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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0000944075-08-000038.txt : 20080813
<SEC-HEADER>0000944075-08-000038.hdr.sgml : 20080813
<ACCEPTANCE-DATETIME>20080813163706
ACCESSION NUMBER:		0000944075-08-000038
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		4
CONFORMED PERIOD OF REPORT:	20080630
FILED AS OF DATE:		20080813
DATE AS OF CHANGE:		20080813

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			SOCKET MOBILE, 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:	000-25904
		FILM NUMBER:		081013559

	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

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	SOCKET COMMUNICATIONS INC
		DATE OF NAME CHANGE:	19950418
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>q2-2008.htm
<DESCRIPTION>QUARTERLY REPORT
<TEXT>
<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.0 Transitional//EN">
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<META content="MSHTML 5.50.4522.1800" name=GENERATOR></HEAD>
<BODY bgColor=white>
<DIV align=left> </DIV>
<DIV align=left> </DIV>
<P align=center><font face="Times New Roman, Times, serif" size="3">UNITED STATES<BR>
  SECURITIES AND EXCHANGE COMMISSION<BR>
  WASHINGTON, D.C. 20549<BR>
  </font></P>
<P align=center><font face="Times New Roman, Times, serif" size="3"><STRONG><font size="4">FORM
  10-Q</font></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>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;<font size="4">For
  the quarterly period ended June 30, 2008</font></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><font size="5">SOCKET
  MOBILE, INC.</font></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 of incorporation)&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><font size="4">39700
  Eureka Drive, Newark, CA 94560</font> </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><font size="4">(510)
  933-3000</font> </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, a non-accelerated filer, or a smaller reporting company.
  See the definitions of "large accelerated filer," "accelerated filer," and "smaller
  reporting company" in Rule 12b-2 of the Exchange Act. Large accelerated filer
  [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company
  [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>The number of shares of Common Stock ($0.001 par value) outstanding as of July
  31, 2008 was 32,300,129 shares.<br>
  <br>
</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. Financial Statements (Unaudited):</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 Balance Sheets - June 30, 2008 and December 31, 2007 </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 Statements of Operations - Three Months and Six Months
      Ended June 30, 2008 and 2007</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 Statements of Cash Flows - Six Months Ended </a><a
  href="#ops">June 30, 2008 and 2007</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 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">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">23</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">24</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">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="#sig">Signatures</a></font></td>
    <td width="56">
      <div align="center">36</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">37</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
  MOBILE, INC.</b> <br>
  <b>CONDENSED 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>
        2008<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>
        2007*</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">3,085,207</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">4,963,359</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">4,117,341</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">2,614,872</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">3,580,319</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">2,438,033</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">515,764</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">282,867</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">11,298,631</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">10,299,131</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">2,294,902</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">2,391,991</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">1,185,379</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">1,125,875</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">3,480,281</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">3,517,866</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">(2,401,479</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">(2,373,409</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">1,078,802</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">1,144,457</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">410,360</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">473,934</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">259,001</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">258,444</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">22,844,740</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">21,973,912</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">3,416,775</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">2,429,168</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">912,678</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">852,185</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">3,052,835</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">2,622,009</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">1,742,725</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">1,744,560</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;Term
          loan - short term portion</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">167,709</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">160,439</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;Current
          portion of capital leases and deferred rent</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">35,473</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">42,964</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">9,328,195</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">7,851,325</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">182,034</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">266,543</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">125,869</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">139,743</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">198,292</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">182,322</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">9,834,390</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">8,439,933</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;32,300,129 at June 30, 2008 and 31,989,617
          at <br>
          &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;December 31, 2007</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">32,300</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">31,990</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">54,238,219</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">53,654,483</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">(41,260,169</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">(40,152,494</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">13,010,350</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">13,533,979</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">22,844,740</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">21,973,912</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 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 MOBILE, INC.</font></b> <font size="3"><br>
    <b>CONDENSED 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">2008</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></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">2008</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">2007</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">7,492,564</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">$</font></td>
      <td align="right" nowrap bgcolor="#cceeff" width="10%"><font face="Times New Roman, Times, serif" size="3">6,299,817</font></td>
      <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td width="3%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" width="2%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">$</font></td>
      <td align="right" nowrap bgcolor="#cceeff" width="10%"><font face="Times New Roman, Times, serif" size="3">13,662,433</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">11,848,157</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">3,854,419</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">3,215,959</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">7,006,736</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">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>
    </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">3,638,145</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">3,083,858</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">6,655,697</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">5,868,425</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">1,144,941</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">1,162,188</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">2,331,763</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">2,589,234</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">1,966,446</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" 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" 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">3,909,795</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">3,729,317</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">621,980</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">681,368</font></td>
      <td 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">1,427,447</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">1,538,341</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">31,787</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">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" nowrap style="border-bottom: 1px solid #000000" width="10%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">63,574</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">67,615</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">3,765,154</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">3,847,660</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">7,732,579</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">7,924,507</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">(127,009</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">(763,802</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">(1,076,882</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>
    </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" 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">4,220</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">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">16,148</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">67,523</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">(18,277</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" 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">&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">(30,971</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>
    </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">(141,066</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" 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">&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">(1,091,705</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>
    </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 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%">&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">(15,970</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 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>
    </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" 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">(149,051</font></td>
      <td align="left" style="border-bottom: 3px double #000000" width="2%" bgcolor="#cceeff" valign="bottom"><font 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" valign="bottom" style="border-bottom: 3px double #000000" width="2%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">$</font></td>
      <td align="right" bgcolor="#cceeff" nowrap style="border-bottom: 3px double #000000" width="10%" valign="bottom"><font face="Times New Roman, Times, serif" size="3">(744,793</font></td>
      <td align="left" style="border-bottom: 3px double #000000" width="2%" bgcolor="#cceeff" valign="bottom"><font size="3">)</font></td>
      <td width="3%" height="16" bgcolor="#cceeff">&nbsp;</td>
      <td align="left" style="border-bottom: 3px double #000000" width="2%" bgcolor="#cceeff" valign="bottom"><font face="Times New Roman, Times, serif" size="3">$</font></td>
      <td align="right" nowrap style="border-bottom: 3px double #000000" width="10%" bgcolor="#cceeff" valign="bottom"><font face="Times New Roman, Times, serif" size="3">(1,107,675</font></td>
      <td align="left" style="border-bottom: 3px double #000000" width="2%" bgcolor="#cceeff" valign="bottom"><font size="3">)</font></td>
      <td width="3%" height="16" bgcolor="#cceeff">&nbsp;</td>
      <td align="left" style="border-bottom: 3px double #000000" width="2%" bgcolor="#cceeff" valign="bottom"><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" valign="bottom"><font face="Times New Roman, Times, serif" size="3">(2,010,594</font></td>
      <td align="left" style="border-bottom: 3px double #000000" width="2%" bgcolor="#cceeff" valign="bottom"><font 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%"><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>
      <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">
          Net loss per share:</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 valign="bottom">
      <td colspan="3" align="left" valign="top" height="10">
        <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%"><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">0.00</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" valign="bottom" style="border-bottom: 3px double #000000" width="2%"><font face="Times New Roman, Times, serif" size="3">$</font></td>
      <td align="right" nowrap style="border-bottom: 3px double #000000" width="10%"><font face="Times New Roman, Times, serif" size="3">(0.02</font></td>
      <td align="left" style="border-bottom: 3px double #000000" width="2%"><font size="3">)</font></td>
      <td width="3%">&nbsp;</td>
      <td align="left" style="border-bottom: 3px double #000000" width="2%"><font face="Times New Roman, Times, serif" size="3">$</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>
      <td width="3%">&nbsp;</td>
      <td align="left" style="border-bottom: 3px double #000000" width="2%"><font face="Times New Roman, Times, serif" size="3">$</font></td>
      <td align="right" nowrap style="border-bottom: 3px double #000000" width="10%"><font face="Times New Roman, Times, serif" size="3">(0.06</font></td>
      <td align="left" style="border-bottom: 3px double #000000" width="2%"><font size="3">)</font></td>
    </tr>
    <tr valign="bottom">
      <td colspan="3" align="left" valign="top" bgcolor="#cceeff">
        <div style="margin-left: 10px; text-indent: -10px"> <font size="3" face="Times New Roman, Times, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Diluted</font></div>
      </td>
      <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
      <td align="left" valign="bottom" style="border-bottom: 3px double #000000" width="2%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">$</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">0.00</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" valign="bottom" style="border-bottom: 3px double #000000" width="2%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">$</font></td>
      <td align="right" bgcolor="#cceeff" nowrap style="border-bottom: 3px double #000000" width="10%"><font face="Times New Roman, Times, serif" size="3">(0.02</font></td>
      <td align="left" style="border-bottom: 3px double #000000" width="2%" bgcolor="#cceeff"><font size="3">)</font></td>
      <td width="3%" height="16" bgcolor="#cceeff">&nbsp;</td>
      <td align="left" style="border-bottom: 3px double #000000" width="2%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3">$</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>
      <td width="3%" height="16" 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>
    </tr>
    <tr>
      <td colspan="3"><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%"><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" bgcolor="#cceeff">
        <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%" 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" bgcolor="#cceeff" nowrap width="10%"><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 valign="bottom">
      <td colspan="3" align="left" valign="top" height="10">
        <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%"><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">32,129,321</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">31,914,997</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" nowrap style="border-bottom: 3px double #000000" width="10%"><font face="Times New Roman, Times, serif" size="3">32,071,060</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">31,893,610</font></td>
      <td align="left" style="border-bottom: 3px double #000000" width="2%">&nbsp;</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;Diluted</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">32,129,321</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" bgcolor="#cceeff" 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%" 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">32,071,060</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">31,893,610</font></td>
      <td align="left" style="border-bottom: 3px double #000000" width="2%" bgcolor="#cceeff">&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 MOBILE, INC.<br>
  CONDENSED 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">2008</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">2007</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">(1,107,675</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><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>
  </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 align=left bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td noWrap align=right width="11%" bgcolor="#cceeff"><font 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">393,933</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><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>
  </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">274,096</font></td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td align=left bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td noWrap align=right width="11%" bgcolor="#cceeff"><font size="3">277,053</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">63,574</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><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>
  </tr>
  <tr valign=bottom>
    <td colspan="4" bgcolor="#cceeff">
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font face="Times New Roman, Times, serif" size="3">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net
        foreign currency transaction (gains) losses</font></div>
    </td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom align=left bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom noWrap align=right width="11%" bgcolor="#cceeff"><font size="3">21,401</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 align=left bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td noWrap align=right width="11%" bgcolor="#cceeff"><font size="3">(20,737</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">(2,019</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 align=left><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td noWrap align=right width="11%"><font size="3">117,176</font></td>
    <td 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">15,970</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 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>
  </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 align=left><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td 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>
  </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 align=left bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td noWrap align=right width="11%" bgcolor="#cceeff"><font 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>
  </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">(1,529,949</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><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>
  </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">(1,142,286</font></td>
    <td valign=bottom noWrap align=left width="1%" bgcolor="#cceeff"><font size="3">)</font></td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td align=left bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td noWrap align=right width="11%" bgcolor="#cceeff"><font size="3">279,633</font></td>
    <td noWrap align=left width="1%" bgcolor="#cceeff">&nbsp;</td>
  </tr>
  <tr>
    <td colspan="4">
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font face="Times New Roman, Times, serif" size="3">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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">(232,897</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><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>
  </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">(557</font></td>
    <td width="1%" bgcolor="#cceeff"><font size="3">)</font></td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td align=left bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td noWrap align=right width="11%" bgcolor="#cceeff"><font size="3">16,067</font></td>
    <td width="1%" bgcolor="#cceeff">&nbsp;</td>
  </tr>
  <tr>
    <td colspan="4">
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font face="Times New Roman, Times, serif" size="3">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts
        payable and accrued expenses</font></div>
    </td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom align=left><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom noWrap align=right width="11%"><font size="3">1,004,768</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><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>
  </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">60,493</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 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>
  </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">(1,835</font></td>
    <td valign=bottom 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 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>
  </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 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">(2,182,983</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">(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>
  </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 align=left><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td 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 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>
  </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">(208,441</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 align=left style="border-bottom: 1px solid #000000"><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"><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>
  </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">(208,441</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">(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>
  </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 align=left><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td noWrap align=right width="11%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td 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 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>
  </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">(19,346</font></td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3">)</font></td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td align=left><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td 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>
  </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">5,806,982</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 align=left bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td noWrap align=right width="11%" bgcolor="#cceeff"><font size="3">4,563,159</font></td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></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">(5,376,156</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><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>
  </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 term 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">---</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 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>
  </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;
        Repayments of bank term loan</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">(77,239</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><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom noWrap align=right width="11%"><font size="3">---</font></td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"><b></b></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 the exercise of stock options and warrants</font></div>
    </td>
    <td height="22" 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">190,113</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 height="22" 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">62,329</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">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
        Net cash provided by financing activities</font></div>
    </td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td align=left style="border-bottom: 1px solid #000000"><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"><font size="3">524,354</font></td>
    <td align=left style="border-bottom: 1px solid #000000"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td align=left style="border-bottom: 1px solid #000000"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
    <td noWrap align=right width="11%" style="border-bottom: 1px solid #000000"><font size="3">622,791</font></td>
    <td align=left style="border-bottom: 1px solid #000000"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
  </tr>
  <tr>
    <td colspan="4" bgcolor="#cceeff">
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font size="3"><b><b><font face="Times New Roman, Times, serif"><font face="Times New Roman, Times, serif">&nbsp</font></font></b></b></font></div>
    </td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom align=left bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom noWrap align=right width="11%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom noWrap align=left width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom align=left bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom noWrap align=right width="11%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom noWrap align=left width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
  </tr>
  <tr valign=bottom>
    <td valign=top align=left colspan=4>
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font face="Times New Roman, Times, serif" size="3">Effect
        of exchange rate changes on cash and cash equivalents</font></div>
    </td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom align=left style="border-bottom: 1px solid #000000"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
    <td valign=bottom noWrap align=right width="11%" style="border-bottom: 1px solid #000000"><font size="3">(11,082</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 align=left style="border-bottom: 1px solid #000000"><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"><font size="3">7,199</font></td>
    <td align=left style="border-bottom: 1px solid #000000"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
  </tr>
  <tr valign=bottom>
    <td valign=top align=left colspan=4 bgcolor="#cceeff">
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font face="Times New Roman, Times, serif" size="3">Net
        decrease in cash and cash equivalents</font></div>
    </td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom align=left bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom noWrap align=right width="11%" bgcolor="#cceeff"><font size="3">(1,878,152</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 bgcolor="#cceeff" align=left><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td bgcolor="#cceeff" noWrap align=right width="11%"><font size="3">(205,579</font></td>
    <td bgcolor="#cceeff" 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 height="21">&nbsp;</td>
    <td width="1%" height="21">&nbsp;</td>
    <td valign=bottom align=left height="21" >&nbsp;</td>
    <td valign=bottom noWrap align=right width="11%" height="21" >&nbsp;</td>
    <td valign=bottom noWrap align=left width="1%" height="21">&nbsp;</td>
    <td width="1%" height="21">&nbsp;</td>
    <td valign=bottom align=left height="21" >&nbsp;</td>
    <td valign=bottom noWrap align=right width="11%" height="21" >&nbsp;</td>
    <td valign=bottom noWrap align=left width="1%" height="21">&nbsp;</td>
  </tr>
  <tr>
    <td valign=top align=left colspan=4 bgcolor="#cceeff">
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font face="Times New Roman, Times, serif" size="3">Cash
        and cash equivalents at beginning of period</font></div>
    </td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom align=left style="border-bottom: 1px solid #000000" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b>&nbsp</b></font></td>
    <td valign=bottom noWrap align=right width="11%" style="border-bottom: 1px solid #000000" bgcolor="#cceeff"><font size="3">4,963,359</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">6,104,277</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>
  </tr>
  <tr valign=bottom>
    <td valign=top align=left colspan=4 height="12">
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font face="Times New Roman, Times, serif" size="3">Cash
        and cash equivalents at end of period</font></div>
    </td>
    <td height="12" width="1%"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom align=left height="12" style="border-bottom: 3px double #000000"><font face="Times New Roman, Times, serif" size="3">$</font></td>
    <td valign=bottom noWrap align=right height="12" width="11%" style="border-bottom: 3px double #000000"><font size="3">3,085,207</font></td>
    <td align=left height="12" style="border-bottom: 3px double #000000">&nbsp; </td>
    <td height="12" width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td align=left height="12" style="border-bottom: 3px double #000000"><font face="Times New Roman, Times, serif" size="3">$</font></td>
    <td noWrap align=right height="12" width="11%" style="border-bottom: 3px double #000000"><font size="3">5,898,698</font></td>
    <td align=left height="12" style="border-bottom: 3px double #000000">&nbsp; </td>
  </tr>
  <tr>
    <td valign=top align=left colspan=4 height="16" bgcolor="#cceeff">
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><b><b><font face="Times New Roman, Times, serif"><font face="Times New Roman, Times, serif"><font size="2"><font size="3"></font></font></font></font></b></b></div>
    </td>
    <td height="16" width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom align=left height="16" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom noWrap align=right height="16" width="11%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom noWrap align=left height="16" width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td height="16" width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom align=left height="16" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom noWrap align=right height="16" width="11%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom noWrap align=left height="16" width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
  </tr>
  <tr>
    <td valign=top align=left colspan=4>
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font face="Times New Roman, Times, serif" size="3"><b>Supplemental
        cash flow information </b></font></div>
    </td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom align=left><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom noWrap align=right width="11%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td valign=bottom align=left><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
    <td valign=bottom noWrap align=right width="11%"><font face="Times New Roman, Times, serif" size="3"></font></td>
    <td width="1%"><font face="Times New Roman, Times, serif" size="3"><b></b></font></td>
  </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;
        Cash paid for interest</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 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">31,562</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 bgcolor="#cceeff" align=left width="1%"><font face="Times New Roman, Times, serif" size="3">$</font></td>
    <td bgcolor="#cceeff" noWrap align=right width="11%"><font size="3">6,062</font></td>
    <td width="1%" bgcolor="#cceeff"><font face="Times New Roman, Times, serif" size="3"><b></b></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
  MOBILE, INC.<br>
  NOTES TO CONDENSED 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 condensed financial statements of Socket Mobile,
  Inc. (the "Company") (formerly Socket Communications, Inc.) 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 condensed financial statements should be read in
  conjunction with the audited financial statements and notes included in the
  Company's Annual Report on Form 10-K for the year ended December 31, 2007.</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 Company's financial
  statements. </p>
<p><font face="Times New Roman, Times, serif"><i>Recent Accounting Pronouncements
  </i><br>
  In September 2006, the FASB issued Statement of Financial Accounting Standards
  No. 157, "Fair Value Measurements" ("SFAS 157"), which establishes a framework
  for measuring fair value and enhances disclosures about fair value measurements.
  In February 2008, the FASB issued FASB Staff Position No. FAS 157-2, "Effective
  Date of FASB Statement No. 157," which provides for a one year deferral of the
  effective date of SFAS 157 for non-financial assets and non-financial liabilities,
  except those that are recognized or disclosed in the financial statements at
  fair value on a recurring basis. The Company adopted the provisions of SFAS
  157 as of January 1, 2008, with respect to its financial assets and liabilities
  only. The adoption of SFAS 157 did not have a material impact on the Company's
  financial statements. Under SFAS 157, the definition of fair value focuses on
  the price that would be received upon the sale of an asset or the amount paid
  to transfer a liability. The fair value measurement should reflect all of the
  assumptions that market participants would use in pricing the asset or liability.
  </font><font face="Times New Roman, Times, serif">SFAS 157 establishes a three-level
  hierarchy to prioritize the inputs used in valuation techniques for fair value
  consisting of: 1) observable inputs that reflect quoted prices in active markets;
  2) inputs other than quoted prices with observable market data; and 3) unobservable
  data. SFAS 157 requires disclosures detailing the extent to which the Company
  measures assets and liabilities at fair value, the methods and assumptions used
  to measure fair value and the effect of fair value measurements on earnings.
  <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 align=center><font face="Times New Roman, Times, serif" size="3"><b>SOCKET
  MOBILE, INC.<br>
  NOTES TO CONDENSED FINANCIAL STATEMENTS<br>
  </b>(Unaudited) </font>
<p>The Company considers all highly liquid investments purchased with a maturity
  date of 90 days or less at date of purchase to be cash equivalents. At June
  30, 2008, all of the Company's cash and cash equivalents consisted of amounts
  held in demand and money market deposits in banks. The Company regularly enters
  into forward foreign currency contracts to reduce exposures related to rate
  changes in certain foreign currencies. The Company's forward foreign currency
  contracts are recorded at fair value and are included in accrued liabilities
  at June 30, 2008. At June 30, 2008, none of these derivative instruments was
  accounted for as a hedge transaction, and accordingly, changes in the fair value
  of the forward foreign currency contracts were recorded in net income. At June
  30, 2008, contracts with a notional amount of $470,160 to hedge Euros, were
  recorded as a liability with a fair value of $2,647, based on quotations from
  financial institutions.</p>
<p>In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
  Financial Assets and Financial Liabilities" ("SFAS 159"), which permits companies
  to choose to measure certain financial instruments and certain other items at
  fair value. The standard requires that unrealized gains and losses on items
  for which the fair value option has been elected be reported in earnings. SFAS
  159 is effective for fiscal years beginning after November 15, 2007. The Company
  adopted SFAS 159 as of January 1, 2008. The adoption of SFAS 159 did not have
  a material impact on the Company's financial statements.</p>
<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>
        2008</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>
        2007</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">3,083,192</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">2,012,745</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">497,127</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">425,288</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">$</font>
    </td>
    <td valign=bottom noWrap align=right style="border-bottom: 3px double #000000" bgcolor="#cceeff" width="10%"><font size="3">3,580,319</font></td>
    <td width="1%" noWrap align=left style="border-bottom: 3px double #000000" bgcolor="#cceeff">&nbsp;
    </td>
    <td bgcolor="#cceeff" width="3%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=left style="border-bottom: 3px double #000000" bgcolor="#cceeff" width="1%"><font size="3">$
      </font></td>
    <td noWrap align=right style="border-bottom: 3px double #000000" bgcolor="#cceeff" width="10%"><font size="3">2,438,033</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"><br>
  Increases in overall inventory balances at June 30, 2008 are due primarily to
  higher stocking levels of Bluetooth modules for the Company's OEM customers
  and higher stocking levels of the Company's mobile handheld computer.<b><br>
  </b></font></p>
<p>&nbsp;</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=center><font face="Times New Roman, Times, serif" size="3"><b>SOCKET
  MOBILE, INC.<br>
  NOTES TO CONDENSED FINANCIAL STATEMENTS<br>
  </b>(Unaudited) </font>
<p><font face="Times New Roman, Times, serif" size="3"><b>NOTE 4 - Bank Financing
  Arrangements</b></font></p>
<p>On March 24, 2008, 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 24, 2010. The credit facility 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, 2008 were 5.5%
  on both the domestic and international lines. At June 30, 2008, outstanding
  amounts borrowed under the lines were $2,362,835 and $690,000, respectively,
  which were the approximate amounts available on the lines. Of these amounts
  outstanding at June 30, 2008, $1.8 million was repaid in early July 2008. In
  fiscal 2007 the Company used the credit facility only at the end of each quarter.
  At December 31, 2007, outstanding amounts borrowed under the lines were $1,752,459
  and $869,550, respectively, which were the approximate amounts available on
  the lines. These amounts outstanding at December 31, 2007 were repaid in early
  January 2008. The rates in effect at December 31, 2007 were 7.75% on both the
  domestic and international lines. Under the terms of the credit agreement, beginning
  March 31, 2008, the Company must maintain a quarterly minimum tangible net worth
  of at least $2,500,000, plus beginning thereafter, 50% of net income. The Company
  was in compliance with the tangible net worth requirement at June 30, 2008.</p>
<p>Under the terms of a term loan agreement, the Company borrowed a principal
  amount of $500,000 on June 29, 2007. The term loan bears a fixed interest rate
  of 9.75%, 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. At June 30,
  2008, $349,743 was outstanding on the term loan, of which $167,709 and $182,034
  is classified as short term debt and long term debt, respectively. Remaining
  payments of principal due in future periods are as follows: $80,377, $173,228,
  and $ 93,315, for the years ending December 31, 2008 (six months remaining),
  2009 and 2010, respectively.</p>
<p align=left><b>NOTE 5 - Intangible Assets</b>
<p>Intangible assets at June 30, 2008 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 radio frequency identification products, which is being amortized
  on a straight line basis over its estimated life of ten years, and 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.<br>
</p>
<p align=left>Amortization of all intangible assets for the three and six months
  ended June 30, 2008 was $31,787 and $63,574, respectively, compared to $33,807
  and $67,615, respectively, for the same periods in 2007. Intangible assets as
  of June 30, 2008 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">240,000</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">360,000</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 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">570,750</font></td>
    <td align="right" nowrap style="border-bottom: 1px solid #000000">
      <div align="left"><font face="Times New Roman, Times, serif" size="3">&nbsp</font></div>
    </td>
    <td height="11" width="2%"><font size="3"></font> </td>
    <td 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">520,390</font></td>
    <td align="right" nowrap style="border-bottom: 1px solid #000000">
      <div align="left"><font face="Times New Roman, Times, serif" size="3">&nbsp</font></div>
    </td>
    <td height="11" width="2%"><font size="3"></font> </td>
    <td 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">50,360</font></td>
    <td align="right" nowrap style="border-bottom: 1px solid #000000">
      <div align="left"><font face="Times New Roman, Times, serif" size="3">&nbsp</font></div>
    </td>
  </tr>
  <tr valign=bottom bgcolor="#cceeff">
    <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">1,170,750</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">760,390</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">410,360</font></td>
    <td width="1%" noWrap align=left style="border-bottom: 3px double #000000">&nbsp;
    </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 align=center><font face="Times New Roman, Times, serif" size="3"><b>SOCKET
  MOBILE, INC.<br>
  NOTES TO CONDENSED FINANCIAL STATEMENTS<br>
  </b>(Unaudited) </font>
<p>Intangible assets as of December 31, 2007 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">210,000</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">390,000</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 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">570,750</font></td>
    <td align="right" nowrap style="border-bottom: 1px solid #000000">
      <div align="left"><font face="Times New Roman, Times, serif" size="3">&nbsp</font></div>
    </td>
    <td height="11"><font size="3"></font> </td>
    <td 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">486,816</font></td>
    <td align="right" nowrap style="border-bottom: 1px solid #000000">
      <div align="left"><font face="Times New Roman, Times, serif" size="3">&nbsp</font></div>
    </td>
    <td height="11"><font size="3"></font> </td>
    <td 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">83,934</font></td>
    <td align="right" nowrap style="border-bottom: 1px solid #000000">
      <div align="left"><font face="Times New Roman, Times, serif" size="3">&nbsp</font></div>
    </td>
  </tr>
  <tr valign=bottom bgcolor="#cceeff">
    <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">1,170,750</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">696,816</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">$</font>
    </td>
    <td noWrap align=right style="border-bottom: 3px double #000000"><font size="3">473,934</font></td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="1%" >&nbsp;
    </td>
  </tr>
</table>
<p>Based on definite lived intangible assets recorded at June 30, 2008, and assuming
  no subsequent impairment of the underlying assets, the annual amortization expense
  is expected to be as follows:</p>
<table style="MARGIN-TOP: 3pt; FONT-SIZE: 10pt" cellspacing=0 cellpadding=0
width="90%" align=center border=0>
  <tr>
    <td noWrap align=left width="71%" style="border-bottom: 1px solid #000000" ><font size="3">
      Year</font></td>
    <td width="4%"><font size="3"></font></td>
    <td colspan="4" style="border-bottom: 1px solid #000000">
      <div align="center"><font size="3">Amount</font></div>
    </td>
  </tr>
  <tr valign=bottom>
    <td valign=top align=left bgcolor="#cceeff" width="71%">
      <div style="MARGIN-LEFT: 10px; TEXT-INDENT: -10px"><font size="3">2008 (six
        months remaining)</font></div>
    </td>
    <td bgcolor="#cceeff" width="4%"><font size="3"></font></td>
    <td bgcolor="#cceeff" width="3%" align="right"><font size="3">$</font></td>
    <td valign=bottom align=right bgcolor="#cceeff" colspan="2"><font size="3">63,573</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">2009</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">76,787</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">2010</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">2011</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">2012</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">2013 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">90,000</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">410,360</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>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, vertical industry partners, and distributors. Revenues
  for the geographic areas for the three and six months ended June 30, 2008 and
  2007 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">2008</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="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">2008</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">2007</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">4,973,609</font></td>
    <td valign=bottom 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">$</font> </td>
    <td noWrap align=right width="10%"><font size="3">4,134,620</font></td>
    <td noWrap align=left width="1%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=left width="4%"><font size="3"></font> </td>
    <td noWrap align=left width="2%"><font size="3">$</font> </td>
    <td noWrap align=right width="10%"><font size="3">8,737,473</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">7,398,880</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">1,732,798</font></td>
    <td valign=bottom 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">1,708,146</font></td>
    <td noWrap align=left width="1%"><font size="3"></font></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">3,401,289</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">3,471,891</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">786,157</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">457,051</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">1,523,671</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">977,386</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">7,492,564</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">$</font>
    </td>
    <td noWrap align=right style="border-bottom: 3px double #000000" width="10%"><font size="3">6,299,817</font></td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="2%">&nbsp;
    </td>
    <td valign=bottom noWrap align=left width="4%"><font size="3"></font></td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="2%"><font size="3">$</font>
    </td>
    <td noWrap align=right style="border-bottom: 3px double #000000" width="10%"><font size="3">13,662,433</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">11,848,157</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>&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 align=center><font face="Times New Roman, Times, serif" size="3"><b>SOCKET
  MOBILE, INC.<br>
  NOTES TO CONDENSED FINANCIAL STATEMENTS<br>
  </b>(Unaudited) </font>
<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">2008</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">2007</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">2008</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">2007</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">14</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">25</font></td>
    <td 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">15</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">24</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">16</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 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">14</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">13</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">*</font></td>
    <td noWrap align=left width="6%">&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="6%"><font size="3">11</font></td>
    <td noWrap align=left width="6%"><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="8%"><b><font size="3">*</font></b></td>
    <td noWrap align=left width="8%"><b> </b></td>
  </tr>
  <tr valign=bottom>
    <td valign=bottom noWrap align=left width="38%">
      <div style="MARGIN-LEFT: 9pt; TEXT-INDENT: -9pt"><font size="3">Honeywell
        Imaging and Mobility (formerly Hand Held Products, 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">12</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">*</font></td>
    <td noWrap align=left width="6%">&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="6%"><font size="3">*</font></td>
    <td noWrap align=left width="6%">&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="8%"><font size="3">*</font></td>
    <td noWrap align=left width="8%">&nbsp;</td>
  </tr>
  <tr valign=bottom>
    <td valign=bottom noWrap align=left colspan="17">
      <div style="MARGIN-LEFT: 9pt; TEXT-INDENT: -9pt"><font size="3"></font></div>
      __________________________________<br>
      * Customer accounts for less than 10% of total revenues for the period</td>
  </tr>
</table>
<p>&nbsp;</p>
<p><b>NOTE 7 - Stock-Based Compensation</b></p>
<p>The Company accounts for share-based awards in accordance with SFAS 123R. 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. Under SFAS 123R, the Company uses a binomial lattice valuation model
  to estimate the fair value of stock option grants made on or after January 1,
  2006. The binomial lattice model incorporates calculations for expected volatility,
  risk-free interest rates, employee exercise patterns and post-vesting employment
  termination behavior, and these factors affect the estimate of the fair value
  of the Company's stock option grants. </p>
<p>The weighted average per share fair value of the individual options issued
  and outstanding during the three and six months ended June 30, 2008 was estimated
  at $0.74 and $0.86, respectively, compared to $1.60 and $1.56, respectively,
  for the three and six months ended June 30, 2007. 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, 2008 and 2007 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">2008</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">2007</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">2008</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">2007</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">4.19</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">3.85</font></td>
    <td 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">4.15</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="7%"><font size="3">3.75</font></td>
    <td noWrap align=left width="5%"><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 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="7%"><font size="3">---</font></td>
    <td noWrap align=left width="5%">&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">0.73</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">1.0</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">0.77</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="7%"><font size="3">1.0</font></td>
    <td noWrap align=left width="5%">&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">4.9</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">4.7</font></td>
    <td 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">4.8</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="7%" height="17"><font size="3">4.7</font></td>
    <td noWrap align=left width="5%" height="17">&nbsp;</td>
  </tr>
</table>
<p>At June 30, 2008, options issued to employees for 10,965,722 shares were outstanding,
  of which 7,612,192 were exercisable. At June 30, 2007, options issued to employees
  for 9,941,887 shares were outstanding, of which 7,108,923 were exercisable.</p>
<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 align=center><font face="Times New Roman, Times, serif" size="3"><b>SOCKET
  MOBILE, INC.<br>
  NOTES TO CONDENSED FINANCIAL STATEMENTS<br>
  </b>(Unaudited)</font>
<p>Total stock-based compensation expense recognized in the Company's statements
  of income for the three and six months ended June 30, 2008 and 2007 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">2008</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="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">2008</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">2007</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">11,013</font></td>
    <td valign=bottom 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">$</font> </td>
    <td noWrap align=right width="10%"><font size="3">20,427</font></td>
    <td noWrap align=left width="1%"><font size="3"></font> </td>
    <td valign=bottom noWrap align=left width="4%"><font size="3"></font> </td>
    <td noWrap align=left width="2%"><font size="3">$</font> </td>
    <td noWrap align=right width="10%"><font size="3">20,209</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">43,107</font></td>
    <td noWrap align=left width="1%">&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">50,603</font></td>
    <td valign=bottom 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">65,512</font></td>
    <td noWrap align=left width="1%"><font size="3"></font></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">108,157</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">128,478</font></td>
    <td noWrap align=left width="1%">&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">66,482</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%">&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 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">133,584</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">172,185</font></td>
    <td noWrap align=left width="1%">&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">46,769</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">74,580</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">131,983</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">190,958</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">174,867</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">$</font>
    </td>
    <td noWrap align=right style="border-bottom: 3px double #000000" width="10%"><font size="3">253,060</font></td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="2%">&nbsp;
    </td>
    <td noWrap align=left width="4%"><font size="3"></font></td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="2%"><font size="3">$</font>
    </td>
    <td noWrap align=right style="border-bottom: 3px double #000000" width="10%"><font size="3">393,933</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">534,728</font></td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="2%">&nbsp;
    </td>
  </tr>
</table>
<p>The decline in stock-based compensation expense in the three and six months
  ended June 30, 2008 compared to the same periods one year ago reflects older
  grants with higher valuations, compared to more current grants, becoming fully
  expensed.</p>
<p><b>NOTE 8 - Net Loss Per Share Applicable to Common Stockholders</b></p>
<p>The Company calculates earnings per share in accordance with Financial Accounting
  Standards Board Statement No. 128, <i>Earnings per Share</i>.</p>
<p>The following table sets forth the computation of basic and diluted net loss
  per share:</p>
<table
style="FONT-SIZE: 10pt; BACKGROUND: #ffffff; COLOR: #000000; FONT-FAMILY: 'Times New Roman', Times"
cellspacing=0 cellpadding=0 width="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">2008</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="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">2008</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">2007</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"></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 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">(149,051</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">$</font>
    </td>
    <td noWrap align=right style="border-bottom: 3px double #000000" width="9%"><font size="3">(744,793</font></td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="1%"><font size="3">)
      </font></td>
    <td noWrap align=left width="3%"><font size="3"></font></td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="1%"><font size="3">$</font>
    </td>
    <td noWrap align=right style="border-bottom: 3px double #000000" width="9%"><font size="3">(1,107,675</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">(2,010,594</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%">&nbsp; </td>
    <td noWrap align=right width="9%">&nbsp;</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%">&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%">
      <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%"><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%">&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=left 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">32,129,321</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">31,914,997</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">32,071,060</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">31,893,610</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">32,129,321</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">31,914,997</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">32,071,060</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">31,893,610</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%"><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%">&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=left 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:</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%">&nbsp; </td>
    <td noWrap align=right width="9%">&nbsp;</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%">&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 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">0.00</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%"><font size="3">$</font>
    </td>
    <td noWrap align=right style="border-bottom: 3px double #000000" width="9%"><font size="3">(0.02</font></td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="1%"><font size="3">)
      </font></td>
    <td noWrap align=left width="3%"><font size="3"></font></td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="1%"><font size="3">$</font>
    </td>
    <td noWrap align=right style="border-bottom: 3px double #000000" width="9%"><font size="3">(0.03</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">$</font>
    </td>
    <td noWrap align=right style="border-bottom: 3px double #000000" width="9%"><font size="3">(0.06</font></td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="1%"><font size="3">)
      </font> </td>
  </tr>
  <tr style="BACKGROUND: #cceeff" valign=bottom>
    <td valign=bottom noWrap align=left width="48%"><font style="FONT-SIZE: 10pt" size="3" face="Times New Roman, Times, serif">
      </font><font style="FONT-SIZE: 10pt" size="3" face="Times New Roman, Times, serif">&nbsp;&nbsp;
      </font><font size="3"></font><font size="3"></font><font size="3"></font><font size="3"></font><font size="3"></font><font style="FONT-SIZE: 10pt" size="3" face="Times New Roman, Times, serif">&nbsp;&nbsp;
      </font><font size="3"></font><font size="3"></font><font size="3"></font><font size="3"></font><font size="3"></font><font face="Times New Roman, Times, serif" size="3">&nbsp;&nbsp;
      </font><font size="3"></font><font size="3">Diluted</font></td>
    <td width="1%">&nbsp;</td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="1%"><font size="3">$</font>
    </td>
    <td noWrap align=right style="border-bottom: 3px double #000000" width="9%"><font size="3">0.00</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%"><font size="3">$</font>
    </td>
    <td noWrap align=right style="border-bottom: 3px double #000000" width="9%"><font size="3">(0.02</font></td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="1%"><font size="3">)
      </font></td>
    <td noWrap align=left width="3%"><font size="3"></font></td>
    <td noWrap align=left style="border-bottom: 3px double #000000" width="1%"><font size="3">$</font>
    </td>
    <td noWrap align=right style="border-bottom: 3px double #000000" width="9%"><font size="3">(0.03</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">(0.06</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, 2008 and 2007, the diluted net
  loss per share is equal to the basic net loss per share because the Company
  experienced losses in these periods. 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
  11,595,445 and 10,875,255 shares of Common Stock at June 30, 2008 and 2007,
  respectively, have been omitted from the diluted net loss per share calculation.</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 align=center><font face="Times New Roman, Times, serif" size="3"><b>SOCKET
  MOBILE, INC.<br>
  NOTES TO CONDENSED FINANCIAL STATEMENTS<br>
  </b>(Unaudited)</font>
<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 $15,970 for the three and six months ended June 30, 2008, respectively,
  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. Deferred tax expense for the
  three and six months ended June 30, 2007 was $7,985 and $15,973, respectively.
  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 has not generated taxable income in any periods
  in any jurisdiction, foreign or domestic. The Company maintains a full valuation
  allowance for all other components of deferred tax assets. </p>
<p>On January 1, 2007, the Company adopted Financial Accounting Standards Board
  Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - An Interpretation
  of FASB Statement No. 109," ("FIN 48"). FIN 48 prescribes a recognition threshold
  that a tax position is required to meet before being recognized in the financial
  statements, and provides guidance on derecognition, measurement, classification,
  interest and penalties, accounting in interim periods, disclosure, and transition
  issues. There were no adjustments to the financial statements as a result of
  the adoption of FIN 48. At December 31, 2007, the Company has an unrecognized
  tax benefit of approximately $595,000, which did not change significantly during
  the six months ended June 30, 2008. 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. Future changes in the unrecognized
  tax benefit will have no impact on the effective tax rate due to the existence
  of the valuation allowance. It is the Company's policy to include interest and
  penalties related to tax positions as a component of income tax expense. No
  interest was accrued for the three and six months ended June 30, 2008.</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 2007 remain open to examination by the major domestic taxing jurisdictions
  to which the Company is subject, and for the years 2001 to 2007 for the international
  taxing jurisdictions to which the Company is subject.
<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 develop, introduce and market future products;
  the change in gross margins between current and future products; our ability
  to effectively manage and contain our operating costs; the availability of announced
  third party handheld computer hardware and software that our products are intended
  to work with; product delays associated with new model introductions and product
  changeovers by the makers of products that our products are intended to work
  with; continued growth in demand for handheld computers; market acceptance of
  emerging standards such as Bluetooth and Wireless LAN and of our related connection,
  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><i>You should read the following discussion in conjunction with the interim
  condensed 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><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>
  We produce mobile computing products which are combined with third party application
  software to create mobile system solutions that serve 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, connectivity
  peripheral, and embedded products for use with mobile computing devices offered
  by third parties. In January 2007, we began doing business as Socket Mobile
  to emphasize our commitment to mobile computing, and formally changed our name
  to Socket Mobile, Inc. in April 2008. In June 2007, we introduced our first
  mobile handheld computer, the SoMo&#153;650, and began offering this mobile
  handheld computer and our peripherals for use with third party vertical applications
  software. Our data collection and connectivity peripheral products are used
  with a variety of handheld computers, including our SoMo 650 mobile handheld
  computer, and with tablet computers, notebook computers and handheld computers
  with integrated phones that use Windows Mobile, Windows XP, Windows Vista, RIM
  Blackberry, Palm, Symbian 60 and Symbian 80 operating systems.</p>
<p>Our overall company brand identity and positioning goal is to become the leading
  provider of easy-to-deploy Business Mobility systems and peripherals. The guiding
  principles that we follow in developing our mobile handheld and peripheral products
  for the Business Mobility computing market are stable and expandable computing
  devices with industry standard expansion form factors, compact design, low battery
  power consumption to extend time between charges, ease of use, interoperability,
  and quality. Our focus is business customers in the mobile marketplace. Our
  mobile handheld computing products have been designed to address the Business
  Mobility market for a handheld computer that is neither a consumer-oriented
  handheld device nor a heavy duty industrial device. Our mobile handheld computer
  is easy to customize and integrate with peripherals and information systems
  and has an expected product life cycle of three to five years which meets the
  needs of businesses for longer deployments than have been available with most
  consumer-oriented handheld devices.</p>
<p>We work with more than 200 software integration companies that are offering
  or developing vertical application software for use with handheld computers.
  Examples of these vertical applications include patient medication administration
  within the health care industry, retail merchandising such as managing inventory
  on retail store shelves, sales and field force automation involving the collection
  and processing of orders or service information from remote locations by sales
  and service personnel, asset management and inventory control for assets having
  bar codes or radio frequency identification tags, and mobile point of sale applications.
  These mobile solutions are designed to improve the productivity of business
  enterprises by automating manual tasks, improving the quality of information
  collected, and enhancing mobile productivity by processing and transferring
  information from remote locations and mobile devices to the business enterprise,
  and then if required, back to the remote locations and mobile devices. </p>
<p>Most of our products, except our OEM embedded products, are sold through distributors
  and resellers that serve business customers. Our OEM 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, 2008 were $7.5 million and $13.7 million, respectively, which represented
  increases of 19% and 15% from revenues of $6.3 million and $11.8 million, respectively
  for the corresponding periods one year ago.</p>
<p>&nbsp; </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 revenues in the comparable three and six month periods may be classified
  into three broad product families:</p>
<ul>
  <li>Mobile handheld computer products;</li>
  <li>Mobile peripheral products, including<br>
    - Data collection products,<br>
    - Connectivity products,<br>
    - Serial interface products, and</li>
  <li>OEM embedded products.</li>
</ul>
<p>Our <i>mobile handheld computer products</i> have been designed to address
  the Business Mobility market for a handheld computer that is neither a consumer-oriented
  handheld device nor a heavy duty industrial device. Our initial model, the SoMo
  650 (SoMo is derived from <u>So</u>cket <u>Mo</u>bile), was introduced in June
  2007 and featured the Microsoft Windows Mobile 5.0 for Pocket PC operating system
  to ensure a high level of mobile application compatibility and to give workers
  a familiar computing environment. We began offering Windows Mobile 6 Classic
  and multiple language support for the SoMo 650 in the second quarter of 2008
  giving customers a choice of operating systems and languages to best fit their
  needs. The SoMo 650 is easy to customize and integrate with peripherals and
  information systems and has an expected product life cycle of three to five
  years which meets the needs of businesses for longer deployments than have generally
  been available with most consumer-oriented handheld devices. Our mobile handheld
  computer's features include Wireless LAN and Bluetooth, a fast processor, a
  large, bright screen display, large amounts of SDRAM and flash memory, extended
  battery life, programmable action buttons to activate peripheral devices, reinforced
  CompactFlash and SDIO card slots, and a durable case. Additional models are
  in development, including a radio-free configured SoMo 650 for high security
  applications to begin shipping in the third quarter of 2008, that will run the
  Windows Mobile 5 or Windows Mobile 6 Classic operating system, add additional
  multiple language support, enable extended outdoor use, and offer specialized
  capabilities oriented to the needs of specific vertical markets. The SoMo 650
  was specifically designed without an integrated mobile phone as most solutions
  involving our products use Bluetooth or Wireless LAN connections for data communications
  and do not require an integrated mobile phone. Mobile handheld computer products
  represented approximately 14% and 13% of our revenues for the three and six
  month periods ended June 30, 2008, respectively, compared to 1% of our revenues
  in each of same periods one year ago.</p>
<p>Our mobile peripheral products consist of <i>data collection products</i>,
  <i>connectivity products</i>, and <i>serial interface products</i>, which together
  represented approximately 52% and 54% of our revenues for the three and six
  months ended June 30, 2008, respectively, compared to 71% and 75% of our revenues
  for the same periods one year ago.</p>
<p>Our <i>data collection products</i> enable the electronic collection of data
  from bar codes, Radio Frequency IDentification (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 handheld computers with
    integrated phones that use Windows Mobile, Windows XP, Windows Vista, Windows
    Tablet, RIM Blackberry, Palm, or Symbian 60 or Symbian 80 operating systems,
    and turn these devices into portable bar code scanners that can be used in
    various retail and industrial workplaces; </li>
  <li>plug-in radio frequency identification products that read radio frequency
    identification tags; </li>
  <li>a combination plug-in bar code scanner and radio frequency identification
    reader; and </li>
  <li>a plug-in magnetic stripe reader.</li>
</ul>
<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>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 41% of our revenues in both
  the three and six months ended June 30, 2008, compared to 52% and 55% of our
  revenues for the same periods, respectively, one year ago.</p>
<p>Our <i>connectivity products</i> are connection devices that can be plugged
  into standard expansion slots in handheld computers, tablet computers, and notebook
  computers that use Windows Mobile, Windows XP, or Windows Tablet operating systems.
  These products allow users to connect their devices via Ethernet or telephone
  to communicate with other networks and devices such as desktop computers, other
  handheld, tablet, and notebook computers, handheld computers with integrated
  phones, and printers. Our connectivity products include: </p>
<ul>
  <li>modems for telephone connections that connect over a cable, and a cordless
    modem that utilizes Bluetooth wireless technology to connect a telephone to
    a Bluetooth-enabled computer or other device; </li>
  <li>Ethernet cards for local area network connections that connect over a cable;
    and </li>
  <li>accessory products such as batteries and cables. <br>
  </li>
</ul>
<p align="left">Connectivity products represented approximately 6% and 7% of our
  revenues for the three and six months ended June 30, 2008, respectively, compared
  to 12% of our revenues in each of the same periods one year ago.</p>
<p align="left">Our <i>serial interface products</i> enable the connection of
  a mobile computer to electronic devices either as a plug-in card (one, two or
  four ports) connecting over cables, or wirelessly over a Bluetooth network.
  Our serial interface products are used primarily with Windows XP and Windows
  Vista based devices. We recently introduced a USB to serial connector to enable
  a serial connection through a USB interface. Serial interface products represented
  approximately 5% and 6% of our revenues in the three and six months ended June
  30, 2008, respectively, compared to 7% and 8% of our revenues for the same periods
  one year ago.</p>
<p align="left">Our <i>OEM embedded products</i> consist of Bluetooth and Wireless
  LAN modules and plug-in cards used primarily by 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. Our plug-in
  cards and modules using the Bluetooth standard for short-range wireless connectivity
  include extensive communications software enabling the use of these products,
  as do our plug-in cards for connecting to local wireless networks using the
  Wireless LAN 802.11b/g (or Wi-Fi) standards. We have recently added Cisco Compatible
  Extensions (CCX) 4.0 certification to our Wireless LAN software to enable our
  Wireless LAN products to be compatible with a Cisco Wireless LAN infrastructure.
  Bluetooth and Wireless LAN connection functions are being built into many third
  party mobile devices, which may reduce the demand for our plug-in products through
  expansion slots but may increase the demand for our Bluetooth and Wireless LAN
  modules and embedded plug-in cards. OEM embedded products represented approximately
  34% and 33% of our revenues for the three and six months ended June 30, 2008,
  respectively, compared to 28% and 24% of our revenues for the same periods one
  year ago.</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>Our revenues by product family for the three and six months ended June 30,
  2008 and 2007, 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">2008</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">2007</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">2008</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">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">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 handheld computer products</font></div>
    </td>
    <td width="3%" bgcolor="#cceeff">&nbsp;</td>
    <td align=left width="1%" bgcolor="#cceeff"><font size="3">$</font></td>
    <td noWrap align=right width="5%" bgcolor="#cceeff"><font size="3">1,032</font></td>
    <td width="1%" bgcolor="#cceeff"><font size="3"></font></td>
    <td width="3%" bgcolor="#cceeff"><font size="3"></font></td>
    <td align=left width="1%" bgcolor="#cceeff"><font size="3">$</font></td>
    <td noWrap align=right width="5%" bgcolor="#cceeff"><font size="3">67</font></td>
    <td width="1%" bgcolor="#cceeff"><font size="3"></font></td>
    <td width="3%" bgcolor="#cceeff"><font size="3"></font></td>
    <td align=left width="1%" bgcolor="#cceeff"><font size="3"></font></td>
    <td noWrap align=right width="5%" bgcolor="#cceeff"><font size="3">1440</font></td>
    <td width="1%" bgcolor="#cceeff"><font size="3">%</font></td>
    <td width="5%" bgcolor="#cceeff"><font size="3"></font></td>
    <td align=left width="1%" bgcolor="#cceeff"><font size="3">$</font></td>
    <td noWrap align=right width="5%" bgcolor="#cceeff"><font size="3">1,707</font></td>
    <td width="1%" bgcolor="#cceeff"><font size="3"></font></td>
    <td width="3%" 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">67</font></td>
    <td width="1%" bgcolor="#cceeff"><font size="3"></font></td>
    <td width="3%" 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">2448</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 peripheral 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%">&nbsp;</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%">&nbsp;</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%">&nbsp;</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%">&nbsp;</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%">&nbsp;</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%">&nbsp;</td>
    <td width="1%" valign="bottom"><font size="3"></font></td>
  </tr>
  <tr>
    <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">Data collection</font></div>
    </td>
    <td width="3%" bgcolor="#cceeff">&nbsp;</td>
    <td valign=bottom align=left width="1%" bgcolor="#cceeff">&nbsp;</td>
    <td valign=bottom noWrap align=right width="5%" bgcolor="#cceeff"><font size="3">3,056</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">&nbsp;</td>
    <td valign=bottom noWrap align=right width="5%" bgcolor="#cceeff"><font size="3">3,270</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 valign=bottom noWrap align=right width="5%" bgcolor="#cceeff"><font size="3">(7</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 valign=bottom align=left width="1%" bgcolor="#cceeff">&nbsp;</td>
    <td valign=bottom noWrap align=right width="5%" bgcolor="#cceeff"><font size="3">5,561</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">&nbsp;</td>
    <td valign=bottom noWrap align=right width="5%" bgcolor="#cceeff"><font size="3">6,505</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 valign=bottom noWrap align=right width="5%" bgcolor="#cceeff"><font size="3">(15</font></td>
    <td width="1%" valign="bottom" bgcolor="#cceeff"><font size="3">%)</font></td>
  </tr>
  <tr valign=bottom>
    <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">Connectivity</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">437</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 noWrap align=right width="5%"><font size="3">734</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 noWrap align=right width="5%"><font size="3">(40</font></td>
    <td width="1%" valign="bottom"><font size="3">%)</font></td>
    <td width="5%" valign="bottom"><font size="3"></font></td>
    <td align=left width="1%"><font size="3"></font></td>
    <td noWrap align=right width="5%"><font size="3">906</font></td>
    <td width="1%" valign="bottom"><font size="3"></font></td>
    <td width="3%" valign="bottom"><font size="3"></font></td>
    <td align=left width="1%"><font size="3"></font></td>
    <td noWrap align=right width="5%"><font size="3">1,423</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 noWrap align=right width="5%"><font size="3">(36</font></td>
    <td width="1%"><font size="3">%)</font></td>
  </tr>
  <tr>
    <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">Serial products</font></div>
    </td>
    <td width="3%" bgcolor="#cceeff">&nbsp;</td>
    <td valign=bottom align=left width="1%" bgcolor="#cceeff">&nbsp;</td>
    <td valign=bottom noWrap align=right width="5%" bgcolor="#cceeff"><font size="3">405</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">&nbsp;</td>
    <td valign=bottom noWrap align=right width="5%" bgcolor="#cceeff"><font size="3">434</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 valign=bottom noWrap align=right width="5%" bgcolor="#cceeff"><font size="3">(7</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 valign=bottom align=left width="1%" bgcolor="#cceeff">&nbsp;</td>
    <td valign=bottom noWrap align=right width="5%" bgcolor="#cceeff"><font size="3">977</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">&nbsp;</td>
    <td valign=bottom noWrap align=right width="5%" bgcolor="#cceeff"><font size="3">921</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 valign=bottom noWrap align=right width="5%" bgcolor="#cceeff"><font size="3">6</font></td>
    <td width="1%" valign="bottom" 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;
        OEM embedded 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">2,563</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">1,795</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">43</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">4,512</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">2,932</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">54</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">7,493</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">$</font></td>
    <td align=right style="border-bottom: 3px double #000000" width="5%" bgcolor="#cceeff" ><font size="3">6,300</font></td>
    <td align=left style="border-bottom: 3px double #000000" width="1%" bgcolor="#cceeff" >&nbsp;
    </td>
    <td align=right style="border-bottom: 1px solid #000000" width="3%" bgcolor="#cceeff" ><font size="3"></font></td>
    <td align=left width="1%" height="14" bgcolor="#cceeff"><font size="3"></font></td>
    <td noWrap align=right width="5%" height="14" bgcolor="#cceeff"><font size="3">19</font></td>
    <td width="1%" height="14" bgcolor="#cceeff"><font size="3">%</font></td>
    <td valign=bottom align=right style="border-bottom: 1px solid #000000" width="5%" bgcolor="#cceeff" ><font size="3"></font></td>
    <td align=left style="border-bottom: 3px double #000000" width="1%" bgcolor="#cceeff" ><font size="3">$</font></td>
    <td align=right style="border-bottom: 3px double #000000" width="5%" bgcolor="#cceeff" ><font size="3">13,663</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">11,848</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">15</font></td>
    <td width="1%" height="14" bgcolor="#cceeff"><font size="3">%</font></td>
  </tr>
</table>
<p><br>
  Our mobile handheld computer product revenues in the three and six months ended
  June 30, 2008 were $1,032,000 and $1,707,000, respectively, compared to $67,000
  in each of the same periods one year ago. We began shipping our first mobile
  handheld computer, the SoMo 650, to customers in our distribution channel in
  the second quarter of 2007. In the third quarter of 2007 we completed our objectives
  of ramping up production and fully stocking our distribution channel to enable
  the commencement of widespread customer evaluation, qualification, and deployment.
  Increased revenues for our handheld computer in 2008 reflect higher sales volumes
  due to a growing customer base with larger average unit deployments.</p>
<p>Our data collection product revenues in the three and six months ended June
  30, 2008 were $3.1 million and $5.6 million, a decrease of 7% and 15% compared
  to revenues of $3.3 million and $6.5 million, respectively, in the comparable
  periods one year ago. Declines in the comparable three month periods were due
  primarily to lower sales volumes of our Cordless Hand Scanner, SDIO In-Hand
  Scan card, and our Cordless Ring Scanner. Revenues related to our primary scanning
  product, the CompactFlash In-Hand Scan card, were flat in the comparable three
  month periods. Revenue decreases in the comparable six month periods of $0.6
  million in sales of our primary scanning product, the CompactFlash In-Hand Scan
  card, decreases of $0.3 million in sales of our Cordless Ring Scanner, and decreases
  in sales volumes of our Cordless Hand Scanner were partially offset by increases
  in sales volumes of our SDIO In-Hand Scan card. Data collection revenues in
  the first half of 2008 were slowed in the first quarter but began to recover
  in the second quarter due in part to delayed availability of new handheld computer
  models originally announced by a major handheld computer manufacturer in the
  third quarter of 2007, which did not begin shipping until February 2008. Such
  announcements and delayed timing of product availability typically slow customer
  deployments of our peripheral products because of the time needed by customers
  to evaluate or adopt the new handheld computer models.</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 connectivity product revenues in the three and six months ended June 30,
  2008 were $437,000 and $906,000, respectively, declining 40% and 36% compared
  to revenues of $734,000 and $1,423,000, respectively, in the same periods one
  year go. The declines in each of the comparable periods 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.</p>
<p align=left>Our serial interface product revenues in the three and six months
  ended June 30, 2008 were $405,000 and $977,000, respectively, a decline of 6%
  and an increase of 6% compared to revenues of $433,000 and $920,000, respectively,
  in the comparable periods one year ago. Revenue increases in the comparable
  six month periods were from sales of our standard serial PC card products. Our
  standard peripheral connection cards are primarily sold to connect peripheral
  devices or other electronic equipment to notebook computers. Partially offsetting
  these increases in the comparable six months were declines in sales of our CompactFlash
  card product, which also declined in the comparable three month periods. Sales
  of our cordless Bluetooth serial adapter product were flat in the comparable
  periods.
<p>Our OEM embedded product revenues in the three and six months ended June 30,
  2008 were $2.6 million and $4.5 million, respectively, an increase of 43% and
  54% compared to $1.8 million and $2.9 million, respectively, in the comparable
  periods one year ago. Revenue increases of $0.8 million and $1.7 million in
  sales of our Bluetooth modules in the three and six months of 2008 were due
  to a recovery in market conditions that existed in early 2007. In the first
  quarter of 2007 our customers in the industrial ruggedized market segment experienced
  pronounced increased competition due to a short-term aggressive price discounting
  by a major competitor, a trend which adversely affected our related Bluetooth
  module revenues in the first quarter of 2007, but improved steadily in the following
  second, third, and fourth quarters of 2007, and through the first half of 2008,
  following cessation of the aggressive discounting by the competition. Additional
  revenue increases in the three and six month periods were from sales our Wireless
  LAN plug-in card products and were due primarily to increased sales volumes
  of these products in the second quarter of 2008. Partially offsetting these
  increases were declines in revenues related to our Bluetooth plug-in cards in
  each of the comparable periods, primarily due to this wireless technology becoming
  increasingly a standard feature built-in by handheld computer manufacturers.</p>
<p><font face="Times New Roman, Times, serif" size="3"><b>Gross Margins<br>
  </b></font>Gross margins in both the three and six month periods ended June
  30, 2008 were 49% compared to margins of 49% and 50%, respectively, in each
  of the comparable periods in 2007. 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 first half of 2008 compared to the same period one
  year ago are due primarily to discounts on volume purchases of our Bluetooth
  modules by customers in our OEM embedded business segment and increased sales
  of our mobile handheld computer which began shipping late in the second quarter
  of 2007. Margins on our mobile handheld computer product are below our average
  product margins. We expect a more significant reduction in our overall gross
  margins as the volumes of our mobile handheld computer products increase.</p>
<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>Research and Development
  Expense<br>
  </b></font>Research and development expense for the three months ended June
  30, 2008 was $1,145,000, a decrease of 1% compared to research and development
  expense of $1,162,000 in the corresponding period one year ago. Research and
  development expense for the six months ended June 30, 2008 was $2.3 million,
  a decline of 10% compared to research and development expense of $2.6 million
  in the corresponding period one year ago. The decrease in the comparable three
  months is attributable to reduced consulting and professional fees. Decreases
  of $0.2 million in the comparable six months are attributable to the costs incurred
  in the first quarter of 2007 related to the development of our SoMo 650 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. Additional decreases in the comparable six months
  were from reductions in consulting and professional fees related to fewer projects
  requiring the use of external technical expertise, and from reductions in equipment
  costs due to higher amounts of depreciation expense related to capitalized tooling
  in the first quarter of 2007. Partially offsetting these decreases were increases
  in personnel costs from staffing in-house expertise for technical skills formally
  obtained from outside consulting and professional service providers. Research
  and development expenses are expected to increase in the third quarter of 2008
  from second quarter levels.</p>
<p align=left><b>Sales and Marketing Expense</b><br>
  Sales and marketing expense in each of the three month periods ended June 30,
  2008 and 2007 was $2.0 million. Sales and marketing expense for the six month
  period ended June 30, 2008 was $3.9 million, an increase of 5% compared to sales
  and marketing expense of $3.7 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 beginning in the second quarter of 2007,
  including our Senior VP of Sales & Marketing, as we added sales resources in
  North America to begin selling our new SoMo 650 mobile handheld computer, which
  began shipping late in the second quarter of 2007, and to recruit and develop
  new third party channel partners. Additional increases in the comparable six
  month periods were related to higher levels of participation at key tradeshows
  in the first half of 2008 compared to the same period one year ago. The increased
  personnel expense in the comparable three month periods were offset by reductions
  in advertising and promotion expense, and reduced travel expense. Sales and
  marketing expense is expected to increase in the third quarter of 2008 from
  second quarter levels due to increased personnel costs and promotional activities.
<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, 2008 was $622,000, a decrease of 9% compared to general and administrative
  expense of $682,000 in the corresponding period one year ago. General and administrative
  expense for the six month period ended June 30, 2008 was $1.4 million, a decrease
  of 7% compared to general and administrative expense of $1.5 million in the
  corresponding period one year ago. Decreases in the comparable three and six
  month periods were primarily from reduced stock-based compensation expense as
  older grants with higher valuations compared to more current grants, became
  fully expensed. General and administrative expense in the third quarter of 2008
  is expected to continue at levels similar to those in the second quarter of
  2008.</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><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 radio frequency identification
  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. Amortization charges for the
  three and six months ended June 30, 2008 for all acquired intangibles were $32,000
  and $64,000, respectively, compared to $34,000 and $68,000 for the same periods
  one year ago.</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 $4,000 and $16,000 in the three and six month periods ended June 30,
  2008, respectively, declined from interest income of $30,000 and $68,000, respectively,
  in the comparable periods one year ago. Lower interest income in the comparable
  periods reflects lower average cash balances combined with lower average rates
  of return.</p>
<p>Interest expense of $18,000 and $31,000 for the three and six months ended
  June 30, 2008, respectively, increased from interest expense of $3,000 and $6,000,
  respectively, for the comparable periods one year ago. Interest expense is related
  to interest on amounts drawn on our bank lines of credit and term loan, and
  interest on equipment lease financing obligations. Higher interest expense in
  the comparable periods is due to higher average balances outstanding on our
  bank lines of credit partially offset by lower interest rates, and higher average
  amounts outstanding on our bank term loan compared to the same periods one year
  ago. In the second quarter of 2008, average amounts outstanding on our bank
  lines of credit increased from prior quarters' levels. Prior to the second quarter
  of 2008 we used our bank lines of credit only at the end of the quarter in the
  first quarter of 2008 and at the end of each quarter in 2007. The term loan
  was advanced at the end of the second quarter of 2007 and is being repaid in
  36 monthly installments which began in July of 2007. Interest expense is expected
  to increase in the third quarter of 2008 from second quarter levels due to higher
  average amounts outstanding anticipated on our bank lines of credit to finance
  working capital increases related to anticipated growth.</p>
<p><b>Taxes</b><br>
  Deferred income tax reflects the net tax effects of temporary differences between
  the carrying amount of assets and liabilities for financial reporting purposes
  and the amount used for income tax purposes. Deferred tax expense of $8,000
  and $16,000 in the three and six month periods ended June 30, 2008 and 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>&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>In June 2006, the Financial Accounting Standards Board ("FASB")
  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. For additional
  information on taxes see Note 9 to the Condensed Financial Statements.
<p><b>Liquidity and Capital Resources</b><br>
  We were unprofitable in the first two quarters of 2008. We were unprofitable
  in each of the quarters of fiscal years 2007 and 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. We may continue to be unprofitable in the foreseeable future.
  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 to fund our operations.</p>
<p>Cash used in operating activities was $2.2 million in the first half of 2008,
  compared to cash used in operating activities of $0.2 million in the first half
  of 2007. Cash used in the first half of 2008 resulting from our net loss adjusted
  for non-cash items was $0.3 million compared to cash used of $1.0 million in
  the first half of 2007 from our net loss adjusted for non-cash items. 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
  $0.8 million in the first half of 2008 compared to $1.0 million in the first
  half of 2007. Changes in working capital balances in the first half of 2008
  resulted in a use of cash of $1.8 million, and were primarily from increases
  in accounts receivable due to the timing of shipments late in the second quarter
  of 2008 and the timing of collections from key distributors concentrated at
  the end of the fourth quarter of 2007, and increases in inventories due primarily
  to stocking higher quantities of our Bluetooth modules for our OEM customers,
  and stocking higher quantities of our mobile handheld computer, partially offset
  by increases in accounts payable related to the purchases that led to the increased
  levels of inventories. 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.</p>
<p>Cash used in investing activities was $0.2 million in the first half of 2008
  compared to $0.7 million in the first half of 2007. Higher amounts of investing
  activities in the first half of 2007 reflect the costs of leasehold improvements
  related to our corporate headquarters into which we moved at the beginning of
  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.<font face="Times New Roman, Times, serif" size="3"><b>
  </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>Cash provided from financing activities was $0.5 million in the
  first half of 2008, compared to $0.6 million during the first half of 2007.
  Financing activities in the first half of 2008 consisted primarily of a net
  increase in the amounts drawn on our bank lines of credit at the end of the
  quarter, proceeds from the exercise of warrants and stock options, and repayments
  on our bank term loan, which was advanced at the end of June 2007 and is being
  repaid in 36 monthly installments beginning in July 2007. Financing activities
  in the first half of 2007 consisted primarily of proceeds from a term loan advanced
  at the end of the second quarter of 2007, a net increase in the amounts drawn
  on our bank lines of credit, and proceeds from the exercise of stock options.
<p align=left>Our cash balances at June 30, 2008 were $3.1 million, including
  cash of $3.1 million drawn against our bank line of credit and a net balance
  of $0.4 million from the bank term loan, which is being repaid monthly over
  three years beginning in July 2007. In March 2008, we extended our bank line
  of credit agreement, which will now expire on March 24, 2010. We have employee
  stock options outstanding that, if exercised, would further increase our cash
  and equity balances. We believe our existing cash, plus our ability to reduce
  costs, and our bank line will be sufficient to meet our funding requirements
  at least through June 30, 2009. 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. 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.
  Should the need arise, there are no assurances 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>Our contractual cash obligations at June 30, 2008 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">44,500</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">$</font></font></td>
    <td align="right" nowrap bgcolor="#cceeff" width="8%"><font size="3">23,700</font></td>
    <td bgcolor="#cceeff" width="1%"><font size="3"><b><font color="#000000"></font></b></font></td>
    <td bgcolor="#cceeff" width="4%"><font size="3"><b><font color="#000000"></font></b></font></td>
    <td align="left" width="1%" bgcolor="#cceeff"><font size="3"><font color="#000000">$</font></font></td>
    <td align="right" nowrap bgcolor="#cceeff" width="8%"><font size="3">20,800</font></td>
    <td bgcolor="#cceeff" width="1%"><font size="3"><b><font color="#000000"></font></b></font></td>
    <td bgcolor="#cceeff" width="4%"><font size="3"><b><font color="#000000"></font></b></font></td>
    <td align="left" width="1%" bgcolor="#cceeff"><font size="3"><font color="#000000">$</font></font></td>
    <td align="right" nowrap bgcolor="#cceeff" width="8%"><font size="3">---</font></td>
    <td bgcolor="#cceeff" width="1%"><font size="3"><b><font color="#000000"></font></b></font></td>
    <td bgcolor="#cceeff" width="4%"><font size="3"><b><font color="#000000"></font></b></font></td>
    <td align="left" width="1%" bgcolor="#cceeff" valign="bottom"><font size="3"><font color="#000000">$</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">1,523,000</font></td>
    <td width="1%"><font size="3"></font></td>
    <td width="4%"><font size="3"><b><font color="#000000"></font></b></font></td>
    <td align="left" width="1%"><font size="3"></font></td>
    <td align="right" width="8%" nowrap><font size="3">363,300</font></td>
    <td width="1%"><font size="3"></font></td>
    <td width="4%"><font size="3"><b><font color="#000000"></font></b></font></td>
    <td align="left" width="1%"><font size="3"></font></td>
    <td align="right" width="8%" nowrap ><font size="3">763,400</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">396,300</font></td>
    <td width="1%"><font size="3"></font></td>
    <td width="4%"><font size="3"><b><font color="#000000"></font></b></font></td>
    <td align="left" width="1%" 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, principal 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">349,700</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">167,700</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">182,000</font></td>
    <td bgcolor="#cceeff" width="1%"><font size="3"><b><font color="#000000"></font></b></font></td>
    <td bgcolor="#cceeff" width="4%"><font size="3"><b><font color="#000000"></font></b></font></td>
    <td align="left" width="1%" bgcolor="#cceeff"><font size="3"></font></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">5,373,100</font></td>
    <td width="1%"><font size="3"></font></td>
    <td width="4%"><font size="3"><b><font color="#000000"></font></b></font></td>
    <td align="left" width="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">5,373,100</font></td>
    <td width="1%"><font size="3"></font></td>
    <td width="4%"><font size="3"><b><font color="#000000"></font></b></font></td>
    <td align="left" width="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"><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">$</font></font></td>
    <td align="right" width="8%" nowrap style="border-bottom: 3px double #000000" bgcolor="#cceeff"><font size="3">7,290,300</font></td>
    <td width="1%" bgcolor="#cceeff"><font size="3"></font></td>
    <td width="4%" bgcolor="#cceeff"><font size="3"><b><font color="#000000"></font></b></font></td>
    <td align="left" width="1%" style="border-bottom: 3px double #000000" bgcolor="#cceeff"><font size="3"><font color="#000000">$</font></font></td>
    <td align="right" width="8%" nowrap style="border-bottom: 3px double #000000" bgcolor="#cceeff"><font size="3">5,927,800</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">$</font></font></td>
    <td align="right" width="8%" nowrap style="border-bottom: 3px double #000000" bgcolor="#cceeff"><font size="3">966,200</font></td>
    <td width="1%" bgcolor="#cceeff"><font size="3"><b><font color="#000000"></font></b></font></td>
    <td width="4%" bgcolor="#cceeff"><font size="3"><b><font color="#000000"></font></b></font></td>
    <td align="left" width="1%" style="border-bottom: 3px double #000000" bgcolor="#cceeff"><font size="3"><font color="#000000">$</font></font></td>
    <td align="right" width="8%" nowrap style="border-bottom: 3px double #000000" bgcolor="#cceeff"><font size="3">396,300</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 align=left><font face="Times New Roman, Times, serif" size="3"><b><br>
  <br>
  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>&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>
<p align=left><b>Recent Accounting Pronouncements<br>
  </b>In September 2006, the FASB issued Statement of Financial Accounting Standards
  No. 157, "Fair Value Measurements" ("SFAS 157"), which establishes a framework
  for measuring fair value and enhanced disclosures about fair value measurements.
  In February 2008, the FASB issued FASB Staff Position No. FAS 157-2, "Effective
  Date of FASB Statement No. 157," which provides for a one year deferral of the
  effective date of SFAS 157 for non-financial assets and non-financial liabilities,
  except those that are recognized or disclosed in the financial statements at
  fair value on a recurring basis. We adopted the provisions of SFAS 157 as of
  January 1, 2008, with respect to our financial assets and liabilities only.
  The adoption of this statement did not have a material impact on our financial
  statements. For additional discussion on fair value measurements see Note 1
  to the Condensed Financial Statements.
<p align=left>In February 2007, the FASB issued SFAS No. 159, "The Fair Value
  Option for Financial Assets and Financial Liabilities" ("SFAS 159"), which permits
  companies to choose to measure certain financial instruments and certain other
  items at fair value. The standard requires that unrealized gains and losses
  on items for which the fair value option has been elected be reported in earnings.
  SFAS 159 is effective for fiscal years beginning after November 15, 2007. We
  adopted SFAS 159 as of January 1, 2008. The adoption of SFAS 159 did not have
  a material impact on our financial statements.
<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=qqd></a></font>
<p><b>Item 3. Quantitative and Qualitative Disclosures About Market Risk</b> </p>
<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,
  2008, a decline of 1% in interest rates would not have had a material affect
  on our quarterly interest income.
<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 only a portion our credit line facility during the
  second quarter of 2008. In the first quarter of 2008 and in each quarter of
  fiscal year 2007 we utilized the credit line facility only at the end of the
  quarter and therefore did not subject ourselves to significant interest rate
  exposure in such quarters. 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 receivables balance
  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, 2008, an adverse change of 10% in exchange
  rates would result in a decrease in our net income for the second quarter of
  approximately $63,000, if left unprotected. For the second quarter of 2008 the
  total net adjustment for the effects of changes in foreign currency on cash
  balances, collections, payables, and derivatives was a net loss of $19,700.
  We will continue to monitor, assess, and mitigate through hedging activities,
  the risk associated with these exposures.<br>
  <br>
  <br>
  <br>
<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>
  <font face="Times New Roman, Times, serif" size="3"><a
name=item4t></a></font>
<p><b>Item 4T. Controls and Procedures</b> </p>
<p align=left><i>Conclusion Regarding the Effectiveness of Disclosure Controls
  and Procedures</i>
<p>Our management evaluated, with the participation of our Chief Executive Officer
  and our Chief Financial Officer, the effectiveness of our disclosure controls
  and procedures as of the end of the period covered by this Quarterly Report
  on Form 10-Q. Based on this evaluation, our Chief Executive Officer and our
  Chief Financial Officer have concluded that our disclosure controls and procedures
  are effective to ensure that information we are required to disclose in reports
  that we file or submit under the Securities Exchange Act of 1934 is (i) recorded,
  processed, summarized and reported within the time periods specified in Securities
  and Exchange Commission rules and forms, and (ii) accumulated and communicated
  to our management, including our Chief Executive Officer and our Chief Financial
  Officer, as appropriate to allow timely decisions regarding required disclosure.</p>
<p><i>Changes in Internal Control Over Financial Reporting</i></p>
<p>There was no change in our internal control over financial reporting that occurred
  during the period covered by this Quarterly Report on Form 10-Q that has materially
  affected, or is reasonably likely to materially affect, our internal control
  over financial reporting.</p>
<p>&nbsp;</p>
<p 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>
  <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 align=left><b>PART II. OTHER INFORMATION </b>
<p><b>Item 1A. Risk Factors </b></p>
<p align=left>There are no material changes to the risk factors described in Part
  I, "Item 1A. Risk Factors," in our Annual Report on Form 10-K for the fiscal
  year ended December 31, 2007. The risk factor titled, "<i>Our Common Stock will
  become ineligible for listing on the NASDAQ Capital Market if it does not trade
  at or above $1.00, which would materially adversely affect the liquidity and
  price of our Common Stock</i>," has been updated to reflect that our listing
  has transferred to the NASDAQ Capital Market from the NASDAQ Global Market,
  and has been expanded to include information regarding the approval by stockholders
  of a proposal which grants to the Board of Directors the authority to initiate
  a reverse stock split in a range from one-for-five to one-for-ten any time through
  December 31, 2008. 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 our 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 second quarter of 2008 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 2008 and in each of the quarters
  in fiscal years 2007 and 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 or manage
  our expenses sufficiently 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 and bank line of credit 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">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>We may require additional capital in the future, but that capital may not
  be available on reasonable terms, if at all, or on terms that would not cause
  substantial dilution to your stock holdings.</b></p>
<p align=left>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 maintaining
  minimum levels of tangible net worth. Future operating losses could cause us
  to lose the availability of our bank line as a result of becoming non-compliant
  with this covenant.
<p><b>Our Common Stock will become ineligible for listing on the NASDAQ Capital
  Market if it does not trade at or above $1.00, which would materially adversely
  affect the liquidity and price of our Common Stock.</b></p>
<p>On June 10, 2008 we transferred our listing to the NASDAQ Capital Market from
  the NASDAQ Global Market, an action taken in response to a previously announced
  staff deficiency notice we received on December 10, 2007 from the Listing Qualifications
  Department of the NASDAQ Stock Market. The deficiency notice stated that our
  stock would 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 June 9,
  2008 in order to maintain our listing on the NASDAQ Global Market, and should
  our stock not regain compliance for continued listing on the NASDAQ Global market,
  we may transfer our listing to the NASDAQ Capital Market if our stock satisfies
  all criteria, other than compliance with the minimum bid price requirement,
  for initial inclusion on such market. Upon transfer to the NASDAQ Capital Market
  we have been afforded an additional 180 calendar days from the original June
  9, 2008 deadline, or until December 8, 2008, to regain compliance with NASDAQ's
  minimum bid price requirement of $1.00 per share. As of July 31, 2008, our Common
  Stock has not achieved the minimum closing bid price of $1.00 on any single
  day since transferring to the NASDAQ Capital Market.</p>
<p>On April 23, 2008 at the Annual Meeting of Stockholders, our stockholders approved
  a proposal to give the Board of Directors the authority to initiate a reverse
  stock split in a range from one-for-five to one-for-ten any time through December
  31, 2008, which if implemented, would have the effect of increasing the trading
  price of our Common Stock. The NASDAQ Stock Exchange views the use of a reverse
  stock split as an acceptable method to achieve compliance with the minimum closing
  bid price requirement.</p>
<p>If our Common Stock becomes ineligible for listing on the NASDAQ Capital Market,
  and is thereafter traded only on the over-the-counter market, our stockholders'
  abilities 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">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>If third parties do not produce and sell innovative products
  with which our products are compatible, or if our own line of mobile handheld
  computers is not successful, we may not achieve our sales projections.</b>
<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 products, particularly
  the standard Pocket PC handhelds, phone-integrated devices, and tablets, and
  other phone-integrated devices including those from Palm, Nokia, and Blackberry,
  for use with our plug-in and wireless peripherals, and the adoption of these
  mobile computer devices for business use. If manufacturers are unable or choose
  not to ship new products such as Pocket PC and other Windows mobile devices,
  or experience difficulties with new product transitions that cause delays in
  the market as we experienced in the past three years, or if these products,
  including our new line of mobile handheld computers, the first model of which
  we began shipping in June 2007, 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 <font face="Times New Roman, Times, serif" size="3">emerging standards
    in the field of mobile computing products; <br>
    </font></li>
  <li>enhance <font face="Times New Roman, Times, serif" size="3">our products
    by adding additional features; <br>
    </font></li>
  <li>invest <font face="Times New Roman, Times, serif" size="3">significant resources
    in research and development, sales and marketing, and customer support;<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.<br>
  <br>
  <br>
</p>
<p></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><b>A significant portion of our revenue currently comes from two distributors,
  and any decrease in revenue from these distributors could harm our business.
  </b> </p>
<p>A significant portion of our revenue comes from two distributors, Tech Data
  Corp. and Ingram Micro, Inc., which together represented approximately 29% and
  37% of our worldwide revenue in the first six months of 2008 and fiscal year
  2007, 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. </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 peripheral products are designed for use with mobile
  personal computers, including handhelds, notebook computers, tablets and handheld
  computers with integrated phones. 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 the past three years, 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
  radio frequency identification, 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 mobile 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 OEMs of personal computers, mobile phones and handheld computers
    offer built-in functions, such as Bluetooth wireless technology, Wi-Fi, or
    bar code scanning, that compete with our products.</li>
</ul>
<p>Increased competition could result in price reductions, fewer customer orders,
  reduced margins, and loss of market share. Our failure to compete successfully
  against current or future competitors could harm our business, operating results
  and financial condition.<br>
  <br>
  <br>
</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><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,
  and reductions in our cash balances. 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, vertical industry partners,
  and OEMs 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, vertical
  industry partners, and OEMs, 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, vertical industry partners,
  and OEMs are generally nonexclusive and may be terminated on short notice by
  them without cause. Our distributors, resellers, vertical industry partners,
  and OEMs 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>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>&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><b>We depend on alliances and other business relationships with a small number
  of third parties, and a disruption in any one of these relationships would hinder
  our ability to develop and sell our products.</b></p>
<p align=left>We depend on strategic alliances and business relationships with
  leading participants in various segments of the communications and mobile handheld
  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 and Blackberry devices,
  handheld computers with integrated phones using Windows Mobile and Symbian System
  60 and 80 operating systems, and more recently, to develop 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, Research
  In Motion, 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>&nbsp;</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">29<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>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 June 2007, we received a letter from Wi-LAN Inc., accusing
  certain of our wireless LAN products of infringing two U.S. and one Canadian
  patent held by Wi-LAN Inc. In October 2007, Wi-LAN Inc. filed patent infringement
  lawsuits against a number of companies alleging that those companies infringe
  the two U.S. patents by manufacturing, using, or offering for sale products
  with wireless capability compliant with the IEEE 802.11 standards. Wi-LAN Inc.
  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. Nonetheless,
  we may be added to the lawsuit in the future, and even if we are not, the outcome
  of this lawsuit may result in future changes to our business, including potential
  increased costs for those of our products that make use of the related technology.
  In October 2007, we received a letter from WIAV Solutions, LLC, offering to
  license the wireless technology covered by two U.S. patents held by WIAV Solutions,
  LLC. The two patents cover implementations of the 802.11 standard. To date we
  have not entered into discussions to license their technology.</p>
<p>If we are unable to obtain and maintain licenses on favorable terms for intellectual
  property rights required for the manufacture, sale, and use of our products,
  particularly those products which must comply with industry standard protocols
  and specifications to be commercially viable, our results of operations or financial
  condition could be adversely impacted. </p>
<p>In addition to disputes relating to the validity or alleged infringement of
  other parties' rights, we may become involved in disputes relating to our assertion
  of our own intellectual property rights. Whether we are defending the assertion
  of intellectual property rights against us or asserting our intellectual property
  rights against others, intellectual property litigation can be complex, costly,
  protracted, and highly disruptive to business operations by diverting the attention
  and energies of management and key technical personnel. Plaintiffs in intellectual
  property cases often seek injunctive relief, and the measures of damages in
  intellectual property litigation are complex and often subjective or uncertain.
  Thus, any adverse determinations in this type of litigation could subject us
  to significant liabilities and costs.</p>
<p>&nbsp;</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">30<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left><font face="Times New Roman, Times, serif" size="3"><a href="#TAB">(Index)</a></font>
<p><b>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
  OEMs, 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 <font face="Times New Roman, Times, serif" size="3">in the level
    of operating expenses;<br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">competitive conditions
    in the industry including competitive pressures resulting in lower average
    selling prices; and<br>
    </font></li>
  <li>timing of distributors' shipments to their customers.</li>
</ul>
<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>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 thirteen
  to sixteen years by us, including our President, Executive Vice President, Chief
  Financial Officer, and Chief Technical Officer. 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 2008 and in each of the quarters of fiscal years 2007
  and 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></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>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 OEMs. 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
  36% of our revenue in the first half of 2008 and 35% of our revenue in the fiscal
  year 2007. 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 <font face="Times New Roman, Times, serif" size="3">burdens of complying
    with a variety of foreign laws;<br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">greater difficulty or
    delay in accounts receivable collection;<br>
    </font></li>
  <li><font face="Times New Roman, Times, serif" size="3">potentially adverse
    tax consequences; and<br>
    </font></li>
  <li>political and economic instability.</li>
</ul>
<p>Our export sales are primarily denominated in United States dollars and in
  Euros for our sales to European distributors. Accordingly, an increase in the
  value of the United States dollar relative to foreign currencies could make
  our products more expensive and therefore potentially less competitive in foreign
  markets. Declines in the value of the Euro relative to the United States dollar
  may result in foreign currency losses relating to collection of Euro denominated
  receivables if left unhedged.</p>
<p>&nbsp;</p>
<p align=center><font face="Times New Roman, Times, serif" size="3">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>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 our 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, 2008, we had 32,300,129 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, 2008, we had 11,011,106 shares subject to outstanding options
  under our stock option plans, and 1,075,991 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>&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>
</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, 2007 through July 31, 2008, our Common Stock
  price fluctuated between a high of $1.40 and a low of $0.43. 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><font face="Times New Roman, Times, serif" size="3"><b><br>
  <br>
  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">35<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
  MOBILE, 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, 2008 </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, 2008 </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">36<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">37<br>
  </font>
<p align=center>
<hr width="100%">
<p align=left>
<p align=left>&nbsp;
</BODY></HTML>
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</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>2
<FILENAME>exhibit311.htm
<DESCRIPTION>CERTIFICATION
<TEXT>
<html>
<head>
<title>Untitled Document</title>
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<body bgcolor="#FFFFFF">
<p align=left>
<p align=right><font face="Times New Roman, Times, serif" size="3">Exhibit 31.1
  </font>
<p align="center"><font face="Times New Roman, Times, serif" size="3"><b>CERTIFICATION</b></font></p>
<p>I, Kevin J. Mills, certify that:</p>
<p><font face="Times New Roman, Times, serif" size="3">1. I have reviewed this
  quarterly report on Form 10-Q of Socket Mobile, 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 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, 2008 </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 Mobile, 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 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, 2008 </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 Mobile, Inc. on Form 10-Q for the quarter ended June 30, 2008 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 Mobile, 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, 2008</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 Mobile, Inc. on Form 10-Q for the quarter ended June 30, 2008
  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 Mobile, 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, 2008</font></div>
    </td>
  </tr>
</table>
<p>&nbsp;</p>
<p align=center>&nbsp;
<p align=center>&nbsp;
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