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<SEC-DOCUMENT>0000944075-07-000036.txt : 20070813
<SEC-HEADER>0000944075-07-000036.hdr.sgml : 20070813
<ACCEPTANCE-DATETIME>20070813163402
ACCESSION NUMBER:		0000944075-07-000036
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		4
CONFORMED PERIOD OF REPORT:	20070630
FILED AS OF DATE:		20070813
DATE AS OF CHANGE:		20070813

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:		071049443

	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>q2-2007.htm
<DESCRIPTION>QUARTERLY REPORT
<TEXT>
<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.0 Transitional//EN">
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<BODY bgColor=white>
<DIV align=left> </DIV>
<DIV align=left> </DIV>
<P align=center><font face="Times New Roman, Times, serif" size="3">UNITED STATES<BR>
  SECURITIES AND EXCHANGE COMMISSION<BR>
  Washington, D.C. 20549<BR>
  </font></P>
<P align=center><font face="Times New Roman, Times, serif" size="3"><STRONG>FORM
  10-Q</STRONG></font></P>
<TABLE cols=2 width="100%">
  <TR>
    <TD vAlign=top width="5%"><FONT size=3><STRONG>
      <CENTER>
        [X]
      </CENTER>
      </STRONG></FONT></TD>
    <TD vAlign=top width="95%"><FONT size=3><STRONG>(X) QUARTERLY REPORT PURSUANT
      TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.</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 June 30, 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><b>TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934.</b><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 July
  31, 2007 was 31,945,324 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 - June 30, 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 and
      Six Months Ended June 30, 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 - Six Months Ended
      </a><a
  href="#ops">June 30, 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">21</div>
    </td>
  </tr>
  <tr>
    <td colspan="2">&nbsp;</td>
    <td width="56">&nbsp;</td>
  </tr>
  <tr>
    <td colspan="2"><font face="Times New Roman, Times, serif" size="3"><a
href="#item4">Item 4. Controls and Procedures</a></font> </td>
    <td width="56">
      <div align="center">22</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="#item4t">Item 4T. Controls and Procedures</a></font> </td>
    <td width="56">
      <div align="center">22</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">23</font></div>
    </td>
  </tr>
  <tr>
    <td colspan="2">&nbsp;</td>
    <td width="56">&nbsp;</td>
  </tr>
  <tr>
    <td colspan="2"><font face="Times New Roman, Times, serif" size="3"><a
href="#item6">Item 6. Exhibits</a></font></td>
    <td width="56">
      <div align="center">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="#sig">Signatures</a></font></td>
    <td width="56">
      <div align="center">35</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">36</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</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 width="3%"><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">June
        30,<br>
        2007<br>
        (Unaudited)<br>
        </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 width="3%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td colspan="2" align="center" valign="bottom" style="border-bottom: 1px solid #000000"><font face="Times New Roman, Times, serif" size="3">December
        31,<br>
        2006*</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>
    </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 width="3%"><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="16%"><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 width="3%"><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="12%"><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>
    </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" width="3%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" bgcolor="#CCEEFF" width="2%"><font face="Times New Roman, Times, serif" size="3">$</font></td>
      <td align="right" valign="bottom" nowrap bgcolor="#CCEEFF" width="16%"><font face="Times New Roman, Times, serif" size="3">5,898,698</font></td>
      <td bgcolor="#CCEEFF" width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td bgcolor="#CCEEFF" width="3%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" bgcolor="#CCEEFF" width="2%"><font face="Times New Roman, Times, serif" size="3">$</font></td>
      <td align="right" valign="bottom" nowrap bgcolor="#CCEEFF" width="12%"><font face="Times New Roman, Times, serif" size="3">6,104,277</font></td>
      <td bgcolor="#CCEEFF" width="2%"><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 width="3%"><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="16%"><font face="Times New Roman, Times, serif" size="3">3,115,134</font></td>
      <td width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="3%"><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="12%"><font face="Times New Roman, Times, serif" size="3">2,699,218</font></td>
      <td width="2%"><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" width="3%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" bgcolor="#cceeff" width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap bgcolor="#cceeff" width="16%"><font face="Times New Roman, Times, serif" size="3">2,070,651</font></td>
      <td bgcolor="#cceeff" width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td bgcolor="#cceeff" width="3%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" bgcolor="#cceeff" width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" nowrap bgcolor="#cceeff" width="12%"><font face="Times New Roman, Times, serif" size="3">2,350,284</font></td>
      <td bgcolor="#cceeff" width="2%"><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 width="3%"><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="16%"><font face="Times New Roman, Times, serif" size="3">271,541</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 width="3%"><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="12%"><font face="Times New Roman, Times, serif" size="3">193,196</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>
    </tr>
    <tr>
      <td bgcolor="#CCEEFF" height="18" width="0%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="top" bgcolor="#CCEEFF" height="18" width="58%">
        <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" width="3%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align=left style="border-bottom: 1px solid #000000" bgcolor="#cceeff" width="2%" valign="bottom"><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" width="16%"><font face="Times New Roman, Times, serif" size="3">11,356,024</font></td>
      <td bgcolor="#cceeff" align=left style="border-bottom: 1px solid #000000" width="2%" valign="bottom"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
      <td bgcolor="#cceeff" width="3%" valign="bottom"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align=left style="border-bottom: 1px solid #000000" bgcolor="#cceeff" width="2%" valign="bottom"><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" width="12%" valign="bottom"><font face="Times New Roman, Times, serif" size="3">11,346,975</font></td>
      <td bgcolor="#cceeff" align=left style="border-bottom: 1px solid #000000" width="2%" valign="bottom"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></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" width="3%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" bgcolor="#FFFFFF" width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap bgcolor="#FFFFFF" width="16%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td bgcolor="#FFFFFF" width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td bgcolor="#FFFFFF" width="3%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" bgcolor="#FFFFFF" width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" nowrap bgcolor="#FFFFFF" width="12%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td bgcolor="#FFFFFF" width="2%"><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" width="3%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" bgcolor="#cceeff" height="8" width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap bgcolor="#cceeff" height="8" width="16%">&nbsp;</td>
      <td bgcolor="#cceeff" height="8" width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td bgcolor="#cceeff" height="8" width="3%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" bgcolor="#cceeff" height="8" width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" nowrap bgcolor="#cceeff" height="8" width="12%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td bgcolor="#cceeff" height="8" width="2%"><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 width="3%"><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="16%"><font face="Times New Roman, Times, serif" size="3">2,212,516</font></td>
      <td width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="3%"><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="12%"><font face="Times New Roman, Times, serif" size="3">1,790,053</font></td>
      <td width="2%"><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" width="3%"><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 bgcolor="#cceeff" style="border-bottom: 1px solid #000000" width="16%"><font face="Times New Roman, Times, serif" size="3">1,112,774</font></td>
      <td bgcolor="#cceeff" 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 bgcolor="#cceeff" width="3%"><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" nowrap bgcolor="#cceeff" style="border-bottom: 1px solid #000000" width="12%"><font face="Times New Roman, Times, serif" size="3">1,021,720</font></td>
      <td bgcolor="#cceeff" align=left style="border-bottom: 1px solid #000000" width="2%"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></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 width="3%"><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="16%"><font face="Times New Roman, Times, serif" size="3">3,325,290</font></td>
      <td width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="3%"><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="12%"><font face="Times New Roman, Times, serif" size="3">2,811,773</font></td>
      <td width="2%"><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" width="3%"><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 bgcolor="#cceeff" style="border-bottom: 1px solid #000000" width="16%"><font face="Times New Roman, Times, serif" size="3">(2,155,166</font></td>
      <td bgcolor="#cceeff" align=left style="border-bottom: 1px solid #000000" width="2%"><font face="Times New Roman, Times, serif" size="3">)</font></td>
      <td bgcolor="#cceeff" width="3%"><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" nowrap bgcolor="#cceeff" style="border-bottom: 1px solid #000000" width="12%"><font face="Times New Roman, Times, serif" size="3">(2,069,596</font></td>
      <td bgcolor="#cceeff" align=left style="border-bottom: 1px solid #000000" width="2%"><font face="Times New Roman, Times, serif" size="3">)</font></td>
    </tr>
    <tr>
      <td bgcolor="#FFFFFF" width="0%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="top" bgcolor="#FFFFFF" width="58%">
        <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" width="3%"><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="16%"><font face="Times New Roman, Times, serif" size="3">1,170,124</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 width="3%"><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="12%"><font face="Times New Roman, Times, serif" size="3">742,177</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>
    </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" width="3%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" bgcolor="#cceeff" width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap bgcolor="#cceeff" width="16%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td bgcolor="#cceeff" width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td bgcolor="#cceeff" width="3%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" bgcolor="#cceeff" width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" nowrap bgcolor="#cceeff" width="12%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td bgcolor="#cceeff" width="2%"><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
        assets, net</font></td>
      <td bgcolor="#FFFFFF" height="8" width="3%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" bgcolor="#FFFFFF" height="8" width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap bgcolor="#FFFFFF" height="8" width="16%"><font face="Times New Roman, Times, serif" size="3">540,876</font></td>
      <td bgcolor="#FFFFFF" height="8" width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td bgcolor="#FFFFFF" height="8" width="3%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" bgcolor="#FFFFFF" height="8" width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" nowrap bgcolor="#FFFFFF" height="8" width="12%"><font face="Times New Roman, Times, serif" size="3">608,491</font></td>
      <td bgcolor="#FFFFFF" height="8" width="2%"><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" width="3%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" bgcolor="#cceeff" width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap bgcolor="#cceeff" width="16%"><font face="Times New Roman, Times, serif" size="3">9,797,946</font></td>
      <td bgcolor="#cceeff" width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td bgcolor="#cceeff" width="3%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" bgcolor="#cceeff" width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" nowrap bgcolor="#cceeff" width="12%"><font face="Times New Roman, Times, serif" size="3">9,797,946</font></td>
      <td bgcolor="#cceeff" width="2%"><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" width="3%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td 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 bgcolor="#FFFFFF" style="border-bottom: 1px solid #000000" width="16%"><font face="Times New Roman, Times, serif" size="3">275,711</font></td>
      <td 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 bgcolor="#FFFFFF" width="3%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td 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" nowrap bgcolor="#FFFFFF" style="border-bottom: 1px solid #000000" width="12%"><font face="Times New Roman, Times, serif" size="3">291,778</font></td>
      <td align=left style="border-bottom: 1px solid #000000" width="2%"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
    </tr>
    <tr>
      <td bgcolor="#CCEEFF" width="0%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="top" bgcolor="#CCEEFF" width="58%">
        <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" width="3%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" bgcolor="#CCEEFF" 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 bgcolor="#CCEEFF" style="border-bottom: 3px double #000000" width="16%"><font face="Times New Roman, Times, serif" size="3">23,140,681</font></td>
      <td align="left" valign="bottom" bgcolor="#CCEEFF" style="border-bottom: 3px double #000000" width="2%">&nbsp;</td>
      <td bgcolor="#CCEEFF" width="3%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" bgcolor="#CCEEFF" 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 bgcolor="#CCEEFF" style="border-bottom: 3px double #000000" width="12%"><font face="Times New Roman, Times, serif" size="3">22,787,367</font></td>
      <td align="left" valign="bottom" bgcolor="#CCEEFF" style="border-bottom: 3px double #000000" width="2%">&nbsp;</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" width="3%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" height="14" width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap height="14" width="16%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td height="14" width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td height="14" width="3%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" height="14" width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap height="14" width="12%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td height="14" width="2%"><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" width="3%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" bgcolor="#cceeff" width="2%"><font face="Times New Roman, Times, serif" size="3">$</font></td>
      <td align="right" valign="bottom" nowrap bgcolor="#cceeff" width="16%"><font face="Times New Roman, Times, serif" size="3">2,948,312</font></td>
      <td bgcolor="#cceeff" width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td bgcolor="#cceeff" width="3%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" bgcolor="#cceeff" width="2%"><font face="Times New Roman, Times, serif" size="3">$</font></td>
      <td align="right" nowrap bgcolor="#cceeff" width="12%"><font face="Times New Roman, Times, serif" size="3">2,440,404</font></td>
      <td bgcolor="#cceeff" width="2%"><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 width="3%"><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="16%"><font face="Times New Roman, Times, serif" size="3">1,200,405</font></td>
      <td width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="3%"><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="12%"><font face="Times New Roman, Times, serif" size="3">751,007</font></td>
      <td width="2%"><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" width="3%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" bgcolor="#cceeff" width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap bgcolor="#cceeff" width="16%"><font face="Times New Roman, Times, serif" size="3">2,277,929</font></td>
      <td bgcolor="#cceeff" width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td bgcolor="#cceeff" width="3%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" bgcolor="#cceeff" width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" bgcolor="#cceeff" nowrap width="12%"><font face="Times New Roman, Times, serif" size="3">2,213,261</font></td>
      <td bgcolor="#cceeff" width="2%"><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 width="3%"><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="16%"><font face="Times New Roman, Times, serif" size="3">1,549,640</font></td>
      <td width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="3%"><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" nowrap width="12%"><font face="Times New Roman, Times, serif" size="3">1,472,781</font></td>
      <td width="2%"><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 and deferred rent</font></div>
      </td>
      <td bgcolor="#cceeff" width="3%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" bgcolor="#cceeff" width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" nowrap bgcolor="#cceeff" width="16%"><font face="Times New Roman, Times, serif" size="3">11,067</font></td>
      <td bgcolor="#cceeff" width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td bgcolor="#cceeff" width="3%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" bgcolor="#cceeff" width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" bgcolor="#cceeff" nowrap width="12%"><font face="Times New Roman, Times, serif" size="3">8,372</font></td>
      <td bgcolor="#cceeff" width="2%"><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;Term
          loan - short term portion</font></div>
      </td>
      <td width="3%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td 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" nowrap style="border-bottom: 1px solid #000000" width="16%"><font face="Times New Roman, Times, serif" size="3">153,112</font></td>
      <td 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 width="3%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td 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" nowrap style="border-bottom: 1px solid #000000" width="12%"><font size="3">---</font></td>
      <td align=left style="border-bottom: 1px solid #000000" width="2%"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
    </tr>
    <tr>
      <td bgcolor="#cceeff" width="0%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="top" bgcolor="#cceeff" width="58%">
        <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 bgcolor="#cceeff" width="3%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align=left style="border-bottom: 1px solid #000000" valign="bottom" width="2%" bgcolor="#cceeff"><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="16%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">8,140,465</font></td>
      <td align=left style="border-bottom: 1px solid #000000" valign="bottom" width="2%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
      <td width="3%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align=left style="border-bottom: 1px solid #000000" valign="bottom" width="2%" bgcolor="#cceeff"><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="12%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">6,885,825</font></td>
      <td align=left style="border-bottom: 1px solid #000000" valign="bottom" width="2%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
    </tr>
    <tr valign="bottom">
      <td colspan="2" align="left" valign="top"><font face="Times New Roman, Times, serif" size="3">&nbsp</font></td>
      <td width="3%"><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="16%"><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 width="3%"><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" nowrap width="12%"><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>
    </tr>
    <tr>
      <td colspan="2" align="left" valign="top" height="8" bgcolor="#cceeff"><font size="3">Term
        loan - long term portion</font></td>
      <td width="3%" 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" nowrap valign="bottom" width="16%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">346,888</font></td>
      <td valign="bottom" width="2%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td valign="bottom" width="3%" 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" nowrap valign="bottom" width="12%" bgcolor="#cceeff"><font size="3">---</font></td>
      <td width="2%" 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 width="3%"><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="16%"><font face="Times New Roman, Times, serif" size="3">149,350</font></td>
      <td width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="3%"><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" nowrap width="12%"><font size="3">---</font></td>
      <td width="2%"><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 width="3%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align=left style="border-bottom: 1px solid #000000" valign="bottom" width="2%" bgcolor="#cceeff"><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="16%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">166,352</font></td>
      <td align=left style="border-bottom: 1px solid #000000" valign="bottom" width="2%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
      <td width="3%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align=left style="border-bottom: 1px solid #000000" valign="bottom" width="2%" bgcolor="#cceeff"><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="12%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">150,379</font></td>
      <td align=left style="border-bottom: 1px solid #000000" valign="bottom" width="2%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
    </tr>
    <tr>
      <td width="0%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="top" width="58%">
        <div style="margin-left: 10px; text-indent: -10px"> <font size="3" face="Times New Roman, Times, serif">&nbsp;&nbsp;&nbsp;&nbsp;Total
          liabilities</font></div>
      </td>
      <td width="3%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align=left style="border-bottom: 1px solid #000000" width="2%" valign="bottom"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
      <td align="right" nowrap style="border-bottom: 1px solid #000000" width="16%" valign="bottom"><font face="Times New Roman, Times, serif" size="3">8,803,055</font></td>
      <td align=left style="border-bottom: 1px solid #000000" width="2%" valign="bottom"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
      <td width="3%" valign="bottom"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align=left style="border-bottom: 1px solid #000000" width="2%" valign="bottom"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
      <td align="right" nowrap style="border-bottom: 1px solid #000000" width="12%" valign="bottom"><font face="Times New Roman, Times, serif" size="3">7,036,204</font></td>
      <td align=left style="border-bottom: 1px solid #000000" width="2%" valign="bottom"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></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 width="3%"><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="16%"><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 width="3%"><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="12%"><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>
    </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 width="3%" 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="16%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="2%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="3%" 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="12%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="2%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr>
      <td colspan="2" align="left" valign="top" 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 height="19" width="3%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" height="19" width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap height="19" width="16%">&nbsp;</td>
      <td height="19" width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td height="19" width="3%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" height="19" width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap height="19" width="12%">&nbsp;</td>
      <td height="19" width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    </tr>
    <tr>
      <td colspan="2" align="left" valign="top" height="18" bgcolor="#cceeff">
        <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;31,935,177 at June 30, 2007 and 31,851,285
          at <br>
          &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;December 31, 2006</font></div>
      </td>
      <td height="18" width="3%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" height="18" width="2%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap height="18" width="16%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">31,935</font></td>
      <td height="18" width="2%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td height="18" width="3%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" height="18" width="2%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" valign="bottom" nowrap height="18" width="12%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">31,851</font></td>
      <td height="18" width="2%" 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;&nbsp;&nbsp;Additional
          paid-in capital</font></div>
      </td>
      <td width="3%"><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="16%"><font face="Times New Roman, Times, serif" size="3">53,128,466</font></td>
      <td width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="3%"><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" nowrap width="12%"><font face="Times New Roman, Times, serif" size="3">52,531,493</font></td>
      <td width="2%"><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;&nbsp;&nbsp;Accumulated
          deficit</font></div>
      </td>
      <td width="3%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td valign=bottom align=left style="border-bottom: 1px solid #000000" width="2%" bgcolor="#cceeff"><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="16%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">(38,822,775</font></td>
      <td valign=bottom align=left style="border-bottom: 1px solid #000000" width="2%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">)</font></td>
      <td width="3%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td valign=bottom align=left style="border-bottom: 1px solid #000000" width="2%" bgcolor="#cceeff"><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="12%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">(36,812,181</font></td>
      <td valign=bottom align=left style="border-bottom: 1px solid #000000" width="2%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">)</font></td>
    </tr>
    <tr>
      <td width="0%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="top" width="58%">
        <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 width="3%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align=left style="border-bottom: 1px solid #000000" valign="bottom" 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="16%"><font face="Times New Roman, Times, serif" size="3">14,337,626</font></td>
      <td align=left style="border-bottom: 1px solid #000000" valign="bottom" width="2%"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
      <td width="3%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align=left style="border-bottom: 1px solid #000000" valign="bottom" 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="12%"><font face="Times New Roman, Times, serif" size="3">15,751,163</font></td>
      <td align=left style="border-bottom: 1px solid #000000" valign="bottom" width="2%"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
    </tr>
    <tr valign="bottom">
      <td width="0%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="top" width="58%" bgcolor="#cceeff"><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 width="3%" 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"><font face="Times New Roman, Times, serif" size="3">$</font></td>
      <td align="right" nowrap style="border-bottom: 3px double #000000" width="16%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">23,140,681</font></td>
      <td align="left" style="border-bottom: 3px double #000000" width="2%" bgcolor="#cceeff">&nbsp;
      </td>
      <td width="3%" 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"><font face="Times New Roman, Times, serif" size="3">$</font></td>
      <td align="right" nowrap style="border-bottom: 3px double #000000" width="12%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">22,787,367</font></td>
      <td align="left" style="border-bottom: 3px double #000000" width="2%" bgcolor="#cceeff">&nbsp;
      </td>
    </tr>
    <tr valign="bottom">
      <td colspan="10" align="left" valign="top" 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; ">
  <p><b><font size="3">SOCKET COMMUNICATIONS, INC.</font></b> <font size="3"><br>
    <b>CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS<br>
    </b>(Unaudited)</font></p>
  <p><br>
  </p>
</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="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="center" nowrap colspan="6" style="border-bottom: 1px solid #000000"><font face="Times New Roman, Times, serif" size="3" >Three
        Months Ended<br>
        June 30,</font></td>
      <td align="center" nowrap style="border-bottom: 1px solid #000000">&nbsp;</td>
      <td align="center" nowrap>&nbsp;</td>
      <td align="center" nowrap colspan="6" style="border-bottom: 1px solid #000000"><font face="Times New Roman, Times, serif" size="3">Six
        Months Ended<br>
        June 30,</font></td>
      <td align="center" nowrap style="border-bottom: 1px solid #000000">&nbsp;</td>
    </tr>
    <tr>
      <td colspan="3" align="left" nowrap><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="3" align="center" nowrap style="border-bottom: 1px solid #000000"><font size="3">2007</font><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
      <td width="3%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td colspan="3" align="center" nowrap style="border-bottom: 1px solid #000000"><font face="Times New Roman, Times, serif" size="3">2006</font><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
      <td width="3%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td colspan="3" align="center" nowrap style="border-bottom: 1px solid #000000"><font face="Times New Roman, Times, serif" size="3">2007</font><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
      <td width="3%">&nbsp;</td>
      <td colspan="3" align="center" nowrap style="border-bottom: 1px solid #000000"><font face="Times New Roman, Times, serif" size="3">2006</font><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></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="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 bgcolor="#cceeff" width="10%"><font face="Times New Roman, Times, serif" size="3">6,299,817</font></td>
      <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="3%" 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">$</font></td>
      <td align="right" valign="bottom" nowrap width="10%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">6,855,028</font></td>
      <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="3%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" width="2%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">$</font></td>
      <td align="right" nowrap bgcolor="#cceeff" width="10%"><font face="Times New Roman, Times, serif" size="3">11,848,157</font></td>
      <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="3%" bgcolor="#cceeff">&nbsp;</td>
      <td align="left" width="2%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">$</font></td>
      <td align="right" nowrap bgcolor="#cceeff" width="10%"><font face="Times New Roman, Times, serif" size="3">13,613,719</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="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="10%"><font face="Times New Roman, Times, serif" size="3">3,215,959</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 width="3%"><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="10%"><font face="Times New Roman, Times, serif" size="3">3,453,923</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 width="3%"><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="10%"><font face="Times New Roman, Times, serif" size="3">5,979,732</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 width="3%">&nbsp;</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="10%"><font face="Times New Roman, Times, serif" size="3">6,839,067</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>
    </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="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" nowrap style="border-bottom: 1px solid #000000" width="10%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">3,083,858</font></td>
      <td align=left style="border-bottom: 1px solid #000000" bgcolor="#cceeff" width="2%">&nbsp;</td>
      <td width="3%" 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" nowrap style="border-bottom: 1px solid #000000" width="10%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">3,401,105</font></td>
      <td align=left style="border-bottom: 1px solid #000000" bgcolor="#cceeff" width="2%">&nbsp;</td>
      <td width="3%" 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" nowrap style="border-bottom: 1px solid #000000" width="10%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">5,868,425</font></td>
      <td align=left style="border-bottom: 1px solid #000000" bgcolor="#cceeff" width="2%">&nbsp;</td>
      <td width="3%" bgcolor="#cceeff">&nbsp;</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" nowrap style="border-bottom: 1px solid #000000" width="10%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">6,774,652</font></td>
      <td align=left style="border-bottom: 1px solid #000000" bgcolor="#cceeff" width="2%">&nbsp;</td>
    </tr>
    <tr>
      <td colspan="3" align="left" valign="top"><font face="Times New Roman, Times, serif" size="3">&nbsp</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="10%"><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="3%"><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="10%"><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="3%"><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="10%"><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="3%">&nbsp;</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="10%"><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="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="10%" 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="3%" 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="10%" 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="3%" 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="10%" 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="3%" bgcolor="#CCEEFF">&nbsp;</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="10%" 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="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="10%"><font face="Times New Roman, Times, serif" size="3">1,162,188</font></td>
      <td height="18" width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td height="18" width="3%"><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="10%"><font face="Times New Roman, Times, serif" size="3">1,378,791</font></td>
      <td height="18" width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td height="18" width="3%"><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="10%"><font face="Times New Roman, Times, serif" size="3">2,589,234</font></td>
      <td height="18" width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td height="18" width="3%">&nbsp;</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="10%"><font face="Times New Roman, Times, serif" size="3">2,515,348</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="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="10%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">1,970,297</font></td>
      <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="3%" 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="10%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">1,840,713</font></td>
      <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="3%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" width="2%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" nowrap width="10%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">3,729,317</font></td>
      <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="3%" bgcolor="#cceeff">&nbsp;</td>
      <td align="left" width="2%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" nowrap width="10%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">3,603,137</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="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="10%"><font face="Times New Roman, Times, serif" size="3">681,368</font></td>
      <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="3%"><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="10%"><font face="Times New Roman, Times, serif" size="3">641,633</font></td>
      <td align="left" valign="bottom" nowrap width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" nowrap width="3%"><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="10%"><font face="Times New Roman, Times, serif" size="3">1,538,341</font></td>
      <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" nowrap width="3%">&nbsp;</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="10%"><font face="Times New Roman, Times, serif" size="3">1,483,743</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 size="3" face="Times New Roman, Times, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amortization
          of intangible assets</font></div>
      </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="10%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">33,807</font></td>
      <td align=left style="border-bottom: 1px solid #000000" bgcolor="#cceeff" width="2%">&nbsp;</td>
      <td width="3%" 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="10%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">36,043</font></td>
      <td align=left style="border-bottom: 1px solid #000000" bgcolor="#cceeff" width="2%">&nbsp;</td>
      <td width="3%" 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" nowrap style="border-bottom: 1px solid #000000" width="10%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">67,615</font></td>
      <td align=left style="border-bottom: 1px solid #000000" bgcolor="#cceeff" width="2%">&nbsp;</td>
      <td width="3%" bgcolor="#cceeff">&nbsp;</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" nowrap style="border-bottom: 1px solid #000000" width="10%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">72,086</font></td>
      <td align=left style="border-bottom: 1px solid #000000" bgcolor="#cceeff" width="2%">&nbsp;</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="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="10%"><font face="Times New Roman, Times, serif" size="3">3,847,660</font></td>
      <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="3%"><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="10%"><font face="Times New Roman, Times, serif" size="3">3,897,180</font></td>
      <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="3%"><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="10%"><font face="Times New Roman, Times, serif" size="3">7,924,507</font></td>
      <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="3%">&nbsp;</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="10%"><font face="Times New Roman, Times, serif" size="3">7,674,314</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="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="10%" bgcolor="#cceeff">&nbsp;</td>
      <td align=left style="border-bottom: 1px solid #000000" bgcolor="#cceeff" valign="bottom" width="2%">&nbsp;</td>
      <td width="3%" 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="10%" bgcolor="#cceeff">&nbsp;</td>
      <td align=left style="border-bottom: 1px solid #000000" bgcolor="#cceeff" valign="bottom" width="2%">&nbsp;</td>
      <td width="3%" 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="10%" bgcolor="#cceeff">&nbsp;</td>
      <td align=left style="border-bottom: 1px solid #000000" bgcolor="#cceeff" valign="bottom" width="2%">&nbsp;</td>
      <td width="3%" 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="10%" bgcolor="#cceeff">&nbsp;</td>
      <td align=left style="border-bottom: 1px solid #000000" bgcolor="#cceeff" valign="bottom" width="2%">&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="1%"><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="10%"><font face="Times New Roman, Times, serif" size="3">(763,802</font></td>
      <td width="1%"><font face="Times New Roman, Times, serif" size="3">)</font></td>
      <td width="3%"><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="10%"><font face="Times New Roman, Times, serif" size="3">(496,075</font></td>
      <td width="1%"><font face="Times New Roman, Times, serif" size="3">)</font></td>
      <td width="3%">&nbsp;</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="10%"><font face="Times New Roman, Times, serif" size="3">(2,056,082</font></td>
      <td width="1%"><font face="Times New Roman, Times, serif" size="3">)</font></td>
      <td width="3%">&nbsp;</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="10%"><font face="Times New Roman, Times, serif" size="3">(899,662</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="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="10%" 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="3%" 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="10%" 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="3%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" width="2%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" nowrap width="10%" 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="3%" bgcolor="#cceeff">&nbsp;</td>
      <td align="left" width="2%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" nowrap width="10%" 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="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="10%"><font face="Times New Roman, Times, serif" size="3">29,642</font></td>
      <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="3%"><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="10%"><font face="Times New Roman, Times, serif" size="3">49,915</font></td>
      <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="3%"><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="10%"><font face="Times New Roman, Times, serif" size="3">67,523</font></td>
      <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="3%">&nbsp;</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="10%"><font face="Times New Roman, Times, serif" size="3">86,593</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="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="10%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">(2,648</font></td>
      <td align=left style="border-bottom: 1px solid #000000" bgcolor="#cceeff" width="2%"><font face="Times New Roman, Times, serif" size="3">)</font></td>
      <td width="3%" 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="10%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">(2,077</font></td>
      <td align=left style="border-bottom: 1px solid #000000" bgcolor="#cceeff" width="2%"><font face="Times New Roman, Times, serif" size="3">)</font></td>
      <td width="3%" bgcolor="#cceeff">&nbsp;</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" nowrap style="border-bottom: 1px solid #000000" width="10%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">(6,062</font></td>
      <td align=left style="border-bottom: 1px solid #000000" bgcolor="#cceeff" width="2%"><font face="Times New Roman, Times, serif" size="3">)</font></td>
      <td width="3%" bgcolor="#cceeff">&nbsp;</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" nowrap style="border-bottom: 1px solid #000000" width="10%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">(4,281</font></td>
      <td align=left style="border-bottom: 1px solid #000000" bgcolor="#cceeff" width="2%"><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="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="10%" 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="3%" 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="10%" 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="3%" 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="10%" 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="3%" height="14">&nbsp;</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="10%" 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="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="10%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">(736,808</font></td>
      <td height="14" width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">)</font></td>
      <td height="14" width="3%" 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="10%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">(448,237</font></td>
      <td height="14" width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">)</font></td>
      <td height="14" width="3%" bgcolor="#cceeff">&nbsp;</td>
      <td align="left" height="14" width="2%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" nowrap height="14" width="10%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">(1,994,621</font></td>
      <td height="14" width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">)</font></td>
      <td height="14" width="3%" bgcolor="#cceeff">&nbsp;</td>
      <td align="left" height="14" width="2%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" nowrap height="14" width="10%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">(817,350</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="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="10%"><font face="Times New Roman, Times, serif" size="3">(7,985</font></td>
      <td valign=bottom align=left style="border-bottom: 1px solid #000000" width="2%"><font face="Times New Roman, Times, serif" size="3">)</font></td>
      <td width="3%"><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="10%"><font 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 width="3%">&nbsp;</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="10%"><font face="Times New Roman, Times, serif" size="3">(15,973</font></td>
      <td valign=bottom align=left style="border-bottom: 1px solid #000000" width="2%"><font face="Times New Roman, Times, serif" size="3">)</font></td>
      <td width="3%">&nbsp;</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="10%"><font 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>
    </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="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="10%" height="16" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">(744,793</font></td>
      <td width="1%" height="16" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">)</font></td>
      <td width="3%" 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="10%" height="16" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">(448,237</font></td>
      <td width="1%" height="16" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">)</font></td>
      <td width="3%" height="16" bgcolor="#cceeff">&nbsp;</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="10%" height="16" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">(2,010,594</font></td>
      <td width="1%" height="16" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">)</font></td>
      <td width="3%" height="16" bgcolor="#cceeff">&nbsp;</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="10%" height="16" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">(817,350</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="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="10%">&nbsp;</td>
      <td width="1%"><font size="3"></font></td>
      <td width="3%"><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="10%">&nbsp;</td>
      <td width="1%">&nbsp;</td>
      <td width="3%">&nbsp;</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="10%">&nbsp;</td>
      <td width="1%"><font size="3"></font></td>
      <td width="3%">&nbsp;</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="10%">&nbsp;</td>
      <td width="1%"><font 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">
          Preferred stock dividends</font></div>
      </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="10%" bgcolor="#cceeff"><font 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 width="3%" 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="10%" bgcolor="#cceeff"><font 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 width="3%" bgcolor="#cceeff">&nbsp;</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="10%" bgcolor="#cceeff"><font 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 width="3%" bgcolor="#cceeff">&nbsp;</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="10%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">(10,653</font></td>
      <td align=left style="border-bottom: 1px solid #000000" bgcolor="#cceeff" width="2%" valign="bottom"><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="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="10%"><font face="Times New Roman, Times, serif" size="3">(744,793</font></td>
      <td align="left" valign="bottom" style="border-bottom: 3px double #000000" width="2%"><font size="3">)</font></td>
      <td width="3%"><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">$</font></td>
      <td align="right" valign="bottom" nowrap style="border-bottom: 3px double #000000" width="10%"><font face="Times New Roman, Times, serif" size="3">(448,237</font></td>
      <td align="left" valign="bottom" style="border-bottom: 3px double #000000" width="1%"><font size="3">)</font></td>
      <td align="left" valign="bottom" style="border-bottom: 3px double #000000" width="2%">&nbsp;</td>
      <td align="left" valign="bottom" style="border-bottom: 3px double #000000" width="2%"><font face="Times New Roman, Times, serif" size="3">$</font></td>
      <td align="right" valign="bottom" nowrap style="border-bottom: 3px double #000000" width="10%"><font face="Times New Roman, Times, serif" size="3">(2,010,594</font></td>
      <td align="left" valign="bottom" style="border-bottom: 3px double #000000" width="2%"><font size="3">)</font></td>
      <td width="3%">&nbsp;</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="10%"><font face="Times New Roman, Times, serif" size="3">(828,003</font></td>
      <td align="left" valign="bottom" style="border-bottom: 3px double #000000" width="2%"><font size="3">)</font></td>
    </tr>
    <tr>
      <td colspan="3" align="left" valign="top" 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="10%" bgcolor="#cceeff">&nbsp;</td>
      <td width="1%" bgcolor="#cceeff">&nbsp;</td>
      <td width="3%" bgcolor="#cceeff">&nbsp;</td>
      <td align="left" valign="bottom" width="2%" bgcolor="#cceeff">&nbsp;</td>
      <td align="right" valign="bottom" nowrap width="10%" bgcolor="#cceeff">&nbsp;</td>
      <td width="1%" bgcolor="#cceeff">&nbsp;</td>
      <td width="3%" bgcolor="#cceeff">&nbsp;</td>
      <td align="left" valign="bottom" width="2%" bgcolor="#cceeff">&nbsp;</td>
      <td align="right" valign="bottom" nowrap width="10%" bgcolor="#cceeff">&nbsp;</td>
      <td width="1%" bgcolor="#cceeff">&nbsp;</td>
      <td width="3%" bgcolor="#cceeff">&nbsp;</td>
      <td align="left" valign="bottom" width="2%" bgcolor="#cceeff">&nbsp;</td>
      <td align="right" valign="bottom" nowrap width="10%" 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="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="10%"><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="3%"><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="10%"><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="3%"><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="10%"><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="3%">&nbsp;</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="10%"><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="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="10%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">(0.02</font></td>
      <td align="left" style="border-bottom: 3px double #000000" width="2%" bgcolor="#cceeff"><font size="3">)</font></td>
      <td width="3%" 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">$</font></td>
      <td align="right" valign="bottom" nowrap style="border-bottom: 3px double #000000" width="10%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">(0.01</font></td>
      <td align="left" style="border-bottom: 3px double #000000" width="2%" bgcolor="#cceeff"><font size="3">)</font></td>
      <td width="3%" bgcolor="#cceeff">&nbsp;</td>
      <td align="left" style="border-bottom: 3px double #000000" width="2%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">$</font></td>
      <td align="right" nowrap style="border-bottom: 3px double #000000" width="10%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">(0.06</font></td>
      <td align="left" style="border-bottom: 3px double #000000" width="2%" bgcolor="#cceeff"><font size="3">)</font></td>
      <td width="3%" bgcolor="#cceeff">&nbsp;</td>
      <td align="left" style="border-bottom: 3px double #000000" width="2%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">$</font></td>
      <td align="right" nowrap style="border-bottom: 3px double #000000" width="10%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">(0.03</font></td>
      <td align="left" style="border-bottom: 3px double #000000" width="2%" bgcolor="#cceeff"><font size="3">)</font></td>
    </tr>
    <tr valign="bottom">
      <td colspan="3" align="left" valign="top">
        <div style="margin-left: 10px; text-indent: -10px"> <font size="3" face="Times New Roman, Times, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Diluted</font></div>
      </td>
      <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" style="border-bottom: 3px double #000000" width="2%"><font face="Times New Roman, Times, serif" size="3">$</font></td>
      <td align="right" valign="bottom" nowrap style="border-bottom: 3px double #000000" width="10%"><font face="Times New Roman, Times, serif" size="3">(0.02</font></td>
      <td align="left" style="border-bottom: 3px double #000000" width="2%"><font size="3">)</font></td>
      <td width="3%"><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">$</font></td>
      <td align="right" valign="bottom" nowrap style="border-bottom: 3px double #000000" width="10%"><font face="Times New Roman, Times, serif" size="3">
        (0.01</font></td>
      <td align="left" style="border-bottom: 3px double #000000" width="2%"><font size="3">)</font></td>
      <td width="3%" height="16">&nbsp;</td>
      <td align="left" style="border-bottom: 3px double #000000" width="2%"><font face="Times New Roman, Times, serif" size="3">$</font></td>
      <td align="right" nowrap style="border-bottom: 3px double #000000" width="10%"><font face="Times New Roman, Times, serif" size="3">(0.06</font></td>
      <td align="left" style="border-bottom: 3px double #000000" width="2%"><font size="3">)</font></td>
      <td width="3%" height="16">&nbsp;</td>
      <td align="left" style="border-bottom: 3px double #000000" width="2%"><font face="Times New Roman, Times, serif" size="3">$</font></td>
      <td align="right" nowrap style="border-bottom: 3px double #000000" width="10%"><font face="Times New Roman, Times, serif" size="3">(0.03</font></td>
      <td align="left" style="border-bottom: 3px double #000000" width="2%"><font 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="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="10%" 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="3%" 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="10%" 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="3%" 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="10%" 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="3%" bgcolor="#cceeff">&nbsp;</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="10%" 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="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="10%"><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="3%"><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="10%"><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="3%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" nowrap width="10%"><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="3%">&nbsp;</td>
      <td align="left" width="2%"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="right" nowrap width="10%"><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="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="10%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">31,914,997</font></td>
      <td align="left" style="border-bottom: 3px double #000000" width="2%" bgcolor="#cceeff">&nbsp;</td>
      <td width="3%" 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="10%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">31,695,832</font></td>
      <td align="left" style="border-bottom: 3px double #000000" width="2%" bgcolor="#cceeff">&nbsp;</td>
      <td width="3%" 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" nowrap style="border-bottom: 3px double #000000" width="10%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">31,893,610</font></td>
      <td align="left" style="border-bottom: 3px double #000000" width="2%" bgcolor="#cceeff">&nbsp;</td>
      <td width="3%" bgcolor="#cceeff">&nbsp;</td>
      <td align="left" style="border-bottom: 3px double #000000" width="2%" bgcolor="#cceeff">&nbsp;</td>
      <td align="right" nowrap style="border-bottom: 3px double #000000" width="10%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">31,045,664</font></td>
      <td align="left" style="border-bottom: 3px double #000000" width="2%" bgcolor="#cceeff">&nbsp;</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="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="10%"><font face="Times New Roman, Times, serif" size="3">31,914,997</font></td>
      <td align="left" style="border-bottom: 3px double #000000" width="2%">&nbsp;</td>
      <td width="3%"><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="10%"><font face="Times New Roman, Times, serif" size="3">31,695,832</font></td>
      <td align="left" style="border-bottom: 3px double #000000" width="2%">&nbsp;</td>
      <td width="3%"><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" nowrap style="border-bottom: 3px double #000000" width="10%"><font face="Times New Roman, Times, serif" size="3">31,893,610</font></td>
      <td align="left" style="border-bottom: 3px double #000000" width="2%">&nbsp;</td>
      <td width="3%">&nbsp;</td>
      <td align="left" style="border-bottom: 3px double #000000" width="2%">&nbsp;</td>
      <td align="right" nowrap style="border-bottom: 3px double #000000" width="10%"><font face="Times New Roman, Times, serif" size="3">31,045,664</font></td>
      <td align="left" style="border-bottom: 3px double #000000" width="2%">&nbsp;</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">Six
        Months Ended June&nbsp;30,</font></div>
    </td>
  </tr>
  <tr style="FONT-SIZE: 10pt">
    <td noWrap align=left colspan=4 height="16"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td width="1%" height="16"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td noWrap align=middle colspan=3 style="border-bottom: 1px solid #000000" height="16">
      <div align="center"><font face="Times New Roman, Times, serif" size="3">2007</font></div>
      <font face="Times New Roman, Times, serif" size="3"></font></td>
    <td width="1%" height="16"><font size="3"><b><font face="Times New Roman, Times, serif"></font></b></font></td>
    <td noWrap align=middle colspan=3 style="border-bottom: 1px solid #000000" height="16">
      <div align="center"><font face="Times New Roman, Times, serif" size="3">2006</font></div>
    </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">(2,010,594</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">(817,350</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">534,728</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">636,444</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">277,053</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">317,922</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 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">67,615</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">72,085</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</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">(20,737</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">(36,325</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;Change
        in deferred rent</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">117,176</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">(16,512</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;Deferred
        tax expense</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">15,973</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">---</font></td>
    <td width="1%" bgcolor="#cceeff">&nbsp;</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">(394,115</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">(73,695</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">279,633</font></td>
    <td valign=bottom noWrap align=left 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">(291,226</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">(78,345</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">46,441</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">16,067</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">(6,942</font></td>
    <td width="1%" bgcolor="#cceeff"><font 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
        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">499,645</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">567,366</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">449,398</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">87,623</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">76,859</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 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">12,665</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>
  </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 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">(169,644</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 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">498,496</font></td>
    <td valign=bottom align=left style="border-bottom: 1px solid #000000" bgcolor="#cceeff">&nbsp;</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">(665,925</font></td>
    <td align=left style="border-bottom: 1px solid #000000"><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">(600,232</font></td>
    <td align=left style="border-bottom: 1px solid #000000"><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 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 noWrap align=right width="11%" style="border-bottom: 1px solid #000000" bgcolor="#cceeff"><font size="3">(665,925</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 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"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
    <td noWrap align=right width="11%" style="border-bottom: 1px solid #000000" bgcolor="#cceeff"><font size="3">(600,232</font></td>
    <td align=left style="border-bottom: 1px solid #000000" bgcolor="#cceeff"><font 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">(4,206</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">(4,750</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">4,563,159</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">4,973,534</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">(4,498,491</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">(5,056,097</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;
        Proceeds from bank loan</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">500,000</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">---</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;
        Proceeds from stock options exercised</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">62,329</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 size="3">48,076</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 height="22" bgcolor="#cceeff">
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font face="Times New Roman, Times, serif" size="3">&nbsp;&nbsp;
        Proceeds from warrants exercised</font></div>
    </td>
    <td height="22" width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom align=left height="22" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom noWrap align=right height="22" width="11%" bgcolor="#cceeff"><font size="3">---</font></td>
    <td height="22" width="1%" bgcolor="#cceeff">&nbsp;</td>
    <td height="22" width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom align=left height="22" width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom noWrap align=right height="22" width="11%" bgcolor="#cceeff"><font size="3">584,102</font></td>
    <td height="22" width="1%" bgcolor="#cceeff">&nbsp;</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;
        Dividends paid on Series F convertible preferred stock</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">---</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 width="1%"><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 valign=bottom noWrap align=right width="11%" style="border-bottom: 1px solid #000000"><font size="3">(22,682</font></td>
    <td valign=bottom align=left style="border-bottom: 1px solid #000000"><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;
        Net cash provided by financing activities</font></div>
    </td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></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 noWrap align=right width="11%" style="border-bottom: 1px solid #000000" bgcolor="#cceeff"><font size="3">622,791</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 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"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
    <td noWrap align=right width="11%" style="border-bottom: 1px solid #000000" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">522,183</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>
  </tr>
  <tr>
    <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"><b></b></font></td>
    <td valign=bottom noWrap align=left 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 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">Effect
        of exchange rate changes on 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 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">7,199</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 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"><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">400</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>
  </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">Net
        increase (decrease) in 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><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom noWrap align=right width="11%"><font size="3">(205,579</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">420,847</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">&nbsp;</td>
    <td width="1%" bgcolor="#cceeff">&nbsp;</td>
    <td valign=bottom align=left bgcolor="#cceeff" >&nbsp;</td>
    <td valign=bottom noWrap align=right width="11%" bgcolor="#cceeff" >&nbsp;</td>
    <td valign=bottom noWrap align=left width="1%" bgcolor="#cceeff">&nbsp;</td>
    <td width="1%" bgcolor="#cceeff">&nbsp;</td>
    <td valign=bottom align=left bgcolor="#cceeff" >&nbsp;</td>
    <td valign=bottom noWrap align=right width="11%" bgcolor="#cceeff" >&nbsp;</td>
    <td valign=bottom noWrap align=left width="1%" bgcolor="#cceeff">&nbsp;</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">Cash
        and cash equivalents at beginning of period</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">6,104,277</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 width="1%"><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 valign=bottom noWrap align=right width="11%" style="border-bottom: 1px solid #000000"><font face="Times New Roman, Times, serif" size="3">6,833,193</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>
  </tr>
  <tr valign=bottom>
    <td valign=top align=left colspan=4 height="12" bgcolor="#cceeff">
      <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%" bgcolor="#cceeff"><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" bgcolor="#cceeff"><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" bgcolor="#cceeff"><font size="3">5,898,698</font></td>
    <td align=left height="12" style="border-bottom: 3px double #000000" bgcolor="#cceeff">&nbsp;
    </td>
    <td height="12" width="1%" bgcolor="#cceeff"><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" bgcolor="#cceeff"><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" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">7,254,040</font></td>
    <td align=left height="12" style="border-bottom: 3px double #000000" bgcolor="#cceeff">&nbsp;
    </td>
  </tr>
  <tr>
    <td valign=top align=left colspan=4 height="16">
      <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%"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom align=left height="16"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom noWrap align=right height="16" width="11%"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom noWrap align=left height="16" width="1%"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td height="16" width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom align=left height="16" width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom noWrap align=right height="16" width="11%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td height="16" 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>Supplemental
        cash flow information </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"><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 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;
        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">2,648</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">4,281</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>The accompanying unaudited consolidated financial statements of Socket Communications,
  Inc. (dba as Socket Mobile, Inc. beginning January 2007) and its wholly owned
  subsidiaries (the "Company") have been prepared in accordance with accounting
  principles generally accepted in the United States for interim financial information
  and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
  they do not include all of the information and footnotes required by accounting
  principles generally accepted in the United States for complete financial statements.
  In the opinion of management, all adjustments (consisting only of normal recurring
  accruals) considered necessary for fair presentation have been included. Certain
  information and footnote disclosures normally included in financial statements
  prepared in accordance with accounting principles generally accepted in the
  United States have been condensed or omitted. These consolidated financial statements
  should be read in conjunction with the audited consolidated financial statements
  and notes included in the Company's Annual Report on Form 10-K for the year
  ended December 31, 2006.</p>
<p><font face="Times New Roman, Times, serif"><b>NOTE 2 - Summary of Significant
  Accounting Policies</b></font></p>
<p>The preparation of financial statements in conformity with accounting principles
  generally accepted in the United States requires management to make estimates
  and assumptions that affect the reported amounts of assets and liabilities,
  the disclosure of contingent assets and liabilities at the date of the financial
  statements, and the reported amounts of revenue and expense during the reporting
  period. Actual results could differ from those estimates, and such differences
  may be material to the financial statements.</p>
<p>The Company makes adjustments to the value of inventory based on estimates
  of potentially excess and obsolete inventory after considering forecasted demand
  and forecasted average selling prices. However, forecasts are subject to revisions,
  cancellations, and rescheduling. Actual demand will inevitably differ from anticipated
  demand, and such differences may have a material effect on the financial statements.
</p>
<p><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, "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.</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
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: 8pt" valign=bottom align=middle>
    <td valign=bottom noWrap align=left width="66%" height="26">
      <div
      ></div>
    </td>
    <td width="1%" height="26"><font size="3"></font> </td>
    <td style="BORDER-BOTTOM: #000000 1px solid" valign=bottom noWrap
    align=middle colspan=3 height="26">
      <div align="center"><font size="3">June 30,<br>
        2007</font></div>
      <font face="Times New Roman, Times, serif" size="3"></font></td>
    <td width="3%" height="26"><font size="3"></font> </td>
    <td style="BORDER-BOTTOM: #000000 1px solid" valign=bottom noWrap
    align=middle colspan=3 height="26">
      <div align="center"><font size="3">December 31,<br>
        2006</font></div>
      </td>
  </tr>
  <tr style="BACKGROUND: #cceeff" valign=bottom>
    <td valign=bottom align=left width="66%">
      <div style="MARGIN-LEFT: 9pt; TEXT-INDENT: -9pt"><font size="3">Raw materials
        and sub-assemblies</font></div>
    </td>
    <td width="1%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=left width="1%"><font size="3">$</font> </td>
    <td valign=bottom noWrap align=right width="10%"><font size="3">1,761,100</font></td>
    <td valign=bottom noWrap align=left width="1%"><font size="3"></font> </td>
    <td width="3%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=left width="1%"><font size="3">$ </font></td>
    <td noWrap align=right width="10%"><font size="3">2,044,643</font></td>
    <td valign=bottom noWrap align=left width="1%"><font size="3"></font> </td>
  </tr>
  <tr valign=bottom>
    <td valign=bottom noWrap align=left width="66%">
      <div style="MARGIN-LEFT: 9pt; TEXT-INDENT: -9pt"><font size="3">Finished
        goods </font></div>
    </td>
    <td width="1%"><font size="3"></font> </td>
    <td align=left style="border-bottom: 1px solid #000000" width="1%"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
    <td noWrap align=right width="10%" style="border-bottom: 1px solid #000000"><font size="3">309,551</font></td>
    <td align=left style="border-bottom: 1px solid #000000" width="1%"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
    <td width="3%"><font size="3"></font> </td>
    <td align=left style="border-bottom: 1px solid #000000" width="1%"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
    <td noWrap align=right width="10%" style="border-bottom: 1px solid #000000"><font size="3">305,641</font></td>
    <td align=left style="border-bottom: 1px solid #000000" width="1%"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
  </tr>
  <tr valign=bottom>
    <td valign=bottom noWrap align=left bgcolor="#cceeff" width="66%">
      <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><font size="3"></font></font></div>
    </td>
    <td bgcolor="#cceeff" width="1%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=left style="border-bottom: 3px double #000000" bgcolor="#cceeff" width="1%"><font size="3">$</font>
    </td>
    <td valign=bottom noWrap align=right style="border-bottom: 3px double #000000" bgcolor="#cceeff" width="10%"><font size="3">2,070,651</font></td>
    <td width="1%" noWrap align=left style="border-bottom: 3px double #000000" bgcolor="#cceeff">&nbsp;
    </td>
    <td bgcolor="#cceeff" width="3%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=left style="border-bottom: 3px double #000000" bgcolor="#cceeff" width="1%"><font size="3">$
      </font></td>
    <td noWrap align=right style="border-bottom: 3px double #000000" bgcolor="#cceeff" width="10%"><font size="3">2,350,284</font></td>
    <td bgcolor="#cceeff" noWrap align=left style="border-bottom: 3px double #000000" width="1%">&nbsp;
    </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 May 8, 2007, the Company agreed with its bank to extend the term of the
  existing credit facility by an additional year. The facility now expires on
  March 3, 2009. 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 June
  30, 2007 were 8.75% on both the domestic and international lines. At June 30,
  2007, outstanding amounts borrowed under the lines were $1,380,620 and $897,309,
  respectively, which were the approximate amounts available on the lines. These
  amounts outstanding at June 30, 2007 were repaid in July 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 and second quarters of
  2007, and at the end of each quarter in fiscal year 2006. 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 Company was in compliance with
  the tangible net worth requirement at June 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 and second quarters 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.</p>
<p>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 was to be completed on
  or before June 30, 2007. The term loan bears 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. The Company completed the term
  loan advance and at June 30, 2007, $500,000 was outstanding, of which $153,112
  and $346,888 is classified as short term and long term debt, respectively. The
  rate in effect at the time of the term loan advance was 9.75%.</p>
<p>&nbsp; </p>
<p align=center><font face="Times New Roman, Times, serif" size="3">5<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p align=left><b>NOTE 5 - Intangible Assets</b>
<p>Intangible assets at June 30, 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 $37,733, 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=left>Amortization of all intangible assets for the three and six months
  ended June 30, 2007 was $33,807 and $67,615, respectively, compared to $36,043
  and $72,086, respectively, for the same periods in 2006. Intangible assets as
  of June 30, 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 width="65%"><font size="3"></font></td>
    <td width="1%"><font size="3"></font></td>
    <td  valign=bottom noWrap
    align=middle colspan=3>
      <div align="center"><font size="3">Gross</font></div>
      <font size="3"></font></td>
    <td width="2%"><font size="3"></font></td>
    <td valign=bottom noWrap
    align=middle colspan=3>
      <div align="center"><font size="3">Accumulated</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 colspan=3><font size="3"></font><font size="3"></font></td>
  </tr>
  <tr style="FONT-SIZE: 8pt" valign=bottom align=middle>
    <td valign=bottom noWrap align=left width="65%" height="9">
      <div
     ><font size="2"><font size="3"><font size="3"></font></font></font></div>
    </td>
    <td width="1%" height="9"><font size="3"></font> </td>
    <td style="BORDER-BOTTOM: #000000 1px solid" valign=bottom noWrap
    align=middle colspan=3 height="9">
      <div align="center"><font size="3">Assets</font></div>
    </td>
    <td width="2%" height="9"><font size="3"></font> </td>
    <td style="BORDER-BOTTOM: #000000 1px solid" valign=bottom noWrap
    align=middle colspan=3 height="9">
      <div align="center"><font size="3">Amortization</font></div>
    </td>
    <td width="2%" height="9"><font size="3"></font> </td>
    <td style="BORDER-BOTTOM: #000000 1px solid" valign=bottom noWrap
    align=middle colspan=3 height="9">
      <div align="center"><font size="3">Net</font></div>

    </td>
  </tr>
  <tr style="BACKGROUND: #cceeff" valign=bottom>
    <td valign=bottom align=left width="65%">
      <div style="MARGIN-LEFT: 9pt; TEXT-INDENT: -9pt"><font size="3">Patent</font></div>
    </td>
    <td width="1%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=left width="1%"><font size="3">$</font> </td>
    <td valign=bottom noWrap align=right width="8%"><font size="3">600,000</font></td>
    <td valign=bottom noWrap align=left width="1%"><font size="3"></font> </td>
    <td width="2%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=left width="1%"><font size="3">$ </font></td>
    <td noWrap align=right width="8%"><font size="3">180,000</font></td>
    <td valign=bottom noWrap align=left width="1%">&nbsp; </td>
    <td width="2%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=left width="1%"><font size="3">$</font> </td>
    <td noWrap align=right width="8%"><font size="3">420,000</font></td>
    <td valign=bottom noWrap align=left width="1%"><font size="3"></font> </td>
  </tr>
  <tr valign=bottom>
    <td valign=bottom noWrap align=left height="11" width="65%">
      <div style="MARGIN-LEFT: 9pt; TEXT-INDENT: -9pt"><font size="3">Project
        management tools</font></div>
    </td>
    <td height="11" width="1%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=left height="11" width="1%"><font size="3"></font>
    </td>
    <td valign=bottom noWrap align=right height="11" width="8%"><font size="3">570,750</font></td>
    <td valign=bottom noWrap align=left height="11" width="1%"><font size="3"></font></td>
    <td height="11" width="2%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=left height="11" width="1%"><font size="3">
      </font></td>
    <td noWrap align=right height="11" width="8%"><font size="3">453,242</font></td>
    <td valign=bottom noWrap align=left height="11" width="1%">&nbsp;</td>
    <td height="11" width="2%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=left height="11" width="1%"><font size="3"></font>
    </td>
    <td noWrap align=right height="11" width="8%"><font size="3">117,508</font></td>
    <td valign=bottom noWrap align=left height="11" width="1%"><font size="3"></font>
    </td>
  </tr>
  <tr style="BACKGROUND: #cceeff" valign=bottom>
    <td valign=bottom noWrap align=left width="65%">
      <div style="MARGIN-LEFT: 9pt; TEXT-INDENT: -9pt"><font size="3">Licensing
        agreement </font></div>
    </td>
    <td width="1%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=left style="border-bottom: 1px solid #000000" width="1%"><font size="3">&nbsp</font>
    </td>
    <td valign=bottom noWrap align=right style="border-bottom: 1px solid #000000" width="8%"><font size="3">37,733</font></td>
    <td noWrap align=left style="border-bottom: 1px solid #000000" width="1%"><font size="3">&nbsp</font>
    </td>
    <td width="2%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=left style="border-bottom: 1px solid #000000" width="1%"><font size="3">&nbsp
      </font></td>
    <td noWrap align=right style="border-bottom: 1px solid #000000" width="8%"><font size="3">34,365</font></td>
    <td width="1%" noWrap align=left style="border-bottom: 1px solid #000000"><font size="3">&nbsp
      </font></td>
    <td width="2%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=left style="border-bottom: 1px solid #000000" width="1%"><font size="3">&nbsp</font>
    </td>
    <td noWrap align=right style="border-bottom: 1px solid #000000" width="8%"><font size="3">3,368</font></td>
    <td width="1%" noWrap align=left style="border-bottom: 1px solid #000000"><font size="3">&nbsp</font>
    </td>
  </tr>
  <tr valign=bottom>
    <td valign=bottom noWrap align=left width="65%">
      <div style="MARGIN-LEFT: 9pt; TEXT-INDENT: -9pt"><font style="FONT-SIZE: 10pt" size="3">&nbsp;&nbsp;
        </font><font size="3">Total intangible assets</font></div>
    </td>
    <td width="1%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=left style="border-bottom: 3px double #000000" width="1%" ><font size="3">$</font>
    </td>
    <td valign=bottom noWrap align=right style="border-bottom: 3px double #000000" width="8%"><font size="3">1,208,483</font></td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="1%" >&nbsp;
    </td>
    <td width="2%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=left style="border-bottom: 3px double #000000" width="1%"><font size="3">$
      </font></td>
    <td noWrap align=right style="border-bottom: 3px double #000000" width="8%"><font size="3">667,607</font></td>
    <td width="1%" noWrap align=left style="border-bottom: 3px double #000000"><font size="3">
      </font></td>
    <td width="2%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=left style="border-bottom: 3px double #000000" width="1%"><font size="3">$</font>
    </td>
    <td noWrap align=right style="border-bottom: 3px double #000000" width="8%"><font size="3">540,876</font></td>
    <td width="1%" noWrap align=left style="border-bottom: 3px double #000000">&nbsp;
    </td>
  </tr>
</table>
<p>Intangible assets 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=3>
      <div align="center"><font size="3">Gross</font></div>
      <font size="3"></font></td>
    <td><font size="3"></font></td>
    <td valign=bottom noWrap
    align=middle colspan=3>
      <div align="center"><font size="3">Accumulated</font></div>
      <font size="3"></font></td>
    <td><font size="3"></font></td>
    <td style="BORDER-BOTTOM: #000000 1px solid" valign=bottom noWrap
    align=middle colspan=3><font size="3"></font><font size="3"></font></td>
  </tr>
  <tr style="FONT-SIZE: 8pt" valign=bottom align=middle>
    <td valign=bottom noWrap align=left height="4">
      <div
     ><font size="2"><font size="3"><font size="3"></font></font></font></div>
    </td>
    <td height="4"><font size="3"></font> </td>
    <td style="BORDER-BOTTOM: #000000 1px solid" valign=bottom noWrap
    align=middle colspan=3 height="4">
      <div align="center"><font size="3">Assets</font></div>

    </td>
    <td height="4"><font size="3"></font> </td>
    <td style="BORDER-BOTTOM: #000000 1px solid" valign=bottom noWrap
    align=middle colspan=3 height="4">
      <div align="center"><font size="3">Amortization</font></div>

    </td>
    <td height="4"><font size="3"></font> </td>
    <td style="BORDER-BOTTOM: #000000 1px solid" valign=bottom noWrap
    align=middle colspan=3 height="4">
      <div align="center"><font size="3">Net</font></div>

    </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>&nbsp; </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">&nbsp;</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">37,733</font></td>
    <td noWrap align=left style="border-bottom: 1px solid #000000" width="1%"><font size="3">&nbsp</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">30,323</font></td>
    <td noWrap align=left style="border-bottom: 1px solid #000000" width="1%"><font size="3">&nbsp</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 noWrap align=left style="border-bottom: 1px solid #000000" width="1%"><font size="3">&nbsp</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">Total intangible assets</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">1,208,483</font></td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="1%" >&nbsp;
    </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">599,992</font></td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="1%" >&nbsp;
    </td>
    <td><font size="3"></font> </td>
    <td valign=bottom noWrap align=left style="border-bottom: 3px double #000000"><font size="3">$</font>
    </td>
    <td noWrap align=right style="border-bottom: 3px double #000000"><font size="3">608,491</font></td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="1%" >&nbsp;
    </td>
  </tr>
</table>
<p>Based on definite lived intangible assets recorded at June 30, 2007, and assuming
  no subsequent impairment of the underlying assets, the annual amortization expense
  is expected to be as follows:</p>
<table style="MARGIN-TOP: 3pt; FONT-SIZE: 10pt" cellspacing=0 cellpadding=0
width="90%" align=center border=0>
  <tr>
    <td noWrap align=left width="71%" style="border-bottom: 1px solid #000000" ><font size="3">
      Year</font></td>
    <td width="4%"><font size="3"></font></td>
    <td colspan="4" style="border-bottom: 1px solid #000000">
      <div align="center"><font size="3">Amount</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td valign=top align=left bgcolor="#cceeff" width="71%">
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font size="3">2007 (six
        months remaining)</font></div>
    </td>
    <td bgcolor="#cceeff" width="4%"><font size="3"></font></td>
    <td bgcolor="#cceeff" width="3%" align="right"><font size="3">$</font></td>
    <td valign=bottom align=right bgcolor="#cceeff" colspan="2"><font size="3">66,942</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">540,876</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>
  </b></p>
<p align=center><font face="Times New Roman, Times, serif" size="3"><br>
  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><b>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 and six months ended June 30, 2007 and 2006 are 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="30%">&nbsp;</td>
    <!-- colindex=01 type=maindata -->
    <td width="2%">&nbsp;</td>
    <!-- colindex=02 type=gutter -->
    <td align=right>&nbsp;</td>
    <!-- colindex=02 type=lead -->
    <td align=right width="7%">&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="7%">&nbsp;</td>
    <td align=left width="2%">&nbsp;</td>
    <!-- colindex=03 type=body -->
    <td align=left width="4%">&nbsp;</td>
    <td align=left width="1%">&nbsp;</td>
    <td align=left width="6%">&nbsp;</td>
    <td align=left width="3%">&nbsp;</td>
    <td align=left width="1%">&nbsp;</td>
    <td align=left width="1%">&nbsp;</td>
    <td align=left width="1%">&nbsp;</td>
    <td align=left width="2%">&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" width="30%"><font size="3"></font>
    </td>
    <td height="13" width="2%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=middle height="13" colspan="6" style="border-bottom: 1px solid #000000">
      <div align="center"><font size="3">Three Months Ended<br>
        June 30, </font></div>
    </td>
    <td valign=bottom noWrap align=middle height="13" width="2%" style="border-bottom: 1px solid #000000" >&nbsp;</td>
    <td valign=bottom noWrap align=middle height="13" width="4%" >&nbsp;</td>
    <td valign=bottom noWrap align=middle height="13" colspan="7" style="border-bottom: 1px solid #000000" >
      <div align="center"><font size="3" >Six Months Ended<br>
        June 30,</font></div>
    </td>
  </tr>
  <tr style="FONT-SIZE: 8pt" valign=bottom align=middle>
    <td valign=bottom noWrap align=left width="30%" height="15">
      <div
      ><font size="3">Revenues:</font></div>
    </td>
    <td width="2%" height="15"><font size="3"></font> </td>
    <td style="BORDER-BOTTOM: #000000 1px solid" valign=bottom noWrap
    align=middle colspan=3 height="15">
      <div align="center"><font size="3">2007</font></div>
    </td>
    <td width="2%" height="15"><font size="3"></font> </td>
    <td style="BORDER-BOTTOM: #000000 1px solid" valign=bottom noWrap
    align=middle colspan=3 height="15">
      <div align="center"><font size="3">2006</font></div>
    </td>
    <td width="4%" height="15"><font size="3"></font> </td>
    <td style="BORDER-BOTTOM: #000000 1px solid" noWrap colspan=3 height="15">
      <div align="center"><font size="3">2007</font></div>
    </td>
    <td width="1%" height="15">&nbsp;</td>
    <td style="BORDER-BOTTOM: #000000 1px solid" noWrap colspan=3 height="15">
      <div align="center"><font size="3">2006</font></div>
    </td>
  </tr>
  <tr style="BACKGROUND: #cceeff" valign=bottom>
    <td valign=bottom align=left width="30%">
      <div><font face="Times New Roman, Times, serif" size="3">&nbsp;&nbsp; </font><font size="3">United
        States</font></div>
    </td>
    <td width="2%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=left width="2%"><font size="3">$</font> </td>
    <td valign=bottom noWrap align=right width="10%"><font size="3">4,134,620</font></td>
    <td valign=bottom noWrap align=left width="1%"><font size="3"></font> </td>
    <td width="2%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=left width="2%"><font size="3">$ </font></td>
    <td noWrap align=right width="10%"><font size="3">4,973,927</font></td>
    <td valign=bottom noWrap align=left width="2%">&nbsp;</td>
    <td valign=bottom noWrap align=left width="4%"><font size="3"></font> </td>
    <td noWrap align=left width="2%"><font size="3">$</font> </td>
    <td noWrap align=right width="10%"><font size="3">7,398,880</font></td>
    <td valign=bottom noWrap align=left width="1%">&nbsp;</td>
    <td valign=bottom noWrap align=left width="2%">&nbsp;</td>
    <td noWrap align=left width="2%"><font size="3">$ </font></td>
    <td noWrap align=right width="10%"><font size="3">9,714,050</font></td>
    <td noWrap align=right width="2%">&nbsp;</td>
  </tr>
  <tr valign=bottom>
    <td align=left width="30%">
      <div><font face="Times New Roman, Times, serif" size="3">&nbsp;&nbsp; </font><font size="3">Europe</font></div>
    </td>
    <td width="2%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=left width="2%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=right width="10%"><font size="3">1,708,146</font></td>
    <td valign=bottom noWrap align=left width="1%"><font size="3"></font></td>
    <td width="2%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=left width="2%"><font size="3"> </font></td>
    <td noWrap align=right width="10%"><font size="3">1,460,363</font></td>
    <td valign=bottom noWrap align=left width="2%">&nbsp;</td>
    <td valign=bottom noWrap align=left width="4%"><font size="3"></font></td>
    <td noWrap align=left width="2%"><font size="3"></font> </td>
    <td noWrap align=right width="10%"><font size="3">3,471,891</font></td>
    <td valign=bottom noWrap align=left width="1%">&nbsp;</td>
    <td valign=bottom noWrap align=left width="2%">&nbsp;</td>
    <td noWrap align=left width="2%"><font size="3"> </font></td>
    <td noWrap align=right width="10%"><font size="3">2,844,686</font></td>
    <td noWrap align=right width="2%">&nbsp;</td>
  </tr>
  <tr style="BACKGROUND: #cceeff" valign=bottom>
    <td align=left width="30%">
      <div><font face="Times New Roman, Times, serif" size="3">&nbsp;&nbsp; </font><font size="3">Asia
        and rest of world</font></div>
    </td>
    <td width="2%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=left style="border-bottom: 1px solid #000000" width="2%"><font size="3">&nbsp</font>
    </td>
    <td valign=bottom noWrap align=right style="border-bottom: 1px solid #000000" width="10%"><font size="3">457,051</font></td>
    <td noWrap align=left style="border-bottom: 1px solid #000000" width="2%"><font size="3">&nbsp</font>
    </td>
    <td width="2%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=left style="border-bottom: 1px solid #000000" width="2%"><font size="3">&nbsp
      </font></td>
    <td noWrap align=right style="border-bottom: 1px solid #000000" width="10%"><font size="3">420,738</font></td>
    <td noWrap align=left style="border-bottom: 1px solid #000000" width="2%"><font size="3">&nbsp
      </font></td>
    <td valign=bottom noWrap align=left width="4%"><font size="3"></font> </td>
    <td noWrap align=left style="border-bottom: 1px solid #000000" width="2%"><font size="3">&nbsp</font>
    </td>
    <td noWrap align=right style="border-bottom: 1px solid #000000" width="10%"><font size="3">977,386</font></td>
    <td noWrap align=left style="border-bottom: 1px solid #000000" width="2%"><font size="3">&nbsp</font>
    </td>
    <td valign=bottom noWrap align=left width="2%">&nbsp;</td>
    <td noWrap align=left style="border-bottom: 1px solid #000000" width="2%"><font size="3">&nbsp
      </font></td>
    <td noWrap align=right style="border-bottom: 1px solid #000000" width="10%"><font size="3">1,054,983</font></td>
    <td noWrap align=left style="border-bottom: 1px solid #000000" width="2%"><font size="3">&nbsp
      </font></td>
  </tr>
  <tr valign=bottom>
    <td valign=bottom noWrap align=left width="30%">
      <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 width="2%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=left style="border-bottom: 3px double #000000" width="2%"><font size="3">$</font>
    </td>
    <td valign=bottom noWrap align=right style="border-bottom: 3px double #000000" width="10%"><font size="3">6,299,817</font></td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="2%">&nbsp;
    </td>
    <td width="2%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=left style="border-bottom: 3px double #000000" width="2%"><font size="3">$
      </font></td>
    <td noWrap align=right style="border-bottom: 3px double #000000" width="10%"><font size="3">6,855,028</font></td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="2%">&nbsp;
    </td>
    <td valign=bottom noWrap align=left width="4%"><font size="3"></font></td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="2%"><font size="3">$</font>
    </td>
    <td noWrap align=right style="border-bottom: 3px double #000000" width="10%"><font size="3">11,848,157</font></td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="2%">&nbsp;
    </td>
    <td valign=bottom noWrap align=left width="2%">&nbsp;</td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="2%"><font size="3">$
      </font></td>
    <td noWrap align=right style="border-bottom: 3px double #000000" width="10%"><font size="3">13,613,719</font></td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="2%">&nbsp;
    </td>
  </tr>
</table>
<p>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.</p>
<p>Major customers who accounted for at least 10% of the Company's total revenues
  were 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: 8pt" valign=bottom align=middle>
    <td valign=bottom noWrap align=left height="13" width="38%"><font size="3"></font>
    </td>
    <td height="13" width="1%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=middle height="13" colspan="7" style="border-bottom: 1px solid #000000" >
      <div align="center"><font size="3">Three Months Ended<br>
        June 30, </font></div>
    </td>
    <td valign=bottom noWrap align=middle height="13" width="2%" >&nbsp;</td>
    <td valign=bottom noWrap align=middle height="13" colspan="7" style="border-bottom: 1px solid #000000" >
      <div align="center"><font size="3">Six Months Ended<br>
        June 30,</font></div>
    </td>
  </tr>
  <tr style="FONT-SIZE: 8pt" valign=bottom align=middle>
    <td valign=bottom noWrap align=left width="38%" height="15">
      <div
      ></div>
    </td>
    <td width="1%" height="15"><font size="3"></font> </td>
    <td style="BORDER-BOTTOM: #000000 1px solid" valign=bottom noWrap
    align=middle colspan=3 height="15">
      <div align="center"><font size="3">2007</font></div>
    </td>
    <td width="1%" height="15"><font size="3"></font> </td>
    <td style="BORDER-BOTTOM: #000000 1px solid" valign=bottom noWrap
    align=middle colspan=3 height="15">
      <div align="center"><font size="3">2006</font></div>
    </td>
    <td width="2%" height="15"><font size="3"></font> </td>
    <td style="BORDER-BOTTOM: #000000 1px solid" noWrap colspan=3 height="15">
      <div align="center"><font size="3">2007</font></div>
    </td>
    <td width="2%" height="15">&nbsp;</td>
    <td style="BORDER-BOTTOM: #000000 1px solid" noWrap colspan=3 height="15">
      <div align="center"><font size="3">2006</font></div>
    </td>
  </tr>
  <tr style="BACKGROUND: #cceeff" valign=bottom>
    <td valign=bottom align=left width="38%">
      <div style="MARGIN-LEFT: 9pt; TEXT-INDENT: -9pt"><font size="3">Tech Data
        Corp. </font></div>
    </td>
    <td width="1%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=left width="1%">&nbsp; </td>
    <td valign=bottom noWrap align=right width="6%"><font size="3">25</font></td>
    <td valign=bottom noWrap align=left width="6%"><font size="3">%</font> </td>
    <td width="1%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=left width="1%">&nbsp;</td>
    <td noWrap align=right width="6%"><font size="3">32</font></td>
    <td valign=bottom noWrap align=left width="6%"><font size="3">%</font></td>
    <td valign=bottom noWrap align=left width="2%"><font size="3"></font> </td>
    <td noWrap align=left width="1%">&nbsp; </td>
    <td noWrap align=right width="6%"><font size="3">24</font></td>
    <td noWrap align=left width="6%"><font size="3">%</font> </td>
    <td valign=bottom noWrap align=left width="2%">&nbsp;</td>
    <td noWrap align=left width="1%">&nbsp;</td>
    <td noWrap align=right width="8%"><font size="3">29</font></td>
    <td noWrap align=left width="8%"><font size="3">%</font> </td>
  </tr>
  <tr valign=bottom>
    <td valign=bottom noWrap align=left width="38%">
      <div style="MARGIN-LEFT: 9pt; TEXT-INDENT: -9pt"><font size="3">Ingram Micro,
        Inc. </font></div>
    </td>
    <td width="1%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=left width="1%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=right width="6%"><font size="3">13</font></td>
    <td valign=bottom noWrap align=left width="6%"><font size="3">%</font></td>
    <td width="1%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=left width="1%"><font size="3"> </font></td>
    <td noWrap align=right width="6%"><font size="3">13</font></td>
    <td valign=bottom noWrap align=left width="6%"><font size="3">%</font></td>
    <td valign=bottom noWrap align=left width="2%"><font size="3"></font></td>
    <td noWrap align=left width="1%"><font size="3"></font> </td>
    <td noWrap align=right width="6%"><font size="3">13</font></td>
    <td noWrap align=left width="6%"><font size="3">%</font></td>
    <td valign=bottom noWrap align=left width="2%">&nbsp;</td>
    <td noWrap align=left width="1%"><font size="3"> </font></td>
    <td noWrap align=right width="8%"><font size="3">14</font></td>
    <td noWrap align=left width="8%"><font size="3">%</font></td>
  </tr>
  <tr style="BACKGROUND: #cceeff" valign=bottom>
    <td valign=bottom noWrap align=left width="38%">
      <div style="MARGIN-LEFT: 9pt; TEXT-INDENT: -9pt"><font size="3">Intermec,
        Inc.</font></div>
    </td>
    <td width="1%"><font size="3"></font> </td>
    <td noWrap align=left width="1%">&nbsp; </td>
    <td noWrap align=right width="6%"><font size="3">*</font></td>
    <td noWrap align=left width="6%">&nbsp; </td>
    <td width="1%"><font size="3"></font> </td>
    <td noWrap align=left width="1%">&nbsp;</td>
    <td noWrap align=right width="6%"><font size="3">11</font></td>
    <td noWrap align=left width="6%"><font size="3">%</font></td>
    <td noWrap align=left width="2%"><font size="3"></font> </td>
    <td noWrap align=left width="1%">&nbsp; </td>
    <td noWrap align=right width="6%"><font size="3">*</font></td>
    <td noWrap align=left width="6%">&nbsp; </td>
    <td noWrap align=left width="2%">&nbsp;</td>
    <td noWrap align=left width="1%"><font size="3"> </font></td>
    <td noWrap align=right width="8%">*</td>
    <td noWrap align=left width="8%">&nbsp; </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>&nbsp;</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>The weighted average per share fair value of the individual options issued
  and outstanding during the three and six months ended June 30, 2007 was estimated
  at $1.60 and $1.56, respectively, compared to $1.69 and $1.72, respectively,
  for the three and six months ended June 30, 2006. 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 and six months ended June 30, 2007 and 2006 are shown below:</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: 8pt" valign=bottom align=middle>
    <td valign=bottom noWrap align=left height="13" width="38%"><font size="3"></font>
    </td>
    <td height="13" width="1%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=middle height="13" colspan="7" style="border-bottom: 1px solid #000000">
      <div align="center"><font size="3">Three Months Ended<br>
        June 30, </font></div>
    </td>
    <td valign=bottom noWrap align=middle height="13" width="2%" >&nbsp;</td>
    <td valign=bottom noWrap align=middle height="13" colspan="7" style="border-bottom: 1px solid #000000">
      <div align="center"><font size="3">Six Months Ended<br>
        June 30,</font></div>
    </td>
  </tr>
  <tr style="FONT-SIZE: 8pt" valign=bottom align=middle>
    <td valign=bottom noWrap align=left width="38%" height="15">
      <div
      ></div>
    </td>
    <td width="1%" height="15"><font size="3"></font> </td>
    <td style="BORDER-BOTTOM: #000000 1px solid" valign=bottom noWrap
    align=middle colspan=3 height="15">
      <div align="center"><font size="3">2007</font></div>
    </td>
    <td width="1%" height="15"><font size="3"></font> </td>
    <td style="BORDER-BOTTOM: #000000 1px solid" valign=bottom noWrap
    align=middle colspan=3 height="15">
      <div align="center"><font size="3">2006</font></div>
    </td>
    <td width="2%" height="15"><font size="3"></font> </td>
    <td style="BORDER-BOTTOM: #000000 1px solid" noWrap colspan=3 height="15">
      <div align="center"><font size="3">2007</font></div>
    </td>
    <td width="2%" height="15">&nbsp;</td>
    <td style="BORDER-BOTTOM: #000000 1px solid" noWrap colspan=3 height="15">
      <div align="center"><font size="3">2006</font></div>
    </td>
  </tr>
  <tr style="BACKGROUND: #cceeff" valign=bottom>
    <td valign=bottom align=left width="38%">
      <div style="MARGIN-LEFT: 9pt; TEXT-INDENT: -9pt"><font size="3">Risk-free
        interest rate (%)</font></div>
    </td>
    <td width="1%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=left width="1%">&nbsp; </td>
    <td valign=bottom noWrap align=right width="7%"><font size="3">3.85</font></td>
    <td valign=bottom noWrap align=left width="5%"><font size="3">%</font> </td>
    <td width="1%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=left width="1%">&nbsp;</td>
    <td noWrap align=right width="7%"><font size="3">3.51</font></td>
    <td valign=bottom noWrap align=left width="5%"><font size="3">%</font></td>
    <td valign=bottom noWrap align=left width="2%"><font size="3"></font> </td>
    <td noWrap align=left width="1%">&nbsp; </td>
    <td noWrap align=right width="7%"><font size="3">3.75</font></td>
    <td noWrap align=left width="5%"><font size="3">%</font> </td>
    <td valign=bottom noWrap align=left width="2%">&nbsp;</td>
    <td noWrap align=left width="2%">&nbsp;</td>
    <td noWrap align=right width="8%"><font size="3">3.49</font></td>
    <td noWrap align=left width="7%"><font size="3">%</font> </td>
  </tr>
  <tr valign=bottom>
    <td valign=bottom noWrap align=left width="38%">
      <div style="MARGIN-LEFT: 9pt; TEXT-INDENT: -9pt"><font size="3">Dividend
        yield </font></div>
    </td>
    <td width="1%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=left width="1%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=right width="7%"><font size="3">---</font></td>
    <td valign=bottom noWrap align=left width="5%">&nbsp;</td>
    <td width="1%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=left width="1%"><font size="3"> </font></td>
    <td noWrap align=right width="7%"><font size="3">---</font></td>
    <td valign=bottom noWrap align=left width="5%">&nbsp;</td>
    <td valign=bottom noWrap align=left width="2%"><font size="3"></font></td>
    <td noWrap align=left width="1%"><font size="3"></font> </td>
    <td noWrap align=right width="7%"><font size="3">---</font></td>
    <td noWrap align=left width="5%">&nbsp;</td>
    <td valign=bottom noWrap align=left width="2%">&nbsp;</td>
    <td noWrap align=left width="2%"><font size="3"> </font></td>
    <td noWrap align=right width="8%"><font size="3">---</font></td>
    <td noWrap align=left width="7%">&nbsp;</td>
  </tr>
  <tr style="BACKGROUND: #cceeff" valign=bottom>
    <td valign=bottom noWrap align=left width="38%">
      <div style="MARGIN-LEFT: 9pt; TEXT-INDENT: -9pt"><font size="3">Volatility
        factor </font></div>
    </td>
    <td width="1%"><font size="3"></font> </td>
    <td noWrap align=left width="1%">&nbsp; </td>
    <td noWrap align=right width="7%"><font size="3">1.0</font></td>
    <td noWrap align=left width="5%">&nbsp; </td>
    <td width="1%"><font size="3"></font> </td>
    <td noWrap align=left width="1%">&nbsp;</td>
    <td noWrap align=right width="7%"><font size="3">1.2</font></td>
    <td noWrap align=left width="5%">&nbsp;</td>
    <td noWrap align=left width="2%"><font size="3"></font> </td>
    <td noWrap align=left width="1%">&nbsp; </td>
    <td noWrap align=right width="7%"><font size="3">1.0</font></td>
    <td noWrap align=left width="5%">&nbsp; </td>
    <td noWrap align=left width="2%">&nbsp;</td>
    <td noWrap align=left width="2%"><font size="3"> </font></td>
    <td noWrap align=right width="8%"><font size="3">1.2</font></td>
    <td noWrap align=left width="7%">&nbsp; </td>
  </tr>
  <tr valign=bottom>
    <td valign=bottom noWrap align=left width="38%" height="17">
      <div style="MARGIN-LEFT: 9pt; TEXT-INDENT: -9pt"><font size="3">Expected
        option life (years)</font></div>
    </td>
    <td width="1%" height="17"><font size="3"></font> </td>
    <td valign=bottom noWrap align=left width="1%" height="17"><font size="3"></font>
    </td>
    <td valign=bottom noWrap align=right width="7%" height="17"><font size="3">4.7</font></td>
    <td valign=bottom noWrap align=left width="5%" height="17">&nbsp;</td>
    <td width="1%" height="17"><font size="3"></font> </td>
    <td valign=bottom noWrap align=left width="1%" height="17"><font size="3">
      </font></td>
    <td noWrap align=right width="7%" height="17"><font size="3">4.8</font></td>
    <td valign=bottom noWrap align=left width="5%" height="17">&nbsp;</td>
    <td valign=bottom noWrap align=left width="2%" height="17"><font size="3"></font></td>
    <td noWrap align=left width="1%" height="17"><font size="3"></font> </td>
    <td noWrap align=right width="7%" height="17"><font size="3">4.7</font></td>
    <td noWrap align=left width="5%" height="17">&nbsp;</td>
    <td valign=bottom noWrap align=left width="2%" height="17">&nbsp;</td>
    <td noWrap align=left width="2%" height="17"><font size="3"> </font></td>
    <td noWrap align=right width="8%" height="17"><font size="3">4.9</font></td>
    <td noWrap align=left width="7%" height="17">&nbsp;</td>
  </tr>
</table>
<p>At June 30, 2007, options issued to employees for 9,941,887 shares were outstanding,
  of which 7,108,923 were exercisable. At June 30, 2006, options issued to employees
  for 9,020,755 shares were outstanding, of which 6,431,681 were exercisable.</p>
<p>Total stock-based compensation expense recognized in our consolidated statements
  of operations for the three and six months ended June 30, 2007 and 2006 is shown
  below:</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="30%">&nbsp;</td>
    <!-- colindex=01 type=maindata -->
    <td width="2%">&nbsp;</td>
    <!-- colindex=02 type=gutter -->
    <td align=right>&nbsp;</td>
    <!-- colindex=02 type=lead -->
    <td align=right width="7%">&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="7%">&nbsp;</td>
    <td align=left width="2%">&nbsp;</td>
    <!-- colindex=03 type=body -->
    <td align=left width="4%">&nbsp;</td>
    <td align=left width="1%">&nbsp;</td>
    <td align=left width="6%">&nbsp;</td>
    <td align=left width="3%">&nbsp;</td>
    <td align=left width="1%">&nbsp;</td>
    <td align=left width="1%">&nbsp;</td>
    <td align=left width="1%">&nbsp;</td>
    <td align=left width="2%">&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" width="30%"><font size="3"></font>
    </td>
    <td height="13" width="2%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=middle height="13" colspan="6" style="border-bottom: 1px solid #000000" >
      <div align="center"><font size="3">Three Months Ended<br>
        June 30, </font></div>
    </td>
    <td valign=bottom noWrap align=middle height="13" width="2%" style="border-bottom: 1px solid #000000" >&nbsp;</td>
    <td valign=bottom noWrap align=middle height="13" width="4%" >&nbsp;</td>
    <td valign=bottom noWrap align=middle height="13" colspan="7"  style="border-bottom: 1px solid #000000">
      <div align="center"><font size="3">Six Months Ended<br>
        June 30,</font></div>
    </td>
  </tr>
  <tr style="FONT-SIZE: 8pt" valign=bottom align=middle>
    <td valign=bottom noWrap align=left width="30%" height="15" style="border-bottom: 1px solid #000000">
      <div
      ><font size="3">Income Statement Classification</font></div>
    </td>
    <td width="2%" height="15"><font size="3"></font> </td>
    <td style="BORDER-BOTTOM: #000000 1px solid" valign=bottom noWrap
    align=middle colspan=3 height="15">
      <div align="center"><font size="3">2007</font></div>
    </td>
    <td width="2%" height="15"><font size="3"></font> </td>
    <td style="BORDER-BOTTOM: #000000 1px solid" valign=bottom noWrap
    align=middle colspan=3 height="15">
      <div align="center"><font size="3">2006</font></div>
    </td>
    <td width="4%" height="15"><font size="3"></font> </td>
    <td style="BORDER-BOTTOM: #000000 1px solid" noWrap colspan=3 height="15">
      <div align="center"><font size="3">2007</font></div>
    </td>
    <td width="1%" height="15">&nbsp;</td>
    <td style="BORDER-BOTTOM: #000000 1px solid" noWrap colspan=3 height="15">
      <div align="center"><font size="3">2006</font></div>
    </td>
  </tr>
  <tr style="BACKGROUND: #cceeff" valign=bottom>
    <td valign=bottom align=left width="30%">
      <div style="MARGIN-LEFT: 9pt; TEXT-INDENT: -9pt"> <font size="3">&nbsp&nbspCost of
        revenues </font></div>
    </td>
    <td width="2%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=left width="2%"><font size="3">$</font> </td>
    <td valign=bottom noWrap align=right width="10%"><font size="3">20,427</font></td>
    <td valign=bottom noWrap align=left width="1%"><font size="3"></font> </td>
    <td width="2%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=left width="2%"><font size="3">$ </font></td>
    <td noWrap align=right width="10%"><font size="3">23,295</font></td>
    <td valign=bottom noWrap align=left width="2%">&nbsp;</td>
    <td valign=bottom noWrap align=left width="4%"><font size="3"></font> </td>
    <td noWrap align=left width="2%"><font size="3">$</font> </td>
    <td noWrap align=right width="10%"><font size="3">43,107</font></td>
    <td valign=bottom noWrap align=left width="1%">&nbsp;</td>
    <td valign=bottom noWrap align=left width="2%">&nbsp;</td>
    <td noWrap align=left width="2%"><font size="3">$ </font></td>
    <td noWrap align=right width="10%"><font size="3">47,691</font></td>
    <td noWrap align=right width="2%">&nbsp;</td>
  </tr>
  <tr valign=bottom>
    <td valign=bottom noWrap align=left width="30%">
      <div style="MARGIN-LEFT: 9pt; TEXT-INDENT: -9pt"><font size="3">&nbsp&nbspResearch
        and development</font></div>
    </td>
    <td width="2%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=left width="2%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=right width="10%"><font size="3">65,512</font></td>
    <td valign=bottom noWrap align=left width="1%"><font size="3"></font></td>
    <td width="2%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=left width="2%"><font size="3"> </font></td>
    <td noWrap align=right width="10%"><font size="3">87,729</font></td>
    <td valign=bottom noWrap align=left width="2%">&nbsp;</td>
    <td valign=bottom noWrap align=left width="4%"><font size="3"></font></td>
    <td noWrap align=left width="2%"><font size="3"></font> </td>
    <td noWrap align=right width="10%"><font size="3">128,478</font></td>
    <td valign=bottom noWrap align=left width="1%">&nbsp;</td>
    <td valign=bottom noWrap align=left width="2%">&nbsp;</td>
    <td noWrap align=left width="2%"><font size="3"> </font></td>
    <td noWrap align=right width="10%"><font size="3">182,696</font></td>
    <td noWrap align=right width="2%">&nbsp;</td>
  </tr>
  <tr style="BACKGROUND: #cceeff" valign=bottom>
    <td valign=bottom noWrap align=left width="30%">
      <div style="MARGIN-LEFT: 9pt; TEXT-INDENT: -9pt"><font size="3">&nbsp&nbspSales
        and marketing </font></div>
    </td>
    <td width="2%"><font size="3"></font> </td>
    <td noWrap align=left width="2%">&nbsp; </td>
    <td noWrap align=right width="10%"><font size="3">92,541</font></td>
    <td noWrap align=left width="1%"><font size="3"></font> </td>
    <td width="2%"><font size="3"></font> </td>
    <td noWrap align=left width="2%"><font size="3"> </font></td>
    <td noWrap align=right width="10%"><font size="3">107,311</font></td>
    <td noWrap align=left width="2%">&nbsp;</td>
    <td noWrap align=left width="4%"><font size="3"></font> </td>
    <td noWrap align=left width="2%">&nbsp; </td>
    <td noWrap align=right width="10%"><font size="3">172,185</font></td>
    <td noWrap align=left width="1%">&nbsp;</td>
    <td noWrap align=left width="2%">&nbsp;</td>
    <td noWrap align=left width="2%">&nbsp;</td>
    <td noWrap align=right width="10%"><font size="3">240,567</font></td>
    <td noWrap align=right width="2%">&nbsp;</td>
  </tr>
  <tr valign=bottom>
    <td valign=bottom noWrap align=left width="30%">
      <div style="MARGIN-LEFT: 9pt; TEXT-INDENT: -9pt"><font size="3">&nbsp&nbspGeneral
        and administrative<font size="3"></font></font></div>
    </td>
    <td width="2%"><font size="3"></font> </td>
    <td noWrap align=left style="border-bottom: 1px solid #000000" width="2%"><font size="3">&nbsp</font>
    </td>
    <td noWrap align=right style="border-bottom: 1px solid #000000" width="10%"><font size="3">74,580</font></td>
    <td noWrap align=left style="border-bottom: 1px solid #000000" width="2%"><font size="3">&nbsp</font>
    </td>
    <td width="2%"><font size="3"></font> </td>
    <td noWrap align=left style="border-bottom: 1px solid #000000" width="2%"><font size="3">&nbsp
      </font></td>
    <td noWrap align=right style="border-bottom: 1px solid #000000" width="10%"><font size="3">92,296</font></td>
    <td noWrap align=left style="border-bottom: 1px solid #000000" width="2%"><font size="3">&nbsp
      </font></td>
    <td noWrap align=left width="4%"><font size="3"></font> </td>
    <td noWrap align=left style="border-bottom: 1px solid #000000" width="2%"><font size="3">&nbsp</font>
    </td>
    <td noWrap align=right style="border-bottom: 1px solid #000000" width="10%"><font size="3">190,958</font></td>
    <td noWrap align=left style="border-bottom: 1px solid #000000" width="2%"><font size="3">&nbsp</font>
    </td>
    <td noWrap align=left width="2%">&nbsp;</td>
    <td noWrap align=left style="border-bottom: 1px solid #000000" width="2%"><font size="3">&nbsp
      </font></td>
    <td noWrap align=right style="border-bottom: 1px solid #000000" width="10%"><font size="3">165,490</font></td>
    <td noWrap align=left style="border-bottom: 1px solid #000000" width="2%"><font size="3">&nbsp
      </font></td>
  </tr>
  <tr style="BACKGROUND: #cceeff" valign=bottom>
    <td valign=bottom noWrap align=left width="30%">
      <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"></font><font size="3">&nbsp&nbspTotal</font></div>
    </td>
    <td width="2%"><font size="3"></font> </td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="2%"><font size="3">$</font>
    </td>
    <td noWrap align=right style="border-bottom: 3px double #000000" width="10%"><font size="3">253,060</font></td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="2%">&nbsp;
    </td>
    <td width="2%"><font size="3"></font> </td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="2%"><font size="3">$
      </font></td>
    <td noWrap align=right style="border-bottom: 3px double #000000" width="10%"><font size="3">310,631</font></td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="2%">&nbsp;
    </td>
    <td noWrap align=left width="4%"><font size="3"></font></td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="2%"><font size="3">$</font>
    </td>
    <td noWrap align=right style="border-bottom: 3px double #000000" width="10%"><font size="3">534,728</font></td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="2%">&nbsp;
    </td>
    <td noWrap align=left width="2%">&nbsp;</td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="2%"><font size="3">$
      </font></td>
    <td noWrap align=right style="border-bottom: 3px double #000000" width="10%"><font size="3">636,444</font></td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="2%">&nbsp;
    </td>
  </tr>
</table>
<p>&nbsp;</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><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="90%" align=center border=0>
  <!-- Table Width Row -->
  <tr style="FONT-SIZE: 1pt" valign=bottom>
    <td width="48%">&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="9%">&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="9%">&nbsp;</td>
    <td align=left width="1%">&nbsp;</td>
    <!-- colindex=03 type=body -->
    <td align=left width="3%">&nbsp;</td>
    <td align=left width="1%">&nbsp;</td>
    <td align=left width="9%">&nbsp;</td>
    <td align=left width="1%">&nbsp;</td>
    <td align=left width="2%">&nbsp;</td>
    <td align=left width="1%">&nbsp;</td>
    <td align=left width="9%">&nbsp;</td>
    <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" width="48%"><font size="3"></font>
    </td>
    <td height="13" width="1%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=middle height="13" colspan="6" style="border-bottom: 1px solid #000000" >
      <div align="center"><font size="3">Three Months Ended<br>
        June 30, </font></div>
    </td>
    <td valign=bottom noWrap align=middle height="13" width="1%" style="border-bottom: 1px solid #000000">&nbsp;</td>
    <td valign=bottom noWrap align=middle height="13" width="3%" >&nbsp;</td>
    <td valign=bottom noWrap align=middle height="13" colspan="7" style="border-bottom: 1px solid #000000" >
      <div align="center"><font size="3">Six Months Ended<br>
        June 30,</font></div>
    </td>
  </tr>
  <tr style="FONT-SIZE: 8pt" valign=bottom align=middle>
    <td valign=bottom noWrap align=left width="48%" height="15">
      <div
      ></div>
    </td>
    <td width="1%" height="15"><font size="3"></font> </td>
    <td style="BORDER-BOTTOM: #000000 1px solid" valign=bottom noWrap
    align=middle colspan=3 height="15">
      <div align="center"><font size="3">2007</font></div>
    </td>
    <td width="2%" height="15"><font size="3"></font> </td>
    <td style="BORDER-BOTTOM: #000000 1px solid" valign=bottom noWrap
    align=middle colspan=3 height="15">
      <div align="center"><font size="3">2006</font></div>
    </td>
    <td width="3%" height="15"><font size="3"></font> </td>
    <td style="BORDER-BOTTOM: #000000 1px solid" noWrap colspan=3 height="15">
      <div align="center"><font size="3">2007</font></div>
    </td>
    <td width="2%" height="15">&nbsp;</td>
    <td style="BORDER-BOTTOM: #000000 1px solid" noWrap colspan=3 height="15">
      <div align="center"><font size="3">2006</font></div>
    </td>
  </tr>
  <tr style="BACKGROUND: #cceeff" valign=bottom>
    <td valign=bottom align=left width="48%">
      <div style="MARGIN-LEFT: 9pt; TEXT-INDENT: -9pt"> <font size="3">Numerator:
        </font></div>
    </td>
    <td width="1%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=left width="1%">&nbsp; </td>
    <td valign=bottom noWrap align=right width="9%">&nbsp;</td>
    <td valign=bottom noWrap align=left width="1%"><font size="3"></font> </td>
    <td width="2%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=left width="1%"><font size="3"> </font></td>
    <td noWrap align=right width="9%">&nbsp;</td>
    <td valign=bottom noWrap align=left width="1%">&nbsp;</td>
    <td valign=bottom noWrap align=left width="3%"><font size="3"></font> </td>
    <td noWrap align=left width="1%">&nbsp; </td>
    <td noWrap align=right width="9%">&nbsp;</td>
    <td valign=bottom noWrap align=left width="1%">&nbsp;</td>
    <td valign=bottom noWrap align=left width="2%">&nbsp;</td>
    <td noWrap align=left width="1%"><font size="3"> </font></td>
    <td noWrap align=right width="9%">&nbsp;</td>
    <td noWrap align=right width="1%">&nbsp;</td>
  </tr>
  <tr valign=bottom>
    <td valign=bottom noWrap align=left width="48%">
      <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"></font><font size="3"></font><font size="3">Net
        loss </font></div>
    </td>
    <td width="1%"><font size="3"></font> </td>
    <td noWrap align=left width="1%"><font size="3">$</font> </td>
    <td noWrap align=right width="9%"><font size="3">(744,793</font></td>
    <td noWrap align=left width="1%"><font size="3">)</font> </td>
    <td width="2%"><font size="3"></font> </td>
    <td noWrap align=left width="1%"><font size="3">$ </font></td>
    <td noWrap align=right width="9%"><font size="3">(448,237</font></td>
    <td noWrap align=left width="1%"><font size="3">)</font></td>
    <td noWrap align=left width="3%"><font size="3"></font> </td>
    <td noWrap align=left width="1%"><font size="3">$</font> </td>
    <td noWrap align=right width="9%"><font size="3">(2,010,594</font></td>
    <td noWrap align=left width="1%"><font size="3">)</font></td>
    <td noWrap align=left width="2%">&nbsp;</td>
    <td noWrap align=left width="1%"><font size="3">$ </font></td>
    <td noWrap align=right width="9%"><font size="3">(817,350</font></td>
    <td noWrap align=left width="1%"><font size="3">)</font></td>
  </tr>
  <tr style="BACKGROUND: #cceeff" valign=bottom>
    <td valign=bottom noWrap align=left width="48%">
      <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"></font><font size="3"></font><font size="3"></font><font size="3">Preferred
        stock dividends</font></div>
    </td>
    <td width="1%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=left style="border-bottom: 1px solid #000000" width="1%">&nbsp;</td>
    <td valign=bottom noWrap align=right style="border-bottom: 1px solid #000000" width="9%"><font size="3">---</font></td>
    <td noWrap align=left style="border-bottom: 1px solid #000000" width="1%"><font size="3">&nbsp</font>
    </td>
    <td width="2%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=left style="border-bottom: 1px solid #000000" width="1%"><font size="3">&nbsp
      </font></td>
    <td noWrap align=right style="border-bottom: 1px solid #000000" width="9%"><font size="3">---</font></td>
    <td noWrap align=left style="border-bottom: 1px solid #000000" width="1%"><font size="3">&nbsp
      </font></td>
    <td valign=bottom noWrap align=left width="3%"><font size="3"></font> </td>
    <td noWrap align=left style="border-bottom: 1px solid #000000" width="1%"><font size="3">&nbsp</font>
    </td>
    <td noWrap align=right style="border-bottom: 1px solid #000000" width="9%"><font size="3">---</font></td>
    <td noWrap align=left style="border-bottom: 1px solid #000000" width="1%"><font size="3">&nbsp</font>
    </td>
    <td valign=bottom noWrap align=left width="2%">&nbsp;</td>
    <td noWrap align=left style="border-bottom: 1px solid #000000" width="1%"><font size="3">&nbsp
      </font></td>
    <td noWrap align=right style="border-bottom: 1px solid #000000" width="9%"><font size="3">(10,653</font></td>
    <td noWrap align=left style="border-bottom: 1px solid #000000" width="1%"><font size="3">)&nbsp
      </font></td>
  </tr>
  <tr valign=bottom>
    <td valign=bottom noWrap align=left width="48%">
      <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"></font><font size="3"></font><font size="3"></font><font size="3"></font><font size="3">Net
        loss applicable to common stockholders<font size="3"></font></font></div>
    </td>
    <td width="1%"><font size="3"></font> </td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="1%"><font size="3">$</font>
    </td>
    <td noWrap align=right style="border-bottom: 3px double #000000" width="9%"><font size="3">(744,793</font></td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="1%"><font size="3">)
      </font></td>
    <td width="2%"><font size="3"></font> </td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="1%"><font size="3">$
      </font></td>
    <td noWrap align=right style="border-bottom: 3px double #000000" width="9%"><font size="3">(448,237</font></td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="1%"><font size="3">)
      </font> </td>
    <td noWrap align=left width="3%"><font size="3"></font></td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="1%"><font size="3">$</font>
    </td>
    <td noWrap align=right style="border-bottom: 3px double #000000" width="9%"><font size="3">(2,010,594</font></td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="1%"><font size="3">)
      </font> </td>
    <td noWrap align=left width="2%">&nbsp;</td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="1%"><font size="3">$
      </font></td>
    <td noWrap align=right style="border-bottom: 3px double #000000" width="9%"><font size="3">(828,003</font></td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="1%"><font size="3">)
      </font></td>
  </tr>
  <tr style="BACKGROUND: #cceeff" valign=bottom>
    <td valign=bottom noWrap align=left width="48%">
      <div style="MARGIN-LEFT: 9pt; TEXT-INDENT: -9pt"></div>
    </td>
    <td width="1%"><font size="3"></font> </td>
    <td noWrap align=left width="1%">&nbsp; </td>
    <td noWrap align=right width="9%">&nbsp;</td>
    <td noWrap align=left width="1%"><font size="3"></font> </td>
    <td width="2%"><font size="3"></font> </td>
    <td noWrap align=left width="1%"><font size="3"> </font></td>
    <td noWrap align=right width="9%">&nbsp;</td>
    <td noWrap align=left width="1%">&nbsp;</td>
    <td noWrap align=left width="3%"><font size="3"></font> </td>
    <td noWrap align=left width="1%">&nbsp; </td>
    <td noWrap align=right width="9%">&nbsp;</td>
    <td noWrap align=left width="1%">&nbsp;</td>
    <td noWrap align=left width="2%">&nbsp;</td>
    <td noWrap align=left width="1%"><font size="3"> </font></td>
    <td noWrap align=right width="9%">&nbsp;</td>
    <td noWrap align=right width="1%">&nbsp;</td>
  </tr>
  <tr valign=bottom>
    <td valign=bottom noWrap align=left width="48%">
      <div style="MARGIN-LEFT: 9pt; TEXT-INDENT: -9pt"><font size="3">Denominator:<font size="3"></font></font></div>
    </td>
    <td width="1%"><font size="3"></font> </td>
    <td noWrap align=left width="1%"><font size="3"></font> </td>
    <td noWrap align=right width="9%">&nbsp;</td>
    <td noWrap align=left width="1%"><font size="3"></font></td>
    <td width="2%"><font size="3"></font> </td>
    <td noWrap align=left width="1%"><font size="3"> </font></td>
    <td noWrap align=right width="9%">&nbsp;</td>
    <td noWrap align=left width="1%">&nbsp;</td>
    <td noWrap align=left width="3%"><font size="3"></font></td>
    <td noWrap align=left width="1%"><font size="3"></font> </td>
    <td noWrap align=right width="9%">&nbsp;</td>
    <td noWrap align=left width="1%">&nbsp;</td>
    <td noWrap align=left width="2%">&nbsp;</td>
    <td noWrap align=left width="1%"><font size="3"> </font></td>
    <td noWrap align=right width="9%">&nbsp;</td>
    <td noWrap align=right width="1%">&nbsp;</td>
  </tr>
  <tr style="BACKGROUND: #cceeff" valign=bottom>
    <td valign=bottom noWrap align=left width="48%"><font style="FONT-SIZE: 10pt" size="3" face="Times New Roman, Times, serif">&nbsp;&nbsp;
      </font><font size="3"></font><font size="3"></font><font size="3"></font><font size="3"></font><font size="3"></font><font style="FONT-SIZE: 10pt" size="3" face="Times New Roman, Times, serif">&nbsp;&nbsp;
      </font><font size="3"></font><font size="3"></font><font size="3"></font><font size="3"></font><font size="3">Weighted
      average common shares outstanding used </font><font size="3">in computing
      net loss per share: </font></td>
    <td width="1%">&nbsp;</td>
    <td noWrap align=left width="1%" >&nbsp;</td>
    <td noWrap align=right width="9%" >&nbsp;</td>
    <td noWrap align=left width="1%" >&nbsp;</td>
    <td width="2%">&nbsp;</td>
    <td noWrap align=left width="1%" >&nbsp;</td>
    <td noWrap align=right width="9%" >&nbsp;</td>
    <td noWrap align=left width="1%" >&nbsp;</td>
    <td noWrap align=left width="3%">&nbsp;</td>
    <td noWrap align=left width="1%" >&nbsp;</td>
    <td noWrap align=right width="9%" >&nbsp;</td>
    <td noWrap align=left width="1%" >&nbsp;</td>
    <td noWrap align=left width="2%">&nbsp;</td>
    <td noWrap align=left width="1%" >&nbsp;</td>
    <td noWrap align=right width="9%" >&nbsp;</td>
    <td noWrap align=left width="1%" >&nbsp;</td>
  </tr>
  <tr valign=bottom>
    <td valign=bottom noWrap align=left width="48%"> <font style="FONT-SIZE: 10pt" size="3" face="Times New Roman, Times, serif">&nbsp;&nbsp;
      </font><font size="3"></font><font size="3"></font><font size="3"></font><font size="3"></font><font size="3"></font><font style="FONT-SIZE: 10pt" size="3" face="Times New Roman, Times, serif">&nbsp;&nbsp;
      </font><font size="3"></font><font size="3"></font><font size="3"></font><font size="3"></font><font size="3"></font><font face="Times New Roman, Times, serif" size="3">&nbsp;&nbsp;
      </font><font size="3"></font><font size="3">Basic</font> </td>
    <td width="1%"><font size="3"></font> </td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="1%">&nbsp;</td>
    <td noWrap align=right style="border-bottom: 3px double #000000" width="9%"><font size="3">31,914,997</font></td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="1%">&nbsp;
    </td>
    <td width="2%"><font size="3"></font> </td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="1%">&nbsp;</td>
    <td noWrap align=right style="border-bottom: 3px double #000000" width="9%"><font size="3">31,695,832</font></td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="1%">&nbsp;
    </td>
    <td noWrap align=left width="3%"><font size="3"></font></td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="1%">&nbsp;</td>
    <td noWrap align=right style="border-bottom: 3px double #000000" width="9%"><font size="3">31,893,610</font></td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="1%">&nbsp;
    </td>
    <td noWrap align=left width="2%">&nbsp;</td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="1%">&nbsp;</td>
    <td noWrap align=right style="border-bottom: 3px double #000000" width="9%"><font size="3">31,045,664</font></td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="1%">&nbsp;
    </td>
  </tr>
  <tr style="BACKGROUND: #cceeff" valign=bottom>
    <td valign=bottom noWrap align=left width="48%"><font style="FONT-SIZE: 10pt" size="3" face="Times New Roman, Times, serif">&nbsp;&nbsp;
      </font><font size="3"></font><font size="3"></font><font size="3"></font><font size="3"></font><font size="3"></font><font style="FONT-SIZE: 10pt" size="3" face="Times New Roman, Times, serif">&nbsp;&nbsp;
      </font><font size="3"></font><font size="3"></font><font size="3"></font><font size="3"></font><font size="3"></font><font face="Times New Roman, Times, serif" size="3">&nbsp;&nbsp;
      </font><font size="3"></font><font size="3">Diluted</font></td>
    <td width="1%">&nbsp;</td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="1%">&nbsp;</td>
    <td noWrap align=right style="border-bottom: 3px double #000000" width="9%"><font size="3">31,914,997</font></td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="1%">&nbsp;
    </td>
    <td width="2%"><font size="3"></font> </td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="1%">&nbsp;
    </td>
    <td noWrap align=right style="border-bottom: 3px double #000000" width="9%"><font size="3">31,695,832</font></td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="1%">&nbsp;
    </td>
    <td noWrap align=left width="3%"><font size="3"></font></td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="1%">&nbsp;</td>
    <td noWrap align=right style="border-bottom: 3px double #000000" width="9%"><font size="3">31,893,610</font></td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="1%">&nbsp;
    </td>
    <td noWrap align=left width="2%">&nbsp;</td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="1%">&nbsp;
    </td>
    <td noWrap align=right style="border-bottom: 3px double #000000" width="9%"><font size="3">31,045,664</font></td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="1%">&nbsp;
    </td>
  </tr>
  <tr valign=bottom>
    <td valign=bottom noWrap align=left width="48%">
      <div style="MARGIN-LEFT: 9pt; TEXT-INDENT: -9pt"><font size="3">&nbsp</font></div>
    </td>
    <td width="1%"><font size="3"></font> </td>
    <td noWrap align=left width="1%"><font size="3"></font> </td>
    <td noWrap align=right width="9%">&nbsp;</td>
    <td noWrap align=left width="1%"><font size="3"></font></td>
    <td width="2%"><font size="3"></font> </td>
    <td noWrap align=left width="1%"><font size="3"> </font></td>
    <td noWrap align=right width="9%">&nbsp;</td>
    <td noWrap align=left width="1%">&nbsp;</td>
    <td noWrap align=left width="3%"><font size="3"></font></td>
    <td noWrap align=left width="1%"><font size="3"></font> </td>
    <td noWrap align=right width="9%">&nbsp;</td>
    <td noWrap align=left width="1%">&nbsp;</td>
    <td noWrap align=left width="2%">&nbsp;</td>
    <td noWrap align=left width="1%"><font size="3"> </font></td>
    <td noWrap align=right width="9%">&nbsp;</td>
    <td noWrap align=right width="1%">&nbsp;</td>
  </tr>
  <tr style="BACKGROUND: #cceeff" valign=bottom>
    <td noWrap align=left width="48%"><font style="FONT-SIZE: 10pt" size="3" face="Times New Roman, Times, serif">&nbsp;&nbsp;
      &nbsp;&nbsp; </font><font size="3">Net loss per share applicable to common
      stockholders:</font></td>
    <td width="1%">&nbsp;</td>
    <td noWrap align=left width="1%">&nbsp; </td>
    <td noWrap align=right width="9%">&nbsp;</td>
    <td noWrap align=left width="1%"><font size="3"></font> </td>
    <td width="2%"><font size="3"></font> </td>
    <td noWrap align=left width="1%"><font size="3"> </font></td>
    <td noWrap align=right width="9%">&nbsp;</td>
    <td noWrap align=left width="1%">&nbsp;</td>
    <td noWrap align=left width="3%"><font size="3"></font> </td>
    <td noWrap align=left width="1%">&nbsp; </td>
    <td noWrap align=right width="9%">&nbsp;</td>
    <td noWrap align=left width="1%">&nbsp;</td>
    <td noWrap align=left width="2%">&nbsp;</td>
    <td noWrap align=left width="1%"><font size="3"> </font></td>
    <td noWrap align=right width="9%">&nbsp;</td>
    <td noWrap align=right width="1%">&nbsp;</td>
  </tr>
  <tr valign=bottom>
    <td noWrap align=left width="48%"> <font style="FONT-SIZE: 10pt" size="3" face="Times New Roman, Times, serif">&nbsp;&nbsp;
      </font><font size="3"></font><font size="3"></font><font size="3"></font><font size="3"></font><font size="3"></font><font style="FONT-SIZE: 10pt" size="3" face="Times New Roman, Times, serif">&nbsp;&nbsp;
      </font><font size="3"></font><font size="3"></font><font size="3"></font><font size="3"></font><font size="3"></font><font face="Times New Roman, Times, serif" size="3">&nbsp;&nbsp;
      </font><font size="3"></font><font size="3">Basic</font> </td>
    <td width="1%"><font size="3"></font> </td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="1%"><font size="3">$</font>
    </td>
    <td noWrap align=right style="border-bottom: 3px double #000000" width="9%"><font size="3">(0.02</font></td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="1%"><font size="3">)
      </font></td>
    <td width="2%"><font size="3"></font> </td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="1%"><font size="3">$
      </font></td>
    <td noWrap align=right style="border-bottom: 3px double #000000" width="9%"><font size="3">(0.01</font></td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="1%"><font size="3">)
      </font> </td>
    <td noWrap align=left width="3%"><font size="3"></font></td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="1%"><font size="3">$</font>
    </td>
    <td noWrap align=right style="border-bottom: 3px double #000000" width="9%"><font size="3">(0.06</font></td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="1%"><font size="3">)
      </font> </td>
    <td noWrap align=left width="2%">&nbsp;</td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="1%"><font size="3">$
      </font></td>
    <td noWrap align=right style="border-bottom: 3px double #000000" width="9%"><font size="3">(0.03</font></td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="1%"><font size="3">)
      </font></td>
  </tr>
  <tr style="BACKGROUND: #cceeff" valign=bottom>
    <td valign=bottom noWrap align=left width="48%"><font style="FONT-SIZE: 10pt" size="3" face="Times New Roman, Times, serif">
      </font><font style="FONT-SIZE: 10pt" size="3" face="Times New Roman, Times, serif">&nbsp;&nbsp;
      </font><font size="3"></font><font size="3"></font><font size="3"></font><font size="3"></font><font size="3"></font><font style="FONT-SIZE: 10pt" size="3" face="Times New Roman, Times, serif">&nbsp;&nbsp;
      </font><font size="3"></font><font size="3"></font><font size="3"></font><font size="3"></font><font size="3"></font><font face="Times New Roman, Times, serif" size="3">&nbsp;&nbsp;
      </font><font size="3"></font><font size="3">Diluted</font></td>
    <td width="1%">&nbsp;</td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="1%"><font size="3">$</font>
    </td>
    <td noWrap align=right style="border-bottom: 3px double #000000" width="9%"><font size="3">(0.02</font></td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="1%"><font size="3">)
      </font></td>
    <td width="2%"><font size="3"></font> </td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="1%"><font size="3">$
      </font></td>
    <td noWrap align=right style="border-bottom: 3px double #000000" width="9%"><font size="3">(0.01</font></td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="1%"><font size="3">)
      </font> </td>
    <td noWrap align=left width="3%"><font size="3"></font></td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="1%"><font size="3">$</font>
    </td>
    <td noWrap align=right style="border-bottom: 3px double #000000" width="9%"><font size="3">(0.06</font></td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="1%"><font size="3">)
      </font> </td>
    <td noWrap align=left width="2%">&nbsp;</td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="1%"><font size="3">$
      </font></td>
    <td noWrap align=right style="border-bottom: 3px double #000000" width="9%"><font size="3">(0.03</font></td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="1%"><font size="3">)
      </font></td>
  </tr>
</table>
<p>For the three and six months ended June 30, 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. Therefore, options and warrants to purchase
  10,875,255 and 10,137,677 shares of common stock at June 30, 2007 and 2006,
  respectively, have been omitted from the diluted net loss per share calculation.</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 $7,985
  and $15,973 for the three and six months ended June 30, 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>&nbsp;</p>
<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>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 and six months
  ended June 30, 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 June 30, 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>&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 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, data collection, and mobile handheld computer 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> <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><font face="Times New Roman, Times, serif" size="3"><b>Revenues<br>
  </b></font><br>
  Socket and our partners make business mobility solutions 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 began shipping our first mobile handheld computer in the second quarter of
  2007, and have announced plans to offer a family of mobile handheld devices.
  Our initial mobile handheld computing product is called the SoMo&#153;650. Our
  data collection and connectivity peripheral products are used with a variety
  of handheld computers, including our SoMo&#153;650 mobile handheld computer,
  and with tablet computers, notebook computers and smartphones that use Windows
  Mobile, Windows XP, Windows Tablet, Palm, Symbian 60 and Symbian 80 operating
  systems. The guiding principles that we follow in developing products for the
  business mobility computing market are stable and expandable computing devices
  with industry standard expansion 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 corporate and enterprise
  customers. 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 three and six months ended June 30, 2007 were $6.3 million and $11.8
  million, respectively, and represented decreases of 8% and 13% from revenues
  of $6.9 million and $13.6 million for the corresponding periods one year ago.</p>
<p></p>
<p>Revenues in the comparable three and six month periods may be classified into
  the following broad product families:</p>
<ul>
  <li>Mobile peripheral products;</li>
  <li>Mobile handheld computer products;</li>
  <li>OEM embedded products; and</li>
  <li>Serial card products</li>
</ul>
<p>Our mobile peripheral products consist of <i>data collection products and connectivity
  products</i>, which together represented approximately 64% and 67% of our revenues
  for the three and six month periods ended June 30, 2007, respectively, compared
  to 68% and 67% of our revenues in the comparable periods 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>
  <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, 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>Radio Frequency Identification (RFID) plug-in products that read RFID tags;
  </li>
  <li>a combination plug-in bar code scanner and RFID reader; and </li>
  <li>a plug-in magnetic stripe reader.</li>
</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 52% and 55% of our total
  revenues for the three and six month periods ended June 30, 2007 compared to
  37% of our total revenues in each of the comparable periods one year ago. We
  are dependent upon VARS, integrators and developers of third party software
  applications to supply vertical application software that uses the mobile computers
  and peripheral products that we manufacture or support, and we have developed
  programs such as our recently announced Vertical Industry Partner program to
  encourage VARS, integrators and developers of such applications to do so. The
  growth in data collection revenues for the three and six months ended June 30,
  2007 compared to the same periods a year ago reflects the growth in availability
  and deployment of software applications by businesses.<br>
  <br>
  <br>
</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>
<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, handheld, tablet
  and notebook computers, smartphones and printers. Historically our connectivity
  products have included: </p>
<ul>
    <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 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>
</ul>
<p align="left">Bluetooth and wireless LAN connection functions are increasingly
  being built into many third-party mobile devices. As a result, demand for these
  wireless plug-in products from customers using consumer grade handhelds has
  declined. However, demand is increasing from our OEM customers with industrial
  grade handhelds and products that have not been upgraded to include wireless
  functionality. In response to this change we have begun categorizing all revenues
  in 2007 related to our Bluetooth plug-in and Wireless LAN plug-in products within
  our OEM embedded products family. Revenues related to these wireless plug-in
  products now categorized within our OEM embedded products family were 9% of
  total revenues for both the three and six month periods ending June 30, 2007.
  Remaining connectivity products represented approximately 12% of total revenues
  for both the three and six month periods ended June 30, 2007, for a total of
  21% in both periods compared to 31% and 30% of our total revenues for the comparable
  periods one year ago.</p>
<p align="left">Beginning in 2007 we added the <i>mobile handheld computer products</i>
  category. Shipments of our first mobile handheld computer, the SoMo&#153;650,
  to customers in our distribution channel began as planned in the second quarter
  of 2007. Revenues related to our mobile handheld computer were approximately
  1% of our revenues in the second quarter of 2007.</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">13<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p>Our <i>OEM embedded products</i> consist of Bluetooth and Wireless LAN modules
  and plug-in cards used primarily 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. Beginning in 2007 all sales related to our Bluetooth plug-in and
  Wireless LAN plug-in products, the majority of which have historically been
  included in our connectivity products family, are now included in the revenues
  of the OEM embedded products family. This reflects that the majority of our
  Wireless LAN plug-in card and Bluetooth plug-in card revenues in 2007 are being
  driven by customers within our OEM embedded products segment. Revenues related
  to these wireless plug-in products were 9% of total revenues for both the three
  and six month periods ending June 30, 2007. Other OEM embedded products represented
  approximately 19% and 16% of total revenues for the three and six month periods
  ended June 30, 2007, for a total of 28% and 25% for the three and six month
  periods ended June 30, 2007, compared to 22% and 23% of total revenues in the
  comparable periods 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
  7% and 8% of our revenues for the three and six month periods ended June 30,
  2007 compared to 10% of our revenues in each of the comparable periods one year
  ago.</p>
<p>Our revenues by product family for the three and six months ended June 30,
  2007 and 2006 and the corresponding increase or decrease in revenues for the
  comparable periods are shown in the following table:</p>
<table style="MARGIN-TOP: 6pt; FONT-SIZE: 10pt" cellspacing=0 cellpadding=0
width="100%" align=center border=0>
  <tr class="border">
    <td colspan=2 height="24" valign="bottom"  ><font size="3"><i>(revenues
      in thousands)</i></font></td>
    <td height="24" valign="bottom" width="3%"  >&nbsp;</td>
    <td noWrap align=middle colspan=11 height="24" style="border-bottom: 1px solid #000000">
      <div align="center"><font size="3">Three Months Ended<br>
        June 30,</font></div>
      <font size="3"></font></td>
    <td width="5%" height="24"><font size="3"></font></td>
    <td noWrap align=middle colspan=11 height="24" style="border-bottom: 1px solid #000000">
      <div align="center"><font size="3">Six Months Ended<br>
        June 30,</font><font size="3"></font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td colspan="2" height="29"style="border-bottom: 1px solid #000000"><font size="3"></font>
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font size="3">Product
        family: </font></div>
    </td>
    <td height="29" width="3%">&nbsp;</td>
    <td align="center" colspan="3" style="border-bottom: 1px solid #000000"><font face="Times New Roman, Times, serif" size="3">2007</font><font size="3"></font></td>
    <td width="3%" height="29"><font size="3"></font></td>
    <td align="center" colspan="3" style="border-bottom: 1px solid #000000"><font face="Times New Roman, Times, serif" size="3">2006</font></td>
    <td width="3%" height="29"><font size="3"></font></td>
    <td align="center" colspan="3" style="border-bottom: 1px solid #000000"><font face="Times New Roman, Times, serif" size="3">Increase<br>
      (Decrease) </font><font size="3"></font></td>
    <td width="5%" height="29"><font size="3"></font></td>
    <td align="center" colspan="3" style="border-bottom: 1px solid #000000"><font face="Times New Roman, Times, serif" size="3">2007</font><font size="3"></font></td>
    <td width="3%" height="29"><font size="3"></font></td>
    <td align="center" colspan="3" style="border-bottom: 1px solid #000000"><font face="Times New Roman, Times, serif" size="3">2006</font><font size="3"></font></td>
    <td width="3%" height="29"><font size="3"></font></td>
    <td align="center" colspan="3" style="border-bottom: 1px solid #000000"><font face="Times New Roman, Times, serif" size="3">Increase<br>
      (Decrease) </font><font size="3"></font></td>
  </tr>
  <tr valign=bottom>
    <td colspan="2" bgcolor="#cceeff"><font size="3"></font>
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font face="Times New Roman, Times, serif" size="3">&nbsp;&nbsp;
        </font><font size="3"></font><font size="3">Mobile peripheral products:</font></div>
    </td>
    <td width="3%" bgcolor="#cceeff">&nbsp;</td>
    <td valign=bottom align=left style="border-bottom: 1px solid #000000" width="1%" bgcolor="#cceeff"><font size="3"></font></td>
    <td valign=bottom align=right style="border-bottom: 1px solid #000000" width="5%" bgcolor="#cceeff"><font size="3">
      </font></td>
    <td valign=bottom align=right style="border-bottom: 1px solid #000000" width="1%" bgcolor="#cceeff"><font size="3"></font></td>
    <td valign=bottom align=right style="border-bottom: 1px solid #000000" width="3%" bgcolor="#cceeff"><font size="3"></font></td>
    <td valign=bottom align=right style="border-bottom: 1px solid #000000" width="1%" bgcolor="#cceeff"><font size="3"></font></td>
    <td align=right style="border-bottom: 1px solid #000000" width="5%" bgcolor="#cceeff"><font size="3">
      </font></td>
    <td valign=bottom align=right style="border-bottom: 1px solid #000000" width="1%" bgcolor="#cceeff"><font size="3"></font></td>
    <td valign=bottom align=right style="border-bottom: 1px solid #000000" width="3%" bgcolor="#cceeff"><font size="3"></font></td>
    <td valign=bottom align=right style="border-bottom: 1px solid #000000" width="1%" bgcolor="#cceeff"><font size="3"></font></td>
    <td align=right style="border-bottom: 1px solid #000000" width="5%" bgcolor="#cceeff"><font size="3">
      </font></td>
    <td valign=bottom align=right style="border-bottom: 1px solid #000000" width="1%" bgcolor="#cceeff"><font size="3"></font></td>
    <td valign=bottom align=right style="border-bottom: 1px solid #000000" width="5%" bgcolor="#cceeff"><font size="3"></font></td>
    <td valign=bottom align=right style="border-bottom: 1px solid #000000" width="1%" bgcolor="#cceeff"><font size="3"></font></td>
    <td align=right style="border-bottom: 1px solid #000000" width="5%" bgcolor="#cceeff"><font size="3">
      </font></td>
    <td valign=bottom align=right style="border-bottom: 1px solid #000000" width="1%" bgcolor="#cceeff"><font size="3"></font></td>
    <td valign=bottom align=right style="border-bottom: 1px solid #000000" width="3%" bgcolor="#cceeff"><font size="3"></font></td>
    <td valign=bottom align=right style="border-bottom: 1px solid #000000" width="1%" bgcolor="#cceeff"><font size="3"></font></td>
    <td align=right style="border-bottom: 1px solid #000000" width="5%" bgcolor="#cceeff"><font size="3">
      </font></td>
    <td valign=bottom align=right style="border-bottom: 1px solid #000000" width="1%" bgcolor="#cceeff"><font size="3"></font></td>
    <td valign=bottom align=right style="border-bottom: 1px solid #000000" width="3%" bgcolor="#cceeff"><font size="3"></font></td>
    <td valign=bottom align=right style="border-bottom: 1px solid #000000" width="1%" bgcolor="#cceeff"><font size="3"></font></td>
    <td align=right style="border-bottom: 1px solid #000000" width="5%" bgcolor="#cceeff"><font size="3">
      </font></td>
    <td width="1%" align=right style="border-bottom: 1px solid #000000" bgcolor="#cceeff"><font size="3"></font></td>
  </tr>
  <tr>
    <td colspan="2"><font size="3"></font>
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font face="Times New Roman, Times, serif" size="3">&nbsp;&nbsp;
        </font><font face="Times New Roman, Times, serif" size="3">&nbsp;&nbsp;
        </font><font size="3"></font><font size="3">Data collection</font></div>
    </td>
    <td width="3%">&nbsp;</td>
    <td valign=bottom align=left width="1%"><font size="3">$</font></td>
    <td valign=bottom noWrap align=right width="5%"><font size="3">3,270</font></td>
    <td width="1%" valign="bottom"><font size="3"></font></td>
    <td width="3%" valign="bottom"><font size="3"></font></td>
    <td valign=bottom align=left width="1%"><font size="3">$</font></td>
    <td valign=bottom noWrap align=right width="5%"><font size="3">2,557</font></td>
    <td width="1%" valign="bottom"><font size="3"></font></td>
    <td width="3%" valign="bottom"><font size="3"></font></td>
    <td valign=bottom align=left width="1%"><font size="3"></font></td>
    <td valign=bottom noWrap align=right width="5%"><font size="3">28</font></td>
    <td width="1%" valign="bottom"><font size="3">%</font></td>
    <td width="5%" valign="bottom"><font size="3"></font></td>
    <td valign=bottom align=left width="1%"><font size="3">$</font></td>
    <td valign=bottom noWrap align=right width="5%"><font size="3">6,505</font></td>
    <td width="1%" valign="bottom"><font size="3"></font></td>
    <td width="3%" valign="bottom"><font size="3"></font></td>
    <td valign=bottom align=left width="1%"><font size="3">$</font></td>
    <td valign=bottom noWrap align=right width="5%"><font size="3">5,081</font></td>
    <td width="1%" valign="bottom"><font size="3"></font></td>
    <td width="3%" valign="bottom"><font size="3"></font></td>
    <td valign=bottom align=left width="1%"><font size="3"></font></td>
    <td valign=bottom noWrap align=right width="5%"><font size="3">28</font></td>
    <td width="1%" valign="bottom"><font size="3">%</font></td>
  </tr>
  <tr valign=bottom>
    <td colspan="2" bgcolor="#cceeff"><font size="3"></font>
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font face="Times New Roman, Times, serif" size="3">&nbsp;&nbsp;
        </font><font face="Times New Roman, Times, serif" size="3">&nbsp;&nbsp;
        </font><font size="3"></font><font size="3">Connectivity</font></div>
    </td>
    <td width="3%" bgcolor="#cceeff">&nbsp;</td>
    <td valign=bottom align=left width="1%" bgcolor="#cceeff"><font size="3"></font></td>
    <td valign=bottom noWrap align=right width="5%" bgcolor="#cceeff"><font size="3">734</font></td>
    <td width="1%" valign="bottom" bgcolor="#cceeff"><font size="3"></font></td>
    <td width="3%" valign="bottom" bgcolor="#cceeff"><font size="3"></font></td>
    <td valign=bottom align=left width="1%" bgcolor="#cceeff"><font size="3"></font></td>
    <td noWrap align=right width="5%" bgcolor="#cceeff"><font size="3">2,102</font></td>
    <td width="1%" valign="bottom" bgcolor="#cceeff"><font size="3"></font></td>
    <td width="3%" valign="bottom" bgcolor="#cceeff"><font size="3"></font></td>
    <td valign=bottom align=left width="1%" bgcolor="#cceeff"><font size="3"></font></td>
    <td noWrap align=right width="5%" bgcolor="#cceeff"><font size="3">(65</font></td>
    <td width="1%" valign="bottom" bgcolor="#cceeff"><font size="3">%)</font></td>
    <td width="5%" valign="bottom" bgcolor="#cceeff"><font size="3"></font></td>
    <td align=left width="1%" bgcolor="#cceeff"><font size="3"></font></td>
    <td noWrap align=right width="5%" bgcolor="#cceeff"><font size="3">1,423</font></td>
    <td width="1%" valign="bottom" bgcolor="#cceeff"><font size="3"></font></td>
    <td width="3%" valign="bottom" bgcolor="#cceeff"><font size="3"></font></td>
    <td align=left width="1%" bgcolor="#cceeff"><font size="3"></font></td>
    <td noWrap align=right width="5%" bgcolor="#cceeff"><font size="3">4,107</font></td>
    <td width="1%" valign="bottom" bgcolor="#cceeff"><font size="3"></font></td>
    <td width="3%" valign="bottom" bgcolor="#cceeff"><font size="3"></font></td>
    <td valign=bottom align=left width="1%" bgcolor="#cceeff"><font size="3"></font></td>
    <td noWrap align=right width="5%" bgcolor="#cceeff"><font size="3">(65</font></td>
    <td width="1%" bgcolor="#cceeff"><font size="3">%)</font></td>
  </tr>
  <tr>
    <td colspan="2"><font size="3"></font>
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font face="Times New Roman, Times, serif" size="3">&nbsp;&nbsp;
        </font><font size="3">Mobile handheld computer products</font></div>
    </td>
    <td width="3%">&nbsp;</td>
    <td valign=bottom align=left width="1%"><font size="3"></font></td>
    <td valign=bottom noWrap align=right width="5%"><font size="3">67</font></td>
    <td width="1%" valign="bottom"><font size="3"></font></td>
    <td width="3%" valign="bottom"><font size="3"></font></td>
    <td valign=bottom align=left width="1%"><font size="3"></font></td>
    <td valign=bottom noWrap align=right width="5%"><font size="3">---</font></td>
    <td width="1%" valign="bottom"><font size="3"></font></td>
    <td width="3%" valign="bottom"><font size="3"></font></td>
    <td valign=bottom align=left width="1%"><font size="3"></font></td>
    <td valign=bottom noWrap align=right width="5%"><font size="3">n/a</font></td>
    <td width="1%" valign="bottom"><font size="3"></font></td>
    <td width="5%" valign="bottom"><font size="3"></font></td>
    <td valign=bottom align=left width="1%"><font size="3"></font></td>
    <td valign=bottom noWrap align=right width="5%"><font size="3">67</font></td>
    <td width="1%" valign="bottom"><font size="3"></font></td>
    <td width="3%" valign="bottom"><font size="3"></font></td>
    <td valign=bottom align=left width="1%"><font size="3"></font></td>
    <td valign=bottom noWrap align=right width="5%"><font size="3">---</font></td>
    <td width="1%" valign="bottom"><font size="3"></font></td>
    <td width="3%" valign="bottom"><font size="3"></font></td>
    <td valign=bottom align=left width="1%"><font size="3"></font></td>
    <td valign=bottom noWrap align=right width="5%"><font size="3">n/a</font></td>
    <td width="1%" valign="bottom"><font size="3"></font></td>
  </tr>
  <tr valign=bottom>
    <td colspan="2" height="14" bgcolor="#cceeff"><font size="3"></font>
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font face="Times New Roman, Times, serif" size="3">&nbsp;&nbsp;
        OEM embedded products</font><font size="3"></font></div>
    </td>
    <td height="14" width="3%" bgcolor="#cceeff">&nbsp;</td>
    <td valign=bottom align=left width="1%" height="14" bgcolor="#cceeff"><font size="3"></font></td>
    <td valign=bottom noWrap align=right width="5%" height="14" bgcolor="#cceeff"><font size="3">1,795</font></td>
    <td width="1%" valign="bottom" height="14" bgcolor="#cceeff"><font size="3"></font></td>
    <td width="3%" valign="bottom" height="14" bgcolor="#cceeff"><font size="3"></font></td>
    <td valign=bottom align=left width="1%" height="14" bgcolor="#cceeff"><font size="3"></font></td>
    <td noWrap align=right width="5%" height="14" bgcolor="#cceeff"><font size="3">1,527</font></td>
    <td valign=bottom noWrap align=left width="1%" height="14" bgcolor="#cceeff"><font size="3"></font></td>
    <td width="3%" valign="bottom" height="14" bgcolor="#cceeff"><font size="3"></font></td>
    <td valign=bottom align=left width="1%" height="14" bgcolor="#cceeff"><font size="3"></font></td>
    <td noWrap align=right width="5%" height="14" bgcolor="#cceeff"><font size="3">18</font></td>
    <td width="1%" valign="bottom" height="14" bgcolor="#cceeff"><font size="3">%</font></td>
    <td width="5%" valign="bottom" height="14" bgcolor="#cceeff"><font size="3"></font></td>
    <td align=left width="1%" height="14" bgcolor="#cceeff"><font size="3"></font></td>
    <td noWrap align=right width="5%" height="14" bgcolor="#cceeff"><font size="3">2,932</font></td>
    <td width="1%" valign="bottom" height="14" bgcolor="#cceeff"><font size="3"></font></td>
    <td width="3%" valign="bottom" height="14" bgcolor="#cceeff"><font size="3"></font></td>
    <td align=left width="1%" height="14" bgcolor="#cceeff"><font size="3"></font></td>
    <td noWrap align=right width="5%" height="14" bgcolor="#cceeff"><font size="3">3,016</font></td>
    <td width="1%" valign="bottom" height="14" bgcolor="#cceeff"><font size="3"></font></td>
    <td width="3%" valign="bottom" height="14" bgcolor="#cceeff"><font size="3"></font></td>
    <td valign=bottom align=left width="1%" height="14" bgcolor="#cceeff"><font size="3"></font></td>
    <td noWrap align=right width="5%" height="14" bgcolor="#cceeff"><font size="3">(3</font></td>
    <td width="1%" height="14" bgcolor="#cceeff"><font size="3">%)</font></td>
  </tr>
  <tr>
    <td colspan="2"><font size="3"></font>
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font face="Times New Roman, Times, serif" size="3">&nbsp;&nbsp;
        Serial card products</font><font size="3"></font></div>
    </td>
    <td width="3%">&nbsp;</td>
    <td valign=bottom align=left width="1%" style="border-bottom: 1px solid #000000"><font size="3">&nbsp</font></td>
    <td valign=bottom noWrap align=right width="5%" style="border-bottom: 1px solid #000000"><font size="3">434</font></td>
    <td width="1%" valign="bottom" style="border-bottom: 1px solid #000000"><font size="3">&nbsp</font></td>
    <td width="3%" valign="bottom"><font size="3"></font></td>
    <td valign=bottom align=left width="1%" style="border-bottom: 1px solid #000000"><font size="3">&nbsp</font></td>
    <td valign=bottom noWrap align=right width="5%" style="border-bottom: 1px solid #000000"><font size="3">669</font></td>
    <td width="1%" valign="bottom" style="border-bottom: 1px solid #000000"><font size="3">&nbsp</font></td>
    <td width="3%" valign="bottom"><font size="3"></font></td>
    <td valign=bottom align=left width="1%"><font size="3"></font></td>
    <td valign=bottom noWrap align=right width="5%"><font size="3">(35</font></td>
    <td width="1%" valign="bottom"><font size="3">%)</font></td>
    <td width="5%" valign="bottom"><font size="3"></font></td>
    <td valign=bottom align=left width="1%" style="border-bottom: 1px solid #000000"><font size="3">&nbsp</font></td>
    <td valign=bottom noWrap align=right width="5%" style="border-bottom: 1px solid #000000"><font size="3">921</font></td>
    <td width="1%" valign="bottom" style="border-bottom: 1px solid #000000"><font size="3">&nbsp</font></td>
    <td width="3%" valign="bottom"><font size="3"></font></td>
    <td valign=bottom align=left width="1%" style="border-bottom: 1px solid #000000"><font size="3">&nbsp</font></td>
    <td valign=bottom noWrap align=right width="5%" style="border-bottom: 1px solid #000000"><font size="3">1,410</font></td>
    <td width="1%" valign="bottom" style="border-bottom: 1px solid #000000"><font size="3">&nbsp</font></td>
    <td width="3%" valign="bottom"><font size="3"></font></td>
    <td valign=bottom align=left width="1%"><font size="3"></font></td>
    <td valign=bottom noWrap align=right width="5%"><font size="3">(35</font></td>
    <td width="1%" valign="bottom"><font size="3">%)</font></td>
  </tr>
  <tr valign=bottom>
    <td colspan="2" bgcolor="#cceeff"><font size="3"></font>
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font face="Times New Roman, Times, serif" size="3">&nbsp;&nbsp;
        &nbsp;&nbsp; </font><font size="3">Total</font></div>
    </td>
    <td width="3%" bgcolor="#cceeff">&nbsp;</td>
    <td valign=bottom align=left style="border-bottom: 3px double #000000" width="1%" bgcolor="#cceeff" ><font size="3">$</font></td>
    <td valign=bottom align=right style="border-bottom: 3px double #000000" width="5%" bgcolor="#cceeff" ><font size="3">6,300</font></td>
    <td align=left style="border-bottom: 3px double #000000" width="1%" bgcolor="#cceeff" >&nbsp;
    </td>
    <td align=right style="border-bottom: 1px solid #000000" width="3%" bgcolor="#cceeff" ><font size="3"></font></td>
    <td align=left style="border-bottom: 3px double #000000" width="1%" bgcolor="#cceeff" ><font size="3">$</font></td>
    <td align=right style="border-bottom: 3px double #000000" width="5%" bgcolor="#cceeff" ><font size="3">6,855</font></td>
    <td align=left style="border-bottom: 3px double #000000" width="1%" bgcolor="#cceeff" >&nbsp;
    </td>
    <td align=right style="border-bottom: 1px solid #000000" width="3%" bgcolor="#cceeff" ><font size="3"></font></td>
    <td align=left width="1%" height="14" bgcolor="#cceeff"><font size="3"></font></td>
    <td noWrap align=right width="5%" height="14" bgcolor="#cceeff"><font size="3">(8</font></td>
    <td width="1%" height="14" bgcolor="#cceeff"><font size="3">%)</font></td>
    <td valign=bottom align=right style="border-bottom: 1px solid #000000" width="5%" bgcolor="#cceeff" ><font size="3"></font></td>
    <td align=left style="border-bottom: 3px double #000000" width="1%" bgcolor="#cceeff" ><font size="3">$</font></td>
    <td align=right style="border-bottom: 3px double #000000" width="5%" bgcolor="#cceeff" ><font size="3">11,848</font></td>
    <td align=left style="border-bottom: 3px double #000000" width="1%" bgcolor="#cceeff" >&nbsp;
    </td>
    <td valign=bottom align=right style="border-bottom: 1px solid #000000" width="3%" bgcolor="#cceeff" ><font size="3"></font></td>
    <td align=left style="border-bottom: 3px double #000000" width="1%" bgcolor="#cceeff" ><font size="3">$</font></td>
    <td align=right style="border-bottom: 3px double #000000" width="5%" bgcolor="#cceeff" ><font size="3">13,614</font></td>
    <td align=left style="border-bottom: 3px double #000000" width="1%" bgcolor="#cceeff" >&nbsp;
    </td>
    <td align=right style="border-bottom: 1px solid #000000" width="3%" bgcolor="#cceeff" ><font size="3"></font></td>
    <td align=left width="1%" height="14" bgcolor="#cceeff"><font size="3"></font></td>
    <td noWrap align=right width="5%" height="14" bgcolor="#cceeff"><font size="3">(13</font></td>
    <td width="1%" height="14" bgcolor="#cceeff"><font size="3">%)</font></td>
  </tr>
</table>
<p><br>
  Data collection revenues increased in the three and six month periods ended
  June 30, 2007 compared to same periods a year ago due to both a recovery from
  adverse market conditions that existed in 2006 and from our efforts in developing
  programs such as our recently announced Vertical Industry Partner program. We
  are dependent upon VARS, integrators and developers of third party software
  applications to supply vertical application software that uses the computers
  and peripheral products that we manufacture or support, and we have developed
  programs such as our recently announced Vertical Industry Partner program to
  encourage VARS, integrators and developers of such applications to do so. Growth
  in data collection revenues for the three and six months ended June 30, 2007
  compared to the same periods a year ago reflects in part the growth in availability
  and deployment of software applications by businesses. The primary contributor
  to growth was our Cordless Hand Scanner product which had revenue increases
  of $0.5 million and $1.0 million in the three and six month periods ended June
  30, 2007 compared to the same periods a year ago. Data collection revenues in
  the first six months of 2007 also benefited 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 handheld computer 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
  handheld computer manufacturers was limited until late in the second quarter
  as these 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>&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>Revenues classified as connectivity product revenues in the three
  and six month periods ended June 30, 2007 consist of Ethernet plug-in cards,
  modems, and accessory products including our mobile power pack. 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 reclassification
  reflects that the majority of our Wireless LAN plug-in card and Bluetooth plug-in
  card revenues are being driven in 2007 by customers of our OEM embedded products
  family, whereas sales in 2006 were driven by non-OEM customers. The increased
  availability in 2007 of built-in wireless connectivity in handheld computers
  has reduced the need for non-OEM customers to add wireless connectivity through
  peripherals. Reclassification of revenues related to Wireless LAN plug-in cards
  and Bluetooth plug-in cards accounts for 35% and 37% of the overall decline
  in connectivity product revenues for the three and six month comparable periods.
  Remaining connectivity product revenues declined by 30% and 28% for a total
  decline in connectivity revenues in 2007 of 65% in both the three and six month
  comparable periods. The decline resulted from reduced sales volumes of our Modem
  plug-in products and Ethernet plug-in products due to reduced corporate deployment
  of these wired connection solutions, and declines in sales volumes of our accessory
  products including our Mobile Power Pack, and our Cordless GPS receiver with
  navigation kit which was discontinued.
<p>OEM embedded product revenues related to our Bluetooth modules declined by
  $0.3 million and $1.0 million in the comparable three and six month periods.
  Decreases in Bluetooth module revenues were due to lower volume sales reflecting
  overall increased competition our module customers experienced in the industrial
  ruggedized market segment affecting sales in the first six months of 2007 compared
  to the same period a year ago. Beginning in the fourth quarter of 2006, our
  customers in the industrial ruggedized market segment experienced increased
  competition due to aggressive price discounting by a major competitor, a trend
  which affected the first quarter 2007, but improved in the second quarter of
  2007. In the three and six months ended June 30, 2007 all sales related to our
  Wireless LAN plug-in cards and Bluetooth plug-in cards, the majority of which
  have historically been included in our connectivity products family, are now
  included in the revenues of the OEM embedded products family. This reflects
  that the majority of our Wireless LAN plug-in card and Bluetooth plug-in card
  revenues in 2007 are being driven by customers within our OEM embedded products
  segment. Revenue increases in the OEM embedded family of $0.5 million and $0.9
  million in the comparable three and six month periods are due to the reclassification
  of Wireless LAN plug-in card and Bluetooth plug-in card revenues. Total revenues
  related to Wireless LAN plug-in products declined by 2% and 10% in the comparable
  three and six month periods, and revenues related to Bluetooth plug-in cards
  declined by 44% and 55% in the comparable three and six month periods, reflecting
  these wireless technologies being already built-in by handheld computer manufacturers.</p>
<p align=left>&nbsp;
<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>Our serial product revenues declined in the comparable three and six month
  periods due to reduced volumes of 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 three and six month 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>
<p><font face="Times New Roman, Times, serif" size="3"><b>Gross Margins<br>
  </b></font>Gross margins for the three and six month periods ended June 30,
  2007 were 49% and 50%, compared to margins of 50% in each of the comparable
  periods in 2006. We generally price our products as a markup from our cost,
  and we offer discount pricing for higher volume purchases. Reductions in overall
  margins in the second quarter of 2007 are due primarily to discounts on volume
  purchases of our Bluetooth modules by customers in our OEM embedded business
  segment. In the second quarter of 2007 we began shipping our first mobile handheld
  product, the SoMo&#153;650, to customers in our distribution channel. Initial
  margins on our mobile handheld computer product are below our average product
  margins. Shipments of our mobile handheld computer in the coming quarters are
  expected to reduce our overall gross margin percentage by up to a few percentage
  points depending on volumes shipped.</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>Research and Development
  Expense<br>
  </b></font>Research and development expense for the three months ended June
  30, 2007 was $1.2 million, a decrease of 16% compared to research and development
  expense of $1.4 million in the corresponding period one year ago. Research and
  development expense for the six months ended June 30, 2007 was $2.6 million,
  an increase of 3% compared to research and development expense of $2.5 million
  in the corresponding period one year ago. The decrease in the comparable three
  months is attributable to reduced consulting and professional fees related to
  fewer projects in the second quarter requiring the use of external technical
  expertise. In the comparable six month periods increases 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, with the majority of the development
  expense concluded by the end of the first quarter of 2007. Partially offsetting
  these increases in the comparable six months were reduced consulting and professional
  fees expense. Research and development expense in the third quarter of 2007
  is expected to remain at levels similar to those in the second quarter of 2007.</p>
<p align=left><b>Sales and Marketing Expense</b><br>
  Sales and marketing expense for the three months ended June 30, 2007 was $2.0
  million, an increase of 7% compared to sales and marketing expense of $1.8 million
  in the corresponding period one year ago. Sales and marketing expense for the
  six month period ended June 30, 2007 was $3.7 million, an increase of 3% compared
  to sales and marketing expense of $3.6 million in the corresponding period one
  year ago. Increases in personnel costs in the comparable three and six month
  periods were due to the additions of key personnel in the second quarter of
  2007, including our Senior VP of Sales & Marketing, as we staffed the sales
  team to begin selling our new mobile handheld computer which began shipping
  late in the second quarter of 2007. Partially offsetting these increases were
  reductions in advertising and promotion expenses in the comparable three and
  six month periods. Sales and marketing expense is expected to increase in the
  third quarter 2007 from second quarter levels due to increased personnel and
  promotional activities.
<p>&nbsp;</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">16<br>
  </font>
<p align=center>
<hr width="100%">
<p><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>General and Administrative
  Expense<br>
  </b></font>General and administrative expense for the three months ended June
  30, 2007 was $682,000, an increase of 6% compared to general and administrative
  expense of $641,000 in the corresponding period one year ago. General and administrative
  expense for the six month period ended June 30, 2007 was $1,539,000, an increase
  of 4% compared to general and administrative expense of $1,483,000 in the corresponding
  period one year ago. Increases in occupancy costs, primarily telecommunications,
  utilities, and property tax, in the comparable three and six month periods,
  were partially offset by reduced business insurance costs and consulting and
  professional fees. General and administrative expense in the third quarter of
  2007 is expected to remain at levels similar to those in the second quarter
  of 2007.</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 $571,000 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 three and six
  months ended June 30, 2007 for all acquired intangibles were $34,000 and $68,000,
  respectively, compared to $36,000 and $72,000, for the same periods one year
  ago. The lower amortization charges in 2007 are due to components of intangible
  property becoming fully amortized.</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 $30,000 and $68,000 for the three and six month periods ended June
  30, 2007, respectively, compared to interest income of $50,000 and $87,000,
  respectively, for the comparable periods one year ago. Lower interest income
  in the comparable periods reflects lower average cash balances partially offset
  by higher rates of return.</p>
<p>Interest expense of $2,600 and $6,100 for the three and six months ended June
  30, 2007 respectively, compared to interest expense of $2,100 and $4,300, respectively,
  for the comparable periods one year ago. Interest expense is related to interest
  on equipment lease financing obligations and interest on amounts drawn on our
  bank lines of credit and term loan. We used our bank lines of credit only at
  the end of the first and second quarters in 2007 and at the end of each quarter
  in 2006, and the term loan was advanced at the end of the second quarter of
  2007 and will be repaid in 36 monthly installments beginning in July of 2007.
  Higher interest expense in the three and six months ended June 30, 2007 as compared
  to the same periods a year ago is due to higher interest rates on our lines
  of credit in 2007.</p>
<p><b>Preferred Stock Dividends</b><br>
  Preferred stock dividends in the first six months of 2006 reflect dividends
  of $10,700 accrued at the rate of 8% per annum on Series F Preferred Stock through
  the date of mandatory conversion in the first quarter 2006. Series F Preferred
  Stock was originally issued in March 2003. Series F dividends were payable quarterly
  in cash or in common stock, at the option of the Company. Dividends in the first
  quarter 2006 through the date of conversion 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>&nbsp;</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><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 $7,985
  and $15,973 for the three and six month periods ended June 30, 2007, and the
  corresponding deferred tax liability shown on the Company's balance sheet, is
  related entirely 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 each of the first two quarters 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>Cash used in operating activities was $0.2 million in the first half of 2007,
  compared to cash provided by operating activities of $0.5 million in the first
  half of 2006. Adjustments for non-cash items consisting of depreciation and
  amortization, amortization of intangibles, gains and losses on foreign currency
  transactions, changes in deferred rent, deferred tax expense, and stock-based
  compensation expense, totaled $1.0 million in the first half of 2007 and 2006.
  Changes in working capital balances in the first half of 2007 resulted in a
  source of cash of $0.8 million, and were primarily from increases in accounts
  payable and accrued expenses attributable to development costs of our mobile
  handheld computer and the purchase of the related initial quantities of units
  late in the second quarter, increased accrued payroll expenses related to additions
  of key sales personnel as we staffed the sales team to begin selling our new
  mobile handheld computer, and reductions in levels of inventories primarily
  due to increased shipments of our Bluetooth modules in the second quarter of
  2007, partially offset by increases in accounts receivable due to higher overall
  shipments in the second quarter of 2007. Changes in working capital balances
  in the first half of 2006 resulted in a source of cash of $0.3 million, which
  was primarily from increases in payables and reductions in prepaid and other
  current assets, partially offset by increases in levels of inventories and receivables.</p>
<p>Cash used in investing activities was $0.7 million in the first half of 2007,
  compared to $0.6 million in the first half of 2006. Increased investing activities
  in the first half of 2007 reflects the costs of leasehold improvements related
  to our new corporate headquarters incurred primarily in the first quarter of
  2007. Remaining investing activities in each of the periods reflects the costs
  of new computer hardware and software, and tooling costs.</p>
<P>&nbsp;</P>
<p align=center><font face="Times New Roman, Times, serif" size="3">18<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p align=left>Cash provided from financing activities was $0.6 million in the
  first half of 2007, compared to $0.5 million during the first half of 2006.
  Financing activities in the first half of 2007 consisted of a net increase in
  the amounts drawn on our bank lines of credit, proceeds from a term loan advanced
  at the end of the second quarter 2007 which is to be repaid in equal monthly
  installments beginning in July 2007, proceeds from the exercise of stock options,
  and payments on capital leases. Financing activities in the first half of 2006
  consisted of proceeds from the exercise of warrants and stock options, partially
  offset by a net decrease in the amounts drawn on our bank lines of credit, payments
  on capital leases, and final dividend payments on Series F Preferred Stock.
<p>Our cash balances at June 30, 2007 were $5.9 million, including cash of $2.3
  million drawn against our bank line of credit and a term loan advance of $0.5
  million to be repaid monthly over three years. We concluded the development
  and related expense for our first mobile handheld computer primarily in the
  first quarter of 2007 and began shipping units to our customers in June 2007.
  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 and term loan will be sufficient
  to meet our funding requirements at least through June 30, 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>Our contractual cash obligations at June 30, 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" valign="bottom">
      <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" valign="bottom"><font size="3">Total</font></td>
    <td width="1%" class="border" valign="bottom"><b><font color="#FF0000" size="3"></font></b></td>
    <td class="border" width="4%" valign="bottom"><b><font color="#FF0000" size="3"></font></b></td>
    <td colspan="2" align="center" nowrap class="border" style="border-bottom: 1px solid #000000" valign="bottom"><font size="3">Less
      than 1 year</font></td>
    <td width="1%" class="border" valign="bottom"><b><font color="#FF0000" size="3"></font></b></td>
    <td width="4%" class="border" valign="bottom"><b><font color="#FF0000" size="3"></font></b></td>
    <td colspan="2" align="center" nowrap class="border" style="border-bottom: 1px solid #000000" valign="bottom"><font size="3">1
      to 3 years</font></td>
    <td width="1%" class="border" valign="bottom"><b><font color="#FF0000" size="3"></font></b></td>
    <td width="4%" class="border" valign="bottom"><b><font color="#FF0000" size="3"></font></b></td>
    <td colspan="2" align="center" nowrap class="border" style="border-bottom: 1px solid #000000" valign="bottom"><font size="3">4
      to 5 years</font></td>
    <td width="1%" class="border" valign="bottom"><b><font color="#FF0000" size="3"></font></b></td>
    <td width="4%" class="border" valign="bottom"><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<br>
      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">43,240</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">$</font></font></td>
    <td align="right" nowrap bgcolor="#cceeff" width="8%"><font size="3">10,700</font></td>
    <td bgcolor="#cceeff" width="1%"><font size="3"><b><font color="#000000"></font></b></font></td>
    <td bgcolor="#cceeff" width="4%"><font size="3"><b><font color="#000000"></font></b></font></td>
    <td align="left" width="1%" bgcolor="#cceeff"><font size="3"><font color="#000000">$</font></font></td>
    <td align="right" nowrap bgcolor="#cceeff" width="8%"><font size="3">24,500</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">$</font></font></td>
    <td align="right" nowrap bgcolor="#cceeff" width="8%"><font size="3">8,000</font></td>
    <td bgcolor="#cceeff" width="1%"><font size="3"><b><font color="#000000"></font></b></font></td>
    <td bgcolor="#cceeff" width="4%"><font size="3"><b><font color="#000000"></font></b></font></td>
    <td align="left" width="1%" bgcolor="#cceeff" valign="bottom"><font size="3"><font color="#000000">$</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">1,874,900</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">351,900</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">738,800</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">784,200</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%" valign="bottom"><font size="3"></font></td>
    <td align="right" width="8%" nowrap><font size="3">---</font></td>
    <td colspan="4" width="1%"><font size="3"></font></td>
  </tr>
  <tr valign="bottom">
    <td colspan="2" bgcolor="#cceeff" height="21">
      <div style="margin-left: 10px; text-indent: -10px"><font size="3"> Term
        loan, principle and interest</font></div>
    </td>
    <td bgcolor="#cceeff" width="4%" height="21"><font size="3"><b></b></font></td>
    <td align="left" bgcolor="#cceeff" width="1%">&nbsp;</td>
    <td align="right" width="8%" nowrap bgcolor="#cceeff"><font size="3">575,700</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></td>
    <td align="right" nowrap bgcolor="#cceeff" width="8%"><font size="3">191,900</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></td>
    <td align="right" nowrap bgcolor="#cceeff" width="8%"><font size="3">383,800</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></td>
    <td align="right" nowrap bgcolor="#cceeff" width="8%"><font size="3">---</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></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"> Unconditional
        purchase obligations with contract manufacturers</font></div>
    </td>
    <td width="4%"><font size="3"><b></b></font></td>
    <td align="left" 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 style="border-bottom: 1px solid #000000"><font size="3">3,913,600</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: 1px solid #000000"><font size="3"><b><font color="#000000">&nbsp</font></b></font></td>
    <td align="right" nowrap width="8%" style="border-bottom: 1px solid #000000"><font size="3">3,580,600</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: 1px solid #000000"><font size="3"><b><font color="#000000">&nbsp</font></b></font></td>
    <td align="right" nowrap width="8%" style="border-bottom: 1px solid #000000"><font size="3">333,000</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: 1px solid #000000"><font size="3"><b><font color="#000000">&nbsp</font></b></font></td>
    <td align="right" nowrap width="8%" style="border-bottom: 1px solid #000000"><font size="3">---</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%" 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%" 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" bgcolor="#cceeff">
      <div style="margin-left: 10px; text-indent: -10px"><font size="3"> Total
        contractual cash obligations </font></div>
    </td>
    <td width="4%" bgcolor="#cceeff"><font size="3"><b></b></font></td>
    <td align="left" width="1%" style="border-bottom: 3px double #000000" bgcolor="#cceeff"><font size="3"><font color="#000000">$</font></font></td>
    <td align="right" width="8%" nowrap style="border-bottom: 3px double #000000" bgcolor="#cceeff"><font size="3">6,407,400</font></td>
    <td width="1%" bgcolor="#cceeff"><font size="3"></font></td>
    <td width="4%" bgcolor="#cceeff"><font size="3"><b><font color="#000000"></font></b></font></td>
    <td align="left" width="1%" style="border-bottom: 3px double #000000" bgcolor="#cceeff"><font size="3"><font color="#000000">$</font></font></td>
    <td align="right" width="8%" nowrap style="border-bottom: 3px double #000000" bgcolor="#cceeff"><font size="3">4,135,100</font></td>
    <td width="1%" bgcolor="#cceeff"><font size="3"></font></td>
    <td width="4%" bgcolor="#cceeff"><font size="3"><b><font color="#000000"></font></b></font></td>
    <td align="left" width="1%" style="border-bottom: 3px double #000000" bgcolor="#cceeff"><font size="3"><font color="#000000">$</font></font></td>
    <td align="right" width="8%" nowrap style="border-bottom: 3px double #000000" bgcolor="#cceeff"><font size="3">1,480,100</font></td>
    <td width="1%" bgcolor="#cceeff"><font size="3"><b><font color="#000000"></font></b></font></td>
    <td width="4%" bgcolor="#cceeff"><font size="3"><b><font color="#000000"></font></b></font></td>
    <td align="left" width="1%" style="border-bottom: 3px double #000000" bgcolor="#cceeff"><font size="3"><font color="#000000">$</font></font></td>
    <td align="right" width="8%" nowrap style="border-bottom: 3px double #000000" bgcolor="#cceeff"><font size="3">792,200</font></td>
    <td width="1%" bgcolor="#cceeff"><font size="3"></font></td>
    <td width="4%" bgcolor="#cceeff"><font size="3"><b><font color="#000000"></font></b></font></td>
    <td align="left" width="1%" valign="bottom" style="border-bottom: 3px double #000000" bgcolor="#cceeff"><font size="3"><font color="#000000">$</font></font></td>
    <td align="right" width="8%" nowrap style="border-bottom: 3px double #000000" bgcolor="#cceeff"><font size="3">---</font></td>
    <td colspan="4" width="1%"><font size="3"></font></td>
  </tr>
</table>
<p><font face="Times New Roman, Times, serif" size="3"><b><br>
  </b></font></p>
<p>&nbsp; </p>
<p align=center><font face="Times New Roman, Times, serif" size="3">19<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p align=left><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 align=left><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 align=left>&nbsp;
<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=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 June 30,
  2007, a decline of 1% in interest rates would reduce our quarterly interest
  income by approximately $7,800.
<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 first
  and second quarters of 2007 and at the end of each quarter in fiscal 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 employees
  in Euros and British pounds, and we may enter into selected future purchase
  commitments with foreign suppliers that may be paid in the local currency of
  the supplier. We hedge a significant portion of our European receivable balances
  denominated in Euros to reduce the foreign currency risk associated with these
  assets, 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 June 30, 2007, an adverse change of 10% in exchange
  rates would result in a decrease in our net income for the second quarter of
  approximately $75,400, if left unprotected. For the second 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 $11,800.
  We will continue to monitor, assess, and mitigate through hedging activities,
  the risk associated with these exposures.
<p align=left>
<p align=left>&nbsp;
<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=item4></a></font>
<p><b>Item 4. Controls and Procedures</b> </p>
<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> <font face="Times New Roman, Times, serif" size="3"><a
name=item4t></a></font>
<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 June 30, 2007. In making this assessment, we used the criteria
  set forth by the Committee of Sponsoring Organizations of the Treadway Commission
  (COSO) in <i>Internal Control - Integrated Framework</i>. </p>
<p>Based on our assessment using those criteria, we believe that, as of June 30,
  2007, our internal control over financial reporting is effective.</p>
<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>&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>
  <b><font face="Times New Roman, Times, serif" size="3"><a
name=oth></a></font></b> <b><font face="Times New Roman, Times, serif" size="3"><a
name=risk></a></font></b>
<p><b>PART II. OTHER INFORMATION </b> </p>
<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> was added in the first quarterly report
  as our Common Stock had a history of trading from time to time below the required
  minimum closing bid price of $1.00, and has been updated in this quarterly report
  to reflect that we received on May 22, 2007 from Nasdaq a staff deficiency notice
  for failure to maintain the minimum closing bid requirement. 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;" and "Volatility in the trading price of our Common Stock could negatively
  impact the price of our Common Stock,"</i> have been updated to reflect the
  first half of 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 two quarters 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>&nbsp;</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>We may require additional capital in the future, but that capital
  may not be available on reasonable terms, if at all, or on terms that would
  not cause substantial dilution to your stock holdings.</b>
<p>Although we do not anticipate the need to raise additional capital during the
  next twelve months to fund our operations, we may incur operating losses in
  future quarters and may need to raise capital to fund these losses. Our forecasts
  are highly dependent on factors beyond our control, including market acceptance
  of our products and sales of handheld computers. If capital requirements vary
  materially from those currently planned, we may require additional capital sooner
  than expected. There can be no assurance that such capital will be available
  in sufficient amounts or on terms acceptable to us, if at all. In addition,
  the availability of our bank line is dependent upon our meeting certain covenants,
  including a tangible net worth covenant. 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>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>
<p>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 ten months. In particular, our stock failed to maintain a minimum
  closing bid price of at least $1.00 in the 30 consecutive business days prior
  to May 22, 2007. On May 22, 2007 we received 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 180 calendar days,
  or by November 19, 2007, or else we may be delisted from the Nasdaq Global Market.
  As of August 13, 2007, our Common Stock has not achieved the minimum closing
  bid price on any single day since receipt of the deficiency notice on May 22,
  2007. 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>
<p>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>
<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 third-parties do not produce and sell innovative products with which
  our products are compatible, or if our line of mobile 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 mobile 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, or experience
  difficulties with new product transitions that cause delays in the market as
  we experienced in 2005 and 2006, or if these products, including our new line
  of mobile handheld computers, fail to achieve or maintain market acceptance,
  the number of our potential new customers would be reduced and we would not
  be able to meet our sales expectations.</p>
<p><b>If we fail to develop and introduce new products rapidly and successfully,
  we will not be able to compete effectively, and our ability to generate sufficient
  revenues will be negatively affected. </b></p>
<p>The market for our products is prone to rapidly changing technology, evolving
  industry standards and short product life cycles. If we are unsuccessful at
  developing and introducing new products and services on a timely basis that
  include the latest technologies conforming to the newest standards and that
  are appealing to end users, we will not be able to compete effectively, and
  our ability to generate significant revenues will be seriously harmed.</p>
<p>The development of new products and services can be very difficult and requires
  high levels of innovation. The development process is also lengthy and costly.
  Short product life cycles expose our products to the risk of obsolescence and
  require frequent new product introductions. We will be unable to introduce new
  products and services into the market on a timely basis and compete successfully,
  if we fail to:</p>
<ul>
  <li>identify emerging standards in the field of mobile computing products; <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>&nbsp; </p>
<p align=center> <font face="Times New Roman, Times, serif" size="3">25<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p align=left><b>A significant portion of our revenue currently comes from two
  distributors, and any decrease in revenue from these distributors could harm
  our business.</b>
<p>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 six months 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 of
  2006 to 32 percent, due primarily to a reduction in the level of corporate handheld
  deployments and our related peripheral products 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=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>&nbsp;</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>Increased competition could result in price reductions, fewer customer orders,
  reduced margins, and loss of market share. Our failure to compete successfully
  against current or future competitors could harm our business, operating results
  and financial condition.</p>
<p><b>If we do not correctly anticipate demand for our products, our operating
  results will suffer.</b></p>
<p>The demand for our products depends on many factors and is difficult to forecast.
  We expect that it will become more difficult to forecast demand as we introduce
  and support more products and as competition in the market for our products
  intensifies. If demand increases beyond forecasted levels, we would have to
  rapidly increase production at our third-party manufacturers. We depend on suppliers
  to provide additional volumes of components, and suppliers might not be able
  to increase production rapidly enough to meet unexpected demand. Even if we
  were able to procure enough components, our third-party manufacturers might
  not be able to produce enough of our devices to meet our customer demand. In
  addition, rapid increases in production levels to meet unanticipated demand
  could result in higher costs for manufacturing and supply of components and
  other expenses. These higher costs could lower our profit margins. Further,
  if production is increased rapidly, manufacturing yields could decline, which
  may also lower operating results.</p>
<p>If demand is lower than forecasted levels, we could have excess production
  resulting in higher inventories of finished products and components, which could
  lead to write-downs or write-offs of some or all of the excess inventories.
  Lower than forecasted demand could also result in excess manufacturing capacity
  at our third-party manufacturers and in our failure to meet minimum purchase
  commitments, each of which may lower our operating results.</p>
<p><b>We rely primarily on distributors, resellers, and original equipment manufacturers
  to sell our products, and our sales would suffer if any of these third-parties
  stops selling our products effectively.</b></p>
<p>Because we sell our products primarily through distributors, resellers, and
  original equipment manufacturers, we are subject to risks associated with channel
  distribution, such as risks related to their inventory levels and support for
  our products. Our distribution channels may build up inventories in anticipation
  of growth in their sales. If such growth in their sales does not occur as anticipated,
  the inventory build up could contribute to higher levels of product returns.
  The lack of sales by any one significant participant in our distribution channels
  could result in excess inventories and adversely affect our operating results.
</p>
<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>&nbsp;
<p>&nbsp;</p>
<p align="center"><font face="Times New Roman, Times, serif" size="3">27<br>
  </font> </p>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p>We allow our distribution channels to return a portion of their inventory to
  us for full credit against other purchases. In addition, in the event we reduce
  our prices, we credit our distributors for the difference between the purchase
  price of products remaining in their inventory and our reduced price for such
  products. Actual returns and price protection may adversely affect future operating
  results, particularly since we seek to continually introduce new and enhanced
  products and are likely to face increasing price competition.</p>
<p 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, and more recently,
  to developing our own family of mobile handheld 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, or Symbian 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></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>Effective copyright, trademark, and trade secret protection may be unavailable
  or limited in certain foreign countries. Furthermore, certain of our customers
  have entered into agreements with us which provide that the customers have the
  right to use our proprietary technology in the event we default in our contractual
  obligations, including product supply obligations, and fail to cure the default
  within a specified period of time.</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>We may become subject
  to claims of intellectual property rights infringement, which could result in
  substantial liability.</b></font></p>
<p>In the course of operating our business, we may receive claims of intellectual
  property infringement or otherwise become aware of potentially relevant patents
  or other intellectual property rights held by other parties. Many of our competitors
  have large intellectual property portfolios, including patents that may cover
  technologies that are relevant to our business. In addition, many smaller companies,
  universities, and individuals have obtained or applied for patents in areas
  of technology that may relate to our business. The industry is moving towards
  aggressive assertion, licensing, and litigation of patents and other intellectual
  property rights. 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.
  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>&nbsp;</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">29<br>
  </font>
<p align=center>
<hr width="100%">
<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 revenues and operating results therefore depend on the volume
  and timing of orders received during the quarter, which are difficult to forecast.
  Historically, we have often recognized a substantial portion of our revenue
  in the last month of the quarter. This subjects us to the risk that even modest
  delays in orders may adversely affect our quarterly operating results. Our operating
  results may also fluctuate due to factors such as:</p>
<ul>
  <li>the demand for our products;<font face="Times New Roman, Times, serif" size="3"><br>
    </font></li>
  <li>the size and timing of customer orders;<font face="Times New Roman, Times, serif" size="3"><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 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>&nbsp;</p>
<p>&nbsp;</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">30<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p>Because we base our staffing and other operating expenses on anticipated revenues,
  delays in the receipt of orders can cause significant variations in operating
  results from quarter to quarter. As a result of any of the foregoing factors,
  or a combination, our results of operations in any given quarter may be below
  the expectations of public market analysts or investors, in which case the market
  price of our common stock would be adversely affected.</p>
<p><b>The loss of one or more of our senior personnel could harm our existing
  business.</b></p>
<p>A number of our officers and senior managers have been employed for twelve
  to fifteen 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 two quarters 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 future profits or 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 and market 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 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 and market new products and product enhancements.</p>
<p>&nbsp;</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>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, our bar code scanning modules, and our new line of mobile 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
  34 percent of our revenue in the first half of 2007 and 32 percent of our revenue
  in 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></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>
<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 is 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 July 31, 2007, we had 31,945,324 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 July 31, 2007, we had 10,050,741 shares subject to outstanding options
  under our stock option plans, and 836,180 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 July 31, 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>&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><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
</p>
<p><b>Volatility in the trading price of our common stock could negatively impact
  the price of our common stock.</b></p>
<p>During the period from January 1, 2006 through July 31, 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><font face="Times New Roman, Times, serif" size="3"><b>Item 6. Exhibits <font face="Times New Roman, Times, serif" size="3"><a
name=item6></a></font></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">34<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><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>
<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: August
      13, 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: August
      13, 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<br>
        (Duly Authorized Officer and Principal Financial and Accounting Officer)
        </font></div>
    </td>
  </tr>
</TABLE>
<P>&nbsp;</P>
<P>&nbsp;</P>
<P>&nbsp;</P>
<P>&nbsp;</P>
<p 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><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">36<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left>&nbsp;
</BODY></HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>2
<FILENAME>exhibit311.htm
<DESCRIPTION>CERTIFICATION
<TEXT>
<html>
<head>
<title>Untitled Document</title>
</head>

<body bgcolor="#FFFFFF">
<p align=left>
<p align=right><font face="Times New Roman, Times, serif" size="3">Exhibit 31.1
  </font>
<p align="center"><font face="Times New Roman, Times, serif" size="3"><b>CERTIFICATION</b></font></p>
<p>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: August
      13, 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>
</html>
</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: August
      13, 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%" height="58">&nbsp;</td>
    <td width="21%" height="58">
      <center>
        <font face="Times New Roman, Times, serif" size=3>&nbsp; </font>
      </center>
    </td>
    <td valign=top align=middle width="41%" height="58">
      <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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</TEXT>
</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>
  PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 </p>
<p><font face="Times New Roman, Times, serif" size="3"><br>
  I, Kevin J. Mills, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
  to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report
  of Socket Communications, Inc. on Form 10-Q for the quarter ended June 30, 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>
<p>&nbsp;</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: &nbspAugust 13, 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 June
  30, 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>&nbsp;</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&nbspAugust 13, 2007</font></div>
    </td>
  </tr>
</table>
<p>&nbsp;</p>
<p align=center>&nbsp;
<p align=center>&nbsp;
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