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, 2003 **[   ]**
      **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.)  **37400 Central Court, Newark, CA 94560**(Address of principal executive offices including
    zip code) **(510) 744-2700**(Registrant's telephone number, including area
    code) Securities
    registered under Section 12(b) of the Exchange Act: None Securities
    registered under Section 12(g) of the Exchange Act: Common Stock, $0.001 Par
    Value Check whether
    the registrant (1) has filed all reports required to be filed by Section 13
    or 15(d) of the Exchange Act 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
    [   ] Check if
    there is no disclosure of delinquent filers in response to Item 405 of Regulation
    S-K contained herein, and no disclosure will 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.
    [ X ] Indicate by check mark whether the registrant is an accelerated
    filer (as defined by Exchange Act Rule 12b-2).YES
    [ ] NO [X ] Aggregate
    market value of Common Stock ($0.001 par value) held by non-affiliates on
    June 27, 2003 based on the closing price on such date: $36,940,424. For purposes
    of this disclosure, shares of Common Stock held by persons who hold more than
    5% of the outstanding shares of Common Stock and shares held by officers and
    directors of the registrant have been excluded, because such persons may be
    deemed to be affiliates. This determination of affiliate status is not necessarily
    conclusive for other purposes. Number of
    shares of Common Stock ($0.001 par value) outstanding as of February 27, 2004
    was 29,959,961 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 June
    16, 2004. 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
        2.
      Properties
      10Item
        3.
      Legal
        Proceedings
      10Item
        4.
      Submission
        of Matters to a Vote of Security Holders
      10PART
        IIItem
        5.
      Market for Registrant's Common Equity, Related Stockholder
        Matters, and Issuer Purchases of Equity Securities
      11Item
        6.
      Selected Consolidated Financial Data
      12Item
        7.
      Management's
        Discussion and Analysis of Financial Condition and Results of Operations
      13Item
        7a.
      Quantitative
        and Qualitative Disclosures about Market Risk
      33Item
        8.
      Financial
        Statements and Supplementary Data
      34Item
        9.
      Changes
        in and Disagreements with Accountants on Accounting and Financial Disclosure
      58Item
        9A.
      Controls
        and Procedures
      58PART
        IIIItem
        10.
      Directors and Executive Officers of the Registrant
      58Item
        11.
      Executive Compensation
      58Item
        12.
      Security
        Ownership of Certain Beneficial Owners and Management and Related Stockholder
        Matters
      58Item
        13.
      Certain
        Relationships and Related Transactions
      59Item
        14.
      Principal
        Accountant Fees and Services
      59PART
        IVItem
        15.
      Exhibits, Financial Statement Schedules, and Reports
        on Form 8-K
      60SIGNATURES
      61 Index
        to Exhibits
      62


PART
  I

This report contains
  forward-looking statements within the meaning of Section 27A of the Securities
  Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking
  statements are based on current expectations, estimates, and projections about
  our industry, management's beliefs, and assumptions made by management. 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. 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 might cause such a difference include, but are not limited to, the development
  of markets for the Company's products and the acceptance of those products in
  these markets as well as those discussed under "Other Factors Affecting
  Future Operations" and "Management's Discussion and Analysis of Financial
  Condition and Results of Operations." 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.

Item 1. Business

The Company

We design, manufacture
  and sell products that connect handheld and notebook computers to the Internet,
  computer networks, and peripherals through both wireless and cable connections.
  We also design, manufacture and sell products designed to collect data on handheld
  and notebook computers. Our products are designed for use with a broad range
  of handheld and notebook computers, and employ innovative designs that reduce
  battery power consumption and make them easy to install and use. Our products
  have been designed specifically for handheld computers and other battery-powered
  devices with standard expansion slots for plug-in cards. The expansion slots
  we support include CompactFlash, PC Card, and Secure Digital (SDIO). We have
  also developed standalone network connection and data collection products that
  connect wirelessly to a handheld or notebook computer. We believe that growth
  in the mobile workforce, combined with technical advances and cost reductions
  in handheld computers and networking technologies, is driving broader adoption
  of mobile data communications. Our products are designed to address the growing
  need for connectivity by enabling the use of handheld devices to extend data
  communications capabilities beyond location-dependent wired networks or telephone
  lines, thereby enabling mobile computer users to enhance their productivity,
  exploit time sensitive opportunities and improve customer satisfaction. Our
  products easily integrate hardware, software and services into complete mobile
  connectivity solutions.

Socket Communications was
  incorporated in Delaware in 1995. Our common stock trades on the NASDAQ National
  Market under the symbol "SCKT" and on the Pacific Exchange under the
  symbol "SOK". Our principal executive offices are located at 37400
  Central Court, Newark, CA 94560, and our phone number is (510) 744-2700. Our
  Internet home page is located at http://www.socketcom.com; however, the
  information in, or that can be accessed through our home page, is not part of
  this report. Our annual reports on Form 10-K, quarterly reports on Form 10-Q,
  current reports on Form 8-K, and the 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, or SEC.



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Products

Our products may be classified
  into four broad product families:



- Network connection products;
- Bar code scanning products;
- Serial products; and
- Embedded products and
    services.

Our network connection
  products are connection devices that can be plugged into standard expansion
  slots in handheld and notebook computers or connect to handheld and notebook
  computers over wireless connections. These products allow users to connect their
  devices to the Internet via mobile or wired phone services, or to private networks,
  or to communicate with other electronic devices such as desktop computers and
  printers. Our products offer both wireless and cable connections to external
  devices such as mobile phones and printers and Global Positioning System receivers.
  Wireless connection products include cards using the Bluetooth standard for
  short-range wireless connectivity, and cards for connecting to local wireless
  networks using the Wireless LAN 802.11b (or WiFi) standard. Cable connection
  products include modems for telephone connections, Ethernet cards for local
  area network connections and digital phone cards for wide area network connections
  through mobile phones.

Our bar code scanning
  products plug into or connect wirelessly to handheld or notebook computers
  and turn handheld or notebook computers into portable bar code scanners that
  can be used in various retail and industrial workplaces. We are also developing
  plug-in products to read Radio Frequency Identification (RFID) tags with a handheld
  or notebook computer.

Our serial products
  add connection ports to a notebook or handheld computer that allow users to
  connect these portable computers to standard peripherals designed primarily
  for desktop PCs.

Our embedded products
  and services consist of Bluetooth modules, interface chips, and engineering
  design services to install these products. Our Bluetooth modules allow manufacturers
  of handheld computers and other devices to build wireless connection functions
  into their products. Our interface chips allow manufacturers of wide area network
  cards and other devices to transfer information to and from handheld or notebook
  computers.

We target the consumer
  and enterprise markets with our network connection and serial products. Most
  of these products are sold through wholesale distribution channels that service
  electronic retailers. We target the industrial markets with our bar code scanning
  products and embedded products and services. We work directly with value-added
  resellers and end users. We sell the majority of our bar code scanning products
  through our wholesale distribution channels.

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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. Advances in mobile network access and transfer speeds are enabling
  handheld computer users to access the Internet, send and receive email, access
  corporate data files, and exchange instant messages anywhere and at any time.

Growth in the mobile workforce
  and increasing reliance on the Internet and email are increasing the demand
  for mobile data communications. Advances in wireless connection technologies,
  particularly Bluetooth and Wireless LAN, are being commercialized to allow handheld
  computers to interact wirelessly with nearby computers and with a wide array
  of electronic appliances, including mobile phones, printers, digital cameras,
  LAN 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 adoption of mobile data communications include:Functionality of today's handheld computers is extensive and improving while
  costs are declining. Unlike early models, most handheld mobile computers
  now offer bright outdoor screens, run popular personal information management
  and business programs, have entertainment and educational software allowing
  their use as music players and electronic book readers, and have standard expansion
  slots to transfer data in and out. Popular desktop programs are available for
  today's handheld computers enabling users to send and receive emails with full
  attachments, view and interact with the Internet with full Internet graphics,
  have direct access to corporate data files (subject to business security arrangements),
  and use instant messaging over mobile networks. At the same time, the price
  and costs of using mobile handheld computing devices have been declining.

Manufacturers are poised
  to aggressively market handheld computers. Handheld manufacturers are positioned
  to more actively market their handheld computers during 2004, which will assist
  in educating the market on the capabilities of handheld computers using our
  connection products. Handheld computers using the Microsoft Windows CE operating
  system are called "Pocket PCs." Pocket PC manufacturers include Hewlett-Packard,
  Dell, Toshiba and ViewSonic. Manufacturers of industrial versions of Pocket
  PCs include Symbol Technologies, HandHeld Products, Intermec, Casio, Itronix,
  TopCon and Tripod Data Systems. In addition, Palm introduced a new operating
  system in 2003 that supports expansion slots, making Palm handhelds more competitive
  with the Pocket PC platform. Increased competition among manufacturers is expected
  to result in increased availability and greater promotion of handheld computers
  that can be used with our products during 2004 and beyond.

Mobile phone networks
  are being upgraded to provide faster connections at reduced cost. Mobile
  phone service providers are making substantial investments to upgrade their
  networks to support high-speed data transfer applications. The introduction
  of new networking equipment and technologies has substantially increased data
  transfer speeds over regular digital cellular phone networks. Available data
  rates today are at or near the speeds experienced on a desktop computer connected
  over a phone line with a dial-up modem. These higher speeds are expected to
  make mobile data applications more attractive to users and drive demand for
  products to connect mobile computers to cellular phone networks.



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The mobile workforce
  is growing and is increasingly reliant on email and the Internet. The mobile
  workforce in the U.S. has been estimated to exceed 26 million persons, and at
  least double that number on a worldwide basis. Before recent advancements in
  handheld computers and mobile phone networks and the increasing availability
  of public and private Wireless LAN 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 instant access to the Internet and email for managing their business
  and personal lives. Recent improvements in mobile phone and wireless LAN connectivity
  and deployment of handheld computers by corporations to their mobile workforce
  are expected to be major factors driving growth in mobile data applications
  over the next several years.

Growth is Projected
  in Pocket PC Handheld Computers. Growth in Pocket PCs that work with our
  connection and data collection solutions is expected to continue, assisted by
  the availability of lower priced Pocket PC computers in the price range of $199
  to $299 that became available in the fourth quarter of 2002. In addition, the
  productivity benefits from using mobile computing devices for connectivity and
  data collection, combined with an improving economy, are expected to stimulate
  the deployment to and use of mobile devices within enterprise mobile workforces.

Marketing Strategy

We intend to capitalize
  on our relationships with key software and hardware providers, expand the range
  of connection and data collection products we offer, introduce our products
  into new markets by expanding our distribution channels, and encourage device
  manufacturers to build our technology directly into their products.

Capitalize on Strategic
  Partner Relationships. We support and encourage direct endorsements and
  referrals for our products from our strategic partners, including operating
  system providers, device manufacturers, phone carriers, distribution partners,
  and end-user customers. We have a team of employees that manages each strategic
  partner relationship. Each of these employee teams specializes in one or two
  of our product families. We have built close working relationships with a number
  of companies that help us rapidly expand and market our products as new standards,
  technologies and markets emerge. Of particular importance are close working
  relationships with Microsoft and Symbol Technologies. 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 also cooperate with Microsoft in scheduling product innovations
  and implementing new features. Symbol Technologies supplies our bar code laser
  scanning modules that are utilized in our In-Hand Scan Bar Code Scanning Card.
  Symbol also builds our Bluetooth connection products into some of their products.
  Bluetooth is an emerging wireless communication standard that allows devices
  to communicate with each other at close range.



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Offer Comprehensive
  Product Range. We offer a wide range of connection products that are used
  with handheld devices, and we encourage our distributors to carry a complete
  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 products
  or less complete product offerings of our competitors.

Build Strong Brand Name.
  We are building a brand image of being "The Mobile Connection Company."
  This image emphasizes quality and standards-based connectivity and data collection
  products that are "Mobility Friendly," which means products that are
  compact, low power, and easy to use.

Diversify Distribution
  Channels. We market our products primarily through leading distributors
  and resellers that specialize in the distribution of electronic products. We
  support our distributors and resellers by providing education, training and
  customer assistance through our sales, marketing and technical support staff.
  We have approximately 100 distributors and resellers covering our principal
  markets in North America, Europe, Asia and the rest of the world. Our products
  are sold by approximately 20 online resellers, which are supplied mainly through
  our distributors. Online resellers today include Amazon.com, Mobile Planet,
  CDW and Dell.

Provide OEM Product
  Development Support. To capture embedded connection business, we have built
  relationships with certain mobile device manufacturers and work with them to
  integrate our products, particularly our Bluetooth products, into their own
  product designs. We have an internal team of employees that manages our embedded
  connection business. We also provide engineering services to our mobile device
  manufacturer customers to assist them as needed to integrate our embedded products
  into their electronic devices. Customers for our embedded connection products
  include major bar code scanning companies - Symbol Technologies, HandHeld Products,
  and Intermec; a bar code scanning printer company - O'Neil; an electronic whiteboard
  company - Luidia (formerly Electronics for Imaging); and an industrial manufacturer
  - Parker Hannifin which is integrating Bluetooth technology into their industrial
  valves.

Competition and Competitive
  Risks

The overall market for
  communications and data collection products is both complex and competitive,
  and we expect competition in our market areas to intensify, particularly for
  our network connection products, which compete with similar products that are
  manufactured at a lower cost by Taiwanese and other Asian companies. However,
  our longtime focus on creating connectivity and data collection products for
  mobile devices has resulted in good brand name recognition and reputation. In
  addition, we continue to innovate and intend to be first to market in a number
  of product categories. We also believe that our brand name identifying our products
  as compact, low power, and easy to use, and the breadth of our product offerings,
  will continue to differentiate us relative to our competitors. The competition
  in each of our product families is discussed in more detail below.



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Network Connection Products
  - Wireless Connections. Our CompactFlash Wireless LAN card faces competition
  in the market today principally from other manufacturers of low power Wireless
  LAN cards including D-Link, Netgear and SanDisk. We expect competition to remain
  intense in the future. We compete based on our brand name, distribution and
  customer support infrastructure, as well as software enhancements, including
  power management capabilities to minimize the power drain on mobile devices.
  We were the first company to add security software (802.1.x) to a WiFi card
  software driver compatible with most corporate networking environments, which
  we made available during the first quarter of 2003 for Pocket PC devices. The
  market for Bluetooth wireless communications technology is expected to be highly
  competitive. A number of companies are currently developing various Bluetooth
  interface chips. CompactFlash Bluetooth cards are being offered by plug-in card
  manufacturers such as Ambicom, Anycom, Belkin, BlueTake, Brainbox, and IO Gear.
  SDIO Bluetooth cards are being offered by Palm and Toshiba. Our Bluetooth CompactFlash
  plug-in card is the only card in the market that fits within a Type 1 CompactFlash
  slot (all competitive products and our SDIO product protrude from the slot),
  and our Bluetooth software, which continues to be improved, provides a functional
  easy-to-use Bluetooth solution. Nonetheless, certain original equipment manufacturers
  of personal computers and handheld computers may make our wireless network connection
  products less significant by incorporating built-in functions, such as Bluetooth
  and WiFi, into their products. We also manufacture a Bluetooth wireless GPS
  receiver which collects and sends satellite positioning signals to a PDA or
  notebook for use with GPS maps and routing software. Similar products are manufactured
  by ALK, Belkin, EMTAC, Hewlett-Packard, Leadtek, Mapopolis, NavMan, Pharos,
  Space Machine, Teletype, and Tom Tom. The primary differences between the GPS
  products are the software features in the routing software, including ease of
  use. Our GPS software has been recognized for its excellence by a major trade
  publication, and we will strive to continue to differentiate our product with
  software features.

Network Connection Products
  - Cable Connections. We are not aware of any major vendor that currently
  offers products that compete directly with our Digital Phone Card products.
  We face indirect competition for our Digital Phone Cards from alternative methods
  of downloading information into a mobile computer from remote locations, such
  as connecting over telephone landlines through a modem, or connecting a mobile
  phone through a cable to a serial port on a notebook computer. The market for
  our Ethernet cards is highly competitive. Manufacturers of low power Ethernet
  cards include Billionton and Trendware. Our modem cards face competition from
  a number of manufacturers. Companies offering CompactFlash modem cards include
  Ambicom, Billionton, Hewlett-Packard, New Media, Pharos, Pretec, Targus and
  Trendware.

Bar Code Scanning Products.
  Our laser bar code scanning products face competition from alternative scanning
  technologies, specifically charge-coupled device (CCD) scanning technology,
  which is less expensive than our technology, and from ruggedized bar code scanning
  devices from Symbol Technologies, Intermec, HandHeld Products, Casio, Itronix
  and others. We also face competition outside of the United States from a product
  similar to our InHand Scan Card from BeInteractive. Our laser scanning products
  are targeted to address specific market segments, such as field sales and service,
  retail store shelf management and pharmaceutical distribution management. We
  produce our laser bar code scanning products under technology licenses from
  Symbol Technologies, which, to date, has not licensed its laser bar code scanning
  technology to potential competitors. Symbol has historically been selective
  in licensing its technology to third parties, and we have no reason to anticipate
  that its practice will change. Nonetheless, the continued availability of our
  licenses from Symbol and the continued absence of other licensees are dependent
  upon future licensing decisions by Symbol Technologies.

Serial Connection Products.
  We have no major direct competition for our peripheral connection cards. We
  compete from time to time with similar products from small manufacturers such
  as Quatech, Silicom, SeaLevel, BlackBox, Advanteck and Brainbox.



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Embedded Products and
  Services. Competition for our embedded products and services is primarily
  the same competition we face for the applicable plug-in product in one or more
  of our other product families, as plug-in connection cards are an alternative
  to embedded connections. For example, we sell our serial interface chips for
  embedding in third party devices. Interface chips with similar functions and
  features are available from other chip manufacturers. In addition, our early-to-market
  Bluetooth software works well with our Bluetooth modules, providing us a first-to-market
  solution for embedding Bluetooth wireless connections into third party devices.
  However, Asian manufacturers 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 Bluetooth solutions which may compete
  with our products and services.

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.

Our most important hardware
  building block is the universal bus interface, 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 universal bus interface
  into the interface chips used in our connection products cards to control signal
  transmission between these products and the handheld or notebook computer's
  PC Card or CompactFlash slot.

We have also developed
  a library of software drivers and control modules that allow our products to
  operate in handheld computers running the Windows Mobile based operating system
  and in notebooks running various Windows operating systems. Since 1999 we have
  applied for 15 patents covering our proprietary technology. As of February 27,
  2004, we have been awarded three U.S. Patents, 6,353,870, 6,559,147, and 6,691,196,
  and UK patent 2,365,182 covering our design for cards combining connectivity
  and removable memory.

We have also 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.

We have registered trademarks
  with the U.S. Patent and Trademark Office for our name, our logo, and the term
  "Battery Friendly".

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.



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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 February 27, 2004 was 68 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, 2003, 61 percent of our sales were in North America, 22 percent in Europe,
  and 17 percent in Asia and Pacific Rim countries. During the year ended December
  31, 2002, 58 percent of our sales were in North America, 24 percent in Europe
  and 18 percent in Asia. 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
  original equipment manufacturers (OEMs) and value added resellers. We support
  our distributors and resellers by providing education, training and customer
  assistance through our sales, marketing, and technical support staff in the
  U.S and in Europe. As of February 27, 2004, we had 30 people in sales, marketing
  and technical support. Our United States distributor Tech Data Corp. accounted
  for 29 percent, 8 percent and 9 percent of our revenue for 2003, 2002 and 2001,
  respectively. Our United States distributor Ingram Micro, Inc. accounted for
  14 percent, 22 percent and 23 percent of our revenue in 2003, 2002, and 2001,
  respectively. We intend to moderately increase our sales and marketing effort
  during 2003 by adding personnel and increasing promotional activities, particularly
  in support of our distributors.

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,
  and resellers reduce or discontinue efforts to sell our products, our revenues
  and operating results could be materially adversely affected.

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As of February 27, 2004,
  we had thirty persons responsible for our sales and marketing activities.

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, with the exception of large bulk orders, for which we
  perform final product testing and package our products at the third party contract
  manufacturers' locations. As of February 27, 2004, we had fourteen people employed
  in manufacturing operations including planning, buying, manufacturing engineering,
  quality control, product assembly, and shipping and receiving.

Sole source components
  include our proprietary interface chip that controls the signal transmission
  between many of our products (all plug-in CompactFlash products except our Ethernet,
  Modem, and Wireless LAN cards) and the card slot on the mobile or handheld computer,
  our Ethernet chip, our laser scanning engines, our SDIO plug-in cards and certain
  cable and connector components. 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.

Research and Development

Since our inception, we
  have made substantial investments in research and development. We believe that
  our future performance will depend in large part on our ability to develop significant
  enhancements to our existing connection products and to develop successful new
  products for emerging and existing markets. In particular, we believe that the
  following initiatives are important for maintaining our competitive position:

- Continuing development
    of our Bluetooth wireless connection products
- Expanding development
    of our Wireless LAN connection products
- Developing Secure Digital
    (SDIO) format connection products.



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As of February 27, 2004,
  we had fifteen 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 February 27, 2004,
  we had nine people responsible for our financial and administrative activities
  including accounting and finance, personnel, reception, and administrative support.

Item 2. Properties

We lease a 26,000 square
  foot office facility in Newark, California under a lease expiring in December
  2006. This facility houses our headquarters and manufacturing operations. We
  believe that we will be able to extend our lease in our current facility at
  lease expiration or locate acceptable alternative space. We believe that our
  current facilities are sufficient to meet our needs for the foreseeable future.

Item 3. Legal Proceedings

On June 30, 2003, Khyber
  Technologies Corporation filed a complaint against us in the United States District
  Court, Northern District of Ohio, alleging that we had infringed a patent held
  by Khyber in manufacturing, using and selling our portable bar code scanners.
  We have filed our answer to the complaint and dispute the Khyber claims. Both
  parties have filed a motion for summary judgment.

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 2003.

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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 National Market under the symbol "SCKT" and
  on the Pacific Stock Exchange under the symbol "SOK".

The quarterly high and
  low sales prices of our Common Stock, as reported on the Nasdaq National Market
  or the Nasdaq SmallCap Market through February 27, 2004 and for the last two
  fiscal years are as shown below.



|                                                   | Common
        Stock
|------------------------------------------------------ | --------------------
|Quarter
        Ended                                  | High                
|2002                                                  
|  March
        31, 2002                           | $
        2.55      
| June
        30, 2002                             | $
        1.95      
| September
        30, 2002                        | $
        1.20      
| December
        31, 2002                         | $
        0.95      
|2003                                                  
|March
        31, 2003                                 | $
        0.92      
| June
        30, 2003                             | $
        1.92      
| September
        30, 2003                        | $3.39               
| December
        31, 2003                         | $
        4.80      
|2004                                                  
| March
        31, 2004(through February 27, 2004) | $
        4.40      



On February 27, 2004,
  the closing sales price for our Common Stock as reported on the Nasdaq National
  Market was $3.40. We had approximately 475 stockholders of record as of February
  27, 2004, and an additional 10,000 beneficial stockholders. 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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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)              | 1999                         
|Revenue                                                    | $6,876                       
|Net loss                                                   | (845)                        
|Net loss
      applicable to common stockholders           | (1,090)                      
|Net loss
      per share applicable to common stockholders | (0.11)                       
|Weighted
      average shares outstanding                  | 9,939                        
|Total
      assets                                         | 7,012                        
|Capital
      lease obligations - long term portion        | --                           
|Preferred
      stock                                      | 888                          
|Total
      stockholders' equity                           | 5,009                        
|Dividends
      and preferred stock accretion              | 246                          

(1) Net income and net loss applicable to common stockholders
  in 2000 and 2001 includes amortization of goodwill of $0.4 million and $1.5
  million, respectively. Amortization of goodwill has been discontinued commencing
  in the first quarter of 2002 in accordance with Statement of Financial Accounting
  Standards No. 142, "Goodwill and Other Intangible Assets."



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

This Management's Discussion
  and Analysis of Financial Condition and Results of Operations contains forward-looking
  statements within the meaning of Section 27A of the Securities Act of 1933 and
  Section 21E of the Securities Exchange Act of 1934. The forward-looking statements
  involve risks and uncertainties, including, among other things, the uncertainties
  associated with forecasting future revenues, costs and expenses. You are cautioned
  not to place undue reliance on the forward-looking statements, which speak only
  as of the date of this report. Our actual results may differ materially from
  the results discussed in the forward-looking statements. Factors that might
  cause such a difference include, but are not limited to, those discussed below
  and under "Other Factors Affecting Future Operations." 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.

Critical Accounting Policies

Our significant accounting
  policies are described in Note 1 to our consolidated financial statements for
  the year ended December 31, 2003. 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 revenue 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 revenue to defer. Stock
  rotation and stock reduction from our distributors generally results in a balance
  sheet adjustment to our deferred revenue 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.



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We also earn revenues from
  services performed in connection with consulting arrangements. For those contracts
  that include contract milestones or acceptance criteria the we recognizes revenues
  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.

We also 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 connection card products after
  we receive orders from our customers. We purchase 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 we 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.
  Surpluses can also be created by changes to our engineering bill of materials.
  Changes in the amounts we record for surplus or obsolete inventory are included
  in cost of revenue.

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 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 periodically evaluate whether the value of the goodwill was impaired, at
  which time any impaired balances would be written down. We periodically evaluate
  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,
  2003, 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.



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Revenue

We design, manufacture
  and sell products for connecting handheld and notebook computers to computer
  networks and peripherals. Total revenue in 2003 was $21.6 million, an increase
  of 32% over 2002 revenue of $16.3 million. Revenue in 2002 increased 32% over
  revenue in 2001 of $12.3 million.

Our products cover a wide
  range of connection solutions in four product families:

- Our network connection
    products are connection devices that can be plugged into standard expansion
    slots in handheld and notebook computers or connect to handheld and notebook
    computers over wireless connections. These products allow users to connect
    their devices to the Internet via mobile or wired phone services, or to private
    networks, or to communicate with other electronic devices such as desktop
    computers and printers. Our products offer both wireless and cable connections
    to external devices such as mobile phones and printers and Global Positioning
    System receivers. Wireless connection products include cards using the Bluetooth
    standard for short-range wireless connectivity, and cards for connecting to
    local wireless networks using the Wireless LAN 802.11b (or WiFi) standard.
    Cable connection products include modems for telephone connections, Ethernet
    cards for local area network connections and digital phone cards for wide
    area network connections through mobile phones.
- Our bar code scanning
    products plug into or connect wirelessly to handheld or notebook computers
    and turn handheld or notebook computers into portable bar code scanners that
    can be used in various retail and industrial workplaces.
- Our serial products
    add connection ports to a notebook or handheld computer that allow users to
    connect these portable computers to standard peripherals designed primarily
    for desktop PCs.
- Our embedded products
    and services consist of Bluetooth modules, interface chips, and engineering
    design services to install these products. Our Bluetooth modules allow manufacturers
    of handheld computers and other devices to build wireless connection functions
    into their products. Our interface chips allow manufacturers of wide area
    network cards and other devices to transfer information to and from handheld
    or notebook computers.

Our network connection
  product revenues in 2003 were $8.7 million compared to $6.0 million in 2002
  and $3.4 million in 2001. Our growth in 2003 was due to new products and increasing
  enterprise deployment of Pocket PCs. In the fourth quarter of 2002 we introduced
  our Bluetooth GPS receiver with navigation kit. Revenue growth was $2.0 million
  in 2003 from this new product combined with $1.3 million of revenue growth from
  our modem cards and $0.2 million of revenue growth in our Wireless LAN product
  line from the introduction of our Secure Digital (SDIO) Wireless LAN card in
  the third quarter of 2003. This growth was partially offset by declines of $0.4
  million in our Bluetooth plug-in cards, and $0.2 million in declines in both
  our Ethernet plug-in and Digital Phone card product lines. Revenue growth of
  $3.5 million in 2002 compared to 2001 resulted from sales of new products including
  our Bluetooth CompactFlash plug-in cards, Wireless LAN plug-in cards, and modem
  cards introduced in the later half of 2001, offset by declines of $0.9 million
  primarily in digital phone cards and modest declines in Ethernet plug-in cards.

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Our bar code scanning
  product revenues in 2003 were $6.7 million compared to revenue of $3.9 million
  in 2002 and $3.1 million in 2001. Revenue growth of $1.4 million for 2003 was
  due to increased sales of our bar code laser scanner system, which is a laser
  gun attached via a cable to a CompactFlash card with PC card adaptor. Revenue
  growth of $1.0 million for 2003 was due to our primary scanning product, the
  In-Hand Scan card, which is a laser scanner incorporated into a CompactFlash
  card that plugs into a Pocket PC, notebook, or other mobile computer to turn
  the computer into a portable laser scanner. Additional revenue growth of $0.8
  million was due to our newest bar code scanning products, the Imager In-Hand
  Scan card and the SDIO In-Hand Scan card, which began shipping to customers
  in the third and fourth quarters of 2003, respectively. The revenue growth in
  2002 was primarily due to one product, the Compact Flash In-Hand Scan card.
  Our scanning products are sold both through general distribution and through
  value added resellers who contract with customers to provide scanning solutions.
  Our products are becoming more widely adopted by the value added reseller community
  for lightweight portable scanning.

Our peripheral connection
  product revenues in 2003 were $3.6 million compared to $3.8 million in 2002
  and $4.4 million in 2001. Standard peripheral connection cards are primarily
  sold to connect peripheral devices or other electronic equipment to notebook
  computers. For 2003, sales volumes for both of our standard serial PC Card products
  and our newer CompactFlash card products slightly increased, but were offset
  by declines in custom serial card product sales. For 2002, declines of $0.7
  million in our standard PC Card product revenues were partially offset by increases
  in CompactFlash card revenues.

Our embedded products
  and services revenues in both 2003 and 2002 were $2.6 million compared to
  $1.5 million in 2001. Our chip sales included in these totals were $1.2 million
  in 2003 compared to $1.1 million in 2002 and $0.4 million in 2001. Chip sales
  are highly dependent upon engineering design-wins and the timing of third party
  design projects. In 2003 we continued our effort to broaden the customer base.
  We also include embedded Bluetooth modules and plug-in card sales in this category,
  both experiencing slight growth in 2003. Increases in 2003 were offset be declines
  in engineering services, which also declined in 2002 from 2001.

Gross Margins

Gross profit for both 2003
  and 2002 was 50% of revenues compared to gross profit of 53% of revenue in 2001.
  We generally price our products as a markup from our cost, and we offer discount
  pricing for higher volume purchases. Cost reductions on several of our products
  including our Bluetooth modules, our modems, and the introduction of our lower
  cost third generation proprietary ASIC chip in the third quarter of 2003, were
  offset by rebate programs on selected products and reduced overall margins on
  our barcode products due to large volume purchases. The moderate declines in
  gross margin percentages in 2002 compared to 2001 reflect the introduction of
  new products that tend to have a higher initial cost and a lower initial gross
  margin until volumes increase, higher fixed manufacturing costs as we staffed
  for management of growth, and higher volume discount pricing.

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Research and Development Expense

Research and development
  expense in 2003 was $3.4 million, a decrease of 2% from expenses in 2002 of
  $3.5 million. Research and development expense in 2002 was $3.5 million, a decrease
  of 6% over expenses in 2001 of $3.7 million. Decreases in 2003 were primarily
  from lower consulting and professional fees resulting from the completion of
  the development of a new proprietary ASIC chip at the end of the first quarter
  of 2003, partially offset by higher personnel expenses resulting from reduced
  allocation of costs to projects generating engineering service revenues. Decreases
  in 2002 of $0.3 million were due to reduced expenditures on developed software
  and outside services, and $0.2 million in lower personnel costs and travel,
  partially offset by increases of $0.2 million in engineering consulting services
  and $0.1 million from patent development and other expenses.

Sales and Marketing
  Expense

Sales and marketing expense
  in 2003 was $5.2 million, an increase of 6% compared to sales and marketing
  expense in 2002 of $4.9 million. Sales and marketing expense in 2002 was $4.9
  million, a decrease of 5% compared to sales and marketing expense in 2001 of
  $5.1 million. Increases in 2003 of $0.4 million were due primarily to increased
  staffing of sales and marketing personal as we staffed for growth, and increases
  in outside sales and marketing services, partially offset by reductions in advertising
  and promotional activities. Decreases in 2002 of $0.2 million in advertising
  and promotional activities and $0.2 million in reduced travel were partially
  offset by increases in occupancy costs.

General and Administrative Expense

General and administrative
  expense in 2003 was $2.9 million, an increase of 35% compared to general and
  administrative expense in 2002 of $2.1 million. General administrative expense
  in 2002 was flat compared to 2001. Increases in 2003 included $0.4 million from
  increased legal and professional fees due primarily to our response to the complaint
  filed by Khyber Technologies Corporation (see Item 3 - Legal Proceedings), and
  $0.3 million from increased investor relations activities. In 2002, increases
  totaling $0.2 million in business insurance, occupancy costs, and payroll expense
  were offset by reductions in stock exchange listing fees, equipment, supplies,
  and stockholder communications.

Charges Related to Compensatory Stock Option Grants

Our charges related to
  compensatory stock option grants were zero in 2002 and 2003, and nominal in
  2001.





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Amortization of Goodwill and Intangibles

In March 2002, the Company
  acquired Nokia's CompactFlash Bluetooth Card business from Nokia, including
  a product line and a sole, non-exclusive, non-transferable, worldwide license
  to use, make and sell the related product line technology. The total purchase
  price was $2.6 million, of which approximately $1.0 million was attributed to
  intangible technology and licensing. The intangible assets are being amortized
  over their estimated useful lives of one to three years. Amortization charges
  for each of 2003 and 2002 were $0.3 million.

In October 2000, the Company
  acquired 3rd Rail Engineering, an engineering services firm specializing in
  engineering design and integration services of embedded systems for Windows
  CE and other operating system environments. The acquisition was valued at $11.3
  million, of which approximately $1.1 million was attributed to intellectual
  property. The intellectual property is being amortized over estimated useful
  lives of 3 to 8 years. Amortization charges for 2003 were $0.1 million, compared
  to $0.2 million in 2002, and $0.2 million in 2001.

Amortization of goodwill
  was discontinued commencing in the first quarter of 2002 in accordance with
  Statement of Financial Accounting Standards No. 142, "Goodwill and Other
  Intangible Assets." Amortization of goodwill (including assembled workforce)
  in 2001 was $1.5 million, relating solely to the acquisition of 3rd Rail Engineering
  in October 2000. During 2003 goodwill and intangibles were analyzed for impairment
  of value, and no impairment was found.

Interest Income and Other and Interest Expense

Interest income was $23,000
  in 2003, $26,000 in 2002, and $0.2 million in 2001. Interest income reflects
  interest earned on cash balances. Higher cash at year-end 2003 is primarily
  the result of a private placement financing of our Common Stock in the third
  quarter of 2003. Other income of $12,000 in 2003 was the result of net currency
  gains on foreign currency contracts partially offset by a loss on the Euro note
  payable to Nokia.

Interest expense in 2003
  and 2002 is due primarily to interest on the note payable to Nokia in connection
  with our acquisition in March 2002 of its CompactFlash Bluetooth Card business
  and related product line technology. Remaining interest in all three years relates
  to interest on equipment lease financing obligations.

Income Taxes

There were no provisions
  for federal or state income taxes for the years ended December 31, 2003, 2002,
  and 2001, as the Company incurred net operating losses in all periods. We have
  established a valuation allowance for the net deferred tax asset. There can
  be no assurance that the deferred tax assets subject to the valuation allowance
  will be realized.





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Preferred Stock Dividend
  and Accretion of Preferred Stock

Preferred stock dividends
  in 2003 and 2002 reflect dividends accrued at the rate of 12% per annum on Series
  E redeemable convertible preferred stock issued in October 2002, and dividends
  accrued at the rate of 8% per annum on Series F preferred stock issued in March
  2003. Dividends for Series E were paid in cash for each of the three quarters
  of 2003 until the Series E was fully converted. Dividends for Series F for the
  first, third, and fourth quarters were paid in cash, and for the second quarter
  were paid in Common Stock. Preferred stock accretion was $565,200 in 2003 and
  $82,700 in 2002 arising from the accounting for the redemption of the Series
  E issuance, and a one time accretion charge in the first quarter of 2003 of
  $296,500 reflecting the discount from market after giving effect to an allocation
  to the investor warrants of $296,500 of the proceeds of the Series F issuance.

Quarterly Results of Operations

The following table sets
  forth summary quarterly statements of operations data for each of the quarters
  in 2002 and 2003. 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
|------------------------------------------------------------ | ---------------------
|(in
      thousands, except per share)                       | Mar 31,              
|                                                             | 2002                 
|Summary
      Quarterly Data:                               
|Revenue                                                      | $4,012               
|Cost of
      Revenue                                        | 2,012                
|Gross
      Profit                                           | 2,000                
|Operating
      expenses:                                   
| 
      Research and development                         | 899                  
| 
      Sales and marketing                              | 1,613                
| 
      General and administrative                       | 626                  
| 
      Amortization of intangibles                      | 63                   
|Total
      operation expense                                | 3,201                
|Interest
      income (expense), net                         | 1                    
|Net loss                                                     | (1,200)              
|Preferred
      stock dividends                              | --                   
|Preferred
      stock accretion                              | --                   
|Net loss
      applicable to common stockholders             | $
        (1,200)    
|Net loss per share
        applicable to common stockholders | $
        (0.05)     



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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 ourselves 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 have historically financed
  our operations through the sale of equity securities, equipment financing, and
  revolving bank lines of credit. Since our inception we have raised approximately
  $50 million in equity capital. We have incurred significant quarterly and annual
  operating losses in every fiscal period since our inception, and we may continue
  to incur quarterly operating losses through the first quarter of 2004 and possibly
  longer. We have historically needed to raise capital to fund our operating losses.

Cash used in operating
  activities was $0.7 million in 2003 compared to $1.9 million in 2002 and $4.2
  million in 2001. The use of cash resulted from financing our net losses of $1.2
  million in 2003, $3.0 million in 2002, and $6.1 million in 2001. Adjustments
  for non-cash items, including depreciation, amortization, stock option charges,
  amortization of goodwill and intangibles, and fluctuations on forward currency
  forward exchange contracts, totaled $0.9 million in both 2003 and 2002, and
  $2.1 million in 2001. Changes in working capital balances resulted in a use
  of cash in 2003 of $0.4 million, a source of cash in 2002 of $0.2 million and
  a use of cash in 2001 of $0.3 million. Changes in working capital balances during
  2003 reflect increased accounts receivable balances from higher levels of shipments
  in the fourth quarter and lower accounts payable balances due to reductions
  in deferred payments, partially offset by reductions in inventory stock as we
  transitioned to our next generation proprietary ASIC chip and phased out existing
  stock, increases in deferred revenue due to higher levels of shipments in the
  later half of December, and reductions in prepaid expenses. Changes in working
  capital balances during 2002 included increased accounts receivable balances
  from higher levels of shipments in the fourth quarter and increases in inventories
  due primarily to initial stocking of a major retailer, offset by increases in
  accounts payable resulting from deferred payments. Changes in working capital
  balances during 2001 include lower accounts receivable balances from increased
  collections and the timing of shipments earlier in the fourth quarter, a decrease
  in inventories, lower accounts payable balances reflecting lower inventory purchases
  in the fourth quarter, lower accrued expense balances reflecting salary reductions
  and mandatory vacation policies in effect during the fourth quarter, and lower
  deferred revenue balances that reflected inventory shipped into retail channels
  at the end of 2000 that had either been sold or returned by the end of 2001.

Cash used in investing
  activities was $0.3 million in 2003, $1.3 million in 2002, and $0.2 million
  in 2001. Investing activities in 2003 reflect the cost of furniture, new computer
  equipment, purchased software for new employees, and tooling costs for new products.
  These costs for 2002 and 2001 totaled $0.5 million and $0.2 million, respectively.
  Additionally, in March 2002 we used $0.9 million to acquire from Nokia Corporation
  its CompactFlash Bluetooth Card business including a product line and a sole,
  non-exclusive, worldwide license to make, use and sell the related product line
  technology (the balance of acquisition price was paid with a note payable).

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Cash provided by financing
  activities was $4.3 million in 2003, $1.5 million in 2002, and $1.9 million
  in 2001. During 2003 we completed two private placement financings, our Series
  F convertible preferred stock, which provided $1.5 million net of issuance costs,
  and a Common Stock financing, which provided $3.7 million net of issuance costs.
  Additional cash was provided by financing activities in 2003 from the exercise
  of $0.7 million in stock options and warrants, and from gains on the sale of
  foreign exchange contracts of $0.3 million entered into in conjunction with
  the Euro note payable to Nokia. During 2003 we made payments of $1.3 million
  on the note payable to Nokia, $0.3 million in net payments against our bank
  revolving credit line, $0.2 million in redemption payments of our Series E redeemable
  convertible preferred stock, and $0.1 million in combined dividend payments
  on our Series E and Series F preferred stock. At the end of 2003 we drew $1.6
  million in cash against our bank credit line which we repaid in January 2004.
  Net cash provided from using our bank line of credit was $0.6 million in 2002
  and $1.3 million in 2001. During 2002 we completed two private placement financings
  to increase our working capital balances. In March 2002 we issued 0.5 million
  shares of Common Stock and warrants, which provided us with $0.4 million in
  net proceeds after placement fees and legal expenses. In October 2002 we issued
  convertible redeemable preferred stock and warrants, which provided us with
  $0.8 million in net proceeds after issuance costs. Additional proceeds in 2002
  resulted from the exercise of options and warrants. During 2002 we made payments
  of $0.4 million on the note payable to Nokia related to the acquisition of its
  CompactFlash Bluetooth Card business and related product line technology. In
  2001 proceeds of $0.6 million resulted from the exercise of options and warrants
  to acquire 0.9 million shares of Common Stock.

Our cash balances at December
  31, 2003 were $6.4 million, including cash of $1.6 million drawn against our
  bank line of credit. In March 2004 we entered into a new credit agreement with
  a bank which expires in March 2006. 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 the new bank line will be sufficient
  to meet our funding requirements at least through December 31, 2004. Although
  we do not anticipate the need to raise additional capital during this time to
  fund operations, we may raise additional capital if market conditions are appropriate.
  If we cannot achieve 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 and make remaining debt payments to Nokia (final payment due April 2004).
  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.

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The Company's contractual
  obligations at December 31, 2003 are outlined in the table below:



|                                                                     | Payments
        Due by Period
|-------------------------------------------------------------------- | ------------------------------
|Contractual
        Obligations                                      | Total                         
|Capital
      leases                                                 | $
        48,000              
|Purchase
      of Nokia technology                                   | 505,000                       
|Operating
      leases                                               | 1,437,000                     
|Unconditional
      purchase obligations with contract manufacturers | 4,329,000                     
|Total
      contractual cash obligations                             | $
        6,319,000           

Off-Balance Sheet Arrangements

The Company has no off-balance
  sheet arrangements as defined in Item 303 of Regulation S-K.

















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Other Factors Affecting Future Operations

We have a history of
  operating losses, we cannot assure you that we will achieve ongoing profitability,
  and we have monthly payment obligations.

We have incurred significant
  operating losses since our inception. We may continue to incur operating losses
  through the first quarter of 2004 and possibly longer. For the fiscal years
  ended December 31, 2003 and 2002, we incurred net losses of $1,249,900 and $2,971,800,
  respectively. To obtain profitability, we must accomplish numerous objectives,
  including 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 cannot assure you that we will generate sufficient net revenue
  to achieve ongoing profitability.

We also have debt payment
  obligations to Nokia Corporation under a Business Transfer Agreement that we
  entered into with Nokia in March 2002. These payments are in the amount of approximately
  $126,000, plus accrued interest, per month through April 2004. If we cannot
  achieve 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 and
  make debt payments to Nokia. We do not anticipate the need to raise additional
  capital through 2004 to fund our operations, but 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. If we are
  unable to secure the necessary capital, we may need to suspend some or all of
  our current operations.

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

We have historically needed
  to raise capital to fund our operating losses. We may continue to incur operating
  losses through the first quarter of 2004 and possibly longer. 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. Any sale of a
  substantial number of additional shares will cause dilution to our stockholders'
  investments and could also cause the market price of our Common Stock to fall.

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, Ingram Micro, Inc. and Tech Data Corp.,
  which together represented approximately 43 percent of our worldwide revenue
  in fiscal 2003 and 30 percent of our worldwide revenue in fiscal 2002. We expect
  that a significant portion of our revenue will continue to depend on sales to
  Ingram Micro, Inc. and Tech Data Corp. We do not have long-term commitments
  from Ingram Micro, Inc. or Tech Data Corp. to carry our products, and either
  could choose to stop selling some or all of our products at any time. If we
  lose our relationship with Ingram Micro, Inc. or Tech Data Corp., we could experience
  disruption and delays in marketing our products.

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If the market for handheld
  computers fails to grow, we would not achieve our sales projections.

Substantially all of our
  products are designed for use with mobile personal computers, including handhelds,
  notebook computers and tablets. If the mobile personal computer industry does
  not grow or if its growth slows, we would not achieve our sales projections.

Our sales would be hurt
  if the new technologies used in our products do not become widely adopted.

Many of our products use
  new technologies, such as the Bluetooth wireless standard and 2D bar code scanning,
  which are not yet widely adopted in the market. If these technologies fail to
  become widespread, our sales will suffer.

If third parties do
  not produce and sell innovative products with which our products are compatible,
  we may not achieve our sales projections.

Our success is 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. Our ability to generate
  increased revenue depends significantly on the commercial success of Windows-powered
  handheld devices, particularly the Pocket PC, and other devices, such as the
  new line of handhelds with expansion options offered by Palm. If manufacturers
  are unable or choose not to ship new products such as Pocket PC and other Windows-powered
  devices or Palm devices on schedule, or if these products 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.

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 original equipment
    manufacturers of personal computers, mobile phones and handheld computers
    may make our products less significant by incorporating built-in functions,
    such as Bluetooth wireless technology and WiFi, into their 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.

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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 with 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.

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 or 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 make the technological advances necessary
  to be competitive.

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. Lower than forecasted demand could
  also result in excess manufacturing capacity at our third-party manufacturers
  and in our failure to meet some minimum purchase commitments, each of which
  may lower our operating results.

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

We have devoted significant
  research and development resources to design activities for Windows-powered
  mobile products and, more recently, to design activities for Palm devices. 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 or Palm is obligated to continue the collaboration
  or to support the products produced from the collaboration. Consequently, Microsoft
  or Palm 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.

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

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

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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.

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.

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 our business,
  we may receive claims of 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.

On June 30, 2003, Khyber
  Technologies Corporation filed a complaint against us in the United States District
  Court, Northern District of Ohio, alleging that we had infringed a patent held
  by Khyber in manufacturing, using and selling our portable bar code scanners.
  We have filed our answer to the complaint and dispute the Khyber claims. Both
  parties have filed a motion for summary judgment.

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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.

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. Separate
  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 have our products specified as standards
  for new hardware components designed by mobile computer manufacturers and original
  equipment manufacturers.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 typically have little or no backlog. Quarterly
  revenue and operating results therefore depend on the volume and timing of orders
  received during the quarter, which are difficult to forecast. Historically,
  we have often recognized a substantial portion of our revenue in the last month
  of the quarter. This subjects us to the risk that even modest delays in orders
  may adversely affect our quarterly operating results. Our operating results
  may also fluctuate due to factors such as:

- 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 proportion
    of 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 revenue, delays in the receipt of
  orders can cause significant variations in operating results from quarter to
  quarter. As a result of any of the foregoing factors, 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 seven to ten years by us, including
  our President, Chief Financial Officer, Chief Technical Officer, Vice President
  of Marketing, and Senior Vice President for Business Development/General Manager
  Embedded Systems Group. 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 key senior personnel could adversely
  affect our ability to compete.



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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 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 connection products.
  Our personnel must be familiar with both the technologies we support and the
  unique requirements of the products to which our products connect. Competition
  for such personnel is intense, and we may not be able to attract and retain
  such key personnel. In addition, our ability to hire and retain such key personnel
  will depend upon our ability to raise capital or achieve increased revenue levels
  to fund the costs associated with such key personnel. Failure to attract and
  retain such key personnel will adversely affect our ability to develop new products
  and product enhancements.

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

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

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, and our bar code
  scanning modules, 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 39 percent
  of our revenue in 2003 and approximately 42 percent of our revenue in 2002.
  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 predominately
  denominated in United States dollars and in Euros for a portion of 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.

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

Our corporate headquarters
  are located near an earthquake fault. The potential impact of a major earthquake
  on our facilities, infrastructure, and overall business is unknown. Additionally,
  we may experience electrical power blackouts or natural disasters that could
  interrupt our business. We do not have a detailed disaster recovery plan. We
  do not carry sufficient business interruption insurance to compensate us for
  losses that may occur. Any losses or damages incurred by us as a result of these
  events could have a material adverse effect on our business.

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 27, 2004,
  we had 29,959,961 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 or S-8 prospectus delivery requirements
  and, in other cases, only to manner of sale, volume, and notice requirements
  of Rule 144 under the Securities Act.

As of February 27, 2004,
  we had 89,443 shares of Series F Preferred Stock outstanding that are convertible
  into 894,430 shares of Common Stock at $0.722 per share.

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As of February 27, 2004,
  we had 6,579,706 shares subject to outstanding options under our stock option
  plans, and 1,003,092 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 27, 2004,
  we had warrants outstanding to purchase a total of 1,806,896 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, 2003 through February 27, 2004, our Common Stock price fluctuated
  between a high of $4.80 and a low of $0.65. 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.









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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, 2003, a decline of 1% in interest rates
  would reduce our quarterly interest income by approximately $12,000.

Our bank credit line facilities
  of up to $4.0 million have variable interest rates based upon the lender's index
  rate plus 0.75% for the domestic line (up to $2.5 million) and the index rate
  plus 0.5% for 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 2003 and 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 allow certain of our European distributors to purchase our products
  in Euros, we pay the expenses of our European subsidiary in Euros, we pay the
  expenses of our Japan subsidiary in Japanese Yen, and we expect to enter into
  selected future purchase commitments with foreign suppliers that may be paid
  in the local currency of the supplier. To date these balances have been small,
  and we have not been subject to significant losses from material foreign currency
  fluctuations. At December 31, 2003, we have payment obligations of approximately
  400,000 Euros as a result of our purchase of Nokia's CompactFlash Bluetooth
  Card business and related product line technology in March 2002. We have purchased
  forward exchange contracts for Euros in order to mitigate our foreign currency
  exposure. Based on a sensitivity analysis of our net assets and subsidiary expenses
  at the beginning, during and at the end of the quarter ended December 31, 2003,
  an adverse change of 10% in exchange rates would result in an increase in our
  net loss for the quarter of approximately $91,000. For 2003 the total adjustment
  for the effects changes in foreign currency on cash balances, collections, payables,
  and derivatives, was a net gain of $92,000. We will continue to monitor and
  assess the risk associated with these exposures and may at some point in the
  future take actions to hedge or mitigate these risks.



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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
  ERNST & YOUNG LLP, INDEPENDENT AUDITORS

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, 2003 and 2002, and the related consolidated statements
  of operations, redeemable preferred stock and stockholders' equity, and cash
  flows for each of the three years in the period ended December 31, 2003. These
  financial statements are the responsibility of the Company's management. Our
  responsibility is to express an opinion on these financial statements based
  on our audits.

We conducted our audits
  in accordance with auditing standards generally accepted in the United States.
  Those standards require that we plan and perform the audit to obtain reasonable
  assurance about whether the financial statements are free of material misstatement.
  An audit includes examining, on a test basis, evidence supporting the amounts
  and disclosures in the 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. at December 31, 2003 and
  2002 and the consolidated results of its operations and its cash flows for each
  of the three years in the period ended December 31, 2003, in conformity with
  accounting principles generally accepted in the United States.





/s/ Ernst
  & Young LLP

San Jose, California
  February 11, 2004



34

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  of Contents)



|SOCKET
        COMMUNICATIONS, INC. 
        CONSOLIDATED BALANCE SHEETS                                                                                                                                                         
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                             
|                                                                                                                                                                                                                             
|ASSETS                                                                                                                                                                                                                           
|Current assets:                                                                                                                                                                                                                  
|Cash
        and cash equivalents                                                                                                                                                                                                
|Accounts
        receivable, net of allowance for doubtful accounts of 
          $113,244 at December 31, 2003 and $100,761 at December 31,
        2002                                                                        
|Inventories                                                                                                                                                                                                                      
|Prepaid
        expenses &
        other current assets                                                                                                                                                                          
|Total
        current assets                                                                                                                                                                                                     
|                                                                                                                                                                                                                             
|Property and equipment:                                                                                                                                                                                                          
|Machinery
        and office equipment                                                                                                                                                                                           
|Computer
        equipment                                                                                                                                                                                                       
|Gross
        property and equipment                                                                                                                                                                                             
|Accumulated
        depreciation & amortization                                                                                                                                                                                  
|Property
        and equipment, net                                                                                                                                                                                              
|Intangible
      technology, net                                                                                                                                                                                                 
|Goodwill                                                                                                                                                                                                                         
|Other
        assets                                                                                                                                                                                                             
|Total
        assets                                                                                                                                                                                                             
|                                                                                                                                                                                                                             
|LIABILITIES,
        REDEEMABLE PREFERRED STOCK 
        AND STOCKHOLDERS' EQUITY                                                                                                                                                
|Current liabilities:                                                                                                                                                                                                             
|Accounts
        payable                                                                                                                                                                                                         
|Accrued
      expenses                                                                                                                                                                                                           
|Accrued
        payroll and related expenses                                                                                                                                                                                     
|Bank
        line of credit                                                                                                                                                                                                      
|Deferred
        income on shipments to distributors                                                                                                                                                                             
|Current
      portion of capital leases and equipment financing notes                                                                                                                                                            
|Notes
        payable                                                                                                                                                                                                            
|Total
        current liabilities                                                                                                                                                                                                
|                                                                                                                                                                                                                             
|Long
      term portion of deferred rent and capital leases                                                                                                                                                                      
|Commitments and contingencies                                                                                                                                                                                                    
|Series
        E Redeemable Convertible Preferred Stock, $0.001 par value: 
          Authorized Shares - 100,000, Issued and outstanding shares
        - 
          none at December 31, 2003, and 100,000 at December 31, 2002
|Stockholders' equity:                                                                                                                                                                                                            
|Series
        F Convertible Preferred Stock, $0.001 par value: 
          Authorized Shares - 276,269, Issued and outstanding shares
        - 
          92,906 at December 31, 2003, and none at December 31, 2002            
|Common
        stock, $0.001 par value: Authorized shares - 100,000,000
          Issued and outstanding shares - 29,827,029 at December 31, 2003
          and 24,113,998 at December 31, 2002                              
|Additional
        paid-in capital                                                                                                                                                                                               
|Accumulated
        deficit                                                                                                                                                                                                      
|Total
        stockholders' equity                                                                                                                                                                                               
|Total
        liabilities, redeemable preferred stock and stockholders' equity                                                                                                                                                   

See accompanying
  notes.

35

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  of Contents)



|SOCKET COMMUNICATIONS, INC.
        CONSOLIDATED STATEMENTS OF OPERATIONS                              
|-------------------------------------------------------------------------------------------------------
|                                                                                                       
|                                                                                                       
|                                                                                                       
|Revenues                                                                                               
|Cost of revenue                                                                                        
|Gross profit                                                                                           
|Operating expenses:                                                                                    
|Research and development                                                                               
|Sales and marketing                                                                                    
|General and administrative                                                                             
|Amortization of intangible
        technology                                                          
|Amortization of goodwill                                                                               
|Amortization of deferred
        compensation 
             related to compensatory stock option grants
|Total
        operating expenses                                                                       
|Operating loss                                                                                         
|Interest income
      and other                                                                        
|Interest expense
      and other                                                                       
|Net loss                                                                                               
|Preferred stock dividends                                                                              
|Preferred stock accretion                                                                              
|Net loss applicable to common stockholders                                                             
|Basic and diluted net loss per
      share applicable to common stockholders                           
|Weighted average shares outstanding, basic
      and diluted                                           

See accompanying
  notes.





36

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  of Contents)



|SOCKET COMMUNICATIONS, INC.
        CONSOLIDATED STATEMENT OF REDEEMABLE PREFERRED STOCK 
        AND STOCKHOLDERS' EQUITY                        
|--------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                  
|                                                                                                                                                  
|Balance at December 31, 2000                                                                                                                      
|Exercise of warrants                                                                                                                              
|Exercise of stock options                                                                                                                         
|Charge for Compensatory stock options                                                                                                             
|Net loss and comprehensive net loss                                                                                                               
|Balance at December 31, 2001                                                                                                                      
|Exercise of warrants                                                                                                                              
|Exercise of stock options                                                                                                                         
|Issuance of common stock                                                                                                                          
|Issuance of common stock warrants                                                                                                                 
|Issuance
      of series E redeemable convertible preferred stock                                                                                 
|Series E dividends/stock accretion to redemption
        value                                                                                    
|Net loss and comprehensive net loss                                                                                                               
|Balance at December 31, 2002                                                                                                                      
|Exercise of warrants                                                                                                                              
|Exercise of stock options                                                                                                                         
|Issuance of common stock                                                                                                                          
|Issuance of common stock warrants                                                                                                                 
|Issuance
      of Series F convertible preferred stock including 
      stock accretion                                                           
|Issuance
      of common stock in conjuction with Series F
      financing                                                                        
|Series E stock accretion to redemption
        value                                                                                              
|Conversion of Series E redeemable convertible
        preferred
        stock to common stock                                                     
|Redemption of Series E redeemable convertible
        preferred
        stock for cash                                                            
|Conversion of Series F convertible preferred
        stock to common stock                                                                        
|Dividends paid/payable in cash on Series
        E redeemable
        convertible preferred stock and Series F convertible
        preferred stock
|Dividends paid in common stock on Series
        F convertible
        preferred stock                                                            
|Net loss and comprehensive net loss                                                                                                               
|Balance at December 31, 2003                                                                                                                      



See accompanying
  notes.37

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(Table
  of Contents)



|SOCKET COMMUNICATIONS, INC.
        CONSOLIDATED STATEMENTS OF CASH FLOWS                                                               
|----------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                        
|                                                                                                                                        
|Operating activities                                                                                                                    
|Net loss                                                                                                                                
|Adjustments to reconcile net loss
      to net cash used in operating activities:                                                       
|Depreciation                                                                                                                            
|Amortization                                                                                                                            
|Charges for stock option
        grants                                                                                                 
|Gain on forward exchange
        contract                                                                                               
|Currency exchange loss on
        note payable                                                                                          
|Net gain on foreign currency
        translations                                                                                       
|Amortization of goodwill
        and intangibles                                                                                        
|Change in deferred rent                                                                                                                 
|                                                                                                                                        
|Changes in operating assets and
      liabilities:                                                                                      
|Accounts receivable                                                                                                                     
|Inventories                                                                                                                             
|Prepaid expenses and other
        current assets                                                                                       
|Other assets                                                                                                                            
|Accounts payable                                                                                                                        
|Accrued expenses                                                                                                                        
|Accrued payroll and related
        expenses                                                                                            
|Deferred income on shipments
        to distributors                                                                                    
|Net
        cash used in operating activities                                                                                           
|Investing activities                                                                                                                    
|Purchase of equipment                                                                                                                   
|Acquisition of Nokia CompactFlash
        Bluetooth business                                                                            
|Net
        cash used in investing activities                                                                                           
|Financing activities                                                                                                                    
|Payments on capital leases
        and equipment financing notes                                                                        
|Payments on notes payable                                                                                                               
|Gross proceeds from borrowings
        under bank line of 
             credit agreement                                                
|Gross repayments of borrowings
        under bank line of 
             credit agreement                                                
|Gross proceeds from sale
        of foreign currency forward 
             exchange contract                                            
|Stock options exercised                                                                                                                 
|Net proceeds from sale of
        common stock and warrants 
             to purchase common stock                                      
|Net proceeds from sale of
        preferred stock and warrants 
             to purchase common stock                                   
|Redemption payments of Series
        E redeemable convertible 
             preferred stock                                            
|Dividends paid on Series
        E redeemable convertible 
             preferred stock and Series F convertible
        preferred stock
|Warrants exercised                                                                                                                      
|Net
        cash provided by financing activities                                                                                       
|Effect of exchange rate changes
      on cash and cash equivalents                                                                      
|Net increase (decrease) in cash
      and cash equivalents                                                                              
|Cash and cash equivalents at beginning
      of year                                                                                    
|Cash and cash equivalents at end
      of year                                                                                          
|Supplemental cash flow information                                                                                                      
|Cash paid for interest                                                                                                                  
|Warrants issued in conjuction
        with preferred stock financing                                                                    
|Warrants issued in conjuction
        with common stock financing                                                                       
|Acquisition of Nokia CompactFlash
        Bluetooth business with 
             note payable                                            
|Dividends on Series F preferred
        stock paid in common stock                                                                      
|Conversion of Series E preferred
        stock to common stock                                                                          
|Conversion of Series F preferred
        stock to common stock                                                                          
|Property and equipment acquired
        in exchange for capital 
             lease obligation                                          
|Accrued dividends on preferred
        stock                                                                                            

See accompanying
  notes.

38

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  of Contents)

NOTE 1 - Summary of
  Significant Accounting Policies

Organization and Business

Socket Communications,
  Inc. ("Socket" or the "Company") designs, manufactures and
  sells products that connect handheld and notebook computers to the Internet,
  computer networks, and peripherals through both wireless and cable connections.
  The Company also designs, manufactures and sells products designed to collect
  data on handheld and notebook computers. The Company's products are designed
  for use with a broad range of handheld and notebook computers, and employ innovative
  designs that reduce battery power consumption and make them easy to install
  and use. The Company's products have been designed specifically for handheld
  computers and other battery-powered devices with standard expansion slots for
  plug-in cards. The expansion slots the Company supports include CompactFlash,
  PC Card, and Secure Digital (SDIO). The Company has also developed standalone
  network connection and data collection products that connect wirelessly to a
  handheld or notebook computer. The Company's products easily integrate hardware,
  software and services into complete mobile connectivity solutions. The Company
  also recognizes revenues from funded engineering services and from the sale
  of interface chips to original equipment manufacturers. 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 significant intercompany accounts and transactions have
  been eliminated. The expenses associated with the operations of our foreign
  offices were $1,132,563, $1,018,729, and $647,039, in 2003, 2002, and 2001,
  respectively.

Use of Estimates

The preparation of financial
  statements in conformity with accounting principles generally accepted in the
  United States requires management to make estimates and assumptions that affect
  the reported amounts of assets and liabilities, 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.

Reclassification of
  Prior Year Balances

Certain reclassifications
  have been made to prior year's balance sheet and statement of operations to
  conform to the current year presentation. Amounts that were reclassified were
  not material.

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, 2003 and 2002,
  all of the Company's cash and cash equivalents consisted of amounts held in
  demand and money market deposits in banks.

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.

39

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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.

Accounts Receivable

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, 2003, 2002, and 2001:





|Year | Balance
        at Beginning of Year | Charged
        to Costs and Expenses | Amounts
        Written Off | Balance
        at End of Year
|---- | ------------------------------------ | ------------------------------------- | --------------------------- | ------------------------------
|2003 | $100,761                             | $
        28,731                      | $
        16,248            | $113,244                      
|2002 | $
        83,606                     | $
        21,002                      | $3,847                      | $100,761                      
|2001 | $
        46,365                     | $
        57,113                      | $
        19,872            | $
        83,606              



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.

40

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|                                 | December 31,
|-------------------------------- | ------------
|                                 | 2003        
|Raw materials and sub-assemblies | $ 1,470,538 
|Finished goods                   | 266,428     
|Total inventory                  | $ 1,736,966 



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 over the shorter of the asset
  life or the remaining lease term.

Accounting Change

Effective the beginning
  of fiscal 2002, the Company completed the adoption of Statement of Financial
  Accounting Standards (SFAS) No. 141, "Business Combinations," and
  SFAS No. 142, "Goodwill and Other Intangible Assets." As required
  by SFAS No. 142, the Company discontinued amortizing the remaining balances
  of goodwill as of the beginning of fiscal 2002.

A reconciliation of previously
  reported net loss per share to the amounts adjusted for the exclusion of goodwill
  and workforce-in-place amortization is as follows:



|                                                                                      | Years Ended December 31,
|------------------------------------------------------------------------------------- | ------------------------
|                                                                                      | 2003                    
|Reported net loss applicable to
      common stockholders                             | $ (1,951,613)           
|Goodwill and workforce amortization                                                   | --                      
|Adjusted net loss                                                                     | $ (1,951,613)           
|                                                                                     
|Reported basic and diluted net
      loss per share applicable to common stockholders | $ (0.07)                
|Goodwill and workforce amortization                                                   | --                      
|Adjusted basic and diluted net
      loss per share                                   | $ (0.07)                

















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Intangible assets as of
  December 31, 2003 consisted of the following:



|                                        | Gross
        Assets | Accumulated
        Amortization | Net              
|--------------------------------------- | -------------------- | -------------------------------- | -----------------
|Project
      management tools          | $
        570,750    | $
        (218,228)              | $
        352,522
|Development
      software              | 111,375              | (111,375)                        | --               
|Schematic
      library                 | 153,000              | (153,000)                        | --               
|Bluetooth
      CompactFlash technology | 900,00               | (541,128)                        | 358,872          
|Licensing
      agreement               | 80,000               | (80,000)                         | --               
|Intangible
      technology             | 1,815,125            | (1,103,731)                      | 711,394          
|Goodwill                                | 11,695,760           | (1,897,814)                      | 9,797,946        
|Total
        intangible assets         | $13,510,885          | $(3,001,545)                     | $10,509,340      

Intangible assets as of December 31, 2002 consisted of the following:



|                                        | Gross
        Assets | Accumulated
        Amortization | Net                 
|--------------------------------------- | -------------------- | -------------------------------- | --------------------
|Project
      management tools          | $
        570,750    | $
        (151,080)              | $
        419,670   
|Development
      software              | 111,375              | (83,531)                         | 27,844              
|Schematic
      library                 | 153,000              | (137,700)                        | 15,300              
|Bluetooth
      CompactFlash technology | 900,000              | (241,129)                        | 658,871             
|Licensing
      agreement               | 80,000               | (80,000)                         | --                  
|Intangible
        technology           | $
        1,815,125  | $
        (693,440)              | $
        1,121,685 
|Goodwill                                | 11,695,760           | (1,897,814)                      | 9,797,946           
|Total
        intangible assets         | $
        13,510,885 | $
        (2,591,254)            | $
        10,919,631

Based on identified intangible assets recorded at December 31, 2003 and assuming
  no subsequent impairment of the underlying assets, the annual amortization expense
  is expected to be as follows:

|Year                    | Amount           
|----------------------- | -----------------
|2004                    | $
        367,147
|2005                    | $
        126,018
|2006                    | $
        67,147 
|2007                    | $
        67,147 
|2008
        and beyond | $
        83,935 
|                    | $
        711,394



Intangible Assets Review

Acquisition-related intangibles
  include developed technology and licensing agreement, and are amortized on a
  straight-line basis over periods ranging from one to nine years. All identified
  intangible assets are classified within intangible technology, net, on the accompanying
  balance sheet. Identified intangible assets are regularly reviewed to determine
  whether facts and circumstances exist which indicate that the useful life is
  shorter than originally estimated or the carrying amount of assets may not be
  recoverable. The Company assesses the recoverability of identified intangible
  assets by comparing the projected undiscounted net cash flows associated with
  the related asset or group of assets over their remaining lives against their
  respective carrying amounts. Impairment, if any, is based on the excess of the
  carrying amount over the fair value of those assets.

42

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We periodically evaluate
  goodwill 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, 2003, in our judgment, 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 original equipment manufacturers.
  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.

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

Generally, 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." Revenues to distributors where the right of return exists
  are recognized upon "sell-through" when shipped from the distributor
  to the distributor's customer.

The Company also earns
  revenues 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.



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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 $504,214, $383,998,
  and $534,213, in advertising costs during 2003, 2002, and 2001, respectively.

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.

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,
|------------------------------------------------------------------------------------------------------- | ------------------------
|                                                                                                        | 2003                    
|Numerator:                                                                                              |                         
|Net
      Loss                                                                                          | $ (1,249,943)           
|Preferred stock dividends
        and accretion                                                         | (701,670)               
|Net loss applicable to common stockholders                                                              | $ (1,951,613)           
|                                                                                                       
|Denominator:                                                                                            |                         
|Weighted average common shares outstanding
      used in computing basic and diluted net loss per share | 26,300,945              
|Basic and diluted net loss per
      share applicable to common stockholders                            | $ (0.07)                



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The diluted net loss per
  share is equivalent to the basic net loss per share because the Company has
  experienced losses since inception and thus no potential common shares from
  stock options, warrants, or convertible preferred stock have been included in
  the net loss per share calculation. Options and warrants to purchase 7,785,220,
  5,854,531, and 5,500,270 shares of Common Stock in 2003, 2002, and 2001, respectively,
  have been omitted from the loss per share calculation as their effect is anti-dilutive.

Stock-Based Compensation

The Company accounts for
  employee stock options in accordance with Accounting Principles Board Opinion
  No. 25, "Accounting for Stock Issued to Employees" (APB No. 25), and
  has adopted the disclosure-only alternative described in Statement of Financial
  Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
  (FAS 123).

The Company has elected
  to follow APB No. 25 and related Interpretations in accounting for its employee
  stock options because, as discussed below, the alternative fair value accounting
  provided for under FASB Statement No. 123, "Accounting for Stock-Based
  Compensation," requires use of option valuation models that were not developed
  for use in valuing employee stock options. The Company's stock option plans
  are accounted for under the intrinsic value recognition and measurement principles
  of APB Opinion No. 25, "Accounting for Stock Issued to Employees,"
  and related interpretations. Under APB 25, because the exercise price of the
  Company's employee stock options equals the market price of the underlying stock
  on the date of grant, no compensation expense is recognized.

Pro forma information regarding
  net loss and loss per share is required by Statement 123, and has been determined
  as if the Company had accounted for its employee stock options under the fair
  value method of that Statement. 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 years ended December 31:



|                                             | 2003  | 2002  | 2001 
|-------------------------------------------- | ----- | ----- | -----
|Risk-free interest
      rate (%)            | 2.85% | 4.38% | 4.82%
|Dividend yield                               | --    | --    | --   
|Volatility factor                            | 1.4   | 1.4   | 1.3  
|Expected remaining
      option life (years) | 4.5   | 6.5   | 6.5  



The Black-Scholes option
  valuation model was developed for use in estimating the fair value of traded
  options which 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 its employee stock options.







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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 Statement 123, the Company's net loss per share would have increased to the
  pro forma amounts indicated below:

|                                                                                         | 2003             | 2002             | 2001            
|---------------------------------------------------------------------------------------- | ---------------- | ---------------- | ----------------
|Net loss applicable
      to common shareholders, as reported                            | $(1,951,613)     | $(3,083,475)     | $(6,063,239)    
|Stock-based employee
      compensation expense determined under fair value based method | $(2,409,731)     | $(2,137,054)     | $(1,521,285)    
|Pro forma net loss
      applicable to common shareholders                               | $(4,361,344)     | $(5,220,529)     | $(7,584,524)    
|                                                                                         |                  |                  |                 
|Basic
      and diluted net loss per share, as reported                                  | $
        (0.07) | $
        (0.13) | $
        (0.26)
|Pro forma
      basic and diluted net loss per share                                     | $
        (0.17) | $
        (0.22) | $
        (0.32)

The Company accounts for stock options issued to nonemployees in accordance
  with the provisions of FAS 123 and Emerging Issues Task Force Issue No. 96-18,
  "Accounting for Equity Instruments That are Issued to Other Than Employees
  for Acquiring, or in Conjunction with Selling, Goods or Services."

Comprehensive Loss

The Company has no items
  of other comprehensive loss to report in any of the years presented.

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, connection solutions for mobile computers.
  The Company markets its products in the United States and foreign countries
  through its sales personnel and distributors.

Information regarding geographic
  areas for the years ended December 31, 2003, 2002 and 2001 are as follows:



|                               | Years
        Ended December 31,
|------------------------------ | --------------------------------
|Revenues:
      (in thousands) | 2003                            
|United
      States            | $
        13,249                
|Europe                         | 4,784                           
|Asia and
      rest of world   | 3,578                           
|                           | $
        21,611                

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

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Information regarding product
  families for the years ended December 31, 2003, 2002 and 2001 are as follows:



|                                     | Years
        Ended December 31,
|------------------------------------ | --------------------------------
|Revenues:
      (in thousands)       | 2003                            
|Network
      connection products    | $
        8,734                 
|Bar code
      scanning products     | 6,679                           
|Serial
      products                | 3,629                           
|Embedded
      products and services | 2,569                           
|                                 | $
        21,611                

Major Customers

Customers who accounted
  for at least 10% of total revenues were as follows:



|                          | Years Ended December 31,
|------------------------- | ------------------------
|                          | 2003                    
|Tech Data Corp.           | 29%                     
|Ingram Micro, Inc.        | 14%                     
|* indicates less than 10%

NOTE 2 - Note Payable to Nokia

On March 16, 2002, the
  Company acquired from Nokia Corporation its CompactFlash ("CF") Bluetooth®
  Card business including a product line and a sole, non-exclusive, nontransferable,
  worldwide license to make, use and sell the related product line technology.
  The purchase price was three million Euros, of which two million Euros was in
  the form of a note payable to Nokia. In August 2002 and September 2003, payment
  of the balance was revised to monthly installments of 100,000 Euros due each
  month beginning September 11, 2002 with a final installment due on April 11,
  2004. Outstanding balances under the note accrue interest at an annual rate
  of 6% and the accumulated interest is payable at the time of each installment
  payment. Interest charges were $66,495 in 2003 and $102,798 in 2002.

The Company is using foreign
  currency forward exchange contracts for Euros in order to mitigate the impact
  of currency fluctuations between the Euro and the U.S. dollar on the future
  payments to Nokia. Due to the change in the payment schedule with Nokia these
  derivatives do not qualify for SFAS 133 hedge accounting treatment. Accordingly,
  the changes in fair value of these derivatives are recorded to earnings. In
  2003 the net of the currency exchange loss on the note payable of $82,060 and
  the gain on the forward exchange contracts of $93,950 was included in interest
  and other income. In 2002 the net of the currency exchange loss on the note
  payable of $280,080 and the gain on the forward exchange contracts of $271,710
  was included in interest expense and other. At December 31, 2003 and 2002, the
  Company had forward purchase contracts to buy Euros with a nominal U.S. dollar
  value equivalent to $503,040 and $1,669,710, respectively. The fair value of
  these forward purchase contracts at December 31, 2003 and 2002, was $54,860
  and $271,710, respectively, and such value is included in other current assets
  in the accompanying balance sheet.

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NOTE 3 - Common Stock
  Financing

On August 5, 2003 and on
  September 12, 2003, the Company sold 1,729,955 and 53,250 shares of Common Stock,
  respectively, in private placement financings at a price of $2.37 per share.
  The second closing was the result of holders of the Company's Series F convertible
  preferred stock exercising their contractual rights to participate in the private
  placement. Total proceeds were $4,226,202 and net proceeds after costs and expenses
  were $3,674,503. In conjunction with the financing, the Company issued five-year
  warrants to the investors to acquire an additional 534,962 shares of common
  stock at $2.73 per share, and issued a five-year warrant to the placement agent
  to acquire 172,996 shares of common stock at $2.73 per share. Using a Black-Scholes
  valuation formula with the following assumptions: 0.0% dividend yield rate,
  3.43% risk free interest rate, $2.90 fair value of common stock, $2.73 exercise
  price, a life of five years, and a volatility of 1.372, $1,036,644 of the proceeds
  were attributed to the warrants issued to investors, and the warrants issued
  to the placement agent were valued at $446,330 which was included in the cost
  of the financing.

On March 28, 2002, the
  Company sold 381,760 shares of common stock in a private placement financing
  at a price of $1.59 per share. Total proceeds were $607,000, and net proceeds
  after costs and expenses were $419,326. In conjunction with the financing, the
  Company issued five-year warrants to investors to acquire an additional 95,439
  shares of common stock at $1.59 per share, and issued a five-year warrant to
  the placement agent to acquire 22,905 shares of common stock at $1.59 per share.
  Using a Black-Scholes valuation formula with the following assumptions: 0.0%
  dividend yield rate, 5.13% risk free interest rate, $1.82 fair value of common
  stock, $1.59 exercise price, a life of 5 years, and a volatility of 1.409, $157,475
  of the proceeds were attributed to the warrants issued to investors, and the
  warrants issued to the placement agent were valued at $37,793. Two directors
  of the Company invested an aggregate of $130,000 in cash in this financing.

NOTE 4 - Series E Redeemable Convertible Preferred Stock

On October 3, 2002, the
  Company sold 100,000 shares of Series E redeemable convertible preferred stock
  in a private placement financing at a price of $10.00 per share, for total proceeds
  of $1.0 million. The sale included issuance to the investor of a five-year warrant
  to acquire 250,000 shares of the Company's common stock at a price of $0.957
  per share. The preferred stock was to be either converted into common stock
  or redeemed for cash in fifteen equal monthly installments commencing January
  31, 2003. Conversion could be accelerated at the option of the holder. Each
  share of preferred stock was convertible into approximately 11.5 shares of common
  stock (a conversion price of $0.87 per common share) if the market price of
  the Company's common stock at the time of conversion was 125% (approximately
  $1.09 per share) or more of the conversion price. The preferred stock carried
  a cumulative dividend preference of 12% per year payable monthly commencing
  December 31, 2002.

Dividends were $47,090
  and $28,931 for 2003 and 2002, respectively, which were paid in cash. Accretion
  to the redemption value of the Series E preferred stock was $268,813 and $82,714
  for 2003 and 2002, respectively. The Company elected to make monthly redemption
  payments on the Series E preferred stock totaling $200,000 during the first
  quarter of 2003. During the second quarter of 2003, the Series E holder elected
  to convert 53,366 shares of preferred stock resulting in the issuance of 613,400
  shares of common stock during the quarter. During the third quarter of 2003,
  the Series E holder elected to convert the remaining 26,634 shares of preferred
  stock resulting in the issuance of 306,140 shares of common stock during the
  quarter.

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NOTE 5 - Series F Convertible Preferred Stock

On March 20, 2003, the
  Company sold 276,269 units at a price of $7.22 per unit (total of $2,000,000
  gross cash proceeds) in a private 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 is 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 three years from date of sale. The Series F Preferred Stock
  is 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 are issuable upon exercise of the 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. Using a Black-Scholes valuation model with the following assumptions:
  0.0% dividend yield rate, risk free interest rates of 1.9% and 2.81%, respectively,
  for the investors and placement agent, $0.73 per share fair value of common
  stock, $0.722 exercise price, a life of three years and five years, respectively,
  for the investors and placement agent, and a volatility of 0.911, $296,494 of
  the proceeds were attributed to the warrants issued to investors, and the warrants
  issued to the placement agent were valued at $366,333 which was included in
  the cost of the financing. The Company recorded a one-time accretion charge
  of $296,494 in the first quarter of 2003 reflecting the discount from market
  resulting from the allocation of the proceeds to the investor warrants.

The Series F Preferred
  Stock automatically converts into common stock three years after sale and automatically
  converts earlier in the event of a merger or consolidation of the Company, subject
  to certain conditions. The holders of Series F Preferred Stock have voting rights
  equal to the number of shares of common stock issuable upon conversion. In the
  event of liquidation, holders of Series F Preferred Stock are entitled to liquidation
  preferences over common stockholders equal to their initial investment plus
  all accrued but unpaid dividends. Dividends accrue at the rate of 8% per annum
  and are payable quarterly in cash or in common stock, at the option of the Company.
  Dividends for 2003 were $89,273 and were paid in cash and common stock resulting
  in the issuance of 26,265 shares. During the third and fourth quarters of 2003,
  holders of 183,363 shares of Series F Preferred Stock elected to convert their
  shares into 1,833,630 shares of common stock.



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NOTE 6 - Bank Financing
  Arrangements

In March 2003, the Company
  renewed and extended its Credit Agreement with its bank, which will now expire
  on April 15, 2004, provided that no material adverse change occurs in the Company's
  financial condition or ability to perform under the Credit Agreement as determined
  by the lender. 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 ($2,500,000 and $1,500,000, respectively), at the lender's index
  rate based on prime plus 0.75% and 0.5%, respectively, on domestic and international
  receivables. The index rates in effect on the domestic and international lines
  at December 31, 2003 were 5.00% and 4.75%, respectively. At December 31, 2003,
  outstanding amounts borrowed under the lines were $1,060,573 and $506,817, respectively,
  which were the approximate amounts available on the lines. These amounts outstanding
  at December 31, 2003 were repaid in January 2004. At December 31, 2002 outstanding
  borrowings under the domestic and international lines were $739,000 and $1,167,000,
  respectively, which were the approximate total amounts available on the lines.
  Under the Credit Agreement, the Company must maintain cash and available credit
  under the line in excess of two times the Company's net loss, adjusted for non-cash
  charges including depreciation and amortization, for the preceding four quarters.
  The Company was in compliance with this requirement at December 31, 2003.

On March 5, 2004, the Company
  entered into a new credit agreement with a bank. The new credit agreement replaces
  the existing credit agreement (see Note 16 for additional information).

NOTE 7 - 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, 2003, property and equipment with a cost
  of $114,152 were subject to such financing arrangements. Related accumulated
  amortization at December 31, 2003 amounted to $23,581. Future minimum payments
  under capital lease and equipment financing arrangements as of December 31,
  2003, are as follows:



|2004                                        | $ 23,045        
|------------------------------------------- | ----------------
|2005                                        | 10,266          
|2006                                        | 10,266          
|2007                                        | 8,555           
|Total
      minimum payments                | 52,132          
|Less amount
      representing interest     | (4,085)         
|Present
      value of net minimum payments | 48,047          
|Less current
      portion                  | (20,882)        
|Long-term
      portion                     | $
        27,165





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NOTE 8 - Commitments

The Company's headquarters
  are operated under a five-year noncancelable operating lease which expires in
  December 2006. The Company also acquired noncancelable leases which expired
  in 2003. Future minimum lease payments under all operating leases are:



|2004  | $ 442,210          
|----- | -------------------
|2005  | 487,492            
|2006  | 506,991            
|Total | $
        1,436,693



Rental expense under all
  operating leases was $625,624, $674,599, and $284,277 for each of the years
  ended December 31, 2003, 2002, and 2001, respectively. The Company subleased
  a portion of its office space. Sublease income was $31,548 for the year ended
  December 31, 2003. The sublease and associated leased office space expired in
  June 2003.

The Company has non-cancelable
  purchase commitments with its vendors for inventory used in the ordinary course
  of business in the aggregate amount of $4.3 million in 2004.

NOTE 9 - Stock Option/Stock Issuance Plan

The Company has three Stock
  Option Plans: the 1993 Stock Option/Stock Issuance Plan (the "1993 Plan"),
  the 1995 Stock Plan (the "1995 Plan"), and the 1999 Stock Plan (the
  "1999 Plan").

The 1993 Plan

The Company has made no
  grants from the 1993 Plan since February 1995 and does not intend to issue any
  grants from this Plan in the future. The 1993 Plan provides for the grant of
  incentive stock options and nonstatutory stock options or the immediate issuance
  of the Company's common stock to employees, directors, and consultants of the
  Company at prices not less than 85% of the fair market value of the common stock
  on the date of grant, as determined by the Board of Directors. The vesting and
  exercise provisions are determined by the Board of Directors, with a maximum
  term of ten years. Options granted and shares issued under the 1993 Plan generally
  vest over a four-year period, with 25% vesting after one year and 2.08% each
  month afterwards.

Information with respect
  to the 1993 Plan is summarized as follows:



|                                   |                          | Outstanding
        Options             
|---------------------------------- | ------------------------ | ----------------------------------------
|Shares
        Available For Grant | Number
        of Shares | Weighted
        Average Price Per share
|
|Balance
      at December 31, 2000 | 114,902                  | 3,146                                   
|Balance
      at December 31, 2001 | 114,902                  | 3,146                                   
|Balance
      at December 31, 2002 | 114,902                  | 3,146                                   
|Exercised                          | --                       | (2,174)                                 
|Balance
      at December 31, 2003 | 114,902                  | 972                                     



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As of December 31, 2003,
  2002, and 2001, options to purchase 972, 3,146 and 3,146 shares, respectively,
  were exercisable at a weighted average exercise price $0.64 for all years presented.
  The exercise prices of the options at December 31, 2003 ranged from $0.59 to
  $0.67. The weighted average remaining contractual life for options outstanding
  under the 1993 Plan at December 31, 2003 is approximately 0.75 years.

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 exercise price per share of all
  incentive stock options granted must be at least equal to the fair market value
  per share of common stock on the date of grant. The exercise price per share
  of all nonstatutory stock options shall be not less than 85% of the fair market
  value of the 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 1995 Plan is summarized as follows:



|                                      |                          | Outstanding
        Options             
|------------------------------------- | ------------------------ | ----------------------------------------
|Options
        Available For Grant   | Number
        of Shares | Weighted
        Average Price Per share
|
|Balance
      at December 31, 2000    | 479,665                  | 2,925,461                               
|Increase
      in shares authorized   | 900,000                  | --                                      
|Granted                               | (1,495,700)              | 1,495,700                               
|Canceled                              | 483,030                  | (483,030)                               
|Exercised                             | --                       | (757,019)                               
|Balance
      at December 31, 2001    | 366,995                  | 3,181,112                               
|Increase
        in shares authorized | 944,180                  | --                                      
|Granted                               | (1,242,500)              | 1,242,500                               
|Canceled                              | 603,667                  | (603,667)                               
|Exercised                             | --                       | (46,862)                                
|Balance
      at December 31, 2002    | 672,342                  | 3,773,083                               
|Increase
        in shares authorized | 964,559                  | --                                      
|Granted                               | (1,119,200)              | 1,119,200                               
|Canceled                              | 72,187                   | (72,187)                                
|Exercised                             | --                       | (134,831)                               
|Balance
      at December 31, 2003    | 589,888                  | 4,685,265                               



The weighted average fair
  value of options granted during 2003, 2002, and 2001 was $0.73, $0.95, and $1.45
  per share, respectively. As of December 31, 2003, 2002 and 2001, options to
  purchase 2,291,396, 1,457,486, and 906,688 shares were exercisable at a weighted
  average exercise price of $2.05, $2.26, and $2.57, respectively.





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The outstanding and exercisable options at December 31, 2003 presented by price
  range are as follows:



|                                 | Options
        Outstanding           | Options
        Exercisable                    
|-------------------------------- | ------------------------------------- | -----------------------------------------------
|Range
        of Exercise Prices | Number
        of Options Outstanding | Weighted
        Average Remaining Life (Years)
|$
        0.44 - 0.69            | 295,283                               | 5.00                                           
|0.70
        - 0.75              | 1,018,972                             | 9.25                                           
|0.76                             | 546,207                               | 8.92                                           
|0.97
        - 1.29              | 1,401,091                             | 8.08                                           
|1.50                             | 17,708                                | 5.92                                           
|2.25
        - 2.98              | 148,700                               | 8.75                                           
|3.38                             | 1,245,304                             | 7.00                                           
|7.75                             | 2,000                                 | 6.00                                           
|14.94                            | 10,000                                | 6.17                                           
|$
        0.44 - 14.94           | 4,685,265                             | 7.92                                           

The 1999 Plan

The 1999 Plan provides
  for the grant of nonstatutory stock options to employees, directors, and consultants
  of the Company. The exercise price per share of all nonstatutory stock options
  shall be not less than 85% of the fair market value of the 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
        Available For Grant
|Balance
      at December 31, 2000 | 226,776                            
|Granted                            | (250,000)                          
|Canceled                           | 28,021                             
|Exercised                          | --                                 
|Balance
      at December 31, 2001 | 4,797                              
|Canceled                           | 33,125                             
|Exercised                          | --                                 
|Balance
      at December 31, 2002 | 37,922                             
|Exercised                          | --                                 
|Balance
      at December 31, 2003 | 37,922                             



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No shares were granted
  in 2003. The weighted average fair value of options granted during 2001 was
  $2.92 per share. As of December 31, 2003, 2002, and 2001, 1,010,712, 853,547
  and 534,153 options were exercisable at a weighted average exercise price of
  $2.75, $2.46, and $2.40, respectively. The outstanding and exercisable options
  at December 31, 2003 presented by price range are as follows:



|                                 | Options
        Outstanding           | Options
        Exercisable                    
|-------------------------------- | ------------------------------------- | -----------------------------------------------
|Range
        of Exercise Prices | Number
        of Options Outstanding | Weighted
        Average Remaining Life (Years)
|$ 0.56                           | 207,009                               | 5.50                                           
|2.28                             | 45,000                                | 7.58                                           
|3.38                             | 989,474                               | 7.08                                           
|$
        0.56 - 3.38            | 1,241,483                             | 6.83                                           



The Company did not grant new options to consultants in any of the three years
  ended December 31, 2003. In prior years the Company granted options to consultants
  in exchange for consulting services to be rendered and generally vested over
  a period of four years. The Company recorded charges to operations related to
  these compensatory stock option grants of $0, $0, and $33,604, for the years
  ended December 31, 2003, 2002, and 2001, respectively. The Company has no remaining
  options outstanding related to consultants.

NOTE 10 - 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, 2003:





|Reason                                                          | Number
        of Shares | Price
        Per Share | Issue
        Date | Expiration
        Date
|--------------------------------------------------------------- | ------------------------ | ----------------------- | ------------------ | -----------------------
|Common
      stock financing                                    | 56,344                   | $
        1.59          | Mar
        2002   | Mar
        2007       
|Bank
      line financing                                       | 15,000                   | $
        0.82          | Oct
        2002   | Oct
        2007       
|Series
      E redeemable convertible preferred stock financing | 249,000                  | $
        0.957         | Oct
        2002   | Oct
        2007       
|Series
      F preferred stock financing                        | 560,764                  | $
        0.722         | Mar
        2003   | Mar
        2006       
|Series
      F preferred stock financing                        | 327,540                  | $
        0.722         | Mar
        2003   | Mar
        2008       
|Common
      stock financing                                    | 648,852                  | $
        2.73          | Aug
        2003   | Aug
        2008       
|Total
      warrants                                            | 1,857,500                |                         |                    |                        



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NOTE 11 - Shares Reserved

Common stock reserved for
  future issuance was as follows at December 31, 2003:



|Stock
      option grants outstanding (see Note 9)                    | 5,927,720
|--------------------------------------------------------------------- | ---------
|Reserved
      for future stock option grants (see Note 9)            | 742,712  
|Common
      stock warrants (see Note 10)                             | 1,857,500
|Conversion
      of Series F convertible preferred stock (see Note 5) | 929,060  
|Total
      common stock reserved for future issuance                 | 9,456,992

NOTE 12 - Related Party

The Company purchases engineering
  design and consulting services from Impact Zone. Impact Zone's principal stockholder,
  Dale Gifford, is a sibling of Michael L. Gifford, Executive Vice President and
  Director of Socket. At December 31, 2003 and 2002, the Company had outstanding
  accounts payable due to Impact Zone of $5,000 and $71,875, respectively. The
  Company purchased engineering design and consulting services from Impact Zone
  amounting to $72,500, $268,853, and $234,838, respectively, during the years
  ended December 31, 2003, 2002, and 2001. The Company had no outstanding accounts
  receivable due from the Impact Zone at December 31, 2003, 2002, and 2001, and
  recognized revenues during the year ended December 31, 2001 of $18,118.

NOTE 13 - Retirement Plan

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

NOTE 14 - Income Taxes

Due to the Company's domestic
  and foreign losses position, there was no provision for income taxes for the
  years ended December 31, 2003, 2002, and 2001.

As of December 31, 2003,
  the Company had federal and state net operating loss carryforwards of approximately
  $19,000,000 and $5,000,000, respectively. The Company also has federal and state
  tax credit carryforwards of approximately $400,000 and $400,000, respectively.
  The net operating loss and credit carryforwards will expire at various dates
  beginning in 2004 through 2023, if not utilized.

Utilization of the net
  operating loss and tax credit carryforwards may be subject to a substantial
  annual limitation due to the ownership change limitations provided by the Internal
  Revenue Code and similar state provisions. The annual limitation may result
  in the expiration of the net operating loss and credit carryforwards before
  utilization.

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Deferred income taxes reflect
  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 deferred tax assets are as
  follows:



|                                                  | December
        31,
|------------------------------------------------- | --------------------
|Deferred tax assets:                              | 2003                
|Net
      operating loss carryforwards            | $
        7,072,000 
|Credits                                           | 592,000             
|Capitalized
      research and development costs  | 1,639,000           
|Other
      acquired intangibles                  | 138,000             
|Accruals
      not currently deductible           | 933,000             
|Total
      deferred tax assets                   | 10,374,000          
|Valuation
      allowance for deferred tax assets | (10,173,000)        
|Net
      deferred tax assets                     | 201,000             
|Deferred
      tax liability:                     |                     
|Acquired
      intangibles                        | (201,000)           
|Net
      deferred taxes                          | $ --                

The tax benefits associated
  with employee stock options provide a deferred benefit of approximately $700,000
  which has been offset by the valuation allowance. The deferred tax benefit associated
  with the employee stock options will be credited to additional paid-in capital
  when realized.

NOTE 15 - Patents and
  Licenses

In the high tech industry,
  it is not unusual for companies to receive notices alleging infringement of
  patents or other intellectual property rights of others. The Company has been,
  and from time-to-time expects to be, notified of claims that it may be infringing
  patents or other intellectual property rights owned by third parties. If it
  appears necessary or desirable, the Company may seek licenses under patents
  that it is alleged to be infringing. Although patent holders commonly offer
  such licenses, licenses may not be offered and the terms of any offered licenses
  may not be acceptable to the Company. The failure to obtain a license under
  a key patent or intellectual property right from a third party for technology
  used by the Company could cause it to incur substantial liabilities and to suspend
  the manufacture of the products utilizing the invention or to attempt to develop
  non-infringing products, any of which could materially and adversely affect
  the Company's business and operating results. Furthermore, there can be no assurance
  that the Company will not become involved in protracted litigation regarding
  its alleged infringement of third party intellectual property rights or litigation
  to assert and protect its patents or other intellectual property rights. Any
  litigation relating to patent infringement or other intellectual property matters
  could result in substantial cost and diversion of the Company's resources that
  could materially and adversely affect the Company's business and operating results.

On June 30, 2003, Khyber
  Technologies Corporation filed a complaint against us in the United States District
  Court, Northern District of Ohio, alleging that we had infringed a patent held
  by Khyber in manufacturing, using and selling our portable bar code scanners.
  We have filed our answer to the complaint and dispute the Khyber claims. Both
  parties have filed a motion for summary judgment.



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NOTE 16 - Subsequent
  Events (Unaudited)

On March 5, 2004, the Company
  entered into a new credit agreement with a bank, which will expire on March
  5, 2006. This new credit agreement replaces the credit agreement previously
  in affect (see Note 6 regarding the previous credit agreement). The credit facility
  under the new credit agreement allows the Company to borrow up to $4,000,000
  based on the level of qualified domestic and international receivables, $2,500,000
  and $1,500,000, respectively, at the lender's index rate based on prime plus
  0.5%. Under the new credit agreement, the Company must maintain quarterly minimum
  tangible net worth equal to $5,500,000, plus 75% of quarterly net profits beginning
  March 31, 2004.















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

Not Applicable.

Item 9A. Controls and
  Procedures

(a) Evaluation 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 recorded, processed, summarized
  and reported within the time periods specified in Securities and Exchange Commission
  rules and forms.

(b) 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.





PART
  III



Item 10. Directors and
  Executive Officers of the Registrant

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 June 16,
  2004.

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 June 16,
  2004.

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

The following table provides
  information as of December 31, 2003 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 9 to the Company's Consolidated
  Financial Statements.

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|                                                                   | 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)     | 4,686,237                                                                      | $
        1.64                                                 | 704,790                                                                                                                                                   
|Equity
        compensation plans not approved by security holders (2) | 1,241,483                                                                      | $2.87                                                          | 37,922                                                                                                                                                    
|    Total                                              | 5,927,720                                                                      | $1.90                                                          | 742,712                                                                                                                                                   



______________________

(1) Includes the 1993 Stock
  Plan and the 1995 Stock Plan. Pursuant to an affirmative vote by security holders
  in June 2001, an annual increase 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.
  
  (2) Includes the 1999 Stock Plan.

No additional shares will
  be granted from equity compensation plans not approved by security holders.

Item 13. Certain Relationships and Related Transactions

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 June 16,
  2004.

Item 14. Principal Accountant 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 June 16,
  2004.













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PART
  IV



Item 15. Exhibits, Financial
  Statement Schedules, and Reports on Form 8-K

> (a) Documents filed as
>     part of this report:
>   1. All financial statements.
>     INDEX
>           TO FINANCIAL STATEMENTS
>         PAGE 
>           Report
>           of Ernst & Young LLP, Independent Auditors
>         34Consolidated
>           Balance Sheets
>         35Consolidated
>           Statements of Operations
>         36Consolidated
>           Statements of Redeemable Preferred Stock and Stockholders' Equity
>         37Consolidated
>           Statements of Cash Flows
>         38Notes
>           to Consolidated Financial Statements
>         39
>     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 62. The Exhibits listed on the accompanying
>       Index of Exhibits are filed or incorporated by reference as part of this
>       report.

> (b) Reports on Form 8-K:
>   On October 22, 2003,
>     we filed a report on Form 8-K, furnishing to the SEC the Company's press release,
>     dated October 22, 2003, announcing third quarter 2003 financial results.

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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 11, 2004 | /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
      11, 2004
|-- | ---------------------------- | --------------------------------------------------------------------------------------------------------------------------------- |  | --------------------
|   | Kevin
      J. Mills        
|   |                              |                                                                                                                                   |  |                     
|By | /s/
      Charlie Bass       | Chairman
      of the Board                                                                                                       |  | March
      11, 2004
|   | Charlie
      Bass          
|   |                              |                                                                                                                                   |  |                     
|By | /s/
      David W. Dunlap    | Vice
      President of Finance and Administration and Chief Financial Officer (Principal
      Financial and Accounting Officer) |  | March
      11, 2004
|   | David
      W. Dunlap       
|   |                              |                                                                                                                                   |  |                     
|By | /s/
      Micheal L. Gifford | Executive
      Vice President and Director                                                                                       |  | March
      11, 2004
|   | Micheal
      L. Gifford    
|   |                              |                                                                                                                                   |  |                     
|By | /s/
      Enzo Torresi       | Director                                                                                                                          |  | March
      11, 2004
|   | Enzo
      Torresi          
|   |                              |                                                                                                                                   |  |                     
|By | /s/
      Gianluca Rattazzi  | Director                                                                                                                          |  | March
      11, 2004
|   | Gianluca
      Rattazzi     
|   |                              |                                                                                                                                   |  |                     
|By | /s/
      Peter Sealey       | Director                                                                                                                          |  | March
      11, 2004
|   | Peter Sealey                
|   |                              |                                                                                                                                   |  |                     
|By | /s/
      Leon Malmed        | Director                                                                                                                          |  | March
      11, 2004
|   | Leon
      Malmed           



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Index
  to Exhibits



|Exhibit
        Number | Description                                                                                                                                                     
|---------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|                       |                                                                                                                                                                 
|2.1
        (1)        | Agreement
      and Plan of Reorganization.                                                                                                                     
|                       |                                                                                                                                                                 
|3.1                    | Amended
      and Restated Certificate of Incorporation.                                                                                                        
|                       |                                                                                                                                                                 
|3.2                    | Certificate of Designation of Series E Convertible Preferred
      Stock.                                                                                       
|                       |                                                                                                                                                                 
|3.3                    | Certificate of Designation of Series F Convertible Preferred
      Stock.                                                                                       
|                       |                                                                                                                                                                 
|3.4
        (2)        | Bylaws                                                                                                                                                          
|                       |                                                                                                                                                                 
|3.5
        (2)        | Certificate of Amendment of Bylaws dated March 14, 2001.                                                                                                        
|                       |                                                                                                                                                                 
|10.1
        (3)*      | Form of
      Indemnification Agreement entered into between the Company and its directors
      and officers.                                                  
|                       |                                                                                                                                                                 
|10.2
        (3)*      | 1993 Stock
      Option/Stock Issuance Plan and forms of agreement thereunder.                                                                                  
|                       |                                                                                                                                                                 
|10.3
        (3)*      | 1995 Stock
      Plan and forms of agreement thereunder.                                                                                                        
|                       |                                                                                                                                                                 
|10.4
        (4)       | Standard
      Lease Agreement by and between Central Court, LLC and the Company dated
      September 15, 1996.                                                
|                       |                                                                                                                                                                 
|10.6
        (5)*      | Form of
      Amendment No.1 to Stock Option Agreement between the Company and certain
      Option Holders under the 1995 Stock Option Plan.                   
|                       |                                                                                                                                                                 
|10.9
        (6)*      | 1999 Nonstatutory
      Stock Option Plan.                                                                                                                      
|                       |                                                                                                                                                                 
|10.11(7)               | Business Transfer Agreement For Nokia Proprietary Bluetooth
      Technology dated 11 March 2002 between Nokia Corporation and Socket Communications,
      Inc.
|                       |                                                                                                                                                                 
|10.12
        (7)      | Second Amendment to Lease by and between Central Court, LLC
      and the Company dated December 14, 2001.                                                      
|                       |                                                                                                                                                                 
|10.13
        (8)*     | Form of Executive Management Bonus Plan dated January 1, 2003
      between the Company and certain eligible participants.                                      

|                   |                                                                                                             
|------------------ | ------------------------------------------------------------------------------------------------------------
|10.14
        (8)* | Form of Employment Agreement dated March 19, 2003 between
      the Company and the officers of the Company.



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|21.1
      (8) | Subsidiaries.                                                                                                                     
|-------------- | ----------------------------------------------------------------------------------------------------------------------------------
|               |                                                                                                                                   
|23.1           | Consent
      of Ernst & Young LLP, Independent Auditors.                                                                         
|               |                                                                                                                                   
|31.1           | Certificate of Chief Executive Office and Chief Financial
      Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|               |                                                                                                                                   
|32.1           | Certificate of Chief Executive Office 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 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 March 31, 2003

(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 Exhibit 10.5 of the Company's Registration Statement on Form SB-2 (File No.
  333-22273) filed on February 24, 1997.

(5) Incorporated by reference
  to exhibits filed with the Company's Form 10-KSB for the year ended December
  31, 1997 filed on March 30, 1998.
  (6) Incorporated by reference to exhibits filed with the Company's Form 10-QSB
  filed on August 16, 1999.

(7) Incorporated by reference
  to exhibits filed with the Company's Form 10-K filed April 1, 2002

(8) Incorporated by reference
  to exhibits filed with the Company's Form 10-K filed March 31, 2003





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Exhibit 23.1







CONSENT
  OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the incorporation
  by reference in the Registration Statements (Forms S-3 No. 333-109150, No. 333-104632,
  No. 333-100754, No. 333-87348, No. 333-51236, No. 333-96231, No. 333-82591,
  and No. 333-49001; and Forms S-8 No. 333-106502, 333-87368, No. 333-85721, No.
  333-68347, No. 333-66060, No. 333-59838, No. 333-07669, and No. 33-97350) and
  Related Prospectuses of our report dated February 11, 2004, with respect to
  the consolidated financial statements of Socket Communications, Inc. included
  in the Annual Report (Form 10-K) for the year ended December 31, 2003.



/s/ Ernst
  & Young LLP

San Jose, California 
  March 12, 2004







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Exhibit 31.1



CERTIFICATIONS



I, Kevin J. Mills, certify
  that:

1. I have reviewed this
  annual report on Form 10-K of Socket Communications, Inc.;

2. Based on my knowledge,
  this report does not contain any untrue statement of a material fact or omit
  to state a material fact necessary to make the statements made, in light of
  the circumstances under which such statements were made, not misleading with
  respect to the period covered by this report;

3. Based on my knowledge,
  the financial statements, and other financial information included in this report,
  fairly present in all material respects the financial condition, results of
  operations and cash flows of the registrant as of, and for, the periods presented
  in this report.

4. The registrant's other
  certifying officer(s) and I are responsible for establishing and maintaining
  disclosure controls and procedures (as defined in Exchange Act Rules 13a-15e
  and 15d-15e) for the registrant and we have:

> (a) Designed such disclosure
>     controls and procedures, or caused such disclosure controls and procedures
>     to be designed under our supervision, to ensure that material information
>     relating to the registrant, including its consolidated subsidiaries, is made
>     known to us by others within those entities, particularly during the period
>     in which this report is being prepared;
>   (b) Evaluated the effectiveness
>     of the registrant's disclosure controls and procedures and presented in this
>     report our conclusions about the effectiveness of the disclosure controls
>     and procedures as of the end of the period covered by this report based on
>     such evaluation; and
>   (c) Disclosed in this
>     report any change in the registrant's internal control over financial reporting
>     that occurred during the registrant's most recent fiscal quarter (the registrant's
>     fourth fiscal quarter in the case of an annual report) that has materially
>     affected, or is reasonably likely to materially affect, the registrant's internal
>     control over financial reporting; and

5. The registrant's other
  certifying officer(s) and I have disclosed, based on our most recent evaluation
  of internal control over financial reporting, to the registrant's auditors and
  the audit committee of the registrant's board of directors (or persons performing
  the equivalent functions):

> (a) All significant deficiencies
>     and material weaknesses in the design or operation of internal control over
>     financial reporting which are reasonably likely to adversely affect the registrant's
>     ability to record, process, summarize and report financial information; and
>   (b) Any fraud, whether
>     or not material, that involves management or other employees who have a significant
>     role in the registrant's internal control over financial reporting.

|Date:
      March 11, 2004 | By:
      /s/ Kevin J. Mills
      Name: Kevin J. Mills
      Title: President and Chief Executive Officer (Principal Executive Officer)
|-------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------







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CERTIFICATIONS



I, David W. Dunlap, certify
  that:

1. I have reviewed this
  annual report on Form 10-K of Socket Communications, Inc.;

2. Based on my knowledge,
  this report does not contain any untrue statement of a material fact or omit
  to state a material fact necessary to make the statements made, in light of
  the circumstances under which such statements were made, not misleading with
  respect to the period covered by this report;

3. Based on my knowledge,
  the financial statements, and other financial information included in this report,
  fairly present in all material respects the financial condition, results of
  operations and cash flows of the registrant as of, and for, the periods presented
  in this report.

4. The registrant's other
  certifying officer(s) and I are responsible for establishing and maintaining
  disclosure controls and procedures (as defined in Exchange Act Rules 13a-15e
  and 15d-15e) for the registrant and we have:

> (a) Designed such disclosure
>     controls and procedures, or caused such disclosure controls and procedures
>     to be designed under our supervision, to ensure that material information
>     relating to the registrant, including its consolidated subsidiaries, is made
>     known to us by others within those entities, particularly during the period
>     in which this report is being prepared;
>   (b) Evaluated the effectiveness
>     of the registrant's disclosure controls and procedures and presented in this
>     report our conclusions about the effectiveness of the disclosure controls
>     and procedures as of the end of the period covered by this report based on
>     such evaluation; and
>   (c) Disclosed in this
>     report any change in the registrant's internal control over financial reporting
>     that occurred during the registrant's most recent fiscal quarter (the registrant's
>     fourth fiscal quarter in the case of an annual report) that has materially
>     affected, or is reasonably likely to materially affect, the registrant's internal
>     control over financial reporting; and

5. The registrant's other
  certifying officer(s) and I have disclosed, based on our most recent evaluation
  of internal control over financial reporting, to the registrant's auditors and
  the audit committee of the registrant's board of directors (or persons performing
  the equivalent functions):

> (a) All significant deficiencies
>     and material weaknesses in the design or operation of internal control over
>     financial reporting which are reasonably likely to adversely affect the registrant's
>     ability to record, process, summarize and report financial information; and
>   (b) Any fraud, whether
>     or not material, that involves management or other employees who have a significant
>     role in the registrant's internal control over financial reporting.



|Date:
      March 11, 2004 | By:
      /s/ David W. Dunlap
      Name: David W. Dunlap
      Title: Vice President of Finance and Administration and Chief Financial
      Officer (Principal Financial Officer)
|-------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------









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Exhibit 32.1

CERTIFICATION
  OF THE CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
  PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Kevin J. Mills, certify,
  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
  Sarbanes-Oxley Act of 2002, that the Annual Report of Socket Communications,
  Inc. on Form 10-K for the year ended December 31, 2003 fully complies with the
  requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934
  and that information contained in such Annual Report on Form 10-K fairly presents
  in all material respects the financial condition and results of operations of
  Socket Communications, Inc.

|Date:
      March 11, 2004 | By:
      /s/ Kevin J. Mills
      Name: Kevin J. Mills
      Title: President and Chief Executive Officer (Principal Executive Officer)
|-------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------



I, David W. Dunlap, certify,
  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
  Sarbanes-Oxley Act of 2002, that the Annual Report of Socket Communications,
  Inc. on Form 10-K for the year ended December 31, 2003 fully complies with the
  requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934
  and that information contained in such Annual Report on Form 10-K fairly presents
  in all material respects the financial condition and results of operations of
  Socket Communications, Inc.

|Date:
      March 11, 2004 | By:
      /s/ David W. Dunlap
      Name: David W. Dunlap
      Title: Vice President of Finance and Administration and Chief Financial
      Officer (Principal Financial Officer)
|-------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------













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