UNITED
    STATES
    SECURITIES AND EXCHANGE COMMISSION
    WASHINGTON, DC 20549**FORM 10-K** **[X]**
      **ANNUAL
        REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT
        OF 1934** For
    the fiscal year ended December 31, 2007 **[   ]**
      **TRANSITION
        REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
        OF 1934**For the transition period from ____________
        to ____________ Commission
    file number 1-13810 **SOCKET COMMUNICATIONS, INC.** (Exact name of registrant as specified in its charter)  **Delaware**
      **94-3155066**(State or
          other jurisdiction of incorporation or organization)
      (IRS Employer Identification
          No.)  **39700 Eureka Drive, Newark, CA 94560**(Address of principal executive offices including zip code) **(510) 933-3000**(Registrant's telephone number, including area code)
    Securities registered pursuant to Section 12(b) of the Exchange Act: Title
          of Each Class
      
      Name of Exchange on Which RegisteredCommon Stock, $0.001
          Par Value per Share
      
      The NASDAQ Stock
          Market LLC Securities registered pursuant to Section 12(g) of the Exchange Act:
    None Indicate by check mark if the registrant is a well-known seasoned
    issuer, as defined in Rule 405 of the Securities Act YES [ ] NO [X] Indicate by check mark if the registrant is not required to
    file reports pursuant to Section 13 or Section 15(d) of the Act. YES [ ] NO
    [X] Indicate by check mark whether the registrant (1) has filed
    all reports required to be filed by Section 13 or 15(d) of the Securities
    Exchange Act of 1934 during the preceding 12 months (or for such shorter period
    that the registrant was required to file such reports), and (2) has been subject
    to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate by check mark if disclosure of delinquent filers pursuant
    to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained
    herein, and will not be contained, to the best of registrant's knowledge,
    in definitive proxy or information statements incorporated by reference in
    Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Indicate by check mark whether the registrant is a large accelerated
    filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
    company. See the definitions of "large accelerated filer," "accelerated filer,"
    and "smaller reporting company" in Rule 12b-2 of the Exchange Act. Large accelerated
    filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting
    company [X] Indicate by check mark whether the registrant is a shell company
    (as defined in Rule 12b-2 of the Exchange Act). YES [ ] NO [X] As of June 29, 2007, the aggregate market value of the registrant's
    common stock ($0.001 par value) held by non-affiliates of the registrant was
    $26,192,196 based on the closing sale price as reported on the National Association
    of Securities Dealers Automated Quotation Global Market System. Number of shares of common stock ($0.001 par value) outstanding
    as of February 29, 2008: 32,015,975 shares DOCUMENTS INCORPORATED BY REFERENCE Items 10, 11, 12, 13, and 14 of Part III are incorporated by
    reference from the Registrant's Proxy Statement for the Annual Meeting of
    Stockholders to be held on April 23, 2008. Such Proxy Statement will be filed
    within 120 days after the end of the fiscal year covered by this Annual Report
    on Form 10-K. 
 
  TABLE
          OF CONTENTSPART
        IItem
        1.
      Business
      1Item
        1A.
      Risk Factors
      15Item
        1B.
      Unresolved Staff
        Comments
      25Item
        2.
      Properties
      25Item
        3.
      Legal
        Proceedings
      25Item
        4.
      Submission
        of Matters to a Vote of Security Holders
      25PART
        IIItem
        5.
      Market for Registrant's Common Equity, Related Stockholder
        Matters, and Issuer Purchases of Equity Securities
      26Item
        6.
      Selected Consolidated Financial Data
      28Item
        7.
      Management's
        Discussion and Analysis of Financial Condition and Results of Operations
      29Item
        7A.
      Quantitative
        and Qualitative Disclosures about Market Risk
      43Item
        8.
      Financial
        Statements and Supplementary Data
      44Item
        9.
      Changes
        in and Disagreements with Accountants on Accounting and Financial Disclosure
      68Item
        9A(T).
      Controls
        and Procedures
      68Item
        9B.
      Other
        Information
      69PART
        IIIItem
        10.
      Directors, Executive Officers and Corporate Governance
      69Item
        11.
      Executive Compensation
      69Item
        12.
      Security
        Ownership of Certain Beneficial Owners and Management and Related Stockholder
        Matters
      69Item
        13.
      Certain
        Relationships and Related Transactions, and Director Independence
      70Item
        14.
      Principal
        Accounting Fees and Services
      70PART
        IVItem
        15.
      Exhibits and Financial Statement Schedules
      70SIGNATURES
      71 Index
        to Exhibits
      72


PART
  I

This Annual Report contains forward-looking statements within the meaning
  of Section 27A of the Securities Act of 1933, as amended, and Section 21E of
  the Securities Exchange Act of 1934, as amended. These statements include statements
  forecasting future financial results and operating activities, market acceptance
  of our products, expectations for general market growth of handheld computers
  and other mobile computing devices, growth in demand for our products, expansion
  of the markets that we serve, expansion of the distribution channels for our
  products, adoption of our embedded products by third-party manufacturers of
  electronic devices, and the timing of the introduction and availability of new
  products, as well as other forecasts discussed under "Management's Discussion
  and Analysis of Financial Condition and Results of Operations." Words such as
  "may," "will," "predicts," "anticipates," "expects," "intends," "plans," "believes,"
  "seeks," "estimates," variations of such words, and similar expressions are
  intended to identify such forward-looking statements. Such forward-looking statements
  are based on current expectations, estimates, and projections about our industry,
  management's beliefs, and assumptions made by management. These forward-looking
  statements are not guarantees of future performance and are subject to certain
  risks, uncertainties, and assumptions that are difficult to predict; therefore,
  actual results and outcomes may differ materially from what is expressed or
  forecasted in any such forward looking statements. Factors that could cause
  actual results and outcomes to differ materially include, but are not limited
  to: the risk of delays in the availability of our products due to technological,
  market or financial factors including the availability of necessary working
  capital; our ability to successfully develop, introduce and market future products;
  our ability to effectively manage and contain our operating costs; the availability
  of announced third-party handheld computer hardware and software that our products
  are intended to work with; product delays associated with new model introductions
  and product changeovers by the makers of products that our products are intended
  to work with; continued growth in demand for handheld computers; market acceptance
  of emerging standards such as Bluetooth and Wireless LAN and of our related
  connection, data collection and mobile handheld computer products; the ability
  of our strategic relationships to benefit our business as expected; our ability
  to enter into additional distribution relationships; or other factors described
  in this Form 10-K including "Item 1A. Risk Factors" and recent Form 8-K and
  Form 10-Q reports filed with the Securities and Exchange Commission. We assume
  no obligation to update such forward-looking statements or to update the reasons
  why actual results could differ materially from those anticipated in such forward-looking
  statements.

You should read the following discussion in conjunction with the consolidated
  financial statements and notes included elsewhere in this report, and other
  information contained in other reports and documents filed from time to time
  with the Securities and Exchange Commission.

Item 1. Business

The Company

We are a producer of mobile systems serving the business market. Mobile systems
  solutions typically consist of a handheld computer, data collection and connectivity
  peripherals, and third-party vertical applications software. We have historically
  offered a wide range of data collection and connectivity peripheral products
  and embedded products for use with mobile computing devices offered by third-parties.
  Commencing in June 2007, we introduced our own mobile handheld computer and
  began offering mobile systems for use with third-party vertical applications
  software.



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See "Products" for a description of the products that we offer or plan to offer.
  We work with more than 100 software integration companies that are offering
  or developing vertical application software for use with handheld computers.
  Examples of these vertical applications include patient medication administration
  within the health care industry, retail merchandising such as managing inventory
  on retail store shelves, sales and field force automation involving the collection
  and processing of orders or service information from remote locations by sales
  and service personnel, asset management and inventory control for assets having
  bar codes or radio frequency identification tags, and mobile point of sale applications.
  These mobile solutions are designed to improve the productivity of business
  enterprises by automating manual tasks, improving the quality of information
  collected, and enhancing mobile productivity by processing and transferring
  information from remote locations and mobile devices to the business enterprise,
  and then if required, back to the remote locations and mobile devices.

We believe that growth in the mobile workforce, technical advances and cost
  reductions in mobile devices and networking technologies, and the pervasive
  use of the Internet are driving broader adoption of mobile data communications.
  Our products are designed to address the growing need for mobile workforce connectivity
  by enabling the use of handheld computers to extend data communications capabilities
  beyond location-dependent wired networks or telephone lines, thereby enabling
  handheld computer users to enhance their productivity, exploit time sensitive
  opportunities and improve customer satisfaction. Overall, our products enable
  the integration of hardware, software and applications into complete mobile
  data collection and connectivity solutions.

Total employee headcount on December 31, 2007 was 81 people. We subcontract
  the manufacturing of substantially all of our products to independent third-party
  contract manufacturers who are located in the U.S., China and Taiwan and who
  have the equipment, know-how and capacity to manufacture products to our specifications.
  We market our products through a worldwide network of distributors and resellers,
  as well as through original equipment manufacturers (OEMs), vertical industry
  partners, and value added resellers (VARs). See "Personnel," "Sales and Marketing,"
  and "Manufacturing" for additional information about our personnel, sales and
  marketing and manufacturing operations.

We have financed our operations since inception primarily from the sale of
  equity capital and have no material long term debt. We also have a receivables-based
  working capital line of credit with a bank that we use for additional cash resources,
  and we typically draw on this line of credit at the end of each quarter. Our
  data collection, connectivity, serial, and mobile handheld computer products
  are offered as standard products through general distribution channels and can
  be supplied within a few weeks of being ordered, so we do not have a large order
  backlog. Our order backlog at December 31, 2007 was $1.4 million.

Socket Communications, Inc. was founded in March 1992 and reincorporated in
  Delaware in 1995. We began doing business as Socket Mobile, Inc. in January
  2007 to better reflect our market focus on the mobile business market. Our Board
  of Directors is recommending to our stockholders a permanent name change to
  Socket Mobile, Inc. for approval at the Annual Meeting of Stockholders in April
  2008. Our common stock trades on the NASDAQ Global Market under the symbol "SCKT".
  Our principal executive offices are located at 39700 Eureka Drive, Newark, CA
  94560, and our phone number is (510) 933-3000. Our Internet home page is located
  at http://www.socketmobile.com; however, the information on, or that can be
  accessed through, our home page, is not part of this Annual Report. Our annual
  reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
  8-K, and any amendments to such reports are available free of charge on or through
  our Internet home page, as soon as reasonably practical after we electronically
  file such material with, or furnish it to, the Securities and Exchange Commission
  (SEC).

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Products

Our products may be classified into four broad product families:

- Mobile handheld computer products;
- Mobile peripheral products:
    - Data collection products,
    - Connectivity products;
- OEM embedded products; and
- Serial interface products.

Our mobile handheld computer products have been designed to address
  the business mobility market for a handheld computer that is neither a consumer-oriented
  handheld device nor a heavy duty industrial device. Our initial model, the SoMo
  650 (SoMo is derived from Socket Mobile), introduced in June 2007, features
  the Microsoft Windows Mobile 5.0 Professional operating system to ensure a high
  level of mobile application compatibility and to give workers a familiar computing
  environment. Our mobile handheld computer is easy to customize and integrate
  with peripherals and information systems and has an expected product life cycle
  of three to five years which meets the needs of businesses for longer deployments
  than have been available with most consumer-oriented handheld devices. Our mobile
  handheld computer's features include Wireless LAN and Bluetooth, a fast processor,
  a large, bright screen display, large amounts of SDRAM and flash memory, extended
  battery life, programmable action buttons to activate peripheral devices, reinforced
  CompactFlash and SDIO card slots, and a durable case. Additional models are
  in development that will run the Windows Mobile 6.0 operating system, add multiple
  language support, enable extended outdoor use, and offer specialized versions
  oriented to the needs of specific vertical markets. The SoMo 650 was specifically
  designed without an integrated mobile phone as most solutions involving our
  products use Bluetooth or Wireless LAN connections for data communications and
  do not require an integrated mobile phone. Mobile handheld computer products
  represented approximately 6 percent of our revenue for the year ended December
  31, 2007.

Our mobile peripheral products consist of data collection products
  and connectivity products, which together represented approximately 60 percent,
  58 percent, and 60 percent of our revenues for the years ended December 31,
  2007, 2006, and 2005, respectively.

Our data collection products enable the electronic collection of data
  from bar codes, radio frequency identification tags, or magnetic stripes and
  consist of:

- bar code scanning products that plug into or connect wirelessly to handheld
    computers, tablet computers, notebook computers and smartphones that use Windows
    Mobile, Windows XP, Windows Tablet, J2ME, or Symbian 60 or Symbian 80 operating
    systems, and turn these devices into portable bar code scanners that can be
    used in various retail and industrial workplaces;
- radio frequency identification plug-in products that read radio frequency
    identification tags;
- a combination plug-in bar code scanner and radio frequency identification
    reader; and
- a plug-in magnetic stripe reader.



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We have developed extensive bar code scanning software called SocketScan that
  supports all of our data collection products, and have software developer kits
  that assist third-party developers in integrating our SocketScan software and
  our hardware products into their applications and solutions. Our bar code scanning
  products include CompactFlash and SDIO plug-in bar code scanners for linear
  and two-dimensional bar code scanning, along with a cordless handheld bar code
  scanner and a ring scanner worn on the index finger, both of which connect to
  computing systems using the Bluetooth standard for short-range wireless connectivity.
  Data collection products represented approximately 50 percent, 42 percent, and
  39 percent of our revenue for the years ended December 31, 2007, 2006, and 2005,
  respectively.

Our connectivity products are connection devices that can be plugged
  into standard expansion slots in handheld computers, tablet computers, and notebook
  computers that use Windows Mobile, Windows XP, or Windows Tablet operating systems.
  These products allow users to connect their devices via Ethernet or telephone
  to communicate with other networks and devices such as desktop computers, other
  handheld, tablet and notebook computers, smartphones and printers. Our connectivity
  products include:

- modems for telephone connections that connect over a cable, and a cordless
    modem that utilizes Bluetooth wireless technology to connect a telephone to
    a Bluetooth-enabled computer or other device;
- ethernet cards for local area network connections that connect over a cable;
    and
- accessory products such as batteries and cables.

Connectivity products represented approximately 10 percent, 16 percent, and
  22 percent of our revenue for the years ended December 31, 2007, 2006, and 2005,
  respectively.

Our OEM embedded products consist of Bluetooth and Wireless LAN modules
  and plug-in cards used primarily by OEMs of handheld computers and other devices
  to build wireless connection functions into their products using the Bluetooth
  and Wireless LAN standards for wireless connectivity. Our plug-in cards and
  modules using the Bluetooth standard for short-range wireless connectivity include
  extensive communications software enabling the use of these products. Our plug-in
  cards for connecting to local wireless networks using the Wireless LAN 802.11b/g
  (or Wi-Fi) standards include extensive communications software enabling the
  use of these products. We have recently added Cisco Compatible Extensions (CCX)
  4.0 certification to our Wireless LAN software to enable our Wireless LAN products
  to be compatible with a Cisco wireless LAN infrastructure. Bluetooth and wireless
  LAN connection functions are being built into many third-party mobile devices,
  which may reduce the demand for our plug-in products through expansion slots
  but may increase the demand for our Bluetooth and Wireless LAN modules and embedded
  plug-in cards. OEM embedded products represented approximately 27 percent, 32
  percent, and 27 percent of our revenue for the years ended December 31, 2007,
  2006, and 2005, respectively.



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Our serial interface products enable the connection of a mobile computer
  to electronic devices either as a plug-in card (one, two or four ports) connecting
  over cables, or wirelessly over a Bluetooth network. We have recently introduced
  a USB to serial connector to enable a serial connection through a USB interface.
  Serial interface products represented approximately 7 percent, 10 percent, and
  13 percent of our revenue for the years ended December 31, 2007, 2006, and 2005,
  respectively.

We target business customers and markets with our products. Most of our products,
  except our embedded products, are sold through distributors and resellers that
  service businesses. Our OEM embedded products are sold directly to the manufacturers
  of products in which our products are embedded. The geographic regions we serve
  include the Americas, Europe, the Middle East, Africa and Asia Pacific.

Market Dynamics

Handheld computers have evolved over the past several years from simple devices
  used mainly to hold personal information into small portable units with functionality
  similar to desktop PCs. Many handheld computers, such as the Pocket PC (including
  our SoMo line of mobile handheld computers) and Palm Treo, have built-in expansion
  capabilities in standard form factors, typically CompactFlash, Secure Digital
  Input/Output or Bluetooth, to allow for transfer of data in and out of the handheld
  computer over wireless or wired connections. Many handheld computers, such as
  the Palm Treo, Research-In-Motion's Blackberry and Windows Mobile handheld computer
  phone editions, often referred to as smartphones, also include an integrated
  phone to enable voice communications over mobile phone networks, and broadband
  radios for data communications. Notebooks and tablet computers also have expansion
  capabilities to enable their use in mobile environments, as well as broadband
  radios for data communications.

Advances in mobile network access and transfer speeds are enabling mobile computing
  device users to access the Internet, send and receive email including attachments,
  access corporate data files, and to transfer data directly to and from other
  mobile devices using Bluetooth wireless technology or cables for short distances,
  wireless local area networks, or broadband radios with increased speed and bandwidth.
  Our connectivity products and technologies (wireless LAN, Bluetooth and serial
  interface products) are designed to easily add these technologies to mobile
  devices. In addition, mobile devices with standard expansion capabilities are
  effective at collecting data. Our data collection products are designed to facilitate
  the collection of bar code, radio frequency identification, and magnetic stripe
  information on these devices by plugging into the standard expansion slots of
  these data collection devices or connecting wirelessly.

Handheld computers have traditionally been classified into consumer and industrial.
  Consumer devices such as those offered by Hewlett-Packard are designed for personal
  use and fit in a pocket or purse. Industrial devices such as those offered by
  Motorola are designed for rugged environments such as outdoors or warehouses
  and are much larger, heavier and more expensive. Businesses have had to choose
  from these two categories in designing mobile solutions, and we believe neither
  solution is an ideal fit for many business needs. Our first mobile handheld
  computer model introduced in June 2007 is a standard Windows Mobile OS based
  handheld device without telephony technology and is designed specifically to
  address essential business requirements to improve mobile worker productivity.
  Compared to consumer devices, it is similar in size and weight but is more durable,
  has programmable buttons to activate functions such as SocketScan, our data
  collection software, adds features such as seamless roaming to improve the worker
  experience in using wireless LAN, incorporates Socket's Connect!Agent to improve
  the user experience with short range cordless Bluetooth technology, has fast
  processors, large memory and extended battery life. Compared to industrial devices,
  it is smaller in size and weight, less rugged, and less expensive. We plan to
  introduce additional models to provide more choices to businesses that are deploying
  mobile computing solutions.



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Growth in the mobile workforce and increasing reliance on the Internet and
  on access to corporate databases and email are increasing the demand for mobile
  data communications. The capability of a mobile workforce to collect data in
  the field and to transfer it electronically generally improves the timeliness
  and accuracy of information such as order entry, process management or transaction
  reporting. Advances in connection technologies, local area networking and wide
  area networking are being commercialized to allow handheld computers to interact
  with nearby computers and with a wide array of electronic appliances, including
  mobile phones, printers, digital cameras, local area network access points,
  Global Positioning System receivers, automobile communications systems, bar
  code scanners, radio frequency identification tags, home entertainment and security
  systems, public kiosks, public Internet access locations and vending machines.

Current market dynamics driving the adoption of mobile data communications
  by enterprises include:

Functionality of today's mobile computing devices is extensive and improving.
  Unlike early models, most mobile computing devices now offer bright outdoor
  color screens and longer battery life, have software allowing their use as business
  messaging devices with capacity to store personal information, and have standard
  expansion capabilities or use Bluetooth or wireless local or wide area network
  connections to transfer data in and out of the device. Popular desktop programs
  such as Word and Excel are available for today's handheld, tablet and notebook
  computers, enabling users to send and receive emails with full attachments,
  run popular personal information management and business programs, run entertainment
  and education software for games, music or books, view and interact with the
  Internet with enhanced and feature-rich graphics, have direct access to corporate
  data files (subject to business security arrangements), and use instant messaging
  over mobile networks. Mobile devices also can become lightweight mobile bar
  code, radio frequency identification, and magnetic stripe scanning devices when
  used with our bar code scanning, radio frequency identification, or magnetic
  stripe reader products, enabling the capture and processing of bar code, radio
  frequency identification, or magnetic stripe information (such as credit or
  identification cards) in a mobile environment.

The mobile workforce is growing and is increasingly reliant on email and
  the Internet. The worldwide mobile workforce has been estimated at more
  than 20 percent of the global workforce. Before advancements in handheld computers
  and wireless networks over mobile phones and through wireless local area network
  access points, the mobile workforce had been unable to effectively stay connected
  with email, the Internet or corporate data except through telephone lines. With
  the growth in the use of the Internet and email for business and personal applications,
  workers and consumers are increasingly dependent on access to the Internet and
  email for managing their business and personal lives. Recent improvements in
  wireless LAN and mobile phone connectivity for dial-up networking, and deployment
  of mobile computers by corporations to their mobile workforce are expected to
  be major factors driving growth in mobile data applications over the next several
  years.



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Third-party applications for enterprises are becoming available in increasing
  numbers. Third-party software applications are becoming increasingly available
  for the collection, processing and transfer of information by a mobile workforce.
  Mobile computing devices are being used for such diverse applications as checking
  patient medications when administering them in a hospital, capturing lot numbers
  of drug samples given to a doctor, managing the stocking of shelves in retail
  establishments, or entering sales orders from the field. Larger enterprise software
  companies such as Oracle Corporation have written applications for Windows Mobile
  devices that use our bar code scanning products. SAP has enabled our SDIO form
  factor scanning card in all mobile applications developed by SAP and by other
  vendors that interface with SAP solutions through SAP's NetWeaver Mobile program.
  We have supported the development and deployment of our products in third-party
  applications through our Vertical Industry Partners Program and more than 100
  companies are participants in this program. Our Vertical Industry Partners Program
  is described more fully under "Sales and Marketing." The availability of productivity-enhancing
  application software is a major driver of enterprise deployment of mobile computing
  devices.

Marketing Strategy

Our marketing strategy has been to capitalize on our strategic relationships,
  expand and improve our product offerings including software to enable wireless
  and wired connections designed to provide an easy-to-use experience and adding
  a family of mobile handheld computers to our product lines, build a strong brand
  name, support the development of third-party software applications and integrator
  solutions, and encourage device manufacturers to build our technology directly
  into their products. With the introduction of our mobile handheld computer,
  we offer a complete hardware solution consisting of a mobile handheld computer
  and peripherals which allows VARs and integrators to offer a one-stop solution
  in combination with their own or third-party vertical software applications
  for the mobile workforce.

Capitalize on Strategic Relationships. We support and encourage direct
  endorsements and referrals for our products from our strategic relationships,
  including operating system providers, device manufacturers, third-party software
  developers, vertical industry partners, distributors, and end-user customers.
  We actively promote third-parties to integrate our products into their solutions
  through our Vertical Industry Partners Program. We have a team of employees
  that manages each strategic relationship, and we provide software developer
  kits, training and technical support to our software and hardware developers.
  We coordinate our product development efforts with Microsoft on an ongoing basis,
  with the goal of ensuring that our current and future products are compatible
  with new releases of Microsoft's operating systems. We spend extensive engineering
  time and resources to ensure that our data collection peripheral products are
  compatible with a wide variety of handheld computers including Pocket PCs, the
  Palm Treo, the Blackberry from Research-In-Motion, and smartphones using the
  Symbian 60 and 80 operating system. Dell is a direct reseller of our products
  including our SoMo family of mobile computers. We work closely with the sales
  teams of Dell and Hewlett-Packard to assist them in offering mobile device solutions
  that include our products.

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Expand and improve our product offerings. We offer a wide
  range of data collection and connectivity peripheral products that are used
  with our SoMo family of mobile computers and other mobile devices, and we encourage
  our distributors to carry the full range of our products. The goal is for customers
  to view Socket as a single source for their connection needs, instead of having
  to rely on individual product offerings from a number of different companies.
  During the past three years, we have introduced a number of hardware and software
  products, including a 56K plug-in modem in SDIO form factor, a radio frequency
  identification reader, a combination radio frequency identification reader and
  laser bar code scanner, a cordless ring bar code scanner designed to be worn
  on the index finger for use in package handling, an 802.11g upgrade to our CompactFlash
  802.11b wireless LAN card, and a wireless LAN module to add embedded Wireless
  LAN to our OEM product offerings. We continue to add features to our Bluetooth
  software for Windows notebooks and tablets, our wireless local area network
  software and SocketScan, our bar code scanning and radio frequency identification
  software. During 2006, we upgraded our products to comply with the Reduction
  of Hazardous Substances (RoHS) rules being implemented in Europe and around
  the world by changing the solder used in our products to be lead-free. We also
  qualify our products with the agencies responsible for ensuring that electronic
  products meet worldwide standards for safety and performance.

Build a Stronger Brand Name. We are building a brand image of "Increasing
  Mobile Productivity." This image emphasizes quality and standards-based connectivity.
  Our products are "Mobility Friendly," which means products that are compact
  and designed to be mobile, low power to extend time between charges, and easy
  to use. Our focus is to work with our partners to develop productivity enhancing
  solutions for the mobile workforce. In January 2007, we began doing business
  as Socket Mobile, Inc. to emphasize our commitment to mobile computing solutions.
  Our overall company brand identity and positioning goal is to become "the leading
  provider of easy-to-deploy business mobility systems and peripherals."

Support the development of third-party software applications and integrator
  solutions. We have created software developer kits for many of our products
  including bar code scanning, radio frequency identification, Bluetooth, and
  Wireless LAN. In addition, we have employees dedicated to assisting developers
  and integrators with integrating our products into their solutions. Our Vertical
  Industry Partners Program includes over 100 companies that offer or are developing
  software solutions which incorporate Socket products. These solutions primarily
  involve data collection and address improving the productivity of the mobile
  workforce in a number of businesses including health care, field force automation,
  asset management, retail merchandising, and automotive/transportation.

Encourage device manufacturers to build our technology directly into their
  products. To capture the OEM embedded connection business, we have built
  relationships with certain mobile device manufacturers and work with them to
  integrate our Bluetooth and Wireless LAN modules and value-add software into
  their own product designs. The majority of these manufacturers are building
  vertical application devices for special purpose markets. We have an internal
  team of employees that manages our OEM products business. We also provide developer
  support to our mobile device manufacturer customers to assist them as needed
  to integrate our embedded products into their mobile devices.



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Competition and Competitive
  Risks

The overall market for data collection and connectivity products is both complex
  and competitive. Our products compete with similar products that are manufactured
  by companies in Asia and Europe. However, our longtime focus on creating innovative
  data collection and connectivity solutions for the mobile workforce has resulted
  in good brand name recognition and reputation. We also believe that our brand
  name identifies our products as robust, dependable, small form factor, low power
  and easy to use, and the breadth of our product offerings, including the extensive
  features of our software, will continue to differentiate us relative to our
  competitors. The addition of a mobile handheld computer in 2007 enables us to
  better control the handheld computing environment for our peripheral products
  and allows us to offer one-stop shopping for the hardware portion of mobile
  business solutions. The competition in each of our product families is discussed
  in more detail below.

Handheld computers. Our first SoMo mobile handheld computer was introduced
  in June 2007 to address the price/performance market gap between consumer handheld
  computers and industrial handheld computers. Consumer-oriented handheld computers
  offer fewer features at a lower cost than industrial handheld computers. As
  described in Products - mobile handheld computer products, relative to a consumer-oriented
  handheld computer, our SoMo mobile handheld computer offers improved features
  beneficial in a business environment including increased durability, improved
  software features such as Wireless LAN roaming (staying connected between access
  points), and a combination of a fast processor, large memory, and multiple ways
  to access data including CompactFlash and Secure Digital plug-in slots and wireless
  LAN and Bluetooth technologies. The SoMo mobile handheld computer is less rugged
  than an industrial handheld computer but has many of the same features at a
  significantly reduced price point. We will continue to expand our family of
  SoMo mobile handheld computers to address the various needs of our enterprise
  customers. Consumer grade handheld computers are offered by Hewlett-Packard,
  Acer, Siemens and others. Industrial ruggedized grade of handheld computers
  are offered by Motorola, Intermec, and Honeywell. These companies have offered
  handheld computers for many years and have an established market presence. Their
  handheld computers are competitive alternatives to our mobile handheld computers,
  although we have differentiated our products for the markets that we have identified.
  In addition, in the past we have worked closely with handheld computer manufacturers
  to allow our peripheral products to work with their handheld computers, and
  we will continue to do so.

Data Collection Products. Our laser and CMOS imager bar code scanning
  products face competition from ruggedized integrated bar code scanning devices
  from Motorola, Intermec, Honeywell, Casio, Itronix and others. Many of these
  companies have been expanding their product lines to offer less expensive devices
  designed for enterprise use, which is narrowing the gap between the cost of
  consumer devices that use our peripheral data collection products and industrial
  devices. We purchase laser engines from Motorola and we have a license with
  Motorola to use these engines in our bar code scanning products. We also purchase
  imagers from Motorola and from other companies for use in our products. We face
  competition outside of the United States from a product similar to our plug-in
  bar code scanning card from BeInteractive, from products similar to our Cordless
  Hand Scanner from Baracoda, and from other competitive laser scanning products
  from Grabba (Australia) and Opticon (Japan). Motorola's patent position for
  laser bar code scanning tends to limit the sale of laser scanning bar code products
  by competitors in the United States, but a number of the Motorola patents will
  expire over the next several years, and we may face increasing competition from
  competitors both inside and outside the United States. We produce our laser
  bar code scanning products under a license from Motorola, which, to date, has
  not licensed these technologies to potential competitors. Motorola has historically
  been selective in licensing their technologies to third-parties. The continued
  availability of our licenses from Motorola and the continued absence of other
  licensees are dependent upon future licensing decisions by Motorola.

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In addition, companies such as Intermec have improved imager technology
  making such technology a viable alternative to laser scanning, and we expect
  both our laser and our imaging products to face more competition over time from
  devices deploying imaging technology. Our laser scanning products are targeted
  to address specific market segments, such as patient medication administration
  within the health care industry, retail merchandising such as managing inventory
  on retail store shelves, sales and field force automation involving the collection
  and processing of orders or service information from remote locations by sales
  and service personnel, asset management and inventory control for assets having
  bar codes or radio frequency identification tags, and mobile point of sale applications.

Connectivity Products - Cable Connections. We are
  one of two principal manufacturers of low power Ethernet cards, the other being
  OvisLink. Our CompactFlash modem cards face competition from a number of manufacturers
  including Ambicom, Billionton Systems, Hawking, Zonet, OvisLink, Pharos, Trendware
  and Xircom. There are also a number of competitors that offer Bluetooth modems.
  These companies include Billionton Systems, ENR Technologies, Motorola, PSI,
  SiteCom, Sony, Typhoon, Trust, X Micro and Zoom.

OEM Embedded Products - Wireless Connections. We
  offer our wireless connection Bluetooth and Wireless LAN technologies in the
  form of modules for embedding in third party devices. We also offer CompactFlash
  plug-in cards and SDIO plug-in cards that may be plugged into the expansion
  slots of devices needing these technologies. We compete based on our brand name
  and customer support infrastructure, as well as software enhancements that provide
  ease-of-use, security features, and monitoring and troubleshooting tools.

Our Bluetooth and WLAN software works well with our hardware,
  providing us a complete solution for embedding Bluetooth and WLAN wireless connections
  into third-party devices. Manufacturers in Asia selling primarily hardware,
  such as Alps, Murata, and TaiyoYuden, along with integrators such as Bluesoft
  and Stonestreet One, are able to produce all or part of embedded solutions which
  may compete with our products and services. In addition, manufacturers of products
  that are sold in high volume may choose to build and support their own Bluetooth
  or WLAN connections.

Our Wireless LAN cards face competition in the market today principally
  from other manufacturers of low power Wireless LAN 802.11g cards, including
  Ambicom for CF cards, and AmbiCom, Spectec and Mobis for SDIO cards. The market
  for Bluetooth wireless communications technology is highly competitive. A number
  of companies offer competing CompactFlash Bluetooth cards including Ambicom,
  Brainboxes and Billionton.

Serial Interface Products. Our serial interface card products
  compete from time to time with similar products from small manufacturers including
  BeInteractive, Brainboxes, B&B Electronics, Elan Digital Systems, Quatech (now
  part of DPAC Technologies), and Ratoc Systems. We also offer a cordless serial
  adapter with Bluetooth wireless technology. Companies that offer competing Bluetooth
  serial products include AIRcable, Brainboxes, ConnectBlue, Digi International,
  Ezurio, Free 2 Move, Initium and Wavespeed.



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Proprietary Technology

We have developed a number of technological building blocks that enhance our
  ability to design new hardware and software products, to offer products which
  run on multiple software and hardware platforms, and to manufacture and package
  products efficiently.

One of our most important chip hardware building blocks is our proprietary
  mobility integrated circuit, which is a highly flexible interface for PC cards
  and CompactFlash cards that enables our products to work with all major handheld
  and notebook computers that have PC card or CompactFlash slots, regardless of
  their design. We have incorporated our mobility integrated circuit into a broad
  range of our peripheral products to control signal transmission between these
  products and the handheld or notebook computer's PC card or CompactFlash slot.

Another area of intellectual property is our expertise in embedded radio-dependent
  firmware. Within our Bluetooth cordless products are software and firmware that
  include a wide variety of functions to enable efficient radio control and overall
  systems functionality. For cordless bar code scanning and radio frequency identification
  reading, this includes our patented Error Proof Protocol, which is designed
  to ensure that scanned data is correctly received by the mobile computing device
  and allow for real-time validation of data and error notification to the user.

We have developed a library of software drivers and control modules that allow
  our products to operate in handheld computers running the Windows Mobile operating
  systems and in notebooks running various Windows and third-party operating systems.
  We have been awarded ten U.S. Patents and seven design patents covering various
  inventions that relate to mobile products and to the designs of our products.
  In July 2004 we also acquired from Khyber Technologies a U.S. patent entitled
  Card Shaped Computer Peripheral Device. The patent is a basic patent covering
  the design and functioning of plug-in bar code scanners, bar code imagers, and
  radio frequency identification products. We have additional patents covering
  our proprietary technology pending with the U.S. Patent and Trademark Office.

We have developed a number of software programs that provide unique functions
  and features for our connection and data collection products. For example, our
  SocketScan software enables all of our bar code scanning products to scan a
  variety of bar codes and to route the scanned data to many different types of
  data files. Our Bluetooth software used in conjunction with our Bluetooth hardware
  provides a completely functional Bluetooth solution enabling connections and
  data transfers between Bluetooth-enabled devices. Our wireless local area network
  software that is integrated with our wireless local area network management
  software (which we call Wi-Fi Companion and have introduced a version with Cisco
  Compatible Extension protocols called Enhanced Wi-Fi Companion or e-WFC) and
  used in conjunction with our wireless local area network hardware, provides
  a completely functional wireless local area network solution, enabling connections
  and data transfers from mobile computing devices over wireless local area networks.

We have registered trademarks with the U.S. Patent and Trademark Office for
  "Socket" our logo, the term "Go-WiFi" associated with our Wireless LAN products
  and have a trademark registration pending for "SoMo" for our mobile handheld
  computer.



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We rely on a combination of patent, copyright, trademark and trade secret laws,
  and confidentiality procedures to protect our proprietary rights. As part of
  our confidentiality procedures, we generally enter into non-disclosure agreements
  with our employees, distributors and strategic partners, and limit access to
  our software, documentation and other proprietary information. Despite these
  precautions, it may be possible for a third-party to copy or otherwise obtain
  and use our products or technology without authorization, or to develop similar
  technology independently. In addition, we may not be able to effectively protect
  our intellectual property rights in certain foreign countries. From time to
  time we receive communications from third-parties asserting that our products
  infringe, or may infringe, their proprietary rights. In connection with any
  such claims, litigation could be brought against us that could result in significant
  additional expenses or compel us to discontinue or redesign some of our products.

Personnel

Our future success will depend in significant part upon the continued service
  of certain of our key technical and senior management personnel, and our continuing
  ability to attract, assimilate and retain highly qualified technical, managerial
  and sales and marketing personnel. Our total employee headcount as of December
  31, 2007 was 81 people. Our employees are not represented by a union, and we
  consider our employee relationships to be good.

Sales and Marketing

During the year ended December 31, 2007, 65 percent of our sales were in North
  America, 27 percent in Europe, and 8 percent in Asia and Pacific Rim countries.
  During the year ended December 31, 2006, 68 percent of our sales were in North
  America, 24 percent in Europe and 8 percent in Asia and Pacific Rim countries.
  During the year ended December 31, 2005, 65 percent of our sales were in North
  America, 24 percent in Europe, and 11 percent in Asia and Pacific Rim countries.
  Export sales are subject to the complications of complying with laws of various
  countries and the risk of import/export restrictions and tariff regulations.

We market our products through a worldwide network of distributors and resellers,
  as well as through OEMs and VARs. In addition, we have more than 100 companies
  that are participants in our Vertical Industry Partners Program. Participants
  offer or intend to offer third-party software applications that utilize our
  products in their software solutions. Vertical market segments addressed by
  participants include health care, field force automation, retail merchandising,
  automotive/transportation, and asset management. Applications include checking
  patient medications when administering them in a hospital, capturing lot numbers
  of drug samples given to a doctor, managing the stocking of shelves in retail
  establishments, entering sales orders from the field, taking inventory of bar
  coded items, and entering and updating information in an enterprise data base.
  We support our distributors, resellers and integrators with software developer
  kits and by providing education, training and customer assistance through our
  sales, marketing, and technical support staff in the U.S., Europe and Asia-Pacific
  regions. As of December 31, 2007, we had 32 people in sales and marketing.

Our United States distributor Tech Data Corp. accounted for 23 percent of our
  revenue in 2007, 26 percent of our revenue in 2006 and 28 percent of our revenue
  in 2005. Our United States distributor Ingram Micro, Inc. accounted for 13 percent
  of our revenue in 2007 and 14 percent of our revenue in each of 2006 and 2005.
  We intend to increase our sales and marketing effort during 2008 by adding personnel
  and increasing promotional activities, particularly in support of our distributors
  and vertical industry partners.



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Consistent with industry practice, we provide our distributors with stock balancing
  and price protection rights which permit these distributors to return slow-moving
  products to us for credit, and to receive price adjustments for inventories
  of our products held by the distributors if we lower the price of those products.
  The immediate effect of returns and adjustments on our quarterly operating results
  is limited, since we recognize revenues on products shipped to distributors
  only at the time the merchandise is sold by the distributor. To date, we have
  not experienced any significant returns or price protection adjustments.

We rely significantly on our OEMs, distributors, and resellers
  for marketing and distribution of our products. Our agreements with OEMs, distributors,
  and resellers generally are nonexclusive and may be terminated on short notice
  by either party without cause. Furthermore, our OEMs, distributors and resellers
  are not within our control, are not obligated to purchase products from us,
  and may represent other lines of products, including those of our competitors.
  If any OEMs, distributors, or resellers reduce or discontinue efforts to sell
  our products, our revenues and operating results could be materially adversely
  affected.

Manufacturing

We subcontract the manufacturing of substantially all of our products to independent
  third-party contract manufacturers who are located in the U.S., China, and Taiwan
  and who have the equipment, know-how and capacity to manufacture products to
  our specifications. We perform final product testing and package our products
  at our Newark, California facility for most of our sales. As of December 31,
  2007, we had 24 people employed in manufacturing operations, including planning,
  buying, manufacturing engineering, quality control, product assembly, shipping
  and receiving, MIS and product support. We augment this workforce with temporary
  employees on an as-needed basis.

Certain of our product components are available from only one vendor. These
  sole sourced components include the interface chip that controls the signal
  transmission between all of our plug-in CompactFlash products (except our Ethernet
  and Wireless LAN cards) and the card slot on the mobile computer, our Ethernet
  and Wireless LAN chips, our laser scanning engines, our SDIO plug-in cards,
  certain cable and connector components and, beginning in 2007, our mobile handheld
  computer. Although to date we have generally been able to obtain adequate supplies
  of these components, these components are generally purchased on a purchase
  order basis under standard commercial terms and conditions, and we do not have
  long-term supply contracts for these components. Accordingly, the manufacturers
  could stop providing these components to us at any time. Alternatively, although
  our suppliers are generally large, well-financed organizations, they could encounter
  financial difficulties that interfere with our product supplies. In such an
  event, we could experience a decline in revenues until we establish sufficient
  manufacturing supply through an alternative source. Locating and qualifying
  alternative suppliers, and commencing new manufacturing operations, could take
  a significant period of time, although we believe that we can relocate manufacturing
  or find alternative suppliers for sole sourced components should it become necessary.
  We generally stock higher inventory quantities of sole sourced components as
  safety stocks to mitigate the risk of supply disruption.



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Research and Development

Since our inception, we have made substantial investments in research and development.
  Research and development expenditures were $5.0 million in 2007, $5.1 million
  in 2006, and $3.5 million in 2005. The increased expenditures in 2007 and 2006
  were in part due to an increase in the number of development projects including
  the removal of lead from our products as required by the Reduction in Hazardous
  Substances Act and new product development costs for our cordless ring scanner,
  our mobile handheld computer and our software programs including SocketScan,
  Wireless LAN and Bluetooth. We believe that our future performance will depend
  in large part on our ability to develop significant enhancements to our existing
  products, including technology upgrades and additional features, and to develop
  successful new products for emerging and existing markets.

As of December 31, 2007, we had 16 people on our product development staff,
  and we hire engineering consultants to perform additional engineering services
  as required. We anticipate that we will continue to commit substantial resources
  to research and development in the future.

General and Administration

As of December 31, 2007,
  we had 9 people responsible for our financial and administrative activities
  including accounting and finance, personnel, and administrative support.



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Item 1A. Risk Factors

We have a history of operating losses and may not achieve ongoing profitability.

We were unprofitable in each of the quarters in fiscal years 2007 and 2006.
  We were profitable in two quarters in 2005, but unprofitable for fiscal year
  2005. Fiscal year 2004 was the first profitable year in our history, but only
  to the extent of $288,000. Prior to 2004, we incurred significant operating
  losses in each financial period since our inception. To achieve ongoing profitability,
  we must accomplish numerous objectives, including growth in our business and
  the development of successful new products. We cannot foresee with any certainty
  whether we will be able to achieve these objectives in the future. Accordingly,
  we may not generate sufficient net revenue to achieve ongoing profitability.
  If we cannot achieve ongoing profitability, we will not be able to support our
  operations from positive cash flows, and we would use our existing cash to support
  operating losses. If we are unable to secure the necessary capital to replace
  that cash, we may need to suspend some or all of our current operations.

We may require additional capital in the future, but that capital may not
  be available on reasonable terms, if at all, or on terms that would not cause
  substantial dilution to your stock holdings.

Although we do not anticipate the need to raise additional capital during the
  next twelve months to fund our operations, we may incur operating losses in
  future quarters and may need to raise capital to fund these losses. Our forecasts
  are highly dependent on factors beyond our control, including market acceptance
  of our products and sales of handheld computers. If capital requirements vary
  materially from those currently planned, we may require additional capital sooner
  than expected. There can be no assurance that such capital will be available
  in sufficient amounts or on terms acceptable to us, if at all. In addition,
  the availability of our bank line is dependent upon our meeting certain covenants,
  including maintaining minimum cash balances. Future operating losses could cause
  us to lose the availability of our bank line as a result of becoming non-compliant
  with these covenants.

Our Common Stock will become ineligible for listing on the NASDAQ Global
  Market or alternatively the NASDAQ Capital Market if it does not trade at or
  above $1.00, which would materially adversely affect the liquidity and price
  of our Common Stock.

We are listed on the NASDAQ Global Market. Our continued listing is contingent
  on meeting specific quantitative standards, including a minimum closing bid
  price of $1.00. Our Common Stock has traded below $1.00 for significant periods
  during the last twelve months. In particular, our stock failed to maintain a
  minimum closing bid price of at least $1.00 in the 30 consecutive business days
  prior to December 10, 2007. On December 10, 2007 we received a staff deficiency
  notice from the Listing Qualifications Department of the NASDAQ Stock Market
  which stated that our stock will have to achieve a minimum closing bid price
  of at least $1.00 for at least 10 consecutive business days within 180 calendar
  days, or by June 9, 2008, or else we may be delisted from the NASDAQ Global
  Market. As of March 6, 2008, our Common Stock has not achieved the minimum closing
  bid price of $1.00 on any single day since receipt of the deficiency notice.
  Should we be delisted from the NASDAQ Global Market, we may be eligible for
  listing on the NASDAQ Capital Market, subject to meeting specific quantitative
  standards, including maintaining a minimum closing bid price of $1.00, and would
  have to achieve that within the 180 calendar days of initial listing on the
  NASDAQ Capital Market.



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If our Common Stock becomes ineligible for listing on either the NASDAQ Global
    Market or the NASDAQ Capital Market, and is thereafter traded only on the
    over-the-counter market, our stockholders' abilities to purchase and sell
    our Common Stock could be less orderly and efficient and more costly. Furthermore,
    a delisting of our Common Stock could have a materially adverse impact on
    our business operations by damaging our general business reputation, impairing
    our ability to obtain additional capital, reducing the incentives that equity
    ownership is intended to provide to our employees, and causing a loss of confidence
    by investors, suppliers and employees. As a result of the negative impact
    on the liquidity of our Common Stock and on our business, a delisting would
    also likely decrease the market price of our Common Stock and increase the
    volatility of our stock price.


If third parties do not produce and sell innovative products
  with which our products are compatible, or if our line of mobile handheld computers
  is not successful, we may not achieve our sales projections.

Our success has been dependent upon the ability of third parties
  in the mobile personal computer industry to complete development of products
  that include or are compatible with our technology and then to sell these products
  into the marketplace. Even if we are successful in marketing and selling our
  new line of mobile handheld computers, our ability to generate increased revenue
  depends significantly on the commercial success of Windows-mobile handheld devices,
  particularly the Pocket PC and other devices such as the line of handhelds with
  expansion options offered by Palm, and the adoption of these handheld computers
  for business use. If manufacturers are unable or choose not to ship new products
  such as Pocket PC and other Windows-mobile devices or Palm devices, or experience
  difficulties with new product transitions that cause delays in the market as
  we experienced in fiscal years 2005, 2006 and 2007, or if these products, including
  our new line of mobile handheld computers of which we began shipping our first
  model in June of 2007, fail to achieve or maintain market acceptance, the number
  of our potential new customers would be reduced and we would not be able to
  meet our sales expectations.

If we fail to develop and introduce new products rapidly and
  successfully, we will not be able to compete effectively, and our ability to
  generate sufficient revenues will be negatively affected.

The market for our products is prone to rapidly changing technology, evolving
  industry standards and short product life cycles. If we are unsuccessful at
  developing and introducing new products and services on a timely basis that
  include the latest technologies conforming to the newest standards and that
  are appealing to end users, we will not be able to compete effectively, and
  our ability to generate significant revenues will be seriously harmed.



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The development of new products and services can be very difficult and requires
  high levels of innovation. The development process is also lengthy and costly.
  Short product life cycles expose our products to the risk of obsolescence and
  require frequent new product introductions. We will be unable to introduce new
  products and services into the market on a timely basis and compete successfully,
  if we fail to:

- identify emerging standards in the field of mobile computing products;
- enhance our products by adding additional features;
- invest significant resources in research and development, sales and marketing,
    and customer support;
- maintain superior or competitive performance in our products; and
- anticipate our end users' needs and technological trends accurately.

We cannot be sure that we will have sufficient resources to make adequate investments
  in research and development or that we will be able to identify trends or make
  the technological advances necessary to be competitive.

A significant portion of our revenue currently comes from two distributors,
  and any decrease in revenue from these distributors could harm our business.

A significant portion of our revenue comes from two distributors, Tech Data
  Corp. and Ingram Micro, Inc., which together represented approximately 36 percent,
  40 percent, and 42 percent of our worldwide revenue in fiscal years 2007, 2006,
  and 2005, respectively. We expect that a significant portion of our revenue
  will continue to depend on sales to Tech Data Corp. and Ingram Micro, Inc. We
  do not have long-term commitments from Tech Data Corp. or Ingram Micro, Inc.
  to carry our products. Either could choose to stop selling some or all of our
  products at any time, and each of these companies also carries our competitors'
  products. If we lose our relationship with Tech Data Corp. or Ingram Micro,
  Inc., we would experience disruption and delays in marketing our products.

If the market for mobile computers experiences delays, or fails
  to grow, we will not achieve our sales projections.

Substantially all of our peripheral products are designed for use with mobile
  personal computers, including handhelds, notebook computers, tablets and smartphones.
  If the mobile personal computer industry does not grow, if its growth slows,
  or if product or operating system changeovers by mobile computer manufacturers
  and partners cause delays in the market, as we experienced in the past three
  years, or if the markets for our mobile handheld computers do not grow, we will
  not achieve our sales projections.

Our sales will be hurt if the new technologies used in our products do not
  become widely adopted, or are adopted slower than expected.

Many of our products use new technologies, such as 2D bar code scanning and
  radio frequency identification, which are not yet widely adopted in the market.
  If these technologies fail to become widespread, or are adopted slower than
  expected, our sales will suffer.



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We could face increased competition in the future, which would adversely
  affect our financial performance.

The market for handheld computers in which we operate is very competitive.
  Our future financial performance is contingent on a number of unpredictable
  factors, including that:

- some of our competitors have greater financial, marketing, and technical
    resources than we do;
- we periodically face intense price competition, particularly when our competitors
    have excess inventories and discount their prices to clear their inventories;
    and
- certain OEMs of personal computers, mobile phones and handheld computers
    offer built-in functions, such as Bluetooth wireless technology, Wi-Fi, or
    bar code scanning, that compete with our products.

Increased competition could result in price reductions, fewer customer orders,
  reduced margins, and loss of market share. Our failure to compete successfully
  against current or future competitors could harm our business, operating results
  and financial condition.

If we do not correctly anticipate demand for our products, our operating
  results will suffer.

The demand for our products depends on many factors and is difficult to forecast.
  We expect that it will become more difficult to forecast demand as we introduce
  and support more products and as competition in the market for our products
  intensifies. If demand increases beyond forecasted levels, we would have to
  rapidly increase production at our third party manufacturers. We depend on suppliers
  to provide additional volumes of components, and suppliers might not be able
  to increase production rapidly enough to meet unexpected demand. Even if we
  were able to procure enough components, our third party manufacturers might
  not be able to produce enough of our devices to meet our customer demand. In
  addition, rapid increases in production levels to meet unanticipated demand
  could result in higher costs for manufacturing and supply of components and
  other expenses. These higher costs could lower our profit margins. Further,
  if production is increased rapidly, manufacturing yields could decline, which
  may also lower operating results.

If demand is lower than forecasted levels, we could have excess production
  resulting in higher inventories of finished products and components, which could
  lead to write-downs or write-offs of some or all of the excess inventories,
  and reductions in our cash balances. Lower than forecasted demand could also
  result in excess manufacturing capacity at our third party manufacturers and
  in our failure to meet minimum purchase commitments, each of which may lower
  our operating results.

We rely primarily on distributors, resellers, and OEMs to sell our products,
  and our sales would suffer if any of these third parties stops selling our products
  effectively.

Because we sell our products primarily through distributors, resellers, and
  OEMs, we are subject to risks associated with channel distribution, such as
  risks related to their inventory levels and support for our products. Our distribution
  channels may build up inventories in anticipation of growth in their sales.
  If such growth in their sales does not occur as anticipated, the inventory build
  up could contribute to higher levels of product returns. The lack of sales by
  any one significant participant in our distribution channels could result in
  excess inventories and adversely affect our operating results.



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Our agreements with distributors, resellers, and OEMs are generally
  nonexclusive and may be terminated on short notice by them without cause. Our
  distributors, resellers, and OEMs are not within our control, are not obligated
  to purchase products from us, and may offer competitive lines of products simultaneously.
  Sales growth is contingent in part on our ability to enter into additional distribution
  relationships and expand our sales channels. We cannot predict whether we will
  be successful in establishing new distribution relationships, expanding our
  sales channels or maintaining our existing relationships. A failure to enter
  into new distribution relationships or to expand our sales channels could adversely
  impact our ability to grow our sales.

We allow our distribution channels to return a portion of their inventory to
  us for full credit against other purchases. In addition, in the event we reduce
  our prices, we credit our distributors for the difference between the purchase
  price of products remaining in their inventory and our reduced price for such
  products. Actual returns and price protection may adversely affect future operating
  results, particularly since we seek to continually introduce new and enhanced
  products and are likely to face increasing price competition.

We depend on alliances and other business relationships with
  a small number of third parties, and a disruption in any one of these relationships
  would hinder our ability to develop and sell our products.

We depend on strategic alliances and business relationships with leading participants
  in various segments of the communications and mobile handheld computer markets
  to help us develop and market our products. Our strategic partners may revoke
  their commitment to our products or services at any time in the future or may
  develop their own competitive products or services. Accordingly, our strategic
  relationships may not result in sustained business alliances, successful product
  or service offerings, or the generation of significant revenues. Failure of
  one or more of such alliances could result in delay or termination of product
  development projects, failure to win new customers, or loss of confidence by
  current or potential customers.

We have devoted significant research and development resources to design activities
  for Windows-mobile products, Palm devices, smartphones using Windows Mobile
  and Symbian System 60 and 80 operating systems, and more recently, to develop
  our own family of mobile handheld computers. Such design activities have diverted
  financial and personnel resources from other development projects. These design
  activities are not undertaken pursuant to any agreement under which Microsoft,
  Palm, or Symbian is obligated to continue the collaboration or to support the
  products produced from the collaboration. Consequently, these organizations
  may terminate their collaborations with us for a variety of reasons, including
  our failure to meet agreed-upon standards or for reasons beyond our control,
  such as changing market conditions, increased competition, discontinued product
  lines, and product obsolescence.

Our intellectual property and proprietary rights may be insufficient to
  protect our competitive position.

Our business depends on our ability to protect our intellectual property. We
  rely primarily on patent, copyright, trademark, trade secret laws, and other
  restrictions on disclosure to protect our proprietary technologies. We cannot
  be sure that these measures will provide meaningful protection for our proprietary
  technologies and processes. We cannot be sure that any patent issued to us will
  be sufficient to protect our technology. The failure of any patents to provide
  protection to our technology would make it easier for our competitors to offer
  similar products. In connection with our participation in the development of
  various industry standards, we may be required to license certain of our patents
  to other parties, including our competitors, that develop products based upon
  the adopted standards.



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We also generally enter into confidentiality agreements with our
  employees, distributors, and strategic partners, and generally control access
  to our documentation and other proprietary information. Despite these precautions,
  it may be possible for a third party to copy or otherwise obtain and use our
  products, services, or technology without authorization, develop similar technology
  independently, or design around our patents.

Effective copyright, trademark, and trade secret protection may be unavailable
  or limited in certain foreign countries. Furthermore, certain of our customers
  have entered into agreements with us which provide that the customers have the
  right to use our proprietary technology in the event we default in our contractual
  obligations, including product supply obligations, and fail to cure the default
  within a specified period of time.

We may become subject to claims of intellectual property rights
  infringement, which could result in substantial liability.

In the course of operating our business, we may receive claims of intellectual
  property infringement or otherwise become aware of potentially relevant patents
  or other intellectual property rights held by other parties. Many of our competitors
  have large intellectual property portfolios, including patents that may cover
  technologies that are relevant to our business. In addition, many smaller companies,
  universities, and individuals have obtained or applied for patents in areas
  of technology that may relate to our business. The industry is moving towards
  aggressive assertion, licensing, and litigation of patents and other intellectual
  property rights. In June 2007, we received a letter from Wi-LAN Inc., accusing
  certain of our wireless LAN products of infringing two U.S. and one Canadian
  patent held by Wi-LAN Inc. In October 2007, Wi-LAN Inc. filed patent infringement
  lawsuits against a number of companies alleging that those companies infringe
  the two U.S. patents by manufacturing, using, or offering for sale products
  with wireless capability compliant with the IEEE 802.11 standards. Wi-LAN Inc.
  is asking for money damages and a court order barring the sale of products that
  use the patented technology. We have not been named in the lawsuit, and we do
  not plan to make any changes to our current business at this time. Nonetheless,
  we may be added to the lawsuit in the future, and even if we are not, the outcome
  of this lawsuit may result in future changes to our business, including potential
  increased costs for those of our products that make use of the related technology.
  In October 2007, we received a letter from WIAV Solutions, LLC, offering to
  license the wireless technology covered by two U.S. patents held by WIAV Solutions,
  LLC. To date we have not entered into discussions to license their technology.

If we are unable to obtain and maintain licenses on favorable terms for intellectual
  property rights required for the manufacture, sale, and use of our products,
  particularly those products which must comply with industry standard protocols
  and specifications to be commercially viable, our results of operations or financial
  condition could be adversely impacted.



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In addition to disputes relating to the validity or alleged infringement
  of other parties' rights, we may become involved in disputes relating to our
  assertion of our own intellectual property rights. Whether we are defending
  the assertion of intellectual property rights against us or asserting our intellectual
  property rights against others, intellectual property litigation can be complex,
  costly, protracted, and highly disruptive to business operations by diverting
  the attention and energies of management and key technical personnel. Plaintiffs
  in intellectual property cases often seek injunctive relief, and the measures
  of damages in intellectual property litigation are complex and often subjective
  or uncertain. Thus, any adverse determinations in this type of litigation could
  subject us to significant liabilities and costs.

New industry standards may require us to redesign our products, which could
  substantially increase our operating expenses.

Standards for the form and functionality of our products are established by
  standards committees. These independent committees establish standards, which
  evolve and change over time, for different categories of our products. We must
  continue to identify and ensure compliance with evolving industry standards
  so that our products are interoperable and we remain competitive. Unanticipated
  changes in industry standards could render our products incompatible with products
  developed by major hardware manufacturers and software developers. Should any
  major changes, even if anticipated, occur, we would be required to invest significant
  time and resources to redesign our products to ensure compliance with relevant
  standards. If our products are not in compliance with prevailing industry standards
  for a significant period of time, we would miss opportunities to sell our products
  for use with new hardware components from mobile computer manufacturers and
  OEMs, thus affecting our business.

Undetected flaws and defects in our products may disrupt product
  sales and result in expensive and time-consuming remedial action.

Our hardware and software products may contain undetected flaws, which may
  not be discovered until customers have used the products. From time to time,
  we may temporarily suspend or delay shipments or divert development resources
  from other projects to correct a particular product deficiency. Efforts to identify
  and correct errors and make design changes may be expensive and time consuming.
  Failure to discover product deficiencies in the future could delay product introductions
  or shipments, require us to recall previously shipped products to make design
  modifications, or cause unfavorable publicity, any of which could adversely
  affect our business and operating results.



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Our quarterly operating results may fluctuate in future periods, which could
  cause our stock price to decline.

We expect to experience quarterly fluctuations in operating results in the
  future. We generally ship orders as received, and as a result we may have little
  backlog. Quarterly revenues and operating results therefore depend on the volume
  and timing of orders received during the quarter, which are difficult to forecast.
  Historically, we have often recognized a substantial portion of our revenue
  in the last month of the quarter. This subjects us to the risk that even modest
  delays in orders may adversely affect our quarterly operating results. Our operating
  results may also fluctuate due to factors such as:

- the demand for our products;
- the size and timing of customer orders;
- unanticipated delays or problems in our introduction of new products and
    product enhancements;
- the introduction of new products and product enhancements by our competitors;
- the timing of the introduction of new products that work with our connection
    products;
- changes in the revenues attributable to royalties and engineering development
    services;
- product mix;
- timing of software enhancements;
- changes in the level of operating expenses;
- competitive conditions in the industry including competitive pressures resulting
    in lower average selling prices; and
- timing of distributors' shipments to their customers.

Because we base our staffing and other operating expenses on anticipated revenues,
  delays in the receipt of orders can cause significant variations in operating
  results from quarter to quarter. As a result of any of the foregoing factors,
  or a combination, our results of operations in any given quarter may be below
  the expectations of public market analysts or investors, in which case the market
  price of our common stock would be adversely affected.

The loss of one or more of our senior personnel could harm our existing
  business.

A number of our officers and senior managers have been employed for thirteen
  to sixteen years by us, including our President, Executive Vice President, Chief
  Financial Officer, and Chief Technical Officer. Our future success will depend
  upon the continued service of key officers and senior managers. Competition
  for officers and senior managers is intense, and there can be no assurance that
  we will be able to retain our existing senior personnel. The loss of one or
  more of our officers or key senior managers could adversely affect our ability
  to compete.

Beginning January 1, 2006 we began to expense options granted under our
  employee stock plans as compensation, and as a result our net income and earnings
  per share were negatively affected, we may continue to have net losses as a
  result of the requirement to expense options, and may find it necessary to change
  our business practices to attract and retain employees.

Historically, we have used stock options as a key component of our employee
  compensation packages. We believe that stock options provide an incentive to
  our employees to maximize long-term stockholder value and, through the use of
  vesting, encourage valued employees to remain with us. The expensing of employee
  stock options adversely affected our net income and earnings per share in each
  of the quarters in fiscal years 2007 and 2006, will continue to adversely affect
  future quarters, and will make profitability harder to achieve or make our future
  profits or net losses worse. In addition, we may decide in response to the effects
  of expensing stock options on our operating results to reduce the number of
  stock options granted to employees or to grant options to fewer employees. This
  could adversely affect our ability to retain existing employees and attract
  qualified candidates, and also could increase the cash compensation we would
  have to pay to them.



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If we are unable to attract and retain highly skilled sales
  and marketing and product development personnel, our ability to develop and
  market new products and product enhancements will be adversely affected.

We believe our ability to achieve increased revenues and to develop successful
  new products and product enhancements will depend in part upon our ability to
  attract and retain highly skilled sales and marketing and product development
  personnel. Our products involve a number of new and evolving technologies, and
  we frequently need to apply these technologies to the unique requirements of
  mobile products. Our personnel must be familiar with both the technologies we
  support and the unique requirements of the products to which our products connect.
  Competition for such personnel is intense, and we may not be able to attract
  and retain such key personnel. In addition, our ability to hire and retain such
  key personnel will depend upon our ability to raise capital or achieve increased
  revenue levels to fund the costs associated with such key personnel. Failure
  to attract and retain such key personnel will adversely affect our ability to
  develop and market new products and product enhancements.

We may not be able to collect revenues from customers who experience financial
  difficulties.

Our accounts receivable are derived primarily from distributors and OEMs. We
  perform ongoing credit evaluations of our customers' financial conditions but
  generally require no collateral from our customers. Reserves are maintained
  for potential credit losses, and such losses have historically been within such
  reserves. However, many of our customers may be thinly capitalized and may be
  prone to failure in adverse market conditions. Although our collection history
  has been good, from time to time a customer may not pay us because of financial
  difficulty, bankruptcy or liquidation.

We may be unable to manufacture our products, because we are dependent on
  a limited number of qualified suppliers for our components.

Several of our component parts, including our serial interface chip, our Ethernet
  chip, our bar code scanning modules, and our new line of mobile handheld computers,
  are produced by one or a limited number of suppliers. Shortages could occur
  in these essential components due to an interruption of supply or increased
  demand in the industry. If we are unable to procure certain component parts,
  we could be required to reduce our operations while we seek alternative sources
  for these components, which could have a material adverse effect on our financial
  results. To the extent that we acquire extra inventory stocks to protect against
  possible shortages, we would be exposed to additional risks associated with
  holding inventory, such as obsolescence, excess quantities, or loss.



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Our operating results could be harmed by economic, political,
  regulatory and other risks associated with export sales.

Export sales (sales to customers outside the United States) accounted for approximately
  35 percent, 32 percent, and 35 percent, of our revenues in fiscal years 2007,
  2006, and 2005, respectively. Accordingly, our operating results are subject
  to the risks inherent in export sales, including:

- longer payment cycles;
- unexpected changes in regulatory requirements, import and export restrictions
    and tariffs;
- difficulties in managing foreign operations;
- the burdens of complying with a variety of foreign laws;
- greater difficulty or delay in accounts receivable collection;
- potentially adverse tax consequences; and
- political and economic instability.

Our export sales are primarily denominated in United States dollars and in
  Euros for our sales to European distributors. Accordingly, an increase in the
  value of the United States dollar relative to foreign currencies could make
  our products more expensive and therefore potentially less competitive in foreign
  markets. Declines in the value of the Euro relative to the United States dollar
  may result in foreign currency losses relating to collection of Euro denominated
  receivables if left unhedged.

Our operations are vulnerable to interruption by fire, earthquake, power
  loss, telecommunications failure, and other events beyond our control.

Our corporate headquarters is located near an earthquake fault. The potential
  impact of a major earthquake on our facilities, infrastructure, and overall
  business is unknown. Additionally, we may experience electrical power blackouts
  or natural disasters that could interrupt our business. Should a disaster be
  widespread, such as a major earthquake, or result in the loss of key personnel,
  we may not be able to implement our disaster recovery plan in a timely manner.
  Any losses or damages incurred by us as a result of these events could have
  a material adverse effect on our business.

Failure to maintain effective internal controls could have a material adverse
  effect on our business, operating results and stock price.

We have evaluated and will continue to evaluate our internal control procedures
  in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act,
  which requires an annual management assessment of the design and effectiveness
  of our internal controls over financial reporting. If we fail to maintain the
  adequacy of our internal controls, as such standards are modified, supplemented
  or amended from time to time, we may not be able to ensure that we can conclude
  on an ongoing basis that we have effective internal controls over financial
  reporting in accordance with Section 404 of the Sarbanes-Oxley Act. Moreover,
  effective internal controls, particularly those related to revenue recognition,
  are necessary for us to produce reliable financial reports and are important
  to helping prevent financial fraud. If we cannot provide reliable financial
  reports or prevent fraud, our business and operating results could be harmed,
  investors could lose confidence in our reported financial information, and the
  trading price of our stock could drop significantly.

The sale of a substantial number of shares of common stock could cause the
  market price of our common stock to decline.

Sales of a substantial number of shares of our common stock in the public market
  could adversely affect the market price for our common stock. The market price
  of our common stock could also decline if one or more of our significant stockholders
  decided for any reason to sell substantial amounts of our common stock in the
  public market.

As of February 29, 2008, we had 32,015,975 shares of common stock outstanding.
  Substantially all of these shares are freely tradable in the public market,
  either without restriction or subject, in some cases, only to S-3 prospectus
  delivery requirements and, in other cases, only to manner of sale, volume, and
  notice requirements of Rule 144 under the Securities Act.



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As of February 29, 2008, we had 10,947,309 shares subject to outstanding options
  under our stock option plans, and 1,149,737 shares were available for future
  issuance under the plans. We have registered the shares of common stock subject
  to outstanding options and reserved for issuance under our stock option plans.
  Accordingly, shares underlying vested options will be eligible for resale in
  the public market as soon as the options are exercised.

As of February 29, 2008, we had warrants outstanding to purchase a total of
  918,810 shares of our common stock at exercise prices ranging from $0.722 to
  $2.73. All such warrants may be exercised at any time, and the shares issuable
  upon exercise may be resold, either without restrictions or subject, in some
  cases, only to S-3 prospectus delivery requirements, and, in some cases, only
  to manner of sale, volume, and notice requirements of Rule 144.

Volatility in the trading price of our common stock could negatively impact
  the price of our common stock.

During the period from January 1, 2006 through February 29, 2008, our common
  stock price fluctuated between a high of $1.75 and a low of $0.59. The trading
  price of our common stock could be subject to wide fluctuations in response
  to many factors, some of which are beyond our control, including general economic
  conditions and the outlook of securities analysts and investors on our industry.
  In addition, the stock markets in general, and the markets for high technology
  stocks in particular, have experienced high volatility that has often been unrelated
  to the operating performance of particular companies. These broad market fluctuations
  may adversely affect the trading price of our common stock.

Item 1B. Unresolved Staff Comments

None.

Item 2.
  Properties

We lease a 37,100 square foot office facility in Newark, California under a
  lease expiring in June 2012. We have one option to extend the term of the lease
  for an additional five-year period with respect to the entire premises. This
  facility houses our headquarters and manufacturing operations. We believe that
  our current facilities are sufficient and adequate to meet our needs for the
  foreseeable future.

Item 3. Legal Proceedings

We are currently not a
  party to any material legal proceedings.Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted for vote by security holders during the fourth quarter
  of 2007.



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PART
  II

Item 5. Market for Registrant's
  Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities

Common Stock

The Company's Common Stock is traded on the NASDAQ Global Market under the
  symbol "SCKT."

The quarterly high and low sales prices of our Common Stock, as reported on
  the NASDAQ Global Market through February 29, 2008, and for the last two fiscal
  years are as shown below:

|                                                   |  | Common Stock
|-------------------------------------------------- |  | ------------
|Quarter Ended                                      |  |         
|2006                                               |  |             
|March 31, 2006                                     |  | $           
|June 30, 2006                                      |  | $           
|September 30, 2006                                 |  | $           
|December 31, 2006                                  |  | $           
|2007                                               |  |             
|March 31, 2007                                     |  | $           
|June 30, 2007                                      |  | $           
|September 30, 2007                                 |  | $           
|December 31, 2007                                  |  | $           
|2008                                               |  |             
|March 31, 2008 (through February 29,
        2008) |  | $           

On February 29, 2008, the closing sales price for our common stock as reported
  on the NASDAQ Global Market was $0.73. We had approximately 6,300 beneficial
  stockholders of record as of February 25, 2008. We have not paid dividends on
  our common stock, and we currrently intend to retain future earnings for use
  in our business and do not anticipate paying dividends in the foreseeable future.

The information required by this item regarding equity compensation plans is
  incorporated by reference to the information set forth in Item 12 of this Annual
  Report on Form 10-K.



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Performance Graph

The performance graph shown below shall not be deemed "filed" for purposes
  of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise
  subject to the liabilities under that section, and shall not be deemed to be
  incorporated by reference into any filing of Socket Communications, Inc. under
  the Securities Act of 1933, as amended, or the Exchange Act. The performance
  graph below shows a five-year comparison of cumulative total stockholder return,
  calculated on a dividend reinvestment basis and based on a $100 investment,
  from December 31, 2002 through December 31, 2007 comparing the return on the
  Company's common stock with the Russell 2000 Index and the NASDAQ Computer &
  Data Processing Index. No dividends have been declared or paid on the common
  stock during such period. Historical stock price performance is not necessarily
  indicative of future stock price performance.









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Item 6. Selected Consolidated
  Financial Data

The following selected consolidated financial data should be read in conjunction
  with Item 7, "Management's Discussion and Analysis of Financial Condition and
  Results of Operations," and the consolidated financial statements and the notes
  thereto in Item 8, "Financial Statements and Supplementary Data."

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |         | Year
      Ended December 31
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------- | ----------------------------
|(Amounts in thousands except per share)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |         |                         
|Income Statement
      Data:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |         |                             
|Revenue                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |         | $                           
|Gross
        profit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |         | $                           
|Operating
        expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |         | $                           
|Net income
        (loss) applicable to common stockholders                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |         | $                           
|Net income
        (loss) per share applicable to common stockholders                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |         | $                           
|Weighted
        average shares outstanding:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |         |                             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | Basic   |                             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | Diluted |                             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |         |                             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |         |                             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |         |                             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |         |                             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |         |                             
|Balance Sheet
      Data:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |         |                             
|Total
        assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |         | $                           
|Bank
        line of credit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |         | $                           
|Capital
        leases and deferred rent - long term portion                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |         | $                           
|Preferred
        stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |         | $                           
|Total
        stockholders' equity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |         | $                           
|Dividends
        and preferred stock accretion                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |         | $                           
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(a) In
          2007, operating expenses and the net loss applicable to common stockholders
          includes stock compensation expense of $0.9 million and $1.0 million,
          respectively. In 2006, operating expenses and the net loss applicable
          to common stockholders includes stock compensation expense of $1.1 million
          and $1.2 million, respectively. On January 1, 2006, we adopted Financial
          Accounting Standard SFAS 123R, "Share-Based Payment." SFAS 123R requires
          the valuation of compensatory stock option grants and the expensing
          of the fair market value of these grants over the vesting period of
          the grants. Prior to fiscal 2006, we accounted for stock option grants
          to our employees and directors in accordance with Accounting Principles
          Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
          25), and reported in accordance with the disclosure-only alternative
          described in SFAS 123, "Accounting for Stock-Based Compensation."





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Item 7.
  Management's Discussion and Analysis of Financial Condition and Results of Operations

Critical Accounting
  Policies

Our significant accounting policies are described in Note 1 to our consolidated
  financial statements for the year ended December 31, 2007. The application of
  these policies requires us to make estimates and judgments that affect the reported
  amount of assets, liabilities, revenues and expenses, and related disclosure
  of contingent assets and liabilities. We base our estimates on a combination
  of historical experience and reasonable judgment applied to other facts. Actual
  results may differ from these estimates, and such differences may be material
  to the financial statements. In addition, the use of different assumptions or
  judgments may result in different estimates. We believe our critical accounting
  policies that are subject to these estimates are: Revenue Recognition and Accounts
  Receivable Reserves, Inventory Valuation, and Valuation of Goodwill and Other
  Intangible Assets.

Revenue Recognition
  and Accounts Receivable Reserves

We defer revenue recognition on products sold to distributors until our distributors
  sell the products to their customers, because our distributors generally have
  rights to return products to us for stock rotation, stock reduction, or replacement
  of defective product. The amount of deferred revenue net of related cost of
  revenue is classified as deferred income on shipments to distributors on our
  balance sheet. We use inventory reports received from our distributors at the
  end of each reporting period to determine the extent of inventory at the distributor,
  and thus, the amount of income to defer. Stock rotation and stock reduction
  from our distributors generally results in a balance sheet adjustment to our
  deferred income and does not impact our revenue or cost of revenue.

We generally recognize revenues on sales to customers other than distributors
  upon shipment provided that persuasive evidence of a sales arrangement exists,
  the price is fixed and determinable, title has transferred, collection of resulting
  receivables is reasonably assured, there are no customer acceptance requirements,
  and there are no remaining significant obligations. Most of our customers other
  than distributors do not have rights of return except under warranty.

We estimate the amount of uncollectible receivables at the end of each reporting
  period based on the aging of the receivable balance, historical trends, and
  communications with our customers. If actual bad debts are significantly different
  from our estimates our operating results will be affected.

Inventory Valuation

Our inventories primarily consist of component parts used to assemble our products
  after we receive orders from our customers. We purchase or have manufactured
  the component parts required by our engineering bill of materials. The timing
  and quantity of our purchases are based on order forecasts, the lead time requirements
  of our vendors, and on economic order quantities. At the end of each reporting
  period, we compare our inventory on hand to our forecasted requirements for
  the next nine-month period, and write off the cost of any inventory that is
  surplus, less any amounts that we believe we can recover from disposal of goods
  that we specifically believe will be saleable past a nine-month horizon. Our
  sales forecasts are based upon historical trends, communications from customers,
  and marketing data regarding market trends and dynamics, which we discuss in
  Item 1, Business. Surplus or obsolete inventory can also be created by changes
  to our engineering bill of materials. Charges for the amounts we record as surplus
  or obsolete inventory are included in cost of revenue.



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Valuation
  of Goodwill and Other Intangible Assets

Our acquisition of the CompactFlash Bluetooth card business, including a product
  line and technology license, from Nokia Corporation in March 2002 and our acquisition
  of 3rd Rail Engineering in October 2000 added goodwill and intangible assets
  to our balance sheet. We allocated the purchase price of each based on an analysis
  of the fair market value of the assets we acquired. Beginning with the first
  quarter of 2002, in accordance with Statement of Financial Accounting Standards
  No. 142, "Goodwill and Other Intangible Assets," we ceased amortizing goodwill,
  and began to evaluate periodically whether the value of the goodwill was impaired,
  at which time any impaired balances would be written down. We currently perform
  an evaluation of goodwill on a quarterly basis. We also evaluate on a quarterly
  basis our intangible and other long lived assets for potential impairment indicators.
  Our judgments regarding the existence of impairment indicators are based on
  legal factors, market conditions and operational performance of our acquired
  businesses. In addition, we also review the market capitalization of the Company
  in conjunction with our analysis of goodwill impairment. As of December 31,
  2007, in our judgment, there is no impairment of goodwill or intangible assets.
  Future events could cause us to conclude that impairment indicators exist and
  that goodwill and intangible assets associated with our acquired businesses
  are impaired. Any resulting impairment loss could have a material adverse impact
  on our financial condition and results of operations.

Overview of Our Business

We are a producer of mobile systems serving the business market. Mobile systems
  solutions typically consist of a handheld computer, data collection and connectivity
  peripherals, and third-party vertical applications software. We have historically
  offered a wide range of data collection and connectivity peripheral products
  and embedded products for use with mobile computing devices offered by third-parties.
  Commencing in June 2007, we introduced a mobile handheld computer and began
  offering mobile systems for use with third-party vertical applications software.
  For a complete description of our products see "Products" in section Item 1.
  Business. We work with more than 100 software integration companies that are
  offering or developing vertical application software for use with handheld computers,
  including patient medication administration within the health care industry,
  retail merchandising, sales and field force automation, asset management and
  inventory control, and mobile point of sale applications. These mobile solutions
  are designed to improve the productivity of business enterprises by automating
  manual tasks, improving the quality of information collected, and enhancing
  mobile productivity.

The guiding principles that we follow in developing products for the mobile
  systems solutions market are standard form factors, low battery power consumption,
  ease of use, interoperability and quality. Our products are designed to address
  the growing need for mobile workforce connectivity by enabling the use of handheld
  computers to extend data communications capabilities beyond location-dependent
  wired networks or telephone lines, thereby enabling handheld computer users
  to enhance their productivity, exploit time sensitive opportunities and improve
  customer satisfaction. Overall, our products enable the integration of hardware,
  software and applications into complete mobile data collection and connectivity
  solutions.



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The overall market for data collection and connectivity products is both complex
  and competitive. Our products compete with similar products that are manufactured
  by companies in Asia and Europe. However, our longtime focus on creating innovative
  data collection and connectivity solutions for the mobile workforce has resulted
  in good brand name recognition and reputation. We also believe that our brand
  name identifies our products as robust, dependable, small form factor, low power
  and easy to use, and the breadth of our product offerings, including the extensive
  features of our software, will continue to differentiate us relative to our
  competitors. The addition of a mobile handheld computer in 2007 enables us to
  better control the handheld computing environment for our peripheral products
  and allows us to offer one-stop shopping for the hardware portion of mobile
  business solutions.

We sell both Socket-branded and OEM products. We distribute our
  Socket-branded products through worldwide general distribution channels, and
  sell our OEM products directly to OEMs. We have a leveraged business model in
  both manufacturing and distribution that is designed to allow the benefits of
  revenue growth to benefit our operating results. Most of our major product components
  are manufactured to our specifications by third-party contract manufacturers,
  and we handle final product assembly, testing and distribution. This arrangement
  allows us to expand volume production without a corresponding need to invest
  in additional manufacturing equipment or manufacturing personnel, and increases
  in the volumes of products we have our suppliers manufacture tends to reduce
  the unit costs they charge us, as the costs of production startup are spread
  over more units. We distributed 76 percent of our products (all but our OEM
  products) during 2007 through worldwide general distribution channels. We have
  in place the infrastructure to manage our distribution channels and are capable
  of increasing the volume of business in these channels with our current resources.
  Sixty-five percent of our products were sold in the United States, and thirty
  five percent sold in Europe and Asia during 2007.

We price our products towards the customer who is looking for a dependable,
  robust product, not necessarily the most inexpensive, and we have typically
  achieved gross margins around 49 to 50 percent. We believe that of our products
  those that face the most competition are our connectivity products, which tend
  to have lower product margins than our data collection, OEM and serial products.
  As a result, our margins are affected by product sales mix. We will also provide
  customer discounts for volume orders; thus order size can affect our margins.
  Inventory charges such as reserves for excess and obsolete inventory are also
  charged to cost of sales and can impact our margins.

Overall revenues in 2007 declined by 3 percent from revenues in 2006. Fiscal
  2007 was a year of change as we transitioned from being a peripherals supplier
  to a mobile system solutions supplier for the business mobility market. We outlined
  a new strategic direction at the beginning of 2007 around the introduction of
  our first mobile handheld computer, the SoMo 650, which was designed expressly
  for business applications. We began shipping initial units of our mobile handheld
  computer in June of 2007, followed by fully stocking our distribution channel
  in the latter half of the third quarter of 2007. Our mobile handheld computer
  has received favorable reviews in the marketplace and accounted for 6% of our
  total 2007 revenues. Our overall data collection revenues increased by 16% in
  2007 compared to 2006, due in part to our efforts in developing our Vertical
  Industry Partners Program to encourage VARS, integrators and developers to develop
  business applications, which resulted in the increased availability and deployment
  of software applications by businesses. Offsetting the increased revenues related
  to these accomplishments in 2007, were overall declines in sales of our Bluetooth
  modules due to competitive factors that existed in the marketplace in the beginning
  of 2007, and continued declines in our legacy products including our Ethernet
  plug-in products, our wireless plug-in products, and our serial products, as
  these technologies are being built-in by manufacturers or replaced with newer
  technologies.



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Total operating expenses in 2007 increased by one percent compared to total
  operating expenses in 2006. Our largest operating cost, over 50 percent of our
  operating costs in 2007, was the cost of our personnel. We adopted SFAS 123R
  beginning January 1, 2006 and began recognizing stock-based compensation expense,
  which added $ 1.0 million and $1.2 million of personnel expense in fiscal 2007
  and 2006, respectively. Additional increases in personnel costs in 2007 were
  primarily due to the additions of key sales personnel, including the addition
  of our Senior Vice President of Sales & Marketing in the second quarter, as
  we staffed the sales team to promote and sell our line of mobile handheld computers,
  and additions of engineering personnel to staff in-house technical expertise
  for our development programs, which reduced our reliance on outside technical
  service providers. Most of our senior employees have a variable portion of their
  compensation based on achieving financial and operating goals and objectives.
  In 2007, our revenues were below our financial goals, which reduced the total
  variable personnel compensation we paid, partially offsetting other increases
  in personnel expenses. Total personnel costs, including the costs of personnel
  in operations that are charged to cost of sales, increased by 9 percent in 2007
  over 2006. Advertising and promotional expense in 2007 declined to 5 percent
  of total operating expenses, compared to 9 percent in 2006.

Our balance sheet at December 31, 2007 included $5.0 million in cash, a current
  ratio (current assets divided by current liabilities) of 1.3 to 1.0, and no
  material long-term debt. Our cash balances at year-end included a net increase
  of $0.4 million in amounts drawn on our bank lines of credit and $0.4 million
  from the net balance outstanding on a term loan advanced in June of 2007. We
  used $1.1 million in cash from operations in 2007, including $0.3 million in
  cash provided from working capital changes, primarily from increases in deferred
  income and accrued payroll. We managed our inventory levels in 2007, holding
  overall increases at December 31, 2007 to less than $0.1 million from the preceding
  year-end. Additionally, warrants and options exercised in 2007 resulted in a
  source of cash of $0.1 million.

We have an experienced management team with five of our eight officers having
  served the Company for more than thirteen years. We believe we comply with the
  standards for good corporate governance. In the three years ended December 31,
  2007, we were subject to the requirement of an audit of our internal controls
  over financial reporting for fiscal year 2005 only, for which we received an
  unqualified opinion on our internal controls. In 2007 and 2006 we were not subject
  to this requirement, but continue to perform internal control testing to monitor
  and assess the effectiveness of the Company's internal control over financial
  reporting, and we report our assessment in Item 9A(T). Controls and Procedures.



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Revenues

Our revenues have been classified into four broad product families for the
  years ended December 31, 2007, 2006, and 2005, and are presented in the following
  table:

|(revenues in
      thousands)      |  | Years ended December 31, |        | Increase (Decrease)
        in years
|---------------------------------- |  | ------------------------ | ------ | ------------------------------------
|                                   |  | 2007                     |        | 2006*                               
|Product family:                    |  |                          | $'s    |                                     
|Mobile handheld computer products: |  | $                        | 1,342  |                                     
|Mobile peripheral products:        |  |                          |        |                                     
|Data collection                    |  |                          | 11,989 |                                     
|Connectivity                       |  |                          | 2,470  |                                     
|OEM embedded products              |  |                          | 6,541  |                                     
|Serial interface products          |  |                      | 1,776  |                                 
|Total                              |  | $                        | 24,118 |                                     

* For the 2006 and 2005 years presented above, revenues related
  to our Wireless LAN plug-in cards and Bluetooth plug-in cards, which historically
  had been included in our connectivity products category, have been reclassified
  within the OEM embedded products to be consistent with the classification of
  these revenues in 2007. See the discussion that follows on connectivity product
  revenues and OEM embedded product revenues for additional information.

Beginning in 2007 we added a mobile handheld computer to our product lines which
  is classified in the mobile handheld computer products category. Shipments
  of our first mobile handheld computer, the SoMo 650, to customers in our distribution
  channel began as planned in the second quarter of 2007. In the third quarter
  of 2007 we completed our objectives of ramping up production and fully stocking
  our distribution channel to enable widespread customer evaluation and qualification
  of the product to commence. Revenues related to our first mobile handheld computer
  represented approximately 6 percent our total revenues for fiscal 2007. The
  effect of stocking our distribution channel resulted in increases in deferred
  income on shipments to distributors at December 31, 2007, compared to a year
  ago.

Our data collection productrevenues in 2007 increased by $1.6 million
  from data collection revenues in 2006. Record quarterly data collection revenues
  in the first half of 2007 were slowed in the second half of 2007 due in part
  to an announcement by a major handheld computer manufacturer of new handheld
  models for the consumer market. Such announcements typically slow customer deployments
  of our peripheral products because of the time needed by customers to evaluate
  or adopt new handheld models. Overall growth in 2007 in our data collections
  revenues compared to 2006 was due to both our efforts in developing programs
  such as our Vertical Industry Partners Program, and a recovery in the first
  half of 2007 from adverse market conditions that existed in 2006. We are dependent
  upon VARS, integrators and developers of third party software applications to
  supply vertical application software that uses the computers and peripheral
  products that we manufacture or support, and we have developed programs such
  as our Vertical Industry Partners Program to encourage VARS, integrators and
  developers of such applications to do so. Overall growth in data collection
  revenues for 2007 reflects in part the growth in availability and deployment
  of software applications by businesses. The primary contributor to growth in
  data collection product revenues in 2007 was our Cordless Hand Scanner product
  which had revenue increases of $0.8 million. Additional increases in data collection
  revenues in 2007 were $0.5 million from increased sales of our primary data
  collection product, our CompactFlash In-Hand Scan card, $0.3 million from increased
  sales of our Cordless Ring Scanner, and increased sales of our SDIO In-Hand
  Scan card, partially offset by declines in revenues of discontinued scanning
  products.



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Data collection product revenues in 2006 increased by $0.7 million from data
  collection revenues in 2005. Revenue increases in 2006 of $0.8 million in sales
  of our Cordless Hand Scanner, and increases of $0.4 million in sales of our
  Cordless Ring Scanner which began shipping in the fourth quarter of 2005, were
  partially offset by declines in sales of our SDIO In-Hand Scan card, declines
  in our In-Hand Scan Imager card, and declines in our primary scanning product,
  the CompactFlash In-Hand Scan card. Data collection revenues in 2006 were slowed
  by the introduction of an operating system upgrade, Windows Mobile 5.0, announced
  in September 2005 by the major handheld manufacturers, which slowed customer
  deployments throughout 2006, as third-party applications were modified and tested
  with the operating system. Transition to lead-free products in the second quarter
  of 2006 to comply with the Reduction of Hazardous Substances (RoHS) rules implemented
  in Europe and around the world, limited the availability of units by the major
  handheld manufacturers until late in the second quarter of 2006. Third quarter
  of 2006 was adversely affected by a marked reduction in deployments by a key
  North American channel partner.

Our connectivity product revenues for the three years presented in the
  above table consist of Ethernet plug-in cards, Modems, and accessory products
  including our Mobile Power Pack. Beginning with the first quarter of 2007, sales
  of our Wireless LAN plug-in cards and Bluetooth plug-in cards, which have historically
  been included in our connectivity products category, are now included within
  the OEM embedded products family. This reclassification reflects that the majority
  of our Wireless LAN plug-in card and Bluetooth plug-in card revenues are being
  driven in 2007 by customers of our OEM embedded products family, whereas sales
  in 2006 and 2005 were driven by non-OEM customers. For comparative purposes
  in the table previously presented, revenues related to our Wireless LAN plug-in
  cards and Bluetooth plug-in cards, which were formerly classified within the
  connectivity products category in the years 2006 and 2005, have been reclassified
  within the OEM product revenue family for these years.

Connectivity revenue declines in 2007 of $0.8 million in sales of our Modem
  plug-in products, and $0.5 million in sales of our Ethernet plug-in products
  were due to reduced corporate deployments of these wired connection solutions.
  Additional declines in 2007 were from reduced sales of our accessory products
  including our Mobile Power Pack, and our Cordless GPS receiver with navigation
  kit which was discontinued in 2006. Revenue declines in 2006 were from declines
  of $0.4 million in reduced sales of our Modem plug-in cards and Ethernet plug-in
  cards, and declines of $0.8 million from reduced sales of our discontinued Cordless
  GPS receiver product. Revenues from our accessory products, including our Mobile
  Power Pack, were flat in 2006 compared to 2005. Connectivity revenues in 2006
  were slowed by the introduction of an operating system upgrade, Windows Mobile
  5.0, announced in September 2005 by the major handheld manufacturers, which
  slowed customer deployments in 2006 as third-party applications were modified
  and tested with the operating system. Transition to lead-free products in the
  second quarter of 2006 to comply with the Reduction of Hazardous Substances
  (RoHS) rules implemented in Europe and around the world, limited the availability
  of units by the major handheld manufacturers until late in the second quarter
  of 2006. Third quarter of 2006 was adversely affected by a marked reduction
  in handheld computer deployments by a key North American channel partner.

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Our OEM embedded product revenues related to our Bluetooth modules declined
  by $0.4 million in 2007 from 2006. Overall decreases in Bluetooth module revenues
  were due to lower sales, reflecting overall increased competition our module
  customers experienced in the industrial ruggedized market segment in 2007 compared
  to 2006. Beginning in the fourth quarter of 2006, our customers in the industrial
  ruggedized market segment experienced pronounced increased competition due to
  aggressive price discounting by a major competitor, a trend which also adversely
  affected our Bluetooth module revenues in the first quarter 2007, but improved
  steadily in the following second, third, and fourth quarters of 2007. Revenue
  growth in 2006 of $1.9 million from sales of our Bluetooth modules was due to
  increased manufacturing volumes of industrial ruggedized handhelds by our customers
  during the first three quarters of 2006. In the fourth quarter of 2006 sales
  levels of our Bluetooth modules declined significantly due to increased competition
  our customers experienced in the industrial ruggedized market segment during
  the fourth quarter.

In 2007, all sales related to our Wireless LAN plug-in cards and Bluetooth
  plug-in cards, the majority of which have historically been included in our
  connectivity products family, are now included in the revenues of the OEM embedded
  products family. This reflects that the majority of our Wireless LAN plug-in
  card and Bluetooth plug-in card revenues in 2007 are being driven by customers
  within our OEM embedded products group, whereas sales of these products in 2006
  and 2005 were driven by non-OEM customers. Revenues related to Wireless LAN
  plug-in cards and Bluetooth plug-in cards declined by $1.0 million in 2007 compared
  to total revenues of these products in 2006, primarily due to these wireless
  technologies being already built-in by handheld computer manufacturers. Total
  revenues related to Wireless LAN plug-in cards and Bluetooth plug-in cards in
  2006 declined by $0.6 million. Revenues related to these products in 2006 were
  slowed by the introduction of an operating system upgrade, Windows Mobile 5.0,
  announced in September 2005 by the major handheld manufacturers, which slowed
  customer deployments in 2006 as third-party applications were modified and tested
  with the operating system. Transition to lead-free products in the second quarter
  of 2006 to comply with the Reduction of Hazardous Substances (RoHS) rules implemented
  in Europe and around the world, limited the availability of units by the major
  handheld manufacturers until late in the second quarter of 2006. Third quarter
  of 2006 was adversely affected by a marked reduction in handheld computer deployments
  by a key North American channel partner.

Our serial interface product revenues declined in 2007 by $0.8 million
  from revenues in 2006, and in 2006 by $0.7 million from 2005. Serial interface
  product revenue declines of $0.6 million in 2007 and $0.7 million in 2006 were
  due to reduced sales of our standard serial PC card products. Our standard peripheral
  connection cards are primarily sold to connect peripheral devices or other electronic
  equipment to notebook computers. Additional revenue declines in 2007 and 2006
  were from lower sales of our CompactFlash card products compared to 2005. Additional
  further declines in 2006 were from lower sales of our cordless Bluetooth serial
  adapter compared to 2005. Overall serial product revenues have declined in the
  periods presented, continuing a trend reflecting the gradual replacement of
  serial technology with USB and other newer connection technologies.



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Gross Margins

Gross margins for 2007 were 49 percent of revenues compared to gross margins
  of 49 percent in 2006, and 50 percent in 2005. Margins in 2007 reflect overall
  margin improvements in data collection products offset by lower initial margins
  on our new mobile handheld computer which began shipping late in the second
  quarter of 2007. Initial margins on our mobile handheld computer product are
  below our average product margins. Margin reductions in 2006 were due to a product
  mix reflecting growth in products with lower than average margins and reductions
  in products with higher than average margins. Additional impacts on margins
  in 2006 are related to higher accruals for inventory reserves compared to 2005,
  reflecting estimates for excess non-RoHS compliant inventories. We generally
  price our products as a markup from our cost, and we offer discount pricing
  for higher volume purchases. Our average target gross margin historically has
  been 50 percent, and we expect shipments of our mobile handheld computer in
  the coming quarters to reduce our overall gross margin percentage by up to a
  few percentage points from historical margins depending on volumes shipped.

Research and Development
  Expense

Research and development expense in 2007 was $5.0 million, a decrease of 3
  percent from research and development expense in 2006 of $5.1 million. Research
  and development expense in 2006 increased by 46 percent from research and development
  expense in 2005 of $3.5 million. Reductions in 2007 totaling $0.4 million were
  from reduced equipment costs and consulting and professional fees, and were
  partially offset by increases in personnel costs as we staffed in-house expertise
  for technical skills formally sourced to outside consulting and professional
  service providers. Increases in 2006 of $0.6 million were from higher personnel
  costs of which approximately half was related to the recognition of stock-based
  compensation expense resulting from the adoption and implementation of SFAS
  123R beginning January 1, 2006. Additional increases in 2006 were from increased
  equipment costs, outside services, and consulting and professional fees reflecting
  increased development activities, of which $0.3 million was attributable to
  the initial costs of the development of our mobile handheld computer, for which
  we incurred comparable costs in 2007, primarily in the first quarter, from the
  conclusion of the development of this new product.

Sales and Marketing
  Expense

Sales and marketing expense in 2007 was $7.4 million, an increase of 3 percent
  compared to sales and marketing expense in 2006 of $7.1 million. Sales and marketing
  expense in 2006 increased by 8 percent compared to sales and marketing expense
  in 2005 of $6.6 million. Increases in personnel costs of $0.5 million in 2007
  were due to the additions of key personnel beginning in the second quarter of
  2007, including our Senior Vice President of Sales & Marketing, as we staffed
  the sales team to promote and sell our new mobile handheld computer which began
  shipping late in the second quarter of 2007. Additional increases were from
  increased travel related to the additions of staff members to the sales team.
  Partially offsetting these increases were reductions of $0.5 million from lower
  levels of advertising and promotional expenses. In 2006, increases in personnel
  costs of $0.5 million were primarily from stock-based compensation expense resulting
  from the adoption and implementation of SFAS 123R beginning January 1, 2006.
  Slight increases in equipment costs and consulting and professional fees, were
  partially offset by reductions in outside services and advertising and promotion.



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General and Administrative
  Expense

General and administrative expense in 2007 was $2.7 million, an increase of
  2 percent compared to general and administrative expense in 2006. General and
  administrative expense in 2006 increased by 6 percent compared to general and
  administrative expense in 2005 of $2.5 million. Increases in 2007 were primarily
  from higher equipment expense as we began to depreciate the costs of capitalized
  leasehold improvements and furniture and fixtures related to our new corporate
  headquarters as of January 2007, and higher overall occupancy related costs
  compared to the prior year. Increases in personnel costs in 2006 of $0.4 million
  were primarily from stock-based compensation expense recognized in 2006 resulting
  from the adoption and implementation of SFAS 123R beginning January 1, 2006.
  Partially offsetting these increases were reduced professional fees in 2006
  related to Sarbanes-Oxley compliance requirements incurred in 2005, and reduced
  business insurance costs compared to 2005.

Amortization of Intangibles

In July 2004 we acquired a patent which covers the design and functioning of
  plug-in bar code scanners, bar code imagers, and radio frequency identification
  products. The patent was purchased for $600,000 and has been capitalized as
  an intangible asset. The patent is being amortized on a straight line basis
  over a ten-year period. Intangible assets of $571,000 remaining from a prior
  acquisition in 2000 consist of developed software and technology with estimated
  lives at the time of acquisition of 8.5 years. At December 31, 2004, a licensing
  agreement with a book value of $38,000 was reclassified as an intangible asset
  and was amortized over its remaining life of three years ending in December
  2007. During the first quarter of 2002, we acquired intangible assets in conjunction
  with the acquisition of Nokia's CompactFlash Bluetooth Card business and related
  product line technology valued at $980,000. Estimated useful lives of these
  acquired assets at the time of acquisition ranged from one to three years. All
  components of the acquired Nokia intangibles were fully amortized by the end
  of the first quarter in fiscal 2005. Total amortization charges in 2007 for
  all acquired intangibles were $135,000, compared to $140,000 in 2006, and $203,000
  in 2005. The lower annual amortization charges are due to components of intangible
  property becoming fully amortized.

Interest Income and
  Other, and Interest Expense

Interest income reflects interest earned on cash balances. Interest income
  was $114,000 in 2007, $175,000 in 2006, and $92,000 in 2005. Lower interest
  income in 2007 compared to 2006 reflects lower average cash balances in 2007
  partially offset by higher rates of return. Lower levels of cash in 2007 compared
  to 2006 are primarily the result of an increased use of cash in financing greater
  quarterly operating losses in 2007 compared to 2006. Higher levels of interest
  income in 2006 compared to 2005 reflect higher average levels of cash on hand
  in 2006 combined with higher rates of return. Higher levels of cash on hand
  in 2006 compared to 2005 were primarily from the exercise of Series E and Series
  F warrants totaling $0.6 million.

Interest expense was $34,000 in 2007, $8,000 in 2006, and $5,000 in 2005. Interest
  expense is related to interest on equipment lease financing obligations, and
  interest on amounts drawn on our bank lines of credit and term loan. We used
  our bank lines of credit only at the end of each quarter in each of the years
  presented. The term loan was advanced at the end of the second quarter of 2007
  and is being repaid in 36 monthly installments which began in July of 2007.
  Higher interest expense in 2007 as compared to 2006 was due to interest on our
  term loan and higher interest rates on our lines of credit in 2007 compared
  to 2006. Higher interest expense in 2006 as compared to 2005 was due to higher
  interest rates on our lines of credit in 2006 compared to 2005.



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Income Taxes

We account for income taxes in accordance with Statement of Financial Accounting
  Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Under SFAS 109,
  deferred tax assets and liabilities are determined based on differences between
  the financial reporting and tax bases of assets and liabilities and are measured
  using enacted tax rates and laws that will be in effect when the differences
  are expected to reverse. We record a valuation allowance against deferred tax
  assets when it is more likely than not that such assets will not be realized.
  We have not generated taxable income in any periods in any jurisdiction, foreign
  or domestic. The Company has maintained a full valuation allowance for all deferred
  tax assets. There can be no assurance that the deferred tax assets subject to
  the valuation allowance will be realized.

In June 2006, the Financial Accounting Standards Board ("FASB") issued Interpretation
  No. 48, "Accounting for Uncertainty in Income Taxes - An Interpretation of FASB
  Statement No. 109" ("FIN 48"), to create a single model to address accounting
  for uncertainty in tax positions. FIN 48 clarifies the accounting for income
  taxes by prescribing a minimum recognition threshold a tax position is required
  to meet before being recognized in the financial statements. FIN 48 also provides
  guidance on derecognition, measurement, classification, interest and penalties,
  accounting in interim periods, disclosure and transition. FIN 48 is effective
  for fiscal years beginning after December 15, 2006. The Company adopted FIN
  48 as of January 1, 2007, as required. There were no adjustments to the financial
  statements as a result of the adoption of FIN 48. See Note 11 - Income Taxes,
  for additional information.

Preferred Stock Dividends

Preferred stock dividends in the first nine months of 2006 reflect dividends
  of $10,700 accrued at the rate of 8% per annum on Series F Preferred Stock through
  the date of mandatory conversion in the first quarter 2006. Series F Preferred
  Stock was originally issued in March 2003. Series F dividends were payable quarterly
  in cash or in common stock, at the option of the Company. Dividends in the first
  quarter 2006 through the date of conversion were paid prior to the end of the
  first quarter. On March 21, 2006 the outstanding shares of Series F Preferred
  Stock automatically converted into common stock resulting in the issuance of
  823,300 shares of common stock.

Preferred stock dividends of $11,000 in 2006, and $48,000 in 2005, reflect
  dividends accrued at the rate of 8% per annum on Series F Preferred Stock issued
  in March 2003. Series F dividends were payable quarterly in cash or in common
  stock, at the option of the Company. Dividends in 2006 reflect dividends up
  through the date of mandatory conversion of Series F Preferred Stock in the
  first quarter 2006, and were paid prior to the end of the first quarter. On
  March 21, 2006 the outstanding shares of Series F Preferred Stock automatically
  converted into common stock resulting in the issuance of 823,300 shares of common
  stock. Dividends in 2005 for Series F Preferred Stock were paid in cash subsequent
  to the end of each of the quarters.



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Quarterly Results of
  Operations

The following table sets forth summary quarterly statements of operations data
  for each of the quarters in 2006 and 2007. This unaudited quarterly information
  has been prepared on the same basis as the annual information presented elsewhere
  herein, and, in our opinion, includes all adjustments (consisting only of normal
  recurring entries) necessary for a fair presentation of the information for
  the quarters presented. The operating results for any quarter are not necessarily
  indicative of results for any future period.

|                                                 |                                                                                | Quarter Ended
|------------------------------------------------ | ------------------------------------------------------------------------------ | -------------
|(amounts in thousands, except per share amounts) |                                                                                | Mar 31,      
|                                                 |                                                                                | 2006         
|Summary
        Quarterly Data:                  |                                                                                |              
|                                                 | Revenue                                                                        |              
|                                                 | Cost of revenue                                                                |              
|                                                 | Gross profit                                                                   |              
|                                                 | Operating expenses:                                                            |              
|                                                 | Research and development                                                       |              
|                                                 | Sales and marketing                                                            |              
|                                                 | General and administrative                                                     |              
|                                                 | Amortization of intangibles                                                    |              
|                                                 | Total operating expenses                                                       |              
|Interest income (expense), net                   |                                                                                |              
|Deferred tax expense                             |                                                                                |          
|                                                 | Net loss                                                                       |              
|                                                 | Preferred stock dividends                                                      |              
|Net loss applicable to common stockholders       |                                                                                | $            
|                                                 | Basic and diluted net loss per share applicable
        to common stockholders |              

We have experienced significant quarterly fluctuations in operating results,
  and we anticipate such fluctuations to continue in the future. We generally
  ship orders as received and therefore quarterly revenue and operating results
  depend on the volume and timing of orders received during the quarter, which
  are difficult to forecast. Historically, we have recognized a substantial portion
  of our revenue in the last month of the quarter. Operating results may also
  fluctuate due to factors such as the demand for our products, the size and timing
  of customer orders, the introduction of new products and product enhancements
  by us or our competitors, product mix, timing of software enhancements, changes
  in the level of operating expenses, and competitive conditions in the industry.
  Because our staffing and other operating expenses are based on anticipated revenue,
  a substantial portion of which is not typically generated until the end of each
  quarter, delays in the receipt of orders can cause significant variations in
  operating results from quarter to quarter.

Liquidity
  and Capital Resources

We were unprofitable in each of the quarters of fiscal 2007 and 2006. We were
  profitable in two quarters in 2005, but unprofitable for fiscal year 2005. We
  may continue to be unprofitable in the foreseeable future. Historically we have
  financed our operations through the sale of equity securities, equipment financing,
  and revolving bank lines of credit. Since our inception we have raised approximately
  $51 million in equity capital to fund our operations.



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Cash used in operating activities was $1.1 million in 2007 compared to $0.4
  million used in operating activities in 2006, and cash provided by operating
  activities of $2.2 million in 2005. Cash used in 2007 from our net loss adjusted
  for non-cash items was $1.4 million, compared to cash used in 2006 of $0.8 million
  from our net loss adjusted for non-cash items, and cash provided of $0.5 million
  in 2005 from our net loss adjusted for non-cash items. Adjustments for non-cash
  items consisting of depreciation and amortization, amortization of intangibles,
  gains and losses on foreign currency transactions, changes in deferred rent,
  deferred tax expense, and stock-based compensation expense, totaled $1.9 million
  in 2007, compared to $2.1 million in 2006, and $0.7 million in 2005. Reductions
  in non-cash items in 2007 were primarily from lower stock compensation expense
  compared to 2006. Increases in non-cash items in 2006 compared to 2005 were
  primarily from stock-based compensation expense due to the adoption of FAS 123R
  on January 1, 2006. Changes in working capital balances resulted in a source
  of cash of $0.3 million in 2007, $0.4 million in 2006, and $1.7 million in 2005.
  Changes in working capital balances in 2007 were primarily from increases in
  deferred income on shipments to distributors due to increased levels of inventory
  in our channel primarily from distributors stocking our new mobile handheld
  computer which we began shipping in June 2007, and increases in accrued payroll,
  partially offset by increases in inventory and prepaid royalties related to
  our new mobile handheld computer. Changes in working capital balances in 2006
  were primarily from increases in deferred income on shipments to distributors
  due to increased inventory levels in our distribution channel, and reductions
  in accounts receivables due to lower shipments in the fourth quarter, partially
  offset by decreases accounts payables and increases in inventory and other assets.
  Changes in working capital balances in 2005 were primarily from decreases in
  receivables due to early collections from key distributors, and reductions in
  levels of inventory, partially offset by increases in prepaid assets and decreases
  in payables.

Cash used in investing activities was $1.0 million in 2007, $0.8 million in
  2006, and $0.6 million in 2005. Increased investing activities in 2007 reflects
  the costs of leasehold improvements related to our new corporate headquarters
  incurred primarily in the first quarter of 2007. Remaining investing activities
  in each of the periods presented reflects the costs of new computer hardware
  and software, and tooling costs.

Cash provided by financing activities was $ 0.9 million in 2007 compared to
  $0.5 million in 2006, and cash used in financing activities of $0.6 million
  in 2005. Financing activities in 2007 consisted primarily of a net increase
  of $0.4 million in the amounts drawn on our bank lines of credit, $0.4 million
  from a term loan advance in June of 2007 net of repayments, and proceeds from
  the exercise of stock options. At the end of 2007 we drew $2.6 million in cash
  against our bank credit line, which we repaid in January 2008. Financing activities
  in 2006 consisted primarily of proceeds totaling $0.6 million from the exercise
  of warrants and stock options, partially offset by a net decrease in the amounts
  drawn on our bank lines of credit, and the final dividend payments on Series
  F Preferred Stock. At the end of 2006 we drew $2.2 million in cash against our
  bank credit line, which we repaid in January 2007. Financing activities in 2005
  consist primarily of a net decrease of $0.6 million in the amounts drawn on
  our bank lines of credit. Payments of cash dividends and payments on capital
  leases totaling $0.1 million were offset by proceeds from the exercise of stock
  options. At the end of 2005 we drew $2.3 million in cash against our bank credit
  line, which we repaid in January 2006.



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Our cash balances at December 31, 2007 were $5.0 million, including
  cash of $2.6 million drawn against our bank line of credit and a net balance
  of $0.4 million from a term loan advance which is being repaid monthly over
  three years beginning in July of 2007. We concluded the development and related
  expense for our first mobile handheld computer primarily in the first quarter
  of 2007 and began shipping initial units to our customers in June 2007, followed
  by volume shipments to stock our distribution channel in mid September. In May
  of 2007, we extended our bank line of credit agreement which will now expire
  on March 3, 2009. We have warrants outstanding from our private placement financings
  and outstanding employee stock options that, if exercised, would further increase
  our cash and equity balances. We believe our existing cash, plus our ability
  to reduce costs, and our bank line and term loan will be sufficient to meet
  our funding requirements at least through December 31, 2008. If we can return
  to profitability and revenue growth, we anticipate requirements for cash will
  include funding of higher receivable and inventory balances, and increasing
  expenses, including more employees to support our growth and increases in salaries,
  benefits, and related support costs for employees. If we cannot return to profitability,
  we will not be able to support our operations from positive cash flows, and
  we would use our existing cash to support operating losses. If we are unable
  to secure the necessary capital to replace that cash, we may need to suspend
  some or all of our current operations. Should the need arise, we cannot assure
  you that additional capital will be available on acceptable terms, if at all,
  and any such terms may be dilutive to existing stockholders. Although we do
  not anticipate the need to raise additional capital at this time to fund our
  operations, we may raise additional capital if market conditions are appropriate.

Our contractual obligations at December 31, 2007 are outlined in the table
  below:

|                                                                       |       | Payments
      Due by Period
|---------------------------------------------------------------------- | ----- | ----------------------------
|Contractual Obligations                                                |   | Total                       
|Capital
        leases                                                 |       | $                           
|Operating
        leases                                               |       |                             
|Term
        loan, principle and interest                              |       |                         
|Unconditional
        purchase obligations with contract manufacturers |       |                         
|Total
        contractual cash obligations                             |       | $                           

Off-Balance Sheet Arrangements

As of December 31, 2007, we have no off-balance sheet arrangements as defined
  in Item 303 of Regulation S-K.



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Recent Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued Interpretation
  No. 48, "Accounting for Uncertainty in Income Taxes - An Interpretation of FASB
  Statement No. 109" ("FIN 48"), to create a single model to address accounting
  for uncertainty in tax positions. FIN 48 clarifies the accounting for income
  taxes by prescribing a minimum recognition threshold a tax position is required
  to meet before being recognized in the financial statements. FIN 48 also provides
  guidance on derecognition, measurement, classification, interest and penalties,
  accounting in interim periods, disclosure and transition. FIN 48 is effective
  for fiscal years beginning after December 15, 2006. The Company adopted FIN
  48 as of January 1, 2007, as required. There were no adjustments to the financial
  statements as a result of the adoption of FIN 48. See Note 11 - Income Taxes,
  for additional information.

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements"
  ("SFAS 157"), which establishes a framework for measuring fair value and expands
  disclosures about fair value measurements. SFAS 157 is effective for fiscal
  years and interim periods beginning after November 15, 2007. The Company is
  currently evaluating whether the provisions of SFAS No. 157 will result in a
  change to its fair value measurements.

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
  Financial Assets and Financial Liabilities" ("SFAS 159"), which permits companies
  to choose to measure certain financial instruments and certain other items at
  fair value. The standard requires that unrealized gains and losses on items
  for which the fair value option has been elected be reported in earnings. SFAS
  159 is effective for fiscal years beginning after November 15, 2007. SFAS 159
  is effective for the Company beginning in the first quarter of fiscal 2008.
  The Company has not yet determined the impact, if any, of SFAS 159 on our consolidated
  financial statements.

In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
  Consolidated Financial Statements-an amendment of Accounting Research Bulletin
  No. 51" ("SFAS 160"), which establishes accounting and reporting standards for
  ownership interests in subsidiaries held by parties other than the parent, the
  amount of consolidated net income attributable to the parent and to the noncontrolling
  interest, changes in a parent's ownership interest, and the valuation of retained
  noncontrolling equity investments when a subsidiary is deconsolidated. SFAS
  160 also establishes disclosure requirements that clearly identify and distinguish
  between the interests of the parent and the interests of the noncontrolling
  owners. SFAS 160 is effective for fiscal years beginning after December 15,
  2008. The Company has not yet determined the impact, if any, of the adoption
  of SFAS 160 on our consolidated financial statements.



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Item 7A. Quantitative
  and Qualitative Disclosures About Market Risk

Interest Rate Risk

Our exposure to market risk for changes in interest rates relates primarily
  to invested cash. Our cash is invested in short-term money market investments
  backed by U.S. Treasury notes and other investments that mature within one year
  and whose principal is not subject to market rate fluctuations. Accordingly,
  interest rate declines would adversely affect our interest income but would
  not affect the carrying value of our cash investments. Based on a sensitivity
  analysis of our cash investments during the quarter ended December 31, 2007,
  a decline of 1% in interest rates would reduce our quarterly interest income
  by approximately $5,900.

Our bank credit line facilities of up to $4.0 million have variable interest
  rates based upon the lender's index rate plus 0.5% for both the domestic line
  (up to $2.5 million) and the international line (up to $1.5 million). Accordingly,
  interest rate increases would increase our interest expense on outstanding credit
  line balances. We utilized our credit line facility only at the end of each
  quarter in 2007 and 2006, and therefore did not subject ourselves to interest
  rate exposure. Based on a sensitivity analysis, an increase of 1% in the interest
  rate would increase our borrowing costs by $10,000 for each $1 million of borrowings,
  if outstanding for the entire year, against our bank credit facility or a maximum
  of $40,000 if we utilized our entire credit line.

Foreign Currency Risk

A substantial majority of our revenue, expense and purchasing activities are
  transacted in U.S. dollars. However, we require our European distributors to
  purchase our products in Euros, we pay the expenses of our European employees
  in Euros and British pounds, and we may enter into selected future purchase
  commitments with foreign suppliers that may be paid in the local currency of
  the supplier. We hedge a significant portion of our European receivables balance
  denominated in Euros to reduce the foreign currency risk associated with these
  assets, and we have not been subject to significant losses from material foreign
  currency fluctuations. Based on a sensitivity analysis of our net foreign currency
  denominated assets and subsidiary expenses at the beginning, during and at the
  end of the quarter ended December 31, 2007, an adverse change of 10% in exchange
  rates would result in a decrease in our net income for the fourth quarter of
  approximately $80,100, if left unprotected. For the fourth quarter of 2007 the
  total net adjustment for the effects of changes in foreign currency on cash
  balances, collections, payables, and derivatives was a net loss of $5,700. We
  will continue to monitor, assess, and mitigate through hedging activities, the
  risk associated with these exposures.



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Item 8.
  Financial Statements and Supplementary Data

The supplementary information required by this item is included in Item 7,
  "Management's Discussion and Analysis of Financial Condition and Results of
  Operations."

REPORT OF MOSS ADAMS LLP
  INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of
  Socket Communications, Inc.

We have audited the accompanying
  consolidated balance sheets of Socket Communications, Inc. as of December 31,
  2007 and 2006, and the related consolidated statements of operations, preferred
  stock and stockholders' equity, and cash flows for each of the years in the
  three year period ended December 31, 2007. Socket Communications, Inc.'s management
  is responsible for these financial statements. Our responsibility is to express
  an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
  Accounting Oversight Board (United States). Those standards require that we
  plan and perform the audits to obtain reasonable assurance about whether the
  financial statements are free of material misstatement. The Company is not required
  to have, nor were we engaged to perform, an audit of its internal control over
  financial reporting. Our audit included consideration of internal control over
  financial reporting as a basis for designing audit procedures that are appropriate
  in the circumstances, but not for the purpose of expressing an opinion on the
  effectiveness of the Company's internal control over financial reporting. Accordingly,
  we express no such opinion. An audit includes examining, on a test basis, evidence
  supporting the amounts and disclosures in the consolidated financial statements.
  An audit also includes assessing the accounting principles used and significant
  estimates made by management, as well as evaluating the overall financial statement
  presentation. We believe that our audits provide a reasonable basis for our
  opinion.

In our opinion, the consolidated financial statements referred
  to above present fairly, in all material respects, the financial position of
  Socket Communications, Inc. as of December 31, 2007 and 2006, and the consolidated
  results of its operations and its cash flows for each of the years in the three
  year period ended December 31, 2007, in conformity with accounting principles
  generally accepted in the United States of America.

As described in Note 1 to the consolidated financial statements, on January
  1, 2006 the Company adopted a new principle of accounting for share-based payments
  in accordance with Financial Accounting Standards Board Statement No. 123(R),
  Share-Based Payment.



|        /s/
        Moss Adams LLP
|------------------------------------------------------------------



San Francisco, California
  March 6, 2008

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SOCKET
  COMMUNICATIONS, INC.


CONSOLIDATED BALANCE SHEETS


|                                                                                                                                                                                                      |                                                    | December 31, |            
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------- | ------------ | -----------
|                                                                                                                                                                                                      |                                                    | 2007         |            
|ASSETS                                                                                                                                                                                               
|Current
        assets:                                                                                                                                                                               |                                                    |              |            
|Cash
          and cash equivalents                                                                                                                                                                   |                                                    | $            | 4,963,359  
|Accounts
          receivable, net of allowance for doubtful accounts of $118,651 at December
          31, 2007 and 2006                                                                             |                                                    |              | 2,614,872  
|Inventories                                                                                                                                                                                           |                                                    |              | 2,438,033  
|Prepaid
          expenses and other current assets                                                                                                                                                   |                                                    |          | 282,867    
|                                                                                                                                                                                                      | Total current assets                               |              |        
|                                                                                                                                                                                                  |                                                    |              |            
|Property
        and equipment:                                                                                                                                                                       |                                                    |              |            
|Machinery
          and office equipment                                                                                                                                                              |                                                    |              | 2,391,991  
|Computer
          equipment                                                                                                                                                                          |                                                    |          | 1,125,875  
|                                                                                                                                                                                                  |                                                    |              | 3,517,866  
|Accumulated
          depreciation                                                                                                                                                                    |                                                    |          | (2,373,409 
|                                                                                                                                                                                                      | Property and equipment, net                        |              |        
|                                                                                                                                                                                                  |                                                    |              |            
|Intangible
        assets, net                                                                                                                                                                        |                                                    |              | 473,934    
|Goodwill                                                                                                                                                                                              |                                                    |              | 9,797,946  
|Other
        assets                                                                                                                                                                                  |                                                    |          | 258,445    
|                                                                                                                                                                                                      | Total
          assets                             |              | $          
|                                                                                                                                                                                                 
|LIABILITIES
        AND STOCKHOLDERS EQUITY                                                                                                                                                         
|Current
        liabilities:                                                                                                                                                                          |                                                    |              |            
|Accounts
          payable                                                                                                                                                                            |                                                    | $            | 2,352,287  
|Accrued
          expenses                                                                                                                                                                            |                                                    |              | 76,881     
|Accrued
          payroll and related expenses                                                                                                                                                        |                                                    |              | 852,185    
|Bank
          line of credit                                                                                                                                                                         |                                                    |              | 2,622,009  
|Deferred
          income on shipments to distributors                                                                                                                                                |                                                    |              | 1,744,560  
|Term
          loan - short term portion                                                                                                                                                              |                                                    |              | 160,439    
|Current
          portion of capital leases and deferred rent                                                                                                                                         |                                                    |          | 42,964     
|                                                                                                                                                                                                      | Total
          current liabilities                |              |        
|                                                                                                                                                                                                  |                                                    |              |            
|Long
        term portion of capital leases and deferred rent                                                                                                                                         |                                                    |              | 139,743    
|Term
        loan - long term portion                                                                                                                                                                 |                                                    |              | 266,543    
|Deferred
        income taxes                                                                                                                                                                         |                                                    |          | 182,322    
|Total
          liabilities                                                                                                                                                                           |                                                    |              | 8,439,933  
|                                                                                                                                                                                                 
|Commitments
        and contingencies                                                                                                                                                                 |                                                    |              |            
|Stockholders'
        equity:                                                                                                                                                                         |                                                    |              |            
|Common
          stock, $0.001 par value: Authorized shares100,000,000,
                 Issued and outstanding shares31,989,617
          at December 31, 2007 and 31,851,285 at December 31, 2006 |                                                    |              | 31,990     
|Additional
          paid-in capital                                                                                                                                                                  |                                                    |              | 53,654,483 
|Accumulated
          deficit                                                                                                                                                                         |                                                    |          | (40,152,494
|                                                                                                                                                                                                      | Total
          stockholders equity               |              |        
|                                                                                                                                                                                                      | Total
        liabilities and stockholders equity |              | $          



See accompanying
  notes.





45

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SOCKET
  COMMUNICATIONS, INC.


CONSOLIDATED STATEMENTS OF OPERATIONS


|                                                     |                          | Years
        Ended December 31, |           
|---------------------------------------------------- | ------------------------ | -------------------------------- | ----------
|                                                     |                          | 2007                             |       
|Revenues                                             |                          | $                                | 24,118,032
|Cost of revenues                                     |                          |                              | 12,244,873
|Gross profit                                         |                          |                                  | 11,873,159
|                                                 |                          |                                  |           
|Operating expenses:                                  |                          |                                  |           
|Research
          and development                   |                          |                                  | 5,004,681 
|Sales
          and marketing                        |                          |                                  | 7,380,326 
|General
          and administrative                 |                          |                                  | 2,741,644 
|Amortization
          of intangible assets          |                          |                              | 134,557   
|                                                 | Total operating expenses |                                  |           
|                                                 |                      |                                  |       
|Operating loss                                       |                          |                                  | (3,388,049
|                                                 |                          |                                  |           
|Interest income and other                            |                          |                                  | 113,836   
|Interest expense                                     |                          |                              | (34,157   
| 
                                       |                          |                                  |           
|Net loss before deferred taxes                       |                          |                                  | (3,308,370
|Deferred tax expense                                 |                          |                              | (31,943   
|Net loss                                             |                          |                                  | (3,340,313
|Preferred stock dividends                            |                          |                              | ---       
|Net loss applicable to common stockholders           |                          | $                                | (3,340,313
|                                                 |                          |                                  |           
|Net loss per share applicable to common stockholders |                          |                                  |           
|Basic                                                |                          | $                                | (0.10     
|Diluted                                              |                          | $                                | (0.10     
|                                                 |                          |                                  |           
|Weighted average shares outstanding:                 |                          |                                  |           
|Basic                                                |                          |                                  | 31,929,432
|Diluted                                              |                          |                                  | 31,929,432



See accompanying
  notes.

46

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SOCKET COMMUNICATIONS, INC.
  CONSOLIDATED STATEMENT OF REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY

|                                                                           |  | Series
        F        |         |                      |        |       |            |        |             | 
|-------------------------------------------------------------------------- |  | ----------------------- | ------- | -------------------- | ------ | ----- | ---------- | ------ | ----------- | 
|                                                                           |  | Convertible             |         |                      |        |       | Additional |        |             | 
|                                                                           |  | Preferred
        Stock |         | Common
        Stock |        |       | Paid-In    |        | Accumulated | 
|                                                                           |  | Shares                  |         |                      | Amount |       |            | Shares |             | 
|Balance
        at December 31, 2004                                       |  |                         | 83,823  |                      |        | $     | 84         |        |             | 
|Exercise
        of stock options                                          |  |                         | ---     |                      |        |       | ---        |        |             | 
|Charge
        for compensatory stock options                              |  |                         | ---     |                      |        |       | ---        |        |             | 
|Conversion
        of Series F convertible preferred stock to common stock |  |                         | (1,493  | )                    |        |       | (2         | )      |             | 
|Dividends
        paid in cash on Series F convertible preferred stock     |  |                         | ---     |                      |        |       | ---        |        |             | 
|Net
        loss                                                           |  |                         | ---     |                      |        |   | ---        |        |             | 
|Balance
        at December 31, 2005                                       |  |                         | 82,330  |                      |        |       | 82         |        |             | 
|Exercise
        of warrants                                               |  |                         | ---     |                      |        |       | ---        |        |             | 
|Exercise
        of stock options                                          |  |                         | ---     |                      |        |       | ---        |        |             | 
|Conversion
        of Series F convertible preferred stock to common stock |  |                         | (82,330 | )                    |        |       | (82        | )      |             | 
|Dividends
        paid in cash on Series F convertible preferred stock     |  |                         | ---     |                      |        |       | ---        |        |             | 
|Stock-based
        compensation                                           |  |                         | ---     |                      |        |       | ---        |        |             | 
|Net
        loss                                                           |  |                         | ---     |                      |        |   | ---        |        |             | 
|Balance
        at December 31, 2006                                       |  |                         | ---     |                      |        |       | ---        |        |             | 
|Exercise
        of warrants                                               |  |                         | ---     |                      |        |       | ---        |        |             | 
|Exercise
        of stock options                                          |  |                         | ---     |                      |        |       | ---        |        |             | 
|Stock-based
        compensation                                           |  |                         | ---     |                      |        |       | ---        |        |             | 
|Net
        loss                                                           |  |                         | ---     |                      |        |   | ---        |        |             | 
|Balance
        at December 31, 2007                                       |  |                         | ---     |                      |        | $     | ---        |        |             | 



See accompanying
  notes.

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SOCKET COMMUNICATIONS, INC.
  CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                                                  |  | Years
        Ended December 31, |           
|------------------------------------------------------------------------------------------------- |  | -------------------------------- | ----------
|                                                                                                  |  | 2007                             |           
|Operating
        activities                                                                      |  |                                  |           
|Net loss                                                                                          |  | $                                | (3,340,313
|Adjustments to reconcile net loss to net cash provided by (used in) operating
        activities: |  |                                  |           
|Stock-based
        compensation                                                                  |  |                                  | 1,023,134 
|Depreciation                                                                                      |  |                                  | 604,032   
|Amortization                                                                                      |  |                                  | 12,450    
|Amortization
        of intangible technology                                                     |  |                                  | 134,557   
|Net
        foreign currency transaction (gains) losses                                           |  |                                  | (4,751    
|Deferred
        tax expense                                                                      |  |                                  | 31,943    
|Change
        in deferred rent                                                                   |  |                                  | 118,871   
|                                                                                              |  |                                  |           
|Changes
        in operating assets and liabilities:                                              |  |                                  |           
|Accounts
        receivable                                                                       |  |                                  | 69,181    
|Inventories                                                                                       |  |                                  | (87,749   
|Prepaid
        expenses and other current assets                                                 |  |                                  | (89,671   
|Other
        assets                                                                              |  |                                  | 33,334    
|Accounts
        payable                                                                          |  |                                  | (19,506   
|Accrued
        expenses                                                                          |  |                                  | 4,865     
|Accrued
        payroll and related expenses                                                      |  |                                  | 101,178   
|Deferred
        income on shipments to distributors                                              |  |                              | 271,779   
|Net cash provided by (used in) operating activities                                               |  |                                  | (1,136,666
|                                                                                              |  |                                  |           
|Investing
        activities                                                                      |  |                                  |           
|Purchase of equipment and tooling                                                                 |  |                              | (951,583  
|Net cash used in investing activities                                                             |  |                                  | (951,583  
|                                                                                              |  |                                  |           
|Financing
        activities                                                                      |  |                                  |           
|Payments on capital leases and equipment financing notes                                          |  |                                  | (11,715   
|Gross proceeds from borrowings under bank line of credit agreement                                |  |                                  | 9,398,897 
|Gross repayments of borrowings under bank line of credit agreement                                |  |                                  | (8,990,149
|Proceeds from bank term loan                                                                      |  |                                  | 500,000   
|Repayments of bank term loan                                                                      |  |                                  | (73,018   
|Proceeds from stock options exercised                                                             |  |                                  | 99.995    
|Proceeds from warrants exercised                                                                  |  |                                  | ---       
|Dividends paid on Series F convertible preferred stock                                            |  |                              | ---       
|Net cash provided by financing activities                                                         |  |                                  | 924,010   
|                                                                                              |  |                                  |           
|Effect
        of exchange rate changes on cash and cash equivalents                              |  |                              | 23,321    
|Net
        increase (decrease) in cash and cash equivalents                                      |  |                                  | (1,140,918
|Cash
        and cash equivalents at beginning of year                                            |  |                              | 6,104,277 
|Cash
        and cash equivalents at end of year                                                  |  | $                                | 4,963,359 
|                                                                                                  |  |                                  |           
|Supplemental
        cash flow information                                                        |  |                                  |           
|Cash paid for interest                                                                            |  | $                                | 34,157    
|Accrued dividends on preferred stock                                                              |  | $                                | ---       



See accompanying
  notes.

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  of Contents)

SOCKET COMMUNICATIONS, INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1
  - Summary of Significant Accounting Policies

Organization and BusinessSocket Communications, Inc. ("Socket" or the "Company"), dba Socket
  Mobile, Inc., produces mobile systems serving the business market. Mobile systems
  solutions typically consist of a handheld computer, data collection and connectivity
  peripherals, and third-party vertical applications software. The Company has
  historically offered a wide range of data collection and connectivity peripheral
  products and embedded products for use with mobile computing devices offered
  by third-parties. Commencing in June 2007, the Company introduced a mobile handheld
  computer and began offering mobile systems for use with third-party vertical
  applications software. For a complete description of the Company's products
  see "Products" in section Item 1. Business. The Company works with more than
  100 software integration companies that are offering or developing vertical
  application software for use with handheld computers, including patient medication
  administration within the health care industry, retail merchandising, sales
  and field force automation, asset management and inventory control, and mobile
  point of sale applications. The Company's products integrate hardware, software
  and services into complete mobile connectivity solutions. These mobile solutions
  are designed to improve the productivity of business enterprises by automating
  manual tasks, improving the quality of information collected, and enhancing
  mobile productivity. Most of the Company's products, except its OEM embedded
  products, are sold through distributors and resellers that serve business customers.
  The Company's OEM embedded products are sold directly to the manufacturers of
  devices in which the Company's products are embedded. The geographic regions
  served by the Company include the Americas, Europe, the Middle East, Africa
  and Asia Pacific. The Company is incorporated in the state of Delaware.

Principles of Consolidation
  The consolidated financial statements include all of the accounts of the Company
  and those of its wholly owned subsidiary. All intercompany accounts and transactions
  have been eliminated. The expenses associated with the operations of our foreign
  offices were $3,055, $380,173, and $866,095, in 2007, 2006, and 2005, respectively.
  In 2007 the Company ceased the operations of its subsidiary.

Use of Estimates
  The preparation of financial statements in conformity with U.S. generally accepted
  accounting principles requires management to make estimates and assumptions
  that affect the reported amounts of assets and liabilities, and the disclosure
  of contingent assets and liabilities at the date of the financial statements
  as well as the reported amounts of revenue and expense during the reporting
  period. Actual results could differ from those estimates, and such differences
  may be material to the financial statements.

Cash Equivalents
  The Company considers all highly liquid investments purchased with a maturity
  date of 90 days or less at date of purchase to be cash equivalents. As of December
  31, 2007 and 2006, all of the Company's cash and cash equivalents consisted
  of amounts held in demand and money market deposits in banks.

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SOCKET COMMUNICATIONS, INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Fair Value of Financial
  Instruments
  The carrying value of the Company's cash and cash equivalents, accounts receivable,
  accounts payable, debt and foreign exchange contracts approximate fair value
  due to the relatively short period of time to maturity.

Derivative Financial
  Instruments
  The Company's primary objective for holding derivative financial instruments
  is to manage foreign currency risks. The Company's derivative financial instruments
  are recorded at fair value and are included in other current assets, other assets,
  other accrued liabilities or long-term debt depending on the contractual maturity
  and whether the Company has a gain or loss. The Company's accounting policies
  for these instruments are based on whether they meet the Company's criteria
  for designation as hedging transactions, either as cash flow or fair value hedges.
  A hedge of the exposure to variability in the cash flows of an asset or a liability,
  or of a forecasted transaction, is referred to as a cash flow hedge. A hedge
  of the exposure to changes in fair value of an asset or a liability, or of an
  unrecognized firm commitment, is referred to as a fair value hedge. The criteria
  for designating a derivative as a hedge include the instrument's effectiveness
  in risk reduction and, in most cases, a one-to-one matching of the derivative
  instrument to its underlying transaction. Gains and losses on derivatives that
  are not designated as hedges for accounting purposes are recognized currently
  in earnings. The Company's derivatives are treated as cash flow hedges for accounting
  purposes.

Accounts Receivable
  Allowances
  The Company estimates the amount of uncollectible accounts receivable at the
  end of each reporting period based on the aging of the receivable balance, current
  and historical customer trends, and communications with its customers. Amounts
  are written off only after considerable collection efforts have been made and
  the amounts are determined to be uncollectible. The following describes activity
  in the allowance for doubtful accounts for the years ended December 31, 2007,
  2006, and 2005:





|     |  | Balance at   |         |  | Charged to |   |     |             |  |   | Balance at
|---- |  | ------------ | ------- |  | ---------- | - | --- | ----------- |  | - | ----------
|     |  | Beginning of |         |  | Costs and  |   |     | Amounts     |  |   | End of    
|Year |  | Year         |         |  | Expenses   |   |     | Written Off |  |   | Year      
|    
|2007 |  | $            | 118,651 |  |            | $ | --- |             |  | $ | ---       
|2006 |  | $            | 118,651 |  |            | $ | --- |             |  | $ | ---       
|2005 |  | $            | 127,300 |  |            | $ | --- |             |  | $ | 8,649     



Inventories
  Inventories consist principally of raw materials and sub-assemblies stated at
  the lower of standard cost, which approximates actual costs (first-in, first-out
  method), or market. Market is defined as replacement cost, but not in excess
  of estimated net realizable value or less than estimated net realizable value
  less a normal margin. At the end of each reporting period, the Company compares
  its inventory on hand to its forecasted requirements for the next nine month
  period and the Company writes-off the cost of any inventory that is surplus,
  less any amounts that the Company believes it can recover from the disposal
  of goods that it specifically believes will be saleable past a nine month horizon.
  The Company's sales forecasts are based upon historical trends, communications
  from customers, and marketing data regarding market trends and dynamics. Changes
  in the amounts recorded for surplus or obsolete inventory are included in cost
  of revenue. Inventory at December 31, 2007 and 2006, is reported net of reserves
  of $777, 878 and $653,815, respectively. Inventory components at year-end are
  shown in the following table:

|                                 |  | December
      31,
|-------------------------------- |  | ------------------
|                                 |  | 2007              
|Raw materials and sub-assemblies |  | $                 
|Finished
        goods           |  |                   
|                                 |  | $                 



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SOCKET COMMUNICATIONS, INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Property and Equipment
  Property and equipment are stated at cost. Depreciation and amortization are
  computed using the straight-line method, over the estimated useful lives of
  the assets ranging from one to five years. Assets under capital leases are amortized
  in a manner consistent with the Company's normal depreciation policy for owned
  assets, or the remaining lease term if applicable.

Goodwill and Other Intangible
  Assets Review
  Goodwill and intangible assets are accounted for in accordance with Statement
  of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets"
  ("FAS 142"). The Company assesses the impairment of long-lived assets, including
  goodwill and intangibles on a quarterly basis or whenever events or changes
  in circumstances indicate that the fair value is less than its carrying value.
  Factors that the Company considers important which could trigger an impairment
  review include poor economic performance relative to historical or projected
  future operating results, significant negative industry, economic or company
  specific trends, changes in the manner of our use of the assets or the plans
  for our business, market price of our common stock, and loss of key personnel.

Goodwill represents the excess of cost over the estimated fair value of net
  assets acquired from the acquisitions of Nokia's CompactFlash Bluetooth Card
  business in 2002 and 3rd Rail Engineering in 2000, which in accordance with
  FAS 142, is no longer being amortized. Also in accordance with FAS 142, the
  Company tests goodwill for impairment at the reporting unit level on a quarterly
  basis. The Company has determined it is appropriate to report as a single unit.
  SFAS No. 142 requires a two-step goodwill impairment test whereby the first
  step, used to identify potential impairment, compares the fair value of a reporting
  unit with its carrying amount including goodwill. If the fair value of a reporting
  unit exceeds its carrying amount, goodwill of the reporting unit is considered
  not impaired and the second test is not performed. The second step of the impairment
  test is performed when required and compares the implied fair value of the reporting
  unit goodwill with the carrying amount of that goodwill. If the carrying amount
  of the reporting unit goodwill exceeds the implied fair value of that goodwill,
  an impairment loss shall be recognized in an amount equal to that excess. Based
  on the goodwill test for impairment performed during the quarter ended December
  31, 2007, management determined that there is no impairment of goodwill.

Concentration of Credit
  Risk
  Financial instruments that potentially subject the Company to significant concentrations
  of credit risk consist principally of cash, cash equivalents and accounts receivable.
  The Company invests its cash in demand and money market deposit accounts in
  banks. The Company limits the credit exposure to any one financial institution
  or instrument and is exposed to credit risk in the event of default by these
  institutions, to the extent of the amounts recorded on the balance sheet. To
  date, the Company has not experienced losses on these investments. The Company's
  trade accounts receivables are primarily with distributors and OEMs. The Company
  performs ongoing credit evaluations of its customers' financial conditions but
  the Company generally requires no collateral. Reserves are maintained for potential
  credit losses, and such losses have been within management's expectations.



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SOCKET COMMUNICATIONS, INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Concentration of Suppliers
  Several of the Company's component parts are produced by a sole or limited number
  of suppliers. Shortages could occur in these essential materials due to an interruption
  of supply or increased demand in the industry. If the Company were unable to
  procure certain of such materials, it would be required to reduce its operations,
  which could have a material adverse effect upon its results.

Revenue
  Recognition and Deferred Income
  Revenue on sales to customers other than distributors is recognized upon shipment
  provided that persuasive evidence of a sales arrangement exists, the price is
  fixed and determinable, title has transferred, collection of resulting receivables
  is reasonably assured, there are no customer acceptance requirements, and there
  are no remaining significant obligations. Estimated product returns are provided
  for in accordance with Statement of Financial Accounting Standards No. 48, "Revenue
  Recognition When Right of Return Exists." Revenue on sales to distributors where
  a right of return exists is recognized upon "sell-through," when products are
  shipped from the distributor to the distributor's customer. Revenue related
  to those products in our distribution channel at the end of each reporting period
  which has not sold-through is deferred. The amount of deferred revenue net of
  related cost of revenue is classified as deferred income on shipments to distributors
  on our balance sheet.

The Company also earns revenue from services performed in connection with consulting
  arrangements. For those contracts that include contract milestones or acceptance
  criteria the Company recognizes revenue as such milestones are achieved or as
  such acceptance occurs. In some instances the acceptance criteria in the contract
  requires acceptance after all services are complete and all other elements have
  been delivered. Revenue recognition is deferred until those requirements are
  met.

At December 31, 2007 and 2006, deferred revenues totaling $3,206,770, and $2,582,538,
  respectively, net of related costs of those revenues of $1,462,210, and $1,109,757,
  respectively, are classified as deferred income on shipments to distributors.

Research and Development
  Research and development expenditures are generally charged to operations as
  incurred. Statement of Financial Accounting Standards No. 86, "Accounting for
  the Costs of Computer Software to be Sold, Leased or Otherwise Marketed," requires
  the capitalization of certain software development costs subsequent to the establishment
  of technological feasibility. Based on the Company's product development process,
  technological feasibility is established upon the completion of a working model.
  Costs incurred by the Company between the completion of the working model and
  the point at which the product is ready for general release have been insignificant.
  Accordingly, the Company has charged all such costs to research and development
  expenses in the accompanying statements of operations.

Advertising Costs
  Advertising costs are charged to sales and marketing as incurred. The Company
  incurred $388,629, $724,553, and $825,238, in advertising costs during 2007,
  2006, and 2005, respectively.



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SOCKET COMMUNICATIONS, INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Income Taxes
  The Company accounts for income taxes in accordance with Statement of Financial
  Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes." Under
  SFAS 109, deferred tax assets and liabilities are determined based on differences
  between financial reporting and tax bases of assets and liabilities and are
  measured using enacted tax rates and laws that will be in effect when the differences
  are expected to reverse. The Company records a valuation allowance against deferred
  tax assets when it is more likely than not that such assets will not be realized.

The Company adopted the provisions of Accounting Standards Board ("FASB") Interpretation
  No. 48, "Accounting for Uncertainty in Income Taxes - An Interpretation of FASB
  Statement No. 109" ("FIN 48") on January 1, 2007, the first day of fiscal 2007.
  FIN 48 clarifies the accounting for income taxes by prescribing a minimum recognition
  threshold a tax position is required to meet before being recognized in the
  financial statements. FIN 48 also provides guidance on derecognition, measurement,
  classification, interest and penalties, accounting in interim periods, disclosure
  and transition. There were no adjustments to the financial statements as a result
  of the adoption of FIN 48. See Note 11 - Income Taxes, for additional information.

Shipping and handling
  costs
  Shipping and handling costs are included in the cost of sales in the statement
  of operations.

Net Loss Per Share
  The Company calculates earnings per share in accordance with Financial Accounting
  Standards Board Statement No. 128, Earnings per Share. The following
  table sets forth the computation of basic net loss per share:

|                                                                                         |  | Years
        Ended December 31,
|---------------------------------------------------------------------------------------- |  | --------------------------------
|                                                                                         |  | 2007                            
|Numerator:                                                                               |  |                                 
|Net loss                                                                                 |  | $                               
|Preferred stock dividends and accretion                                                  |  |                             
|Net loss applicable to common stockholders                                               |  | $                               
|                                                                                     |  |                                 
|Denominator:                                                                             |  |                                 
|Weighted average common shares outstanding used in computing net loss
        per share: |  |                                 
|Basic                                                                                    |  |                             
|Diluted                                                                                  |  |                             
|                                                                                     |  |                                 
|Net
        loss per share applicable to common stockholders:                            |  |                                 
|Basic                                                                                    |  | $                               
|Diluted                                                                                  |  | $                               





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SOCKET COMMUNICATIONS, INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the 2007, 2006, and 2005 periods presented, the diluted net loss per share
  is equivalent to the basic net loss per share because the Company experienced
  losses in these years and thus no potential common shares underlying stock options,
  warrants, or convertible preferred stock have been included in the net loss
  per share calculation. Options and warrants to purchase 10,914,051, 9,828,275,
  and 9,979,793 shares of Common Stock in 2007, 2006, and 2005, respectively,
  have been omitted from the loss per share calculation as their effect is anti-dilutive.

Stock-Based Compensation
  On January 1, 2006, the Company adopted SFAS 123R for fiscal years ended December
  31, 2006 and onward. SFAS 123R requires all share-based awards to employees,
  including grants of employee stock options, to be recognized in the financial
  statements based on their fair values. The valuation provisions of SFAS 123R
  apply to new grants and to grants that were outstanding as of the effective
  date. Under SFAS 123R, the Company uses a binomial lattice valuation model to
  estimate the fair value of stock option grants made on or after January 1, 2006.
  The binomial lattice model incorporates calculations for expected volatility,
  risk-free interest rates, employee exercise patterns and post-vesting employment
  termination behavior, and these factors affect the estimate of the fair value
  of the Company's stock option grants. The fair value of stock option grants
  outstanding as of the effective date is estimated using the Black-Scholes option
  pricing model used under SFAS 123. The Company adopted the modified prospective
  recognition method and implemented the provisions of SFAS 123R beginning with
  the first quarter of 2006.

At December 31, 2007, options issued to employees for 9,995,241 shares were
  outstanding, of which 7,413,270 were exercisable. At December 31, 2006, options
  issued to employees for 8,838,563 shares were outstanding, of which 6,789,249
  were exercisable. The weighted average fair value of the individual options
  issued and outstanding during the years ended December 31, 2007 and 2006, were
  estimated at $1.54 and $1.69 per share, respectively. The fair values were determined
  using a binomial lattice valuation model for options granted during fiscal 2007
  and 2006, and a Black-Scholes valuation model for options granted prior to January
  1, 2006. Weighted average assumptions for options issued and outstanding during
  the years ended December 31, 2007 and 2006 are shown below:

|                                    |  | Years Ended December 31.
|----------------------------------- |  | ------------------------
|                                    |  | 2007                    
|Risk-free interest rate
        (%) |  | 3.83                    
|Dividend yield                      |  | ---                     
|Volatility factor                   |  | 1.0                     
|Expected option life (years)        |  | 4.7                     



Total stock-based compensation expense recognized in our consolidated
  statement of operations for the years ended December 31, 2007 and 2006 are as
  follows:

|                                |  | Years Ended December 31,
|------------------------------- |  | ------------------------
|Income Statement Classification |  | 2007                    
|Cost of revenue                 |  | $                       
|Research and development        |  |                         
|Sales and marketing             |  |                         
|General and administrative      |  |                         
|Total                           |  | $                       





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SOCKET COMMUNICATIONS, INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Prior to January 1, 2006 the Company accounted for employee stock options in
  accordance with Accounting Principles Board Opinion No. 25, "Accounting for
  Stock Issued to Employees" ("APB 25"), and the Company adopted the disclosure-only
  alternative described in Statement of Financial Accounting Standards No. 123,
  "Accounting for Stock-Based Compensation" ("SFAS 123"). Under APB 25, the Company
  generally did not record compensation expense, because the exercise price of
  the Company's employee stock options equaled the market price of the underlying
  stock on the date of grant. Pro forma information regarding net loss and loss
  per share available to common stockholders was required by SFAS 123, and such
  information has been determined as if the Company had accounted for its employee
  stock options under the fair value method.

Had compensation cost for the Company's stock-based compensation plans been
  determined based on the fair value at the grant dates for awards under those
  plans consistent with the method of SFAS 123, the Company's per share results
  would have changed to the pro forma net loss amounts indicated below:

|                                                                                           |  | Year
      Ended
      December 31,2005
|------------------------------------------------------------------------------------------ |  | ---------------------------------------
|Net loss applicable
        to common shareholders, as reported                            |  | $                                      
|Stock-based employee compensation expense determined under fair
        value based method |  |                                        
|Pro forma net loss applicable
        to common shareholders                               |  | $                                      
|                                                                                           |  |                                        
|Basic net loss per share,
        as reported                                              |  | $                                      
|Diluted net loss per share, as reported                                                    |  | $                                      
|Pro forma basic and
        diluted net loss per share                                     |  | $                                      

The fair value of these options was estimated at the date of grant using the
  Black-Scholes option pricing model with the following weighted average assumptions
  for the year ended December 31, 2005:

|                                    |  | Year Ended
        December 31, 2005
|----------------------------------- |  | ------------------------------------
|Risk-free interest rate
        (%) |  | 4.02                                
|Dividend yield                      |  | ---                                 
|Volatility factor                   |  | 1.2                                 
|Expected option life (years)        |  | 4.6                                 

The Black-Scholes option valuation model was developed for use in estimating
  the fair value of traded options that have no vesting restrictions and are fully
  transferable. In addition, option valuation models require the input of highly
  subjective assumptions including the expected stock price volatility and expected
  option life. Because the Company's employee stock options have characteristics
  significantly different from those of traded options, and because changes in
  the subjective input assumptions can materially affect the fair value estimate,
  in management's opinion, the existing models do not necessarily provide a reliable
  single measure of the fair value of the Company's employee stock options.



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SOCKET COMMUNICATIONS, INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Recent Accounting Standards
  In June 2006, the Financial Accounting Standards Board ("FASB") issued Interpretation
  No. 48, "Accounting for Uncertainty in Income Taxes - An Interpretation of FASB
  Statement No. 109" ("FIN 48"), to create a single model to address accounting
  for uncertainty in tax positions. FIN 48 clarifies the accounting for income
  taxes by prescribing a minimum recognition threshold a tax position is required
  to meet before being recognized in the financial statements. FIN 48 also provides
  guidance on derecognition, measurement, classification, interest and penalties,
  accounting in interim periods, disclosure and transition. FIN 48 is effective
  for fiscal years beginning after December 15, 2006. The Company adopted FIN
  48 as of January 1, 2007, as required. There were no adjustments to the financial
  statements as a result of the adoption of FIN 48. See Note 11 - Income Taxes,
  for additional information.

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements"
  ("SFAS 157"), which establishes a framework for measuring fair value and expands
  disclosures about fair value measurements. SFAS 157 is effective for fiscal
  years and interim periods beginning after November 15, 2007. The Company is
  currently evaluating whether the provisions of SFAS No. 157 will result in a
  change to its fair value measurements.

In February 2007, the FASB issued SFAS No. 159, "The Fair Value
  Option for Financial Assets and Financial Liabilities" ("SFAS 159"), which permits
  companies to choose to measure certain financial instruments and certain other
  items at fair value. The standard requires that unrealized gains and losses
  on items for which the fair value option has been elected be reported in earnings.
  SFAS 159 is effective for fiscal years beginning after November 15, 2007. SFAS
  159 is effective for the Company beginning in the first quarter of fiscal 2008.
  The Company has not yet determined the impact, if any, of SFAS 159 on our consolidated
  financial statements.

In December 2007, the FASB issued SFAS No. 160, "Noncontrolling
  Interests in Consolidated Financial Statements-an amendment of Accounting Research
  Bulletin No. 51" ("SFAS 160"), which establishes accounting and reporting standards
  for ownership interests in subsidiaries held by parties other than the parent,
  the amount of consolidated net income attributable to the parent and to the
  noncontrolling interest, changes in a parent's ownership interest, and the valuation
  of retained noncontrolling equity investments when a subsidiary is deconsolidated.
  SFAS 160 also establishes disclosure requirements that clearly identify and
  distinguish between the interests of the parent and the interests of the noncontrolling
  owners. SFAS 160 is effective for fiscal years beginning after December 15,
  2008. The Company has not yet determined the impact, if any, of the adoption
  of SFAS 160 on our consolidated financial statements.

Segment Information
  The Company follows Statement No. 131, "Disclosures about Segments of an Enterprise
  and Related Information." Operating segments are defined as components of an
  enterprise about which separate financial information is available that is evaluated
  regularly by the chief executive officer in deciding how to allocate resources
  and in assessing performance. The Company operates in one segment-mobile systems
  solutions for businesses. Mobile systems solutions typically consist of a handheld
  computer, data collection and connectivity peripherals, and third party vertical
  applications software. The Company markets its products in the United States
  and foreign countries through its sales personnel and distributors.



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SOCKET COMMUNICATIONS, INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Revenues for the geographic areas for the years ended December 31, 2007, 2006,
  and 2005 are as follows:

|                               |  |                          |        |  |      |       |        |      |  |       |       
|------------------------------ |  | ------------------------ | ------ |  | ---- | ----- | ------ | ---- |  | ----- | ------
|                               |  | Years Ended December 31,
|Revenues: (in thousands)       |  | 2007                     |        |  | 2006 |       |        | 2005
|United States                  |  | $                        | 15,634 |  |      | $     | 17,073 |      |  | $     | 16,206
|Europe                         |  |                          | 6,610  |  |      |       | 5,824  |      |  |       | 6,142 
|Asia and rest
        of world |  |                      | 1,874  |  |      |   | 2,084  |      |  |   | 2,686 
|                               |  | $                        | 24,118 |  |      | $     | 24,981 |      |  | $     | 25,034

Export revenues are attributable to countries based on the location of the
  customers.

Information regarding product families for the years ended December 31, 2007,
  2006, and 2005 is as follows:

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |                          |        |  |       |       |        |       |  |   |       
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ------ |  | ----- | ----- | ------ | ----- |  | - | ------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  | Years Ended December 31,
|Revenues: (in thousands)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  | 2007                     |        |  | 2006* |       |        | 2005*
|Data collection products                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  | $                        | 11,989 |  |       | $     | 10,371 |       |  | $ | 9,695 
|Connectivity
        products                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                          | 2,470  |  |       |       | 4,095  |       |  |   | 5,430 
|Embedded products and services                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                          | 6,541  |  |       |       | 7,983  |       |  |   | 6,639 
|Serial products                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |                          | 1,776  |  |       |       | 2,532  |       |  |   | 3,270 
|Professional
        mobile computer                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                          | 1,342  |  |       |   | ---    |       |  |   | ---   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  | $                        | 24,118 |  |       | $     | 24,981 |       |  | $ | 25,034
|* For the 2006 and 2005 years presented above, revenues related to our
        Wireless LAN plug-in cards and Bluetooth plug-in cards, which historically
        had been included in our connectivity products category, have been reclassified
        within the OEM embedded products to be consistent with the classification
        of these revenues in 2007. For additional information on connectivity
        product revenues and OEM embedded product revenues, see the discussion
        in the Revenues section within Item 7.

Major Customers
  Customers who accounted for at least 10% of total revenues in fiscal 2007, 2006,
  and 2005 were as follows:

|                           |  |                          |    |      |  |      |    |   |  |  |    |  
|-------------------------- |  | ------------------------ | -- | ---- |  | ---- | -- | - |  |  | -- | -
|                           |  | Years Ended December 31,
|                           |  | 2007                     |    | 2006 |  | 2005
|Tech Data Corp.            |  |                          | 23 | %    |  |      | 26 | % |  |  | 28 | %
|Ingram Micro,
        Inc. |  |                          | 13 | %    |  |      | 14 | % |  |  | 14 | %



NOTE 2 - Intangible
  Technology

Intangible assets consist of a patent purchased in 2004 for $600,000 covering
  the design and functioning of plug-in bar code scanners, bar code imagers, and
  radio frequency identification products, which is being amortized on a straight
  line basis over its estimated life of ten years; intangible assets of $570,750
  remaining from a prior acquisition in 2000 consisting of developed software
  and technology with estimated lives at the time of acquisition of 8.5 years;
  and a licensing agreement with a book value of $37,733, which was reclassified
  as an intangible asset at December 31, 2004 and was amortized over its remaining
  life of three years ending in December of 2007.



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SOCKET COMMUNICATIONS, INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Amortization of all intangible assets for the years ended December 31, 2007,
  2006, and 2005, was $134,557, $140,446, and $203,042, respectively. Intangible
  assets as of December 31, 2007 consisted of the following:

|                                 |  |        |           |  |              |       |         |     |       |       |         |      
|-------------------------------- |  | ------ | --------- |  | ------------ | ----- | ------- | --- | ----- | ----- | ------- | -----
|                                 |  | Gross  |           |  | Accumulated  |       |         |     |      
|                                 |  | Assets |           |  | Amortization |       |         | Net |  
|Patent                           |  | $      | 600,000   |  |              | $     | 210,000 |     |       | $     | 390,000 |      
|Project
        management tools |  |        | 570,750   |  |              |       | 486,816 |     |       |       | 83,934  |      
|Licensing
        agreement      |  |    | 37,733    |  |              |   | 37,733  |     |       |   | ---     |  
|Total intangible assets          |  | $      | 1,208,483 |  |              | $     | 734,549 |     |       | $     | 473,934 |      

Intangible assets as of December 31, 2006 consisted of the following:

|                                 |  |        |           |  |              |       |         |     |       |       |         |      
|-------------------------------- |  | ------ | --------- |  | ------------ | ----- | ------- | --- | ----- | ----- | ------- | -----
|                                 |  | Gross  |           |  | Accumulated  |       |         |     |      
|                                 |  | Assets |           |  | Amortization |       |         | Net |  
|Patent                           |  | $      | 600,000   |  |              | $     | 150,000 |     |       | $     | 450,000 |      
|Project
        management tools |  |        | 570,750   |  |              |       | 419,669 |     |       |       | 151,081 |      
|Licensing
        agreement      |  |    | 37,733    |  |              |   | 30,323  |     |       |   | 7,410   |  
|Total intangible assets          |  | $      | 1,208,483 |  |              | $     | 599,992 |     |       | $     | 608,491 |      

Based on identified intangible assets recorded at December 31, 2007 and assuming
  no subsequent impairment of the underlying assets, the annual amortization expense
  is expected to be as follows:

|Year            |  | Amount
|--------------- |  | ------
|2008            |  | $     
|2009            |  |       
|2010            |  |       
|2011            |  |       
|2012 and beyond |  |       
|                |  | $     

NOTE 3 - Series F Convertible
  Preferred Stock

On March 21, 2003, the Company sold 276,269 units of securities at a price
  of $7.22 per unit (total of $2,000,000 gross cash proceeds) in a private equity
  placement. Each unit consisted of one share of the Company's Series F convertible
  preferred stock (the "Series F Preferred Stock") and a three-year warrant to
  purchase three shares of the Company's common stock. Two directors of the Company
  invested an aggregate of $115,000 in the financing. Each share of Series F Preferred
  Stock was convertible, in whole or in part, into 10 shares of common stock at
  the option of the holder at any time for a period of three years following the
  date of sale, with a mandatory conversion date on March 21, 2006. The holders
  of Series F Preferred Stock had voting rights equal to the number of shares
  of common stock issuable upon conversion. The originally issued Series F Preferred
  Stock was convertible into a total of 2,762,690 shares of common stock at a
  conversion price of $0.722 per share, subject to certain adjustments. An additional
  828,807 shares of common stock were issuable upon exercise of the originally
  issued warrants at an exercise price of $0.722 per share. In addition, the Company
  issued five-year warrants to the placement agent to acquire up to 718,300 shares
  of common stock at $0.722 per share.



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SOCKET COMMUNICATIONS, INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

On March 21, 2006, the remaining outstanding shares of Series F Preferred Stock
  automatically converted into common stock, resulting in the issuance of 823,300
  shares of common stock. During the first quarter of 2006, holders elected to
  exercise the remaining outstanding three-year warrants resulting in the issuance
  of 461,022 shares of common stock. Dividends accrued on the Series F Preferred
  Stock at the rate of 8% per annum and were payable quarterly in cash or in common
  stock, at the option of the Company. Dividends for 2006 on the Series F Preferred
  Stock up through the date of mandatory conversion in the first quarter 2006
  were $10,653, and were paid in cash prior to the end of the first quarter. Dividends
  for 2005 were $48,490, and were paid in cash subsequent to each quarter. During
  the 2005 year holders of 1,493 shares of Series F Preferred Stock elected to
  convert their shares into 14,930 shares of common stock leaving 82,330 shares
  of Series F Preferred Stock outstanding at December 31, 2005.

NOTE 4 - Bank Financing
  Arrangements

The Company has a credit facility with a bank which expires on March 3, 2009.
  The credit facility under the credit agreement allows the Company to borrow
  up to $4,000,000 based on the level of qualified domestic and international
  receivables, up to a maximum of $2,500,000 and $1,500,000, respectively, with
  interest at the lender's index rate based on prime plus 0.5%. The rates in effect
  at December 31, 2007 were 7.75% on both the domestic and international lines.
  At December 31, 2007, outstanding amounts borrowed under the lines were $1,752,459
  and $869,550, respectively, which were the approximate amounts available on
  the lines. These amounts outstanding at December 31, 2007 were repaid in January
  2008. At December 31, 2006, outstanding amounts borrowed under the lines were
  $1,100,226 and $1,113,035, respectively, which were the approximate amounts
  available on the lines. These amounts outstanding at December 31, 2006 were
  repaid in January 2007. The Company used the credit facility only at the end
  of the each quarter in fiscal years 2007 and 2006. At December 31, 2007, under
  the terms of the credit agreement, the Company must maintain a balance of cash
  on deposit of at least $500,000, net of any amounts owed by the Company to its
  bank. The Company was in compliance with the minimum cash requirement at the
  end of fiscal 2007. The minimum cash requirement at December 31, 2007, replaced
  a minimum tangible net worth requirement of $4,000,000 formerly in effect. Under
  the credit agreement in effect at December 31, 2006, the Company was required
  to maintain quarterly minimum tangible net worth equal to $5,400,000, plus 50%
  of quarterly net profits and 50% of net proceeds from equity and subordinated
  debt financing transactions beginning with the quarter ending December 31, 2006.
  The Company was in compliance with the tangible net worth requirement at the
  end of fiscal year 2006.

Under the terms of the agreement a term loan was made available to the Company
  in a principal amount of $500,000, the advance of which was completed on June
  29, 2007. The term loan bears a fixed interest rate of 9.75%, equal to the prime
  rate plus 1.5% at the time of the advance, and is to be repaid by the Company
  in 36 equal monthly installments. At December 31, 2007, $426,982 was outstanding
  on the term loan, of which $160,439 and $266,543 is classified as short term
  debt and long term debt, respectively. Payments of principal due in future years
  are as follows: $156,877, $173,228, and $ 93,315, for the years ending December
  31, 2008, 2009 and 2010, respectively.



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SOCKET COMMUNICATIONS, INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 5 - Capital Lease
  Obligations and Equipment Financings

The Company leases certain of its equipment under capital leases. The leases
  are collateralized by the underlying assets. At December 31, 2007, property
  and equipment with a cost of $75,551 were subject to such financing arrangements.
  Related accumulated amortization at December 31, 2007 amounted to $12,450. Future
  minimum payments under capital lease and equipment financing arrangements as
  of December 31, 2007, are as follows:

|Annual minimum payments                       | Amount
|--------------------------------------------- | ------
|2008                                          | $     
|2009                                          |       
|2010                                          |       
|2011                                          |       
|Total
        minimum payments                |       
|Less amount representing
        interest     |       
|Present
        value of net minimum payments |       
|Less current portion                          |       
|Long-term portion                             | $     

NOTE 6 - Commitments

The Company operates its headquarters under a sixty-four month non-cancelable
  operating lease which expires in June of 2012. The lease provides for the lease
  by the Company of approximately 37,100 square feet of space in Newark, California.
  The Company has one option to extend the term of the lease for an additional
  five-year period with respect to the entire premises. Future minimum lease payments
  under all operating leases are as shown below:

|Annual minimum payments | Amount
|----------------------- | ------
|2008                    | $     
|2009                    |       
|2010                    |       
|2011                    |       
|2012                    |       
|Total minimum payments  | $     

Rental expense under all operating leases was $352,745, $349,428, and $377,427,
  for each of the years ended December 31, 2007, 2006, and 2005, respectively.

The Company has non-cancelable purchase commitments with its vendors for inventory
  used in the ordinary course of business in the aggregate amount of approximately
  $4.1 million in 2008.



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SOCKET COMMUNICATIONS, INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 7 - Stock Option/Stock
  Issuance Plan

The Company has three Stock Option Plans: the 1995 Stock Option/Stock Issuance
  Plan (the "1995 Plan"), the 1999 Stock Plan (the "1999 Plan"), and the 2004
  Equity Incentive Plan (the "2004 Plan").

The 1995 Plan
  The 1995 Plan provides for the grant of incentive stock options and nonstatutory
  stock options to employees, directors, and consultants of the Company. The Company
  granted incentive stock options and nonstatutory stock options at exercise prices
  per share equal to the fair market value per share of common stock on the date
  of grant. The vesting and exercise provisions were determined by the Board of
  Directors, with a maximum term of ten years. Upon ratification of the 2004 Plan
  by the shareholders in June 2004, shares in the 1995 Plan that had been reserved
  but not issued, as well as any shares issued that would otherwise return to
  the 1995 Plan as a result of termination of options or repurchase of shares,
  were added to the shares reserved for issuance under the 2004 Plan. No additional
  grants will be made from the 1995 Plan.

Information with respect to the 1995 Plan is summarized as follows:

|                                   |  |           |          |        |                     |       |           |                 |       |   |      | 
|---------------------------------- |  | --------- | -------- | ------ | ------------------- | ----- | --------- | --------------- | ----- | - | ---- | 
|                                   |  |           |          |        | Outstanding Options
|                                   |  | Options   |          |        |                     |       |           | Weighted        |      
|                               |  | Available |          |        | Number              |       |           | Average         |      
|                                   |  | For Grant |      |        | of Shares           |   |           | Price Per Share |  
|Balance
      at December 31, 2004 |  |           | ---      |        |                     |       | 5,390,115 |                 |       | $ | 1.90 | 
|Canceled                           |  |           | 227,212  |        |                     |       | (227,212  | )               |       | $ | 2.84 | 
|Exercised                          |  |           | ---      |        |                     |       | (67,335   | )               |       | $ | 0.84 | 
|Transferred
      to 2004 Plan     |  |           | (227,212 | )  |                     |       | ---       |             |       |   |      | 
|Balance
      at December 31, 2005 |  |           | ---      |        |                     |       | 5,095,568 |                 |       | $ | 1.87 | 
|Canceled                           |  |           | 293,254  |        |                     |       | (293,254  | )               |       | $ | 2.69 | 
|Exercised                          |  |           | ---      |        |                     |       | (76,315   | )               |       | $ | 0.80 | 
|Transferred
      to 2004 Plan     |  |           | (293,254 | )  |                     |       | ---       |             |       |   |      | 
|Balance
      at December 31, 2006 |  |           | ---      |        |                     |       | 4,725,999 |                 |       | $ | 1.83 | 
|Canceled                           |  |           | 176,137  |        |                     |       | (176,137  | )               |       | $ | 2.88 | 
|Exercised                          |  |           | ---      |        |                     |       | (145,997  | )               |       | $ | 0.73 | 
|Transferred
      to 2004 Plan     |  |           | (176,137 | )  |                     |       | ---       |             |       |   |      | 
|Balance
      at December 31, 2007 |  |           | ---      |        |                     |   | 4,403,865 |                 |       | $ | 1.83 | 

At December 31, 2007, 2006, and 2005, options to purchase 4,385,671, 4,465,441,
  and 4,151,892 shares, respectively, under the 1995 Plan were exercisable at
  weighted average exercise prices of $1.82, $1.80, and $1.85, respectively.



61

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SOCKET COMMUNICATIONS, INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The outstanding and exercisable options under the 1995 Plan at December 31,
  2007 presented by price range are as follows:

|                      |  |                           |           |  |                     |  |      |                |  |   |             |  |  |                |           |  |  |   |      | 
|--------------------- |  | ------------------------- | --------- |  | ------------------- |  | ---- | -------------- |  | - | ----------- |  |  | -------------- | --------- |  |  | - | ---- | 
|                      |  | Options
      Outstanding |           |  | Options Exercisable
|                      |  |                           |           |  | Weighted            |  |      |                |  |   |             |  |  |                |          
|Range of              |  | Number of                 |           |  | Average             |  |      | Weighted       |  |   | Number of   |  |  | Weighted       |          
|Exercise              |  | Options                   |           |  | Remaining Life      |  |      | Average        |  |   | Options     |  |  | Average        |          
|Prices                |  | Outstanding               |           |  | (Years)             |  |      | Exercise Price |  |   | Exercisable |  |  | Exercise Price |      
|$0.44
        - $0.69 |  |                           | 254,520   |  |                     |  | 1.00 |                |  | $ | 0.59        |  |  |                | 254,520   |  |  | $ | 0.59 | 
|$0.73
        - $0.76 |  |                           | 1,231,023 |  |                     |  | 5.17 |                |  | $ | 0.74        |  |  |                | 1,231,023 |  |  | $ | 0.74 | 
|$0.97
        - $1.29 |  |                           | 1,205,956 |  |                     |  | 4.00 |                |  | $ | 1.14        |  |  |                | 1,205,956 |  |  | $ | 1.14 | 
|$1.50                 |  |                           | 17,708    |  |                     |  | 1.92 |                |  | $ | 1.50        |  |  |                | 17,708    |  |  | $ | 1.50 | 
|$2.35
        - $3.38 |  |                           | 1,692,658 |  |                     |  | 4.42 |                |  | $ | 3.30        |  |  |                | 1,674,464 |  |  | $ | 3.30 | 
|$7.75                 |  |                       | 2,000     |  |                     |  | 2.00 |                |  | $ | 7.75        |  |  |            | 2,000     |  |  | $ | 7.75 | 
|$0.44
        - $7.75 |  |                       | 4,403,865 |  |                     |  | 4.25 |                |  | $ | 1.83        |  |  |            | 4,385,671 |  |  | $ | 1.82 | 

The 1999 Plan
  The 1999 Plan provides for the grant of nonstatutory stock options to employees,
  directors, and consultants of the Company. The Company grants nonstatutory stock
  options at an exercise price per share equal to the fair market value per share
  of common stock on the date of grant. The vesting and exercise provisions are
  determined by the Board of Directors, with a maximum term of ten years.

Information with respect to the 1999 Plan is summarized as follows:

|                                   |  |           |         |  |                     |       |           |                 |       |   |      | 
|---------------------------------- |  | --------- | ------- |  | ------------------- | ----- | --------- | --------------- | ----- | - | ---- | 
|                                   |  |           |         |  | Outstanding Options
|                                   |  | Options   |         |  |                     |       |           | Weighted        |      
|                                   |  | Available |         |  | Number              |       |           | Average         |      
|                                   |  | For Grant |         |  | of Shares           |   |           | Price Per Share |  
|Balance
      at December 31, 2004 |  |           | 180,654 |  |                     |       | 1,102,751 |                 |       | $ | 2.88 | 
|Canceled                           |  |           | 30,000  |  |                     |       | (30,000   | )           |       | $ | 3.19 | 
|Balance at December 31, 2005       |  |           | 210,654 |  |                     |       | 1,072,751 |                 |       | $ | 2.78 | 
|No transactions                    |  |           | ---     |  |                     |       | ---       |             |       |   |      | 
|Balance at December 31, 2006       |  |           | 210,654 |  |                     |       | 1,072,751 |                 |       | $ | 2.78 | 
|No transactions                    |  |           | ---     |  |                     |       | ---       |             |       |   |      | 
|Balance
      at December 31, 2007 |  |           | 210,654 |  |                     |       | 1,072,751 |                 |       | $ | 2.78 | 

At December 31, 2007, 2006, and 2005, options to purchase 1,072,751 shares
  under the 1999 Plan were exercisable at a weighted average exercise price of
  $2.78.



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SOCKET COMMUNICATIONS, INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The outstanding and exercisable options at December 31, 2007 under the 1999
  Plan presented by price range are as follows:

|                      |  |                           |           |  |                     |  |      |                |  |   |             |  |  |                |           |  |  |   |      | 
|--------------------- |  | ------------------------- | --------- |  | ------------------- |  | ---- | -------------- |  | - | ----------- |  |  | -------------- | --------- |  |  | - | ---- | 
|                      |  | Options
      Outstanding |           |  | Options Exercisable
|                      |  |                           |           |  | Weighted            |  |      |                |  |   |             |  |  |                |          
|Range of              |  | Number of                 |           |  | Average             |  |      | Weighted       |  |   | Number of   |  |  | Weighted       |          
|Exercise              |  | Options                   |           |  | Remaining Life      |  |      | Average        |  |   | Options     |  |  | Average        |          
|Prices                |  | Outstanding               |           |  | (Years)             |  |      | Exercise Price |  |   | Exercisable |  |  | Exercise Price |      
|$0.56                 |  |                           | 211,009   |  |                     |  | 1.50 |                |  | $ | 0.56        |  |  |                | 211,009   |  |  | $ | 0.56 | 
|$2.28                 |  |                           | 40,000    |  |                     |  | 3.58 |                |  | $ | 2.28        |  |  |                | 40,000    |  |  | $ | 2.28 | 
|$3.38                 |  |                       | 821,742   |  |                     |  | 3.08 |                |  | $ | 3.38        |  |  |            | 821,742   |  |  | $ | 3.38 | 
|$0.56
        - $3.38 |  |                       | 1,072,751 |  |                     |  | 2.75 |                |  | $ | 2.78        |  |  |            | 1,072,751 |  |  | $ | 2.78 | 

The 2004 Plan
  The 2004 Plan provides for the grant of incentive stock options, nonstatutory
  stock options, restricted stock, stock appreciation rights, and performance
  awards, to employees, directors, and consultants of the Company. Upon ratification
  of the 2004 Plan by the shareholders in June 2004, shares in the 1995 Plan that
  had been reserved but not issued, as well as any shares issued that would otherwise
  return to the 1995 Plan as a result of termination of options or repurchase
  of shares, were added to the shares reserved for issuance under the 2004 Plan.
  The Company grants incentive stock options and non-statutory stock options at
  an exercise price per share equal to the fair market value per share of common
  stock on the date of grant. The vesting and exercise provisions are determined
  by the Board of Directors, with a maximum term of ten years.

Information with respect to the 2004 Plan is summarized as follows:

|                                    |  |           |            |       |                     |       |           |                 |       |   |      | 
|----------------------------------- |  | --------- | ---------- | ----- | ------------------- | ----- | --------- | --------------- | ----- | - | ---- | 
|                                    |  |           |            |       | Outstanding Options
|                                    |  | Options   |            |       |                     |       |           | Weighted        |      
|                                    |  | Available |            |       | Number              |       |           | Average         |      
|                                    |  | For Grant |        |       | of Shares           |   |           | Price Per Share |  
|Balance at December 31, 2004        |  |           | 877,687    |       |                     |       | 95,400    |                 |       | $ | 1.51 | 
|Increase
      in shares authorized |  |           | 1,205,657  |       |                     |       | ---       |                 |       |   |      | 
|Transferred
      from 1995 Plan    |  |           | 227,212    |       |                     |       | ---       |                 |       |   |      | 
|Granted                             |  |           | (2,098,000 | )     |                     |       | 2,098,000 |                 |       | $ | 1.38 | 
|Canceled                            |  |           | 99,600     |       |                     |       | (99,600   | )               |       | $ | 1.50 | 
|Balance at December 31, 2005        |  |           | 312,156    |       |                     |       | 2,093,800 |                 |       | $ | 1.38 | 
|Increase
      in shares authorized |  |           | 1,208,948  |       |                     |       | ---       |                 |       |   |      | 
|Transferred
      from 1995 Plan    |  |           | 293,254    |       |                     |       | ---       |                 |       |   |      | 
|Granted                             |  |           | (1,361,800 | )     |                     |       | 1,361,800 |                 |       | $ | 1.18 | 
|Canceled                            |  |           | 415,787    |   |                     |       | (415,787  | )               |       | $ | 1.24 | 
|Balance at December 31, 2006        |  |           | 868,345    |       |                     |       | 3,039,813 |                 |       | $ | 1.31 | 
|Increase
      in shares authorized |  |           | 1,274,051  |       |                     |       | ---       |                 |       |   |      | 
|Transferred
      from 1995 Plan    |  |           | 176,137    |       |                     |       | ---       |                 |       |   |      | 
|Granted                             |  |           | (1,933,600 | )     |                     |       | 1,933,600 |                 |       | $ | 0.96 | 
|Canceled                            |  |           | 454,788    |   |                     |       | (454,788  | )               |       | $ | 1.23 | 
|Balance
      at December 31, 2007  |  |           | 839,721    |       |                     |   | 4,518,625 |                 |       | $ | 1.17 | 



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SOCKET COMMUNICATIONS, INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The weighted average fair value of options granted during 2007, 2006, and 2005,
  under the 2004 Plan was $0.55, $0.65, and $0.97, respectively. As of December
  31, 2007, 2006, and 2005, options to purchase 1,954,848, 1,251,057, and 974,321
  shares, respectively, under the 2004 Plan were exercisable at weighted average
  exercise prices of $1.29, $1.37 and $1.37, respectively.

The 2004 Plan provides for an annual increase to be added on the first day
  of each fiscal year equal to the lesser of 2,000,000 shares, four percent of
  the outstanding shares on that date, or a lesser amount as determined by the
  Board of Directors. On January 1, 2008, 2007, and 2006, a total of 1,279,584,
  1,274,051, and 1,208,948 shares, respectively, became available for grant from
  the 2004 Plan. As of March 6, 2008, 1,137,500 shares have been granted from
  the 2004 Plan subsequent to December 31, 2007.

The outstanding and exercisable options at December 31, 2007 presented by price
  range are as follows:

|                      |  |                           |           |  |                     |  |      |                |  |   |             |  |  |                |           |  |  |   |      | 
|--------------------- |  | ------------------------- | --------- |  | ------------------- |  | ---- | -------------- |  | - | ----------- |  |  | -------------- | --------- |  |  | - | ---- | 
|                      |  | Options
      Outstanding |           |  | Options Exercisable
|                      |  |                           |           |  | Weighted            |  |      |                |  |   |             |  |  |                |          
|Range of              |  | Number of                 |           |  | Average             |  |      | Weighted       |  |   | Number of   |  |  | Weighted       |          
|Exercise              |  | Options                   |           |  | Remaining Life      |  |      | Average        |  |   | Options     |  |  | Average        |          
|Prices                |  | Outstanding               |           |  | (Years)             |  |      | Exercise Price |  |   | Exercisable |  |  | Exercise Price |      
|$0.83
        - $1.38 |  |                           | 3,361,650 |  |                     |  | 8.92 |                |  | $ | 1.06        |  |  |                | 1,092,958 |  |  | $ | 1.12 | 
|$1.50
        - $1.51 |  |                       | 1,156,975 |  |                     |  | 7.08 |                |  | $ | 1.50        |  |  |            | 861,890   |  |  | $ | 1.50 | 
|$0.83
        - $1.51 |  |                       | 4,518,625 |  |                     |  | 8.42 |                |  | $ | 1.17        |  |  |            | 1,954,848 |  |  | $ | 1.29 | 



NOTE 8 - Warrants

The Company issued warrants to purchase common stock in connection with certain
  financing agreements. The Company has the following warrants outstanding to
  purchase common stock at December 31, 2007:

|Reason                                   |  | Number
        of Shares |         | Price
        Per Share |        | Issue
        Date |  | Expiration
        Date
|---------------------------------------- |  | ------------------------ | ------- | ----------------------- | ------ | ------------------ |  | -----------------------
|Series
      F preferred stock financing |  |                      | 289,087 |                         | $  | 0.722              |  | Mar
        2003       
|Common
      stock financing             |  |                          | 629,723 |                         | $      | 2.73               |  | Aug
        2003       
|Total warrants                           |  |                      | 918,810 |                         |    |                    |  |                        



NOTE 9
  - Shares Reserved

Common stock reserved for future issuance was as follows at December 31, 2007:

|                                                           | Number of shares
|---------------------------------------------------------- | ----------------
|Stock option grants outstanding (see Note 7)               | 9,995,241       
|Reserved
      for future stock option grants (see Note 7) | 1,050,375       
|Common
      stock warrants (see Note 8)                   | 918,810         
|Total common stock reserved for future issuance            | 11,964,426      



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SOCKET COMMUNICATIONS, INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE
  10 - Retirement Plan

The Company has a tax-deferred savings plan, the Socket Communications, Inc.
  401(k) Plan ("401(k) Plan"), for the benefit of qualified employees. The 401(k)
  Plan is designed to provide employees with an accumulation of funds at retirement.
  Qualified employees may elect to make contributions to the 401(k) Plan on a
  monthly basis. No contributions are made by the Company. Administrative expenses
  relating to the 401(k) Plan are not significant.

NOTE 11-
  Income Taxes

Deferred tax expense for the year ended December 31, 2007 is related to the
  deferred tax liability on the portion of the Company's goodwill amortized for
  tax purposes. Due to the indefinite characteristic of this deferred tax liability,
  it cannot be offset against deferred tax assets, and furthermore, the deferred
  tax liability may never reverse. The provision for deferred tax for the periods
  ended December 31, 2007, 2006, and 2005, consists of the following components:

|                                 |  | Years Ended December 31,
|-------------------------------- |  | ------------------------
|                                 |  | 2007                    
|Current:                         |  |                         
|Federal                          |  | $                       
|State                            |  |                     
|Total Current                    |  |                         
|                                 |  |                         
|Deferred:                        |  |                         
|Federal                          |  |                         
|State                            |  |                         
|Total Deferred                   |  |                     
|Total provision for deferred tax |  | $                   

Reconciliation of the statutory federal income tax rate to the Company's effective
  tax rate:

|                                         |  | Years Ended December 31,
|---------------------------------------- |  | ------------------------
|                                         |  | 2007                    
|Federal tax at statutory rate            |  |                         
|State income tax rate                    |  |                         
|Losses
        and credits not benefited |  |                     
|                                         |  |                         
|Provision
        for taxes              |  |                         



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SOCKET COMMUNICATIONS, INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Deferred income tax reflects the net tax effects of temporary differences between
  the carrying amount of assets and liabilities for financial reporting purposes
  and the amount used for income tax purposes. Significant components of net deferred
  tax assets are as follows:

|                                                  |  | Years Ended December 31,
|------------------------------------------------- |  | ------------------------
|Deferred
      tax assets:                        |  | 2007                    
|Net
      operating loss carryforwards            |  | $                       
|Credits                                           |  |                         
|Capitalized
      research and development costs  |  |                         
|Other
      acquired intangibles                  |  |                         
|Accruals
      not currently deductible           |  |                         
|Total
      deferred tax assets                   |  |                         
|Valuation
      allowance for deferred tax assets |  |                         
|Net
      deferred tax assets                     |  |                         
|                                                  |  |                         
|Deferred
      tax liability:                     |  |                         
|Acquired
      intangibles                        |  |                         
|                                                  |  |                         
|Net deferred
      taxliabilities                 |  | $                       



The Company has not generated taxable income in any periods in any jurisdiction,
  foreign or domestic. The Company has maintained a full valuation allowance for
  all deferred tax assets.

As of December 31, 2007, the Company had net operating loss carryforwards for
  federal income tax purposes of approximately $19,400,000, which will expire
  at various dates beginning in 2008 and through 2027, and federal research and
  development tax credits of approximately $340,000, which will expire at various
  dates beginning in 2008 and through 2027. As of December 31, 2007, the Company
  had net operating loss carryforwards for state income tax purposes of approximately
  $6,700,000, which will expire at various dates in 2008 and through 2017, and
  state research and development tax credits of approximately $400,000, which
  can be carried forward indefinitely. During 2007, approximately $105,000 of
  federal net operating loss carryforwards expired unutilized.

The Company's net operating loss and tax credit carryforwards as of December
  31, 2007, are net of estimated amounts subject to the annual limitations due
  to the ownership change limitations provided by the Internal Revenue Code Section
  382. The amount of deferred tax assets related to the Company's net operating
  loss and tax credit carryforwards declined for the year ended December 31, 2007
  from 2006, reflecting estimates of amounts subject to Section 382 limitations.

On January 1, 2007, the Company adopted Financial Accounting Standards Board
  Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - An Interpretation
  of FASB Statement No. 109," ("FIN 48"). FIN 48 prescribes a recognition threshold
  that a tax position is required to meet before being recognized in the financial
  statements, and provides guidance on derecognition, measurement, classification,
  interest and penalties, accounting in interim periods, disclosure, and transition
  issues. There were no adjustments to the financial statements as a result of
  the adoption of FIN 48. As of the adoption date, the Company has an unrecognized
  tax benefit of approximately $760,000. The application of FIN 48 does not result
  in a change to retained earnings, as the unrecognized tax benefit would be fully
  offset by the application of a valuation allowance.



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SOCKET COMMUNICATIONS, INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

A reconciliation of the beginning and ending amount of unrecognized tax benefits
  ("UTBs"), excluding interest and penalties, is as follows:

|                                                    | Amount
|--------------------------------------------------- | ------
|Beginning balance at January 1, 2007                | $     
|Decreases
      in UTBs taken in prior years        |       
|Increases
      in UTBs taken in current year       |       
|Amount
      related to settlements                 |       
|Amount related to lapsing of statute of limitations |       
|Ending balance at
        December 31, 2007         | $     

Future changes in the unrecognized tax benefit will have no impact on the effective
  tax rate due to the existence of the valuation allowance. It is the Company's
  policy to include interest and penalties related to tax positions as a component
  of income tax expense. No interest was accrued for the period ended December
  31, 2007. The Company estimates that the unrecognized tax benefit will not change
  significantly within the next twelve months.

The Company files its tax returns as prescribed by the tax laws of the jurisdictions
  in which it operates. The Company is not currently under audit in any of its
  jurisdictions where income tax returns are filed. The tax years 1992 to 2007
  remain open to examination by the major domestic taxing jurisdictions to which
  the Company is subject, and for the years 2001 to 2007 for the international
  taxing jurisdictions to which the Company is subject.



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Item 9. Changes in and
  Disagreements with Accountants on Accounting and Financial Disclosure

Not Applicable.

Item 9A(T). Controls
  and Procedures

Conclusion Regarding
  the Effectiveness of Disclosure Controls and Procedures

Our management evaluated, with the participation of our Chief Executive Officer
  and our Chief Financial Officer, the effectiveness of our disclosure controls
  and procedures as of the end of the period covered by this Annual Report on
  Form 10-K. Based on this evaluation, our Chief Executive Officer and our Chief
  Financial Officer have concluded that our disclosure controls and procedures
  are effective to ensure that information we are required to disclose in reports
  that we file or submit under the Securities Exchange Act of 1934 is (i) recorded,
  processed, summarized and reported within the time periods specified in Securities
  and Exchange Commission rules and forms, and (ii) accumulated and communicated
  to our management, including our Chief Executive Officer and our Chief Financial
  Officer, as appropriate to allow timely decisions regarding required disclosure.

Management's Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal
  control over financial reporting. There are inherent limitations in the effectiveness
  of any internal control, including the possibility of human error and the circumvention
  or overriding of controls. Accordingly, even effective internal control can
  provide only reasonable assurances with respect to financial statement preparation.
  Further because of changes in conditions, the effectiveness of internal control
  may vary over time.

We assessed the effectiveness of the Company's internal control over financial
  reporting as of December 31, 2007. In making this assessment, we used the criteria
  set forth by the Committee of Sponsoring Organizations of the Treadway Commission
  (COSO) in Internal Control - Integrated Framework.

Based on our assessment using those criteria, we believe that, as of December
  31, 2007, our internal control over financial reporting is effective.

This annual report does not include an attestation report of the Company's
  registered public accounting firm regarding internal control over financial
  reporting. Management's report was not subject to attestation by the Company's
  registered public accounting firm pursuant to temporary rules of the Securities
  and Exchange Commission that permit the Company to provide only management's
  report in this annual report.

Changes in Internal
  Control Over Financial Reporting

There was no change in our internal control over financial reporting that occurred
  during the period covered by this Annual Report on Form 10-K that has materially
  affected, or is reasonably likely to materially affect, our internal control
  over financial reporting.



> 68

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  of Contents)

Item 9B. Other Information

None.

PART
  III

Item 10. Directors,
  Executive Officers and Corporate Governance

The information required
  hereunder is incorporated by reference from our Proxy Statement to be filed
  in connection with our annual meeting of stockholders to be held on April 23,
  2008.

Item 11. Executive Compensation

The information required
  hereunder is incorporated by reference from our Proxy Statement to be filed
  in connection with our annual meeting of stockholders to be held on April 23,
  2008.

Item 12: Security Ownership
  of Certain Beneficial Owners and Management and Related Stockholder Matters

Certain information required hereunder is incorporated by reference from our
  Proxy Statement to be filed in connection with our annual meeting of stockholders
  to be held on April 23, 2008.

The following table provides information as of December 31, 2007 about our
  common stock that may be issued under the Company's existing equity compensation
  plans. For additional information about the equity compensation plans see Note
  7 to the Company's Consolidated Financial Statements.

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  | Number
        of securities to be issued upon exercise of outstanding options |           |  | Weighted-average
        exercise price of outstanding options |         | Number
        of securities remaining available for future issuance under equity compensation
        plans (excluding securities reflected in column (a))
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------ | --------- |  | -------------------------------------------------------------- | ------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  | (a)                                                                            |           |  | (b)                                                            |         | (c)                                                                                                                                                        
|Equity
      compensation plans approved by security holders (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |                                                                                | 8,992,490 |  |                                                                | $       | 1.49                                                                                                                                                       
|Equity
      compensation plans not approved by security holders (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |                                                                                | 1,072,751 |  |                                                                | $       | 2.78                                                                                                                                                       
|Total                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                                                                            | 9,995,241 |  |                                                                |   $ | 1.63                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(1) Includes the 1995 Stock Plan and its successor,
      the 2004 Equity Incentive Plan. Pursuant to an affirmative vote by security
      holders in June 2004, an annual increase in the number of shares authorized
      under the 2004 Equity Incentive Plan is added on the first day of each fiscal
      year equal to the lesser of (a) 2,000,000 shares, (b) 4% of the outstanding
      shares on that date, or (c) a lesser amount as determined by the Board of
      Directors. A total of 1,279,584 shares became available for grant from the
      2004 Equity Incentive Plan on January 1, 2008, in addition to those set
      forth in the table above.
      (2) Consists of the 1999 Stock Plan.



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Item 13.
  Certain Relationships and Related Transactions, and Director Independence

Certain information required
  hereunder is incorporated by reference from our Proxy Statement to be filed
  in connection with our annual meeting of stockholders to be held on April 23,
  2008.

Item 14. Principal
  Accounting Fees and Services

Certain information required hereunder is incorporated by reference from our
  Proxy Statement to be filed in connection with our annual meeting of stockholders
  to be held on April 23, 2008.





PART
  IV

Item 15. Exhibits, Financial
  Statement Schedules

> (a) Documents filed as
>     part of this report:
>   1. All financial statements.
>     INDEX
>           TO FINANCIAL STATEMENTS
>         PAGE 
>           Report of Moss Adams LLP, Independent Registered
>           Public Accounting Firm
>         44Consolidated
>           Balance Sheets
>         45Consolidated
>           Statements of Operations
>         46Consolidated
>           Statements of Preferred Stock and Stockholders' Equity
>         47Consolidated
>           Statements of Cash Flows
>         48Notes
>           to Consolidated Financial Statements
>         49
>     
>     
>     
>     
>     2. Financial statement
>       schedules.
>     All
>           financial statement schedules are omitted because they are not applicable
>           or not required or because the required information is included in the
>           financial statements or notes herein.
>     
>     3. Exhibits.
>     See
>           Index of Exhibits on page 72. The Exhibits listed on the accompanying
>           Index of Exhibits are filed or incorporated by reference as part of
>           this report.
>   (b) Exhibits:
>   See Index
>     of Exhibits on page 72. The Exhibits listed on the accompanying Index of Exhibits
>     are filed or incorporated by reference as part of this report.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
  Act of 1934, the registrant has duly caused this report to be signed on its
  behalf by the undersigned, hereunto duly authorized.

|                          | SOCKET
      COMMUNICATIONS, INC.
      Registrant                                       
|------------------------- | -----------------------------------------------------------------------------------------
|                          |                                                                                          
|Date:
      March 6, 2008 | /s/
      Kevin J. Mills
      Kevin J. Mills
      President and Chief Executive Officer









Pursuant to the requirements of the Securities Exchange Act of 1934, this report
  has been signed below by the following persons on behalf of the Registrant and
  in the capacities and on the dates indicated.



|By | /s/
      Kevin J. Mills     | President
      and Chief Executive Officer 
      (Principal Executive Officer)                                                   |               | March 6, 2008
|-- | ---------------------------- | ---------------------------------------------------------------------------------------------------------------------------------- | ------------- | -------------
|   | Kevin
      J. Mills        
|   |                              |                                                                                                                                    |               |              
|By | /s/
      Charlie Bass       | Chairman
      of the Board                                                                                                        |               | March 6, 2008
|   | Charlie
      Bass          
|   |                              |                                                                                                                                    |               |              
|By | /s/
      David W. Dunlap    | Vice
      President of Finance and Administration and Chief Financial Officer 
      (Principal Financial and Accounting Officer) |               | March 6, 2008
|   | David
      W. Dunlap       
|   |                              |                                                                                                                                    |               |              
|By | /s/
      Micheal L. Gifford | Executive
      Vice President and Director                                                                                        |               | March 6, 2008
|   | Micheal
      L. Gifford    
|   |                              |                                                                                                                                    |               |              
|By | /s/
      Gianluca Rattazzi  | Director                                                                                                                           |               | March 6, 2008
|   | Gianluca
      Rattazzi     
|   |                              |                                                                                                                                    |               |              
|By | /s/
      Leon Malmed        | Director                                                                                                                           |               | March 6, 2008
|   | Leon
      Malmed           
|   |                              |                                                                                                                                    |               |              
|By | /s/
      Enzo Torresi       | Director                                                                                                                           |               | March 6, 2008
|   | Enzo Torresi                
|   |                              |                                                                                                                                    |               |              
|By | /s/
      Peter Sealey       | Director                                                                                                                           |               | March 6, 2008
|   | Peter Sealey                 |                                                                                                                                   
|   |                              |                                                                                                                                    |              
|By | /s/
      Tom Miller         | Director                                                                                                                           | March 6, 2008
|   | Tom Miller                   |                                                                                                                                   



71

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Index
  to Exhibits

|Exhibit
        Number | Description                                                                                                                            
|---------------------- | ---------------------------------------------------------------------------------------------------------------------------------------
|                       |                                                                                                                                        
|2.1
        (1)        | Agreement and Plan of Reorganization.                                                                                                  
|                       |                                                                                                                                        
|3.1
        (2)        | Amended and Restated Certificate of Incorporation.                                                                                     
|                       |                                                                                                                                        
|3.2
        (2)        | Certificate of Designation of Series E Convertible Preferred
      Stock.                                                              
|                       |                                                                                                                                        
|3.3
        (2)        | Certificate of Designation of Series F Convertible Preferred
      Stock.                                                              
|                       |                                                                                                                                        
|3.4                    | Bylaws, as amended February 17, 2008.                                                                                                  
|                       |                                                                                                                                        
|10.1 (3)*              | Form of Indemnification Agreement entered into between the
      Company and its directors and officers.                               
|                       |                                                                                                                                        
|10.2 (3)*              | 1995 Stock Plan and forms of agreement thereunder.                                                                                     
|                       |                                                                                                                                        
|10.3 (4)*              | Form of Amendment No.1 to Stock Option Agreement between the
      Company and certain Option Holders under the 1995 Stock Option Plan.
|                       |                                                                                                                                        
|10.4 (5)*              | 1999 Nonstatutory Stock Option Plan.                                                                                                   
|                       |                                                                                                                                        
|10.5 (6)*              | 2004 Equity Incentive Plan and forms of agreement
      thereunder.                                                                    
|                       |                                                                                                                                        
|10.8 (7)*              | Form of Executive Management Bonus Plan between the Company
      and certain eligible participants.                                   
|                       |                                                                                                                                        
|10.9 (8)*              | Form of Employment Agreement dated December 28, 2005 between
      the Company and the officers of the Company.                        

|           |                                                                                                                                      
|---------- | -------------------------------------------------------------------------------------------------------------------------------------
|10.10 (9)* | Standard Industrial /Commercial Multi-Tenant Lease by and
      between Del Norte Farms, Inc. and the Company dated October 24, 2006.
|           |                                                                                                                                      
|11.1       | Computation of Earnings per Share (see Consolidated Statements
      of Operations in Item 8).                                       
|           |                                                                                                                                      
|14.1 (10)  | Code of Business Conduct and Ethics.                                                                                                 
|           |                                                                                                                                      
|23.1       | Consent of Moss Adams LLP, Independent Registered Public Accounting
      Firm.                                                      



72

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|Exhibit
        Number | Description                                                                                                                                
|---------------------- | -------------------------------------------------------------------------------------------------------------------------------------------
|                       |                                                                                                                                            
|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 and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002.

|_________
        * Executive compensation plan or arrangement.
        (1) Incorporated by reference to exhibits filed with the Company's Form
        8-K filed on October 20, 2000.
      (2) Incorporated by reference to exhibits filed with the Company's Form
        10-K filed on March 15, 2004.
      (3) Incorporated by reference to exhibits filed with Company's Registration
        Statement on Form SB 2 (File No. 33 91210 LA) filed on June 2, 1995 and
        declared effective on October 20, 2000.
      (4) Incorporated by reference to exhibits filed with the Company's Form
        10-KSB filed on March 30, 1998.
      (5) Incorporated by reference to exhibits filed with the Company's Form
        10-QSB filed on August 16, 1999.
      (6) Incorporated by reference to Appendix C filed with the Company's
        Form DEF 14A filed on April 29, 2004.
      (7) Incorporated by reference to exhibits filed with the Company's Form
        10-KSB filed on April 2, 2001.
      (8) Incorporated by reference to exhibits filed with the Company's Form
        8-K filed on December 28, 2005.
      (9) Incorporated by reference to exhibits filed with the Company's Form
        10-Q filed on November 13, 2006.
      (10) Incorporated by reference to exhibits filed with the Company's Form
        10-K filed on March 10, 2006.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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