##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-QSB

(Mark One)



|x | Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ---------------------------------------------------------------------------------

For the quarterly period ended June 30, 2006



| ̈ | Transition report under Section 13 or 15(d) of the Exchange Act
|- | ---------------------------------------------------------------

For the transition period from  to

Commission file number 000-50299

Catcher Holdings, Inc.

(Exact name of small business issuer as specified in its charter)



|                                                              |  |                                    
|------------------------------------------------------------- |  | -----------------------------------
|Delaware                                                      |  | 62-0201385                         
|(State or other jurisdiction ofincorporation or organization) |  | (I.R.S. EmployerIdentification No.)

39526 Charlestown Pike, Hamilton, VA 20158-3322

(Address of principal executive offices)

(540) 882-3087

(Issuers telephone number, including area code)



---

(Former name, former address and
former fiscal year, if changed since last report)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d)
of the Exchange Act during the past 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 ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act):     Yes ̈No   x

State the number of shares outstanding of each of the issuers classes of common equity, as of the latest practicable date:



|                                        |  |                             
|--------------------------------------- |  | ----------------------------
|Class                                   |  | Outstanding at June 30,
2006
|Common Stock, $.001 par value per share |  | 17,139,718                  

Transitional Small Business Disclosure Format (check
one):     Yes ̈No   x



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##### Table of Contents

TABLE OF CONTENTS



|                                                                                                                                                                        |  |     
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                                                                        |  | Page
|PART I.
Financial Information                                                                                                                                           |  | 3   
|Item 1. Financial Statements                                                                                                                                            |  |     
|Consolidated Statements of Operations for the three and six months ended June 30, 2006 and 2005 and Period from Inception (March 31, 2004) to June 30, 2006 (Unaudited) |  | 3   
|Consolidated Balance Sheets as of June 30, 2006 (Unaudited) and December 31, 2005                                                                                       |  | 4   
|Consolidated Statements of Cash Flows for the six months ended June 30, 2006 and 2005 and Period from Inception (March 31, 2004) to June 30, 2006 (Unaudited)           |  | 5   
|Consolidated Statements of Shareholders Equity (Deficit) for the six months ended June 30, 2006 and for the Period from Inception (March 31, 2004) to June 30, 2006    |  | 6   
|Notes to Consolidated Financial Statements                                                                                                                              |  | 7   
|Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations and Plan of Operation                                                     |  | 14  
|Item 3.
Controls and Procedures                                                                                                                                         |  | 27  
|                                                                                                                                                                        | 
|PART II
Other Information                                                                                                                                               |  | 27  
|Item 1.
Legal Proceedings                                                                                                                                               |  | 27  
|Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds                                                                                                     |  | 27  
|Item 3.
Defaults Upon Senior Securities                                                                                                                                 |  | 27  
|Item 4.
Submission of Matters to a Vote of Security Holders                                                                                                             |  | 28  
|Item 5.
Other Information                                                                                                                                               |  | 28  
|Item 6.
Exhibits                                                                                                                                                        |  | 28  
|                                                                                                                                                                        | 
|SIGNATURES                                                                                                                                                              |  | 29  
|                                                                                                                                                                        | 
|CERTIFICATIONS AND EXHIBITS                                                                                                                                             |  |     



2



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##### Table of Contents

PART I. FINANCIAL INFORMATION

Item I  Consolidated Financial Statements

CATCHER HOLDINGS, INC.

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



|                                                                                              |  |                    |            |   |                                      |   |            |                                                      |  |   |                                       |   |  |   |            |   |  |   |             |  
|--------------------------------------------------------------------------------------------- |  | ------------------ | ---------- | - | ------------------------------------ | - | ---------- | ---------------------------------------------------- |  | - | ------------------------------------- | - |  | - | ---------- | - |  | - | ----------- | -
|                                                                                              |  | Three Months Ended |            |   | Six Months Ended                     |   |            | Period fromInception(March 31,2004)
to June 30, 2006 | 
|                                                                                              |  | June 30, 2006      |            |   | June 30, 2005As Restated(see Note 3) |   |            | June 30, 2006                                        |  |   | June 30, 2005 As Restated(see Note 3) |   | 
|Net revenue                                                                                   |  | $                  |           |   |                                      | $ |           |                                                      |  | $ |                                      |   |  | $ |           |   |  | $ |            |  
|Operating expenses:                                                                           |  |                    |            |   |                                      |   |            |                                                      |  |   |                                       |   |  |   |            |   |  |   |             |  
|Research and development expenses                                                             |  |                    | 727,525    |   |                                      |   | 650,096    |                                                      |  |   | 1,343,242                             |   |  |   | 675,861    |   |  |   | 4,201,847   |  
|Selling, general and administrative expenses                                                  |  |                    | 807,238    |   |                                      |   | 529,096    |                                                      |  |   | 1,519,966                             |   |  |   | 584,938    |   |  |   | 3,903,123   |  
|Stock-based compensation and consulting expense(1)                                            |  |                    | 131,307    |   |                                      |   | 3,523,131  |                                                      |  |   | 359,802                               |   |  |   | 3,523,131  |   |  |   | 3,999,296   |  
|                                                                                              |  |                    |            |   |                                      |   |            |                                                      |  |   |                                       |   |  |   |            |   |  |   |             |  
|Operating loss                                                                                |  |                    | (1,666,070 | ) |                                      |   | (4,702,323 | )                                                    |  |   | (3,223,010                            | ) |  |   | (4,783,930 | ) |  |   | (12,104,266 | )
|Financing costs                                                                               |  |                    |           |   |                                      |   |           |                                                      |  |   | (1,073,462                            | ) |  |   |           |   |  |   | (1,073,462  | )
|Interest income (expense), net                                                                |  |                    | 39,127     |   |                                      |   | (34,747    | )                                                    |  |   | 51,951                                |   |  |   | (34,747    | ) |  |   | 35,254      |  
|                                                                                              |  |                    |            |   |                                      |   |            |                                                      |  |   |                                       |   |  |   |            |   |  |   |             |  
|Loss from operations before income taxes                                                      |  |                    | (1,626,943 | ) |                                      |   | (4,737,070 | )                                                    |  |   | (4,244,521                            | ) |  |   | (4,818,677 | ) |  |   | (13,142,474 | )
|Income taxes                                                                                  |  |                    |           |   |                                      |   |           |                                                      |  |   |                                      |   |  |   |           |   |  |   |            |  
|                                                                                              |  |                    |            |   |                                      |   |            |                                                      |  |   |                                       |   |  |   |            |   |  |   |             |  
|Net loss                                                                                      |  | $                  | (1,626,943 | ) |                                      | $ | (4,737,070 | )                                                    |  | $ | (4,244,521                            | ) |  | $ | (4,818,677 | ) |  | $ | (13,142,474 | )
|                                                                                              |  |                    |            |   |                                      |   |            |                                                      |  |   |                                       |   |  |   |            |   |  |   |             |  
|Loss per share:                                                                               |  |                    |            |   |                                      |   |            |                                                      |  |   |                                       |   |  |   |            |   |  |   |             |  
|Basic & Diluted                                                                               |  | $                  | (0.09      | ) |                                      | $ | (0.70      | )                                                    |  | $ | (0.27                                 | ) |  | $ | (1.07      | ) |  | $ | (1.62       | )
|                                                                                              |  |                    |            |   |                                      |   |            |                                                      |  |   |                                       |   |  |   |            |   |  |   |             |  
|Weighted-average number of shares outstanding  Basic and Diluted:                            |  |                    | 17,139,718 |   |                                      |   | 6,764,746  |                                                      |  |   | 15,804,350                            |   |  |   | 4,498,540  |   |  |   | 8,108,967   |  
|(1)The
following summarizes the allocation of stock-based compensation and consulting expense |  |                    |            |   |                                      |   |            |                                                      |  |   |                                       |   |  |   |            |   |  |   |             |  
|Research and development expenses                                                             |  | $                  |           |   |                                      | $ | 268,647    |                                                      |  | $ |                                      |   |  | $ | 268,647    |   |  | $ | 268,647     |  
|Selling, general and administrative expenses                                                  |  |                    | 131,307    |   |                                      |   | 3,254,484  |                                                      |  |   | 359,802                               |   |  |   | 3,254,484  |   |  |   | 3,730,649   |  
|                                                                                              |  |                    |            |   |                                      |   |            |                                                      |  |   |                                       |   |  |   |            |   |  |   |             |  
|Total                                                                                         |  | $                  | 131,307    |   |                                      | $ | 3,523,131  |                                                      |  | $ | 359,802                               |   |  | $ | 3,523,131  |   |  | $ | 3,999,296   |  
|                                                                                              |  |                    |            |   |                                      |   |            |                                                      |  |   |                                       |   |  |   |            |   |  |   |             |  

See Notes to Consolidated Financial Statements.



3



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##### Table of Contents

CATCHER HOLDINGS, INC.

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED BALANCE SHEETS



|                                                                                                                     |  |               |             |   |                          |   |            |  
|-------------------------------------------------------------------------------------------------------------------- |  | ------------- | ----------- | - | ------------------------ | - | ---------- | -
|                                                                                                                     |  | June 30, 2006 |             |   | December 31, 2005        |  
|                                                                                                                     |  | (unaudited)   |             |   | As Restated (see Note 3) |  
|Assets                                                                                                               |  |               |             |   |                          |   |            |  
|Current Assets:                                                                                                      |  |               |             |   |                          |   |            |  
|Cash and cash equivalents                                                                                            |  | $             | 2,934,662   |   |                          | $ | 913,182    |  
|Prepaid expenses and other current assets                                                                            |  |               | 1,524,070   |   |                          |   | 566,671    |  
|                                                                                                                     |  |               |             |   |                          |   |            |  
|Total current assets                                                                                                 |  |               | 4,458,732   |   |                          |   | 1,479,853  |  
|Fixed Assets, net                                                                                                    |  |               | 845,686     |   |                          |   | 320,862    |  
|Deposits                                                                                                             |  |               | 14,904      |   |                          |   | 4,857      |  
|                                                                                                                     |  |               |             |   |                          |   |            |  
|Total Assets                                                                                                         |  | $             | 5,319,322   |   |                          | $ | 1,805,572  |  
|                                                                                                                     |  |               |             |   |                          |   |            |  
|Liabilities and Shareholders Equity                                                                                 |  |               |             |   |                          |   |            |  
|Current Liabilities:                                                                                                 |  |               |             |   |                          |   |            |  
|Accounts payable                                                                                                     |  | $             | 162,028     |   |                          | $ | 463,470    |  
|Accrued and other current liabilities                                                                                |  |               | 277,778     |   |                          |   | 647,703    |  
|                                                                                                                     |  |               |             |   |                          |   |            |  
|Total current liabilities                                                                                            |  |               | 439,806     |   |                          |   | 1,111,173  |  
|                                                                                                                     |  |               |             |   |                          |   |            |  
|Total Liabilities                                                                                                    |  |               | 439,806     |   |                          |   | 1,111,173  |  
|                                                                                                                     |  |               |             |   |                          |   |            |  
|Shareholders Equity:                                                                                                |  |               |             |   |                          |   |            |  
|Common Stock, $0.001 value, 50,000,000 shares authorized; 17,139,718 and 13,578,970 shares outstanding, respectively |  |               | 17,139      |   |                          |   | 13,578     |  
|Preferred Stock, $0.001 par value, 1 million shares authorized; 1 share outstanding                                  |  |               |            |   |                          |   |           |  
|Additional paid in capital                                                                                           |  |               | 18,004,851  |   |                          |   | 9,578,774  |  
|Deficit accumulated during the development stage                                                                     |  |               | (13,142,474 | ) |                          |   | (8,897,953 | )
|                                                                                                                     |  |               |             |   |                          |   |            |  
|Total Shareholders Equity                                                                                           |  |               | 4,879,516   |   |                          |   | 694,399    |  
|                                                                                                                     |  |               |             |   |                          |   |            |  
|Total Liabilities and Shareholders Equity                                                                           |  | $             | 5,319,322   |   |                          | $ | 1,805,572  |  
|                                                                                                                     |  |               |             |   |                          |   |            |  

See Notes to Consolidated Financial Statements.



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CATCHER HOLDINGS, INC.

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



|                                                                                                                                                                                                                                                 |  |                  |            |   |                                        |   |            |               |  |   |             |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---------------- | ---------- | - | -------------------------------------- | - | ---------- | ------------- |  | - | ----------- | -
|                                                                                                                                                                                                                                                 |  | Six Months Ended |            |   | Period fromInception(March 31,2004) to |  
|                                                                                                                                                                                                                                                 |  | June 30, 2006    |            |   | June 30, 2005                          |   |            | June 30, 2006 | 
|                                                                                                                                                                                                                                                 |  |                  |            |   | As Restated(see Note 3)                |   |            |               | 
|Cash Flows From Operating Activities:                                                                                                                                                                                                            |  |                  |            |   |                                        |   |            |               |  |   |             |  
|Net loss                                                                                                                                                                                                                                         |  | $                | (4,244,521 | ) |                                        | $ | (4,818,677 | )             |  | $ | (13,142,474 | )
|Adjustments to reconcile net cash provided by operating activities:                                                                                                                                                                              |  |                  |            |   |                                        |   |            |               |  |   |             |  
|Depreciation                                                                                                                                                                                                                                     |  |                  | 4,915      |   |                                        |   |           |               |  |   | 6,071       |  
|Non-cash stock-based compensation expense                                                                                                                                                                                                        |  |                  | 359,802    |   |                                        |   | 3,506,101  |               |  |   | 3,982,266   |  
|Warrants issued in connection with consulting contract                                                                                                                                                                                           |  |                  |           |   |                                        |   | 17,030     |               |  |   | 17,030      |  
|Non-cash interest expense                                                                                                                                                                                                                        |  |                  |           |   |                                        |   | 41,345     |               |  |   | 41,345      |  
|Non-cash financing costs                                                                                                                                                                                                                         |  |                  | 1,073,462  |   |                                        |   |           |               |  |   | 1,073,462   |  
|Changes in assets and liabilities:                                                                                                                                                                                                               |  |                  |            |   |                                        |   |            |               |  |   |             |  
|Prepaid expenses and other assets                                                                                                                                                                                                                |  |                  | (957,399   | ) |                                        |   | (48,994    | )             |  |   | (1,524,070  | )
|Other Assets                                                                                                                                                                                                                                     |  |                  | (10,047    | ) |                                        |   |           |               |  |   | (14,904     | )
|Accounts payable                                                                                                                                                                                                                                 |  |                  | (301,442   | ) |                                        |   | (573,692   | )             |  |   | 162,028     |  
|Accrued and other liabilities                                                                                                                                                                                                                    |  |                  | (369,925   | ) |                                        |   | 13,480     |               |  |   | 277,778     |  
|                                                                                                                                                                                                                                                 |  |                  |            |   |                                        |   |            |               |  |   |             |  
|Net cash used in operating activities                                                                                                                                                                                                            |  |                  | (4,445,155 | ) |                                        |   | (1,863,407 | )             |  |   | (9,121,468  | )
|Cash Flows Used In Investing Activities:                                                                                                                                                                                                         |  |                  |            |   |                                        |   |            |               |  |   |             |  
|Capital expenditures, net                                                                                                                                                                                                                        |  |                  | (529,739   | ) |                                        |   | (3,659     | )             |  |   | (851,757    | )
|Cash Flows From Financing Activities:                                                                                                                                                                                                            |  |                  |            |   |                                        |   |            |               |  |   |             |  
|Proceeds from issuance of Common Stock and warrants net of $606,789, $207,478 and $814,267 in issuance costs for the six months ended
June 30, 2006, 2005 and for the period from inception (March 31, 2004) through June 30, 2006, respectively |  |                  | 6,098,211  |   |                                        |   | 4,293,690  |               |  |   | 10,391,901  |  
|Proceeds from issuance of Common Stock                                                                                                                                                                                                           |  |                  |           |   |                                        |   | 17         |               |  |   | 17          |  
|Repayment of Debt                                                                                                                                                                                                                                |  |                  |           |   |                                        |   | (30,000    | )             |  |   |            |  
|Proceeds from exercise of warrants                                                                                                                                                                                                               |  |                  | 898,163    |   |                                        |   |           |               |  |   | 2,515,969   |  
|                                                                                                                                                                                                                                                 |  |                  |            |   |                                        |   |            |               |  |   |             |  
|Net cash provided by financing activities                                                                                                                                                                                                        |  |                  | 6,996,374  |   |                                        |   | 4,263,707  |               |  |   | 12,907,887  |  
|                                                                                                                                                                                                                                                 |  |                  |            |   |                                        |   |            |               |  |   |             |  
|Net increase in cash and cash equivalents                                                                                                                                                                                                        |  |                  | 2,021,480  |   |                                        |   | 2,396,641  |               |  |   | 2,934,662   |  
|Cash and cash equivalents at beginning of period                                                                                                                                                                                                 |  |                  | 913,182    |   |                                        |   | 364        |               |  |   |            |  
|                                                                                                                                                                                                                                                 |  |                  |            |   |                                        |   |            |               |  |   |             |  
|Cash and cash equivalents at end of period                                                                                                                                                                                                       |  | $                | 2,934,662  |   |                                        | $ | 2,397,005  |               |  | $ | 2,934,662   |  
|                                                                                                                                                                                                                                                 |  |                  |            |   |                                        |   |            |               |  |   |             |  

See Notes to Consolidated Financial Statements.



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##### Table of Contents

CATCHER HOLDINGS, INC.

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY

Period from Inception (March 31, 2004) to June 30, 2006



|                                                                                       |  |                                  |  |                                |      |   |                               |            |                            |   |                           |  |   |                                              |   |  |       |             |   |  |   |            |  
|-------------------------------------------------------------------------------------- |  | -------------------------------- |  | ------------------------------ | ---- | - | ----------------------------- | ---------- | -------------------------- | - | ------------------------- |  | - | -------------------------------------------- | - |  | ----- | ----------- | - |  | - | ---------- | -
|                                                                                       |  | Number ofShares ofPreferredStock |  | PreferredStock$0..001par value |      |   | Number ofShares ofCommonStock |            | CommonStock$0.001 parvalue |   | AdditionalPaid In Capital |  |   | DeficitAccumulatedDuring theDevelopmentStage |   |  | Total |            
|Balance at Inception(1)                                                                |  | 1                                |  | $                              |     |   |                               | 2,232,333  |                            | $ | 2,232                     |  | $ | (2,232                                       | ) |  | $     |            |   |  | $ |           |  
|Net loss                                                                               |  |                                 |  |                                |     |   |                               |           |                            |   |                          |  |   |                                             |   |  |       | (748,366    | ) |  |   | (748,366   | )
|                                                                                       |  |                                  |  |                                |      |   |                               |            |                            |   |                           |  |   |                                              |   |  |       |             |   |  |   |            |  
|Balance at 12/31/04                                                                    |  | 1                                |  | $                              |     |   |                               | 2,232,333  |                            | $ | 2,232                     |  | $ | (2,232                                       | ) |  | $     | (748,366    | ) |  | $ | (748,366   | )
|Issuance of convertible preferred stock to employees and consultants on April 21, 2005 |  | 454,735                          |  |                                | 455  |   |                               |           |                            |   |                          |  |   | 3,236,813                                    |   |  |       |            |   |  |   | 3,237,268  |  
|Issuance of Common Stock for services and interest expense on April 21, 2005           |  |                                 |  |                                |     |   |                               | 348,515    |                            |   | 349                       |  |   | 309,830                                      |   |  |       |            |   |  |   | 310,179    |  
|Issuance of Common Stock and warrants to private investors on May 4, 2005              |  |                                 |  |                                |     |   |                               | 4,500,386  |                            |   | 4,500                     |  |   | 4,289,190                                    |   |  |       |            |   |  |   | 4,293,690  |  
|Issuance of Common Stock to U.S. Telesis, Inc. shareholders on May 4, 2005             |  |                                 |  |                                |     |   |                               | 1,781,295  |                            |   | 1,781                     |  |   | (1,764                                       | ) |  |       |            |   |  |   | 17         |  
|Conversion of convertible preferred stock to Common Stock on June 23, 2005             |  | 454,735                          |  |                                | (455 | ) |                               | 3,637,904  |                            |   | 3,638                     |  |   | (2,904                                       | ) |  |       |            |   |  |   |           |  
|Issuance of warrants to consultants on June 23, 2005                                   |  |                                 |  |                                |     |   |                               |           |                            |   |                          |  |   | 17,030                                       |   |  |       |            |   |  |   | 17,030     |  
|Issuance of Common Stock pursuant to warrant exercises in October 2005                 |  |                                 |  |                                |     |   |                               | 1,078,537  |                            |   | 1,078                     |  |   | 1,616,728                                    |   |  |       |            |   |  |   | 1,617,806  |  
|Compensation Expense                                                                   |  |                                 |  |                                |     |   |                               |           |                            |   |                          |  |   | 116,362                                      |   |  |       |            |   |  |   | 116,362    |  
|Net loss                                                                               |  |                                 |  |                                |     |   |                               |           |                            |   |                          |  |   |                                             |   |  |       | (8,149,587  | ) |  |   | (8,149,587 | )
|                                                                                       |  |                                  |  |                                |      |   |                               |            |                            |   |                           |  |   |                                              |   |  |       |             |   |  |   |            |  
|Balance at 12/31/05 (RESTATED)                                                         |  | 1                                |  | $                              |     |   |                               | 13,578,970 |                            | $ | 13,578                    |  | $ | 9,578,774                                    |   |  | $     | (8,897,953  | ) |  | $ | 694,399    |  
|Issuance of Common Stock pursuant to warrant exercises in February 2006 (unaudited)    |  |                                 |  |                                |     |   |                               | 598,748    |                            |   | 599                       |  |   | 897,564                                      |   |  |       |            |   |  |   | 898,163    |  
|Issuance of warrants to consultants on June 23, 2005 (unaudited)                       |  |                                 |  |                                |     |   |                               |           |                            |   |                          |  |   | 1,073,462                                    |   |  |       |            |   |  |   | 1,073,462  |  
|Issuance of Common Stock and warrants on March 15 and 17, 2006 (unaudited)             |  |                                 |  |                                |     |   |                               | 2,682,000  |                            |   | 2,682                     |  |   | 6,095,529                                    |   |  |       |            |   |  |   | 6,098,211  |  
|Issuance of Common Stock on March 16, 2006 to directors and employees (unaudited)      |  |                                 |  |                                |     |   |                               | 280,000    |                            |   | 280                       |  |   | (280                                         | ) |  |       |            |   |  |   |           |  
|Compensation Expense (unaudited)                                                       |  |                                 |  |                                |     |   |                               |           |                            |   |                          |  |   | 359,802                                      |   |  |       |            |   |  |   | 359,802    |  
|Net Loss (unaudited)                                                                   |  |                                 |  |                                |     |   |                               |           |                            |   |                          |  |   |                                             |   |  |       | (4,244,521  | ) |  |   | (4,244,521 | )
|                                                                                       |  |                                  |  |                                |      |   |                               |            |                            |   |                           |  |   |                                              |   |  |       |             |   |  |   |            |  
|Balance at 6/30/06 (unaudited)                                                         |  | 1                                |  | $                              |     |   |                               | 17,139,718 |                            | $ | 17,139                    |  | $ | 18,004,851                                   |   |  | $     | (13,142,474 | ) |  | $ | 4,879,516  |  



|(1) | The Common Share amount represents common stock of the Company issued to the sole owner of LCM Technologies, Inc. upon the conversion of his preferred stock on
June 23, 2005 as if they were outstanding at the inception of LCM Technologies, Inc. Ira Tabankin was issued 279,043 shares of Convertible Preferred Stock on April 21, 2005, of which 279,042 were converted on June 23, 2005 into
2,232,333 shares of Common Stock. Mr. Tabankin still holds one share of Convertible Preferred Stock.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



See Notes to Consolidated Financial Statements.



6



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CATCHER HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

(1) Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared by Catcher Holdings, Inc. (the Company) pursuant to the rules
and regulations of the Securities and Exchange Commission (SEC) regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for
complete financial statements and should be read in conjunction with the Companys financial statements and notes thereto for the year ended December 31, 2005 as filed on Form 10-KSB with the SEC on March 29, 2006 except as disclosed
in Note 3 of this filing relating to the consolidated financial statements for the year ended December 31, 2005 which have been restated. The accompanying consolidated financial statements reflect all adjustments (consisting of normal recurring
adjustments) that are, in the opinion of management, necessary for a fair presentation of results for the interim periods presented. The results of operations for the three and six months ended June 30, 2006 are not necessarily indicative of
the results to be expected for the full fiscal year.

(2) Nature of Business

Effective May 4, 2005, Catcher, Inc. merged with and into Catcher Holdings, Inc. (formerly U.S. Telesis Holdings, Inc. (UST)) (the
Company) with Catcher, Inc. as the survivor for accounting purposes (the UST Merger). Just prior to the UST Merger on April 28, 2005, Catcher, Inc. completed an asset purchase of LCM Technologies, Inc. (LCM)
with LCM as the survivor for accounting purposes (the LCM Merger). Both the UST Merger and the LCM Merger (collectively the Mergers) were treated as a reverse merger from an historical accounting perspective, and accordingly
the period from inception of the Company begins on March 31, 2004, the date of inception of LCM. The financial statements of the Company, as presented, reflect the historical results of LCM prior to the Mergers, and of the combined entities
following the Mergers, and do not include the historical financial results of UST prior to the consummation of the UST Merger. Stockholders equity has been retroactively restated to reflect the number of shares received in the Mergers after
giving effect to the difference in par value, with the offset to additional paid-in capital.

Catcher Holdings, Inc., a Delaware
Corporation, is in the business of developing, manufacturing and distributing a portable, ruggedized, wireless handheld security device (the CATCHERTM) device. The Company is in the process of completing development of its first product and has begun production of the first evaluation units of its product. In addition, the Company plans to
commence commercial production during the third quarter of 2006, versus the second quarter as previously reported, due to additional development and testing requirements.

(3) Restatement of Prior Period Financial Statements

In its originally filed consolidated financial
statements for the year ended December 31, 2005, the Company recorded, as acquired research and development expense, the value of shares issued to Ira Tabankin in Catcher Inc. prior to the merger with the Company described in Note 2. Subsequent
to the issuance of such consolidated financial statements, the Company determined that such shares should not have been recorded at fair value. Rather, since LCM was considered the accounting acquirer, no value was assigned to the shares issued (see
Note 2).

As a result, the Companys consolidated financial statements for the year ended December 31, 2005 have been restated.

The impact of this correction of an error was a reduction in acquired research and development expense in the Companys Statement of
Operations by $1,986,784 for each of the three and six month periods ended June 30, 2005 (the Company reclassified the amount from research and development expense in its Quarterly Report on Form 10-QSB for the quarter ended September 30, 2005) and
for the year ended December 31, 2005. Consequently, the additional paid in capital and deficit accumulated during the development stage originally recorded in the consolidated balance sheets as of June 30, 2005 and December 31, 2005 were overstated
by $1,986,784, and have been reduced by that amount in the restated financial statements. Certain line items in the Companys consolidated statement of cash flows and statement of stockholders equity have been restated as a result of the
correction of an error identified above.

In addition, the Company reclassified $41,345 from acquired research and development expense into
interest expense for each of the three- and six-month periods ended June 30, 2005, the nine-month period ended September 30, 2005 and the year ended December 31, 2005. This amount represents the value of the Catcher, Inc. shares issued to certain
promissory note holders as consideration for the release of all claims to certain intellectual property of LCM that collateralized certain defaulted loans to LCM.

In connection with the restatement described above, the Company will amend its financial statements included in the 2005 Annual Report on Form 10-KSB and the Quarterly Reports on Form 10-QSB for the quarters ended
June 30 and September 30, 2005 and March 31, 2006.

A summary of the significant effects of the restatement for the three
and six months ended June 30, 2005 and 2006 is presented in the tables below.



7



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Statements of Operations



|                                                                  |  |                                  |            |   |                                 |   |            |             |  |   |             |   |  |   |            |  
|----------------------------------------------------------------- |  | -------------------------------- | ---------- | - | ------------------------------- | - | ---------- | ----------- |  | - | ----------- | - |  | - | ---------- | -
|                                                                  |  | Three Months Ended June 30, 2005 |            |   | Six Months Ended June 30 , 2005 |  
|                                                                  |  | As Reported                      |            |   | As Restated                     |   |            | As Reported |  |   | As Restated |  
|Research and development expenses                                 |  | $                                | 2,946,872  |   |                                 | $ | 650,096    |             |  | $ | 2,972,637   |   |  | $ | 675,861    |  
|Selling general and administrative expenses                       |  |                                  | 3,783,580  |   |                                 |   | 529,096    |             |  |   | 3,838,622   |   |  |   | 584,938    |  
|Stock-based compensation and consulting expense                   |  |                                  |           |   |                                 |   | 3,523,131  |             |  |   |            |   |  |   | 3,523,131  |  
|Operating loss                                                    |  |                                  | (6,730,452 | ) |                                 |   | (4,702,323 | )           |  |   | (6,811,259  | ) |  |   | (4,783,930 | )
|Interest income (expense), net                                    |  |                                  | 6,598      |   |                                 |   | (34,747    | )           |  |   | 6,598       |   |  |   | (34,747    | )
|Loss from operations                                              |  |                                  | (6,723,854 | ) |                                 |   | (4,737,070 | )           |  |   | (6,804,661  | ) |  |   | (4,818,677 | )
|Income Taxes                                                      |  |                                  |           |   |                                 |   |           |             |  |   | 800         |   |  |   |           |  
|Net loss                                                          |  |                                  | (6,723,854 | ) |                                 |   | (4,737,070 | )           |  |   | (6,805,461  | ) |  |   | (4,818,677 | )
|Loss per share:                                                   |  |                                  |            |   |                                 |   |            |             |  |   |             |   |  |   |            |  
|Basic & Diluted                                                   |  | $                                | (1.79      | ) |                                 | $ | (0.70      | )           |  | $ | (1.79       | ) |  | $ | (1.07      | )
|Weighted-average number of shares outstanding - Basic and Diluted |  |                                  | 3,739,976  |   |                                 |   | 6,764,746  |             |  |   | 3,739,976   |   |  |   | 4,498,540  |  

Statements of Cash Flow



|                                                                          |  |                                |            |   |             |   |            |  
|------------------------------------------------------------------------- |  | ------------------------------ | ---------- | - | ----------- | - | ---------- | -
|                                                                          |  | Six Months Ended June 30, 2005 |           
|                                                                          |  | As Reported                    |            |   | As Restated |  
|Net loss                                                                  |  | $                              | (6,805,461 | ) |             | $ | (4,818,677 | )
|Non-cash stock-based compensation expense                                 |  |                                | 5,551,707  |   |             |   | 3,506,101  |  
|Warrants issued in connection with consulting contract                    |  |                                |           |   |             |   | 17,030     |  
|Non-cash interest expense                                                 |  |                                |           |   |             |   | 41,345     |  
|Proceeds from issuance of Common Stock and warrants net of issuance costs |  |                                | 4,293,260  |   |             |   | 4,293,690  |  
|Proceeds from issuance of Common Stock                                    |  |                                |           |   |             |   | 17         |  

Balance Sheet



|                                                 |  |                    |             |   |             |   |            |  
|------------------------------------------------ |  | ------------------ | ----------- | - | ----------- | - | ---------- | -
|                                                 |  | December 31 , 2005 |            
|                                                 |  | As Reported        |             |   | As Restated |  
|Additional paid in capital                       |  | $                  | 11,565,558  |   |             | $ | 9,578,774  |  
|Deficit accumulated during the development stage |  |                    | (10,884,737 | ) |             |   | (8,897,953 | )

The restated numbers are reflected in the accompanying financial statements for the three and six months ended
June 30, 2006 and 2005.

(4) Going Concern

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Subsequent to the acquisition of Catcher,
the Company has continued to develop the technology acquired with a goal of developing a device that is ready for sale. The Companys ability to continue as a going concern depends on a number of factors, including but not limited to, the
ability to get its product to market and the ability to raise additional capital if required. During the year ended December 31, 2005 and the six months ended June 30, 2006, the Company incurred losses of $8,149,587 and $4,244,521, respectively.
These factors, among others, raise substantial doubt about the Companys ability to continue as a going concern. The Company intends to continue seeking additional financing to fund its operations. There can be no assurance that such financing
will be available on terms acceptable to the Company, or at all.

(5) Summary of Significant Accounting Policies

Net Loss per Common Share

Basic loss per share is computed by dividing net loss for the period by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted average number
of common shares plus the dilutive effect of outstanding warrants. Approximately 7.1 million and 4.6 million shares for the three and six months ended June 30, 2006 and 2005, respectively, that are reserved for issuance



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upon conversion of preferred stock and from the exercise of warrants and options were excluded from the calculation of diluted earnings per share because
they were anti-dilutive.

Income Taxes

The Company accounts for income taxes using the asset and liability method, as provided by SFAS No. 109, Accounting for Income Taxes (SFAS 109) which requires the recognition of deferred tax assets and
liabilities for the future tax consequences of temporary differences between the financial statement and tax basis carrying amounts of assets and liabilities. No income taxes were provided since the Company incurred losses from its inception.
Management evaluates the available evidence about future taxable income and other possible sources of realization of deferred tax assets. The valuation allowance reduces deferred tax assets to an amount that represents managements best
estimate of the amount of such deferred tax assets that are more likely than not to be realized. Due to the uncertainty of future taxable income, no future tax benefits have been recognized.

Stock Based Compensation

The Company accounts for stock based compensation in accordance with SFAS No. 123R, Share Based Payment (SFAS 123R) and SAB No. 107 regarding SFAS 123R (SAB 107). Under SFAS 123R and SAB 107, compensation is measured on the grant
date of an award and recognized over the service period for which the award was granted, generally the vesting period. Compensation is equal to the fair value of the award determined using a binomial option-pricing model. No instruments were issued
during the three and six months ended June 30, 2006 and 2005 which required valuation under an option-pricing model. During the three months ended March 31, 2006, the Company issued 280,000 shares of restricted stock to an officer and the
three independent members of the board of directors for services to be provided. The weighted average fair value of these shares on their grant date was $3.69 based on the market price of the Companys Common Stock on that date. The restricted
stock grants vest on various dates over a three year period. Compensation expense is being recognized over the vesting period.

(6) Prepaid expenses and
other current assets

Prepaid expenses and other current assets consist of the following at:



|                                |  |               |           |                  |   |        
|------------------------------- |  | ------------- | --------- | ---------------- | - | -------
|                                |  | June 30, 2006 |           | December 31,2005
|                                |  | (unaudited)   |           |                 
|Manufacturing Molds and Tooling |  | $             |          |                  | $ | 419,088
|Units Released to Production    |  |               | 1,342,777 |                  |   | 102,707
|Software Royalties              |  |               | 131,250   |                  |   | 32,813 
|Retainers                       |  |               | 40,000    |                  |   | 10,000 
|Other                           |  |               | 10,043    |                  |   | 2,063  
|                                |  |               |           |                  |   |        
|Total                           |  | $             | 1,524,070 |                  | $ | 566,671
|                                |  |               |           |                  |   |        

Units released to production consists of payments to the Companys contract
manufacturer to initiate production. These amounts will be recorded as inventory upon shipment of the completed product to the Company and as cost of sales upon shipment of the completed product to its customers.

(7) Equity Transactions

May 2005 Private
Placement

On May 4, 2005, the Company sold in a private placement 4,500,386 shares of Common Stock and warrants to
purchase an additional 4,500,386 shares of Common Stock to private investors for net proceeds of $4,293,690 (the May 2005 Private Placement). The warrants vested immediately and expire in May of 2015. The warrants have exercise prices
ranging from $1.00 to $1.50. The warrants are callable at the exercise price by the Company upon completing certain milestones defined in the agreement. The warrants were assumed by the Company in the UST Merger.

In connection with the May 2005 Private Placement, the Company entered into a Registration Rights Agreement (the Prior Rights
Agreement) which provided that the Company would incur penalties if it failed to file a registration statement or have the filed registration statement declared effective within specified time frames. The Prior Rights Agreement was amended and
restated on February 2, 2006 to eliminate the penalty provisions as set forth more fully below.



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Series A Warrant Exercise and Series C Warrant Issuance

In October, 2005, a total of 22 investors holding Series A warrants to purchase shares of the Companys Common Stock made a partial
exercise of such Series A warrants purchasing approximately 1,108,000 shares of the Companys Common Stock in exchange for aggregate proceeds to the Company of approximately $1.66 million. The Company did not issue approximately 30,000 shares
of Common Stock until March 2006.

On February 2, 2006, the Company issued Series C Warrants to each Series A Holder
(collectively, the Participating Series A Holders) that (i) exercised all Series A Warrants held by the Series A Holder, (ii) executed an Amended and Restated Registration Rights Agreement (the Amended Rights
Agreement) and (iii) executed an Amendment No. 1 to the Series A and Series B Warrants (the Warrant Amendment), by February 2, 2006. An aggregate of 1,677,285 Series C Warrants were issued to the Participating Series
A Holders and are now outstanding. The Series C Warrants are non-callable, entitle the holder to purchase one share of the Common Stock at $2.50 per share and are exercisable for a period of five years (the Exercise Period). The Company
valued the Series C Warrants at $0.64 per share using a binomial option-pricing model. The Company recorded $1,073,462 of non cash financing costs in the quarter ending March 31, 2006 related to the issuance of these warrants.

In connection with the issuance of the Series C Warrants, the Company issued to the Participating Series A Holders an aggregate of 598,748
shares of our Common Stock upon the exercise of outstanding Series A Warrants held by such investors. The Company received total proceeds of approximately $898,000 in cash upon such exercises.

Amendment to Registration Rights Agreement

As noted above, on February 2, 2006, the Company entered into the Amended Rights Agreement, which, among other things, subordinates the contractual registration rights of Mr. Tabankin and Mr. Sander
such that they will not have the right to register their shares on any registration statement until all of the Registrable Securities held by persons that are not affiliates of the Company have been registered.

The Amended Rights Agreement further provides that (i) all parties to the Amended Rights Agreement are to be subordinate to the
registration rights to be granted in certain future financings by the Company; (ii) any amounts that may have been due to them on account of any default under the Prior Rights Agreement are waived and such penalty provisions are eliminated on a
going forward basis; and (iii) the Company may, in its discretion, reduce the amount of Registrable Securities to be included in any registration statement on a pari passu basis with each other party to the Amended Rights Agreement and with any
other parties as defined in the Amended Rights Agreement.

The Amended Rights Agreement further provides that, in the event
that the Company receives, at any time after the consummation of one or more equity financings in which the Company receives gross proceeds of at least $10,000,000 in the aggregate (the Next Financing), a written request from the Holders
of a majority of the Registrable Securities then outstanding that the Company file a registration statement under the Securities Act covering the registration of at least 25% of the then outstanding Registrable Securities and, following such
request, the Company fails to include at least 70% of the securities so requested to be registered, (such excluded securities hereinafter referred to as the Excluded Securities) and fails to file an additional registration statement
including the Excluded Securities as required by the registration rights agreement, the Company must pay, at the option of the holder, liquidated damages equal to either each holders pro-rata portion of $45,000 for each 30 day period in which
the Company is in default, or each holders pro-rata portion of private placement units which could have been purchased for an aggregate of $45,000.

The Company has the ability to deliver unregistered shares as payment of liquidated damages under the agreement and has determined that the maximum potential liquidated damages that can be realized under the Amended
and Restated Registration Rights Agreement does not represent a penalty as defined in EITF 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Companys Own Stock. Therefore, net-share settlement was
presumed and liability classification was not appropriate, because the maximum liquidated damages was less than a reasonable discount between registered and unregistered shares. The Company believes that the contract does not require net-cash
settlement and has classified the instrument as equity.

Amendment to Series A and Series B Warrants

On February 2, 2006, the Company also entered into the Warrant Amendment with the Participating Series A Holders. The Amendment
changed the reference in Section 13 of the Series A Warrants and in Section 13 of the Series B Warrants to the Registration Rights Agreement to instead reference the Amended and Restated Registration Rights Agreement,
dated as of February 2, 2006, as amended from time to time.

March 2006 Private Placement

In January 2006, the Company entered into an agreement with a placement agent to conduct the offer of its securities in a private
placement (March 2006 Private Placement). Certain of the Companys stockholders have an ownership interest in the placement agent. The contract provides for the placement agent to be paid a fee equal to 8%



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##### Table of Contents

of the gross proceeds received from the sale of units, comprised of two shares of the Companys common stock and a Series D Warrant to purchase the
Companys Common Stock (Units), sold in the March 2006 Private Placement at $5.00 per unit. In addition, the Company is required to issue to the placement agent warrants to purchase Units equal to 8% of the Units sold in the March
2006 Private Placement. The placement agent will receive a reduced fee equal to 4% cash and 4% warrants to purchase Units on any proceeds invested by certain existing or known investors. In addition, the placement agent is entitled to receive 2% of
the proceeds from the exercise of warrants issued in the March 2006 Private Placement, and for a period of 12 months from the closing date of the March 2006 Private Placement, the placement agent will receive 8% (or 4% if applicable, as stated
above) of the aggregate gross proceeds of any securities sold to any investor who participated in the March 2006 Private Placement.

On March 15 and March 17, 2006, the Company completed the March 2006 Private Placement whereby it sold 2,682,000 shares of our Common Stock (the Shares) and issued Series D Warrants to purchase another 1,341,000 shares
of our Common Stock (the Series D Warrant Shares) to accredited investors (as defined by Rule 501 under the Securities Act of 1933, as amended), resulting in proceeds, net of issuance costs, of approximately $6,100,000. Included in the
issuance costs is the placement agents fee of $506,400. In addition, the Company issued a warrant to the placement agent to purchase 101,280 units sold in the March 2006 Private Placement at $5.00 per unit. The purchase of these units would
result in the issuance of an additional 202,560 shares of Common Stock and 101,280 Series D warrants to purchase Common Stock. The Series D warrants have an exercise price of $3.50 per share and expire 5 years from the date of issuance.

In connection with the March 2006 Private Placement, the Company entered into a Registration Rights Agreement which provides that the
Company will file a registration statement with the SEC registering the Shares for resale within 45 days of the closing date and file a registration statement with the SEC registering the Series D Warrant Shares for resale no later than one year
from the effectiveness of the registration statement relating to the Shares (the March 2006 Registration Rights Agreement). The Company may incur liquidated damages for every 30 days that it is in default of the following provisions:



| |  |  | The Company fails to file registration statements,
| | - |  | --------------------------------------------------



| |  |  | The Company fails respond to comments from the Commission on a timely basis,
| | - |  | ----------------------------------------------------------------------------



| |  |  | The registration statements are not declared effective by the Commission,
| | - |  | -------------------------------------------------------------------------



| |  |  | After a registration statement is first declared effective by the Commission, if it ceases for any reason to remain continuously effective, as defined in the March 2006 Registration
Rights Agreement, as to all registrable securities
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The amount of liquidated damages is the amount of Shares
and Warrants equal to one percent (1%) of the respective number of Shares and Warrants sold to such Investor pursuant to the Purchase Agreement which would be issued to investors for no additional cost. The 1% penalty would result in the
issuance of warrants to purchase a maximum of an additional 13,410 units during each month that the Company is in default.

The Company evaluated the Series D Warrants and related Registration Rights Agreement in accordance with EITF 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Companys Own Stock and has
concluded that equity classification is appropriate due to the fact that the contract is required to be physically settled or net settled in shares of the Companys Common Stock. The proceeds from the transaction have been allocated to the
stock and the warrants based on their relative fair values. However, the Company aggregated the values for financial reporting purposes as both instruments have been classified as permanent equity. This financing transaction is included the
Statement of Stockholders Equity under the caption Issuance of Common Stock and warrants to private investors on March 15 and 17, 2006.

On April 27, 2006, in connection with the March 2006 Private Placement, the Company filed a new registration statement on Form SB-2 and, on June 16, 2006, the Company filed a pre-effective amendment to such
registration statement. This new registration statement on Form SB-2 includes the securities to be registered in accordance with both the Amended Rights Agreement and the March 2006 Registration Rights Agreement. Certain shares held by individuals
who were not parties to the Amended Rights Agreement and March 2006 Registration Rights Agreement were also included on the registration statement.

(8)
Stock Based Compensation

Restricted Stock

In March 2006, the Company granted 280,000 shares of restricted stock to an officer and the three independent members of the board of
directors for services to be provided. The awards vest over various periods through 2009. The Company valued the stock at $3.69 per share based on the market price on the date of grant and recognized $86,100



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and $295,200 in compensation expense for the three and six months ended June 30, 2006, respectively. At June 30, 2006, 230,000 shares remained
subject to vesting provisions.

Stock Options

In October 2005, the Company granted 918,000 options to purchase its Common Stock to its Chief Financial Officer which vest on various
dates through 2009. The Company valued the shares at $0.54 using a binomial option-pricing model. The Company recorded compensation expense of $45,205 and $64,600 during the three and six months ended June 30, 2006, respectively, for options
that vested under this award. At June 30, 2006, 338,250 options had vested under this award.

In December 2005 and May
2006, the Board approved the grant of 430,000 and 500,000 options, respectively, to purchase its common stock to employees, of which 300,000 have lapsed due to the termination of Bill DeGroots employment as of April 26, 2006. A grant
date, as defined in SFAS 123R, will not occur for these awards or subsequent awards until the plan has been approved by the shareholders.



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(9) Commitments and Contingencies

Software License Agreements

In October 2005, the Company entered into a license
agreement which included the purchase of a source code license for $50,000 and provides for royalty payments of $2.00 per end user license. Payment for the source code license is due upon the achievement of certain milestones as defined in the
agreement. The Company paid $15,000 during 2005 and has accrued the remaining $30,000 at March 31, 2006 which is included in research and development expenses in the accompanying statement of operations for the three months ended March 31,
2006. In addition, the Company has accrued $20,000 for maintenance of end user licenses at June 30, 2006. The agreement can be terminated by the counterparty in the event that the Company does not purchase 200,000 end user licenses through
2008.

In November 2005, the Company entered into a software license agreement which included the purchase of a source code
license to be included in its product and provides for royalty payments of $5.25 per end user license. The Company has future commitments to purchase end user licenses as follows:



|      |  |          |  |         |        
|----- |  | -------- |  | ------- | -------
|      |  | Licenses |  | Royalty
|2006  |  | 25,000   |  | $       | 131,250
|2007  |  | 25,000   |  |         | 131,250
|      |  |          |  |         |        
|Total |  | 50,000   |  | $       | 262,500
|      |  |          |  |         |        

Employment Contracts

Catcher entered into employment agreements with its Chief Executive Officer, Chief Technology Officer, Chief Financial Officer and Vice
President of Engineering. The employment agreements expire at various times through 2008. The agreements provide for initial aggregate annual base compensation of $816,000 per year. With the exception of Vice President of Engineering whose bonus
amount is at the discretion of the board, each of the other employment agreements provides for the participation in any incentive bonus program adopted by the Company, provided that in no event will such incentive bonus program provide for a bonus
of less than 50% of the respective base salary upon achievement of certain goals. In June 2006, the Board approved an additional bonus of $50,000 for one of its officers. This bonus was paid during June 2006.

Manufacturing Agreement

In November 2005, the Company entered into a manufacturing agreement with a supplier to manufacture its product. Under the agreement, the Company incurred production startup costs including $204,950 for tooling and $84,500 for non-recurring
engineering costs which have been capitalized. The Company may be obligated to pay an additional $58,000 of non-recurring engineering costs under certain conditions specified in the agreement.

Teaming Agreement

In
June 2005, an entity, with which the Company entered into a teaming agreement, asserted that it retained exclusive rights to distribute the CATCHERTMdevice. On November 10, 2005, the Company entered into a release and settlement agreement with the entity pursuant to which the parties terminated the prior teaming agreement and granted mutual
releases. As part of the release and settlement agreement, the Company agreed to pay the entity an aggregate of $50,000 as follows: $25,000 upon completion of the first 1,001 production units and $25,000 upon completion of the first 5,001 production
units or in the event that either of these milestones do not occur before June 30, 2006 the entire amount is due on that date. The Company paid $50,000 related to this settlement in June 2006.

(10) Related Party Transactions

Contributed
Services

During the three months ended March 31, 2006 and 2005, an officer contributed office space to the
Company. No expense was recorded for these services in the three and six months ended June 30, 2006 or during the three months ended June 30, 2005 as they were immaterial. No expense was recorded for these services during the three months
ended March 31, 2005 as the Company was in the early stages of development.

During the three months ended
March 31, 2005, Ira Tabankin, the Companys Chief Technical Officer and Chairman, and John Sutton, the Companys VP Engineering provided services to the Company without cash



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##### Table of Contents

compensation. No expense was attributed to these services as the Company was in the early stages of development. These individuals began receiving cash
compensation during May 2005.

(11) Segment and Geographic Information

To date, the Company has viewed its operations and manages its business as principally one segment. As a result, the financial information disclosed herein represents all of the material financial information related
to the Companys principal operating segment in accordance with SFAS No. 131,Disclosures About Segments of an Enterprise and Related Information. The Company has not had any sales to date nor has it conducted any operations outside
of the United States.



|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations and Plan of Operation.
|------- | ------------------------------------------------------------------------------------------------------------

The following discussion and analysis should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and related Notes to
Condensed Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-QSB.

The
accompanying managements discussion and analysis of financial condition and results of operations and plan of operation gives effect to the restatement of our consolidated financial statements for the year ended December 31, 2005. See
Note 3 to our condensed consolidated financial statements.

We have included in this Quarterly Report certain forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of 1995 concerning our business, operations and financial condition. Forward-looking statements consist of all non-historical information, and the
analysis of historical information, including the references in this Quarterly Report to future revenue growth, future expense growth, future profitability, anticipated cash resources, anticipated capital expenditures, capital requirements and our
plans for future periods. In addition, the words could, expects, anticipates, objective, plan, may affect, may depend, believes, estimates,
projects and similar words and phrases are also intended to identify such forward-looking statements.

There are various
factors  many beyond our control  that could cause our actual results or the occurrence or timing of expected events to differ materially from those anticipated in our forward-looking statements. Such factors may also cause substantial
volatility in the market price of our Common Stock. We have included below under Risk Factors a description of the known risks that we believe to be material. All forward-looking statements included in this Quarterly Report are current
only as of the date of this Quarterly Report. We do not undertake any obligation to publicly update any forward-looking statement to reflect events or circumstances after the date on which any such statement is made or to reflect the occurrence of
unanticipated events.

Overview

We
are developing the CATCHER device, a ruggedized portable computer built to military standards that incorporates voice, video, data, and biometric information with multiple wireless and wired communications capabilities. We expect the device to
be part of the worldwide enterprise mobile device platform marketplace, which is comprised of commercial-grade, semi-rugged/rugged and fully rugged form products.

Our initial product, the CATCHERdevice, is in the final stages of
development, with the initial prototype having been completed in August 2005 and units developed for evaluation and testing in June 2006. Pursuant to the equipment authorization requirements of the Federal Communications Commission
(FCC), we successfully completed testing the prototype and initial production units in October 2005 and August 2006, respectively, and therefore are permitted under the FCCs rules to commence commercial sales of those units. We
successfully completed the European Unions CE testing in November 2005. We also plan to have the Catcherdevice tested under the procedures set forth in Military Standard 810F during the second half of 2006.

We have secured initial purchase
orders for the evaluation and testing units and plan to commence commercial production during the third quarter of 2006, versus the second quarter as previously reported, due to additional development and testing requirements. We have not commenced
commercial sales of the CATCHER device and may be required to complete additional testing prior to offering for sale any future production units that are not electrically identical to those units previously tested and authorized under the
FCCs declaration of conformity procedure.

The CATCHER device is a patent pending product built to pass the testing as set
forth in Military Standard 810F. It is a ruggedized portable personal computer that integrates features of several individual devices, including a personal computer utilizing Microsoft®XP Pro with Tablet PC capabilities as its operating system, two digital cameras with patent pending digital watermarking technology,
wireless and wired communications, global positioning satellite receiver, video conferencing, and a biometric finger print reader. The CATCHER device utilizes an Intel Pentium M processor. The



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prototype unit weighs only 4.5 lbs., is 10 inches in width, 7.25 inches in height, 2.25 inches in depth, and has a daylight-viewable 6.4 inch diagonal VGA
backlit touch screen.

The CATCHER product enables multiple video/audio streams to be sent to or transmitted from a portable unit; it
also introduces watermarking technology for digitally recorded video/digital stills and audio tied to GPS data. The CATCHER product was designed for non-computer literate users, is light weight, and built to withstand common abuse. It is
designed to be used in a broad temperature range of -30 to +55C, 100% humidity, and in highly dusty environments. We are developing a series of accessories to support the product, including extra batteries, a docking port, a vehicle install
kit, and a holster to allow easy transportability of the CATCHER device.

Plan of Operation

From inception to date, we have been primarily involved in organizational activity, negotiating vendor contracts, making arrangements for the commercial
use and deployment of the CATCHER device, engaging and developing our initial customer base, and recruiting and managing staff.

We
expect to negotiate agreements with VARs, distributors, integrators and OEMs. Our VARs, distributors and OEMs will purchase or license the CATCHER devices directly from us, and then in return sell services to end-users. We have developed
standard VAR agreements (one agreement for U.S. government sales and the other agreement for private sector and governmental sales other than U.S. government sales) for use in the ordinary course of our business. These standard VAR agreements
provide that (i) the VARs appointment and the related licenses are non-exclusive; (ii) we are free to accept or reject orders placed by the VAR, and acceptances must be in writing; (iii) the pricing and payment terms will be as set forth in
our price list, which we may change unilaterally with 30 days notice; (iv) the initial term is for two years, and the agreement will not continue unless the parties affirmatively agree to renew the agreement; and (v) we may terminate the
agreement immediately in several situations, including an uncured material breach by the VAR. To date, we have entered into standard VAR agreements with EPS, L-3 GSI, ImageWare Systems, Inc., and CGI Communications, Inc. Additionally we have
received initial purchase orders for testing and evaluation units from these VARs.

We are in the early stage of transitioning from
development stage into an operational stage. Accordingly, at the current stage of our operations, we do not believe that period to period comparisons of our results of operations are meaningful and have elected not to provide a description of the
comparisons between our financial position at June 30, 2006 and June 30, 2005 and for the periods then ended or at December 31, 2005 and December 31, 2004 and for the periods then ended. The relationships between revenue, cost of revenue and
operating expenses reflected in the financial information included herein do not represent future expected financial results.

Our costs
associated with production of units of the CATCHER device will be variable based on the units that we decide to have manufactured. Management currently does not anticipate that we will operate our own production facilities, and instead will
outsource production to a third party manufacturer.

On November 22, 2005, we entered into a manufacturing agreement with KeyTronic
pursuant to which KeyTronic will manufacture the CATCHER device for us, at unit prices depending on monthly purchase volumes. Prices are subject to change if parts and material costs change or process or test procedures change. The initial
term of the agreement expires on December 31, 2009 and the agreement may be renewed for additional two-year terms upon the mutual written agreement of the parties. Either party may terminate the agreement immediately upon written notice if the other
party fails to comply with any material term or condition of the agreement, becomes insolvent or has a bankruptcy petition filed by or against it and such petition is not dismissed within 60 days of the filing date. Neither party may terminate the
agreement during the initial term or any renewal term other than for cause. We are not obligated under the agreement to purchase any particular number of units from KeyTronic. However, if our average monthly purchases fall below 2,000 units at any
time during the initial term of the agreement, then we must immediately pay to KeyTronic $58,000 to reimburse KeyTronic for non-recurring engineering costs.

We expect our operating expenses will increase as we increase our transaction volumes, research and development activities, and sales and marketing activities. We anticipate developing new product versions with
improved functionality or additional features which will require retesting and recertification, although no specific schedule exists or has been presently committed to for future development versions. However, we anticipate over the next 12 months
that our operating expenses will increase at a slower rate relative to the rate of increase in our revenues during this same period.

We
expect our principal activities over the next 12 months to include unit production, research and development, sales and marketing, and general and administration. In addition to costs associated with production of units the CATCHER device
which will vary based on the number of units that we decide to have manufactured, we anticipate that our most significant costs related to the activities described above will include the following items:



| |  |  | Research and development expenses, including salaries and associated employee benefits and travel, engineering and design services, and testing and certification for FCC Type and
Military Standard 810F, which are currently anticipated to total approximately $5.5 million;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Sales and marketing expenses, which consist primarily of salaries, associated employee benefits, travel expenses of sales and marketing personnel, promotional expenses and the costs
of programs aimed at increasing revenue such as advertising, trade shows, public relations and other market development programs, which are currently anticipated to total approximately $2.3 million; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | General and administrative expenses, which consist of salaries of our management, finance and administrative staff, and associated employee benefits and travel; facilities costs;
information systems costs; legal, accounting and other professional fees; and other corporate costs, which are currently anticipated to total approximately $3.3 million.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We anticipate funding for the activities described above will come principally from some or all of the following sources: working capital generated from
unit sales, customer deposits, vendor credit terms, sales of additional securities, proceeds from the exercise of some or all of our outstanding warrants and debt financing.

We do not currently have any financing arrangements or lines of credit with lenders. Our initial product, the CATCHER device, is in the final
stages of development, with the initial prototype having been completed in August 2005 and units developed for evaluation and testing in June 2006. Pursuant to the equipment authorization requirements of the FCC, we obtained declarations of
conformity for the prototype and initial production units in October 2005 and July 2006, respectively. We have secured initial purchase orders for the evaluation and testing units and plan to commence commercial production during the third quarter
of 2006, versus the second quarter as previously reported, due to additional development and testing requirements. We may be required to obtain additional declarations of conformity prior to offering for sale future production units that are not
electrically identical to those authorized under our existing declarations of conformity.

Results of Operations

Revenue

We have not generated any revenue since
inception. We completed the initial prototype of the CATCHER device during August 2005, completed development and began production on evaluation units in the first quarter of 2006, received a declaration of conformity from the FCC during
August 2006, and expect to begin initial production during the second half of 2006 versus the second quarter of 2006 as previously reported due to additional development and testing requirements. We have received orders for the first production
units which will be used for evaluation by our customers. We delivered our first shipments of a portion of these orders during the second quarter of 2006 and will recognize revenue when the evaluation and testing has been substantially completed. We
believe the units will have a suggested base retail unit list price of at least $7,000. The unit price charged to VARs will depend on volume commitments. At volume production levels, we expect the gross margin, at volume production levels, to
be approximately 40%. We also expect to begin shipping units and recognize revenue from these sales during the second half of 2006.

Cost of Sales

Cost of sales will consist primarily of direct costs of the manufactured units, wages of operational employees and cost of training.
Many factors are anticipated to affect our gross margin, including, but not limited to, market conditions, competition, production order volumes and supplier pricing. As noted above, management currently does not anticipate that we will operate our
own production facilities, as we intend to continue to outsource production to a third party manufacturer. We expect to incur cost of sales as we begin to sell units during 2006.

Research and Development

Research and development expenses incurred in the design, development and
testing of our product include compensation and benefits for management and staff, engineering and consulting services, electronic parts, testing, and other miscellaneous expenses.

Research and development expense represented 44% of total operating expenses during the three-months ended June 30, 2006 and 42% during the
six-months ended June 30, 2006. In the future, the rate of research and development spending related to the CATCHER device is likely to increase as we begin development of product accessories, add headcount for research programs,
translate the product interface for use in other countries and begin development on the next version of the CATCHERTMdevice.

Selling, General and Administrative

Selling, general and administrative expenses include all corporate and administrative functions that serve to support our current and future operations and provide an infrastructure to support future growth. Major
items in this category include compensation and benefits for management and staff, travel related expenses and professional services. Approximately $218,000 and $374,000 of the $807,000 and $1,520,000 expense during the three and six months ended
June 30, 2006, respectively, was for sales and marketing efforts. In the future, the rate of spending on selling and marketing is expected to increase significantly as we add headcount for sales and marketing management, as we expand our
marketing campaign for the CATCHER device and as we participate in industry and trade shows.

General and administrative expense was
approximately $589,000 or 35% of total operating expenses for the three months ended June 30, 2005 and $1,146,000 or 36% for the six months ended June 30, 2006. We expect that total spending on general and administrative expenses will
increase in the future due to increased headcount, expansion of corporate facilities and related equipment offset by reduced spending on professional services. However, we expect that spending on general and administrative items as a percentage of
total operating expenditures will decrease related to other operating activities including sales and marketing and research and development.



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Stock-based Compensation and Consulting Expense

We recorded approximately $131,000 and $360,000 in stock-based compensation expense during the three and six months ended June 30, 2006 related to
the vested stock options and restricted stock issued to members of our board of directors and our Chief Financial Officer. We recorded approximately $3,523,000 in stock-based compensation and consulting expense during the three or six months ended
June 30, 2005, as restated, related to shares issued to employees and consultants of Catcher, Inc. These stock compensation charges can fluctuate substantially from period to period based on the fair value of our stock and the number of awards
granted during each period.

Interest Income

Interest income increased in the three and six months ended June 30, 2006 due to interest earned in short term investments of the cash balances that we have remaining from the March 2006 Private Placement and Series A Warrant exercise.

Financing Costs

Financing costs
increased in the six months ended June 30, 2006 due to the issuance of Series C Warrants as an inducement to exercise the Series A Warrants in February 2006, which resulted in a charge of approximately $1,074,000. There were no financing costs
recorded during the three months ended June 30, 2006.

Income Tax Expense

Since inception, we have incurred operating losses and accordingly have not recorded a provision for income taxes for any of the periods presented. As of
June 30, 2006, we had net operating loss carry forwards for federal and state income tax purposes of approximately $6.8 million. We also had federal and state research and development tax credits each of approximately $200,000. If not utilized,
the net operating losses and credits will expire in varying amounts through 2026. Utilization of net operating losses and credits are subject to a substantial annual limitation due to ownership change limitations provided by the Internal Revenue
Code of 1986, as amended. The annual limitation could result in the expiration of our net operating losses and credit carryforwards before they can be used.

Critical Accounting Principles

Below is a brief description of key accounting principles which we have adopted in
determining our recognition of revenues and expenses.

Revenue Recognition

We intend to recognize revenue in accordance with the SEC Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements
as updated by SEC Staff Accounting Bulletin No. 104, Revenue Recognition. Under these guidelines, revenue is recognized when persuasive evidence of an arrangement exists, shipment has occurred or services rendered, the price is fixed or
determinable and payment is reasonably assured. Under these requirements, when the terms of sale include customer acceptance provisions, and compliance with those provisions has not been previously demonstrated, revenues are recognized upon
acceptance. To date, we have delivered units to customers for evaluation and testing purposes. These units will be invoiced and revenue recognized as each of these customers have substantially completed their evaluation and testing requirements.
Therefore, we continue to operate in the development stage and have not recognized any revenue to date.

Stock Based Compensation

Awards under our stock option plans are accounted for in accordance with Statement of Financial Accounting Standards (SFAS) No. 123R (SFAS 123R)
Share Based Payment, and SAB No. 107. Accordingly, compensation is measured on the grant date of an award and recognized over the service period for which the award was granted, generally the vesting period. Compensation is equal to the fair
value of the award which we determine using a binomial option-pricing model. The valuation of compensation expense involves significant estimates which are judgmentally determined. The binomial model requires estimates of volatility, expected life
and other assumptions. As our stock is thinly traded, these estimates, which are based partly on historical pricing of our stock, may not be indicative of fair value; but we believe they provide a reasonable basis for our conclusions.



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Income Taxes

We account for income taxes using the asset and liability method, as provided by SFAS 109, Accounting for Income Taxes (SFAS 109) which requires the recognition of different tax assets and liabilities for the future tax consequences of
temporary differences between the financial statement and tax basis carrying amounts of assets and liabilities. No income taxes were provided because we have incurred losses from our inception. Due to the uncertainty of future taxable income, no
future tax benefits have been recognized.

Recent Accounting Pronouncements

In March 2006, the FASB issued Statement of Financial Accounting Standards No. 156, Accounting for Servicing of Financial Assets (SFAS
No. 156), which amends FASB Statement No. 140 (SFAS No. 140). SFAS 156 may be adopted as early as January 1, 2006, for calendar year-end entities, provided that no interim financial statements have been issued.
Those not choosing to early adopt are required to apply the provisions as of the beginning of the first fiscal year that begins after September 15, 2006 (e.g., January 1, 2007, for calendar year-end entities). The intention of the new
statement is to simplify accounting for separately recognized servicing assets and liabilities, such as those common with mortgage securitization activities, as well as to simplify efforts to obtain hedge-like accounting. Specifically, the FASB said
FAS No. 156 permits a servicer using derivative financial instruments to report both the derivative financial instrument and related servicing asset or liability by using a consistent measurement attribute, or fair value. We do not expect the
adoption of SFAS 155 to have a material impact on our consolidated financial position, results of operations or cash flows.

In July 2006,
the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109 (FIN 48), which clarifies the accounting for uncertainty in tax positions. This Interpretation
requires that we recognize the impact of a tax position in our financial statements if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The provisions of FIN 48 will be effective as of
the beginning of our 2007 fiscal year. We are currently evaluating the impact of FIN 48.

In July 2006, the FASB issued FASB Staff Position
(FSP) No. FAS 13-2, Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction, that provides guidance on how a change or a potential change in the timing
of cash flows relating to income taxes generated by a leveraged lease transaction affects the accounting by a lessor for the lease. This staff position will be adopted by us on January 1, 2007. We do not expect the adoption of this provision to have
a material effect on our financial position, results of operations or cash flows.

In July 2006, the Emerging Issues Task Force Reached
Consensus on Issue No. 06-03 How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross Versus Net Presentation), that provides guidance on how sales tax
collected from customers should be presented in the income statement. We will adopt this statement immediately, and will disclose the caption in which sales tax is recorded in accordance with the consensus reached in this issue when sales tax has
been collected.

Liquidity and Capital Resources

Since inception, cash used in operations primarily consists of the loss from operations offset by non-cash charges related to stock based compensation and acquired research and development. As of August 4, 2006
we had a cash balance of approximately $2.5 million.

Since inception, we have incurred approximately $855,000 in capital asset
expenditures. Future requirements will include computers, office equipment, software and similar equipment. We do not anticipate significant capital expenditure spending in the future for capital equipment or machinery. In addition to capital
expenditures we have paid our contract manufacturer under the manufacturing agreement, $1,293,000, for units which have been released to production. This amount is classified as a prepaid expense until the completed product has been shipped to us or
to our customer by the contract manufacturer. In the future, costs incurred for manufacturing is expected to increase significantly.

Our
primary source of liquidity has been the proceeds generated from the private offering of shares of our Common Stock and warrants to acquire shares of our Common Stock. The principal uses of cash have been for product development and general and
administrative expenses. Since May 2005, we have raised approximately $13.7 million in gross proceeds from the issuance of securities or warrant exercises.

We currently have outstanding Series A, Series B, Series C and Series D warrants to purchase an aggregate of 5,841,386 shares of our Common Stock (the Warrants), that if exercised would provide gross
proceeds to us totaling $14.2 million.

There are 572,908 Series A Warrants outstanding. Each Series A Warrant entitles the holder to
purchase one share of our Common Stock at $1.50 per share (the Series A Exercise Price), exercisable for a period of five years. Once the resale of the Common Stock issuable upon exercise of the Series A Warrants is registered with the
SEC, we may call the Series A Warrants upon notice to the warrant holder from time to time at any time that the Common Stock closes at or above $2.50 per share for ten (10) consecutive trading days at an average volume of 40,000 shares per day
during the ten-day trading period, provided that, within twenty (20) business days after the date of such notice, the warrant holder will have the right to exercise, under the terms and conditions of the Series A Warrants, all or a part (but
not less than 25%) of the Series A Warrants held at the Series A Exercise Price. From and after the expiration of such twenty (20) business day notice, we may repurchase all Series A Warrants then held for a purchase price of $0.01 per Series A
Warrant unless and to the extent that the Series A Warrant holder first exercises the Series A Warrants at the Series A Exercise Price.

There are 2,250,193 Series B Warrants outstanding. Each Series B Warrant entitles the holder to purchase one share of Common Stock at $2.00 per share (the Series B Exercise Price), exercisable for a period of five years. Once
the resale of the Common Stock issuable upon exercise of the Series B Warrants is registered with the SEC, we may call the Series B Warrants upon notice to the warrant holder from time to time at any time that the Common Stock closes at or above
$3.33 per share, for ten (10) consecutive trading days at an average volume of 40,000 shares per day during the ten-day trading period; provided that, within twenty (20) business days after the date of such notice, the warrant holder will
have the right to exercise, under the terms and conditions of the Series B Warrants, all or a part (but not less than 25%) of the Series B



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Warrants held at the Series B Exercise Price. From and after the expiration of such twenty (20) business day notice, we may repurchase all Series B
Warrants then held for a purchase price of $0.01 per Series B Warrant unless and to the extent that the Series B Warrant holder first exercises the Series B Warrants at the Series B Exercise Price.

There are 1,677,285 Series C Warrants outstanding. Each Series C Warrant entitles the holder to purchase one share of Common Stock at $2.50 per share
(the Series C Exercise Price), exercisable for a period of five years. The Series C Warrants are non-callable.

There are
1,341,000 Series D Warrants outstanding. Each Series D Warrant entitles the holder to purchase one share of Common Stock at $3.50 per share (the Series D Exercise Price), exercisable for a period of five years. The Series D Warrants are
non-callable.

In addition to the Series A, Series B, Series C and Series D warrants described above, there are 101,280 warrants to
purchase units outstanding. Each warrant entitles the holder to purchase one unit at $5.00 per unit. The units are identical to the units sold in the March 2006 private placement and consist of two shares of Common Stock and one Series D warrant.
This warrant is non-callable. If this warrant and the underlying Series D warrants were to be fully exercised, the holder would be entitled to purchase an aggregate of 303,840 shares of Common Stock. We also have outstanding a warrant to purchase
65,000 shares of our Common Stock issued to Jeff Gilford, our Chief Financial Officer, for an exercise price of $3.74 per share and a warrant to purchase 20,000 shares of our Common Stock to Stanley Blackburn, who is unaffiliated with us, for an
exercise price of $3.74 per share, each of which was issued in connection with accounting and advisory services rendered by Blackford Partners. If these additional warrants were exercised, the gross proceeds provided to us would total approximately
$1.2 million.

Based on our current operating plan, we anticipate that we will require, in addition to the $6.1 million raised in March
2006, a minimum of $10 million of additional capital during 2006. In addition to costs associated with production of units of the CATCHERTMdevice (which, as noted above, will vary based on the number of units that we decide to have manufactured), we anticipate that our most significant costs during the next 12 months will be the following items:



| |  |  | Research and development expenses, including salaries and associated employee benefits and travel, engineering and design services, and testing and certification for FCC Type and
Military 810F, are currently anticipated to total approximately $5.5 million;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Sales and marketing expenses, which consist primarily of salaries, associated employee benefits, travel expenses of sales and marketing personnel, promotional expenses and the costs
of programs aimed at increasing revenue such as advertising, trade shows, public relations and other market development programs, are currently anticipated to total approximately $2.5 million; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | General and administrative expenses, which consist of salaries of our management, finance and administrative staff, and associated employee benefits and travel; facilities costs;
information systems costs; legal, accounting and other professional fees; and other corporate costs, are currently anticipated to total approximately $3.5 million.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We anticipate that the additional capital will come principally from one or more of the following: customer deposits, working capital generated from unit
sales, debt financing or vendor credit terms, proceeds from exercise of some or all of the outstanding warrants, or sale of additional securities. Since inception, we have not generated revenue and there can be no assurance that we will generate
revenue in the future. The maximum potential amount of funds that we may receive from the exercise of all of the outstanding Warrants is approximately $15.4 million, in addition to the approximately $2.52 million already received upon partial
exercise of the Series A Warrants.

We have experienced losses since inception and our cumulative loss to date is $(13,142,474). In
addition, we have not generated cash from operations and our cumulative cash used in operations to date is $(9,121,468). We do not currently have any financing arrangements or lines of credit with lenders. These factors create a substantial doubt
about our ability to continue as a going concern.

In light of the limited stockholders equity as well as our lack of operating
history, there can be no assurance that we will be able to obtain the necessary additional capital on a timely basis or on acceptable terms, if at all, to fund the development of our business. In any of such events, the growth of our business and
prospects would be materially and adversely affected. As a result of any such financing, if available, the holders of the Common Stock may experience substantial dilution.

Quantitative and Qualitative Disclosures About Market Risk

Increases in interest rates will affect
the cost of financing and may affect our ability to obtain favorable financing terms in order to grow as anticipated.



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Off Balance Sheet Financing Arrangements

We do not have any off balance sheet financing arrangements.



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RISK FACTORS

An investment in our common stock is highly speculative and involves a high degree of risk. You should carefully consider the risk factors described below and the other information in this Quarterly Report on
Form 10-QSB and our other SEC filings. We have included in this section a discussion of all risks that we consider material. However, additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair
our operations. The occurrence of any of these risks could harm our business. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.

Risks Specific to Us

We are in the early stages of our life cycle
and have limited operating history. Therefore, there is limited historical or current operating information upon which an investor can base its investment decision.

We have limited operating history on which to base an evaluation of our business and prospects. To date, we have engaged primarily in research and development, securing rights to essential technology, product testing,
engaging markets and distribution sources, and making other arrangements necessary to begin operations. To date, we have entered into agreements with a limited number of VARs establishing distribution terms and conditions. We have also initiated
preliminary discussions with prospective customers or strategic business partners, as well as preliminary discussions with potential VARs and distributors. Our prospects must be considered in light of the risks frequently encountered by a start-up
technology company formed to engage in a relatively new, potentially highly competitive industry.

Moreover, as an early stage company, we
have no prior experience in implementing and managing our planned business in an operational setting. Accordingly, there can be no assurance that we will be able to successfully implement our business plans or strategies.

We cannot provide any assurance that we will be successful in addressing the risks which we may encounter, and our failure to do so could have a material
adverse effect on our business, prospects, financial condition and results of operations.

We may never generate revenues or achieve profitability,
which failure would adversely impact the price of our common stock.

While we believe that our CATCHERdevice is a highly distinctive concept, its distinctiveness adds to the speculative nature of our business because we are
not aware of any comparable products that we can look to in order to assess the marketability and demand for our product. We can provide no assurance that we will ever achieve any revenues or profitable operations from our planned operations.

If we are unable to obtain and maintain patent and other intellectual property ownership rights relating to the CATCHER device, then we may not
be able to sell the CATCHER device, which would have a material adverse impact on our results of operations and the price of our common stock.

We own all of the right, title and interest in and to the patent application on the CATCHERdevice, Patent Application No. 10/885,515 (Portable Handheld Security Device) (the Patent). If the Patent issues it will be presumed valid, but there is no assurance that it will not be successfully challenged or
circumvented by competitors or others. We have no assurance that the United States Patent and Trademark Office will issue the Patent or that the scope of any claims granted in an issued patent will provide broad protection or a competitive advantage
to us. If the Patent fails to issue in sufficient scope or at all, or if the patent issues but we fail to maintain and enforce our rights in the issued patent, or if we fail to maintain and protect our rights in our other intellectual property,
including our know-how, trade secrets and trademarks, such failures, individually and in the aggregate, could have a material adverse effect upon our business prospects, financial condition and results of operations. In addition, we have and we
intend from time-to-time, to file additional patent applications directed to enhancements to the CATCHERtechnology. Such applications may include new applications, continuations and continuations in part of existing applications, and foreign applications corresponding to any or all of these. If such patents issue, they will be presumed valid, but
there is no assurance that they will not be successfully challenged or circumvented by competitors or others.

Moreover, although we are
not aware of any existing impediments, we can give no assurance that we will be able to operate without infringing upon the proprietary rights of third parties.

We may have to alter our products or processes, pay licensing fees, defend an infringement action or challenge the validity of the patents in court, or cease activities altogether because of patent rights or other
intellectual property rights of



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third parties, any of which could result in a material adverse effect upon our financial condition, results of operations and future prospects.

In particular, we have become aware of a continuing patent application (U.S. Patent Publication No. 2005/0060739) in the name of Tony Verna of
Scanz Communications, Inc. (the Verna Application). The Verna Application was filed on January 10, 2004, published in due course on March 17, 2005 and includes various prospective claims. The application is awaiting examination
by the U.S. Patent and Trademark Office. If the Verna Application issues as a patent, the claims may cover one or more aspects of the CATCHERdevice. We cannot predict whether the Verna Application will ever issue as a patent, and if so, the scope and content of any such patent.

We also rely upon trade secrets and other unpatented proprietary technology. No assurance can be given that we can meaningfully protect our rights with
regard to such unpatented proprietary technology or that competitors will not duplicate or independently develop substantially equivalent technology.

We might experience delays in completing testing procedures, which could have an adverse effect on our financial condition, results of operations and business.

Pursuant to the equipment authorization requirements of the Federal Communications Commission (the FCC), we successfully completed testing of
the prototype and initial production units of the CATCHER device in October 2005 and August 2006, respectively, and are therefore permitted under the FCCs rules to commence commercial sales of these units. We may be required to complete
additional testing prior to offering for sale any future production units that are not electronically identical to those units previously tested and authorized under the FCCs declaration of conformity procedure. We believe each additional
testing under the FCCs declaration of conformity procedure will take approximately two weeks with an estimated total cost of $15,000.

In addition, although compliance with applicable Military Standard 810F procedures is not required for us to commence sales of the CATCHER device, we believe that compliance with, and satisfaction of, applicable Military Standard 810F
procedures is important to our ability to market and sell the CATCHER device. We expect to have the CATCHER device tested for compliance with applicable Military Standard 810F procedures in the second half of 2006. Once initiated, we
expect such testing to take approximately two weeks and cost approximately $20,000.

Any delays in completing such additional testing
and/or satisfying applicable procedures could delay commencement of sales of the CATCHER device or hinder our ability to market and sell the CATCHER device, which would have an adverse effect on our financial condition, results of
operations and business.

We may be subject to potential litigation relating to ownership of the Patent, which could have a material adverse effect on
our business and the price of our common stock.

Messrs. Ira Tabankin and Charles Sander were former employees of Scanz Communications,
Inc. (Scanz), and Mr. Tabankin also served as a consultant to Scanz, during which time Scanz had under development a handheld portable device that might be used for security purposes as well as in a sports-event setting, which was
Scanz principal business focus and the principal focus of its product development. The Scanz employment agreements with Messrs. Tabankin and Sander provided that Scanz would own intellectual property conceived or first reduced to practice
during employment. The consultancy agreement between Mr. Tabankin and Scanz provided that intellectual property rights that may be claimed by Scanz in connection with a development by Mr. Tabankin during or before the consultancy would be
the property of Scanz. Scanz or its licensees may claim that the CATCHERdevice was conceived or first reduced
to practice during the employment of Messrs. Tabankin and/or Sander or that the intellectual property comprising the CATCHERdevice could be claimed by Scanz. If Scanz or its licensee made any such claims, we believe that, as we were the assignee of the intellectual property rights in the CATCHERdevice, we would have strong defenses to any such claims for numerous reasons, including that the intellectual property constituting the
CATCHERdevice is distinguishable from the developments made during the aforesaid employments and consultancy.
However, if Scanz or its licensee were to prevail in such a claim, such event could have a material adverse effect upon our financial condition, results of operations and future prospects. Furthermore, even if we were to prevail, litigation could
result in substantial costs and divert managements attention and resources from our business.

We may be unable to adapt to technology trends or
evolving industry standards which would impede our ability to successfully develop and sell new products.

We will need to adapt to
competitively significant changes in component technology in these industries as well as to advanced technology used by our competitors. New products based on new technologies or new industry standards expose us to risks of technical or product
obsolescence. We may not be successful in using new technologies effectively, developing



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new product iterations or enhancing existing products in a timely manner. If we are unable to adapt to technology trends and evolving industry standards, our
financial condition, results of operations and future prospects will be materially adversely affected.

Our future is entirely dependent on
our successful development of our technology, products and services. As we complete the initial development of the CATCHERdevice and transitions from the development stage to commercialization, there is no assurance that the CATCHERdevice will perform as expected or be accepted by our target market.

We rely on third party manufacturers, which may have a material
adverse effect on our ability to manufacture and sell our products.

We do not intend to create facilities to manufacture the
CATCHERdevice and therefore we have entered into an agreement with a third party contract manufacturer,
KeyTronic Corporation, and will be dependent on them, or others as may be determined, for the manufacture of our products. This dependency could negatively impact our sales and marketing efforts if the sources of such supply prove to be unreliable
or unavailable. If the contracted manufacturing source is unreliable or unavailable, we may not be able to replace such manufacturer and could not go forward and our entire business plan could fail. In addition, agreements with such third parties
may not be at the most cost effective terms and therefore we may incur high costs.

We might experience delays in the supply chain for our product which
would result in insufficient quantities of particular components to complete the manufacturing of our product, which could have an adverse effect on our financial condition, results of operations and business.

We generally place orders with the contract manufacturer in advance of the scheduled delivery of the finished product to our customer. In some instances,
due to the length of component lead times, we might need to place manufacturing orders on the basis of our or our customers forecasts of the quantity and timing of the customers expected purchases from us. Consequently, if we
inaccurately anticipate customer demand for our products, we might be unable to obtain adequate quantities of components to manufacture products sufficient to meet our customer delivery requirements, or alternatively, we might accumulate excess
inventory of components. Any failure to manage our inventory levels or respond to unexpected shifts in customer demand could have a material adverse effect on our financial condition, results of operations and future prospects.

If we are unable to retain key personnel, consultants and industry partners, we may be unable to achieve our goals and our business could be adversely impacted.

Our success is heavily dependent on the continued active participation of our current executive officers, consultants and strategic
partners. The loss of the services of one or more of these managers, consultants or strategic partners could have a material adverse effect upon our business, financial condition and results of operations. Further, our success and achievement of our
growth plans depend on our ability to recruit, hire, train and retain other highly qualified technical and managerial personnel. Competition for qualified employees among companies with products in the security market, and those that are potential
entrants to the security market, is intense, and the loss of any such persons, or an inability to attract, retain and motivate additional highly skilled employees, technical and managerial personnel and consultants and advisors required for the
development and expansion of our activities, could have a materially adverse effect on our financial condition, results of operations and future prospects.

We have entered into agreements with our executive officers containing non-disclosure and non-competition provisions. The non-competition agreements are limited in duration and are not effective under certain
circumstances, such as the improper termination of the executive or the termination by the executive for good cause. Regardless of the non-competition agreements executed with executives, there can be no assurance that executives will remain
associated with us or that they will not compete, directly or indirectly, with us. Moreover, the enforceability and scope of non-competition agreements are often litigated and there is no assurance that such provisions will be enforceable as
written.

Our management team has limited experience in operating a business and there is no assurance that they will be able to successfully operate a
business.

None of our current management team has had substantial operational experience running a business such as contemplated by
our plans and there is no assurance that they will be able to do so.



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We are controlled by our officers, directors and principal stockholders, which could delay, defer or prevent us from
taking an action which our stockholders may otherwise view favorably and which may decrease the price of our common stock.

Our
directors and executive officers and their affiliates beneficially own or control the rights to approximately 27% of the issued and outstanding shares of our capital stock and approximately 18% of the fully- diluted outstanding shares of our capital
stock. In the normal course, our executive officers and directors and their affiliates, viewed as a group, would likely have the ability to substantially influence all matters submitted to stockholders for approval, including: (1) election of
our board of directors; (2) removal of any director; and (3) amendment of our certificate of incorporation or bylaws. Furthermore, until June 2009, our Chairman and Chief Technology Officer, Ira Tabankin, will hold one share of our Series
A Preferred Stock giving him the right to appoint one member of our board of directors. Mr. Tabankin may appoint himself or another person. Moreover, together, the management stockholders will have substantial influence over our management and
affairs. Our other stockholders will likely have no practical ability to remove our management or affect our operations or business.

We did not report
in any required filing with the SEC that our charter was revoked by the state of Delaware for failing to file annual reports and pay annual state franchise taxes and we may face penalties or be subject to an enforcement action by the SEC which could
have an adverse effect on the price of our common stock.

On March 1, 2001, the State of Delaware revoked our charter for failure
to file our annual report with the State of Delaware for the years 1999 and 2000 and failure to pay our franchise tax for those years. On May 29, 2003, we filed a Form 10-SB with the SEC to become a reporting company. We amended the Form 10-SB
in July 2003. Our charter in the State of Delaware was revived on March 31, 2005 after payment of franchise taxes due with penalties and interest in an amount equal to $592.40. During the period since becoming a reporting company until we filed
our amended 8-K on July 15, 2005 (the Omission Period), we had not reported the fact of such revocation on any report or Form that we have filed or are required to file with the SEC, including quarterly and annual reports (including
the annual report that was filed by us on March 31, 2005) and the Form S-8 filed by us in connection with our registration of certain of our shares on May 6, 2004. We may be subject to potential liability to stockholders who purchased
securities from us during the Omission Period. The omission may also subject us to possible liability for violation of the regulations of the SEC under the Securities Act and the Securities Exchange Act. While we have obtained written waivers of
liability from our stockholders who purchased our securities during the Omission Period, we offer no opinion on the effect of such waivers or whether or not the SEC would exercise its enforcement discretion and if it did, what action, if any, it
would take.

We may be subject to liability for failure to comply with Rule 419 under the Securities Act.

The SEC may bring an enforcement action or commence litigation against us for failure to comply with Rule 419 under the Securities Act. Rule 419
requires a blank check company to comply with certain escrow, disclosure, notice and other requirements when registering securities under the Securities Act. Prior to the Acquisition of Catcher Inc., we filed three registration statements on Form
S-8 that did not comply with the requirements under Rule 419. These registration statements and the related offerings may have been subject to Rule 419. Accordingly, we may be required to pay fines or be subject to other penalties for
failure to comply with Rule 419. We may also be subject to potential rescission liability to stockholders who purchased securities pursuant to these registration statements on Form S-8. However, we believe the statute of limitations has run on
any claim for rescission, and thus there are no longer any rescission rights available to the purchasers under these registration statements on Form S-8. Moreover, even if rescission rights were held to be available, our maximum potential liability
for any rescission claims to the individuals who purchased securities from us would be immaterial to our financial condition.

In addition,
although it is not clear that there is a private right of action under Rule 419, purchasers in the offerings registered under the three registration statements may sue us for failure to comply with Rule 419. Any litigation could be costly
to defend and ultimately we may be required to make damages payments or settlement payments that could have a material adverse effect on our business prospects, financial condition, results of operations and the price of our common stock.

We have incurred losses since inception and expect to continue to incur losses for the foreseeable future. We will require additional capital financing
in connection with our planned expansion of operations and may have difficulty obtaining such additional capital on acceptable terms or at all. If adequate funds are not available, we may be required to curtail our operations, or obtain funds on
unfavorable terms. These factors create a substantial doubt about our ability to continue as a going concern.



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We do not believe that our available resources may be sufficient alone, without additional sources of
financing, to adequately scale production of the product, and expect to incur operating losses for the foreseeable future. If revenues from operations are insufficient to support our planned expansion of operations, we will need to access additional
equity or debt capital. If public or private financing is not available when needed or is not available on terms acceptable to us, our growth and revenue-generating plans may be materially impaired. Such results could have a material adverse effect
on our financial condition, results of operations and future prospects.

We have issued and outstanding warrants to purchase our common
stock, some of which contain call provisions under certain circumstances. There can be no assurance that our right to call the warrants will be triggered or that the holders of such warrants will exercise the warrants.

Risks related to our industry.

The ruggedized portable computing
market is highly competitive and we may be unable to compete effectively.

The ruggedized portable computer market is diverse and
highly competitive and is characterized by relatively low entry barriers. Moreover, it is subject to constant technological change and intense marketing by providers who may be capable in a short period of time to introduce products similar to the
CATCHER device. We expect that new competitors are likely to enter this market, potentially using the same market entry strategy employed by us. The potential competitors may be significantly larger and have substantially greater market
presence, greater financial, technical, operational, sales, marketing and other resources and experience, including more established relationships with vendors, distributors and partners, than we have. In the event that such a competitor expends
significant sales and marketing resources in one or more of the security market segments where we compete, we may not be able to continue to compete successfully in such markets. We believe that there will be significant competition in the market
for products having functionality similar to the CATCHERdevice. Such competition will exert downward pressure
on prices. In addition, the pace of technological change could make it impossible for us to keep pace with such competitors in such an environment. If our competitors were to provide better product at better prices, our financial condition, results
of operations and future prospects will be materially adversely affected.

Competition from companies with greater resources than us could adversely
affect our business and the price of our common stock.

Many of the aspects of our business are currently and potentially highly
competitive. We will compete with numerous other companies in different segments of the security market with the financial and technological ability to compete with us. Moreover, it is possible that the Patent, if it issues, will not provide us with
adequate protection from companies capable of circumventing it. In addition, the Patent is not based on technological innovation in any particular function of the CATCHERdevice, but rather on its total functional concept. This concept could be copied or improved upon by competitors quickly. Many of these potential
competitors have substantially greater capital and other resources than we do and many are better situated to attract experienced technical and other personnel. Our current competitive edge in large part depends upon the extensive knowledge of our
management team in creating and thus far developing the CATCHERdevice and in our relationships with our
strategic partners and potential customer base. While we believe that this is a significant competitive advantage, it is not one that depends upon any resource that is unique to us. If we were to lose this competitive advantage, such loss would have
a material adverse effect on our business prospects, financial condition and results from operations.

Risks Related to the Securities Markets and
Investments in our common stock

The price of our common stock may be volatile, which may limit our ability to raise capital in the future or cause
investment losses for our stockholders.

The trading price of our common stock may fluctuate substantially for many reasons, some of
which are beyond our control and may not be related to our operating performance. These fluctuations could cause you to lose part or all of your investment in our common stock. Those factors that could cause fluctuations include, but are not limited
to, the following:



| |  |  | price and volume fluctuations in the overall stock market from time to time;
| | - |  | ----------------------------------------------------------------------------



| |  |  | fluctuations in stock market prices and trading volumes of similar companies;
| | - |  | -----------------------------------------------------------------------------



| |  |  | actual or anticipated changes in our earnings or fluctuations in our operating results or in the expectations of securities analysts;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------



| |  |  | general economic conditions and trends;
| | - |  | ---------------------------------------



| |  |  | major catastrophic events;
| | - |  | --------------------------



| |  |  | sales of large blocks of our stock;
| | - |  | -----------------------------------



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| |  |  | departures of key personnel;
| | - |  | ----------------------------



| |  |  | events affecting any strategic partners or collaborators;
| | - |  | ---------------------------------------------------------



| |  |  | announcements of new products or technologies, commercial relationships or other events by us or our competitors;
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | regulatory developments in the United States and other countries;
| | - |  | -----------------------------------------------------------------



| |  |  | failure of our common stock to be quoted on the OTC Bulletin Board or listed on the Nasdaq Capital Market, American Stock Exchange, or other national securities market or exchange;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in accounting principles; and
| | - |  | -------------------------------------



| |  |  | discussion of us or our stock price by the financial and scientific press and in online investor communities.
| | - |  | -------------------------------------------------------------------------------------------------------------

In the past, following periods of volatility in the market price of a companys securities, securities class action litigation has often been
brought against that company. Due to the potential volatility of our stock price, we may be the target of securities litigation in the future. Securities litigation could result in substantial costs and divert managements attention and
resources from our business.

Our common stock is considered to be penny stock, which may make it more difficult for investors to resell
their shares to third parties.

Our common stock may be deemed to be penny stock as that term is defined in
Rule 3a51-1, promulgated under the Securities and Exchange Act of 1934, as amended (the Exchange Act). Section 15(g) of the Exchange Act and Rule 15g-2 promulgated thereunder require broker-dealers dealing in penny stocks
to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document before effecting any transaction in a penny stock for the investors
account. We urge potential investors to obtain and read this disclosure carefully before purchasing any shares that are deemed to be penny stock.

Rule 15g-9 promulgated under the Exchange Act requires broker-dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that
investor. This procedure requires the broker-dealer to:



| |  |  | obtain from the investor information about his or her financial situation, investment experience and investment objectives;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



| |  |  | reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the investor has enough knowledge and experience to be able
to evaluate the risks of penny stock transactions;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | provide the investor with a written statement setting forth the basis on which the broker-dealer made his or her determination; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



| |  |  | receive a signed and dated copy of the statement from the investor, confirming that it accurately reflects the investors financial situation, investment experience and
investment objectives.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Compliance with these requirements may make it more difficult for investors in our common stock to resell their shares to third parties. Accordingly, our common stock should only be
purchased by investors who understand that such investment is long-term and illiquid, and are capable of and prepared to bear the risk of holding the investment for an indefinite period of time.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We may incur increased costs as a result of recently enacted and proposed changes in laws and regulations relating to corporate governance matters which may cause us
to reallocate our resources, which could adversely affect our business.

Recently enacted and proposed changes in the laws and
regulations affecting public companies, including the provisions of the Sarbanes-Oxley Act of 2002 and rules adopted or proposed by the SEC and by the Nasdaq Stock Market, will result in increased costs to us as we evaluate the implications of these
laws and regulations and respond to their requirements. These laws and regulations could make it more difficult or more costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to
accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board
of directors, our board committees or as executive officers. We are presently evaluating and monitoring developments with respect to these laws and regulations and cannot predict or estimate the amount or timing of additional costs we may incur to
respond to their requirements.



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A limited public trading market may cause volatility in the price of our common stock.

Our common stock is currently quoted on the OTC Bulletin Board. The quotation of our common stock on the OTC Bulletin Board does not assure that a
meaningful, consistent and liquid trading market currently exists, and in recent years such market has experienced extreme price and volume fluctuations that have particularly affected the market prices of many smaller companies like us. Our common
stock is subject to this volatility. Sales of substantial amounts of common stock, or the perception that such sales might occur, could adversely affect prevailing market prices of our common stock and our stock price may decline substantially in a
short time and our stockholders could suffer losses or be unable to liquidate their holdings.

We may not be able to achieve secondary trading of our
stock in certain states because our common stock is not nationally traded, which could subject our stockholders to significant restrictions and costs.

Because our common stock is not approved for trading on the Nasdaq National Market or listed for trading on a national securities exchange, our common stock is subject to the securities laws of the various states and
jurisdictions of the United States in addition to federal securities law. This regulation covers any primary offering we might attempt and all secondary trading by our stockholders. While we may register our common stock or qualify for exemptions
for our common stock in one of more states, if we fail to do so the investors in those states where we have not taken such steps may not be allowed to purchase our stock or those who presently hold our stock may not be able to resell their shares
without substantial effort and expense. These restrictions and potential costs could be significant burdens on our stockholders.

We are able to issue
shares of preferred stock with rights superior to those of holders of our common stock which may adversely affect our common stock.

Our Certificate of Incorporation provides for the authorization of 999,999 shares of blank check preferred stock. Pursuant to our Certificate of Incorporation, our board of directors is authorized to issue such blank
check preferred stock with rights that are superior to the rights of holders of our common stock. The issuance of such preferred stock may adversely impact the rights of holders of our common stock.

If we issue additional shares of stock, such issuances can dilute the tangible net book value of shares of our outstanding stock.

We may issue shares of stock at a purchase price that is substantially lower than the market price of shares of our common stock, without stockholder
approval. If we issue such shares of stock, then the tangible net book value of shares of our outstanding stock will be diluted.

Additional authorized
shares of common stock available for issuance may adversely affect the market for our common stock and dilute the interests of our stockholders.

We are authorized to issue 50,000,000 shares of our common stock. As of June 30, 2006, we had 17,139,718 shares of our common stock issued and outstanding, excluding shares issuable upon exercise of our
outstanding warrants and options. If shares of common stock are issued, options and warrants are exercised, holders of our common stock will experience dilution. In addition, in the event of any future financing of equity securities or securities
convertible into or exchangeable for, common stock, holders of our common stock may experience dilution. Additionally, sales of substantial amounts of the common stock in the public market by these holders or perceptions that such sales may take
place may lower the common stock market price.

Shares eligible for future sale may adversely affect the price of our common stock.

In connection with a private placement of securities we closed in March 2006, Charles Sander, Ira Tabankin and Jeff Gilford entered into contractual
lock-up agreements with the participants in the private placement pursuant to which they agreed that they would not sell any shares of our common stock until the first to occur of the following: (a) the ninetieth (90th) day following the date on which the registration statement registering the shares of Common Stock issued in connection
with the March 2006 private placement is declared effective by the SEC; and (b) the one year anniversary of the initial closing of the March 2006 private placement. After the lock-up agreements expire, the shares held by these individuals will
be eligible for sale in the public market, subject to applicable volume limitations under Rule 144 (Rule 144) promulgated under the Securities Act.

In addition, from time to time certain of our stockholders not subject to the lock-up agreements described above may be eligible to sell all or some of their shares of common stock by means of ordinary brokerage
transactions in the open market pursuant to Rule 144, subject to certain limitations. In general, pursuant to Rule 144, a stockholder (or stockholders whose shares are aggregated) who has satisfied a one-year holding period may, under
certain circumstances, sell within any three-month



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period a number of securities which does not exceed the greater of 1% of the then outstanding shares of common stock or the average weekly trading volume of
the class during the four calendar weeks prior to such sale. Rule 144 also permits, under certain circumstances, the sale of securities, without any limitations, by a non-affiliate of our company who has satisfied a two-year holding period. Any
substantial sale of our common stock pursuant to Rule 144 or pursuant to any resale prospectus may have an adverse effect on the market price of our securities.

Securities Issued during Blank Check Company Period

Certain securities we issued while
we were a blank check company (as defined in the rules and regulations of the Securities and Exchange Commission) are subject to the letter dated January 21, 2000 from the Securities and Exchange Commissions Division of
Corporation Finance to NASD Regulation, Inc. (the Worm Letter). As stated in the Worm Letter, it is the position of the Securities and Exchange Commissions Division of Corporation Finance that securities issued by blank check
companies are not transferable under Rule 144. As a result, these securities may not be transferred under Rule 144.

It is uncertain whether we
will ever pay dividends or ever provide an opportunity for any return on investment. Our securities should not be purchased by persons who cannot afford the loss of their entire investment.

It is uncertain whether we will ever pay dividends on our common stock. Moreover, under Delaware General Corporation Law, dividends can only be paid from
surplus or, if no surplus, out of net profits for the then current or next preceding fiscal year and there is no assurance that any such surplus or profit will be generated. Our securities should not be purchased by persons who cannot afford the
loss of their entire investment.



|Item 3. | Controls and Procedures.
|------- | ------------------------

(a) Evaluation of
Disclosure Controls and Procedures.We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports pursuant to the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer
and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by Rule 13a-15(b) of the Securities Exchange of 1934, as amended, we carried out an evaluation, under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the quarter covered by this report. Based
on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

After completing our evaluation, we received comments from the Staff of the Securities and Exchange Commission in relation to our registration statement
on Form SB-2. After considering the staffs comments, our management and the Audit Committee of the our Board of Directors concluded that the we needed to restate certain of our consolidated financial statements to correct an error in the
application of accounting principles with respect to the accounting for acquired research and development. Such restatement is described in more detail in Note 3 to our Consolidated Financial Statements included in our Form 10-QSB for the quarter
ended June 30, 2006. Based on the foregoing, our Chief Executive Officer and our Chief Financial Officer reviewed and reevaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report to
ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange
Commissions rules and forms. Our Chief Executive Officer and our Chief Financial Officer determined that, our disclosure controls and procedures could be strengthened by considering and documenting alternative accounting positions with respect
to complex transactions.

(b) Changes in Internal Controls.There was no change in our internal control over financial reporting
during the quarter ended June 30, 2006 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II



|Item 1. | Legal Proceedings.
|------- | ------------------

Not applicable.



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds.
|------- | ------------------------------------------------------------

Not applicable.



|Item 3. | Defaults Upon Senior Securities.
|------- | --------------------------------

Not applicable.



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|Item 4. | Submission of Matters to a Vote of Security Holders.
|------- | ----------------------------------------------------

Not applicable.



|Item 5. | Other Information.
|------- | ------------------

Not applicable.



|Item 6. | Exhibits.
|------- | ---------

EXHIBIT INDEX



|          |  |                                                                                                    
|--------- |  | ---------------------------------------------------------------------------------------------------
|EXHIBIT # |  | DESCRIPTION                                                                                        
|          | 
|3.1(1)    |  | Amended and Restated Certificate of Incorporation of the Registrant.                               
|          | 
|3.2(2)    |  | Amended Bylaws of the Registrant.                                                                  
|          | 
|4.13      |  | Form of Warrant issued to Emerging Growth Equities, Ltd.                                           
|          | 
|10.29     |  | Employment OfferTerms of Employment dated July 1, 2006 among Catcher, Inc. and T. Michael Grady.  
|          | 
|31.1      |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|          | 
|31.2      |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|          | 
|32.1      |  | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|          | 
|32.2      |  | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

---

|(1) | Previously filed on Form 8-K with the SEC on June 28, 2005 and incorporated herein by reference.
|--- | ------------------------------------------------------------------------------------------------



|(2) | Previously filed with the SEC on Form 10-SB on May 29, 2003 and Form 8-K on August 1, 2005 and herein incorporated by reference.
|--- | --------------------------------------------------------------------------------------------------------------------------------



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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.



|                      |  |  |  |                        |  |                    |  |                                             
|--------------------- |  |  |  | ---------------------- |  | ------------------ |  | --------------------------------------------
|                      |  |  |  | CATCHER HOLDINGS, INC.
|                      |  |  | 
|Date: August 14, 2006 |  |  |  | By:                    |  | /s/ Charles Sander
|                      |  |  |  |                        |  |                    |  | Name: Charles Sander                        
|                      |  |  |  |                        |  |                    |  | Title: Chief Executive Officer              
|                      |  |  |  |                        |  |                    |  | (Principal Executive Officer)               
|                      |  |  | 
|Date: August 14, 2006 |  |  |  | By:                    |  | /s/ Jeff Gilford  
|                      |  |  |  |                        |  |                    |  | Name: Jeff Gilford                          
|                      |  |  |  |                        |  |                    |  | Title: Chief Financial Officer              
|                      |  |  |  |                        |  |                    |  | (Principal Financial and Accounting Officer)



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