56">
      <div align="center">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="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 4T. 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"><a
href="#oth">Part II. Other Information</a></font></div>
    </td>
  </tr>
  <tr>
    <td colspan="2">&nbsp;</td>
    <td width="56">&nbsp;</td>
  </tr>
  <tr>
    <td colspan="2"><font face="Times New Roman, Times, serif" size="3"><a
href="#risk">Item 1A. Risk Factors</a></font></td>
    <td width="56">
      <div align="center"><font face="Times New Roman, Times, serif" size="3">21</font></div>
    </td>
  </tr>
  <tr>
    <td colspan="2">&nbsp;</td>
    <td width="56">&nbsp;</td>
  </tr>
  <tr>
    <td colspan="2"><font face="Times New Roman, Times, serif" size="3"><a
href="#sub">Item 4. Submission of Matters to a Vote of Security Holders</a></font></td>
    <td width="56">
      <div align="center">33</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">33</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">34</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">35</font></div>
    </td>
  </tr>
</table>
<P align=left>&nbsp; </P>
<P align="center"><font face="Times New Roman, Times, serif" size="3"><BR>
  <BR>
  </font>
<HR width="100%">
<font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a>
<a
name=bs></a> <BR>
<BR>
</font>
<P align=left><font face="Times New Roman, Times, serif" size="3">Item 1. Financial
  Statements (Unaudited)</font>
<div align="center" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; "><b>SOCKET
  COMMUNICATIONS, INC.</b> <br>
  <b>CONDENSED CONSOLIDATED BALANCE SHEETS</b> </div>
<center>
  <table width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10.0pt; margin-top: 12pt; ">
    <tr style="font-size: 8.0pt;">
      <td colspan="2" align="left" nowrap><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td colspan="2" align="center" nowrap style="border-bottom: 1px solid #000000"><font face="Times New Roman, Times, serif" size="3">March
        31,<br>
        2007<br>
        (Unaudited)<br>
        </font></td>
      <td><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td colspan="2" align="center" valign="top" style="border-bottom: 1px solid #000000"><font face="Times New Roman, Times, serif" size="3">December
        31,<br>
        2006*</font></td>
      <td><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr valign="bottom">
      <td colspan="10" align="center" valign="top" bgcolor="#cceeff"> <font face="Times New Roman, Times, serif" size="3"><b>ASSETS</b></font></td>
    </tr>
    <tr>
      <td colspan="2" align="left" valign="top"><font face="Times New Roman, Times, serif" size="3">Current
        assets:</font></td>
      <td><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr>
      <td colspan="2" align="left" valign="top" bgcolor="#CCEEFF">
        <div style="margin-left: 10px; text-indent: -10px"> <font size="3" face="Times New Roman, Times, serif">&nbsp;&nbsp;&nbsp;Cash
          and cash equivalents</font></div>
      </td>
      <td bgcolor="#CCEEFF"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" bgcolor="#CCEEFF"><font face="Times New Roman, Times, serif" size="3">$</font></td>
      <td align="right" valign="bottom" nowrap bgcolor="#CCEEFF"><font face="Times New Roman, Times, serif" size="3">5,182,301</font></td>
      <td bgcolor="#CCEEFF"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td bgcolor="#CCEEFF"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" bgcolor="#CCEEFF"><font face="Times New Roman, Times, serif" size="3">$</font></td>
      <td align="right" valign="bottom" nowrap bgcolor="#CCEEFF"><font face="Times New Roman, Times, serif" size="3">6,104,277</font></td>
      <td bgcolor="#CCEEFF"><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr>
      <td colspan="2" align="left" valign="top">
        <div style="margin-left: 10px; text-indent: -10px"> <font size="3" face="Times New Roman, Times, serif">&nbsp;&nbsp;&nbsp;Accounts
          receivable, net</font></div>
      </td>
      <td><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap><font face="Times New Roman, Times, serif" size="3">3,279,700</font></td>
      <td><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap><font face="Times New Roman, Times, serif" size="3">2,699,218</font></td>
      <td><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr valign="bottom">
      <td colspan="2" align="left" valign="top" bgcolor="#cceeff">
        <div style="margin-left: 10px; text-indent: -10px"> <font size="3" face="Times New Roman, Times, serif">&nbsp;&nbsp;&nbsp;Inventories</font></div>
      </td>
      <td bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">2,696,317</font></td>
      <td bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" nowrap bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">2,350,284</font></td>
      <td bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr>
      <td colspan="2" align="left" valign="top">
        <div style="margin-left: 10px; text-indent: -10px"> <font size="3" face="Times New Roman, Times, serif">&nbsp;&nbsp;&nbsp;Prepaid
          expenses and other current assets</font></div>
      </td>
      <td><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td valign=bottom align=left style="border-bottom: 1px solid #000000"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
      <td align="right" valign="bottom" nowrap style="border-bottom: 1px solid #000000"><font face="Times New Roman, Times, serif" size="3">174,095</font></td>
      <td><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td valign=bottom align=left style="border-bottom: 1px solid #000000"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
      <td align="right" valign="bottom" nowrap style="border-bottom: 1px solid #000000"><font face="Times New Roman, Times, serif" size="3">193,196</font></td>
      <td><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr>
      <td bgcolor="#CCEEFF" height="18"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="top" bgcolor="#CCEEFF" height="18">
        <div style="margin-left: 10px; text-indent: -10px"><font face="Times New Roman, Times, serif" size="3">
          &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total current assets</font></div>
      </td>
      <td bgcolor="#CCEEFF" height="18"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" bgcolor="#CCEEFF" height="18">&nbsp;</td>
      <td align="right" valign="bottom" nowrap bgcolor="#CCEEFF" height="18"><font face="Times New Roman, Times, serif" size="3">11,332,413</font></td>
      <td bgcolor="#CCEEFF" height="18"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td bgcolor="#CCEEFF" height="18"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" bgcolor="#CCEEFF" height="18"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap bgcolor="#CCEEFF" height="18"><font face="Times New Roman, Times, serif" size="3">11,346,975</font></td>
      <td bgcolor="#CCEEFF" height="18"><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr valign="bottom">
      <td colspan="2" align="left" valign="top" bgcolor="#FFFFFF"><font face="Times New Roman, Times, serif" size="3">&nbsp</font></td>
      <td bgcolor="#FFFFFF"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" bgcolor="#FFFFFF"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap bgcolor="#FFFFFF"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td bgcolor="#FFFFFF"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td bgcolor="#FFFFFF"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" bgcolor="#FFFFFF"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" nowrap bgcolor="#FFFFFF"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td bgcolor="#FFFFFF"><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr valign="bottom">
      <td colspan="2" align="left" valign="top" bgcolor="#CCEEFF" height="8"><font face="Times New Roman, Times, serif" size="3">Property
        and equipment:</font></td>
      <td bgcolor="#cceeff" height="8"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" bgcolor="#cceeff" height="8"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap bgcolor="#cceeff" height="8">&nbsp;</td>
      <td bgcolor="#cceeff" height="8"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td bgcolor="#cceeff" height="8"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" bgcolor="#cceeff" height="8"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" nowrap bgcolor="#cceeff" height="8"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td bgcolor="#cceeff" height="8"><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr>
      <td colspan="2" align="left" valign="top">
        <div style="margin-left: 10px; text-indent: -10px"> <font size="3" face="Times New Roman, Times, serif">&nbsp;&nbsp;&nbsp;Machinery
          and office equipment</font></div>
      </td>
      <td><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap><font face="Times New Roman, Times, serif" size="3">2,232,715</font></td>
      <td><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap><font face="Times New Roman, Times, serif" size="3">1,790,053</font></td>
      <td><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr valign="bottom">
      <td colspan="2" align="left" valign="top" bgcolor="#cceeff">
        <div style="margin-left: 10px; text-indent: -10px"> <font size="3" face="Times New Roman, Times, serif">&nbsp;&nbsp;&nbsp;Computer
          equipment</font></div>
      </td>
      <td bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align=left style="border-bottom: 1px solid #000000" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
      <td align="right" valign="bottom" nowrap bgcolor="#cceeff" style="border-bottom: 1px solid #000000"><font face="Times New Roman, Times, serif" size="3">1,074,486</font></td>
      <td bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align=left style="border-bottom: 1px solid #000000" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
      <td align="right" nowrap bgcolor="#cceeff" style="border-bottom: 1px solid #000000"><font face="Times New Roman, Times, serif" size="3">1,021,720</font></td>
      <td bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr>
      <td colspan="2" align="left" valign="top">
        <div style="margin-left: 10px; text-indent: -10px"><font face="Times New Roman, Times, serif" size="3">&nbsp</font>
        </div>
      </td>
      <td><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap><font face="Times New Roman, Times, serif" size="3">3,307,201</font></td>
      <td><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap><font face="Times New Roman, Times, serif" size="3">2,811,773</font></td>
      <td><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr valign="bottom">
      <td colspan="2" align="left" valign="top" bgcolor="#cceeff">
        <div style="margin-left: 10px; text-indent: -10px"> <font size="3" face="Times New Roman, Times, serif">&nbsp;&nbsp;&nbsp;Accumulated
          depreciation</font></div>
      </td>
      <td bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align=left style="border-bottom: 1px solid #000000" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
      <td align="right" valign="bottom" nowrap bgcolor="#cceeff" style="border-bottom: 1px solid #000000"><font face="Times New Roman, Times, serif" size="3">(2,186,154</font></td>
      <td bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">)</font></td>
      <td bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align=left style="border-bottom: 1px solid #000000" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
      <td align="right" nowrap bgcolor="#cceeff" style="border-bottom: 1px solid #000000"><font face="Times New Roman, Times, serif" size="3">(2,069,596</font></td>
      <td bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">)</font></td>
    </tr>
    <tr>
      <td bgcolor="#FFFFFF"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="top" bgcolor="#FFFFFF">
        <div style="margin-left: 10px; text-indent: -10px"><font face="Times New Roman, Times, serif" size="3">
          &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Property and equipment, net</font></div>
      </td>
      <td bgcolor="#FFFFFF"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" bgcolor="#FFFFFF"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap bgcolor="#FFFFFF"><font face="Times New Roman, Times, serif" size="3">1,121,047</font></td>
      <td bgcolor="#FFFFFF"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td bgcolor="#FFFFFF"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" bgcolor="#FFFFFF"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap bgcolor="#FFFFFF"><font face="Times New Roman, Times, serif" size="3">742,177</font></td>
      <td bgcolor="#FFFFFF"><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr valign="bottom">
      <td colspan="2" align="left" valign="top" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">&nbsp</font></td>
      <td bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" nowrap bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr valign="bottom">
      <td colspan="2" align="left" valign="top" bgcolor="#FFFFFF" height="8"><font face="Times New Roman, Times, serif" size="3">Intangible
        technology, net</font></td>
      <td bgcolor="#FFFFFF" height="8"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" bgcolor="#FFFFFF" height="8"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap bgcolor="#FFFFFF" height="8"><font face="Times New Roman, Times, serif" size="3">574,683</font></td>
      <td bgcolor="#FFFFFF" height="8"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td bgcolor="#FFFFFF" height="8"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" bgcolor="#FFFFFF" height="8"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" nowrap bgcolor="#FFFFFF" height="8"><font face="Times New Roman, Times, serif" size="3">608,491</font></td>
      <td bgcolor="#FFFFFF" height="8"><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr valign="bottom">
      <td colspan="2" align="left" valign="top" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">Goodwill</font></td>
      <td bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">9,797,946</font></td>
      <td bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" nowrap bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">9,797,946</font></td>
      <td bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr valign="bottom">
      <td colspan="2" align="left" valign="top" bgcolor="#FFFFFF"><font face="Times New Roman, Times, serif" size="3">Other
        assets</font></td>
      <td bgcolor="#FFFFFF"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align=left style="border-bottom: 1px solid #000000"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
      <td align="right" valign="bottom" nowrap bgcolor="#FFFFFF" style="border-bottom: 1px solid #000000"><font face="Times New Roman, Times, serif" size="3">284,045</font></td>
      <td bgcolor="#FFFFFF"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td bgcolor="#FFFFFF"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align=left style="border-bottom: 1px solid #000000"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
      <td align="right" nowrap bgcolor="#FFFFFF" style="border-bottom: 1px solid #000000"><font face="Times New Roman, Times, serif" size="3">291,778</font></td>
      <td bgcolor="#FFFFFF"><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr>
      <td bgcolor="#CCEEFF"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="top" bgcolor="#CCEEFF">
        <div style="margin-left: 10px; text-indent: -10px"><font face="Times New Roman, Times, serif" size="3">
          &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total assets</font></div>
      </td>
      <td bgcolor="#CCEEFF"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" bgcolor="#CCEEFF" style="border-bottom: 3px double #000000"><font face="Times New Roman, Times, serif" size="3">$</font></td>
      <td align="right" valign="bottom" nowrap bgcolor="#CCEEFF" style="border-bottom: 3px double #000000"><font face="Times New Roman, Times, serif" size="3">23,110,134</font></td>
      <td bgcolor="#CCEEFF"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td bgcolor="#CCEEFF"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" bgcolor="#CCEEFF" style="border-bottom: 3px double #000000"><font face="Times New Roman, Times, serif" size="3">$</font></td>
      <td align="right" valign="bottom" nowrap bgcolor="#CCEEFF" style="border-bottom: 3px double #000000"><font face="Times New Roman, Times, serif" size="3">22,787,367</font></td>
      <td bgcolor="#CCEEFF"><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr>
      <td colspan="10"><font face="Times New Roman, Times, serif" size="3">&nbsp</font></td>
    </tr>
    <tr valign="bottom">
      <td colspan="10" align="center" valign="top" bgcolor="#cceeff"> <font face="Times New Roman, Times, serif" size="3"><b>LIABILITIES
        AND STOCKHOLDERS&#146; EQUITY</b></font></td>
    </tr>
    <tr>
      <td colspan="2" align="left" valign="top" height="14"><font face="Times New Roman, Times, serif" size="3">Current
        liabilities:</font></td>
      <td height="14"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" height="14"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap height="14"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td height="14"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td height="14"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" height="14"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap height="14"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td height="14"><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr valign="bottom">
      <td colspan="2" align="left" valign="top" bgcolor="#cceeff">
        <div style="margin-left: 10px; text-indent: -10px"> <font size="3" face="Times New Roman, Times, serif">&nbsp;&nbsp;&nbsp;Accounts
          payable and accrued expenses</font></div>
      </td>
      <td bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">$</font></td>
      <td align="right" valign="bottom" nowrap bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">3,422,815</font></td>
      <td bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">$</font></td>
      <td align="right" nowrap bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">2,440,404</font></td>
      <td bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr>
      <td colspan="2" align="left" valign="top">
        <div style="margin-left: 10px; text-indent: -10px"> <font size="3" face="Times New Roman, Times, serif">&nbsp;&nbsp;&nbsp;Accrued
          payroll and related expenses</font></div>
      </td>
      <td><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap><font face="Times New Roman, Times, serif" size="3">913,340</font></td>
      <td><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap><font face="Times New Roman, Times, serif" size="3">751,007</font></td>
      <td><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr valign="bottom">
      <td colspan="2" align="left" valign="top" bgcolor="#cceeff">
        <div style="margin-left: 10px; text-indent: -10px"> <font size="3" face="Times New Roman, Times, serif">&nbsp;&nbsp;&nbsp;Bank
          line of credit</font></div>
      </td>
      <td bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">2,285,230</font></td>
      <td bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" bgcolor="#cceeff" nowrap><font face="Times New Roman, Times, serif" size="3">2,213,261</font></td>
      <td bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr valign="bottom">
      <td colspan="2" align="left" valign="top">
        <div style="margin-left: 10px; text-indent: -10px"> <font size="3" face="Times New Roman, Times, serif">&nbsp;&nbsp;&nbsp;Deferred
          income on shipments to distributors</font></div>
      </td>
      <td><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap><font face="Times New Roman, Times, serif" size="3">1,461,801</font></td>
      <td><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" nowrap><font face="Times New Roman, Times, serif" size="3">1,472,781</font></td>
      <td><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr valign="bottom">
      <td colspan="2" align="left" valign="top" bgcolor="#cceeff">
        <div style="margin-left: 10px; text-indent: -10px"> <font size="3" face="Times New Roman, Times, serif">&nbsp;&nbsp;&nbsp;Current
          portion of capital leases</font></div>
      </td>
      <td bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align=left style="border-bottom: 1px solid #000000" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
      <td align="right" valign="bottom" nowrap bgcolor="#cceeff" style="border-bottom: 1px solid #000000"><font face="Times New Roman, Times, serif" size="3">10,528</font></td>
      <td bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align=left style="border-bottom: 1px solid #000000" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
      <td align="right" bgcolor="#cceeff" nowrap style="border-bottom: 1px solid #000000"><font face="Times New Roman, Times, serif" size="3">8,372</font></td>
      <td bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr>
      <td><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="top">
        <div style="margin-left: 10px; text-indent: -10px"> <font size="3" face="Times New Roman, Times, serif">&nbsp;&nbsp;&nbsp;&nbsp;Total
          current liabilities</font></div>
      </td>
      <td><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap><font face="Times New Roman, Times, serif" size="3">8,093,714</font></td>
      <td><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap><font face="Times New Roman, Times, serif" size="3">6,885,825</font></td>
      <td><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr valign="bottom">
      <td colspan="2" align="left" valign="top" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">&nbsp</font></td>
      <td bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" bgcolor="#cceeff" nowrap><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr valign="bottom">
      <td colspan="2" align="left" valign="top"><font face="Times New Roman, Times, serif" size="3">Long
        term portion of capital leases and deferred rent</font></td>
      <td><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap><font face="Times New Roman, Times, serif" size="3">64,627</font></td>
      <td><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" nowrap><font face="Times New Roman, Times, serif" size="3">---</font></td>
      <td><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr>
      <td colspan="2" align="left" valign="top" height="8" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">Deferred
        income taxes</font></td>
      <td bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align=left style="border-bottom: 1px solid #000000" bgcolor="#cceeff" valign="bottom"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
      <td align="right" valign="bottom" nowrap style="border-bottom: 1px solid #000000" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">158,367</font></td>
      <td bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align=left style="border-bottom: 1px solid #000000" bgcolor="#cceeff" valign="bottom"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
      <td align="right" valign="bottom" nowrap style="border-bottom: 1px solid #000000" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">150,379</font></td>
      <td bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr>
      <td colspan="2" align="left" valign="top">
        <div style="margin-left: 10px; text-indent: -10px"> <font size="3" face="Times New Roman, Times, serif">&nbsp;&nbsp;&nbsp;Total
          liabilities</font></div>
      </td>
      <td><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap><font face="Times New Roman, Times, serif" size="3">8,316,708</font></td>
      <td><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap><font face="Times New Roman, Times, serif" size="3">7,036,204</font></td>
      <td><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr>
      <td colspan="10" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">&nbsp</font></td>
    </tr>
    <tr>
      <td colspan="2" align="left" valign="top" height="8"><font face="Times New Roman, Times, serif" size="3">Commitments
        and contingencies</font></td>
      <td><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr>
      <td colspan="2" align="left" valign="top" height="8" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">Stockholders'
        equity:</font></td>
      <td bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr>
      <td colspan="2" align="left" valign="top" bgcolor="#FFFFFF" height="19">
        <div style="margin-left: 10px; text-indent: -10px"> <font size="3" face="Times New Roman, Times, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Common
          stock, $0.001 par value: Authorized shares&#151;100,000,000,</font></div>
      </td>
      <td bgcolor="#FFFFFF" height="19"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" bgcolor="#FFFFFF" height="19"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap bgcolor="#FFFFFF" height="19">&nbsp;</td>
      <td bgcolor="#FFFFFF" height="19"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td bgcolor="#FFFFFF" height="19"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" bgcolor="#FFFFFF" height="19"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap bgcolor="#FFFFFF" height="19">&nbsp;</td>
      <td bgcolor="#FFFFFF" height="19"><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr>
      <td colspan="2" align="left" valign="top" bgcolor="#FFFFFF" height="18">
        <div style="margin-left: 10px; text-indent: -10px"> <font size="3" face="Times New Roman, Times, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Issued
          and outstanding shares&#151;31,883,886 at March 31, 2007 and 31,851,285
          at December 31, 2006</font></div>
      </td>
      <td bgcolor="#FFFFFF" height="18"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" bgcolor="#FFFFFF" height="18"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap bgcolor="#FFFFFF" height="18"><font face="Times New Roman, Times, serif" size="3">31,884</font></td>
      <td bgcolor="#FFFFFF" height="18"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td bgcolor="#FFFFFF" height="18"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" bgcolor="#FFFFFF" height="18"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap bgcolor="#FFFFFF" height="18"><font face="Times New Roman, Times, serif" size="3">31,851</font></td>
      <td bgcolor="#FFFFFF" height="18"><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr valign="bottom">
      <td colspan="2" align="left" valign="top" bgcolor="#CCEEFF">
        <div style="margin-left: 10px; text-indent: -10px"> <font size="3" face="Times New Roman, Times, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Additional
          paid-in capital</font></div>
      </td>
      <td bgcolor="#CCEEFF"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" bgcolor="#CCEEFF"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap bgcolor="#CCEEFF"><font face="Times New Roman, Times, serif" size="3">52,839,524</font></td>
      <td bgcolor="#CCEEFF"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td bgcolor="#CCEEFF"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" bgcolor="#CCEEFF"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" bgcolor="#CCEEFF" nowrap><font face="Times New Roman, Times, serif" size="3">52,531,493</font></td>
      <td bgcolor="#CCEEFF"><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr>
      <td colspan="2" align="left" valign="top" bgcolor="#FFFFFF">
        <div style="margin-left: 10px; text-indent: -10px"> <font size="3" face="Times New Roman, Times, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accumulated
          deficit</font></div>
      </td>
      <td bgcolor="#FFFFFF"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td valign=bottom align=left style="border-bottom: 1px solid #000000"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
      <td align="right" valign="bottom" nowrap style="border-bottom: 1px solid #000000" bgcolor="#FFFFFF"><font face="Times New Roman, Times, serif" size="3">(38,077,982</font></td>
      <td bgcolor="#FFFFFF"><font face="Times New Roman, Times, serif" size="3">)</font></td>
      <td bgcolor="#FFFFFF"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td valign=bottom align=left style="border-bottom: 1px solid #000000"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
      <td align="right" valign="bottom" nowrap style="border-bottom: 1px solid #000000" bgcolor="#FFFFFF"><font face="Times New Roman, Times, serif" size="3">(36,812,181</font></td>
      <td bgcolor="#FFFFFF"><font face="Times New Roman, Times, serif" size="3">)</font></td>
    </tr>
    <tr>
      <td bgcolor="#CCEEFF"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="top" bgcolor="#CCEEFF">
        <div style="margin-left: 10px; text-indent: -10px"> <font size="3" face="Times New Roman, Times, serif">&nbsp;&nbsp;&nbsp;&nbsp;Total
          stockholders&#146; equity</font></div>
      </td>
      <td bgcolor="#CCEEFF"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align=left style="border-bottom: 1px solid #000000" bgcolor="#cceeff" valign="bottom"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
      <td align="right" valign="bottom" nowrap style="border-bottom: 1px solid #000000" bgcolor="#CCEEFF"><font face="Times New Roman, Times, serif" size="3">14,793,426</font></td>
      <td bgcolor="#CCEEFF"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td bgcolor="#CCEEFF"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align=left style="border-bottom: 1px solid #000000" bgcolor="#cceeff" valign="bottom"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
      <td align="right" valign="bottom" nowrap style="border-bottom: 1px solid #000000" bgcolor="#CCEEFF"><font face="Times New Roman, Times, serif" size="3">15,751,163</font></td>
      <td bgcolor="#CCEEFF"><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr valign="bottom">
      <td bgcolor="#FFFFFF"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="top" bgcolor="#FFFFFF"><font size="3" face="Times New Roman, Times, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total
        liabilities and stockholders&#146; equity</font></td>
      <td bgcolor="#FFFFFF"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" style="border-bottom: 3px double #000000" bgcolor="#FFFFFF"><font face="Times New Roman, Times, serif" size="3">$</font></td>
      <td align="right" nowrap style="border-bottom: 3px double #000000" bgcolor="#FFFFFF"><font face="Times New Roman, Times, serif" size="3">23,110,134</font></td>
      <td bgcolor="#FFFFFF"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td bgcolor="#FFFFFF"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" style="border-bottom: 3px double #000000" bgcolor="#FFFFFF"><font face="Times New Roman, Times, serif" size="3">$</font></td>
      <td align="right" nowrap style="border-bottom: 3px double #000000" bgcolor="#FFFFFF"><font face="Times New Roman, Times, serif" size="3">22,787,367</font></td>
      <td bgcolor="#FFFFFF"><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr valign="bottom">
      <td colspan="10" align="left" valign="top" bgcolor="#CCEEFF" height="8">
        <div style="margin-left: 10px; text-indent: -10px"> <font size="2" face="Times New Roman, Times, serif">_____________________________________________<br>
          * Derived from audited consolidated financial statements.</font></div>
        </td>
    </tr>
  </table>
</center>
<P align=left>&nbsp;
<P align=center>
<P align=center>
<P></P>
<font face="Times New Roman, Times, serif" size="3"> </font>
<P align=center><font face="Times New Roman, Times, serif" size="3">See accompanying
  notes.<BR>
  <BR>
  1</font>
<HR width="100%">
<font face="Times New Roman, Times, serif" size="3"><BR>
<a href="#TAB">(Index)</a> <a name=ops></a><BR>
</font>
<div align="center" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; "><b><font size="3">SOCKET
  COMMUNICATIONS, INC.</font></b> <font size="3"><br>
  <b>CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS<br>
  </b>(Unaudited)</font><br>
</div>
<div align="center" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 2pt; margin-left: 0; margin-right: 0; margin-bottom: 0; "></div>
<center>
  <table width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10.0pt; margin-top: 12pt; ">
    <tr>
      <td colspan="3"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="center" nowrap colspan="7"><font face="Times New Roman, Times, serif" size="3">Three
        Months Ended March&nbsp;31,</font></td>
    </tr>
    <tr>
      <td colspan="3" align="left" nowrap><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td colspan="2" align="center" nowrap style="border-bottom: 1px solid #000000"><font face="Times New Roman, Times, serif" size="3">2007</font></td>
      <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td colspan="2" align="center" nowrap style="border-bottom: 1px solid #000000"><font face="Times New Roman, Times, serif" size="3">2006</font></td>
      <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr valign="bottom">
      <td colspan="3" align="left" valign="top" bgcolor="#cceeff">
        <div style="margin-left: 10px; text-indent: -10px"><font face="Times New Roman, Times, serif" size="3">
          Revenues</font></div>
      </td>
      <td width="2%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" width="2%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">$</font></td>
      <td align="right" valign="bottom" nowrap bgcolor="#cceeff" width="11%"><font face="Times New Roman, Times, serif" size="3">5,548,340</font></td>
      <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" width="2%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">$</font></td>
      <td align="right" valign="bottom" nowrap width="11%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">6,758,691</font></td>
      <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr>
      <td colspan="3" align="left" valign="top">
        <div style="margin-left: 10px; text-indent: -10px"><font face="Times New Roman, Times, serif" size="3">
          Cost of revenues</font></div>
      </td>
      <td width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td valign=bottom align=left style="border-bottom: 1px solid #000000" width="2%"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
      <td align="right" valign="bottom" nowrap style="border-bottom: 1px solid #000000" width="11%"><font face="Times New Roman, Times, serif" size="3">2,763,773</font></td>
      <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td valign=bottom align=left style="border-bottom: 1px solid #000000" width="2%"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
      <td align="right" valign="bottom" nowrap style="border-bottom: 1px solid #000000" width="11%"><font face="Times New Roman, Times, serif" size="3">3,385,144</font></td>
      <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr valign="bottom">
      <td colspan="3" align="left" valign="top" bgcolor="#cceeff">
        <div style="margin-left: 10px; text-indent: -10px"><font face="Times New Roman, Times, serif" size="3">
          Gross profit</font></div>
      </td>
      <td width="2%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" width="2%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap width="11%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">2,784,567</font></td>
      <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" width="2%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap width="11%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">3,373,547</font></td>
      <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr>
      <td colspan="3" align="left" valign="top"><font face="Times New Roman, Times, serif" size="3">&nbsp</font></td>
      <td width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap width="11%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap width="11%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr>
      <td colspan="3" align="left" valign="top" bgcolor="#cceeff">
        <div style="margin-left: 10px; text-indent: -10px"><font face="Times New Roman, Times, serif" size="3">
          Operating expenses:</font></div>
      </td>
      <td width="2%" bgcolor="#CCEEFF"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" width="2%" bgcolor="#CCEEFF"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap width="11%" bgcolor="#CCEEFF"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="1%" bgcolor="#CCEEFF"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="1%" bgcolor="#CCEEFF"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" width="2%" bgcolor="#CCEEFF"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap width="11%" bgcolor="#CCEEFF"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="1%" bgcolor="#CCEEFF"><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr>
      <td colspan="3" align="left" valign="top" height="18">
        <div style="margin-left: 10px; text-indent: -10px"> <font size="3" face="Times New Roman, Times, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Research
          and development</font></div>
      </td>
      <td height="18" width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" height="18" width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap height="18" width="11%"><font face="Times New Roman, Times, serif" size="3">1,427,046</font></td>
      <td height="18" width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td height="18" width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" height="18" width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap height="18" width="11%"><font face="Times New Roman, Times, serif" size="3">1,136,557</font></td>
      <td height="18" width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr valign="bottom">
      <td colspan="3" align="left" valign="top" bgcolor="#cceeff">
        <div style="margin-left: 10px; text-indent: -10px"> <font size="3" face="Times New Roman, Times, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sales
          and marketing</font></div>
      </td>
      <td width="2%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" width="2%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap width="11%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">1,759,020</font></td>
      <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" width="2%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap width="11%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">1,762,424</font></td>
      <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr>
      <td colspan="3" align="left" valign="top">
        <div style="margin-left: 10px; text-indent: -10px"> <font size="3" face="Times New Roman, Times, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;General
          and administrative</font></div>
      </td>
      <td width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap width="11%"><font face="Times New Roman, Times, serif" size="3">856,973</font></td>
      <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap width="11%"><font face="Times New Roman, Times, serif" size="3">842,110</font></td>
      <td align="left" valign="bottom" nowrap width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr valign="bottom">
      <td colspan="3" align="left" valign="top" bgcolor="#cceeff">
        <div style="margin-left: 10px; text-indent: -10px"> <font size="3" face="Times New Roman, Times, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amortization
          of intangible technology</font></div>
      </td>
      <td width="2%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align=left style="border-bottom: 1px solid #000000" bgcolor="#cceeff" width="2%"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
      <td align="right" valign="bottom" nowrap style="border-bottom: 1px solid #000000" width="11%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">33,808</font></td>
      <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align=left style="border-bottom: 1px solid #000000" bgcolor="#cceeff" width="2%"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
      <td align="right" valign="bottom" nowrap style="border-bottom: 1px solid #000000" width="11%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">36,043</font></td>
      <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr>
      <td width="5%"><font face="Times New Roman, Times, serif" size="3">&nbsp</font></td>
      <td colspan="2" align="left" valign="top">
        <div style="margin-left: 10px; text-indent: -10px"><font face="Times New Roman, Times, serif" size="3">
          Total operating expenses</font></div>
      </td>
      <td width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap width="11%"><font face="Times New Roman, Times, serif" size="3">4,076,847</font></td>
      <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap width="11%"><font face="Times New Roman, Times, serif" size="3">3,777,134</font></td>
      <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr>
      <td colspan="3" align="left" valign="top" bgcolor="#cceeff">&nbsp;</td>
      <td width="2%" bgcolor="#cceeff" valign="bottom">&nbsp;</td>
      <td align=left style="border-bottom: 1px solid #000000" bgcolor="#cceeff" valign="bottom" width="2%">&nbsp;</td>
      <td align="right" valign="bottom" nowrap style="border-bottom: 1px solid #000000" width="11%" bgcolor="#cceeff">&nbsp;</td>
      <td width="1%" bgcolor="#cceeff" valign="bottom">&nbsp;</td>
      <td width="1%" bgcolor="#cceeff" valign="bottom">&nbsp;</td>
      <td align=left style="border-bottom: 1px solid #000000" bgcolor="#cceeff" valign="bottom" width="2%">&nbsp;</td>
      <td align="right" valign="bottom" nowrap style="border-bottom: 1px solid #000000" width="11%" bgcolor="#cceeff">&nbsp;</td>
      <td width="1%" bgcolor="#cceeff" valign="bottom">&nbsp;</td>
    </tr>
    <tr>
      <td colspan="3" align="left" valign="top">
        <div style="margin-left: 10px; text-indent: -10px"><font face="Times New Roman, Times, serif" size="3">
          Operating loss</font></div>
      </td>
      <td width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom"  width="2%">
        <div align="right"><font face="Times New Roman, Times, serif" size="3">&nbsp</font></div>
      </td>
      <td align="right" valign="bottom" nowrap  width="11%"><font face="Times New Roman, Times, serif" size="3">(1,292,280</font></td>
      <td width="1%"><font face="Times New Roman, Times, serif" size="3">)</font></td>
      <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom"  width="2%"><font face="Times New Roman, Times, serif" size="3">&nbsp</font></td>
      <td align="right" valign="bottom" nowrap  width="11%"><font face="Times New Roman, Times, serif" size="3">(403,587</font></td>
      <td width="1%"><font face="Times New Roman, Times, serif" size="3">)</font></td>
    </tr>
    <tr valign="bottom">
      <td colspan="3" align="left" valign="top" bgcolor="#cceeff">
        <div style="margin-left: 10px; text-indent: -10px"><font face="Times New Roman, Times, serif" size="3">&nbsp</font>
        </div>
      </td>
      <td width="2%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" width="2%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap width="11%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" width="2%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap width="11%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr>
      <td colspan="3" align="left" valign="top">
        <div style="margin-left: 10px; text-indent: -10px"><font face="Times New Roman, Times, serif" size="3">
          Interest income and other</font></div>
      </td>
      <td width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap width="11%"><font face="Times New Roman, Times, serif" size="3">37,881</font></td>
      <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap width="11%"><font face="Times New Roman, Times, serif" size="3">36,678</font></td>
      <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr valign="bottom">
      <td colspan="3" align="left" valign="top" bgcolor="#cceeff">
        <div style="margin-left: 10px; text-indent: -10px"><font face="Times New Roman, Times, serif" size="3">
          Interest expense</font></div>
      </td>
      <td width="2%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align=left style="border-bottom: 1px solid #000000" bgcolor="#cceeff" width="2%"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
      <td align="right" valign="bottom" nowrap style="border-bottom: 1px solid #000000" width="11%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">(3,414</font></td>
      <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">)</font></td>
      <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align=left style="border-bottom: 1px solid #000000" bgcolor="#cceeff" width="2%"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
      <td align="right" valign="bottom" nowrap style="border-bottom: 1px solid #000000" width="11%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">(2,204</font></td>
      <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">)</font></td>
    </tr>
    <tr>
      <td colspan="3" align="left" valign="top" height="14">
        <div style="margin-left: 10px; text-indent: -10px"><font face="Times New Roman, Times, serif" size="3">&nbsp</font>
          <font face="Times New Roman, Times, serif" size="3">&nbsp</font> <font size="3">&nbsp</font></div>
      </td>
      <td width="2%" height="14"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" width="2%" height="14"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap width="11%" height="14"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="1%" height="14"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="1%" height="14"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" width="2%" height="14"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap width="11%" height="14"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="1%" height="14"><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr valign="bottom">
      <td colspan="3" align="left" valign="top" height="14" bgcolor="#cceeff">
        <div style="margin-left: 10px; text-indent: -10px"><font face="Times New Roman, Times, serif" size="3">
          Net loss before deferred taxes</font></div>
      </td>
      <td height="14" width="2%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" height="14" width="2%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap height="14" width="11%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">(1,257,813</font></td>
      <td height="14" width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">)</font></td>
      <td height="14" width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" height="14" width="2%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap height="14" width="11%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">(369,113</font></td>
      <td height="14" width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">)</font></td>
    </tr>
    <tr>
      <td colspan="3" align="left" valign="top">
        <div style="margin-left: 10px; text-indent: -10px"><font face="Times New Roman, Times, serif" size="3">
          Deferred tax expense</font></div>
      </td>
      <td width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td valign=bottom align=left style="border-bottom: 1px solid #000000" width="2%"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
      <td align="right" valign="bottom" nowrap style="border-bottom: 1px solid #000000" width="11%"><font face="Times New Roman, Times, serif" size="3">(7,988</font></td>
      <td width="1%"><font size="3">)</font></td>
      <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td valign=bottom align=left style="border-bottom: 1px solid #000000" width="2%"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
      <td align="right" valign="bottom" nowrap style="border-bottom: 1px solid #000000" width="11%"><font face="Times New Roman, Times, serif" size="3">---</font></td>
      <td width="1%">&nbsp;</td>
    </tr>
    <tr>
      <td colspan="3" align="left" valign="top" height="16" bgcolor="#cceeff">
        <div style="margin-left: 10px; text-indent: -10px"><font face="Times New Roman, Times, serif" size="3">
          Net loss</font></div>
      </td>
      <td width="2%" height="16" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align=left bgcolor="#cceeff" valign="bottom" width="2%"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
      <td align="right" valign="bottom" nowrap  width="11%" height="16" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">(1,265,801</font></td>
      <td width="1%" height="16" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">)</font></td>
      <td width="1%" height="16" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align=left  bgcolor="#cceeff" valign="bottom" width="2%"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
      <td align="right" valign="bottom" nowrap  width="11%" height="16" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">(369,113</font></td>
      <td width="1%" height="16" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">)</font></td>
    </tr>
    <tr>
      <td colspan="3" align="left" valign="top">
        <div style="margin-left: 10px; text-indent: -10px"><font face="Times New Roman, Times, serif" size="3">
          </font></div>
      </td>
      <td width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td valign=bottom align=left width="2%" ><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
      <td align="right" valign="bottom" nowrap  width="11%">&nbsp;</td>
      <td width="1%"><font size="3"></font></td>
      <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td valign=bottom align=left width="2%" ><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
      <td align="right" valign="bottom" nowrap  width="11%">&nbsp;</td>
      <td width="1%">&nbsp;</td>
    </tr>
    <tr>
      <td colspan="3" align="left" valign="top" bgcolor="#cceeff">
        <div style="margin-left: 10px; text-indent: -10px"><font face="Times New Roman, Times, serif" size="3">
          Preferred stock dividends</font></div>
      </td>
      <td width="2%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td valign=bottom align=left style="border-bottom: 1px solid #000000" bgcolor="#cceeff" width="2%"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
      <td align="right" valign="bottom" nowrap style="border-bottom: 1px solid #000000" width="11%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">---</font></td>
      <td width="1%" bgcolor="#cceeff"><font size="3"></font></td>
      <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td valign=bottom align=left style="border-bottom: 1px solid #000000" bgcolor="#cceeff" width="2%"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
      <td align="right" valign="bottom" nowrap style="border-bottom: 1px solid #000000" width="11%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">(10,653</font></td>
      <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">)</font></td>
    </tr>
    <tr>
      <td colspan="3" align="left" valign="top">
        <div style="margin-left: 10px; text-indent: -10px"><font face="Times New Roman, Times, serif" size="3">
          Net loss applicable to common stockholders</font></div>
      </td>
      <td width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" style="border-bottom: 3px double #000000" width="2%"><font face="Times New Roman, Times, serif" size="3">$</font></td>
      <td align="right" valign="bottom" nowrap style="border-bottom: 3px double #000000" width="11%"><font face="Times New Roman, Times, serif" size="3">(1,265,801</font></td>
      <td width="1%"><font face="Times New Roman, Times, serif" size="3">)</font></td>
      <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" style="border-bottom: 3px double #000000" width="2%"><font face="Times New Roman, Times, serif" size="3">$</font></td>
      <td align="right" valign="bottom" nowrap style="border-bottom: 3px double #000000" width="11%"><font face="Times New Roman, Times, serif" size="3">(379,766</font></td>
      <td width="1%"><font face="Times New Roman, Times, serif" size="3">)</font></td>
    </tr>
    <tr>
      <td colspan="3" align="left" valign="top" bgcolor="#cceeff">&nbsp;</td>
      <td width="2%" bgcolor="#cceeff">&nbsp;</td>
      <td align="left" valign="bottom" width="2%" bgcolor="#cceeff">&nbsp;</td>
      <td align="right" valign="bottom" nowrap width="11%" bgcolor="#cceeff">&nbsp;</td>
      <td width="1%" bgcolor="#cceeff">&nbsp;</td>
      <td width="1%" bgcolor="#cceeff">&nbsp;</td>
      <td align="left" valign="bottom" width="2%" bgcolor="#cceeff">&nbsp;</td>
      <td align="right" valign="bottom" nowrap width="11%" bgcolor="#cceeff">&nbsp;</td>
      <td width="1%" bgcolor="#cceeff">&nbsp;</td>
    </tr>
    <tr>
      <td colspan="3" align="left" valign="top">
        <div style="margin-left: 10px; text-indent: -10px"><font face="Times New Roman, Times, serif" size="3">
          Net loss per share applicable to common stockholders:</font></div>
      </td>
      <td width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap width="11%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap width="11%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr valign="bottom">
      <td colspan="3" align="left" valign="top" height="10" bgcolor="#cceeff">
        <div style="margin-left: 10px; text-indent: -10px"> <font size="3" face="Times New Roman, Times, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Basic</font></div>
      </td>
      <td width="2%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" style="border-bottom: 3px double #000000" width="2%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">$</font></td>
      <td align="right" valign="bottom" nowrap style="border-bottom: 3px double #000000" width="11%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">(0.04</font></td>
      <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">)</font></td>
      <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" style="border-bottom: 3px double #000000" width="2%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">$</font></td>
      <td align="right" valign="bottom" nowrap style="border-bottom: 3px double #000000" width="11%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">(0.01</font></td>
      <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">)</font></td>
    </tr>
    <tr valign="bottom">
      <td colspan="3" align="left" valign="top">
        <div style="margin-left: 10px; text-indent: -10px"> <font size="3" face="Times New Roman, Times, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Diluted</font></div>
      </td>
      <td width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" style="border-bottom: 3px double #000000" width="2%"><font face="Times New Roman, Times, serif" size="3">$</font></td>
      <td align="right" valign="bottom" nowrap style="border-bottom: 3px double #000000" width="11%"><font face="Times New Roman, Times, serif" size="3">(0.04</font></td>
      <td width="1%" height="16"><font face="Times New Roman, Times, serif" size="3">)</font></td>
      <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" style="border-bottom: 3px double #000000" width="2%"><font face="Times New Roman, Times, serif" size="3">$</font></td>
      <td align="right" valign="bottom" nowrap style="border-bottom: 3px double #000000" width="11%"><font face="Times New Roman, Times, serif" size="3">
        (0.01</font></td>
      <td width="1%" height="16"><font face="Times New Roman, Times, serif" size="3">)</font></td>
    </tr>
    <tr>
      <td colspan="3" bgcolor="#cceeff"><font style="font-size: 10pt" face="Times New Roman, Times, serif" size="3">&nbsp;</font><font face="Times New Roman, Times, serif" size="3">&nbsp</font></td>
      <td width="2%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" width="2%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap width="11%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" width="2%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap width="11%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr valign="bottom">
      <td colspan="3" align="left" valign="top">
        <div style="margin-left: 10px; text-indent: -10px"><font face="Times New Roman, Times, serif" size="3">
          Weighted average shares outstanding:</font></div>
      </td>
      <td width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap width="11%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap width="11%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr valign="bottom">
      <td colspan="3" align="left" valign="top" height="10" bgcolor="#cceeff">
        <div style="margin-left: 10px; text-indent: -10px"> <font size="3" face="Times New Roman, Times, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Basic</font></div>
      </td>
      <td width="2%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" style="border-bottom: 3px double #000000" width="2%" bgcolor="#cceeff">&nbsp;</td>
      <td align="right" valign="bottom" nowrap style="border-bottom: 3px double #000000" width="11%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">31,872,223</font></td>
      <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" style="border-bottom: 3px double #000000" width="2%" bgcolor="#cceeff">&nbsp;</td>
      <td align="right" valign="bottom" nowrap style="border-bottom: 3px double #000000" width="11%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">30,395,495</font></td>
      <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr valign="bottom">
      <td colspan="3" align="left" valign="top">
        <div style="margin-left: 10px; text-indent: -10px"> <font size="3" face="Times New Roman, Times, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Diluted</font></div>
      </td>
      <td width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" style="border-bottom: 3px double #000000" width="2%">&nbsp;</td>
      <td align="right" valign="bottom" nowrap style="border-bottom: 3px double #000000" width="11%"><font face="Times New Roman, Times, serif" size="3">31,872,223</font></td>
      <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" style="border-bottom: 3px double #000000" width="2%">&nbsp;</td>
      <td align="right" valign="bottom" nowrap style="border-bottom: 3px double #000000" width="11%"><font face="Times New Roman, Times, serif" size="3">30,395,495</font></td>
      <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
  </table>
</center>
<P align=center>
<p>&nbsp;</p>
<font face="Times New Roman, Times, serif" size="3"> </font>
<P align=center><font face="Times New Roman, Times, serif" size="3">See accompanying
  notes. <BR>
  <BR>
  </font>
<P align=center>
<P align=center><font face="Times New Roman, Times, serif" size="3"> 2</font>
<HR width="100%">
<p><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
  <font face="Times New Roman, Times, serif" size="3"><a
name=flows></a></font> </p>
<p>&nbsp;</p>
<p align="center"><b>SOCKET COMMUNICATIONS, INC.<br>
  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS<br>
  </b>(Unaudited)</p>
<table style="MARGIN-TOP: 6pt; FONT-SIZE: 9.6pt" cellspacing=0 cellpadding=0
width="100%" align=center border=0>
  <tr style="FONT-SIZE: 10pt">
    <td colspan=4><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td noWrap align=middle colspan=7>
      <div align="center"><font face="Times New Roman, Times, serif" size="3">Three
        Months Ended March&nbsp;31,</font></div>
    </td>
  </tr>
  <tr style="FONT-SIZE: 10pt">
    <td noWrap align=left colspan=4><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td noWrap align=middle colspan=2 style="border-bottom: 1px solid #000000">
      <div align="center"><font face="Times New Roman, Times, serif" size="3">2007</font></div>
    </td>
    <td width="1%"><font size="3"><b><font face="Times New Roman, Times, serif"></font></b></font></td>
    <td width="1%"><font size="3"><b><font face="Times New Roman, Times, serif"></font></b></font></td>
    <td noWrap align=middle colspan=2 style="border-bottom: 1px solid #000000">
      <div align="center"><font face="Times New Roman, Times, serif" size="3">2006</font></div>
    </td>
    <td width="1%"><font size="3"><b><font face="Times New Roman, Times, serif"></font></b></font></td>
  </tr>
  <tr valign=bottom>
    <td valign=top align=left colspan=4 bgcolor="#cceeff">
      <div
    style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font face="Times New Roman, Times, serif" size="3"><b>Operating
        activities</b></font></div>
    </td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom align=left bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom noWrap align=right width="11%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom align=left width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom noWrap align=right width="11%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
  </tr>
  <tr>
    <td valign=top align=left colspan=4>
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font face="Times New Roman, Times, serif" size="3">&nbsp;&nbsp;
        Net loss</font></div>
    </td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom align=left><font face="Times New Roman, Times, serif" size="3">$</font></td>
    <td valign=bottom noWrap align=right width="11%"><font face="Times New Roman, Times, serif" size="3">(1,265,801</font></td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3">)</font></td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom align=left width="1%"><font face="Times New Roman, Times, serif" size="3">$</font></td>
    <td valign=bottom noWrap align=right width="11%"><font face="Times New Roman, Times, serif" size="3">(369,113</font></td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3">)</font></td>
  </tr>
  <tr valign=bottom>
    <td valign=top align=left colspan=4 bgcolor="#cceeff">
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font face="Times New Roman, Times, serif" size="3">&nbsp;&nbsp;
        Adjustments to reconcile net loss to net cash provided by (used in) operating
        activities:</font></div>
    </td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom align=left bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom noWrap align=right width="11%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom align=left width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom noWrap align=right width="11%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
  </tr>
  <tr>
    <td valign=top align=left colspan=4>
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font face="Times New Roman, Times, serif" size="3">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock-based
        compensation</font></div>
    </td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom align=left><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom noWrap align=right width="11%"><font size="3">281,668</font></td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom align=left width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom noWrap align=right width="11%"><font face="Times New Roman, Times, serif" size="3">325,813</font></td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
  </tr>
  <tr valign=bottom>
    <td valign=top align=left colspan=4 bgcolor="#cceeff">
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font face="Times New Roman, Times, serif" size="3">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation
        and amortization</font></div>
    </td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom align=left bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom noWrap align=right width="11%" bgcolor="#cceeff"><font size="3">141,855</font></td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom align=left width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom noWrap align=right width="11%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">126,626</font></td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
  </tr>
  <tr>
    <td colspan="4">
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font face="Times New Roman, Times, serif" size="3">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amortization
        of intangible technology</font></div>
    </td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom align=left><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom noWrap align=right width="11%"><font size="3">33,808</font></td>
    <td width="1%"><font size="3"></font></td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom align=left width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom noWrap align=right width="11%"><font face="Times New Roman, Times, serif" size="3">36,043</font></td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
  </tr>
  <tr valign=bottom>
    <td colspan="4" bgcolor="#cceeff">
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font face="Times New Roman, Times, serif" size="3">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net
        foreign currency transaction (gains) losses</font></div>
    </td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom align=left bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom noWrap align=right width="11%" bgcolor="#cceeff"><font size="3">(11,372</font></td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">)</font></td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom align=left width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom noWrap align=right width="11%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">2,186</font></td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
  </tr>
  <tr valign=bottom>
    <td colspan="4">
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font face="Times New Roman, Times, serif" size="3">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred
        tax expense</font></div>
    </td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom align=left><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom noWrap align=right width="11%"><font size="3">7,988</font></td>
    <td valign=bottom noWrap align=left width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom align=left width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom noWrap align=right width="11%"><font face="Times New Roman, Times, serif" size="3">---</font></td>
    <td valign=bottom noWrap align=left width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
  </tr>
  <tr>
    <td colspan="4" bgcolor="#cceeff">
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font face="Times New Roman, Times, serif" size="3">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Change
        in deferred rent</font></div>
    </td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom align=left bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom noWrap align=right width="11%" bgcolor="#cceeff"><font size="3">29,294</font></td>
    <td width="1%" bgcolor="#cceeff">&nbsp;</td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom align=left width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom noWrap align=right width="11%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">(8,256</font></td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">)</font></td>
  </tr>
  <tr valign=bottom>
    <td colspan="4"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom align=left><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom noWrap align=right width="11%"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom align=left width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom noWrap align=right width="11%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
  </tr>
  <tr valign=bottom>
    <td colspan="4" bgcolor="#cceeff">
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font face="Times New Roman, Times, serif" size="3">Changes
        in operating assets and liabilities:</font></div>
    </td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom align=left bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom noWrap align=right width="11%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom align=left width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom noWrap align=right width="11%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
  </tr>
  <tr>
    <td colspan="4">
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font face="Times New Roman, Times, serif" size="3">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts
        receivable</font></div>
    </td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom align=left><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom noWrap align=right width="11%"><font size="3">(566,261</font></td>
    <td valign=bottom noWrap align=left width="1%"><font face="Times New Roman, Times, serif" size="3">)</font></td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom align=left width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom noWrap align=right width="11%"><font size="3">(648,382</font></td>
    <td valign=bottom noWrap align=left width="1%"><font face="Times New Roman, Times, serif" size="3">)</font></td>
  </tr>
  <tr valign=bottom>
    <td colspan="4" bgcolor="#cceeff">
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font face="Times New Roman, Times, serif" size="3">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories</font></div>
    </td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom align=left bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom noWrap align=right width="11%" bgcolor="#cceeff"><font size="3">(346,033</font></td>
    <td valign=bottom noWrap align=left width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">)</font></td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom align=left width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom noWrap align=right width="11%" bgcolor="#cceeff"><font size="3">(98,511</font></td>
    <td valign=bottom noWrap align=left width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">)</font></td>
  </tr>
  <tr>
    <td colspan="4">
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font face="Times New Roman, Times, serif" size="3">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prepaid
        expenses and other current assets</font></div>
    </td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom align=left><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom noWrap align=right width="11%"><font size="3">19,101</font></td>
    <td valign=bottom noWrap align=left width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom align=left width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom noWrap align=right width="11%"><font size="3">46,955</font></td>
    <td valign=bottom noWrap align=left width="1%">&nbsp;</td>
  </tr>
  <tr valign=bottom>
    <td colspan="4" bgcolor="#cceeff">
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font face="Times New Roman, Times, serif" size="3">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other
        assets </font></div>
    </td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom align=left bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom noWrap align=right width="11%" bgcolor="#cceeff"><font size="3">7,733</font></td>
    <td width="1%" bgcolor="#cceeff">&nbsp;</td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom align=left width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom noWrap align=right width="11%" bgcolor="#cceeff"><font size="3">9,723</font></td>
    <td width="1%" bgcolor="#cceeff">&nbsp;</td>
  </tr>
  <tr>
    <td colspan="4">
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font face="Times New Roman, Times, serif" size="3">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts
        payable and accrued expenses</font></div>
    </td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom align=left><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom noWrap align=right width="11%"><font size="3">980,345</font></td>
    <td valign=bottom noWrap align=left width="1%">&nbsp;</td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom align=left width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom noWrap align=right width="11%"><font size="3">812,890</font></td>
    <td valign=bottom noWrap align=left width="1%">&nbsp;</td>
  </tr>
  <tr>
    <td colspan="4" bgcolor="#cceeff">
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font face="Times New Roman, Times, serif" size="3">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued
        payroll and related expenses</font></div>
    </td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom align=left bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom noWrap align=right width="11%" bgcolor="#cceeff"><font size="3">162,333</font></td>
    <td valign=bottom noWrap align=left width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom align=left width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom noWrap align=right width="11%" bgcolor="#cceeff"><font size="3">64,527</font></td>
    <td valign=bottom noWrap align=left width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
  </tr>
  <tr>
    <td colspan="4">
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font face="Times New Roman, Times, serif" size="3">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred
        income on shipments to distributors</font></div>
    </td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom align=left style="border-bottom: 1px solid #000000"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
    <td valign=bottom noWrap align=right width="11%" style="border-bottom: 1px solid #000000"><font size="3">(10,980</font></td>
    <td valign=bottom noWrap align=left width="1%"><font face="Times New Roman, Times, serif" size="3">)</font></td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom align=left width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom noWrap align=right width="11%" style="border-bottom: 1px solid #000000"><font size="3">(160,046</font></td>
    <td valign=bottom noWrap align=left width="1%"><font face="Times New Roman, Times, serif" size="3">)</font></td>
  </tr>
  <tr>
    <td colspan="4" bgcolor="#cceeff">
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font face="Times New Roman, Times, serif" size="3">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
        Net cash provided by (used in) operating activities</font></div>
    </td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom align=left bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom noWrap align=right width="11%" bgcolor="#cceeff"><font size="3">(536,322</font></td>
    <td valign=bottom noWrap align=left width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">)</font></td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom align=left width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom noWrap align=right width="11%" bgcolor="#cceeff"><font size="3">140,455</font></td>
    <td valign=bottom noWrap align=left width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
  </tr>
  <tr valign=bottom>
    <td colspan="4"><font face="Times New Roman, Times, serif" size="3">&nbsp</font></td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom align=left><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom noWrap align=right width="11%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom align=left width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom noWrap align=right width="11%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
  </tr>
  <tr>
    <td valign=top align=left colspan=4 bgcolor="#cceeff">
      <div
    style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font face="Times New Roman, Times, serif" size="3"><b>Investing
        activities</b></font></div>
    </td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom align=left bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom noWrap align=right width="11%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom align=left width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom noWrap align=right width="11%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
  </tr>
  <tr valign=bottom>
    <td valign=top align=left colspan=4>
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font face="Times New Roman, Times, serif" size="3">&nbsp;&nbsp;
        Purchases of equipment and tooling</font></div>
    </td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom align=left style="border-bottom: 1px solid #000000"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
    <td valign=bottom noWrap align=right width="11%" style="border-bottom: 1px solid #000000"><font size="3">(480,748</font></td>
    <td valign=bottom noWrap align=left width="1%"><font face="Times New Roman, Times, serif" size="3">)</font></td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom align=left width="1%"><font face="Times New Roman, Times, serif" size="3">&nbsp</font></td>
    <td valign=bottom noWrap align=right width="11%" style="border-bottom: 1px solid #000000"><font face="Times New Roman, Times, serif" size="3">(265,902</font></td>
    <td valign=bottom noWrap align=left width="1%"><font face="Times New Roman, Times, serif" size="3">)</font></td>
  </tr>
  <tr valign=bottom>
    <td valign=top align=left colspan=4 bgcolor="#cceeff">
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font face="Times New Roman, Times, serif" size="3">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
        &nbsp;&nbsp; Net cash used in investing activities</font></div>
    </td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom align=left bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td noWrap align=right width="11%" bgcolor="#cceeff"><font size="3">(480,748</font></td>
    <td noWrap align=left width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">)</font></td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom align=left width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom noWrap align=right width="11%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">(265,902</font></td>
    <td valign=bottom noWrap align=left width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">)</font></td>
  </tr>
  <tr valign=bottom>
    <td colspan="4">
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font size="3"><b><b><font face="Times New Roman, Times, serif"><font face="Times New Roman, Times, serif">&nbsp</font></font></b></b></font></div>
    </td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom align=left><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom noWrap align=right width="11%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom noWrap align=left width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom align=left width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom noWrap align=right width="11%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom noWrap align=left width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
  </tr>
  <tr>
    <td valign=top align=left colspan=4 bgcolor="#cceeff">
      <div
    style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font face="Times New Roman, Times, serif" size="3"><b>Financing
        activities</b></font></div>
    </td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom align=left bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom noWrap align=right width="11%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom align=left width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom noWrap align=right width="11%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
  </tr>
  <tr valign=bottom>
    <td valign=top align=left colspan=4>
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font face="Times New Roman, Times, serif" size="3">&nbsp;&nbsp;
        Payments on capital leases and equipment financing notes</font></div>
    </td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom align=left><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom noWrap align=right width="11%"><font size="3">(2,488</font></td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3">)</font></td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom align=left width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom noWrap align=right width="11%"><font size="3">(2,361</font></td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3">)</font></td>
  </tr>
  <tr valign=bottom>
    <td valign=top align=left colspan=4 bgcolor="#cceeff">
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font face="Times New Roman, Times, serif" size="3">&nbsp;&nbsp;
        Gross proceeds from borrowings under bank line of credit agreement</font></div>
    </td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom align=left bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom noWrap align=right width="11%" bgcolor="#cceeff"><font size="3">2,285,230</font></td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom align=left width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom noWrap align=right width="11%" bgcolor="#cceeff"><font size="3">2,747,326</font></td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
  </tr>
  <tr>
    <td valign=top align=left colspan=4>
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font face="Times New Roman, Times, serif" size="3">&nbsp;&nbsp;
        Gross repayments of borrowings under bank line of credit agreement</font></div>
    </td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom align=left><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom noWrap align=right width="11%"><font size="3">(2,213,261</font></td>
    <td width="1%" valign="bottom"><font face="Times New Roman, Times, serif" size="3">)</font></td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom align=left width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom noWrap align=right width="11%"><font size="3">(2,308,771</font></td>
    <td width="1%" valign="bottom"><font face="Times New Roman, Times, serif" size="3">)</font></td>
  </tr>
  <tr>
    <td valign=top align=left colspan=4 bgcolor="#cceeff">
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font face="Times New Roman, Times, serif" size="3">&nbsp;&nbsp;
        Stock options exercised</font></div>
    </td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom align=left bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom noWrap align=right width="11%" bgcolor="#cceeff"><font size="3">26,396</font></td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom align=left width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom noWrap align=right width="11%" bgcolor="#cceeff"><font size="3">22,635</font></td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
  </tr>
  <tr valign=bottom>
    <td valign=top align=left colspan=4 height="22">
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font face="Times New Roman, Times, serif" size="3">&nbsp;&nbsp;
        Warrants exercised</font></div>
    </td>
    <td height="22" width="1%"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom align=left height="22"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom noWrap align=right height="22" width="11%"><font size="3">---</font></td>
    <td height="22" width="1%">&nbsp;</td>
    <td height="22" width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom align=left height="22" width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom noWrap align=right height="22" width="11%"><font size="3">345,809</font></td>
    <td height="22" width="1%">&nbsp;</td>
  </tr>
  <tr>
    <td valign=top align=left colspan=4 bgcolor="#cceeff">
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font face="Times New Roman, Times, serif" size="3">&nbsp;&nbsp;
        Dividends paid on Series F convertible preferred stock</font></div>
    </td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom align=left style="border-bottom: 1px solid #000000" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
    <td valign=bottom noWrap align=right width="11%" style="border-bottom: 1px solid #000000" bgcolor="#cceeff"><font size="3">---</font></td>
    <td valign=bottom noWrap align=left width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom align=left style="border-bottom: 1px solid #000000" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
    <td valign=bottom noWrap align=right width="11%" style="border-bottom: 1px solid #000000" bgcolor="#cceeff"><font size="3">(22,682</font></td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">)</font></td>
  </tr>
  <tr valign=bottom>
    <td valign=top align=left colspan=4>
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font face="Times New Roman, Times, serif" size="3">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
        Net cash provided by financing activities</font></div>
    </td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom align=left><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom noWrap align=right width="11%"><font size="3">95,877</font></td>
    <td valign=bottom noWrap align=left width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom align=left width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom noWrap align=right width="11%"><font size="3">781,956</font></td>
    <td valign=bottom noWrap align=left width="1%">&nbsp;</td>
  </tr>
  <tr>
    <td colspan="4" bgcolor="#cceeff">
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font size="3"><b><b><font face="Times New Roman, Times, serif"><font face="Times New Roman, Times, serif">&nbsp</font></font></b></b></font></div>
    </td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom align=left bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom noWrap align=right width="11%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom noWrap align=left width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom align=left width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom noWrap align=right width="11%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom noWrap align=left width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
  </tr>
  <tr valign=bottom>
    <td valign=top align=left colspan=4>
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font face="Times New Roman, Times, serif" size="3">Effect
        of exchange rate changes on cash and cash equivalents</font></div>
    </td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom align=left style="border-bottom: 1px solid #000000"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
    <td valign=bottom noWrap align=right width="11%" style="border-bottom: 1px solid #000000"><font size="3">(783</font></td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3">)</font></td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td align=left style="border-bottom: 1px solid #000000"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
    <td valign=bottom noWrap align=right width="11%" style="border-bottom: 1px solid #000000"><font face="Times New Roman, Times, serif" size="3">(3,860</font></td>
    <td valign=bottom noWrap align=left width="1%"><font face="Times New Roman, Times, serif" size="3">)</font></td>
  </tr>
  <tr valign=bottom>
    <td valign=top align=left colspan=4 bgcolor="#cceeff">
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font face="Times New Roman, Times, serif" size="3">Net
        increase (decrease) in cash and cash equivalents</font></div>
    </td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom align=left bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom noWrap align=right width="11%" bgcolor="#cceeff"><font size="3">(921,976</font></td>
    <td valign=bottom noWrap align=left width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">)</font></td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom align=left width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom noWrap align=right width="11%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">652,649</font></td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
  </tr>
  <tr>
    <td valign=top align=left colspan=4>&nbsp;</td>
    <td width="1%">&nbsp;</td>
    <td valign=bottom align=left >&nbsp;</td>
    <td valign=bottom noWrap align=right width="11%" >&nbsp;</td>
    <td valign=bottom noWrap align=left width="1%">&nbsp;</td>
    <td width="1%">&nbsp;</td>
    <td valign=bottom align=left >&nbsp;</td>
    <td valign=bottom noWrap align=right width="11%" >&nbsp;</td>
    <td valign=bottom noWrap align=left width="1%">&nbsp;</td>
  </tr>
  <tr>
    <td valign=top align=left colspan=4 bgcolor="#cceeff">
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font face="Times New Roman, Times, serif" size="3">Cash
        and cash equivalents at beginning of period</font></div>
    </td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom align=left style="border-bottom: 1px solid #000000" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
    <td valign=bottom noWrap align=right width="11%" style="border-bottom: 1px solid #000000" bgcolor="#cceeff"><font size="3">6,104,277</font></td>
    <td valign=bottom noWrap align=left width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom align=left style="border-bottom: 1px solid #000000" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
    <td valign=bottom noWrap align=right width="11%" style="border-bottom: 1px solid #000000" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">6,833,193</font></td>
    <td valign=bottom noWrap align=left width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
  </tr>
  <tr valign=bottom>
    <td valign=top align=left colspan=4 height="12">
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font face="Times New Roman, Times, serif" size="3">Cash
        and cash equivalents at end of period</font></div>
    </td>
    <td height="12" width="1%"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom align=left height="12" style="border-bottom: 3px double #000000"><font face="Times New Roman, Times, serif" size="3">$</font></td>
    <td valign=bottom noWrap align=right height="12" width="11%" style="border-bottom: 3px double #000000"><font size="3">5,182,301</font></td>
    <td height="12" width="1%"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td height="12" width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom align=left height="12" width="1%" style="border-bottom: 3px double #000000"><font face="Times New Roman, Times, serif" size="3">$</font></td>
    <td valign=bottom noWrap align=right height="12" width="11%" style="border-bottom: 3px double #000000"><font face="Times New Roman, Times, serif" size="3">7,485,842</font></td>
    <td valign=bottom noWrap align=left height="12" width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
  </tr>
  <tr>
    <td valign=top align=left colspan=4 height="16" bgcolor="#cceeff">
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><b><b><font face="Times New Roman, Times, serif"><font face="Times New Roman, Times, serif"><font size="2"><font size="3"></font></font></font></font></b></b></div>
    </td>
    <td height="16" width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom align=left height="16" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom noWrap align=right height="16" width="11%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom noWrap align=left height="16" width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td height="16" width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom align=left height="16" width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom noWrap align=right height="16" width="11%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td height="16" width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
  </tr>
  <tr>
    <td valign=top align=left colspan=4>
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font face="Times New Roman, Times, serif" size="3"><b>Supplemental
        cash flow information </b></font></div>
    </td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom align=left><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom noWrap align=right width="11%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom align=left width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom noWrap align=right width="11%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
  </tr>
  <tr valign=bottom bgcolor="#cceeff">
    <td valign=top align=left colspan=4>
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font face="Times New Roman, Times, serif" size="3">&nbsp;&nbsp;
        Cash paid for interest</font></div>
    </td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom align=left width="1%"><font face="Times New Roman, Times, serif" size="3">$</font></td>
    <td valign=bottom noWrap align=right width="11%"><font size="3">3,414</font></td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom align=left width="1%"><font face="Times New Roman, Times, serif" size="3">$</font></td>
    <td valign=bottom noWrap align=right width="11%"><font face="Times New Roman, Times, serif" size="3">2,204</font></td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
  </tr>
</table>
<p><font face="Times New Roman, Times, serif" size="3"><BR>
  </font> </p>
<P align=center><font face="Times New Roman, Times, serif" size="3">See accompanying
  notes. <BR>
  <BR>
  3 <BR>
  </font>
<P align=center>
<HR width="100%">
<P align=left>
<P align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
  <font face="Times New Roman, Times, serif" size="3"><a name=notes></a></font>
<P align=center><font face="Times New Roman, Times, serif" size="3"><b>SOCKET
  COMMUNICATIONS, INC.<br>
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS<br>
  </b>(Unaudited) </font>
<p><font face="Times New Roman, Times, serif" size="3"><b><br>
  NOTE 1 - Basis of Presentation</b></font></p>
<p><font face="Times New Roman, Times, serif">The accompanying unaudited consolidated
  financial statements of Socket Communications, Inc. (dba as Socket Mobile, Inc.
  beginning January 2007) 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, 2006.</font></p>
<p><font face="Times New Roman, Times, serif"><b>NOTE 2 - Summary of Significant
  Accounting Policies</b></font></p>
<p><font face="Times New Roman, Times, serif">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.</font></p>
<p><font face="Times New Roman, Times, serif">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. </font></p>
<p><font face="Times New Roman, Times, serif"><i>Recent Accounting Standards </i><br>
  In June 2006, the Financial Accounting Standards Board issued Interpretation
  No. 48, &quot;Accounting for Uncertainty in Income Taxes - An Interpretation
  of FASB Statement No. 109&quot; (&quot;FIN 48&quot;), to create a single model
  to address accounting for uncertainty in tax positions. FIN 48 clarifies the
  accounting for income taxes by prescribing a minimum recognition threshold a
  tax position is required to meet before being recognized in the financial statements.
  FIN 48 also provides guidance on derecognition, measurement, classification,
  interest and penalties, accounting in interim periods, disclosure and transition.
  FIN 48 is effective for fiscal years beginning after December 15, 2006. The
  Company adopted FIN 48 as of January 1, 2007, as required. There were no adjustments
  to the financial statements as a result of the adoption of FIN 48. See Note
  9 - Taxes, for additional information.</font></p>
<p><font face="Times New Roman, Times, serif"><br>
  </font></p>
<p><br>
</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">4<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p><font face="Times New Roman, Times, serif"><b>NOTE 3 - Inventories</b></font></p>
<p>Inventories consist principally of raw materials and sub-assemblies, which
  are stated at the lower of cost (first-in, first-out) or market.</p>
<table width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10.0pt; margin-top: 6pt; ">
  <tr>
    <td align="left" valign="top" width="75%">
      <div style="margin-left: 10px; text-indent: -10px"><font face="Times New Roman, Times, serif" size="2"><font face="Times New Roman, Times, serif"><font face="Times New Roman, Times, serif"><font size="2"><font size="3"></font></font></font></font>
        </font></div>
    </td>
    <td width="0%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td align="center" valign="bottom" colspan="2" style="border-bottom: 1px solid #000000"><font face="Times New Roman, Times, serif" size="3">March
      31,<br>
      2007</font></td>
    <td align="center" valign="bottom" nowrap width="2%"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td width="0%" align="center"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td align="center" valign="bottom" colspan="2" style="border-bottom: 1px solid #000000"><font face="Times New Roman, Times, serif" size="3">December
      31,<br>
      2006</font></td>
  </tr>
  <tr valign="bottom">
    <td align="left" valign="top" width="75%" bgcolor="#cceeff">
      <div style="margin-left: 10px; text-indent: -10px"><font face="Times New Roman, Times, serif" size="3">
        Raw materials and sub-assemblies</font></div>
    </td>
    <td width="0%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td align="left" width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">$</font></td>
    <td align="right" nowrap width="9%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">2,376,583</font></td>
    <td width="2%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td width="3%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td align="left" valign="bottom" width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">$</font></td>
    <td align="right" nowrap width="9%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">2,044,643</font></td>
  </tr>
  <tr>
    <td align="left" valign="top" width="75%">
      <div style="margin-left: 10px; text-indent: -10px"><font face="Times New Roman, Times, serif" size="3">Finished
        goods</font></div>
    </td>
    <td width="0%"><font face="Times New Roman, Times, serif" size="3">&nbsp</font></td>
    <td align="left" valign="bottom" width="1%" style="border-bottom: 1px solid #000000">&nbsp;</td>
    <td align="right" valign="bottom" nowrap width="9%" style="border-bottom: 1px solid #000000"><font face="Times New Roman, Times, serif" size="3">319,734</font></td>
    <td align="left" valign="bottom" nowrap width="2%"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td width="3%"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td align="left" valign="bottom" width="1%" style="border-bottom: 1px solid #000000"><font face="Times New Roman, Times, serif" size="3">&nbsp</font></td>
    <td align="right" valign="bottom" nowrap width="9%" style="border-bottom: 1px solid #000000"><font face="Times New Roman, Times, serif" size="3">305,641</font></td>
  </tr>
  <tr valign="bottom">
    <td align="left" valign="top" width="75%" bgcolor="#cceeff">
      <div style="margin-left: 10px; text-indent: -10px"><font face="Times New Roman, Times, serif"><font face="Times New Roman, Times, serif"><font size="2"><font size="3"></font></font></font></font>
      </div>
    </td>
    <td width="0%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td align="left" width="1%" bgcolor="#cceeff" style="border-bottom: 3px double #000000"><font face="Times New Roman, Times, serif" size="3">$</font></td>
    <td align="right" nowrap width="9%" bgcolor="#cceeff" style="border-bottom: 3px double #000000"><font face="Times New Roman, Times, serif" size="3">2,696,317</font></td>
    <td width="2%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td width="3%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td align="left" valign="bottom" width="1%" bgcolor="#cceeff" style="border-bottom: 3px double #000000"><font face="Times New Roman, Times, serif" size="3">$</font></td>
    <td align="right" nowrap width="9%" bgcolor="#cceeff" style="border-bottom: 3px double #000000"><font face="Times New Roman, Times, serif" size="3">2,350,284</font></td>
  </tr>
</table>
<p><font face="Times New Roman, Times, serif" size="3"><b><br>
  NOTE 4 - Bank Financing Arrangements</b></font></p>
<p>On March 3, 2006, the Company agreed with its bank to extend the term of the
  existing credit facility by an additional year, which expires on March 2, 2008.
  The credit facility under the credit agreement allows the Company to borrow
  up to $4,000,000 based on the level of qualified domestic and international
  receivables, up to a maximum of $2,500,000 and $1,500,000, respectively, at
  the lender's index rate based on prime plus 0.5%. The rates in effect at March
  31, 2007 were 8.75% on both the domestic and international lines. At March 31,
  2007, outstanding amounts borrowed under the lines were $1,134,377 and $1,150,853,
  respectively, which were the approximate amounts available on the lines. These
  amounts outstanding at March 31, 2007 were repaid in April 2007. At December
  31, 2006, outstanding amounts borrowed under the lines were $1,100,226 and $1,113,035,
  respectively, which were the approximate amounts available on the lines. These
  amounts outstanding at December 31, 2006 were repaid in January 2007. The Company
  used the credit facility only at the end of the first quarter of 2007 and the
  end of each quarter in fiscal year 2006. Under the terms of the credit agreement,
  the Company must maintain a quarterly minimum tangible net worth of at least
  $4,100,000 for the first quarter of 2007, and thereafter a minimum quarterly
  tangible net worth of at least $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 June 30, 2007. The Company was in compliance
  with the tangible net worth requirement at March 31, 2007.</p>
<p>On May 8, 2007, the Company agreed with its bank to extend the term of the
  credit facility by an additional year and to change specific terms in the agreement
  (see Note 10 for additional information).</p>
<p><b>NOTE 5 - Intangible Assets</b></p>
<p>Intangible assets at March 31, 2007 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. <br>
</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">5<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p align=left>Amortization of all intangible assets in the first quarter of 2007
  was $33,808 compared to $36,043 in the first quarter of 2006. Intangible assets
  as of March 31, 2007 consisted of the following:
<p align=left>&nbsp;
<table
style="FONT-SIZE: 10pt; BACKGROUND: #ffffff; COLOR: #000000; FONT-FAMILY: 'Times New Roman', Times"
cellspacing=0 cellpadding=0 width="90%" align=center border=0>
  <!-- Table Width Row -->
  <tr style="FONT-SIZE: 1pt" valign=bottom>
    <td width="65%">&nbsp;</td>
    <!-- colindex=01 type=maindata -->
    <td width="1%">&nbsp;</td>
    <!-- colindex=02 type=gutter -->
    <td align=right width="1%">&nbsp;</td>
    <!-- colindex=02 type=lead -->
    <td align=right width="8%">&nbsp;</td>
    <!-- colindex=02 type=body -->
    <td align=left width="1%">&nbsp;</td>
    <!-- colindex=02 type=hang1 -->
    <td width="2%">&nbsp;</td>
    <!-- colindex=03 type=gutter -->
    <td align=right width="1%">&nbsp;</td>
    <!-- colindex=03 type=lead -->
    <td align=right width="8%">&nbsp;</td>
    <!-- colindex=03 type=body -->
    <td align=left width="1%">&nbsp;</td>
    <!-- colindex=03 type=hang1 -->
    <td width="2%">&nbsp;</td>
    <!-- colindex=04 type=gutter -->
    <td align=right width="1%">&nbsp;</td>
    <!-- colindex=04 type=lead -->
    <td align=right width="8%">&nbsp;</td>
    <!-- colindex=04 type=body -->
    <td align=left width="1%">&nbsp;</td>
    <!-- colindex=04 type=hang1 --></tr>
  <tr style="FONT-SIZE: 8pt" valign=bottom align=middle>
    <td valign=bottom noWrap align=left><font size="3"></font></td>
    <td><font size="3"></font></td>
    <td  valign=bottom noWrap
    align=middle colspan=2>
      <div align="center"><font size="3">Gross</font></div>
    </td>
    <td><font size="3"></font></td>
    <td><font size="3"></font></td>
    <td valign=bottom noWrap
    align=middle colspan=2>
      <div align="center"><font size="3">Accumulated</font></div>
    </td>
    <td><font size="3"></font></td>
    <td><font size="3"></font></td>
    <td style="BORDER-BOTTOM: #000000 1px solid" valign=bottom noWrap
    align=middle colspan=2><font size="3"></font></td>
    <td><font size="3"></font></td>
  </tr>
  <tr style="FONT-SIZE: 8pt" valign=bottom align=middle>
    <td valign=bottom noWrap align=left>
      <div
     ><font size="2"><font size="3"><font size="3"></font></font></font></div>
    </td>
    <td><font size="3"></font> </td>
    <td style="BORDER-BOTTOM: #000000 1px solid" valign=bottom noWrap
    align=middle colspan=2>
      <div align="center"><font size="3">Assets</font></div>
    </td>
    <td><font size="3"></font> </td>
    <td><font size="3"></font> </td>
    <td style="BORDER-BOTTOM: #000000 1px solid" valign=bottom noWrap
    align=middle colspan=2>
      <div align="center"><font size="3">Amortization</font></div>
    </td>
    <td><font size="3"></font> </td>
    <td><font size="3"></font> </td>
    <td style="BORDER-BOTTOM: #000000 1px solid" valign=bottom noWrap
    align=middle colspan=2>
      <div align="center"><font size="3">Net</font></div>
    </td>
    <td><font size="3"></font> </td>
  </tr>
  <tr style="BACKGROUND: #cceeff" valign=bottom>
    <td valign=bottom align=left>
      <div style="MARGIN-LEFT: 9pt; TEXT-INDENT: -9pt"><font size="3">Patent</font></div>
    </td>
    <td><font size="3"></font> </td>
    <td valign=bottom noWrap align=left><font size="3">$</font> </td>
    <td valign=bottom noWrap align=right><font size="3">600,000</font></td>
    <td valign=bottom noWrap align=left><font size="3"></font> </td>
    <td><font size="3"></font> </td>
    <td valign=bottom noWrap align=left><font size="3">$ </font></td>
    <td noWrap align=right><font size="3">(165,000</font></td>
    <td valign=bottom noWrap align=left><font size="3">)</font> </td>
    <td><font size="3"></font> </td>
    <td valign=bottom noWrap align=left><font size="3">$</font> </td>
    <td noWrap align=right><font size="3">435,000</font></td>
    <td valign=bottom noWrap align=left><font size="3"></font> </td>
  </tr>
  <tr valign=bottom>
    <td valign=bottom noWrap align=left height="11">
      <div style="MARGIN-LEFT: 9pt; TEXT-INDENT: -9pt"><font size="3">Project
        management tools</font></div>
    </td>
    <td height="11"><font size="3"></font> </td>
    <td valign=bottom noWrap align=left height="11"><font size="3"></font> </td>
    <td valign=bottom noWrap align=right height="11"><font size="3">570,750</font></td>
    <td valign=bottom noWrap align=left height="11"><font size="3"></font></td>
    <td height="11"><font size="3"></font> </td>
    <td valign=bottom noWrap align=left height="11"><font size="3"> </font></td>
    <td noWrap align=right height="11"><font size="3">(436,456</font></td>
    <td valign=bottom noWrap align=left height="11"><font size="3">)</font></td>
    <td height="11"><font size="3"></font> </td>
    <td valign=bottom noWrap align=left height="11"><font size="3"></font> </td>
    <td noWrap align=right height="11"><font size="3">134,294</font></td>
    <td valign=bottom noWrap align=left height="11"><font size="3"></font> </td>
  </tr>
  <tr style="BACKGROUND: #cceeff" valign=bottom>
    <td valign=bottom noWrap align=left>
      <div style="MARGIN-LEFT: 9pt; TEXT-INDENT: -9pt"><font size="3">Licensing
        agreement </font></div>
    </td>
    <td><font size="3"></font> </td>
    <td valign=bottom noWrap align=left style="border-bottom: 1px solid #000000"><font size="3">&nbsp</font>
    </td>
    <td valign=bottom noWrap align=right style="border-bottom: 1px solid #000000"><font size="3">114,342</font></td>
    <td valign=bottom noWrap align=left><font size="3"></font></td>
    <td><font size="3"></font> </td>
    <td valign=bottom noWrap align=left style="border-bottom: 1px solid #000000"><font size="3">&nbsp
      </font></td>
    <td noWrap align=right style="border-bottom: 1px solid #000000"><font size="3">(108,953</font></td>
    <td valign=bottom noWrap align=left><font size="3">)</font> </td>
    <td><font size="3"></font> </td>
    <td valign=bottom noWrap align=left style="border-bottom: 1px solid #000000"><font size="3">&nbsp</font>
    </td>
    <td noWrap align=right style="border-bottom: 1px solid #000000"><font size="3">5,389</font></td>
    <td valign=bottom noWrap align=left><font size="3"></font> </td>
  </tr>
  <tr valign=bottom>
    <td valign=bottom noWrap align=left>
      <div style="MARGIN-LEFT: 9pt; TEXT-INDENT: -9pt"><font style="FONT-SIZE: 10pt" size="3">&nbsp;&nbsp;
        </font><font size="3">Intangible technology</font></div>
    </td>
    <td><font size="3"></font> </td>
    <td valign=bottom noWrap align=left style="border-bottom: 3px double #000000" ><font size="3">$</font>
    </td>
    <td valign=bottom noWrap align=right style="border-bottom: 3px double #000000"><font size="3">1,285,092</font></td>
    <td valign=bottom noWrap align=left><font size="3"></font> </td>
    <td><font size="3"></font> </td>
    <td valign=bottom noWrap align=left style="border-bottom: 3px double #000000"><font size="3">$
      </font></td>
    <td noWrap align=right style="border-bottom: 3px double #000000"><font size="3">(710,409</font></td>
    <td valign=bottom noWrap align=left><font size="3">)</font> </td>
    <td><font size="3"></font> </td>
    <td valign=bottom noWrap align=left style="border-bottom: 3px double #000000"><font size="3">$</font>
    </td>
    <td noWrap align=right style="border-bottom: 3px double #000000"><font size="3">574,683</font></td>
    <td valign=bottom noWrap align=left><font size="3"></font> </td>
  </tr>
</table>
<p>Intangible technology as of December 31, 2006 consisted of the following:</p>
<table
style="FONT-SIZE: 10pt; BACKGROUND: #ffffff; COLOR: #000000; FONT-FAMILY: 'Times New Roman', Times"
cellspacing=0 cellpadding=0 width="90%" align=center border=0>
  <!-- Table Width Row -->
  <tr style="FONT-SIZE: 1pt" valign=bottom>
    <td width="65%">&nbsp;</td>
    <!-- colindex=01 type=maindata -->
    <td width="1%">&nbsp;</td>
    <!-- colindex=02 type=gutter -->
    <td align=right width="1%">&nbsp;</td>
    <!-- colindex=02 type=lead -->
    <td align=right width="8%">&nbsp;</td>
    <!-- colindex=02 type=body -->
    <td align=left width="1%">&nbsp;</td>
    <!-- colindex=02 type=hang1 -->
    <td width="2%">&nbsp;</td>
    <!-- colindex=03 type=gutter -->
    <td align=right width="1%">&nbsp;</td>
    <!-- colindex=03 type=lead -->
    <td align=right width="8%">&nbsp;</td>
    <!-- colindex=03 type=body -->
    <td align=left width="1%">&nbsp;</td>
    <!-- colindex=03 type=hang1 -->
    <td width="2%">&nbsp;</td>
    <!-- colindex=04 type=gutter -->
    <td align=right width="1%">&nbsp;</td>
    <!-- colindex=04 type=lead -->
    <td align=right width="8%">&nbsp;</td>
    <!-- colindex=04 type=body -->
    <td align=left width="1%">&nbsp;</td>
    <!-- colindex=04 type=hang1 --></tr>
  <tr style="FONT-SIZE: 8pt" valign=bottom align=middle>
    <td valign=bottom noWrap align=left><font size="3"></font></td>
    <td><font size="3"></font></td>
    <td  valign=bottom noWrap
    align=middle colspan=2>
      <div align="center"><font size="3">Gross</font></div>
    </td>
    <td><font size="3"></font></td>
    <td><font size="3"></font></td>
    <td valign=bottom noWrap
    align=middle colspan=2>
      <div align="center"><font size="3">Accumulated</font></div>
    </td>
    <td><font size="3"></font></td>
    <td><font size="3"></font></td>
    <td style="BORDER-BOTTOM: #000000 1px solid" valign=bottom noWrap
    align=middle colspan=2><font size="3"></font></td>
    <td><font size="3"></font></td>
  </tr>
  <tr style="FONT-SIZE: 8pt" valign=bottom align=middle>
    <td valign=bottom noWrap align=left>
      <div
     ><font size="2"><font size="3"><font size="3"></font></font></font></div>
    </td>
    <td><font size="3"></font> </td>
    <td style="BORDER-BOTTOM: #000000 1px solid" valign=bottom noWrap
    align=middle colspan=2>
      <div align="center"><font size="3">Assets</font></div>
    </td>
    <td><font size="3"></font> </td>
    <td><font size="3"></font> </td>
    <td style="BORDER-BOTTOM: #000000 1px solid" valign=bottom noWrap
    align=middle colspan=2>
      <div align="center"><font size="3">Amortization</font></div>
    </td>
    <td><font size="3"></font> </td>
    <td><font size="3"></font> </td>
    <td style="BORDER-BOTTOM: #000000 1px solid" valign=bottom noWrap
    align=middle colspan=2>
      <div align="center"><font size="3">Net</font></div>
    </td>
    <td><font size="3"></font> </td>
  </tr>
  <tr style="BACKGROUND: #cceeff" valign=bottom>
    <td valign=bottom align=left>
      <div style="MARGIN-LEFT: 9pt; TEXT-INDENT: -9pt"><font size="3">Patent</font></div>
    </td>
    <td><font size="3"></font> </td>
    <td valign=bottom noWrap align=left><font size="3">$</font> </td>
    <td valign=bottom noWrap align=right><font size="3">600,000</font></td>
    <td valign=bottom noWrap align=left><font size="3"></font> </td>
    <td><font size="3"></font> </td>
    <td valign=bottom noWrap align=left><font size="3">$ </font></td>
    <td noWrap align=right><font size="3">(150,000</font></td>
    <td valign=bottom noWrap align=left><font size="3">)</font> </td>
    <td><font size="3"></font> </td>
    <td valign=bottom noWrap align=left><font size="3">$</font> </td>
    <td noWrap align=right><font size="3">450,000</font></td>
    <td valign=bottom noWrap align=left><font size="3"></font> </td>
  </tr>
  <tr valign=bottom>
    <td valign=bottom noWrap align=left height="11">
      <div style="MARGIN-LEFT: 9pt; TEXT-INDENT: -9pt"><font size="3">Project
        management tools</font></div>
    </td>
    <td height="11"><font size="3"></font> </td>
    <td valign=bottom noWrap align=left height="11"><font size="3"></font> </td>
    <td valign=bottom noWrap align=right height="11"><font size="3">570,750</font></td>
    <td valign=bottom noWrap align=left height="11"><font size="3"></font></td>
    <td height="11"><font size="3"></font> </td>
    <td valign=bottom noWrap align=left height="11"><font size="3"> </font></td>
    <td noWrap align=right height="11"><font size="3">(419,669</font></td>
    <td valign=bottom noWrap align=left height="11"><font size="3">)</font></td>
    <td height="11"><font size="3"></font> </td>
    <td valign=bottom noWrap align=left height="11"><font size="3"></font> </td>
    <td noWrap align=right height="11"><font size="3">151,081</font></td>
    <td valign=bottom noWrap align=left height="11"><font size="3"></font> </td>
  </tr>
  <tr style="BACKGROUND: #cceeff" valign=bottom>
    <td valign=bottom noWrap align=left>
      <div style="MARGIN-LEFT: 9pt; TEXT-INDENT: -9pt"><font size="3">Licensing
        agreement </font></div>
    </td>
    <td><font size="3"></font> </td>
    <td valign=bottom noWrap align=left style="border-bottom: 1px solid #000000"><font size="3">&nbsp</font>
    </td>
    <td valign=bottom noWrap align=right style="border-bottom: 1px solid #000000"><font size="3">114,342</font></td>
    <td valign=bottom noWrap align=left><font size="3"></font></td>
    <td><font size="3"></font> </td>
    <td valign=bottom noWrap align=left style="border-bottom: 1px solid #000000"><font size="3">&nbsp
      </font></td>
    <td noWrap align=right style="border-bottom: 1px solid #000000"><font size="3">(106,932</font></td>
    <td valign=bottom noWrap align=left><font size="3">)</font> </td>
    <td><font size="3"></font> </td>
    <td valign=bottom noWrap align=left style="border-bottom: 1px solid #000000"><font size="3">&nbsp</font>
    </td>
    <td noWrap align=right style="border-bottom: 1px solid #000000"><font size="3">7,410</font></td>
    <td valign=bottom noWrap align=left><font size="3"></font> </td>
  </tr>
  <tr valign=bottom>
    <td valign=bottom noWrap align=left>
      <div style="MARGIN-LEFT: 9pt; TEXT-INDENT: -9pt"><font style="FONT-SIZE: 10pt" size="3">&nbsp;&nbsp;
        </font><font size="3">Intangible technology</font></div>
    </td>
    <td><font size="3"></font> </td>
    <td valign=bottom noWrap align=left style="border-bottom: 3px double #000000" ><font size="3">$</font>
    </td>
    <td valign=bottom noWrap align=right style="border-bottom: 3px double #000000"><font size="3">1,285,092</font></td>
    <td valign=bottom noWrap align=left><font size="3"></font> </td>
    <td><font size="3"></font> </td>
    <td valign=bottom noWrap align=left style="border-bottom: 3px double #000000"><font size="3">$
      </font></td>
    <td noWrap align=right style="border-bottom: 3px double #000000"><font size="3">(676,601</font></td>
    <td valign=bottom noWrap align=left><font size="3">)</font> </td>
    <td><font size="3"></font> </td>
    <td valign=bottom noWrap align=left style="border-bottom: 3px double #000000"><font size="3">$</font>
    </td>
    <td noWrap align=right style="border-bottom: 3px double #000000"><font size="3">608,491</font></td>
    <td valign=bottom noWrap align=left><font size="3"></font> </td>
  </tr>
</table>
<p>Based on definite lived intangible assets recorded at March 31, 2007, and assuming
  no subsequent impairment of the underlying assets, the annual amortization expense
  is expected to be as follows:</p>
<table style="MARGIN-TOP: 3pt; FONT-SIZE: 10pt" cellspacing=0 cellpadding=0
width="90%" align=center border=0>
  <tr>
    <td noWrap align=left width="71%" style="border-bottom: 1px solid #000000" ><font size="3">
      Year</font></td>
    <td width="4%"><font size="3"></font></td>
    <td colspan="4" style="border-bottom: 1px solid #000000">
      <div align="center"><font size="3">Amount</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td valign=top align=left bgcolor="#cceeff" width="71%">
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font size="3">2007 (nine
        months remaining)</font></div>
    </td>
    <td bgcolor="#cceeff" width="4%"><font size="3"></font></td>
    <td bgcolor="#cceeff" width="3%" align="right"><font size="3">$</font></td>
    <td valign=bottom align=right bgcolor="#cceeff" colspan="2"><font size="3">100,749</font></td>
    <td valign=bottom noWrap align=left bgcolor="#cceeff" width="10%"><font size="3"></font></td>
  </tr>
  <tr>
    <td valign=top align=left width="71%">
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font size="3">2008</font></div>
    </td>
    <td width="4%"><font size="3"></font></td>
    <td width="3%"><font size="3"></font></td>
    <td valign=bottom align=right colspan="2"><font size="3">127,147</font></td>
    <td width="10%"><font size="3"></font></td>
  </tr>
  <tr valign=bottom>
    <td valign=top align=left bgcolor="#cceeff" width="71%">
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font size="3">2009</font></div>
    </td>
    <td bgcolor="#cceeff" width="4%"><font size="3"></font></td>
    <td bgcolor="#cceeff" width="3%"><font size="3"></font></td>
    <td valign=bottom align=right bgcolor="#cceeff" colspan="2"><font size="3">76,787</font></td>
    <td valign=bottom noWrap align=left bgcolor="#cceeff" width="10%"><font size="3"></font></td>
  </tr>
  <tr valign=bottom>
    <td valign=top align=left width="71%">
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font size="3">2010</font></div>
    </td>
    <td width="4%"><font size="3"></font></td>
    <td width="3%"><font size="3"></font></td>
    <td valign=bottom align=right colspan="2"><font size="3">60,000</font></td>
    <td valign=bottom noWrap align=left width="10%"><font size="3"></font></td>
  </tr>
  <tr valign=bottom>
    <td valign=top align=left bgcolor="#cceeff" width="71%">
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font size="3">2011</font></div>
    </td>
    <td bgcolor="#cceeff" width="4%"><font size="3"></font></td>
    <td bgcolor="#cceeff" width="3%"><font size="3"></font></td>
    <td valign=bottom align=right bgcolor="#cceeff" colspan="2"><font size="3">60,000</font></td>
    <td valign=bottom noWrap align=left bgcolor="#cceeff" width="10%"><font size="3"></font></td>
  </tr>
  <tr valign=bottom>
    <td valign=top align=left width="71%">
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font size="3">2012 and
        beyond</font></div>
    </td>
    <td width="4%"><font size="3"></font></td>
    <td width="3%" style="border-bottom: 1px solid #000000"><font size="3">&nbsp</font></td>
    <td valign=bottom align=right colspan="2" style="border-bottom: 1px solid #000000"><font size="3">150,000</font></td>
    <td valign=bottom noWrap align=left width="10%" style="border-bottom: 1px solid #000000"><font size="3">&nbsp</font></td>
  </tr>
  <tr valign=bottom bgcolor="#cceeff">
    <td valign=top align=left width="71%">
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font size="3"></font></div>
    </td>
    <td width="4%"><font size="3"></font></td>
    <td width="3%" align="right" style="border-bottom: 3px double #000000"><font size="3">$</font></td>
    <td valign=bottom align=right colspan="2" style="border-bottom: 3px double #000000"><font size="3">574,683</font></td>
    <td valign=bottom noWrap align=left width="10%" style="border-bottom: 3px double #000000"><font size="3">&nbsp</font></td>
  </tr>
</table>
<p><b><br>
  NOTE 6 - Segment Information</b></p>
<p> The Company operates in one segment-mobile systems solutions for businesses.
  Mobile systems solutions typically consist of a handheld computer, data collection
  and connectivity peripherals, and third-party vertical applications software.
  The Company markets its products in the United States and foreign countries
  through its sales personnel and distributors. Information regarding geographic
  areas for the three months ended March 31, 2007 and 2006 is as follows: </p>
<table
style="FONT-SIZE: 10pt; BACKGROUND: #ffffff; COLOR: #000000; FONT-FAMILY: 'Times New Roman', Times"
cellspacing=0 cellpadding=0 width="90%" align=center border=0>
  <!-- Table Width Row -->
  <tr style="FONT-SIZE: 1pt" valign=bottom>
    <td width="65%">&nbsp;</td>
    <!-- colindex=01 type=maindata -->
    <td width="1%">&nbsp;</td>
    <!-- colindex=02 type=gutter -->
    <td align=right width="1%">&nbsp;</td>
    <!-- colindex=02 type=lead -->
    <td align=right width="8%">&nbsp;</td>
    <!-- colindex=02 type=body -->
    <td align=left width="1%">&nbsp;</td>
    <!-- colindex=02 type=hang1 -->
    <td width="2%">&nbsp;</td>
    <!-- colindex=03 type=gutter -->
    <td align=right width="1%">&nbsp;</td>
    <!-- colindex=03 type=lead -->
    <td align=right width="8%">&nbsp;</td>
    <!-- colindex=03 type=body -->
    <td align=left width="1%">&nbsp;</td>
    <!-- colindex=03 type=hang1 --> <!-- colindex=04 type=gutter --> <!-- colindex=04 type=lead -->
    <!-- colindex=04 type=body --> <!-- colindex=04 type=hang1 --></tr>
  <tr style="FONT-SIZE: 8pt" valign=bottom align=middle>
    <td valign=bottom noWrap align=left height="13"><font size="3"></font> </td>
    <td height="13"><font size="3"></font> </td>
    <td valign=bottom noWrap align=middle colspan=7 height="13" >
      <div align="center"><font size="3">Three Months Ended March 31, </font></div>
    </td>
  </tr>
  <tr style="FONT-SIZE: 8pt" valign=bottom align=middle>
    <td valign=bottom noWrap align=left>
      <div
      ><font size="3">Revenues:</font></div>
    </td>
    <td><font size="3"></font> </td>
    <td style="BORDER-BOTTOM: #000000 1px solid" valign=bottom noWrap
    align=middle colspan=2>
      <div align="center"><font size="3">2007</font></div>
    </td>
    <td><font size="3"></font> </td>
    <td><font size="3"></font> </td>
    <td style="BORDER-BOTTOM: #000000 1px solid" valign=bottom noWrap
    align=middle colspan=2>
      <div align="center"><font size="3">2006</font></div>
    </td>
    <td><font size="3"></font> </td>
  </tr>
  <tr style="BACKGROUND: #cceeff" valign=bottom>
    <td valign=bottom align=left>
      <div style="MARGIN-LEFT: 9pt; TEXT-INDENT: -9pt"><font size="3">United States</font></div>
    </td>
    <td><font size="3"></font> </td>
    <td valign=bottom noWrap align=left><font size="3">$</font> </td>
    <td valign=bottom noWrap align=right><font size="3">3,264,260</font></td>
    <td valign=bottom noWrap align=left><font size="3"></font> </td>
    <td><font size="3"></font> </td>
    <td valign=bottom noWrap align=left><font size="3">$ </font></td>
    <td noWrap align=right><font size="3">4,740,123</font></td>
    <td valign=bottom noWrap align=left><font size="3"></font> </td>
  </tr>
  <tr valign=bottom>
    <td valign=bottom noWrap align=left>
      <div style="MARGIN-LEFT: 9pt; TEXT-INDENT: -9pt"><font size="3">Europe</font></div>
    </td>
    <td><font size="3"></font> </td>
    <td valign=bottom noWrap align=left><font size="3"></font> </td>
    <td valign=bottom noWrap align=right><font size="3">1,763,745</font></td>
    <td valign=bottom noWrap align=left><font size="3"></font></td>
    <td><font size="3"></font> </td>
    <td valign=bottom noWrap align=left><font size="3"> </font></td>
    <td noWrap align=right><font size="3">1,384,323</font></td>
    <td valign=bottom noWrap align=left><font size="3"></font></td>
  </tr>
  <tr style="BACKGROUND: #cceeff" valign=bottom>
    <td valign=bottom noWrap align=left>
      <div style="MARGIN-LEFT: 9pt; TEXT-INDENT: -9pt"><font size="3">Asia and
        rest of world</font></div>
    </td>
    <td><font size="3"></font> </td>
    <td valign=bottom noWrap align=left style="border-bottom: 1px solid #000000"><font size="3">&nbsp</font>
    </td>
    <td valign=bottom noWrap align=right style="border-bottom: 1px solid #000000"><font size="3">520,335</font></td>
    <td valign=bottom noWrap align=left><font size="3"> </font></td>
    <td><font size="3"></font> </td>
    <td valign=bottom noWrap align=left style="border-bottom: 1px solid #000000"><font size="3">&nbsp
      </font></td>
    <td noWrap align=right style="border-bottom: 1px solid #000000"><font size="3">634,245</font></td>
    <td valign=bottom noWrap align=left><font size="3"></font> </td>
  </tr>
  <tr valign=bottom>
    <td valign=bottom noWrap align=left>
      <div style="MARGIN-LEFT: 9pt; TEXT-INDENT: -9pt"><font size="3"><font style="FONT-SIZE: 10pt" size="2" face="Times New Roman, Times, serif">&nbsp;&nbsp;
        &nbsp;&nbsp; </font>Total Revenues<font size="3"></font></font></div>
    </td>
    <td><font size="3"></font> </td>
    <td valign=bottom noWrap align=left style="border-bottom: 3px double #000000"><font size="3">$</font>
    </td>
    <td valign=bottom noWrap align=right style="border-bottom: 3px double #000000"><font size="3">5,548,340</font></td>
    <td valign=bottom noWrap align=left><font size="3"></font> </td>
    <td><font size="3"></font> </td>
    <td valign=bottom noWrap align=left style="border-bottom: 3px double #000000"><font size="3">$
      </font></td>
    <td noWrap align=right style="border-bottom: 3px double #000000"><font size="3">6,758,691</font></td>
    <td valign=bottom noWrap align=left><font size="3"></font></td>
  </tr>
</table>
<p align=center><font face="Times New Roman, Times, serif" size="3">6<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p><font face="Times New Roman, Times, serif" size="3"> Export revenues are attributable
  to countries based on the location of the Company's customers. The Company does
  not hold long-lived assets in foreign locations. </font></p>
<p><font face="Times New Roman, Times, serif" size="3">Major customers who accounted
  for at least 10% of the Company's total revenues were as follows: </font></p>
<table
style="FONT-SIZE: 10pt; BACKGROUND: #ffffff; COLOR: #000000; FONT-FAMILY: 'Times New Roman', Times"
cellspacing=0 cellpadding=0 width="90%" align=center border=0>
  <!-- Table Width Row -->
  <tr style="FONT-SIZE: 1pt" valign=bottom>
    <td width="51%">&nbsp;</td>
    <!-- colindex=01 type=maindata -->
    <td width="9%">&nbsp;</td>
    <!-- colindex=02 type=gutter -->
    <td align=right width="11%">&nbsp;</td>
    <!-- colindex=02 type=lead -->
    <td align=right width="6%">&nbsp;</td>
    <!-- colindex=02 type=body -->
    <td align=left width="4%">&nbsp;</td>
    <!-- colindex=02 type=hang1 -->
    <td width="2%">&nbsp;</td>
    <!-- colindex=03 type=gutter -->
    <td align=right width="9%">&nbsp;</td>
    <!-- colindex=03 type=lead -->
    <td align=right width="8%">&nbsp;</td>
    <!-- colindex=03 type=body --> <!-- colindex=03 type=hang1 --> <!-- colindex=04 type=gutter -->
    <!-- colindex=04 type=lead --> <!-- colindex=04 type=body --> <!-- colindex=04 type=hang1 --></tr>
  <tr style="FONT-SIZE: 8pt" valign=bottom align=middle>
    <td valign=bottom noWrap align=left height="16" width="51%"><font size="3"></font>
    </td>
    <td height="16" width="9%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=middle colspan=6 height="16" >
      <div align="center"><font size="3">Three Months Ended March 31, </font></div>
    </td>
  </tr>
  <tr style="FONT-SIZE: 8pt" valign=bottom align=middle>
    <td valign=bottom noWrap align=left width="51%">
      <div
     ><font size="3"></font></div>
    </td>
    <td width="9%"><font size="3"></font> </td>
    <td style="BORDER-BOTTOM: #000000 1px solid" valign=bottom noWrap
    align=middle colspan="2">
      <div align="center"><font size="3">2007</font></div>
      <font size="3"></font></td>
    <td width="2%"><font size="3"></font> </td>
    <td style="BORDER-BOTTOM: #000000 1px solid" valign=bottom noWrap
    align=middle>
      <div align="center"></div>
    </td>
    <td style="BORDER-BOTTOM: #000000 1px solid" valign=bottom noWrap
    align=middle colspan="2">
      <div align="center"><font size="3">2006</font></div>
    </td>
  </tr>
  <tr style="BACKGROUND: #cceeff" valign=bottom>
    <td valign=bottom align=left width="51%">
      <div style="MARGIN-LEFT: 9pt; TEXT-INDENT: -9pt"><font size="3">Tech Data</font></div>
    </td>
    <td width="9%"><font size="3"></font> </td>
    <td noWrap align=right width="9%"><font size="3">23</font></td>
    <td noWrap align=left width="8%"><font size="3">%</font> </td>
    <td width="4%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=left width="2%"><font size="3"> </font></td>
    <td noWrap align=right width="9%"><font size="3">27</font></td>
    <td valign=bottom noWrap align=left width="8%"><font size="3">%</font> </td>
  </tr>
  <tr valign=bottom>
    <td valign=bottom noWrap align=left width="51%">
      <div style="MARGIN-LEFT: 9pt; TEXT-INDENT: -9pt"><font size="3">Ingram Micro</font></div>
    </td>
    <td width="9%"><font size="3"></font> </td>
    <td noWrap align=right width="9%"><font size="3">14</font></td>
    <td noWrap align=left width="8%"><font size="3">%</font></td>
    <td width="4%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=left width="2%"><font size="3"> </font></td>
    <td noWrap align=right width="9%"><font size="3">14</font></td>
    <td valign=bottom noWrap align=left width="8%"><font size="3">%</font></td>
  </tr>
</table>
<p>&nbsp;</p>
<p><b>NOTE 7 - Stock-Based Compensation</b></p>
<p>On January 1, 2006, the Company adopted SFAS 123R for fiscal years ended December
  31, 2006 and onward. 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 per share 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>The weighted average per share fair value of the individual options issued
  and outstanding during the three months ended March 31, 2007 and 2006 was estimated
  at $1.51 and $1.74, respectively. The fair values were determined using a binomial
  lattice valuation model for options granted on or after January 1, 2006, and
  a Black-Scholes valuation model for options granted prior to January 1, 2006.
  Weighted average assumptions for options issued and outstanding during the three
  months ended March 31, 2007 and 2006 are shown below:</p>
<table style="MARGIN-TOP: 3pt; FONT-SIZE: 10pt" cellspacing=0 cellpadding=0
width="90%" align=center border=0>
  <tr>
    <td noWrap align=left width="716" height="18"><font size="3"></font></td>
    <td width="16" height="18"><font size="3"></font></td>
    <td noWrap align=middle  height="18" colspan=6>
      <div align="center"><font size="3">Three Months Ended March 31,</font></div>
    </td>
  </tr>
  <tr>
    <td align=left width="716" height="17" valign="top">&nbsp;</td>
    <td width="16" height="17"><font size="3"></font></td>
    <td align=middle style="border-bottom: 1px solid #000000" height="17" valign="top" colspan="3">
      <div align="center"><font size="3">2007</font><font size="3"></font></div>
    </td>
    <td align=middle style="border-bottom: 1px solid #000000" height="17" valign="top" width="29"><font size="3"></font></td>
    <td align=middle style="border-bottom: 1px solid #000000" height="17" valign="top" colspan="2"><font size="3"></font>
      <div align="center"><font size="3">2006</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td valign=top align=left bgcolor="#cceeff" width="716">
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font size="3">Risk-free
        interest rate (%) </font></div>
    </td>
    <td bgcolor="#cceeff" width="16"><font size="3"></font></td>
    <td valign=top bgcolor="#cceeff" colspan="2" align="right"><font size="3">3.66</font></td>
    <td valign=bottom align=left bgcolor="#cceeff" width="83">
      <div align="left"><font size="3">%</font></div>
    </td>
    <td valign=bottom align=left bgcolor="#cceeff" width="29"><font size="3"></font></td>
    <td valign=bottom align=right bgcolor="#cceeff" width="89">
      <div align="right"><font size="3">3.47</font></div>
    </td>
    <td valign=bottom align=left bgcolor="#cceeff" width="72">
      <div align="left"><font size="3">%</font></div>
    </td>
  </tr>
  <tr>
    <td valign=top align=left width="716">
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font size="3">Dividend
        yield</font></div>
    </td>
    <td width="16"><font size="3"></font></td>
    <td valign=top colspan="2" align="right"><font size="3">---</font></td>
    <td width="83" align="left"><font size="3"></font></td>
    <td width="29"><font size="3"></font></td>
    <td width="89" align="right">
      <div align="right"><font size="3">---</font></div>
    </td>
    <td width="72" align="left"><font size="3"></font></td>
  </tr>
  <tr valign=bottom>
    <td valign=top align=left bgcolor="#cceeff" width="716">
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font size="3">Volatility
        factor</font></div>
    </td>
    <td bgcolor="#cceeff" width="16"><font size="3"></font></td>
    <td valign=top bgcolor="#cceeff" colspan="2" align="right"><font size="3">1.1</font></td>
    <td valign=bottom noWrap align=left bgcolor="#cceeff" width="83"><font size="3"></font></td>
    <td valign=bottom noWrap align=left bgcolor="#cceeff" width="29"><font size="3"></font></td>
    <td valign=bottom noWrap align=right bgcolor="#cceeff" width="89">
      <div align="right"><font size="3">1.3</font></div>
    </td>
    <td valign=bottom noWrap align=left bgcolor="#cceeff" width="72"><font size="3"></font></td>
  </tr>
  <tr>
    <td valign=top align=left width="716">
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font size="3">Expected
        option life (years) </font></div>
    </td>
    <td width="16"><font size="3"></font></td>
    <td valign=top colspan="2" align="right"><font size="3">4.6</font></td>
    <td width="83" align="left"><font size="3"></font></td>
    <td width="29"><font size="3"></font></td>
    <td width="89" align="right">
      <div align="right"><font size="3">4.9</font></div>
    </td>
    <td width="72" align="left"><font size="3"></font></td>
  </tr>
</table>
<p>At March 31, 2007, options issued to employees for 9,439,760 shares were outstanding,
  of which 7,009,588 were exercisable. At March 31, 2006, options issued to employees
  for 9,109,995 shares were outstanding, of which 6,321,578 were exercisable.</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">7<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p>Total stock-based compensation expense recognized in our consolidated statements
  of income for the three months ended March 31, 2007 and 2006 is shown below:</p>
<table width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10.0pt; margin-top: 6pt; ">
  <tr>
    <td align="left" nowrap width="72%" height="21"><font size="3"></font></td>
    <td width="1%" height="21"><font size="3"></font></td>
    <td colspan="7" align="center" nowrap height="21" >
      <div align="center" class="border"><font size="3">Three Months Ended March
        31,</font></div>
    </td>
  </tr>
  <tr class="border">
    <td align="left" valign="top" width="72%" height="13">
      <div style="margin-left: 10px; text-indent: -10px">
        <div align="left"><font size="3">Income Statement Classification</font></div>
      </div>
    </td>
    <td width="1%" class="border" height="13"><font size="3"></font></td>
    <td align="center" valign="bottom" colspan="3" class="border" style="border-bottom: 1px solid #000000" height="13"><font face="Times New Roman, Times, serif" size="3">&nbsp;&nbsp;
      </font><font size="3">2007</font></td>
    <td width="1%" class="border" height="13"><font size="3"><b></b></font></td>
    <td align="center" valign="bottom" colspan="3" class="border" height="13" style="border-bottom: 1px solid #000000"><font face="Times New Roman, Times, serif" size="3">&nbsp;&nbsp;</font><font size="3">2006</font></td>
  </tr>
  <tr valign="bottom">
    <td align="left" valign="top" width="72%" bgcolor="#cceeff">
      <div style="margin-left: 10px; text-indent: -10px"><font size="3"> Cost
        of revenues</font></div>
    </td>
    <td width="1%" bgcolor="#cceeff"><font size="3"></font></td>
    <td align="left" width="3%" bgcolor="#cceeff"><font size="3">$</font></td>
    <td align="right" nowrap width="7%" bgcolor="#cceeff"><font size="3">22,680</font></td>
    <td width="2%" bgcolor="#cceeff">&nbsp;</td>
    <td width="1%" bgcolor="#cceeff"><font size="3"><b></b></font></td>
    <td align="left" valign="bottom" width="2%" bgcolor="#cceeff"><font size="3">$</font></td>
    <td align="right" valign="bottom" nowrap width="7%" bgcolor="#cceeff"><font size="3">24,396</font></td>
    <td align="left" valign="bottom" nowrap width="5%" bgcolor="#cceeff"><font size="3"></font></td>
  </tr>
  <tr>
    <td align="left" valign="top" width="72%">
      <div style="margin-left: 10px; text-indent: -10px"><font size="3">Research
        and development</font></div>
    </td>
    <td width="1%"><font size="3"></font></td>
    <td align="left" valign="bottom" width="3%" style="border-bottom: 1px solid #000000"><font size="3"></font></td>
    <td align="right" valign="bottom" nowrap width="7%" ><font size="3">62,966</font></td>
    <td align="left" valign="bottom" nowrap width="2%" >&nbsp;</td>
    <td width="1%"><font size="3"><b></b></font></td>
    <td align="left" valign="bottom" width="2%" style="border-bottom: 1px solid #000000"><font size="3"></font></td>
    <td align="right" valign="bottom" nowrap width="7%" ><font size="3">94,967</font></td>
    <td align="left" valign="bottom" nowrap width="5%" >&nbsp;</td>
  </tr>
  <tr valign="bottom">
    <td align="left" valign="top" width="72%" bgcolor="#cceeff">
      <div style="margin-left: 10px; text-indent: -10px"><font size="3"> Sales
        and marketing</font></div>
    </td>
    <td width="1%" bgcolor="#cceeff"><font size="3"></font></td>
    <td align="left" width="3%" bgcolor="#cceeff" >&nbsp;</td>
    <td align="right" nowrap width="7%" bgcolor="#cceeff" ><font size="3">79,644</font></td>
    <td width="2%" bgcolor="#cceeff" >&nbsp;</td>
    <td width="1%" bgcolor="#cceeff"><font size="3"><b></b></font></td>
    <td align="left" valign="bottom" width="2%" bgcolor="#cceeff" >&nbsp;</td>
    <td align="right" valign="bottom" nowrap width="7%" bgcolor="#cceeff" ><font size="3">133,256</font></td>
    <td align="left" valign="bottom" nowrap width="5%" bgcolor="#cceeff" >&nbsp;</td>
  </tr>
  <tr>
    <td align="left" valign="top" width="72%">
      <div style="margin-left: 10px; text-indent: -10px"><font size="3">General
        and administrative</font></div>
    </td>
    <td width="1%"><font size="3"></font></td>
    <td align="left" valign="bottom" width="3%" style="border-bottom: 1px solid #000000">&nbsp;</td>
    <td align="right" valign="bottom" nowrap width="7%" style="border-bottom: 1px solid #000000"><font size="3">116,378</font></td>
    <td align="left" valign="bottom" nowrap width="2%" style="border-bottom: 1px solid #000000" >&nbsp;</td>
    <td width="1%"><font size="3"></font></td>
    <td align="left" valign="bottom" width="2%" style="border-bottom: 1px solid #000000" >&nbsp;</td>
    <td align="right" valign="bottom" nowrap width="7%" style="border-bottom: 1px solid #000000"><font size="3">73,194</font></td>
    <td align="right" valign="bottom" nowrap width="5%" style="border-bottom: 1px solid #000000"><font size="3">&nbsp</font></td>
  </tr>
  <tr valign="bottom">
    <td align="left" valign="top" width="72%" bgcolor="#cceeff">
      <div style="margin-left: 10px; text-indent: -10px"><font size="3"> Total</font></div>
    </td>
    <td width="1%" bgcolor="#cceeff"><font size="3"></font></td>
    <td align="left" width="3%" bgcolor="#cceeff" style="border-bottom: 3px double #000000"><font size="3">$</font></td>
    <td align="right" nowrap width="7%" bgcolor="#cceeff" style="border-bottom: 3px double #000000"><font size="3">281,668</font></td>
    <td width="2%" bgcolor="#cceeff" style="border-bottom: 3px double #000000">&nbsp;</td>
    <td width="1%" bgcolor="#cceeff"><font size="3"><b></b></font></td>
    <td align="left" valign="bottom" width="2%" bgcolor="#cceeff" style="border-bottom: 3px double #000000"><font size="3">$</font></td>
    <td align="right" valign="bottom" nowrap width="7%" bgcolor="#cceeff" style="border-bottom: 3px double #000000"><font size="3">325,813</font></td>
    <td align="left" valign="bottom" nowrap width="5%" bgcolor="#cceeff" style="border-bottom: 3px double #000000">&nbsp;</td>
  </tr>
</table>
<p>&nbsp;</p>
<p><b>NOTE 8 - Net Loss Per Share Applicable to Common Stockholders</b></p>
<p>The Company calculates earnings per share in accordance with Financial Accounting
  Standards Board Statement No. 128, <i>Earnings per Share.</i></p>
<p>The following table sets forth the computation of basic and diluted net loss
  per share:</p>
<table
style="FONT-SIZE: 10pt; BACKGROUND: #ffffff; COLOR: #000000; FONT-FAMILY: 'Times New Roman', Times"
cellspacing=0 cellpadding=0 width="80%" align=center border=0>
  <!-- Table Width Row -->
  <tr style="FONT-SIZE: 8pt" valign=bottom align=middle>
    <td valign=bottom noWrap align=left height="13" width="59%"><font size="3" face="Times New Roman, Times, serif"></font>
    </td>
    <td height="13" width="0%"><font size="3" face="Times New Roman, Times, serif"></font>
    </td>
    <td valign=bottom noWrap align=middle colspan=8 height="13">
      <div align="center"><font size="3" face="Times New Roman, Times, serif">Three
        Months Ended March 31, </font></div>
    </td>
  </tr>
  <tr style="FONT-SIZE: 8pt" valign=bottom align=middle>
    <td valign=bottom noWrap align=left width="59%" height="16">
      <div
      ><font face="Times New Roman, Times, serif"><font face="Times New Roman, Times, serif"><font size="2"><font size="3"><font size="3"></font></font></font></font></font></div>
    </td>
    <td width="0%" height="16"><font size="3" face="Times New Roman, Times, serif"></font>
    </td>
    <td style="BORDER-BOTTOM: #000000 1px solid" valign=bottom noWrap
    align=middle colspan=3 height="16">
      <div align="center"><font size="3" face="Times New Roman, Times, serif">2007</font></div>
    </td>
    <td width="1%" height="16"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td width="2%" height="16"><font size="3" face="Times New Roman, Times, serif"></font>
    </td>
    <td style="BORDER-BOTTOM: #000000 1px solid" valign=bottom noWrap
    align=middle colspan=3 height="16">
      <div align="center"><font size="3" face="Times New Roman, Times, serif">2006</font></div>
    </td>
  </tr>
  <tr style="BACKGROUND: #cceeff" valign=bottom>
    <td valign=bottom align=left width="59%">
      <div style="MARGIN-LEFT: 9pt; TEXT-INDENT: -9pt"><font size="3">Numerator:</font><font size="3" face="Times New Roman, Times, serif"></font></div>
    </td>
    <td width="0%"><font size="3" face="Times New Roman, Times, serif"></font>
    </td>
    <td valign=bottom noWrap align=left width="2%"><font face="Times New Roman, Times, serif" size="3"></font>
    </td>
    <td valign=bottom noWrap align=right width="11%"><font size="3" face="Times New Roman, Times, serif">
      </font></td>
    <td valign=bottom noWrap align=left width="2%"><font size="3" face="Times New Roman, Times, serif"></font>
    </td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td width="2%"><font size="3" face="Times New Roman, Times, serif"></font>
    </td>
    <td valign=bottom noWrap align=left width="2%"><font size="3" face="Times New Roman, Times, serif">
      </font></td>
    <td valign=bottom noWrap align=right width="12%"><font size="3" face="Times New Roman, Times, serif">
      </font></td>
    <td valign=bottom noWrap align=left width="2%"><font size="3" face="Times New Roman, Times, serif"></font>
    </td>
  </tr>
  <tr valign=bottom>
    <td valign=bottom noWrap align=left width="59%">
      <div style="MARGIN-LEFT: 9pt; TEXT-INDENT: -9pt"><font style="FONT-SIZE: 10pt" size="3" face="Times New Roman, Times, serif">&nbsp;&nbsp;
        </font><font size="3">Net loss</font></div>
    </td>
    <td width="0%"><font size="3" face="Times New Roman, Times, serif"></font>
    </td>
    <td valign=bottom noWrap align=left width="2%"><font size="3" face="Times New Roman, Times, serif">$</font>
    </td>
    <td valign=bottom noWrap align=right width="11%"><font size="3" face="Times New Roman, Times, serif">(1,265,801</font></td>
    <td valign=bottom noWrap align=left width="2%"><font size="3" face="Times New Roman, Times, serif">)</font>
    </td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td width="2%"><font size="3" face="Times New Roman, Times, serif"></font>
    </td>
    <td valign=bottom noWrap align=left width="2%"><font size="3" face="Times New Roman, Times, serif">$
      </font></td>
    <td valign=bottom noWrap align=right width="12%"><font size="3" face="Times New Roman, Times, serif">(369,113</font></td>
    <td valign=bottom noWrap align=left width="2%"><font size="3" face="Times New Roman, Times, serif">)</font>
    </td>
  </tr>
  <tr style="BACKGROUND: #cceeff" valign=bottom>
    <td valign=bottom noWrap align=left width="59%">
      <div style="MARGIN-LEFT: 9pt; TEXT-INDENT: -9pt"><font style="FONT-SIZE: 10pt" size="3" face="Times New Roman, Times, serif">&nbsp;&nbsp;
        </font><font size="3">Preferred stock dividends</font></div>
    </td>
    <td width="0%"><font size="3" face="Times New Roman, Times, serif"></font>
    </td>
    <td valign=bottom noWrap align=left style="border-bottom: 1px solid #000000" width="2%"><font size="3" face="Times New Roman, Times, serif">&nbsp</font>
    </td>
    <td valign=bottom noWrap align=right style="border-bottom: 1px solid #000000" width="11%"><font size="3">---</font></td>
    <td valign=bottom noWrap align=left width="2%" style="border-bottom: 1px solid #000000">&nbsp;</td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td width="2%"><font size="3" face="Times New Roman, Times, serif"></font>
    </td>
    <td valign=bottom noWrap align=left style="border-bottom: 1px solid #000000" width="2%"><font size="3" face="Times New Roman, Times, serif">
      &nbsp</font></td>
    <td valign=bottom noWrap align=right style="border-bottom: 1px solid #000000" width="12%"><font size="3" face="Times New Roman, Times, serif">(10,653</font></td>
    <td valign=bottom noWrap align=left width="2%" style="border-bottom: 1px solid #000000"><font size="3" face="Times New Roman, Times, serif">)</font>
    </td>
  </tr>
  <tr valign=bottom>
    <td valign=bottom noWrap align=left width="59%">
      <div style="MARGIN-LEFT: 9pt; TEXT-INDENT: -9pt"><font size="3">Net loss
        applicable to common stockholders</font></div>
    </td>
    <td width="0%"><font size="3" face="Times New Roman, Times, serif"></font>
    </td>
    <td valign=bottom noWrap align=left style="border-bottom: 3px double #000000" width="2%"><font size="3" face="Times New Roman, Times, serif">$</font>
    </td>
    <td valign=bottom noWrap align=right style="border-bottom: 3px double #000000" width="11%"><font size="3" face="Times New Roman, Times, serif">(1,265,801</font></td>
    <td valign=bottom noWrap align=left style="border-bottom: 3px double #000000" width="2%"><font size="3" face="Times New Roman, Times, serif">)</font>
    </td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td width="2%"><font size="3" face="Times New Roman, Times, serif"></font>
    </td>
    <td valign=bottom noWrap align=left width="2%" style="border-bottom: 3px double #000000"><font size="3" face="Times New Roman, Times, serif">$
      </font></td>
    <td valign=bottom noWrap align=right width="12%" style="border-bottom: 3px double #000000"><font size="3" face="Times New Roman, Times, serif">(379,766</font></td>
    <td valign=bottom noWrap align=left width="2%" style="border-bottom: 3px double #000000"><font size="3" face="Times New Roman, Times, serif">)</font>
    </td>
  </tr>
  <tr style="BACKGROUND: #cceeff" valign=bottom>
    <td valign=bottom align=left bgcolor="#cceeff" width="59%">
      <div style="MARGIN-LEFT: 9pt; TEXT-INDENT: -9pt"><font face="Times New Roman, Times, serif" size="3">&nbsp</font></div>
    </td>
    <td bgcolor="#cceeff" width="0%"><font size="3" face="Times New Roman, Times, serif"></font>
    </td>
    <td valign=bottom noWrap align=left bgcolor="#cceeff" width="2%"><font size="3" face="Times New Roman, Times, serif"></font>
    </td>
    <td valign=bottom noWrap align=right bgcolor="#cceeff" width="11%"><font size="3" face="Times New Roman, Times, serif">
      </font></td>
    <td valign=bottom noWrap align=left bgcolor="#cceeff" width="2%"><font size="3" face="Times New Roman, Times, serif"></font>
    </td>
    <td bgcolor="#cceeff" width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td bgcolor="#cceeff" width="2%"><font size="3" face="Times New Roman, Times, serif"></font>
    </td>
    <td valign=bottom noWrap align=left bgcolor="#cceeff" width="2%"><font size="3" face="Times New Roman, Times, serif">
      </font></td>
    <td valign=bottom noWrap align=right bgcolor="#cceeff" width="12%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom noWrap align=left width="2%"><font size="3" face="Times New Roman, Times, serif"></font>
    </td>
  </tr>
  <tr valign=bottom>
    <td valign=bottom align=left width="59%">
      <div style="MARGIN-LEFT: 9pt; TEXT-INDENT: -9pt"><font size="3">Denominator:</font></div>
    </td>
    <td width="0%"><font size="3" face="Times New Roman, Times, serif"></font>
    </td>
    <td valign=bottom noWrap align=left width="2%"><font face="Times New Roman, Times, serif" size="3"></font>
    </td>
    <td valign=bottom noWrap align=right width="11%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom noWrap align=left width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td width="2%"><font size="3" face="Times New Roman, Times, serif"></font>
    </td>
    <td valign=bottom noWrap align=left width="2%"><font size="3" face="Times New Roman, Times, serif">
      </font></td>
    <td valign=bottom noWrap align=right width="12%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom noWrap align=left width="2%"><font size="3" face="Times New Roman, Times, serif"></font>
    </td>
  </tr>
  <tr valign=bottom>
    <td valign=bottom noWrap align=left bgcolor="#cceeff" width="59%">
      <div style="MARGIN-LEFT: 9pt; TEXT-INDENT: -9pt"><font size="3">Weighted
        average common shares outstanding used in computing net loss per share:</font></div>
    </td>
    <td bgcolor="#cceeff" width="0%"><font size="3" face="Times New Roman, Times, serif"></font>
    </td>
    <td valign=bottom noWrap align=left bgcolor="#cceeff" width="2%"><font size="3" face="Times New Roman, Times, serif"></font>
    </td>
    <td valign=bottom noWrap align=right bgcolor="#cceeff" width="11%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom noWrap align=left bgcolor="#cceeff" width="2%"><font size="3" face="Times New Roman, Times, serif"></font>
    </td>
    <td bgcolor="#cceeff" width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td bgcolor="#cceeff" width="2%"><font size="3" face="Times New Roman, Times, serif"></font>
    </td>
    <td valign=bottom noWrap align=left bgcolor="#cceeff" width="2%"><font size="3" face="Times New Roman, Times, serif">
      </font></td>
    <td valign=bottom noWrap align=right bgcolor="#cceeff" width="12%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom noWrap align=left width="2%" bgcolor="#cceeff"><font size="3" face="Times New Roman, Times, serif"></font>
    </td>
  </tr>
  <tr valign=bottom>
    <td valign=bottom align=left width="59%">
      <div style="MARGIN-LEFT: 9pt; TEXT-INDENT: -9pt"><font style="FONT-SIZE: 10pt" size="3" face="Times New Roman, Times, serif">&nbsp;&nbsp;
        &nbsp;&nbsp; </font><font size="3">Basic</font></div>
    </td>
    <td width="0%"><font size="3" face="Times New Roman, Times, serif"></font>
    </td>
    <td valign=bottom noWrap align=left width="2%" style="border-bottom: 3px double #000000"><font size="3" face="Times New Roman, Times, serif">&nbsp</font>
    </td>
    <td valign=bottom noWrap align=right width="11%" style="border-bottom: 3px double #000000"><font size="3">31,872,223</font></td>
    <td valign=bottom noWrap align=left width="2%" style="border-bottom: 3px double #000000"><font size="3" face="Times New Roman, Times, serif">&nbsp
      </font></td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td width="2%"><font size="3" face="Times New Roman, Times, serif"></font>
    </td>
    <td valign=bottom noWrap align=left width="2%" style="border-bottom: 3px double #000000"><font size="3" face="Times New Roman, Times, serif">&nbsp
      </font></td>
    <td valign=bottom noWrap align=right width="12%" style="border-bottom: 3px double #000000"><font size="3" face="Times New Roman, Times, serif">30,395,495</font></td>
    <td valign=bottom noWrap align=left width="2%" style="border-bottom: 3px double #000000"><font size="3" face="Times New Roman, Times, serif">&nbsp</font>
    </td>
  </tr>
  <tr style="FONT-SIZE: 1pt" valign=bottom>
    <td noWrap align=left bgcolor="#cceeff" width="59%">
      <div style="MARGIN-LEFT: 9pt; TEXT-INDENT: -9pt"><font style="FONT-SIZE: 10pt" size="3" face="Times New Roman, Times, serif">&nbsp;&nbsp;
        &nbsp;&nbsp; </font><font size="3">Diluted</font><font style="FONT-SIZE: 10pt" size="3" face="Times New Roman, Times, serif">
        </font></div>
    </td>
    <td bgcolor="#cceeff" width="0%"><font size="3" face="Times New Roman, Times, serif"></font>
    </td>
    <td style="border-bottom: 3px double #000000" bgcolor="#cceeff" width="2%"><font size="3" face="Times New Roman, Times, serif">&nbsp</font>
    </td>
    <td style="border-bottom: 3px double #000000" align="right" bgcolor="#cceeff" width="11%"><font size="3">31,872,223</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff" style="border-bottom: 3px double #000000" width="2%"><font size="3">&nbsp</font>
    </td>
    <td bgcolor="#cceeff" width="1%"><font face="Times New Roman, Times, serif" size="3">&nbsp</font></td>
    <td bgcolor="#cceeff" width="2%"><font size="3" face="Times New Roman, Times, serif"></font>
    </td>
    <td style="border-bottom: 3px double #000000" bgcolor="#cceeff" width="2%"><font size="3" face="Times New Roman, Times, serif">&nbsp</font>
    </td>
    <td align="right" style="border-bottom: 3px double #000000" bgcolor="#cceeff" width="12%"><font size="3" face="Times New Roman, Times, serif">30,395,495</font></td>
    <td align="left" valign="bottom" style="border-bottom: 3px double #000000" width="2%" bgcolor="#cceeff"><font size="3" face="Times New Roman, Times, serif">&nbsp</font>
    </td>
  </tr>
  <tr style="BACKGROUND: #cceeff" valign=bottom>
    <td valign=bottom align=left bgcolor="#FFFFFF" width="59%">
      <div style="MARGIN-LEFT: 9pt; TEXT-INDENT: -9pt"><font face="Times New Roman, Times, serif"><font face="Times New Roman, Times, serif"><font size="3"><font size="3">Net
        loss per share applicable to common stockholders:</font></font></font></font></div>
    </td>
    <td bgcolor="#FFFFFF" width="0%"><font size="3" face="Times New Roman, Times, serif"></font>
    </td>
    <td valign=bottom noWrap align=left bgcolor="#FFFFFF" width="2%"><font size="3" face="Times New Roman, Times, serif">&nbsp</font>
    </td>
    <td valign=bottom noWrap align=right bgcolor="#FFFFFF" width="11%"><font size="3" face="Times New Roman, Times, serif">
      </font></td>
    <td valign=bottom noWrap align=left bgcolor="#FFFFFF" width="2%"><font size="3" face="Times New Roman, Times, serif">&nbsp</font>
    </td>
    <td bgcolor="#FFFFFF" width="1%"><font face="Times New Roman, Times, serif" size="3">&nbsp</font></td>
    <td bgcolor="#FFFFFF" width="2%"><font size="3" face="Times New Roman, Times, serif"></font>
    </td>
    <td valign=bottom noWrap align=left bgcolor="#FFFFFF" width="2%"><font size="3" face="Times New Roman, Times, serif">
      </font></td>
    <td valign=bottom noWrap align=right bgcolor="#FFFFFF" width="12%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom noWrap align=left width="2%" bgcolor="#FFFFFF" ><font size="3" face="Times New Roman, Times, serif">&nbsp</font>
    </td>
  </tr>
  <tr style="BACKGROUND: #cceeff" valign=bottom>
    <td align=left width="59%">
      <div style="MARGIN-LEFT: 9pt; TEXT-INDENT: -9pt"><font style="FONT-SIZE: 10pt" size="3" face="Times New Roman, Times, serif">&nbsp;&nbsp;
        &nbsp;&nbsp; </font><font size="3">Basic</font></div>
    </td>
    <td width="0%"><font size="3" face="Times New Roman, Times, serif"></font>
    </td>
    <td valign=bottom noWrap align=left style="border-bottom: 3px double #000000" width="2%"><font size="3" face="Times New Roman, Times, serif">$</font>
    </td>
    <td valign=bottom noWrap align=right style="border-bottom: 3px double #000000" width="11%"><font size="3" face="Times New Roman, Times, serif">(0.04</font></td>
    <td valign=bottom noWrap align=left width="2%" style="border-bottom: 3px double #000000"><font size="3" face="Times New Roman, Times, serif">)
      </font></td>
    <td valign="bottom" width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign="bottom" width="2%"><font size="3" face="Times New Roman, Times, serif"></font>
    </td>
    <td valign=bottom noWrap align=left style="border-bottom: 3px double #000000" width="2%"><font size="3" face="Times New Roman, Times, serif">$
      </font></td>
    <td valign=bottom noWrap align=right style="border-bottom: 3px double #000000" width="12%"><font size="3" face="Times New Roman, Times, serif">(0.01</font></td>
    <td valign=bottom noWrap align=left width="2%" style="border-bottom: 3px double #000000"><font size="3" face="Times New Roman, Times, serif">)</font>
    </td>
  </tr>
  <tr valign=bottom>
    <td noWrap align=left width="59%">
      <div style="MARGIN-LEFT: 9pt; TEXT-INDENT: -9pt"><font style="FONT-SIZE: 10pt" size="3" face="Times New Roman, Times, serif">&nbsp;&nbsp;
        &nbsp;&nbsp; </font><font size="3">Diluted</font><font style="FONT-SIZE: 10pt" size="3" face="Times New Roman, Times, serif">
        </font></div>
    </td>
    <td width="0%"><font size="3" face="Times New Roman, Times, serif"></font>
    </td>
    <td valign=bottom noWrap align=left style="border-bottom: 3px double #000000" width="2%"><font size="3" face="Times New Roman, Times, serif">$</font>
    </td>
    <td valign=bottom noWrap align=right style="border-bottom: 3px double #000000" width="11%"><font size="3" face="Times New Roman, Times, serif">(0.04</font></td>
    <td valign=bottom noWrap align=left width="2%" style="border-bottom: 3px double #000000"><font size="3" face="Times New Roman, Times, serif">)
      </font></td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td width="2%"><font size="3" face="Times New Roman, Times, serif"></font>
    </td>
    <td valign=bottom noWrap align=left width="2%" style="border-bottom: 3px double #000000"><font size="3" face="Times New Roman, Times, serif">$
      </font></td>
    <td valign=bottom noWrap align=right style="border-bottom: 3px double #000000" width="12%"><font face="Times New Roman, Times, serif" size="3">(0.01</font></td>
    <td valign=bottom noWrap align=left width="2%" style="border-bottom: 3px double #000000"><font size="3" face="Times New Roman, Times, serif">)</font>
    </td>
  </tr>
</table>
<p>For the quarters ended March 31, 2007 and 2006, the diluted net loss per share
  is equal to the basic net loss per share, 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. Options and warrants to purchase 10,373,128 and 10,348,707
  shares of common stock at March 31, 2007 and 2006, respectively, have been omitted
  from the net loss per share calculation.</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">8<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p>&nbsp;</p>
<p><b>NOTE 9 - Taxes</b></p>
<p>Deferred income tax reflects the net tax effects of temporary differences between
  the carrying amount of assets and liabilities for financial reporting purposes
  and the amount used for income tax purposes. Deferred tax expense of $7,988
  for the quarter ended March 31, 2007 and the corresponding deferred tax liability
  shown on the Company's balance sheet, is related to the deferred tax liability
  on the portion of the Company's goodwill amortized for tax purposes. Due to
  the indefinite characteristic of this deferred tax liability, it cannot be offset
  against deferred tax assets, and furthermore, this deferred tax liability may
  never reverse. The Company maintains a full valuation allowance for all other
  components of deferred tax assets. The Company has not generated taxable income
  in any periods in any jurisdiction, foreign or domestic.</p>
<p>On January 1, 2007, the Company adopted Financial Accounting Standards Board
  Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - An Interpretation
  of FASB Statement No. 109" ("FIN 48"). FIN 48 prescribes a recognition threshold
  that a tax position is required to meet before being recognized in the financial
  statements, and provides guidance on derecognition, measurement, classification,
  interest and penalties, accounting in interim periods, disclosure and transition
  issues. There were no adjustments to the financial statements as a result of
  the adoption of FIN 48. The Company has an unrecognized tax benefit of approximately
  $760,000 which did not change significantly during the three months ended March
  31, 2007. The application of FIN 48 does not result in a change to retained
  earnings, as the unrecognized tax benefit would be fully offset by the application
  of a valuation allowance. In addition, future changes in the unrecognized tax
  benefit will have no impact on the effective tax rate due to the existence of
  the valuation allowance. The Company estimates that the unrecognized tax benefit
  will not change significantly within the next twelve months. It is the Company's
  policy to include interest and penalties related to tax positions as a component
  of income tax expense. Accrued interest on tax positions was not significant
  at March 31, 2007. </p>
<p align=left>The Company files its tax returns as prescribed by the tax laws
  of the jurisdictions in which it operates. The Company is not currently under
  audit in any of its jurisdictions where income tax returns are filed. The tax
  years 1992 to 2006 remain open to examination by the major domestic taxing jurisdictions
  to which the Company is subject, and for the years 2001 to 2006 for the international
  taxing jurisdictions to which the Company is subject.
<p align=center><font face="Times New Roman, Times, serif" size="3">9<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p><b>NOTE 10 - Subsequent Event: Bank Financing Arrangements</b></p>
<p>On May 8, 2007, the Company agreed with its bank to extend the term of the
  credit facility by an additional year. The facility will now expire on March
  3, 2009. Under the terms of the credit agreement, the Company must maintain
  a minimum tangible net worth of at least $4,000,000, plus 50% of net profits
  on a quarterly basis and 50% of net proceeds from equity and subordinated debt
  financing transactions beginning with the quarter ended September 30, 2007.
  The minimum tangible net worth will be measured on a quarterly basis so long
  as advances under the credit facility are repaid within five business days from
  date of the advance, as the Company has done in the first quarter of 2007 and
  in each of the quarters in fiscal 2006, and will be measured on a monthly basis
  if advances under the facility remain outstanding for more than five business
  days. Additionally, under the terms of the agreement a term loan is available
  to the Company in a principal amount of $500,000, the advance of which must
  be completed on or before June 30, 2007. The term loan will bear a fixed interest
  rate equal to the prime rate plus 1.5% at the time of the advance, and is to
  be repaid by the Company in 36 equal monthly installments. </p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">10<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
  <font face="Times New Roman, Times, serif" size="3"><a
name=mda></a></font>
<p><font face="Times New Roman, Times, serif" size="3"><b>Item 2. Management's
  Discussion and Analysis of Financial Condition and Results of Operations</b></font></p>
<p><font face="Times New Roman, Times, serif" size="3"><i>This Quarterly Report
  contains forward-looking statements within the meaning of Section 27A of the
  Securities Act of 1933, as amended, 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 "Management's Discussion and Analysis of
  Financial Condition and Results of Operations." Words such as "may," "will,"
  "predicts," "anticipates," "expects," "intends," "plans," believes," "seeks,"
  "estimates," variations of such words, and similar expressions are intended
  to identify such forward-looking statements. Such forward-looking statements
  are based on current expectations, estimates, and projections about our industry,
  management's beliefs, and assumptions made by management. These forward-looking
  statements are not guarantees of future performance and are subject to certain
  risks, uncertainties, and assumptions that are difficult to predict; therefore,
  actual results and outcomes may differ materially from what is expressed or
  forecasted in any such forward-looking statements. 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 "Part
  II, Item 1A. Risk Factors" 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></font></p>
<p><font face="Times New Roman, Times, serif" size="3"><i>You should read the
  following discussion in conjunction with the interim condensed consolidated
  financial statements and notes included elsewhere in this report, the Company's
  annual financial statements in the Form 10-K, and other information contained
  in other reports and documents filed from time to time with the Securities and
  Exchange Commission.</i></font></p>
<p><font face="Times New Roman, Times, serif" size="3"><b>Revenues<br>
  </b></font><br>
  Socket and our partners make business mobility solutions possible for small-to-mid
  sized deployments. We are a producer of mobile systems and peripherals serving
  the business mobility market. Mobile systems solutions typically consist of
  a handheld computer, data collection and connectivity peripherals, and third-party
  vertical applications software. We have historically offered a wide range of
  data collection and connectivity peripheral products and embedded products for
  use with mobile computing devices offered by third-parties. In January 2007,
  we began doing business as Socket Mobile, Inc. to emphasize our commitment to
  mobile computing. We have announced plans to offer a family of handheld computers
  with the first product scheduled to ship in the second quarter of 2007. Our
  initial handheld computing product is called the SoMo&#153;650. Our data collection
  and connectivity peripheral products are used with handheld computers, tablet
  computers, notebook computers and smartphones that use Windows Mobile, Windows
  XP, Windows Tablet, Palm, or Symbian 60 or 80 operating systems. The guiding
  principles that we follow in developing products for the business mobility computing
  market are standard form factors, low battery power consumption, ease of use,
  interoperability and quality. Our focus is business customers in the mobile
  marketplace. Most of our products, except our embedded products, are sold through
  distributors and resellers that service enterprises. Our embedded products are
  sold directly to the manufacturers of devices in which our products are embedded.
  The geographic regions we serve include the Americas, Europe, the Middle East,
  Africa and Asia Pacific. Total revenues for the first quarter of 2007 were $5.5
  million, a decrease of 18% from revenues of $6.8 million in the first quarter
  of 2006.</p>
<p><br>
  <br>
</p>
<p align="center"><font face="Times New Roman, Times, serif" size="3">11<br>
  </font> </p>
<p align=center>
<hr width="100%">
<p><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font></p>
<p>Revenues in the comparable three month periods may be classified into the following
  broad product families:</p>
<ul>
  <li>Mobile peripheral products;</li>
  <li>OEM embedded products; and</li>
  <li>Serial card products</li>
</ul>
<p>Beginning in 2007 we have added a handheld computer products category. The
  first customer shipments are expected to start during the second quarter of
  2007.</p>
<p>Our mobile peripheral products consist of <i>data collection products</i> and
  <i>connectivity products</i>, which together represented approximately 71% of
  our revenues for the quarter ended March 31, 2007 compared to 67% of our revenues
  for comparable quarter one year ago.</p>
<p>Our <i>data collection products</i> enable the electronic collection of data
  from bar codes, RFID tags, or magnetic stripes and consist of: </p>
<ul>
  <menu>
    <li> bar code scanning products that plug into or connect wirelessly to handheld
      computers, tablet computers, notebook computers and smartphones that use
      Windows Mobile, Windows XP, Windows Tablet, Palm, or Symbian 60 or Symbian
      80 operating systems, and turn these devices into portable bar code scanners
      that can be used in various retail and industrial workplaces; </li>
    <li><font face="Times New Roman, Times, serif" size="3">Radio Frequency Identification
      (RFID) plug-in products that read RFID tags; </font></li>
    <li><font face="Times New Roman, Times, serif" size="3">a combination plug-in
      bar code scanner and RFID reader; and </font></li>
    <li><font face="Times New Roman, Times, serif" size="3">a plug-in magnetic
      stripe reader. </font><font face="Times New Roman, Times, serif" size="3"><br>
      </font></li>
  </menu>
</ul>
<p>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 third-party developers in integrating our SocketScan software and
  our hardware products into their applications and solutions. Our bar code scanning
  products include CompactFlash and SDIO plug-in bar code scanners for linear
  and two-dimensional bar code scanning, along with a cordless handheld bar code
  scanner and a ring scanner worn on the index finger, both of which connect to
  computing systems using the Bluetooth standard for short-range wireless connectivity.
  Data collection products represented approximately 58% of our revenues for the
  quarter ended March 31, 2007 compared to 37% of our revenues for the comparable
  quarter one year ago.</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">12<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
  <font face="Times New Roman, Times, serif" size="3"><a
name=mda></a></font>
<p>Our <i>connectivity products</i> are connection devices that can either be
  plugged into standard expansion slots in handheld computers, tablet computers,
  notebook computers and smartphones that use Windows Mobile, Windows XP, Windows
  Tablet, or Palm operating systems, 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. Historically
  our connectivity products have included: </p>
<ul>
  <menu>
    <li>plug-in cards using the Bluetooth standard for short-range wireless connectivity,
      along with extensive communications software enabling the use of these products;
    </li>
    <li>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. </li>
    <li>Modems for telephone connections that connect over a cable, and cordless
      modems that utilize Bluetooth wireless technology to connect a telephone
      to a Bluetooth-enabled computer or other device; and</li>
    <li>Ethernet cards for local area network connections that connect over a
      cable. <br>
    </li>
  </menu>
</ul>
<p align="left">Bluetooth and wireless LAN connection functions are being built
  into many third-party mobile devices. Demand for these wireless plug-in products
  from customers using consumer grade handhelds has declined, and demand is instead
  increasingly from our OEM customers with industrial grade handhelds and products.
  In response to this change we have begun categorizing all revenues in 2007 related
  to our Bluetooth and Wireless LAN plug-in products within our OEM embedded products
  family. Increased built-in wireless functionality in handheld computers has
  reduced the demand for these categories of our plug-in products. Revenues related
  to these wireless plug-in products now categorized within our OEM embedded products
  family was 9% of the first quarter 2007 revenues. Remaining connectivity products
  in the first quarter of 2007 represented approximately 12% of our revenues for
  the quarter ended March 31, 2007 compared to 30% of our revenues for the comparable
  quarter one year ago.</p>
<p>Our <i>OEM embedded products</i> consist of Bluetooth and Wireless LAN modules
  and plug-in cards used by Original Equipment Manufacturers (OEMs) of handheld
  computers and other devices to build wireless connection functions into their
  products using the Bluetooth and wireless LAN standards for wireless connectivity.
  OEM embedded products represented approximately 21% of our revenues for the
  quarter ended March 31, 2007, of which 9% represented wireless plug-in products
  categorized as connectivity products in 2006, compared to 22% of our revenues
  for the comparable quarter one year ago.</p>
<p>Our <i>serial card products</i> enable the connection of a mobile computer
  to another electronic device either as a plug-in card connecting over cables
  or wirelessly over a Bluetooth network. Serial card products represented approximately
  9% of our revenues for the quarter ended March 31, 2007 compared to 11% of our
  revenues for the comparable quarter one year ago.</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">13<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
  <font face="Times New Roman, Times, serif" size="3"><a
name=mda></a></font>
<p>Our data collection product revenues in the first quarter of 2007 were $3.2
  million, an increase of 28% compared to revenues of $2.5 million in the first
  quarter of 2006. Revenue increases in the first quarter 2007 of $0.5 million
  in sales of our Cordless Hand Scanner, increases of $0.3 million in sales of
  our primary scanning product, the CompactFlash In-Hand Scan card, and increases
  of $0.2 million in our Cordless Ring Scanner which began shipping in the fourth
  quarter of 2005, were partially offset by declines in sales of our SDIO In-Hand
  Scan card and declines in our In-Hand Scan Imager card. Overall data collection
  revenues improved in the first quarter of 2007 from the comparable period one
  year ago, benefiting from factors which adversely affected the marketplace in
  2006. In the first quarter of 2006 data collection revenues were slowed by the
  introduction of an operating system upgrade, Windows Mobile 5.0, released in
  September 2005 by the major PDA manufacturers, which slowed customer deployments
  in the first quarter 2006, and throughout 2006, as third-party applications
  were modified and tested with the operating system. During the first half of
  2006 the availability of units by the major PDA manufacturers was limited until
  late in the second quarter as the PDA manufacturers concluded transitioning
  their products to lead-free equivalents to comply with the Reduction of Hazardous
  Substances (RoHS) rules implemented in Europe and around the world which were
  in effect beginning with shipments made after June 30, 2006.</p>
<p>Our connectivity product revenues in the first quarter of 2007 were $0.7 million
  compared to revenues of $2.0 million in the first quarter of 2006. Beginning
  with the first quarter of 2007, sales of our Wireless LAN plug-in cards and
  Bluetooth plug-in cards, which have historically been included in our connectivity
  products category, are now included within the OEM embedded products family.
  This reflects the growing trend of our Wireless LAN and Bluetooth plug-in card
  revenues being driven by customers of our OEM embedded products segment. Revenue
  declines of $0.3 million in connectivity sales in the first quarter 2007 are
  due to reduced sales of our Bluetooth plug-in card products compared to the
  first quarter of 2006 reflecting this wireless technology being already built-in
  by PDA manufacturers. Revenue reductions of $0.5 million in the first quarter
  of 2007 reflects the reclassification of sales of our Wireless LAN and Bluetooth
  plug-in card products in the first quarter of 2007, now included in our OEM
  Embedded products family. Additional revenue declines of $0.3 million resulting
  from reduced sales of our Modem plug-in products, and revenue declines totaling
  $0.2 million were from reduced sales of our Ethernet plug-in products, our accessory
  products including our Mobile Power Pack, and our Cordless GPS receiver with
  navigation kit which was discontinued.</p>
<p>Our OEM embedded product revenues in the first quarter of 2007 were $1.1 million
  compared to $1.5 million in the first quarter of 2006. Revenue declines of $0.8
  million in sales of our Bluetooth modules was due to increased competition our
  customers experienced in the industrial ruggedized market segment in the first
  quarter of 2007, continuing a trend which began in the fourth quarter of 2006,
  a trend which is expected to improve in the second quarter of 2007. Beginning
  with the first quarter of 2007, sales of our Wireless LAN plug-in cards and
  Bluetooth plug-in cards, the majority of which has historically been included
  in our connectivity products category, are now included in the OEM embedded
  products family. This reflects the growing trend that our overall Wireless LAN
  and Bluetooth plug-in card revenues are being driven by customers within our
  OEM embedded products segment. The remaining OEM embedded product revenues are
  comprised of $0.3 million in sales related to our Wireless LAN plug-in cards
  which was flat compared to total Wireless LAN plug-in card sales in the comparable
  quarter a year ago, and $0.2 million in sales related to our Bluetooth plug-in
  cards, which reflects a decline of $0.3 million from total sales of Bluetooth
  plug-in cards in the comparable quarter a year ago reflecting this wireless
  technology being built-in by PDA manufacturers.</p>
<p>&nbsp;</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">14<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p align=left>Our serial product revenues in the first quarter of 2007 were $0.5
  million, a decline of 35% compared to revenues of $0.7 million in the first
  quarter of 2006. Revenue declines of $0.2 million were from sales of our standard
  serial PC Card products. Our standard peripheral connection cards are primarily
  sold to connect peripheral devices or other electronic equipment to notebook
  computers. Sales of our CompactFlash Card product and cordless Bluetooth serial
  adapter product were flat in the comparable periods. Overall serial product
  revenues continue to decline, continuing a trend reflecting the gradual replacement
  of serial technology with USB and other newer connection technologies.
<p><font face="Times New Roman, Times, serif" size="3"><b>Gross Margins<br>
  </b></font>Our gross margins for the first quarter of 2007 and 2006 were 50%
  in both periods. We generally price our products as a markup from our cost,
  and we offer discount pricing for higher volume purchases.</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>Research and Development
  Expense<br>
  </b></font>Research and development expense in the first quarter of 2007 was
  $1.4 million, an increase of 26% compared to $1.1 million in the first quarter
  of 2006. The increase of $0.3 million is attributable to the costs incurred
  in the first quarter of 2007 related to the development of our initial mobile
  handheld computer, the development of which was begun in the fourth quarter
  of 2006. Expenses are expected to decrease in the second quarter of 2007 from
  first quarter levels due to development completion of our mobile handheld computer
  followed by initial shipments scheduled to begin in the second quarter.</p>
<p align=left><b>Sales and Marketing Expense</b><br>
  Sales and marketing expense for the first quarter of 2007 and 2006 was $1.8
  million in both periods. Increases in personnel costs and outside services were
  offset by reductions in advertising and promotion expenses. Expenses are expected
  to increase in the second quarter of 2007.
<p><font face="Times New Roman, Times, serif" size="3"><b>General and Administrative
  Expense<br>
  </b></font>General and administrative expense for the first quarter of 2007
  was $857,000, an increase of 2% compared to $842,000 in the first quarter of
  2006. Increases of $0.1 million in personnel costs were primarily from stock-based
  compensation expense recognized in the first quarter of 2007 due to timing of
  grants compared to the same period in 2006. Partially offsetting these increases
  were reduced business insurance costs and consulting and professional fees.
  Expenses are expected to decline in the second quarter of 2007 from first quarter
  levels due to lower professional fees related to costs of our annual audit historically
  charged over the fourth and first quarters.</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>Amortization of Intangibles<br>
  </b></font>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. Amortization charges for the first quarter
  of 2007 for all acquired intangibles were $34,000 compared to $36,000 for the
  first quarter 2006. The lower amortization charges in 2007 are due to components
  of intangible property becoming fully amortized.</p>
<p>&nbsp;</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">15<br>
  </font>
<p align=center>
<hr width="100%">
<p><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>Interest Income and
  Expense<br>
  </b></font>Interest income reflects interest earned on cash balances. Interest
  income of $37,900 in the first quarter of 2007 as compared to interest income
  of $36,700 in the first quarter of 2006, reflects higher rates of return in
  the first quarter of 2007 compared to the first quarter of 2006.</p>
<p>Interest expense in the first quarter of 2007 of $3,400 compares to interest
  expense of $2,200 in the first quarter of 2006. Interest expense is related
  to interest on equipment lease financing obligations and interest on amounts
  drawn on our bank lines of credit. We used our bank lines of credit only at
  the end of the first quarter 2007 and at the end of each quarter in 2006. Higher
  interest expense in the first quarter of 2007 as compared to the first quarter
  of 2006 is due to higher interest rates on our lines of credit in the first
  quarter of 2007.</p>
<p><b>Preferred Stock Dividends</b><br>
  Preferred stock dividends in the first quarter of 2006 reflect dividends of
  $10,700 accrued at the rate of 8% per annum on Series F Preferred Stock issued
  in March 2003. Series F dividends were payable quarterly in cash or in common
  stock, at the option of the Company. Dividends in 2006 reflect dividends on
  Series F Preferred Stock through the date of mandatory conversion in the first
  quarter 2006, and 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.</p>
<p><b>Taxes</b><br>
  Deferred income tax reflects the net tax effects of temporary differences between
  the carrying amount of assets and liabilities for financial reporting purposes
  and the amount used for income tax purposes. Deferred tax expense of $7,988
  for the quarter ended March 31, 2007 and the corresponding deferred tax liability
  shown on the Company's balance sheet, is related to the deferred tax liability
  on the portion of the Company's goodwill amortized for tax purposes. Due to
  the indefinite characteristic of this deferred tax liability, it cannot be offset
  against deferred tax assets, and furthermore, this deferred tax liability may
  never reverse. The Company maintains a full valuation allowance for all other
  components of deferred tax assets. The Company has not generated taxable income
  in any periods in any jurisdiction, foreign or domestic.</p>
<p><b>Liquidity and Capital Resources</b><br>
  We were unprofitable in the first quarter of 2007. We were unprofitable in each
  of the quarters in fiscal 2006. We were profitable in two quarters in 2005,
  but unprofitable for fiscal year 2005. Fiscal year 2004 was the 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. 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><font face="Times New Roman, Times, serif" size="3">16<br>
  </font>
<p align=center>
<hr width="100%">
<p><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
</p>
<p>Cash used in operating activities was $0.5 million in the first quarter of
  2007 compared to cash provided by operating activities of $0.1 million in the
  first quarter of 2006. Cash used in the first quarter of 2007 resulting from
  our net loss adjusted for non-cash items was $0.8 million compared to cash provided
  of $0.1 million in the first quarter of 2006 from our net loss adjusted for
  non-cash items. Adjustments for non-cash items, including depreciation and amortization,
  amortization of intangibles, gains and losses on foreign currency transactions,
  changes in deferred rent, deferred tax expense, and stock-based compensation,
  totaled $0.5 million in each of the first quarters of 2007 and 2006. Changes
  in working capital balances in the first quarter of 2007 resulted in a source
  of cash of $0.2 million, and were primarily from increases in accounts payable
  and accrued expenses attributable to accrued development costs related to our
  initial mobile handheld computer and increased levels of inventories, and increases
  in accrued payroll, partially offset by increases in accounts receivable due
  to a concentration of shipments in the latter month of the first quarter compared
  to the prior quarter, and increases in levels of inventory. Changes in working
  capital balances in the first quarter of 2006 resulted in a source of cash of
  $27,000, and were primarily from increases in payables due to increased overall
  expense levels and inventory purchases, and increases in accrued payroll, partially
  offset by increases in receivables due to increased levels of shipments during
  the quarter, increases in inventory to meet higher levels of shipments, and
  decreases in deferred revenue on shipments to distributors.</p>
<p>Cash used in investing activities was $0.5 million in the first quarter of
  2007 as compared to $0.3 million in the first quarter of 2006. Increased investing
  activities in the first quarter of 2007 reflects the costs of leasehold improvements
  related to our new corporate headquarters. Remaining investing activities in
  each of the periods reflects the costs of new computer hardware and software,
  and tooling costs.</p>
<p>Cash provided by financing activities was $0.1 million in the first quarter
  of 2007 as compared to $0.8 million during the first quarter of 2006. Financing
  activities in the first quarter of 2007 consisted primarily of a net increase
  in the amounts drawn on our bank lines of credit, proceeds from the exercise
  of stock options and additions of leased equipment. Financing activities in
  the first quarter of 2006 consisted primarily of a net increase in the amounts
  drawn on our bank lines of credit, proceeds from the exercise of Series F warrants
  and the exercise of stock options, partially offset by the final dividend payments
  on Series F Preferred Stock.</p>
<p>Our cash balances at March 31, 2007 were $5.2 million, including cash of $2.3
  million drawn against our bank line of credit. In May of 2007, we extended our
  bank line of credit agreement which will now expire on March 3, 2009. We have
  warrants outstanding from our private placement financings and outstanding employee
  stock options that, if exercised, would further increase our cash and equity
  balances. We believe our existing cash, plus our ability to reduce costs, and
  our bank line will be sufficient to meet our funding requirements at least through
  March 31, 2008. 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></p>
<p align=center><font face="Times New Roman, Times, serif" size="3">17<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p>Our contractual cash obligations at March 31, 2007 are outlined in the table
  below:</p>
<table width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10.0pt; margin-top: 6pt; ">
  <tr>
    <td colspan="2"><b><font size="3"></font></b></td>
    <td width="4%"><b><font size="3"></font></b></td>
    <td colspan="22" align="center" nowrap class="border" style="border-bottom: 1px solid #000000"><font size="3">Payments
      Due by Period</font></td>
  </tr>
  <tr>
    <td colspan="2" style="border-bottom: 1px solid #000000">
      <div align="center"><font size="3">Contractual Obligations</font></div>
    </td>
    <td width="4%"><b><font size="3">&nbsp</font></b></td>
    <td colspan="2" align="center" nowrap class="border" style="border-bottom: 1px solid #000000"><font size="3">Total</font></td>
    <td width="1%" class="border"><b><font color="#FF0000" size="3"></font></b></td>
    <td class="border" width="4%"><b><font color="#FF0000" size="3"></font></b></td>
    <td colspan="2" align="center" nowrap class="border" style="border-bottom: 1px solid #000000"><font size="3">Less
      than 1 year</font></td>
    <td width="1%" class="border"><b><font color="#FF0000" size="3"></font></b></td>
    <td width="4%" class="border"><b><font color="#FF0000" size="3"></font></b></td>
    <td colspan="2" align="center" nowrap class="border" style="border-bottom: 1px solid #000000"><font size="3">1
      to 3 years</font></td>
    <td width="1%" class="border"><b><font color="#FF0000" size="3"></font></b></td>
    <td width="4%" class="border"><b><font color="#FF0000" size="3"></font></b></td>
    <td colspan="2" align="center" nowrap class="border" style="border-bottom: 1px solid #000000"><font size="3">4
      to 5 years</font></td>
    <td width="1%" class="border"><b><font color="#FF0000" size="3"></font></b></td>
    <td width="4%" class="border"><b><font color="#FF0000" size="3"></font></b></td>
    <td colspan="2" align="center" nowrap class="border" valign="bottom" style="border-bottom: 1px solid #000000"><font size="3">More
      than 5 years</font></td>
    <td colspan="4" width="1%"><b><font size="3"></font></b></td>
  </tr>
  <tr valign="bottom">
    <td colspan="2" align="left" bgcolor="#cceeff">
      <div style="margin-left: 10px; text-indent: -10px"><font size="3"> Capital
        leases</font></div>
    </td>
    <td bgcolor="#cceeff" width="4%"><font size="3"><b></b></font></td>
    <td align="left" bgcolor="#cceeff" width="1%"><font size="3">$</font></td>
    <td align="right" width="8%" nowrap bgcolor="#cceeff"><font size="3">45,800</font></td>
    <td bgcolor="#cceeff" width="1%"><font size="3"><b><font color="#000000"></font></b></font></td>
    <td bgcolor="#cceeff" width="4%"><font size="3"><b><font color="#000000"></font></b></font></td>
    <td align="left" width="1%" bgcolor="#cceeff"><font size="3"><font color="#000000">$</font></font></td>
    <td align="right" nowrap bgcolor="#cceeff" width="8%"><font size="3">10,500</font></td>
    <td bgcolor="#cceeff" width="1%"><font size="3"><b><font color="#000000"></font></b></font></td>
    <td bgcolor="#cceeff" width="4%"><font size="3"><b><font color="#000000"></font></b></font></td>
    <td align="left" width="1%" bgcolor="#cceeff"><font size="3"><font color="#000000">$</font></font></td>
    <td align="right" nowrap bgcolor="#cceeff" width="8%"><font size="3">24,000</font></td>
    <td bgcolor="#cceeff" width="1%"><font size="3"><b><font color="#000000"></font></b></font></td>
    <td bgcolor="#cceeff" width="4%"><font size="3"><b><font color="#000000"></font></b></font></td>
    <td align="left" width="1%" bgcolor="#cceeff"><font size="3"><font color="#000000">$</font></font></td>
    <td align="right" nowrap bgcolor="#cceeff" width="8%"><font size="3">11,300</font></td>
    <td bgcolor="#cceeff" width="1%"><font size="3"><b><font color="#000000"></font></b></font></td>
    <td bgcolor="#cceeff" width="4%"><font size="3"><b><font color="#000000"></font></b></font></td>
    <td align="left" width="4%" bgcolor="#cceeff" valign="bottom"><font size="3"><font color="#000000">$</font></font></td>
    <td align="right" nowrap bgcolor="#cceeff" width="8%"><font size="3">---</font></td>
    <td colspan="4" width="1%"><font size="3"></font></td>
  </tr>
  <tr valign="bottom">
    <td colspan="2">
      <div style="margin-left: 10px; text-indent: -10px"><font size="3">Operating
        leases</font></div>
    </td>
    <td width="4%"><font size="3"><b></b></font></td>
    <td align="left" width="1%"><font size="3"><b></b></font></td>
    <td align="right" width="8%" nowrap><font size="3">1,874,800</font></td>
    <td width="1%"><font size="3"></font></td>
    <td width="4%"><font size="3"><b><font color="#000000"></font></b></font></td>
    <td align="left" width="1%"><font size="3"></font></td>
    <td align="right" width="8%" nowrap><font size="3">262,000</font></td>
    <td width="1%"><font size="3"></font></td>
    <td width="4%"><font size="3"><b><font color="#000000"></font></b></font></td>
    <td align="left" width="1%"><font size="3"></font></td>
    <td align="right" width="8%" nowrap ><font size="3">732,600</font></td>
    <td width="1%"><font size="3"><b><font color="#000000"></font></b></font></td>
    <td width="4%"><font size="3"><b><font color="#000000"></font></b></font></td>
    <td align="left" width="1%"><font size="3"></font></td>
    <td align="right" width="8%" nowrap><font size="3">781,100</font></td>
    <td width="1%"><font size="3"></font></td>
    <td width="4%"><font size="3"><b><font color="#000000"></font></b></font></td>
    <td align="left" width="4%" valign="bottom"><font size="3"></font></td>
    <td align="right" width="8%" nowrap><font size="3">99,100</font></td>
    <td colspan="4" width="1%"><font size="3"></font></td>
  </tr>
  <tr valign="bottom">
    <td colspan="2" bgcolor="#cceeff">
      <div style="margin-left: 10px; text-indent: -10px"><font size="3"> Unconditional
        purchase obligations with contract manufacturers</font></div>
    </td>
    <td bgcolor="#cceeff" width="4%"><font size="3"><b></b></font></td>
    <td align="left" bgcolor="#cceeff" width="1%" style="border-bottom: 1px solid #000000"><font size="3"><b><font color="#000000">&nbsp</font></b></font></td>
    <td align="right" width="8%" nowrap bgcolor="#cceeff" style="border-bottom: 1px solid #000000"><font size="3">864,800</font></td>
    <td bgcolor="#cceeff" width="1%"><font size="3"></font></td>
    <td bgcolor="#cceeff" width="4%"><font size="3"><b><font color="#000000"></font></b></font></td>
    <td align="left" width="1%" bgcolor="#cceeff" style="border-bottom: 1px solid #000000"><font size="3"><b><font color="#000000">&nbsp</font></b></font></td>
    <td align="right" nowrap width="8%" bgcolor="#cceeff" style="border-bottom: 1px solid #000000"><font size="3">864,800</font></td>
    <td width="1%" bgcolor="#cceeff"><font size="3"></font></td>
    <td bgcolor="#cceeff" width="4%"><font size="3"><b><font color="#000000"></font></b></font></td>
    <td align="left" width="1%" bgcolor="#cceeff" style="border-bottom: 1px solid #000000"><font size="3"><b><font color="#000000">&nbsp</font></b></font></td>
    <td align="right" nowrap width="8%" bgcolor="#cceeff" style="border-bottom: 1px solid #000000"><font size="3">---</font></td>
    <td width="1%" bgcolor="#cceeff"><font size="3"><b><font color="#000000"></font></b></font></td>
    <td bgcolor="#cceeff" width="4%"><font size="3"><b><font color="#000000"></font></b></font></td>
    <td align="left" width="1%" bgcolor="#cceeff" style="border-bottom: 1px solid #000000"><font size="3"><b><font color="#000000">&nbsp</font></b></font></td>
    <td align="right" nowrap width="8%" bgcolor="#cceeff" style="border-bottom: 1px solid #000000"><font size="3">---</font></td>
    <td width="1%" bgcolor="#cceeff"><font size="3"></font></td>
    <td bgcolor="#cceeff" width="4%"><font size="3"><b><font color="#000000"></font></b></font></td>
    <td align="left" width="4%" bgcolor="#cceeff" valign="bottom" style="border-bottom: 1px solid #000000"><font size="3"><b><font color="#000000">&nbsp</font></b></font></td>
    <td align="right" nowrap width="8%" bgcolor="#cceeff" style="border-bottom: 1px solid #000000"><font size="3">---</font></td>
    <td colspan="4" width="1%"><font size="3"></font></td>
  </tr>
  <tr valign="bottom">
    <td colspan="2">
      <div style="margin-left: 10px; text-indent: -10px"><font size="3"> Total
        contractual cash obligations </font></div>
    </td>
    <td width="4%"><font size="3"><b></b></font></td>
    <td align="left" width="1%" style="border-bottom: 3px double #000000"><font size="3"><font color="#000000">$</font></font></td>
    <td align="right" width="8%" nowrap style="border-bottom: 3px double #000000"><font size="3">2,785,400</font></td>
    <td width="1%"><font size="3"></font></td>
    <td width="4%"><font size="3"><b><font color="#000000"></font></b></font></td>
    <td align="left" width="1%" style="border-bottom: 3px double #000000"><font size="3"><font color="#000000">$</font></font></td>
    <td align="right" width="8%" nowrap style="border-bottom: 3px double #000000"><font size="3">1,137,300</font></td>
    <td width="1%"><font size="3"></font></td>
    <td width="4%"><font size="3"><b><font color="#000000"></font></b></font></td>
    <td align="left" width="1%" style="border-bottom: 3px double #000000"><font size="3"><font color="#000000">$</font></font></td>
    <td align="right" width="8%" nowrap style="border-bottom: 3px double #000000"><font size="3">756,600</font></td>
    <td width="1%"><font size="3"><b><font color="#000000"></font></b></font></td>
    <td width="4%"><font size="3"><b><font color="#000000"></font></b></font></td>
    <td align="left" width="1%" style="border-bottom: 3px double #000000"><font size="3"><font color="#000000">$</font></font></td>
    <td align="right" width="8%" nowrap style="border-bottom: 3px double #000000"><font size="3">792,400</font></td>
    <td width="1%"><font size="3"></font></td>
    <td width="4%"><font size="3"><b><font color="#000000"></font></b></font></td>
    <td align="left" width="4%" valign="bottom" style="border-bottom: 3px double #000000"><font size="3"><font color="#000000">$</font></font></td>
    <td align="right" width="8%" nowrap style="border-bottom: 3px double #000000"><font size="3">99,100</font></td>
    <td colspan="4" width="1%"><font size="3"></font></td>
  </tr>
</table>
<p>&nbsp;</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>Off-Balance Sheet Arrangements<br>
  </b></font>We have no off-balance sheet arrangements as defined in Item 303
  of Regulation S-K.</p>
<P><b>Recent Accounting Pronouncements<br>
  </b>In June 2006, the Financial Accounting Standards Board issued Interpretation
  No. 48, "Accounting for Uncertainty in Income Taxes - An Interpretation of FASB
  Statement No. 109" ("FIN 48"), to create a single model to address accounting
  for uncertainty in tax positions. FIN 48 clarifies the accounting for income
  taxes by prescribing a minimum recognition threshold a tax position is required
  to meet before being recognized in the financial statements. FIN 48 also provides
  guidance on derecognition, measurement, classification, interest and penalties,
  accounting in interim periods, disclosure and transition. FIN 48 is effective
  for fiscal years beginning after December 15, 2006. The Company adopted FIN
  48 as of January 1, 2007, as required. There were no adjustments to the financial
  statements as a result of the adoption of FIN 48. See Note 9 - Taxes, for additional
  information.</P>
<P>&nbsp;</P>
<p align=center><font face="Times New Roman, Times, serif" size="3">18<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
  <font face="Times New Roman, Times, serif" size="3"><a
name=qqd></a></font>
<p align=left><b>Item 3. Quantitative and Qualitative Disclosures About Market
  Risk</b>
<p align=left><b>Interest Rate Risk</b>
<p align=left>Our exposure to market risk for changes in interest rates relates
  primarily to invested cash. Our cash is invested in short-term money market
  investments backed by U.S. Treasury notes and other investments that mature
  within one year and whose principal is not subject to market rate fluctuations.
  Accordingly, interest rate declines would adversely affect our interest income
  but would not affect the carrying value of our cash investments. Based on a
  sensitivity analysis of our cash investments during the quarter ended March
  31, 2007, a decline of 1% in interest rates would reduce our quarterly interest
  income by approximately $7,200.
<p align=left>Our bank credit line facilities of up to $4.0 million have variable
  interest rates based upon the lender's index rate plus 0.5% for both the domestic
  line (up to $2.5 million) and the international line (up to $1.5 million). Accordingly,
  interest rate increases would increase our interest expense on outstanding credit
  line balances. We utilized our credit line facility only at the end of the quarter
  in the first quarter of 2007 and the end of each quarter in 2006, and therefore
  did not subject ourselves to interest rate exposure. Based on a sensitivity
  analysis, an increase of 1% in the interest rate would increase our borrowing
  costs by $10,000 for each $1 million of borrowings, if outstanding for the entire
  year, against our bank credit facility or a maximum of $40,000 if we utilized
  our entire credit line.
<p align=left><b>Foreign Currency Risk</b>
<p align=left>A substantial majority of our revenue, expense and purchasing activities
  are transacted in U.S. dollars. However, we require our European distributors
  to purchase our products in Euros, we pay the expenses of our European subsidiary
  in Euros, and we expect to enter into selected future purchase commitments with
  foreign suppliers that may be paid in the local currency of the supplier. To
  date these balances have been small, and we have not been subject to significant
  losses from material foreign currency fluctuations. Based on a sensitivity analysis
  of our net foreign currency denominated assets and subsidiary expenses at the
  beginning, during and at the end of the quarter ended March 31, 2007, an adverse
  change of 10% in exchange rates would result in a decrease in our net income
  for the first quarter of approximately $71,000, if left unprotected. For the
  first quarter of 2007 the total net adjustment for the effects of changes in
  foreign currency on cash balances, collections, payables, and derivatives was
  a net gain of $13,500. 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, assess, and mitigate through
  hedging activities, the risk associated with these exposures.
<p align=left>&nbsp;
<p align=center><font face="Times New Roman, Times, serif" size="3">19<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
  <font face="Times New Roman, Times, serif" size="3"><a
name=item4></a></font>
<p align=left><b>Item 4. Controls and Procedures</b>
<p align=left>(a) Evaluation of disclosure controls and procedures
<p align=left>Our management evaluated, with the participation of our Chief Executive
  Officer and our Chief Financial Officer, the effectiveness of our disclosure
  controls and procedures as of the end of the period covered by this Quarterly
  Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and
  our Chief Financial Officer have concluded that our disclosure controls and
  procedures are effective to ensure that information we are required to disclose
  in reports that we file or submit under the Securities Exchange Act of 1934
  is (i) recorded, processed, summarized and reported within the time periods
  specified in Securities and Exchange Commission rules and forms, and (ii) accumulated
  and communicated to our management, including our Chief Executive Officer and
  our Chief Financial Officer, as appropriate to allow timely decisions regarding
  required disclosure.
<p align=left>(b) Changes in internal control over financial reporting
<p align=left>There was no change in our internal control over financial reporting
  that occurred during the period covered by this Quarterly Report on Form 10-Q
  that has materially affected, or is reasonably likely to materially affect,
  our internal control over financial reporting.
<p align=left><b>Item 4T. Controls and Procedures</b>
<p align=left>(a) Management's quarterly report on internal control over financial
  reporting
<p>Our management is responsible for establishing and maintaining adequate internal
  control over financial reporting. There are inherent limitations in the effectiveness
  of any internal control, including the possibility of human error and the circumvention
  or overriding of controls. Accordingly, even effective internal controls can
  provide only reasonable assurances with respect to financial statement preparation.
  Further because of changes in conditions, the effectiveness of internal controls
  may vary over time.</p>
<p>We assessed the effectiveness of the Company's internal control over financial
  reporting as of March 31, 2007. In making this assessment, we used the criteria
  set forth by the Committee of Sponsoring Organizations of the Treadway Commission
  (COSO) in Internal Control - Integrated Framework.</p>
<p>Based on our assessment using those criteria, we believe that, as of March
  31, 2007, our internal control over financial reporting is effective.</p>
<p>This quarterly report does not include an attestation report of the Company's
  registered public accounting firm regarding internal control over financial
  reporting. Management's report was not subject to attestation by the Company's
  registered public accounting firm pursuant to temporary rules of the Securities
  and Exchange Commission that permit the Company to provide only management's
  report in this quarterly report.</p>
<p align=left>&nbsp;
<p align=center><font face="Times New Roman, Times, serif" size="3">20<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font><font face="Times New Roman, Times, serif" size="3"><a
name=oth></a></font> <font face="Times New Roman, Times, serif" size="3"><a
name=risk></a></font>
<p align=left>(b) Changes in internal control over financial reporting
<p align=left>There was no change in our internal control over financial reporting
  that occurred during the period covered by this Quarterly Report on Form 10-Q
  that has materially affected, or is reasonably likely to materially affect,
  our internal control over financial reporting.
<p align=left>&nbsp;
<p align=left>&nbsp;
<p align=left><b>PART II. OTHER INFORMATION </b>
<p><b>Item 1A. Risk Factors </b></p>
<p align=left>There are no material changes to the risk factors described in Part
  I, "Item 1A. Risk Factors," in our Annual Report on Form 10-K for the fiscal
  year ended December 31, 2006. The risk factor below titled, <i>"Our Common Stock
  may become ineligible for listing on the Nasdaq Global Market or alternatively
  the Nasdaq Capital Market, which would materially adversely affect the liquidity
  and price of our Common Stock,"</i> has been added as our Common Stock has traded
  below $1.00 from time to time during the last seven months. The risk factor
  below titled, <i>"We may become subject to claims of intellectual property rights
  infringement, which could result in substantial liability,"</i> has been updated
  with additional information regarding the lawsuit filed by the Washington Research
  Foundation against selected companies which have incorporated Bluetooth wireless
  technology into their products. We also incorporate the same technology into
  many of our products. We have not been named in the lawsuit. The presentation
  of numerical amounts and percentages in the following risk factors below titled:
  <i>"A significant portion of our revenue currently comes from two distributors,
  and any decrease in revenue from these distributors could harm our business;"
  "Our operating results could be harmed by economic, political, regulatory and
  other risks associated with export sales;" "The sale of a substantial number
  of shares of Common Stock could cause the market price of our Common Stock to
  decline;"</i> and <i>"Volatility in the trading price of our Common Stock could
  negatively impact the price of our Common Stock,"</i> have been updated to reflect
  first quarter 2007 information.
<p align=left>The risks described in our Annual Report on Form 10-K and updated
  in this Report on Form 10-Q, are not the only risks facing our Company. Additional
  risks and uncertainties not currently known to us or that we currently deem
  to be immaterial also may materially adversely affect our business, financial
  condition, and operating results.
<p align=left><b>We have a history of operating losses and may not achieve ongoing
  profitability.</b>
<p>We were unprofitable in the first quarter of 2007. We were unprofitable in
  each of the quarters in fiscal 2006. We were profitable in two quarters in 2005,
  but unprofitable for fiscal year 2005. Fiscal year 2004 was the 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 align=center><font face="Times New Roman, Times, serif" size="3">21<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font><font face="Times New Roman, Times, serif" size="3"><a
name=oth></a></font> <font face="Times New Roman, Times, serif" size="3"><a
name=risk></a></font>
<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>
<p><b>If third-parties do not produce and sell innovative products with which
  our products are compatible, or if our line of handheld computers is not successful,
  we may not achieve our sales projections.</b></p>
<p>Our success has been 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. Even if we are successful in marketing and selling our new line
  of handheld computers, 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 handheld computers 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 2006, or if these products fail, including our new
  line of handheld computers, 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>&nbsp;</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">22<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font><font face="Times New Roman, Times, serif" size="3"></font>
<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; <font face="Times New Roman, Times, serif" size="3"><br>
    </font></li>
  <li>enhance our products by adding additional features; <font face="Times New Roman, Times, serif" size="3"><br>
    </font></li>
  <li>invest significant resources in research and development, sales and marketing,
    and customer support;<font face="Times New Roman, Times, serif" size="3"><br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">maintain superior or
    competitive performance in our products; and<br>
    </font></li>
  <li>anticipate our end users' needs and technological trends accurately. </li>
</ul>
<p>We cannot be sure that we will have sufficient resources to make adequate investments
  in research and development or that we will be able to identify trends or make
  the technological advances necessary to be competitive. </p>
<p><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 37 and
  40 percent of our worldwide revenue in the first quarter of 2007 and fiscal
  year 2006, 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 markedly in the third quarter 2006
  to 32 percent, due primarily to a reduction in the level of corporate handheld
  deployments by one of our key North American channel partners.</p>
<p><b>If the market for mobile computers experiences delays, or 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 2006 and 2005,
  or if the markets for our mobile handheld computers do not grow, we will not
  achieve our sales projections.</p>
<p><b>Our sales will be hurt if the new technologies used in our products do not
  become widely adopted, or are adopted slower than expected.</b></p>
<p>Many of our products use new technologies, such as 2D bar code scanning and
  RFID, which are not yet widely adopted in the market. If these technologies
  fail to become widespread, or are adopted slower than expected, our sales will
  suffer.</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">23<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p align=left><b>Our Common Stock may become ineligible for listing on the Nasdaq
  Global Market or alternatively the Nasdaq Capital Market, which would materially
  adversely affect the liquidity and price of our Common Stock.</b>
<p align=left>We are listed on the Nasdaq Global Market. Our continued listing
  is contingent on meeting specific quantitative standards, including a minimum
  closing bid price of $1.00. Our Common Stock has traded below $1.00 for significant
  periods during the last seven months. We may not be able to meet these requirements
  in the future, particularly if our Common Stock fails to trade at or above $1.00
  per share for an extended period of time. In particular, if our stock fails
  to maintain a minimum closing bid price of at least $1.00 for 30 consecutive
  business days, we will receive a staff deficiency notice from Nasdaq, and our
  stock will have to achieve a minimum closing bid price of at least $1.00 for
  at least 10 consecutive business days within the 180 calendar days thereafter,
  or else we may be delisted from the Nasdaq Global Market. In addition, Nasdaq
  has the discretion to extend the foregoing 10 consecutive business day requirement
  to up to 20 business days. In the last seven months our Common Stock once traded
  below $1.00 for over 30 consecutive business days. However, our stock price
  has then traded above $1.00 for the requisite time period and, we have maintained
  our Nasdaq Global Market listing. Should we be delisted from the Nasdaq Global
  Market, we may be eligible for listing on the Nasdaq Capital Market, subject
  to meeting specific quantitative standards, including maintaining a minimum
  closing bid price of $1.00, and would have to achieve that within the 180 calendar
  days of initial listing on the Nasdaq Capital Market.
<p align=left>If our Common Stock becomes ineligible for listing on either the
  Nasdaq Global Market or the Nasdaq Capital Market, and is thereafter traded
  only on the over-the-counter market, our stockholders' ability to purchase and
  sell our Common Stock could be less orderly and efficient and more costly. Furthermore,
  a delisting of our Common Stock could have a materially adverse impact on our
  business operations by damaging our general business reputation, impairing our
  ability to obtain additional capital, reducing the incentives that equity ownership
  is intended to provide to our employees, and causing a loss of confidence by
  investors, suppliers and employees. As a result of the negative impact on the
  liquidity of our Common Stock and on our business, a delisting would also likely
  decrease the market price of our Common Stock and increase the volatility of
  our stock price.
<p align=left><b>We could face increased competition in the future, which would
  adversely affect our financial performance.</b>
<p align=left>The market for handheld computers in which we operate is very competitive.
  Our future financial performance is contingent on a number of unpredictable
  factors, including that:
<ul>
  <li>some of our competitors have greater financial, marketing, and technical
    resources than we do; </li>
  <li>we periodically face intense price competition, particularly when our competitors
    have excess inventories and discount their prices to clear their inventories;
    and</li>
  <li>certain original equipment manufacturers of personal computers, mobile phones
    and handheld computers offer built-in functions, such as Bluetooth wireless
    technology, Wi-Fi, or bar code scanning, that compete with our products.</li>
</ul>
<p>Increased competition could result in price reductions, fewer customer orders,
  reduced margins, and loss of market share. Our failure to compete successfully
  against current or future competitors could harm our business, operating results
  and financial condition.</p>
<p>&nbsp;</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">24<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font><font face="Times New Roman, Times, serif" size="3"></font>
<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>
<p align=left>Our agreements with distributors, resellers, and original equipment
  manufacturers are generally nonexclusive and may be terminated on short notice
  by them without cause. Our distributors, resellers, and original equipment manufacturers
  are not within our control, are not obligated to purchase products from us,
  and may offer competitive lines of products simultaneously. Sales growth is
  contingent in part on our ability to enter into additional distribution relationships
  and expand our sales channels. We cannot predict whether we will be successful
  in establishing new distribution relationships, expanding our sales channels
  or maintaining our existing relationships. A failure to enter into new distribution
  relationships or to expand our sales channels could adversely impact our ability
  to grow our sales.
<p align=left>We allow our distribution channels to return a portion of their
  inventory to us for full credit against other purchases. In addition, in the
  event we reduce our prices, we credit our distributors for the difference between
  the purchase price of products remaining in their inventory and our reduced
  price for such products. Actual returns and price protection may adversely affect
  future operating results, particularly since we seek to continually introduce
  new and enhanced products and are likely to face increasing price competition.
<p align=center> <font face="Times New Roman, Times, serif" size="3">25<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p align=left><b>We depend on alliances and other business relationships with
  a small number of third-parties, and a disruption in any one of these relationships
  would hinder our ability to develop and sell our products.</b>
<p align=left>We depend on strategic alliances and business relationships with
  leading participants in various segments of the communications and mobile personal
  computer markets to help us develop and market our products. Our strategic partners
  may revoke their commitment to our products or services at any time in the future
  or may develop their own competitive products or services. Accordingly, our
  strategic relationships may not result in sustained business alliances, successful
  product or service offerings, or the generation of significant revenues. Failure
  of one or more of such alliances could result in delay or termination of product
  development projects, failure to win new customers, or loss of confidence by
  current or potential customers.
<p align=left>We have devoted significant research and development resources to
  design activities for Windows-mobile products, Palm devices, smartphones using
  Windows Mobile and Symbian System 60 and 80 operating systems, handheld computers
  from Research-in-Motion, and more recently, to developing our own family of
  handheld mobile computers. Such design activities have diverted financial and
  personnel resources from other development projects. These design activities
  are not undertaken pursuant to any agreement under which Microsoft, Palm, Symbian
  or Research-in-Motion is obligated to continue the collaboration or to support
  the products produced from the collaboration. Consequently, these organizations
  may terminate their collaborations with us for a variety of reasons, including
  our failure to meet agreed-upon standards or for reasons beyond our control,
  such as changing market conditions, increased competition, discontinued product
  lines, and product obsolescence.
<p align=left><b>Our intellectual property and proprietary rights may be insufficient
  to protect our competitive position.</b>
<p>Our business depends on our ability to protect our intellectual property. We
  rely primarily on patent, copyright, trademark, trade secret laws, and other
  restrictions on disclosure to protect our proprietary technologies. We cannot
  be sure that these measures will provide meaningful protection for our proprietary
  technologies and processes. We cannot be sure that any patent issued to us will
  be sufficient to protect our technology. The failure of any patents to provide
  protection to our technology would make it easier for our competitors to offer
  similar products. In connection with our participation in the development of
  various industry standards, we may be required to license certain of our patents
  to other parties, including our competitors, that develop products based upon
  the adopted standards.</p>
<p>We also generally enter into confidentiality agreements with our employees,
  distributors, and strategic partners, and generally control access to our documentation
  and other proprietary information. Despite these precautions, it may be possible
  for a third-party to copy or otherwise obtain and use our products, services,
  or technology without authorization, develop similar technology independently,
  or design around our patents.</p>
<p><font face="Times New Roman, Times, serif" size="3"> </font>Effective copyright,
  trademark, and trade secret protection may be unavailable or limited in certain
  foreign countries. Furthermore, certain of our customers have entered into agreements
  with us which provide that the customers have the right to use our proprietary
  technology in the event we default in our contractual obligations, including
  product supply obligations, and fail to cure the default within a specified
  period of time.</p>
<p align="center"><font face="Times New Roman, Times, serif" size="3">26<br>
  </font> </p>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p><font face="Times New Roman, Times, serif" size="3"><b>We may become subject
  to claims of intellectual property rights infringement, which could result in
  substantial liability.</b></font></p>
<p>In the course of operating our business, we may receive claims of intellectual
  property infringement or otherwise become aware of potentially relevant patents
  or other intellectual property rights held by other parties. Many of our competitors
  have large intellectual property portfolios, including patents that may cover
  technologies that are relevant to our business. In addition, many smaller companies,
  universities, and individuals have obtained or applied for patents in areas
  of technology that may relate to our business. The industry is moving towards
  aggressive assertion, licensing, and litigation of patents and other intellectual
  property rights. In January 2007, the Washington Research Foundation filed a
  patent lawsuit against Nokia, Samsung, and Panasonic, alleging these wireless
  device makers of using infringing Bluetooth microprocessors in their products.
</p>
<p>In March of 2007, Apple, Dell, Sony, Logitech, Motorola, SonyEricsson, Toshiba,
  and Plantronics were added by Washington Research Foundation to the list of
  defendants. The companies are accused of infringing four patents covering technology
  that lets users exchange data among mobile phones, personal computers and other
  devices without using cables. The Washington Research Foundation is asking for
  money damages and a court order barring the sale of products that use the patented
  technology. We have not been named in the lawsuit, and we do not plan to make
  any changes to our current business at this time. The outcome of this lawsuit
  may result in future changes to our business, including potential increased
  costs for those products of ours that make use of the related technology.</p>
<p>If we are unable to obtain and maintain licenses on favorable terms for intellectual
  property rights required for the manufacture, sale, and use of our products,
  particularly those products which must comply with industry standard protocols
  and specifications to be commercially viable, our results of operations or financial
  condition could be adversely impacted.</p>
<p>In addition to disputes relating to the validity or alleged infringement of
  other parties' rights, we may become involved in disputes relating to our assertion
  of our own intellectual property rights. Whether we are defending the assertion
  of intellectual property rights against us or asserting our intellectual property
  rights against others, intellectual property litigation can be complex, costly,
  protracted, and highly disruptive to business operations by diverting the attention
  and energies of management and key technical personnel. Plaintiffs in intellectual
  property cases often seek injunctive relief, and the measures of damages in
  intellectual property litigation are complex and often subjective or uncertain.
  Thus, any adverse determinations in this type of litigation could subject us
  to significant liabilities and costs.</p>
<p>&nbsp;</p>
<p align="center"><font face="Times New Roman, Times, serif" size="3">27<br>
  </font> </p>
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<p align=left>
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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><font face="Times New Roman, Times, serif" size="3"><b>Undetected flaws and
  defects in our products may disrupt product sales and result in expensive and
  time-consuming remedial action.</b></font></p>
<p>Our hardware and software products may contain undetected flaws, which may
  not be discovered until customers have used the products. From time to time,
  we may temporarily suspend or delay shipments or divert development resources
  from other projects to correct a particular product deficiency. Efforts to identify
  and correct errors and make design changes may be expensive and time consuming.
  Failure to discover product deficiencies in the future could delay product introductions
  or shipments, require us to recall previously shipped products to make design
  modifications, or cause unfavorable publicity, any of which could adversely
  affect our business and operating results.</p>
<p><b>Our quarterly operating results may fluctuate in future periods, which could
  cause our stock price to decline.</b></p>
<p>We expect to experience quarterly fluctuations in operating results in the
  future. We generally ship orders as received, and as a result we may have little
  backlog. Quarterly revenue and operating results therefore depend on the volume
  and timing of orders received during the quarter, which are difficult to forecast.
  Historically, we have often recognized a substantial portion of our revenue
  in the last month of the quarter. This subjects us to the risk that even modest
  delays in orders may adversely affect our quarterly operating results. Our operating
  results may also fluctuate due to factors such as: </p>
<ul>
  <li><font face="Times New Roman, Times, serif" size="3">the demand for our products;<br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">the size and timing
    of customer orders;<br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">unanticipated delays
    or problems in our introduction of new products and product enhancements;<br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">the introduction of
    new products and product enhancements by our competitors;<br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">the timing of the introduction
    of new products that work with our connection products;<br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">changes in the proportion
    of revenues attributable to royalties and engineering development services;<br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">product mix;<br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">timing of software enhancements;<br>
    </font></li>
  <li>changes in the level of operating expenses;<font face="Times New Roman, Times, serif" size="3"><br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">competitive conditions
    in the industry including competitive pressures resulting in lower average
    selling prices; and<br>
    </font></li>
  <li>timing of distributors' shipments to their customers.</li>
</ul>
<p>Because we base our staffing and other operating expenses on anticipated revenue,
  delays in the receipt of orders can cause significant variations in operating
  results from quarter to quarter. As a result of any of the foregoing factors,
  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>&nbsp;</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">28<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p><font face="Times New Roman, Times, serif" size="3"><b>The loss of one or more
  of our senior personnel could harm our existing business.</b></font></p>
<p>A number of our officers and senior managers have been employed for ten to
  fourteen years by us, including our President, Chief Financial Officer, Chief
  Technical Officer, Vice President of Marketing, and Senior Vice President for
  Business Development/General Manager Development Services. Our future success
  will depend upon the continued service of key officers and senior managers.
  Competition for officers and senior managers is intense, and there can be no
  assurance that we will be able to retain our existing senior personnel. The
  loss of one or more of our officers or key senior managers could adversely affect
  our ability to compete.</p>
<p><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 adversely affected our net income and earnings per share in the
  first quarter of 2007 and each of the quarters in 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><font face="Times New Roman, Times, serif" size="3"><b>If we are unable to
  attract and retain highly skilled sales and marketing and product development
  personnel, our ability to develop new products and product enhancements will
  be adversely affected.</b></font></p>
<p>We believe our ability to achieve increased revenues and to develop successful
  new products and product enhancements will depend in part upon our ability to
  attract and retain highly skilled sales and marketing and product development
  personnel. Our products involve a number of new and evolving technologies, and
  we frequently need to apply these technologies to the unique requirements of
  mobile connection products. Our personnel must be familiar with both the technologies
  we support and the unique requirements of the products to which our products
  connect. Competition for such personnel is intense, and we may not be able to
  attract and retain such key personnel. In addition, our ability to hire and
  retain such key personnel will depend upon our ability to raise capital or achieve
  increased revenue levels to fund the costs associated with such key personnel.
  Failure to attract and retain such key personnel will adversely affect our ability
  to develop new products and product enhancements.</p>
<p>&nbsp;</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">29<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<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><font face="Times New Roman, Times, serif" size="3"><b>We may be unable to
  manufacture our products, because we are dependent on a limited number of qualified
  suppliers for our components.</b></font></p>
<p>Several of our component parts, including our serial interface chip, our Ethernet
  chip, and our bar code scanning modules, and our new line of handheld computers,
  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
  41 percent of our revenue in the first quarter of 2007 and 32 percent of our
  revenue in the fiscal year 2006. Accordingly, our operating results are subject
  to the risks inherent in export sales, including:</p>
<ul>
  <li><font face="Times New Roman, Times, serif" size="3">longer payment cycles;<br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">unexpected changes in
    regulatory requirements, import and export restrictions and tariffs;<br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">difficulties in managing
    foreign operations;<br>
    </font></li>
  <li>the burdens of complying with a variety of foreign laws;<font face="Times New Roman, Times, serif" size="3"><br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">greater difficulty or
    delay in accounts receivable collection;<br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">potentially adverse
    tax consequences; and<br>
    </font></li>
  <li>political and economic instability.</li>
</ul>
<p>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>&nbsp;</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">30<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<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><font face="Times New Roman, Times, serif" size="3"><b>Failure to maintain
  effective internal controls could have a material adverse effect on our business,
  operating results and stock price. </b></font></p>
<p>We have evaluated and will continue to evaluate our internal control procedures
  in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act,
  which requires an annual management assessment of the design and effectiveness
  of our internal controls over financial reporting. If we fail to maintain the
  adequacy of our internal controls, as such standards are modified, supplemented
  or amended from time to time, we may not be able to ensure that we can conclude
  on an ongoing basis that we have effective internal controls over financial
  reporting in accordance with Section 404 of the Sarbanes-Oxley Act. Moreover,
  effective internal controls, particularly those related to revenue recognition,
  are necessary for us to produce reliable financial reports and are important
  to helping prevent financial fraud. If we cannot provide reliable financial
  reports or prevent fraud, our business and operating results could be harmed,
  investors could lose confidence in our reported financial information, and the
  trading price of our stock could drop significantly.</p>
<p><b>The sale of a substantial number of shares of common stock could cause the
  market price of our common stock to decline.</b></p>
<p>Sales of a substantial number of shares of our common stock in the public market
  could adversely affect the market price for our common stock. The market price
  of our common stock could also decline if one or more of our significant stockholders
  decided for any reason to sell substantial amounts of our common stock in the
  public market.</p>
<p>As of April 30, 2007, we had 31,913,386 shares of common stock outstanding.
  Substantially all of these shares are freely tradable in the public market,
  either without restriction or subject, in some cases, only to S-3 prospectus
  delivery requirements and, in other cases, only to manner of sale, volume, and
  notice requirements of Rule 144 under the Securities Act.</p>
<p>As of April 30, 2007, we had 10,007,043 shares subject to outstanding options
  under our stock option plans, and 911,815 shares were available for future issuance
  under the plans. We have registered the shares of common stock subject to outstanding
  options and reserved for issuance under our stock option plans. Accordingly,
  shares underlying vested options will be eligible for resale in the public market
  as soon as the options are exercised.</p>
<p>As of April 30, 2007, we had warrants outstanding to purchase a total of 933,368
  shares of our common stock at exercise prices ranging from $0.722 to $2.73.
  These outstanding warrants have expiration dates ranging from October of 2007
  to August of 2008. 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><br>
</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">31<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<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, 2006 through April 30, 2007, our common stock
  price fluctuated between a high of $1.75 and a low of $0.72. 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>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p></p>
<p></p>
<p></p>
<p></p>
<p><font face="Times New Roman, Times, serif" size="3"><br>
  </font></p>
<p>&nbsp;</p>
<p></p>
<p></p>
<p></p>
<p align=center><font face="Times New Roman, Times, serif" size="3">32<br>
  </font>
<p align=center>
<p align=center><font face="Times New Roman, Times, serif" size="3"><br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
  <font face="Times New Roman, Times, serif" size="3"><a
name=sub></a></font>
<p><font face="Times New Roman, Times, serif" size="3"> <b>Item 4. Submission
  of Matters to a Vote of Security Holders</b></font></p>
<p>At the Annual Meeting of Stockholders of the Company, held at the Company's
  Newark, California, facilities on April 18, 2007, the stockholders elected seven
  directors to serve until the next annual meeting of stockholders (Item 1), and
  ratified the appointment of Moss Adams LLP to serve as the independent public
  accountants of the Company for the fiscal year ending December 31, 2007 (Item
  2). Total voting shares on the record date of February 20, 2007 consisted of
  31,882,365 common shares. Each share of common stock was entitled to one vote.
  A total of 27,338,070 shares or 85.75% of outstanding shares were present or
  voting by proxy. Results of the stockholder vote were as follows:<br>
  <br>
</p>
<table cellspacing=1 cellpadding=1 width=627 align=center border=1>
  <tr valign=bottom>
    <td width="222" height=25><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font>
      <p align=left>ITEM 1:<font face="Times New Roman, Times, serif" size="2">
        </font></p>
    </td>
    <td height=25 width="117">
      <div align="center">FOR</div>
    </td>
    <td width="177" height=25>
      <div align="center">WITHHELD</div>
    </td>
    <td width="84" height=25>
      <div align="center">RESULT</div>
    </td>
  </tr>
  <tr valign=bottom>
    <td height=21 width="222"><u>Election of Directors:</u></td>
    <td height=21 width="117">&nbsp;</td>
    <td width="177" height=21>
      <div align="center">&nbsp</div>
    </td>
    <td width="84" height=21>
      <div align="center">&nbsp</div>
    </td>
  </tr>
  <tr valign=bottom>
    <td height=16 width="222">Charlie Bass (1)(3)</td>
    <td height=21 width="117" valign="bottom">
      <div align="center">26,523,885</div>
    </td>
    <td width="177" height=21 valign="bottom">
      <div align="center">814,185</div>
    </td>
    <td width="84" height=16>
      <div align="center">Elected</div>
    </td>
  </tr>
  <tr valign=bottom>
    <td height=14 width="222">Kevin Mills</td>
    <td height=16 width="117" valign="bottom">
      <div align="center">25,858,680</div>
    </td>
    <td width="177" height=16 valign="bottom">
      <div align="center">1,479,390</div>
    </td>
    <td width="84" height=14>
      <div align="center">Elected</div>
    </td>
  </tr>
  <tr valign=bottom>
    <td height=15 width="222">Micheal Gifford</td>
    <td height=14 width="117" valign="bottom">
      <div align="center">26,482,630</div>
    </td>
    <td width="177" height=14 valign="bottom">
      <div align="center">855,440</div>
    </td>
    <td width="84" height=15>
      <div align="center">Elected</div>
    </td>
  </tr>
  <tr valign=bottom>
    <td height=23 width="222">Gianluca Rattazzi (1)(3)</td>
    <td height=15 width="117" valign="bottom">
      <div align="center">26,487,630</div>
    </td>
    <td width="177" height=15 valign="bottom">
      <div align="center">850,400</div>
    </td>
    <td width="84" height=23>
      <div align="center">Elected</div>
    </td>
  </tr>
  <tr valign=bottom>
    <td height=23 width="222">Leon Malmed (1)(3)</td>
    <td height=23 width="117" valign="bottom">
      <div align="center">26,486,622</div>
    </td>
    <td width="177" height=23 valign="bottom">
      <div align="center">851,448</div>
    </td>
    <td width="84" height=23>
      <div align="center">Elected</div>
    </td>
  </tr>
  <tr valign=bottom>
    <td height=27 width="222">Enzo Torresi (2)(3)</td>
    <td height=23 width="117" valign="bottom">
      <div align="center">26,492,130</div>
    </td>
    <td width="177" height=27>
      <div align="center">845,940</div>
    </td>
    <td width="84" height=27>
      <div align="center">Elected</div>
    </td>
  </tr>
  <tr valign=bottom>
    <td height=15 width="222">Peter Sealey (2)(3)</td>
    <td height=15 width="117">
      <div align="center">25,942,785</div>
    </td>
    <td width="177" height=15>
      <div align="center">1,395,285</div>
    </td>
    <td width="84" height=15>
      <div align="center">Elected</div>
    </td>
  </tr>
  <tr valign=bottom>
    <td height=45 colspan="4">
      <p>(1) Denotes member of Audit Committee<br>
        (2) Denotes member of Compensation Committee<br>
        (3) Denotes member of Nominating Committee</p>
    </td>
  </tr>
</table>
<p>&nbsp;</p>
<table cellspacing=1 cellpadding=1 width=627 align=center border=1>
  <tr valign=bottom>
    <td width="211" height=25><font face="Times New Roman, Times, serif" size="2">&nbsp;&nbsp;</font>
      <p align=left>ITEM 2:<font face="Times New Roman, Times, serif" size="2">
        </font></p>
    </td>
    <td height=25 width="95">
      <div align="center">FOR</div>
    </td>
    <td width="112" height=25>
      <div align="center">AGAINST</div>
    </td>
    <td width="95" height=25>
      <div align="center">ABSTAIN</div>
    </td>
    <td width="81" height=25>
      <div align="center">RESULT</div>
    </td>
  </tr>
  <tr valign=bottom>
    <td height=21 width="211">Appoint Moss Adams LLP as the Company's independent
      auditors for the 2007 fiscal year. Required approval of a majority of votes
      cast for approval.</td>
    <td height=21 width="95" align="center" valign="middle">
      <div align="center">27,154,780</div>
    </td>
    <td height=21 width="95" align="center" valign="middle">
      <div align="center">149,573</div>
    </td>
    <td height=21 width="95" align="center" valign="middle">
      <div align="center">33,717</div>
    </td>
    <td height=21 width="95" align="center" valign="middle">
      <div align="center">Approved</div>
    </td>
  </tr>
</table>
<p align=center>&nbsp;
<p><font face="Times New Roman, Times, serif" size="3"><b>Item 6. Exhibits</b></font></p>
<p><font face="Times New Roman, Times, serif" size="3"> Exhibits</font></p>
<p>31.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant
  to Section 302 of the Sarbanes-Oxley Act of 2002. </p>
<p>31.2 Certification of Chief Executive Officer and Chief Financial Officer pursuant
  to Section 906 of the Sarbanes-Oxley Act of 2002. </p>
<p>32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant
  to Section 906 of the Sarbanes-Oxley Act of 2002. </p>
<p>&nbsp;</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">33<br>
  </font>
<p align=center>
<p align=center><font face="Times New Roman, Times, serif" size="3"><br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
  <font face="Times New Roman, Times, serif" size="3"><a
name=sig></a></font>
<p>&nbsp;</p>
<div align="center"><font face="Times New Roman, Times, serif" size="3"><BR>
  </font></div>
<P align=center><font face="Times New Roman, Times, serif" size="3"><b>SIGNATURES</b></font></P>
<P>&nbsp;</P>
<P>Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant
  has duly caused this report to be signed on its behalf by the undersigned thereunto
  duly authorized.</P>
<P>&nbsp;</P>
<P align=center><font face="Times New Roman, Times, serif" size="3"><U>SOCKET
  COMMUNICATIONS, INC.<BR>
  </U>Registrant</font></P>
<P>&nbsp;
<TABLE cols=2 width="89%">
  <TR>
    <TD width="38%"><FONT face="Times New Roman, Times, serif" size=3>Date: May
      11, 2007 </FONT></TD>
    <TD width="21%">
      <CENTER>
      </CENTER>
    </TD>
    <TD width="41%">
      <DIV align=left><FONT face="Times New Roman, Times, serif"
      size=3><U>&nbsp;&nbsp;/s/ Kevin J. Mills</U></FONT></DIV>
    </TD>
  </TR>
  <tr>
    <td width="38%">&nbsp;</td>
    <td width="21%">
      <center>
        <font face="Times New Roman, Times, serif" size=3>&nbsp; </font>
      </center>
    </td>
    <td valign=top align=middle width="41%">
      <div align=left>
        <p><font face="Times New Roman, Times, serif" size=3>Kevin J. Mills<br>
          President and Chief Executive Officer</font><br>
          (Duly Authorized Officer and Principal Executive Officer)</p>
      </div>
    </td>
  </tr>
  <tr>
    <td width="38%" height="44">&nbsp;</td>
    <td width="21%" height="44">&nbsp;</td>
    <td width="41%" height="44">&nbsp;</td>
  </tr>
  <tr>
    <td width="38%"><font face="Times New Roman, Times, serif" size=3>Date: May
      11, 2007 </font></td>
    <td width="21%">
      <center>
      </center>
    </td>
    <td width="41%">
      <div align=left><font face="Times New Roman, Times, serif"
      size=3><u>&nbsp;&nbsp;/s/ David W. Dunlap&nbsp;&nbsp;</u></font></div>
    </td>
  </tr>
  <tr>
    <td width="38%">&nbsp;</td>
    <td width="21%">
      <center>
        <font face="Times New Roman, Times, serif" size=3>&nbsp; </font>
      </center>
    </td>
    <td valign=top align=middle width="41%">
      <div align=left><font face="Times New Roman, Times, serif" size=3>David
        W. Dunlap<br>
        Vice President of Finance and Administration and Chief Financial Officer
        (Duly Authorized Officer and Principal Financial and Accounting Officer)
        </font></div>
    </td>
  </tr>
</TABLE>
<P>&nbsp;</P>
<P>&nbsp;</P>
<p align=center><font face="Times New Roman, Times, serif" size="3">34<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
  <font face="Times New Roman, Times, serif" size="3"><a
name=ind></a></font>
<P>&nbsp;</P>
<p align=center><font face="Times New Roman, Times, serif" size="3"><b>Index to
  Exhibits</b><br>
  <br>
  </font></p>
<table cellspacing=0 cellpadding=0 width=800 align=center border=0>
  <tr>
    <td valign=bottom width="10%" height=48>
      <p align=center><font face="Times New Roman, Times, serif" size=3>Exhibit
        <u>Number</u></font></p>
    </td>
    <td valign=bottom width="90%" height=48>
      <p align=center><font face="Times New Roman, Times, serif"
      size=3><u>Description </u></font></p>
    </td>
  </tr>
  <tr>
    <td valign=top width="10%" height=25>
      <p align=right>&nbsp;</p>
    </td>
    <td valign=top width="90%" height=25>
      <p>&nbsp;</p>
    </td>
  </tr>
  <tr>
    <td valign=top width="10%" height=30>
      <p align=center><font face="Times New Roman, Times, serif"
      size=3>31.1&nbsp;</font> </p>
    </td>
    <td valign=top width="90%" height=30>
      <p>Certification of Chief Executive Officer pursuant to Section 302 of the
        Sarbanes-Oxley Act of 2002.</p>
    </td>
  </tr>
  <tr>
    <td valign=top width="10%" height=30>
      <p align=center><font face="Times New Roman, Times, serif"
      size=3>31.2&nbsp;</font> </p>
    </td>
    <td valign=top width="90%" height=30>
      <p>Certification of Chief Financial Officer pursuant to Section 302 of the
        Sarbanes-Oxley Act of 2002.</p>
    </td>
  </tr>
  <tr>
    <td valign=top width="10%" height=30>
      <p align=center><font face="Times New Roman, Times, serif"
      size=3>32.1&nbsp;</font> </p>
    </td>
    <td valign=top width="90%" height=30>
      <p>Certification of Chief Executive Officer and Chief Financial Officer
        pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.</p>
    </td>
  </tr>
</table>
<P>&nbsp;</P>
<P>&nbsp;</P>
<P>&nbsp;</P>
<P>&nbsp;</P>
<P>&nbsp;</P>
<P>&nbsp;</P>
<P>&nbsp;</P>
<p align=center><font face="Times New Roman, Times, serif" size="3">35<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left>&nbsp;
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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>2
<FILENAME>exhibit311.htm
<DESCRIPTION>CERTIFICATION
<TEXT>
<html>
<head>
<title>Untitled Document</title>
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<body bgcolor="#FFFFFF">
<p align=left>
<p align=right><font face="Times New Roman, Times, serif" size="3">Exhibit 31.1
  </font>
<p align="center"><font face="Times New Roman, Times, serif" size="3"><b>CERTIFICATION</b></font></p>
<p>I, Kevin J. Mills, certify that:</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>(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;</p>
<p>(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</p>
<p>(d) Disclosed in this report any change in the registrant's internal control
  over financial reporting that occurred during the registrant's most recent fiscal
  quarter (the registrant's fourth fiscal quarter in the case of an annual report)
  that has materially affected, or is reasonably likely to materially affect,
  the registrant's internal control over financial reporting; and</p>
<p><font face="Times New Roman, Times, serif" size="3">5. The registrant's other
  certifying officer and I have disclosed, based on our most recent evaluation
  of internal control over financial reporting, to the registrant's auditors and
  the audit committee of the registrant's board of directors (or persons performing
  the equivalent functions):</font></p>
<p>(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</p>
<p><font face="Times New Roman, Times, serif" size="3">(b) Any fraud, whether
  or not material, that involves management or other employees who have a significant
  role in the registrant's internal control over financial reporting.</font></p>
<table cols=2 width="97%">
  <tr>
    <td width="38%"><font face="Times New Roman, Times, serif" size=3>Date: May
      11, 2007 </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: /s/ Kevin J. Mills</u></font></div>
    </td>
  </tr>
  <tr>
    <td width="38%">&nbsp;</td>
    <td width="17%">
      <center>
        <font face="Times New Roman, Times, serif" size=3>&nbsp; </font>
      </center>
    </td>
    <td valign=top align=middle width="45%">
      <div align=left><font face="Times New Roman, Times, serif" size=3>Name:
        Kevin J. Mills<br>
        Title: President and Chief Executive Officer (Principal Executive Officer)</font></div>
    </td>
  </tr>
</table>
<p><font face="Times New Roman, Times, serif" size="3"><br>
  </font></p>
<p align=center><font face="Times New Roman, Times, serif" size="3"></font>
</body>
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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>3
<FILENAME>exhibit312.htm
<DESCRIPTION>CERTIFICATION
<TEXT>
<html>
<head>
<title>Untitled Document</title>
</head>

<body bgcolor="#FFFFFF">
<p align=right><font face="Times New Roman, Times, serif" size="3">Exhibit 31.2
  </font>
<p align="center"><font face="Times New Roman, Times, serif" size="3"><b>CERTIFICATION</b></font><br>
</p>
<p align="center">&nbsp; </p>
<p>I, David W. Dunlap, certify that:</p>
<p><font face="Times New Roman, Times, serif" size="3">1. I have reviewed this
  quarterly report on Form 10-Q of Socket Communications, Inc.;</font></p>
<p><font face="Times New Roman, Times, serif" size="3">2. Based on my knowledge,
  this report does not contain any untrue statement of a material fact or omit
  to state a material fact necessary to make the statements made, in light of
  the circumstances under which such statements were made, not misleading with
  respect to the period covered by this report;</font></p>
<p><font face="Times New Roman, Times, serif" size="3">3. Based on my knowledge,
  the financial statements, and other financial information included in this report,
  fairly present in all material respects the financial condition, results of
  operations and cash flows of the registrant as of, and for, the periods presented
  in this report;</font></p>
<p><font face="Times New Roman, Times, serif" size="3">4. The registrant's other
  certifying officer and I are responsible for establishing and maintaining disclosure
  controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
  and internal control over financial reporting (as defined in Exchange Act Rules
  13a-15(f) and 15d-15(f)) for the registrant and have:</font></p>
<p><font face="Times New Roman, Times, serif" size="3">(a) Designed such disclosure
  controls and procedures, or caused such disclosure controls and procedures to
  be designed under our supervision, to ensure that material information relating
  to the registrant, including its consolidated subsidiaries, is made known to
  us by others within those entities, particularly during the period in which
  this report is being prepared;</font></p>
<p><font face="Times New Roman, Times, serif" size="3">(b) Designed such internal
  control over financial reporting, or caused such internal control over financial
  reporting to be designed under our supervision, to provide reasonable assurance
  regarding the reliability of financial reporting and the preparation of financial
  statements for external purposes in accordance with generally accepted accounting
  principles;</font></p>
<p><font face="Times New Roman, Times, serif" size="3">(c) Evaluated the effectiveness
  of the registrant's disclosure controls and procedures and presented in this
  report our conclusions about the effectiveness of the disclosure controls and
  procedures, as of the end of the period covered by this report based on such
  evaluation; and</font></p>
<p>(d) Disclosed in this report any change in the registrant's internal control
  over financial reporting that occurred during the registrant's most recent fiscal
  quarter (the registrant's fourth fiscal quarter in the case of an annual report)
  that has materially affected, or is reasonably likely to materially affect,
  the registrant's internal control over financial reporting; and</p>
<p><font face="Times New Roman, Times, serif" size="3">5. The registrant's other
  certifying officer and I have disclosed, based on our most recent evaluation
  of internal control over financial reporting, to the registrant's auditors and
  the audit committee of the registrant's board of directors (or persons performing
  the equivalent functions):</font></p>
<p><font face="Times New Roman, Times, serif" size="3">(a) All significant deficiencies
  and material weaknesses in the design or operation of internal control over
  financial reporting which are reasonably likely to adversely affect the registrant's
  ability to record, process, summarize and report financial information; and</font></p>
<p><font face="Times New Roman, Times, serif" size="3">(b) Any fraud, whether
  or not material, that involves management or other employees who have a significant
  role in the registrant's internal control over financial reporting.</font></p>
<table cols=2 width="96%">
  <tr>
    <td width="38%"><font face="Times New Roman, Times, serif" size=3>Date: May
      11, 2007 </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: /s/ David W. Dunlap&nbsp;&nbsp;</u></font></div>
    </td>
  </tr>
  <tr>
    <td width="38%">&nbsp;</td>
    <td width="21%">
      <center>
        <font face="Times New Roman, Times, serif" size=3>&nbsp; </font>
      </center>
    </td>
    <td valign=top align=middle width="41%">
      <div align=left><font face="Times New Roman, Times, serif" size=3>Name:
        David W. Dunlap<br>
        Title: Vice President of Finance and Administration and Chief Financial
        Officer (Principal Financial Officer) </font></div>
    </td>
  </tr>
</table>
<p><font face="Times New Roman, Times, serif" size="3"><br>
  </font></p>
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</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.1
<SEQUENCE>4
<FILENAME>exhibit321.htm
<DESCRIPTION>CERTIFICATION
<TEXT>
<html>
<head>
<title>Untitled Document</title>
</head>

<body bgcolor="#FFFFFF">
<p align=right><font face="Times New Roman, Times, serif" size="3">Exhibit 32.1</font>
<p align="center">CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL
  OFFICER<br>
  URSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 </p>
<p><font face="Times New Roman, Times, serif" size="3"><br>
  I, Kevin J. Mills, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
  to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report
  of Socket Communications, Inc. on Form 10-Q for the quarter ended March 31,
  2007 fully complies with the requirements of Section 13(a) or 15(d) of the Securities
  Exchange Act of 1934 and that information contained in such Quarterly Report
  on Form 10-Q fairly presents in all material respects the financial condition
  and results of operations of Socket Communications, Inc.</font></p>
<table cols=2 width="43%" align="center">
  <tr>
    <td width="41%">
      <div align=left><font face="Times New Roman, Times, serif"
      size=3><u>By: &nbsp;&nbsp;/s/ Kevin J. Mills</u></font></div>
    </td>
  </tr>
  <tr>
    <td valign=top align=middle width="41%">
      <div align=left><font face="Times New Roman, Times, serif" size=3>Name:
        Kevin J. Mills<br>
        Title: &nbsp&nbspPresident and Chief Executive Officer <br>
        &nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp(Principal Executive
        Officer)<br>
        Date: &nbspMay 11, 2007</font></div>
    </td>
  </tr>
</table>
<p>&nbsp;</p>
<p>I, David W. Dunlap, certify, pursuant to 18 U.S.C. Section 1350, as adopted
  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly
  Report of Socket Communications, Inc. on Form 10-Q for the quarter ended March
  31, 2007 fully complies with the requirements of Section 13(a) or 15(d) of the
  Securities Exchange Act of 1934 and that information contained in such Quarterly
  Report on Form 10-Q fairly presents in all material respects the financial condition
  and results of operations of Socket Communications, Inc.</p>
<p></p>
<table cols=2 width="45%" align="center">
  <tr>
    <td width="41%">
      <div align=left><font face="Times New Roman, Times, serif"
      size=3><u>By: &nbsp;&nbsp;/s/ David W. Dunlap&nbsp;&nbsp;</u></font></div>
    </td>
  </tr>
  <tr>
    <td valign=top align=middle width="41%">
      <div align=left><font face="Times New Roman, Times, serif" size=3>Name:
        David W. Dunlap<br>
        Title: &nbsp&nbspVice President of Finance and Administration <br>
        &nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbspand Chief
        Financial Officer (Principal <br>
        &nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbspFinancial
        Officer)<br>
        Date:&nbsp&nbsp&nbsp&nbspMay 11, 2007</font></div>
    </td>
  </tr>
</table>
<p>&nbsp;</p>
<p align=center>&nbsp;
<p align=center>&nbsp;
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