UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 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, 2008




Commission
File Number:
001-15069





InPlay
Technologies, Inc.


(Exact
name of registrant as specified in its charter)





Nevada
            88-0308867(State
      or Other Jurisdiction of
              Incorporation
      or Organization)
            (I.R.S.
      Employer Identification No.)P.O.
      Box 28936
              Scottsdale,
      Arizona
            85255(Address
      of principal executive offices)
            (Zip
      Code)





Registrant’s
telephone number, including area code: None





Securities
registered pursuant to Section 12(b) of the Act:




Title of Each Class
              Name of Each Exchange on Which
      RegisteredCommon
      Stock, par value $0.001 per share
              The
      Pink Sheets OTC Markets, Inc.





Securities
registered pursuant to Section 12(g) of the Act: None





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.


Yes £ No S




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act.


Yes £ No S




Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act 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 £ No S




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).


Yes
£ No £





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.      £




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.


Large
      accelerated filer  ̈
              Accelerated
      filer  ̈Non-accelerated
      filer    ̈(Do not check if a
      smaller reporting company)
              Smaller
      reporting company x





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





The
aggregate market value of common stock held by non-affiliates of the registrant
(9,747,455 shares) based on the closing price of the registrant’s common stock
as reported on the Pink Sheets OTC Market on June 30, 2009 was
$292,424.  For purposes of this computation, all officers, directors,
and 10% beneficial owners of the registrant are deemed to be
affiliates.  Such determination should not be deemed to be an
admission that such officers, directors, or 10% beneficial owners are, in fact,
affiliates of the registrant.




As of
June 30, 2009, the issuer had outstanding 11,622,568 shares of common
stock.





Documents
Incorporated by Reference




None





INPLAY
TECHNOLOGIES, INC.




ANNUAL
REPORT ON FORM 10-K


Fiscal
Year Ended December 31, 2008




TABLE
OF CONTENTS




PagePART
      IITEM
      1.
                      BUSINESS
                      3ITEM
      1A.
                      RISK
      FACTORS
                      7ITEM
      2.
                      PROPERTIES
                      9ITEM
      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
      7.
                      MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION  AND RESULTS OF
      OPERATIONS
                      12ITEM
      8.
                      FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA
                      18ITEM
      9.
                      CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON  ACCOUNTING AND
      FINANCIAL DISCLOSURE
                      36ITEM
      9A(T).
                      CONTROLS
      AND PROCEDURES
                      36ITEM
      9B.
                      OTHER
      INFORMATION
                      37PART
      IIIITEM
      10.
                      DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
                      39ITEM
      11.
                      EXECUTIVE
      COMPENSATION
                      44ITEM
      12.
                      SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND  MANAGEMENT AND
      RELATED STOCKHOLDER MATTERS
                      45ITEM
      13.
                      CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS,  AND DIRECTOR
      INDEPENDENCE
                      48ITEM
      14.
                      PRINCIPAL
      ACCOUNTANT FEES AND SERVICES.
                      49PART
      IVITEM
      15.
                      EXHIBITS
      AND FINANCIAL STATEMENT SCHEDULES
                      49SIGNATURES
                      53




Statements
Regarding Forward-Looking Statements




The
statements contained in this report on Form 10-K that are not purely historical
are forward-looking statements within the meaning of applicable securities
laws.  Forward-looking statements include statements regarding our
“expectations,” “anticipations,” “intentions,” “beliefs,” or “strategies”
regarding the future.  Forward-looking statements also include
statements regarding liquidity, anticipated cash resources and expenses for
fiscal year 2009 and thereafter; our ability to protect our intellectual
property; statements regarding the agreement to sell our FinePoint assets, and
our plan to satisfy outstanding obligations.  All forward-looking
statements included in this report are based on information available to us as
of the filing date of this report, and we assume no liability to update any such
forward-looking statements.  Our actual results could differ
materially from the forward-looking statements.  Among the factors
that could cause actual results to differ materially are the factors discussed
in Item 1A, “Risk Factors.”


2


PART
I




Item
1.    Business




Recent
Developments and Liquidation of Business




On March
10, 2009, we executed a binding Letter of Intent (LOI) to enter into a merger
agreement with U.S. Rental Housing REIT, Inc. (USRHR). Under the terms of the
LOI, USRHR had agreed to provide funding to InPlay for audit and consulting fees
and working capital. As of May 5, 2009, USRHR had not provided the agreed upon
funding. On May 7, 2009, InPlay announced that it had terminated pursuit of the
merger.




As a
result of a lack of funding, we significantly wound down operations during the
first quarter of 2009. We focused our attention on the sale of assets. Our goal
is to negotiate outstanding obligations with creditors, satisfy legal and
regulatory requirements associated with any sale and wind down of our company,
and close operations with the approval of stockholders.




In April
2009, the Nasdaq Stock Market notified us that our shares were subject to
delisting due to non-payment of annual listing fees, among other deficiencies.
We did not appeal the delisting and trading of our common shares on Nasdaq was
suspended on April 27, 2009. Nasdaq subsequently filed a Form 25 with the
Securities and Exchange Commission to complete the delisting.




On May
18, 2009, we filed a Form 15 with the SEC, deregistering our common shares and
suspending reporting requirements under the Securities Exchange Act of 1934. We
anticipate that the deregistration will become effective approximately 90 days
after the filing.




On June
26, 2009, we executed an asset purchase agreement (APA) with Wacom Co. Ltd.
pursuant to which we have agreed to sell all of our ownership right, title and
interest in and to the intellectual property pertaining to the digital computer
pen and digitizer segment of our business, including, without limitation, the
human interface device technology used in the Magic Point Pen and the Write
Sense products, which represents substantially all of our remaining
assets.  This transaction is conditioned on, among other things, our
stockholders approving the APA.  Upon completion of the transaction,
we intend to negotiate settlements for amounts owed to creditors, cease business
operations, and dissolve our company and its subsidiaries, including FinePoint
Innovations. If we are able to successfully negotiate settlements of our
obligations, we believe we will be able to avoid bankruptcy. In connection with
the dissolution, if any proceeds remain following the settlement and payment of
our outstanding liabilities, we intend to distribute any remaining proceeds to
our stockholders and dissolve our company in accordance with the plan of
liquidation and dissolution. However, depending on the settlements with
creditors, there may be no remaining proceeds to distribute to
shareholders.




Wacom may
terminate the APA if, among other reasons, the transaction is not consummated by
October 5, 2009.  If we are unable to consummate the transaction, we
believe we will be forced to file for bankruptcy protection.  See
“Risk Factors – If we are
unable to successfully obtain necessary stockholder approval or otherwise
consummate the transaction with Wacom for the sale of our assets, we will be
forced into bankruptcy.”




During
July 2009, the Company entered into amendments to our Change of Control
Severance Agreements with Mr. Potter and Mark Sokolowski, our Chief Financial
Officer.  The Company entered into these agreements to incent Messrs.
Potter and Sokolowski to remain employed with the Company to assure the
successful wind down of its operations and the payment and settlement of
outstanding payables and liabilities.  Under the agreements, as
amended, each of Messrs. Potter and Sokolowski will be paid closing bonuses of
$215,000 subsequent to the closing of the asset purchase transaction with
Wacom.  The closing payments will be paid in three installments, with
(a) $161,250 due within three business days following the closing date of the
asset purchase transaction, (b) $43,000 due within three business days after the
Company’s board of directors approves a plan providing for the settlement of all
of the outstanding creditors’ claims and the creditors’ approval of such plan,
and (c) $10,750 due within three business days after the Company’s board of
directors approves a plan to terminate business affairs and dissolve the
Company.  The Company will also provide each of Messrs. Potter and
Sokolowski lump sum payment amounts equal to the amount of premium necessary as
of the date the last closing bonus installment is paid to continue all medical,
dental, vision, life, accidental death and dismemberment, and short-term and
long-term disability insurance as is presently provided by the Company, for the
period commencing on the date the last closing bonus installment is paid through
and until December 31, 2009.  In the event the Company files for
bankruptcy protection, all remaining closing bonus payments that have not been
paid to Messrs. Potter and Sokolowski as of the date of that filing, as well as
the payment for continued group insurance benefits, shall accelerate and become
immediately due.


3


Overview




We have
developed, patented and marketed innovative human interface devices (HIDs) for
electronic products.  Our focus during 2008 was our FinePoint digital
pen and touch input solutions, which we marketed to developers and manufacturers
of mobile electronic devices. In October 2008, we sold our Duraswitch®
electronic switch segment to Memtron Technologies Co, part of the Interface
Technologies platform of Esterline Corporation.




Until May
1, 2009, we maintained executive offices at 13845 N. Northsight Boulevard,
Scottsdale, Arizona 85260, and our telephone number was (480) 586-3300. Given
reductions in staff and limited ongoing operations, we have not secured new
office space.




Through
the SEC website, www.sec.gov ,
available free of charge are our annual reports on Form 10-K and 10-KSB, our
quarterly reports on Form 10-Q and 10-QSB, our current reports on Form 8-K, our
proxy statements, and any amendments to those reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended.  These reports are available as soon as reasonably
practicable after we electronically file those reports with the
SEC.  Our Board of Directors has adopted a Code of Conduct, and a Code
of Ethics for the CEO and Senior Financial Officers.  Our corporate
governance materials including our Audit Committee Charter, Code of Conduct, and
Code of Ethics for the CEO and Senior Financial Officers.  These
documents, and any amendments or waivers thereto, and any other corporate
governance materials contemplated by SEC regulations are available in print to
anyone requesting a copy in writing from our corporate secretary at our
executive offices.




Strategy




We have
spent substantial resources developing innovative, cost-effective solutions for
the automotive, communications, computing, consumer and industrial
markets.  While we were successful in generating substantial interest
in our technologies, we have not secured sufficient revenue to cover our
expenses. We were also unable to secure additional funding to allow time to
develop a larger customer base and support volume manufacturing. In 2009, we
substantially wound down operations and focused our attention on the sale of our
intellectual property assets. Our goal is to successfully close on the proposed
asset sale transaction with Wacom. Assuming stockholder approval of the
transaction, we intend to use the remaining cash to negotiate, settle and
satisfy, to the best of our ability, obligations with all of our
creditors.




History




We were
founded in 1997 to commercialize our internally developed Duraswitch electronic
switch technology.  In 1999, we completed a public offering and became
listed on the American Stock Exchange. In 2000, we became listed on the Nasdaq
Stock Market. In May 2009, our shares were delisted from the Nasdaq Stock Market
and currently trade on the Pink Sheets OTC market under the symbol
NPLA.




In 2005,
we acquired FinePoint Innovations, a developer of digital computing pen
technology that enables pen input on tablet PCs, Smartphones, kiosks and
point-of-sale systems.  Our FinePoint computing pen and digitizer are
produced through contract manufacturers, then provided to the ODM or OEM
customer for integration into the final product.  We have developed
digital pen technology, offering a significant advancement in performance over
current analog products at a competitive cost.




In
October 2008, we sold the Duraswitch assets to Memtron Technologies Co. in an
effort to streamline our operations and focus our efforts on marketing FinePoint
products for mobile computing and communications.


4




FinePoint
Digital Computing Pen Industry




Computing
pens and digitizers are used to transform human input into a digital signal that
a computer or portable device can process.  Products that use
digitizer input include tablet or convertible PCs, personal digital assistants
(PDAs), Smartphones, point-of-sale devices, kiosks, and various computer
peripherals. We have developed digital pen technology, offering a significant
advancement in performance over current analog products at a competitive
cost.  We had been marketing this technology to OEMs as an innovative
pen input solution for builders of tablet personal computers, computer
peripheral products, point-of-sale terminals, and kiosks.  This
technology is intellectual property intending to be sold under the Asset
Purchase Agreement discussed above in “Recent Developments and Liquidation
of Business”.




History of
Digitizer Technology.  Digitizer technology has been around for
many years and continues to evolve to meet the increasing demands for higher
resolution, higher accuracy, and lower power consumption.




There are
two basic types of digitizer technology used today: active digitizers and
passive digitizers.  Both active and passive digitizers use similar
components to digitize data, including the following:




·      A
pen, stylus, or human finger to generate input data;


·      A
sensor device to generate x, y analog coordinates from the input
data;


·      A
micro controller to convert the x, y coordinates into digital data;
or


·      Driver
software




Passive
technology is used in PDAs and many vertical tablet applications
today.  The term “resistive” is used synonymously with the term
“passive” in these applications.  In a resistive digitizer all of the
electronic components are contained on or beneath the surface of the contacted
surface.  The input device contains no electronics and can be any hard
object (typically a stylus), to create the data to be input.




In a
resistive digitizer, a voltage is applied to the top sheet.  As the
user touches the screen, the top sheet compresses the spacer dots so that the
top and bottom layers are in contact.  Upon contact, current flows to
the four corners in proportion to the distance from the edge.  The x
& y position of the stylus is then calculated by the controller based on the
changes in the current flows and digital coordinates are generated.




Other
passive digitizing technologies used primarily in non-portable touch screen
applications include capacitive, near-field imaging, acoustic wave, and infrared
technology.




Electromagnetic
or active digitizers utilize an input device, such as a pen, which contains some
electronics external to the touched surface of the digitizing
device.  An active digitizer uses electromagnetic technology to
transmit information about the pen’s location, via the pen, to the sensor grid
located behind the liquid crystal display.  The controller’s chipset
uses this information to create digital data, including ASCII data packages,
which are used by the host computer.  In active pen input solutions,
data communication between the pen and the digitizer is based on either analog
or digital communication.




FinePoint
Digital Computing Pen Technology




Our
FinePoint products consist of a digitizer and digital writing
pen.  The pen is a cordless, active RF digital pen versus the earlier
analog pen technology used with most computer-based systems.  The
digitizer is a complete assembly comprised of a sensor grid and integrated
controller electronics with standard connectors.  The pen transmits a
digital signal to the digitizer which is then processed by the
system.




The
FinePoint 800 (MPD800) system includes a digitizer and self-powered
pen.  The pen is powered by a long-life battery.  The
self-powered pen transmits a very small constant and continuous electromagnetic
signal.  This signal is captured by the digitizer which is positioned
behind the display of the tablet PC or video monitor to determine pen
position.  The pen position information is sent to the PC or host and
is displayed as cursor or mouse position information.


5


The
FinePoint 900 (MPD900) is a battery-free pen technology.  Like our
self-powered pen, the MPD900 is a cordless, active RF digital
pen.  The FinePoint digitizer behind the LCD screen powers the
pen.  This technology is different than other digitizer-powered analog
signal pen products on the market.  We believe we have designed the
system to optimize power consumption from the tablet PC or convertible notebook
while maintaining high accuracy, high resolution, and low noise
performance.




In 2007,
we introduced two platforms that enable integrated pen and touch
input.  Our MPRD95x system incorporates our pen technology with
resistive touch input.  Our MPCD97x system incorporates pen and
capacitive touch technology.




In 2008,
we introduced our WriteSenseTM
technology which couples active RF pen input with capacitive touch systems.
WriteSense eliminates the need for a separate electromagnetic digitizer by
communicating directly with the capacitive touch sensor, resulting in a smaller
three-dimensional form factor and a cost effective solution.





FinePoint
Markets




We had
marketed our products directly to computer OEMs and contract manufacturers,
targeting manufacturers of tablet PCs, convertible notebooks, Smartphones,
kiosks and point-of-sale systems.  We have worked with contract
manufacturers to manufacture our pen and digitizer product.  The
assembly is then provided to the ODM or OEM customer for integration into the
final product.




Our
FinePoint revenue in 2008 was due primarily to one customer. During 2009, due to
limited financial resources, we finished all outstanding purchase orders for
this customer. Concurrently, we began to seek potential partners or buyers of
the technology. We have entered into an agreement with Wacom for the sale of
substantially all of our assets, subject to stockholder approval. See “Risk Factors – If we are unable to
successfully obtain necessary stockholder approval or otherwise consummate the
transaction with Wacom for the sale of our assets, we will be forced into
bankruptcy.”




FinePoint
Competitive Advantages




Our
FinePoint digital pen products offer a significant advancement in performance
over current analog products at a competitive cost.  We believe that
our digital solution offers competitive advantages including the
following:




Better
Accuracy.  Analog communications assign a specific frequency
band to each function and measure the frequency to determine what information is
being transmitted from the pen.  Thus, added features in an analog
system will reach a limit, or bandwidth limitation.  Increasing the
operational bandwidth will result in a noisier system which reports position
information with less fidelity.  For the user, this means lower
accuracy and increased jitter.  Digital communication is not limited
by bandwidth, thus improving the position signal fidelity (better accuracy and
less jitter).  We believe our digital system offers the user a true
pen-and-paper experience.




Lower
Cost.  With our digital technology, adding features does not
require additional tuning and has minimal impact on the cost of
production.




Increased
Feature-Enhancement Capability.  Our digital technology
inherently offers increased feature-enhancement capability that is not easily
achieved with analog technology.  For example, our FinePoint pen can
be configured with a unique identification, enabling a security key or
identifiers for a collaborative environment.  Memory can be
incorporated into the pen much like a USB device.  A host of
imaginative features, previously prohibited due to limitations of analog
circuitry and communication protocols, can be achieved with our digital
solution.




Customization and
differentiation.  By offering a wide range of choices for size,
design, features and functionality, we believe that our technology enables OEMs
to design and produce differentiated products.




FinePoint
Strategies




Maintain our
Intellectual Property.  As we are focused on the sale of our
technology assets, we intend to maintain the current intellectual property, and
technology know-how under development.


6


License and/or
Sell the Technology. We have actively marketed the competitive advantages
of our technology to display manufacturers and providers of complementary
components. We have entered into an agreement with Wacom to sell the FinePoint
assets.




FinePoint
Competition




We are
aware of several other companies that provide active digitizer including Wacom
Co. Ltd. and N-trig Inc.  While these companies provide similar
products to ours, their products use analog communication to send pen status and
function data.  We are not aware of any competitor that is offering a
pen computing product using digital stream communication.




Our
competitors possess financial, technical, human and other resources greater than
ours.




Intellectual
Property




We have
maintained an intellectual property protection policy designed to deter and stop
infringement.  To deter infringement, we have filed United States and
foreign patents for relevant material technological advances and warn against
potential infringement by posting patent numbers on our products, packaging, and
published materials.  Examples of these materials include our website,
brochures, advertisements, and some technology samples.  We have not
had to become involved in infringement litigation to protect our intellectual
property.




To
protect our trade secrets and other intellectual property, we required our
employees, contract workers, consultants, advisors, and collaborators to enter
into confidentiality agreements, that prohibit the disclosure of proprietary
information to third parties or the use of our proprietary information for
commercial purposes.  Our technical and sales employees also disclosed
and assigned to us all methods, improvements, modifications, developments,
discoveries, and inventions conceived or developed on the job, using our
property, or relating to our business.  As of December 31, 2008, we
had approximately $0.5 million of capitalized costs related to patents, net of
accumulated amortization.




As of
December 31, 2008, we held seven United States patents and one foreign patent
for the FinePoint technologies.  We also have patent applications
pending in the United States, as well as a number of countries in Asia and
Europe.




We have
registered the following trademarks with the United States Patent and Trademark
Office: “InPlay Technologies®,” and “MagicPoint®.” In 2008, we filed a trademark
registration for “WriteSense.”




Research,
Development, and Commercial Application Engineering




During
2008, we had 15 people in our research, development, and commercial application
engineering department who focused on supporting our licensees, ODMs and OEM
customers in the design and implementation of products using our
technologies.  In 2009, we significantly wound down operations,
eliminating future research and development work.




During
2008 and 2007, we spent $3,503,891 and $1,926,452, respectively, on research,
development, and commercial application engineering efforts.




Employees




As of
June 30, 2009, we had two employees.  None of our employees are
covered by collective bargaining agreements and we consider our employee
relations to be good.




Item
1A.  Risk Factors.




If
we are unable to successfully obtain necessary stockholder approval or otherwise
consummate the transaction with Wacom for the sale of our assets, we will be
forced into bankruptcy.




Due to a
lack of funds, we have ceased business operations and focused on the sale of our
assets.  While we believe that the binding asset purchase agreement
with Wacom will close, risks remain until the transaction is consummated. Wacom
or InPlay may terminate the agreement due to various factors outlined in the
agreement, including our failure to obtain stockholder approval by a majority of
our stockholders. If stockholders do not approve the sale of the assets, we
cannot complete any such proposed deal and will be forced into
bankruptcy.


7


As part
of the asset purchase agreement, Wacom has advanced to us $350,000 for working
capital and legal and other costs related to the transaction.  If the
transaction is not consummated, we could be required to repay Wacom amounts
advanced and a termination fee.




We
believe that bankruptcy should be avoided if possible, as filing for bankruptcy
will be both an expensive and lengthy process that will reduce the amount of
cash available to pay our creditors.  If stockholder approval of the
asset purchase agreement is not obtained, or we are unable to negotiate
satisfactory settlements with all our creditors, we may have no choice but to
file for bankruptcy.




Cash
needed to successfully complete the close of the asset purchase transaction and
satisfy regulatory obligations may deplete funds available to creditors or
stockholders




Assuming
stockholder approval is obtained, and the asset sale is completed, we intend to
use the remaining cash to negotiate, settle and satisfy to the best of our
ability obligations discontinue business operations.  There can be no
assurance that we will be successful in closing the asset purchase transaction,
or that the remaining cash will be sufficient to cover our outstanding debts and
obligations. As such, there may be no remaining proceeds to distribute to
stockholders.




We
may not be successful in our effort to liquidate assets and dissolve the
corporation.




We plan
to put in place a proposed plan of liquidation and dissolution. We believe that
such a plan will enable us to most effectively satisfy outstanding obligations
and close the company. If we do not obtain stockholder approval for the plan, or
other complications arise, we may not be successful in this effort.




As
a result of our history of operating losses, loss of major customers and other
factors, our auditors have raised substantial doubt about our ability to
continue as a going concern.




We have
experienced significant operating losses since our inception.  We have
committed substantial resources to the establishment and support of new
FinePoint customer relationships.  We have minimal financial
resources, and our cash flow from operating activities continues to be
insufficient to meet our operating needs and other payment
obligations.  As a result of these factors, among others, our
independent public accountants have raised substantial doubt about our ability
to continue as a going concern.  Our consolidated financial statements
do not include any adjustments related to the recoverability and classification
of recorded asset amounts or the amounts and classification of liabilities that
may be necessary as a result of this uncertainty.  As a result of
receiving this opinion from our independent public accountants, we may
experience possible adverse effects from our customers, on our creditworthiness,
or on investor confidence, any of which may have a material adverse effect on
our business and the trading price of our common stock.




Our
failure to detect unknown defects in products that we have sold could result in
future financial or other damages. We do not have sufficient funds to cover any
product liability claims.




Notwithstanding
the testing that we have performed on our products, defects could be found in
our existing or new products.  These defects could result in product
liability or warranty claims.  In addition, any defects found in our
products could result in indemnification claims, litigation, increased insurance
costs, and increased service costs, any of which could discourage Wacom from
consummating the asset purchase transaction.  Additionally, defects in
our products could result in financial or other damages to our
customers.  Our customers could also seek and obtain damages from
us.  We do not have sufficient funds to cover warranty or other
expenses that could arise in the future as a result of defects found in our
products.


8





If we are unable
to protect our intellectual property, or if we are found to have infringed third
party intellectual property rights, our financial condition and future prospects
could be materially harmed.




We have
entered into an agreement to sell substantially all of our assets. The price for
these assets is largely linked to the value of our intellectual property. Any
material change in the perceived value of these assets could impact our ability
to successfully consummate the sale of the assets.




We rely
on a combination of patents and trade secret protection for most of our
proprietary technology, in part through confidentiality agreements with our
employees, consultants, and third parties.  If any of these agreements
are found to be unenforceable, we may be unable to adequately protect our
technology.  If any of these agreements are breached, especially by
companies much larger than us, we may not have adequate financial resources to
adequately enforce our rights.  Also, others may come to know about or
determine our trade secrets.




It is
possible that pending patent applications may not result in the issuance of
patents.  Additionally, our issued patents may be challenged,
invalidated or circumvented and claims may not be sufficient to provide
meaningful protection.  The laws of certain territories in which we
develop, manufacture, or sell our products may not protect our intellectual
property rights to the same extent as the laws of the United
States.




While we
are currently not aware of any claims against us for the infringement of
intellectual property rights, any such claim could cause a material adverse
valuation of our intellectual property assets.  We do not have
sufficient funds to defend against any such claims, nor to pay any
damages.




We
are subject to litigation risks.




From time
to time we may be subject to legal claims, with and without merit.  We
are involved in various claims and legal actions arising from the ordinary
course of business including those with customers and suppliers and those
involving employment matters.  We believe it is unlikely that these
claims will have a material adverse effect on our financial position or results
of operations.  Regardless of their validity, such claims may divert
management attention and have substantial defense expenses or settlement
costs.  Due to the inherent uncertainty of the litigation process, we
cannot predict the resolution of any particular claim and its ultimate impact on
our business and financial condition.




We
face risks related to rapidly changing technology.




We are
subject to the challenges of rapidly changing technology and evolving industry
standards characteristic of the market for electronic
components.  These challenges include predicting the nature and timing
of technological changes and the direction of evolving industry standards and
identifying, developing, and successfully introducing new
technologies.  If our competitors develop and introduce products that
are more advanced than ours, the value of our technology portfolio could be
reduced, and our ability to consummate the asset purchase transaction with Wacom
would be compromised.




Our stock price has been
volatile.




The price
of our common stock fluctuates significantly.  During 2009, our stock
was delisted from the Nasdaq Stock Market and currently trades on the Pink
Sheets OTC Market. The trading price of our common stock could be subject to
wide fluctuations in response a variety of factors.




Item
2.    Properties




During
2008, our principal facilities were located in Scottsdale, Arizona, where we
leased 9,385 square feet of office space in a building located at 13845 North
Northsight Boulevard.  Our lease terminates in September 2012. In May
2009, we were required to vacate the facility due to nonpayment of our lease. We
have negotiated a settlement with the landlord to be paid upon close of the
transaction with Wacom. The Company is presently conducting its remaining
business and liquidation process without office facilities.


9




Item
3.    Legal
Proceedings




Our
company is involved in various claims and legal actions arising from the
ordinary course of business.  There are currently no such pending
proceedings to which we are a party that we believe will have a material adverse
effect on our financial position, results of operations, or
liquidity.




In May
2007, Stephen Caldwell, the former president of FinePoint Innovations, Inc.
filed a Demand for Arbitration with the American Arbitration Association
alleging various claims against InPlay.  He alleged that InPlay
terminated his employment in violation of his employment agreement, and that
InPlay breached the terms of a 2005 Merger Agreement between InPlay, FinePoint,
and him, for which he sought compensatory and other damages.  In March
2008, we entered into a Settlement and Release of Claims Agreement whereby we
paid a cash settlement of $330,000 to resolve all of Mr. Caldwell's claims and
dismiss his case in its entirety.





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




On
December 19, 2008, we held our Annual Meeting of Stockholders. At the meeting
the following actions were taken:




Dino D.
Farfante was elected to serve as a Class 1 Director for a three-year term
expiring in 2011.




Votes For
              
              Votes Withheld7,332,036
              
              549,623







P. Robert
Moya was elected to serve as a Class 1 Director for a three-year term expiring
in 2011.




Votes For
              
              Votes Withheld7,332,116
              
              549,543




The
amendments to the 2005 Stock Award Plan, including an increase the number of
shares of our common stock reserved for issuance under the plan from 1,000,000
shares to 2,000,000 shares plus (i) the number of shares with respect to which
awards previously granted under our 1997, 1999, and 2000 stock option plans that
terminate without the issuance of the shares or where the shares are forfeited
or repurchased; (ii) any shares available for grant in the share reserve for the
1997, 1999, and 2000 stock option plans as of the date this proposal is approved
by the stockholders; (iii) with respect to awards granted under the plans, the
number of shares which are not issued as a result of the award being settled for
cash or otherwise not issued in connection with the exercise or payment of the
award; and (iv) the number of shares that are surrendered or withheld in payment
of exercise price of any award or any tax withholding requirements in connection
with any award granted under the existing plans.




Votes For
              
              Votes Against
              
              Abstentions
              
              Broker Non Votes2,693,048
              
              763,966
              
              25,944
              
              4,398,701


10


PART
II




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




Our
common stock is currently listed on the Pink Sheets OTC Market under the symbol
“NPLA.PK”.  From June 2005 to April 2009, our common stock was listed
on the NASDAQ Capital Market (formerly the NASDAQ SmallCap Market) under the
symbol “NPLA.”  Prior to that time, our common stock was listed on the
NASDAQ SmallCap Market or the NASDAQ National Market under the symbol
“DSWT.”  The following table sets forth high and low sales prices of
the common stock for each calendar quarter indicated as reported on the NASDAQ
Capital Market.




High
                      
                      
                      LowYear
      Ended December 31, 2007First
      Quarter
                      
                      $
                      2.20
                      
                      
                      $
                      1.07Second
      Quarter
                      
                      
                      2.43
                      
                      
                      
                      0.80Third
      Quarter
                      
                      
                      3.50
                      
                      
                      
                      0.86Fourth
      Quarter
                      
                      
                      2.45
                      
                      
                      
                      1.10Year
      Ended December 31, 2008First
      Quarter
                      
                      $
                      1.70
                      
                      
                      $
                      0.90Second
      Quarter
                      
                      
                      0.94
                      
                      
                      
                      0.25Third
      Quarter
                      
                      
                      0.53
                      
                      
                      
                      0.13Fourth
      Quarter
                      
                      
                      0.23
                      
                      
                      
                      0.06




As of
June 30, 2009, the closing price of our common stock on the Pink Sheets OTC
Market was $0.03, and there were approximately 130 holders of record of our
common stock.  We believe that our common stock is held by
approximately 2,000 beneficial holders.




Dividend
Policy




We have
never declared any cash dividends on our common stock, and we do not intend to
declare any dividends on our common stock prior to discontinuing our business
operations.




Securities
Authorized for Issuance Under Equity Compensation Plans




The
following table sets forth information with respect to shares of our common
stock that may be issued upon the exercise of outstanding warrants as well as
outstanding stock options under our 1997 Stock Option Plan, our 1999 Stock
Option Plan, our 2000 Stock Option Plan, and our 2005 Stock Award Plan as of
December 31, 2008.


Equity
Compensation Plan Information




Plan
      Category
              
              Number
      of Securities
                  to
      be Issued Upon
                  Exercise
      of
                  Outstanding
                  Options,
      Warrants,
                  and
      Rights
              
              
              Weighted
      Average
                  Exercise
      Price of
                  Outstanding
                  Options,
      Warrants,
                  And
      Rights
              
              
              Number
      of Securities
                  Remaining
      Available for
                  Future
      Issuance Under
                  Equity
      Compensation
                  Plans
      (Excluding
                  Securities
      Reflected in
                  Column
      (a))(a)
              
              
              (b)
              
              
              (c)Equity
      Compensation PlansApproved
      by Stockholders
              
              
              1,551,030
              
              
              $
              2.02
              
              
              
              1,360,657Equity
      Compensation PlansNot
      Approved by  Stockholders
              
              
              509,091
              (1)
              
              $
              3.64
              
              
              
              -Total
              
              
              2,060,121
              
              
              $
              2.42
              
              
              
              1,360,657




(1)
Issuance of warrants in connection with the December 2005 private placement of
1,272,728 shares.


11


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




Overview




We have
developed and marketed innovative human interface devices (HID) for electronic
products.  During 2008, our focus was on marketing the FinePoint
digital computing pen and dual-mode pen and touch technologies. Until October
2008, we also developed and licensed technologies using a magnetic-based design
for electronic switches under the Duraswitch brand name. In October 2008, we
sold this segment to Memtron Technologies Co.




During
September 2005, we acquired FinePoint Innovations, a developer of digital
computing pen technology.  We are marketing the MagicPoint digitizer
and pen products developed by FinePoint to manufacturers of convertible
notebooks and tablet PCs.  We believe our digital pen technology
offers significant advantages over the current analog products.  We
have made substantial investment to further this technology, including solutions
for combined pen and touch, and our WriteSense technology which eliminates the
need for a digitizer.




On March
10, 2009, we executed a binding Letter of Intent (LOI) to enter into a merger
agreement with U.S. Rental Housing REIT, Inc. (USRHR). Under the terms of the
LOI, USRHR had agreed to provide funding to InPlay for audit and consulting fees
and working capital. As of May 5, 2009, USRHR had not provided the agreed upon
funding. On May 7, 2009, InPlay announced that it had terminated pursuit of the
merger.




As a
result of a lack of funding, we significantly wound down operations during the
first quarter of 2009. We focused our attention on the sale of assets. Our goal
is to negotiate outstanding obligations with creditors, satisfy legal and
regulatory requirements associated with any sale and wind down of our company,
and close operations with the approval of stockholders.




In April
2009, the Nasdaq Stock Market notified us that our shares were subject to
delisting due to non-payment of annual listing fees, among other deficiencies.
We did not appeal the delisting and trading of our common shares on Nasdaq was
suspended on April 27, 2009. Nasdaq subsequently filed a Form 25 with the
Securities and Exchange Commission to complete the delisting.




On May
18, 2009, we filed a Form 15 with the SEC, deregistering our common shares and
suspending reporting requirements under the Securities Exchange Act of 1934. We
anticipate that the deregistration will become effective approximately 90 days
after the filing.




On June
26, 2009, we executed an asset purchase agreement (APA) with Wacom Co. Ltd.
pursuant to which we have agreed to sell all of our ownership right, title and
interest in and to the intellectual property pertaining to the digital computer
pen and digitizer segment of our business, including, without limitation, the
human interface device technology used in the Magic Point Pen and the Write
Sense products, which represents substantially all of our remaining assets for a
price of $2.0 million, $100,000 of which had been paid prior to signing the APA
upon execution of a letter of intent.  This transaction is conditioned
on, among other things, our stockholders approving the APA. Upon completion of
the transaction, we intend to negotiate settlements for amounts owed to
creditors, cease business operations, and dissolve our company and its
subsidiaries, including FinePoint Innovations. If we are able to successfully
negotiate settlements of our obligations, we believe we will be able to avoid
bankruptcy. In connection with the dissolution, if any proceeds remain following
the settlement and payment of our outstanding liabilities, we intend to
distribute any remaining proceeds to our stockholders and dissolve our company
in accordance with the plan of liquidation and dissolution.




Wacom may
terminate the APA if, among other reasons, the transaction is not consummated by
October 5, 2009.  If we are unable to consummate the transaction, we
believe we will be forced to file for bankruptcy protection.  See
“Risk Factors – If we are
unable to successfully obtain necessary stockholder approval or otherwise
consummate the transaction with Wacom for the sale of our assets, we will be
forced into bankruptcy.”


12




Application
of Critical Accounting Policies




We have
identified the policies below as critical to our business operations and the
understanding of our results of operations.  The impact and any
associated risks related to these policies on our business operations are
discussed throughout Management’s Discussion and Analysis when such policies
affect our reported or expected financial results.




In the
ordinary course of business, we have made a number of estimates and assumptions
relating to the reporting of results of operations and financial condition in
the preparation of our financial statements in conformity with accounting
principles generally accepted in the United States.  We base our
estimates on historical experience and on various other assumptions that we
believe are reasonable under the circumstances.  The results form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources.  Actual results
could differ significantly from those estimates under different assumptions and
conditions.  We believe that the following discussion addresses our
most critical accounting policies, which are those that are most important to
the portrayal of our financial condition and results of operations and require
our most difficult, subjective, and complex judgments, often as a result of the
need to make estimates about the effect of matters that are inherently
uncertain.




Basis of
Presentation:  The Company has presented the accompanying
financial statements on the basis that contemplates the realization of assets
and settlement of obligations in the  normal  course of
conducting the business.  In May 2009, we decided that we would
liquidate the Company’s assets and attempt to settle our
obligations.  The 2008 and 2009 financial statements are presented on
a basis assuming the Company would continue as a going concern.  We
alternatively considered whether presentation on a liquidation basis of
accounting would be appropriate.  We determined that historical cost
basis of the assets and liabilities was appropriate at December 31, 2008 because
we continued to operate the business through our decision to liquidate in May
2009.




Revenue
Recognition.  Our FinePoint segment manufactures digital
computing pens and digitizers for the convertible notebook and tablet PC
market.  Revenue is recognized when persuasive evidence of an
arrangement exists, delivery has occurred, the fee is fixed and determinable and
collectability is probable.  Generally, all of these conditions are
met at the time we deliver products to customers.




Our
Duraswitch segment, which was sold to Memtron Technologies in October 2008,
entered into licensing agreements with our customers.  Our licensing
agreements required the licensee to purchase licensed components from
us.  The purchase price of the licensed components included the
royalty fee.  When the components were shipped, we recognized revenue
and cost of goods sold.  In cases where no licensed components were
supplied, we were paid a royalty per switch manufactured by the licensee and we
recognized revenue in the period the switch was manufactured.  During
2007, we recognized $7.6 million of revenue related to a final settlement
through the bankruptcy court on the minimum license requirement on the Delphi
licensing agreement.




Some of
our licensees had prepaid royalties to us pursuant to their license
agreements.  These prepayments were recorded as deferred licensing
revenue.  This deferred revenue was recognized as revenue when earned
under the licensing agreement.  If a licensee purchased a licensed
component from us, the royalty was earned when the licensed component was
shipped.  If the licensee directly manufactured our switches without
purchasing licensed components from us, we considered the royalty earned when
the switch is manufactured.




Inventory
Valuation.  Our inventory is primarily comprised of certain raw
materials that are used in the manufacture of digital pens and digitizers and
licensed components, and finished goods which are primarily pens and digitizers
that are in transit to the customer.  We record inventories at the
lower of cost or market value, determined using the first-in, first-out
method.  Our policy is to write down our inventory for estimated
obsolescence or unmarketable inventory to the extent the cost exceeds the
estimated market value.  We base the estimate on our assumptions about
future demand and market conditions.  If actual market conditions are
less favorable than those assumed in our estimates, additional inventory
write-downs might be required.  We reflect any write-down of inventory
in the period in which the facts giving rise to the inventory write-down become
known to us.


13


Impairment or
Disposal of Long-Lived Assets. We review our long-lived assets and
identifiable intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable.  Additionally, goodwill is reviewed on an annual basis.
Our intangible assets are primarily our patents and the goodwill associated with
the 2005 acquisition of FinePoint Innovations and the 1998 acquisition of Aztec
Industries. If such assets were considered to be impaired, the impairment to be
recognized would be measured by the amount by which the carrying amount of the
assets exceeds the fair market value of the assets.




We
evaluate the recoverability of property and equipment and intangibles (excluding
goodwill) not held for sale by comparing the carrying amount of the asset or
group of assets against the estimated undiscounted future net cash flows
expected to result from the use of the asset or group of assets.  If
the undiscounted estimated cash flows are less than the carrying value of the
asset or group of assets being reviewed, an impairment loss would be
recorded.  The loss would be measured based on the estimated fair
value of the asset or group of assets compared to its carrying
value.  The estimated fair value would be based on the best
information available under the circumstances, including prices for similar
assets and the results of valuation techniques, including the present value of
expected future cash flows using a discount rate commensurate with the risks
involved.




We
evaluate goodwill and other intangible assets for impairment at least annually,
in accordance with Statement of Financial Accounting Standard No. 142, “Goodwill
and Other Intangible Assets” (SFAS 142).  For goodwill, we first
compare the fair value of a reporting unit with its carrying amount, including
goodwill.  If the carrying amount of a reporting unit exceeds the fair
value of a reporting unit, additional tests would be used to measure the amount
of impairment loss, if any.  We use present value and market value
techniques to measure reporting unit fair value.  If the carrying
amount of any other intangible asset exceeds its fair value, we would recognize
an impairment loss for the difference between fair value and the carrying
amount.  If other events occur and circumstances change, causing the
fair value of a reporting unit to fall below its carrying amount, impairment
losses may be recognized in the future.  In accordance with SFAS No.
142, we performed our annual impairment test in December 2008 and determined
that the goodwill and related patents were impaired.  In December
2008, the company recorded an impairment charge, included in other expenses, to
fully amortize goodwill in the amount of $877,366.




Income
Taxes.Deferred
taxes are provided on temporary differences between the tax basis of assets and
liabilities for financial reporting purposes and income tax
purposes.  The valuation allowance reduces deferred tax assets to an
amount that represents our best estimate, as of December 31, 2008, of the amount
of such deferred tax assets that, more likely than not, will be
realized.  As a result of this estimate, as of December 31, 2008 we
have reduced the entire deferred tax asset by the valuation
allowance.




Results
of Operations for the Year Ended December 31, 2008 Compared to the Year Ended
December 31, 2007




Net
Revenue.  The following table summarizes our net
revenue:


Year ended December 31,
                    
                    
                    (Decrease)2008
                    
                    
                    2007
                    
                    
                    Amount
                    
                    
                    PercentFinePoint
                    
                    $
                    483,975
                    
                    
                    $
                    2,714,579
                    
                    
                    $
                    (2,230,604
                    )
                    
                    
                    (82
                    )%





Net FinePoint
Revenue.  For the year ended December 31, 2008 and 2007,
revenue related to Gateway was $248,246 and $2,585,168 representing and 51% and
95% of net FinePoint revenue. This customer discontinued use of our products at
the end of 2007.  In 2008, revenue related to Panasonic (Matsushita
Electric Industrial Co. LTD) was $179,727 representing 37% of net FinePoint
revenue.




Cost of Goods
Sold.  The following table summarizes our cost of goods sold
(COGS):


14




Year ended December 31,
                      
                      
                      (Decrease)2008
                      
                      
                      2007
                      
                      
                      Amount
                      
                      
                      PercentFinePoint
                      
                      $
                      515,456
                      
                      
                      $
                      2,260,073
                      
                      
                      $
                      (1,744,617
                      )
                      
                      
                      (77
                      )%




The
decrease in total COGS was primarily the result of decreased sales of our
FinePoint digital pens and digitizers.




FinePoint
COGS.  FinePoint COGS relates to the production of the
FinePoint digital computing pens and digitizers.  The decrease in
total COGS was primarily the result of decreased sales of our FinePoint digital
pens and digitizers.  The COGS as a percentage of FinePoint revenue
will fluctuate depending on the average selling price to
OEMs.  FinePoint COGS and related gross margin was adversely affected
in 2008 by increased expenses related to raw materials and manufacturing costs
for our FinePoint digital pens and digitizers to Panasonic.




Selling, General
and Administrative Expenses.  The following table summarizes
our selling, general and administrative expenses (SG&A):




Year ended December 31,
                    
                    
                    Decrease2008
                    
                    
                    2007
                    
                    
                    Amount
                    
                    
                    PercentFinePoint
                    
                    $
                    704,565
                    
                    
                    $
                    1,124,348
                    
                    
                    $
                    (419,783
                    )
                    
                    
                    (37
                    )%Corporate
                    
                    
                    2,213,643
                    
                    
                    
                    3,073,946
                    
                    
                    
                    (860,303
                    )
                    
                    
                    (28
                    )%Total
      SG&A
                    
                    $
                    2,918,208
                    
                    
                    $
                    4,198,294
                    
                    
                    $
                    (1,280,086
                    )
                    
                    
                    (30
                    )%





FinePoint
SG&A.  FinePoint SG&A primarily consists of salaries of
sales and administrative personnel and occupancy costs.  The decrease
was primarily due to a decrease in salaries and wages, and 2007 included
unusually high legal costs relating to severance negotiation and the termination
of a lease in 2007 for a building used solely by FinePoint.




Corporate
SG&A.  Corporate SG&A primarily consists of salaries,
accounting, legal and other professional expenses and occupancy
costs.  The decrease from the previous year is primarily due to higher
compensation expense in 2007 relating to employment agreement severance expenses
of approximately $800,000.




Research,
Development and Commercial Application Engineering
Expenses.  The following table summarizes our research,
development and commercial application engineering expenses
(R&D):


Year ended December 31,
                        
                        
                        Increase (Decrease)2008
                        
                        
                        2007
                        
                        
                        Amount
                        
                        
                        PercentFinePoint
                        
                        $
                        3,503,891
                        
                        
                        $
                        1,926,452
                        
                        
                        $
                        1,577,439
                        
                        
                        
                        82
                        %





FinePoint
R&D.  FinePoint R&D consists primarily of salaries of
engineering personnel and engineering supplies.  The increase is
primarily due to increased spending in its efforts to develop new products and
samples for the new customers the company had targeted.




Interest and
Other Income(Expense) – Net.  The following table summarizes
Interest and other income:




Year ended December 31,
                  
                  
                  Increase (Decrease)2008
                  
                  
                  2007
                  
                  
                  Amount
                  
                  
                  PercentInterest
      Income
                  
                  $
                  49,462
                  
                  
                  $
                  301,138
                  
                  
                  $
                  (251,676
                  )
                  
                  
                  (84
                  )%Loss
      on disposal of equipment
                  
                  $
                  (159,614
                  )
                  
                  
                  (16,037
                  )
                  
                  $
                  (143,577
                  )
                  
                  
                  895
                  %Loss
      on sale of Duraswitch segment
                  
                  $
                  (43,708
                  )
                  
                  $
                  -
                  
                  
                  $
                  (43,708
                  )
                  
                  
                  -Impairment
      charge for Goodwill
                  
                  $
                  (877,366
                  )
                  
                  $
                  -
                  
                  
                  $
                  (877,366
                  )
                  
                  
                  -Total
      R&D
                  
                  $
                  (1,031,226
                  )
                  
                  $
                  285,101
                  
                  
                  $
                  (1,316,327
                  )
                  
                  
                  (462
                  )%


15




Interest
income.The decrease was due to lower interest income as a
result of lower cash balances in 2008.




Loss on disposal of
equipment.The increase in loss was primarily due to the
disposal of obsolete tooling that was no longer needed for new
designs.




Loss on disposal of Duraswitch
segment.The loss in 2008 represents the book loss on the sale
of assets related to the Duraswitch segment.




Impairment charge for
Goodwill.In December 2008, it was determined that the
FinePoint goodwill was impaired and an impairment charge was recorded to adjust
goodwill to a fair market value of  zero.




Liquidity
and Capital Resources




Prior to
entering into the asset purchase agreement with Wacom, we did not have
sufficient working capital to meet our obligations to comply with the conditions
required to consummate the transaction.  Therefore, of the $2,000,000
purchase price for the asset purchase transaction, $100,000 was previously paid
by Wacom to us in connection with a letter of intent signed by us and Wacom on
April 2, 2009 to help us meet these obligations.  We also entered into
a loan and security agreement with Wacom on June 26, 2009 pursuant to which
Wacom is lending the remaining $1,900,000 to us, of which amount (a) $350,000
has been disbursed to us upon execution of the asset purchase agreement and (b)
$1,550,000 has been deposited in a depository account, with such amount to be
distributed to us and certain of our creditors upon consummation of the asset
purchase transaction.  We believe that the funds provided by Wacom
will be sufficient to meet our capital needs through such date that the asset
purchase transaction is consummated.




In
October 2008, we sold all the assets and rights related to our Duraswitch
segment to Memtron Technologies Co. As part of the agreement, we have the
potential to receive a supplemental payout up to $800,000 if certain revenue
targets are met from the sale date through December 31, 2009. If any amounts are
due under this supplemental payout, the cash payout will be made in March of
2010. It is uncertain if any payout will be earned or received. Any cash
received would be used to increase funds paid to creditors and distribution, if
any, to stockholders.





As of
December 31, 2008, we had cash and cash equivalents of approximately
$372,621.




Net cash
used in operating activities during the year ended December 31, 2008 was
$6,378,426.  The cash used in  operating activities was used
primarily to fund the operating expenses of our FinePoint segment.




Net cash
provided in investing activities during the year ended December 31, 2008 was
$1,161,135.  The cash provided in investing activities was primarily
related to the net proceeds from the sale of our Duraswitch segment of
$1,335,938 offset by purchases of equipment of $134,769 and patents for
$20,034




Net cash
used in financing activities during the year ended December 31, 2008 was $2,500
for stock issuance fees to NASDAQ.




At
December 31, 2008, we had net operating loss carry forwards for federal income
tax purposes of $24.5 million which expire in 2019 through 2028 and net
operating loss carry forwards for state income tax purposes of $7.4 million
which expire 2009 through 2013.




The
accompanying financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and satisfaction of liabilities in
the normal course of business.  We have experienced recurring
operating losses since our inception and our accumulated net deficit is in
excess of $32.5 million.  In 2008, we sold the Duraswitch segment and,
with the exception of a possible earn-out payment in 2010, do not expect any
future revenue from this technology. Our FinePoint revenue was primarily low
volume production, and we intend to sell all of our interest in the FinePoint
assets to Wacom.  The accompanying financial statements do not include
any adjustments relating to the recoverability and classification of recorded
assets amounts or the amounts and classification of liabilities that may be
necessary should we be unable to continue as a going concern.  In
2008, we made significant investments in our technologies, and development of
products for potential customers.  However, the timing and amount of
revenue generated from these efforts is uncertain.  We believe that
available cash resources, together with anticipated revenues from operations
will not be sufficient to satisfy our business plan and capital requirements
through December 31, 2009.  Due to a lack of funds, we ceased
operations in  2009, and have focused efforts on the sale of our
assets and dissolution of the corporation.


16


Other
than disclosed herein, we have no special purpose entities or off balance sheet
financing arrangements, commitments, or guarantees other than certain long-term
operating lease arrangements for our facilities and short-term purchase order
commitments to our suppliers.




New Accounting
Pronouncements.  In February 2007, the FASB issued SFAS No.
159, “The Fair Value Option for Financial Assets and Financial Liabilities”
(SFAS 159), which permits entities to choose to measure many financial
instruments and certain other items at fair value that are not currently
required to be measured at fair value.  SFAS 159 will be effective for
us on January 1, 2008.  We are currently evaluating the impact of
adopting SFAS 159 on our financial position, cash flows, and results of
operations but do not believe it will have any impact on our financial condition
and results of operations.




In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations”(“FAS 141 (R)”), to replace
FAS 141, “Business Combinations”.  FAS 141(R)
requires use of the acquisition method of accounting, defines the acquirer,
establishes the acquisition date and broadens the scope to all transactions and
other events in which one entity obtains control over one or more other
businesses.  This statement is effective for financial statements
issued for fiscal years beginning on or after December 15, 2008 with earlier
adoption prohibited.  While we do not expect that the adoption of FAS
141 (R) to have a material impact to our consolidated financial statements for
transactions completed prior to December 31, 2008, the impact of the accounting
change could be material for business combinations which may be consummated
subsequent thereto.




In
December 2007, the FASB issued Statement of FAS No. 160, “Non controlling
Interests in Consolidated Financial Statements”— an amendment of ARB No. 51,
(“FAS 160”).  FAS 160 establishes accounting and reporting standards
for the non controlling interest in a subsidiary and for the retained interest
and gain or loss when a subsidiary is deconsolidated.  This statement
is effective for financial statements issued for fiscal years beginning on or
after December 15, 2008 with earlier adoption prohibited.  We are
currently evaluating the impact of FAS 160 on our consolidated financial
statements.


17


Item
8.    Financial Statements and
Supplementary Data




REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




Board of
Directors


InPlay
Technologies, Inc.


Scottsdale,
Arizona




We have
audited the accompanying consolidated balance sheet of InPlay Technologies, Inc.
and subsidiaries (the “Company”) as of December 31, 2008, and the related
consolidated statements of operations, stockholders’ equity/deficit, and cash
flows for each of the years in the two-year period ended December 31,
2008.  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 the standards of the Public Company
Accounting Oversight Board (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.  The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting.  Our audit included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting.  Accordingly, we express no
such opinion.  An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
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, such consolidated financial statements present fairly, in all material
respects, the financial position of InPlay Technologies, Inc. and subsidiaries
as of December 31, 2008, and the results of their operations and their cash
flows for each of the years in the two-year period ended December 31, 2008 in
conformity with accounting principles generally accepted in the United States of
America.




The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern.  As discussed in Note 2 to the
financial statements, the Company’s has not secured
sufficient  revenue from new customers, and in 2009, began to wind
down operations and liquidate assets.  These matters raise substantial
doubt about the Company’s ability to continue as a going
concern.  Management’s plans concerning these matters are also
described in Note 2.  The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.




As
discussed in Note 17 to the accompanying financial statements, the Company
decided to cease operations, liquidate the Company’s remaining assets and
attempt to settle its obligations.




/s/ Moss
Adams LLP


Scottsdale,
Arizona





August
10, 2009


18





INPLAY
TECHNOLOGIES, INC.





CONSOLIDATED
BALANCE SHEET


DECEMBER 31, 2008





2008ASSETSCURRENT
      ASSETSCash
      and cash equivalents
                
                $
                372,621Restricted
      short-term investment
                
                
                20,000Accounts
      receivable
                
                
                73,783Inventory
      (Note 5)
                
                
                13,838Prepaid
      expenses and other current assets
                
                
                89,611Total
      current assets
                
                
                569,853PROPERTY
      AND EQUIPMENT - Net (Note 6)
                
                
                275,027PATENTS
      - Net (Note 7)
                
                
                411,207OTHER
      ASSETS
                
                
                17,731TOTAL
                
                $
                1,273,818LIABILITIES
      AND STOCKHOLDERS' DEFICITCURRENT
      LIABILITIESAccounts
      payable
                
                $
                911,368Accrued
      salaries and benefits
                
                
                311,879Liabilities
      of discontinued operations
                
                
                68,049Other
      accrued expenses and other current liabilities
                
                
                599,797Total
      current liabilities
                
                
                1,891,093Total
      liabilities
                
                
                1,891,093COMMITMENTS
      AND CONTINGENCIES (Notes 5 and 15)STOCKHOLDERS'
      DEFICIT (Notes 9 and 10)Preferred
      stock, no par value, 10,000,000 shares authorized, no shares issued and
      outstanding
                
                
                -Common
      stock, $.001 par value, 40,000,000 shares authorized 11,622,568 shares
      issued and outstanding
                
                
                11,623Additional
      paid-in capital
                
                
                31,942,010Accumulated
      deficit
                
                
                (32,570,908
                )Total
      stockholders' deficit
                
                
                (617,275
                )TOTAL
                
                $
                1,273,818





See notes
to consolidated financial statements.


19


INPLAY
TECHNOLOGIES, INC.





CONSOLIDATED
STATEMENTS OF OPERATIONS


YEARS
ENDED DECEMBER 31, 2008 AND 2007





2008
                    
                    
                    2007NET
      REVENUE
                    
                    $
                    483,975
                    
                    
                    $
                    2,714,579COST
      OF GOODS SOLD
                    
                    
                    515,456
                    
                    
                    
                    2,260,073Gross
      profit
                    
                    
                    (31,481
                    )
                    
                    
                    454,506OPERATING
      EXPENSES:Selling,
      general and administrative
                    
                    
                    2,918,208
                    
                    
                    
                    4,198,294Research,
      development and commercialapplication
      engineering
                    
                    
                    3,503,891
                    
                    
                    
                    1,926,452Total
      operating expenses
                    
                    
                    6,422,099
                    
                    
                    
                    6,124,746INCOME
      (LOSS) FROM OPERATIONS
                    
                    
                    (6,453,580
                    )
                    
                    
                    (5,670,240
                    )OTHER
      INCOME (EXPENSE):Interest
      and other income - net
                    
                    
                    (1,031,226
                    )
                    
                    
                    285,101Loss
      from continuing operations
                    
                    
                    (7,484,806
                    )
                    
                    
                    (5,385,139
                    )DISCONTINUED
      OPERATIONS:Income
      from discontinued Duraswitch segment
                    
                    
                    212,038
                    
                    
                    
                    6,926,682NET
      INCOME (LOSS)
                    
                    $
                    (7,272,768
                    )
                    
                    $
                    1,541,543NET
      INCOME (LOSS) PER COMMON SHARE:From
      continuing operations
                    
                    $
                    (0.64
                    )
                    
                    $
                    (0.47
                    )Discontinued
      operations
                    
                    
                    0.01
                    
                    
                    
                    0.60TOTAL
      BASIC AND DILUTED LOSS/INCOME PER SHARE
                    
                    $
                    (0.63
                    )
                    
                    $
                    0.13WEIGHTED
      AVERAGE SHARES OUTSTANDING,BASIC
      AND DILUTED
                    
                    
                    11,613,022
                    
                    
                    
                    11,530,233





See notes
to consolidated financial statements.


20





INPLAY
TECHNOLOGIES, INC.




CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY/DEFICIT


YEARS
ENDED DECEMBER 31, 2008 AND 2007





AdditionalCommon Stock
                                              
                                              
                                              Paid-in
                                              
                                              
                                              AccumulatedShares
                                              
                                              
                                              Amount
                                              
                                              
                                              Capital
                                              
                                              
                                              Deficit
                                              
                                              
                                              TotalBALANCE,
      DECEMBER 31, 2006
                                              
                                              
                                              11,502,315
                                              
                                              
                                              $
                                              11,502
                                              
                                              
                                              $
                                              31,424,436
                                              
                                              
                                              $
                                              (26,839,683
                                              )
                                              
                                              $
                                              4,596,255Issuance
      of stock options
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              173,165
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              173,165Issuance
      of restricted stock
                                              
                                              
                                              2,823
                                              
                                              
                                              
                                              3
                                              
                                              
                                              
                                              4,997
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              5,000Employee
      stock options exercised
                                              
                                              
                                              90,000
                                              
                                              
                                              
                                              90
                                              
                                              
                                              
                                              103,860
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              103,950Net
      loss
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              1,541,543
                                              
                                              
                                              
                                              1,541,543BALANCE,
      DECEMBER 31, 2007
                                              
                                              
                                              11,595,138
                                              
                                              
                                              
                                              11,595
                                              
                                              
                                              
                                              31,706,458
                                              
                                              
                                              
                                              (25,298,140
                                              )
                                              
                                              
                                              6,419,913Issuance
      of stock options
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              219,330
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              219,330Issuance
      of restricted stock
                                              
                                              
                                              27,430
                                              
                                              
                                              
                                              28
                                              
                                              
                                              
                                              18,722
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              18,750Employee
      stock options exercised
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (2,500
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (2,500
                                              )Net
      income
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (7,272,768
                                              )
                                              
                                              
                                              (7,272,768
                                              )BALANCE,
      DECEMBER 31, 2008
                                              
                                              
                                              11,622,568
                                              
                                              
                                              $
                                              11,623
                                              
                                              
                                              $
                                              31,942,010
                                              
                                              
                                              $
                                              (32,570,908
                                              )
                                              
                                              $
                                              (617,275
                                              )





See notes
to consolidated financial statements.


21





INPLAY
TECHNOLOGIES, INC.





CONSOLIDATED
STATEMENTS OF CASH FLOWS


YEARS
ENDED DECEMBER 31, 2008 AND 2007





2008
                    
                    
                    2007CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income (loss)
                    
                    $
                    (7,272,768
                    )
                    
                    $
                    1,541,543Adjustments
      to reconcile net loss to net cash used inoperating
      activities:Impairment
      of Goodwill
                    
                    
                    877,366
                    
                    
                    
                    -Depreciation
      and amortization
                    
                    
                    264,906
                    
                    
                    
                    335,497Stock
      compensation
                    
                    
                    238,080
                    
                    
                    
                    178,165(Gain)
      Loss on disposal of equipment
                    
                    
                    203,322
                    
                    
                    
                    103,194Changes
      in operating assets and liabilities; net of assetsacquired
      and liabilities assumed:Accounts
      receivable
                    
                    
                    (4,292
                    )
                    
                    
                    150,759Inventory
                    
                    
                    (9,653
                    )
                    
                    
                    1,051,066Prepaid
      expenses and other current assets
                    
                    
                    39,321
                    
                    
                    
                    56,442Accounts
      payable
                    
                    
                    162,783
                    
                    
                    
                    (55,814
                    )Accrued
      salaries and benefits
                    
                    
                    (466,108
                    )
                    
                    
                    279,895Other
      accrued expenses and other current liabilities
                    
                    
                    (237,460
                    )
                    
                    
                    362,134Other
      non-current liabilities
                    
                    
                    (173,228
                    )
                    
                    
                    172,377Deferred
      licensing revenue
                    
                    
                    (695
                    )
                    
                    
                    (9,831
                    )Net
      cash provided by (used in) operating activities
                    
                    
                    (6,378,426
                    )
                    
                    
                    4,165,427CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchase/Sale
      of restricted short-term investment
                    
                    
                    (20,000
                    )
                    
                    
                    -Increase
      in patents
                    
                    
                    (20,034
                    )
                    
                    
                    (41,473
                    )Net
      proceeds from sale of Duraswitch segment
                    
                    
                    1,335,938
                    
                    
                    
                    7,923Purchases
      of property and equipment
                    
                    
                    (134,769
                    )
                    
                    
                    (234,727
                    )Net
      cash provided by (used in) investing activities
                    
                    
                    1,161,135
                    
                    
                    
                    (268,277
                    )CASH
      FLOWS FROM FINANCING ACTIVITIES:Stock
      issuance fee to NASDAQ
                    
                    
                    (2,500
                    )
                    
                    
                    -Net
      proceeds from exercise of employee stock options
                    
                    
                    -
                    
                    
                    
                    103,950Principal
      payments on capital leases and notes payable
                    
                    
                    -
                    
                    
                    
                    -Net
      cash provided by (used in) financing activities
                    
                    
                    (2,500
                    )
                    
                    
                    103,950INCREASE
      (DECREASE) IN CASH AND CASH EQUIVALENTS
                    
                    
                    (5,219,791
                    )
                    
                    
                    4,001,100CASH
      AND CASH EQUIVALENTS, BEGINNING OF YEAR
                    
                    
                    5,592,412
                    
                    
                    
                    1,591,312CASH
      AND CASH EQUIVALENTS, END OF YEAR
                    
                    $
                    372,621
                    
                    
                    $
                    5,592,412SUPPLEMENTAL
      DISCLOSURE OF NONCASH ACTIVITIES:Cash
      paid for interest
                    
                    $
                    -
                    
                    
                    $
                    -





See notes
to consolidated financial statements.


22


INPLAY
TECHNOLOGIES, INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2008 AND
2007


1.
            NATURE
      OF BUSINESS




InPlay
Technologies, Inc. (the “Company”) has developed and marketed innovative human
interface devices (HID) for electronic products.  The Company’s
current technologies include the FinePoint digital computing pen and dual-mode
pen and touch technologies. The Company markets the FinePoint digitizer and pen
products to manufacturers of convertible notebooks and tablet PCs.




Previously,
the Company had developed, patented, and licensed innovative technologies
utilizing a magnetic-based design for electronic switches under the Duraswitch
brand name.  This technology segment was sold in October
2008.




2.
            GOING
      CONCERN




These
financial statements have been prepared assuming that the Company will continue
as a going concern.  The Company has experienced significant operating
losses since its inception and its accumulated net deficit is in excess of $32.5
million.  During 2007, the Company completed production for its
primary customer, Gateway. During 2008, the Company’s revenue was primarily
related to non-recurring engineering fees and low volume production for
Panasonic. Due to a lack of funding, the Company subsequently completed
production and does not anticipate revenue from either customer. During the
first quarter of 2009, the Company ceased ongoing operations and began the
process of liquidation..  These factors, among others, indicate that
the Company will not continue as a going concern. The financial statements do
not include any adjustments relating to the recoverability and classification of
recorded assets amounts or the amounts and classification of liabilities that
may be necessary should the Company be unable to continue as a going
concern.




In May of
2009, the Company’s management and Board of directors elected to wind down
operations and liquidate the net assets of the Company.  The Company
has focused its attention on the sale of its assets, negotiation of outstanding
obligations with creditors, satisfaction of legal and regulatory requirements
associated with any sale and wind down of the Company, and ultimately dissolving
the corporation with the approval of stockholders.  As described in
Note 17, the Company has executed an asset purchase agreement pursuant to which
it has agreed to sell the intellectual property pertaining to the digital
computer pen and digitizer segment of its business,  which represents
substantially all of the Company’s remaining assets, for a price of $2.0
million.  Upon completion of the transaction, the Company intends to
negotiate settlements for amounts owed to creditors, cease business operations,
and dissolve the Company and its subsidiaries. At the date of the financial
statements, the Company’s best estimate of the liquidation value of its
remaining assets and liabilities is the recorded value of these assets and
liabilities consequently, the Company has not adjusted the historical values of
the assets and liabilities.




Because
the determination to liquidate was not made until well into 2009, the fact that
Company maintained its operations in the first fiscal quarter of 2009, and,
during that time period the Company continued to seek capital and negotiate with
potential new customers, the accompanying financial statements do not include
adjustments that would reflect such on a liquidation basis of
accounting.




The
Company has settled substantially all accounts receivable at December 31, 2008
at the carrying value of such.  The Company believes salvage value for
its property and equipment will be nominal.  As discussed on Note 17,
the Company has an agreement to sell the patented technology for
$2,000,000.  The Company has not yet begun to negotiate the settlement
of its obligations and therefore cannot estimate the amount of such
settlements.


23




3.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING
PRINCIPLES




The
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiaries.  The consolidated financial statements are
prepared in accordance with accounting principles generally accepted in the
United States of America.  The following paragraphs summarize the
significant accounting policies followed by the Company in the preparation of
its financial statements.




Principles of
Consolidation.  All material intercompany balances and
transactions have been eliminated in consolidation.




Cash
Equivalents.  The Company considers all highly liquid debt
instruments purchased with maturities of three months or less to be cash
equivalents.  Cash and cash equivalents are maintained with reputable
major financial institutions.  Deposits with these banks may exceed
the amount of insurance provided on such deposits; however, these deposits
typically may be redeemed upon demand and, therefore, bear minimal
risk.




Inventory.  Inventory
is carried at the lower of cost, determined using the FIFO (“first-in,
first-out”) method, or market.  The Company writes down its inventory
for estimated obsolescence or unmarketable inventory to the extent the cost
exceeds the estimated market value.  The Company bases the estimate on
its assumptions about future demand and market conditions.  If actual
market conditions are less favorable than those assumed in its estimates,
additional inventory write-downs might be required.  The Company
reflects any write-down of inventory in the period in which the facts giving
rise to the inventory write-down become known to it.




Property and
Equipment.  Depreciation is computed using the straight-line
method over the useful lives of the related assets as follows:




Computer software
              3
      yearsComputer
      equipment
              3
      to 5 yearsTooling
              5
      to 7 yearsOther machinery and equipment
              5
      yearsOffice
      furniture and fixtures
              7
      years


Leasehold
improvements are amortized over the lesser of their estimated useful life or the
term of the lease.




Patents.  Patents
are reported at cost, net of accumulated amortization, and are amortized using
the straight-line method over the estimated life of eight years.




Goodwill.  The
Company tests goodwill for impairment on an annual basis at December 31, or on
an interim basis if an event occurs or circumstances change that would reduce
the fair value of a reporting unit below its carrying value.  The
Company first compares the fair value of a reporting unit with its carrying
amount, including goodwill.  If the carrying amount of a reporting
unit exceeds the fair value of a reporting unit, additional tests would be used
to measure the amount of impairment loss, if any.  The Company uses a
present value technique to measure reporting unit fair value.  If
other events occur and circumstances change, causing the fair value of a
reporting unit to fall below its carrying amount, impairment losses may be
recognized in the future.  In accordance with SFAS No. 142, the
Company performed its annual impairment test and determined that the goodwill
and related patents were impaired.  In December 2008, the Company
recorded an impairment charge, included in other expenses, to fully write-off
the carrying value of goodwill in the amount of $877,366.  The Company
considered the factors discussed in Note 2 in performing the impairment
analysis.




Revenue
Recognition.  The Company’s FinePoint segment manufactures
digital computing pens and digitizers for the convertible notebook and tablet PC
market.  The Company recognizes revenue when persuasive evidence of an
arrangement exists, delivery has occurred, the fee is fixed and determinable and
collectability is probable.  Generally, all of these conditions are
met at the time the Company delivers products to customers.




The
Company’s Duraswitch segment was discontinued and sold in October
2008.




Accounts
Receivable.  Credit is extended based on evaluation of a
customer’s financial condition and, generally, collateral is not
required.  Accounts receivable are due within 30 to 60 days and are
stated at amounts due from customers net of an allowance for doubtful
accounts.  Accounts outstanding longer than the contractual payment
terms are reviewed for collectability and after 90 days are considered past
due.


24


The
Company determines its allowance by considering a number of factors, including
the length of time trade accounts receivable are past due, the Company’s
previous loss history, the customer’s current ability to pay its obligation to
the Company, and the condition of the general economy and the industry as a
whole.  The Company writes-off accounts receivable when they become
uncollectible and payments subsequently received on such receivables are
credited to the allowance for doubtful accounts.  There was no
allowance for doubtful accounts at December 31, 2008.




Stock-Based
Compensation.  At December 31, 2008, the Company had four
stock-based employee compensation plans.  The plans provide for the
granting of awards in the form of incentive and nonqualified stock options,
stock appreciation rights, shares of restricted common stock, bonus stock in
lieu of obligations, or other stock-based awards to employees, directors and
independent contractors who provide valuable service to the
Company.  As of December 31, 2008, the Company had granted
nonqualified stock options and restricted common stock.  Options are
granted at the closing market price of our common stock on the date the grant is
approved and have ten-year terms.  The stock options for directors
typically vest within 30 days of grant.  The employee options issued
in 2008 are vesting over a 28 to 30 month period.  In May 2006, the
Compensation Committee increased compensation for the Chairman of the Board,
effective as of the second fiscal quarter of 2006, to include grants of $2,500
worth of non-registered restricted stock for each quarter of service, with each
award vesting one year from the date of grant.  The granting of
restricted stock to the Chairman was suspended when the Chairman was appointed
CEO in July 2007.  Beginning in 2008, 50% of all fees paid to
Directors were in the form of restricted stock.  In August of 2008,
the Board elected to defer compensation until such time as the Company had
secured additional funding. At December 31, 2008, 1,360,657 shares of the
Company’s registered common stock were available for grant under the
plans.




Effective
January 1, 2006, the Company adopted Statement of Financial Accounting Standards
No. 123 (revised 2004), “Share-Based Payment” (SFAS 123R), which requires the
Company to measure the cost of employee services received in exchange for all
equity awards granted including stock options based on the fair market value of
the award as of the grant date.  SFAS 123R supersedes Statement of
Financial Accounting Standards No. 123, “Accounting for Stock-Based
Compensation” (SFAS 123) and Accounting Principles Board Opinion No. 25,
“Accounting for Stock Issued to Employees” (APB 25).  The Company has
adopted SFAS 123R using the modified prospective method.  Accordingly,
prior period amounts have not been restated.  Under the modified
prospective method, stock options awards that are granted, modified or settled
after December 31, 2005 will be valued at fair value in accordance with
provisions of SFAS 123R and recognized on a straight line basis over the service
period of the entire award.  At December 31, 2005, all outstanding
stock options were fully vested.




Prior to
January 1, 2006, the Company accounted for stock based compensation under the
recognition and measurement provisions of APB 25 and related interpretations, as
allowed by SFAS 123.  The Company had adopted the disclosure-only
provisions of SFAS 123 as amended by SFAS No. 148, “Accounting for Stock-Based
Compensation – Transition and Disclosure”.  Prior to 2006, the Company
accounted for stock-based compensation in accordance with APB 25 using the
intrinsic value method, which did not require compensation cost to be recognized
for the Company’s stock options as all options previously granted had an
exercise price equal to the market value of the underlying common stock on the
date of the grant.




Compensation
cost recognized as part of the Company’s selling, general and administrative
expenses in the year ended December 31, 2008 and 2007 was $238,080 and $178,165,
respectively, net of $0 tax benefit and is the same as would have been
recognized had the provisions of SFAS 123R been applied from its original
effective date.  As of December 31, 2008, $170,472 of compensation
cost related to unvested stock options is expected to be recognized in the years
2009 through 2011 at the rate of $122,338, $46,248 and $1,885 during 2009, 2010
and 2011, respectively.  The estimated value of the options granted
during 2008 was calculated using the Black-Scholes option pricing model with the
following assumptions: an expected risk-free interest rate of 1.51% to 2.51%,
3.13% to 4.69% for options granted in 2008 and 2007, respectively; an expected
life of three years; an expected volatility rate of 78% to 98% and 83% to 91%
for options granted in 2008 and 2007, respectively; and an expected dividend
rate of zero percent.




25


Income
Taxes.  Deferred taxes are provided on temporary differences
between the tax basis of assets and liabilities for financial reporting purposes
and income tax purposes.  The valuation allowance reduces deferred tax
assets to an amount that represents the Company’s best estimate of the amount of
such deferred tax assets that, more likely than not, will be
realized.




Income (Loss) Per
Common Share.  Basic income (loss) per share is computed by
dividing the net income (loss) by the weighted average number of common shares
outstanding during the period.  Diluted income (loss) per share is
computed using the weighted average number of shares of common stock outstanding
plus the effect of any stock options or warrants if they are
dilutive.




In 2008,
all stock options and warrants were anti-dilutive and totaled
2,060,121.  Accordingly, these securities have been excluded from the
diluted loss per share calculation.




In 2007,
1,643,784 shares were excluded from the computation of diluted earnings per
share, as the exercise price of those options and warrants was greater than the
average share price for the period.




2008
                    
                    
                    2007Weighted
      average shares outstanding – Basic
                    
                    
                    11,613,022
                    
                    
                    
                    11,530,233Effect
      of dilutive stock options
                    
                    
                    -
                    
                    
                    
                    -Weighted
      average shares outstanding – Fully diluted
                    
                    
                    11,613,022
                    
                    
                    
                    11,530,233




Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed of.  The
Company reviews its long-lived assets and identifiable intangibles for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable.  If such assets
were considered to be impaired, the impairment to be recognized would be
measured by the amount by which the carrying amount of the assets exceeds the
fair market value of the assets.  Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs to
sell.





The
Company evaluates the recoverability of property and equipment and intangibles
not held for sale by comparing the carrying amount of the asset or group of
assets against the estimated undiscounted future net cash flows expected to
result from the use of the asset or group of assets.  If the
undiscounted estimated cash flows are less than the carrying value of the asset
or group of assets being reviewed, an impairment loss would be
recorded.  The loss would be measured based on the estimated fair
value of the asset or group of assets compared to cost.  The estimated
fair value would be based on the best information available under the
circumstances, including prices for similar assets and the results of valuation
techniques, including the present value of expected future cash flows using a
discount rate commensurate with the risks involved.  The Company’s
long-lived assets were tested for impairment at December 31, 2008 and no
impairment was found.  As discussed in Note 17, the Company’s
management and Board of directors elected to wind down operations and liquidate
that net assets of the Company.  The Company believes that the pending
agreement to sell the intellectual property provides evidence that such carrying
value is not impaired at December 31, 2008.  The Company was fully
utilizing its property and equipment at December 31, 2008 and through the first
quarter of fiscal 2009.  As such, the Company does not believe an
impairment charge is appropriate at December 31, 2008.  However, upon
liquidation, the realizable value of those assets will likely be significantly
less than the December 31, 2008 carrying value.





New Accounting
Pronouncements.  In February 2007, the FASB issued SFAS No.
159, “The Fair Value Option for Financial Assets and Financial Liabilities”
(SFAS 159), which permits entities to choose to measure many financial
instruments and certain other items at fair value that are not currently
required to be measured at fair value.  SFAS 159 will be effective for
us on January 1, 2008.  The Company is currently evaluating the impact
of adopting SFAS 159 on the Company’s financial position, cash flows, and
results of operations but does not believe it will have any impact on its
financial condition and results of operations.





In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations”(“FAS 141 (R)”), to replace
FAS 141, “Business Combinations”.  FAS 141(R)
requires use of the acquisition method of accounting, defines the acquirer,
establishes the acquisition date and broadens the scope to all transactions and
other events in which one entity obtains control over one or more other
businesses.  This statement is effective for financial statements
issued for fiscal years beginning on or after December 15, 2008 with earlier
adoption prohibited.  While the Company does not expect that the
adoption of FAS 141 (R) to have a material impact to its consolidated financial
statements for transactions completed prior to December 31, 2008, the impact of
the accounting change could be material for business combinations which may be
consummated subsequent thereto.


26





In
December 2007, the FASB issued Statement of FAS No. 160, “Non controlling
Interests in Consolidated Financial Statements”—an amendment of ARB No. 51,
(“FAS 160”).  FAS 160 establishes accounting and reporting standards
for the non controlling interest in a subsidiary and for the retained interest
and gain or loss when a subsidiary is deconsolidated.  This statement
is effective for financial statements issued for fiscal years beginning on or
after December 15, 2008 with earlier adoption prohibited.  The Company
is currently evaluating the impact of FAS 160 on its consolidated financial
statements.





Fair Value of
Financial Instruments.  The carrying values of cash and cash
equivalents, accounts receivable and accounts payable and notes payable
approximate fair values due to the short-term maturities of these
instruments.  The fair value of capital leases approximates the
carrying value of these instruments because the terms are similar to those in
the marketplace under which they could be replaced.





Use of
Estimates.  The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America necessarily requires the Company to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting
period.  Actual results could differ from those
estimates.





4.
            CONCENTRATIONS




The
Company maintained its cash and cash equivalents in one financial institution at
December 31, 2008.  Deposits with this bank may exceed the amount of
insurance provided on such deposits; however, these deposits typically may be
redeemed upon demand and, therefore, bear minimal risk.





Sales to
Gateway represented 51% and 95% of net revenue in 2008 and 2007,
respectively.   Net revenue from Gateway was $248,246 and
$2,585,168 in 2008 and 2007, respectively.  Panasonic represented 37%
and 0% of net revenue in 2008 and 2007, respectively.  As discussed in
Note 2, the Company does not anticipate future material revenue from Gateway
related business.





At
December 31, 2008, one customer represented 99% of accounts
receivable.





5.
            INVENTORY




The
Company’s inventory is primarily comprised of certain raw materials that are
used in the manufacture of digital pens and digitizers and licensed components,
and finished goods which are primarily pens and digitizers.  Inventory
consists of the following at December 31:





2008Raw
      materials
                        
                        $
                        13,838Finished
      goods
                        
                        
                        -Subtotal
                        
                        $
                        13,838




6.
            PROPERTY
      AND EQUIPMENT




Property
and equipment consists of the following at December 31:


27





2008Computer
      equipment and software
                          
                          $
                          533,561Tooling
                          
                          
                          65,783Other
      machinery and equipment
                          
                          
                          64,466Leasehold
      improvements
                          
                          
                          19,400Office
      furniture and fixtures
                          
                          
                          149,170Total
                          
                          
                          832,380Accumulated
      depreciation
                          
                          
                          (557,353
                          )Property
      and equipment - net
                          
                          $
                          275,027





Depreciation
expense for property and equipment was $132,168 and, $196,529 for the years
ended December 31, 2008 and 2007, respectively.





The
Company was fully utilizing these assets at December 31,
2008.  However, due to the decision to liquidate the Company discussed
in Note 2, the Company believes liquidation value of these assets will be
nominal.





7.
            PATENTS




The gross
carrying amount and accumulated amortization of patents are as
follows:





2008Patents
                    
                    $
                    694,222Accumulated
      amortization
                    
                    
                    (283,015
                    )Patents
      - net
                    
                    $
                    411,207





Amortization
expense for patents was $132,738 and $138,968, for the years ended December 31,
2008 and 2007, respectively.  The estimated amortization expense for
existing patents is approximately $87,000 for each of the next four years and
$63,000 in year five.  See Note 16 for discussion relative to the
disposition of the underlying technology related to these
patents.  These patents support the technology being
sold.





8.
            STOCKHOLDERS’
      EQUITY





Common
Stock.  During 2008, 27,430 shares of common stock were issued
through the Company’s stock plans as exercised options and restricted stock
grants.





Preferred
Stock.  As of December 31, 2008, no preferred stock is
outstanding.  The Company’s Board of Directors is authorized, subject
to any limitations prescribed by Nevada law, but without further action by the
stockholders, to provide for the issuance of serial preferred stock in one or
more series; to establish from time to time the number of shares to be included
in these series; to fix the designations, powers, preferences, and rights of the
shares of each such series and any qualifications, limitations, or restrictions
thereof; and to increase or decrease the number of shares of any such series,
but not below the number of shares of such series then outstanding, without any
further vote or action by the stockholders.  The Board of Directors
may authorize and issue serial preferred stock with voting or conversion rights
that could adversely affect the voting power or other rights of the holders of
common stock.





Warrants.  In connection
with the private offering that closed in December 2005, the buyers were granted
warrants to purchase 381,818 shares of common stock at an exercise price of
$3.44 per share.  These warrants expire on December 27,
2010.  The underwriters were granted warrants to purchase 127,273
shares of common stock at an exercise price of $4.22 per share.  These
warrants expire on December 27, 2010.  In the event the closing price
of our common stock equals or exceeds $5.50 per share for a period of 60
consecutive trading days, the Company may redeem the warrants issued to the
investors for $0.01 per warrant upon notice to the warrant holders.





A summary
of changes in outstanding warrants is as follows:


28




Warrants
                        
                        
                        Price
      RangeBalance,
      December 31, 2007
                        
                        
                        509,091
                        
                        
                        $
                        3.44 - $4.22Issued
                        
                        
                        -Exercised
                        
                        
                        -Expired
                        
                        
                        -Balance,
      December 31, 2008
                        
                        
                        509,091
                        
                        
                        $
                        3.44 - $4.22





9.
            STOCK
      OPTION PLANS




Effective
May 1, 1997, the Board of Directors approved a stock option plan (the “1997
Option Plan”).  This plan provides for the granting of incentive and
nonqualified stock options to officers, directors and employees of the
Company.  The plan also provides for the granting of nonqualified
stock options to any director, consultant or other individual whose
participation the Board of Directors determines to be in the best interest of
the Company.  The number of shares authorized for options under the
1997 Option Plan is 823,535.





The
Company’s 1999 Stock Option Plan (the “1999 Option Plan”) was adopted by the
Company’s Board of Directors and was ratified by the stockholders on March 8,
1999.  The number of shares of common stock authorized subject to
options under the 1999 Option Plan is 235,294 shares.





The
Company’s 2000 Stock Option Plan (the “2000 Option Plan”) was adopted by the
Company’s Board of Directors and was ratified by the stockholders on June 19,
2000 and was amended on May 20, 2002.  The number of shares of common
stock authorized subject to options under the 2000 Option Plan is 500,000
shares.





The
Company’s 2005 Stock Award Plan (the “2005 Option Plan”) was adopted by the
Company’s Board of Directors and was ratified by the stockholders on May 20,
2005.  On May 31, 2007, stockholders approved The First Amendment to
InPlay Technologies, Inc. 2005 Stock Award Plan.  On December 19,
2008, stockholders approved The Second Amendment to InPlay Technologies, Inc.
2005 Stock Award Plan. The number of shares of common stock authorized subject
to options under the 2005 Option Plan is 2,000,000 shares.





The total
number of shares available for grant under all four plans is 1,360,657 at
December 31, 2008.





Options
granted under all plans expire up to ten years from the date of
grant.  Options that expire or terminate prior to exercise are added
to the shares available for future grants.





A summary
of changes in stock options is as follows:




Option
                                      Shares
                                    
                                    
                                    Weighted
                                      Average
                                      Exercise
                                      PriceBalance,
      December 31, 2006
                                    
                                    
                                    1,468,473
                                    
                                    
                                    $
                                    6.62Granted
                                    
                                    
                                    430,000
                                    
                                    
                                    $
                                    1.52Exercised
                                    
                                    
                                    (90,000
                                    )
                                    
                                    $
                                    1.18Expired
      or terminated
                                    
                                    
                                    (32,600
                                    )
                                    
                                    $
                                    2.73Balance,
      December 31, 2007
                                    
                                    
                                    1,775,873
                                    
                                    
                                    $
                                    5.73Granted
                                    
                                    
                                    620,000
                                    
                                    
                                    $
                                    0.50Exercised
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Expired
      or terminated
                                    
                                    
                                    (844,843
                                    )
                                    
                                    $
                                    8.71Balance,
      December 31, 2008
                                    
                                    
                                    1,551,030
                                    
                                    
                                    $
                                    2.02


29


2008
                                  
                                  
                                  2007Exercisable
      at the end of the year
                                  
                                  
                                  944,695
                                  
                                  
                                  
                                  1,350,873Weighted
      average fair value of optionsgranted
      during the year
                                  
                                  $
                                  0.29
                                  
                                  
                                  $
                                  0.90




A summary
of options outstanding and exercisable as of December 31, 2008 is as
follows:




Options Outstanding
                                      
                                      
                                      Options ExercisableRange of Exercise Price
                                      
                                      Options
                                        Outstanding
                                      
                                      
                                      Weighted
                                        Average
                                        Remaining
                                        Contractual
                                        Life
                                      
                                      
                                      Weighted
                                        Average
                                        Exercise
                                        Price
                                      
                                      
                                      Options
                                        Exercisable
                                      
                                      
                                      Weighted
                                        Average
                                        Exercise
                                        Price$   0.18     -   $     0.97
                                      
                                      
                                      580,000
                                      
                                      
                                      
                                      9.3
                                      
                                      
                                      $
                                      0.47
                                      
                                      
                                      
                                      153,333
                                      
                                      
                                      $
                                      0.60$   1.06     -   $     1.96
                                      
                                      
                                      483,500
                                      
                                      
                                      
                                      7.6
                                      
                                      
                                      $
                                      1.56
                                      
                                      
                                      
                                      303,832
                                      
                                      
                                      $
                                      1.56$   2.05     -   $     3.38
                                      
                                      
                                      319,000
                                      
                                      
                                      
                                      5.9
                                      
                                      
                                      $
                                      2.65
                                      
                                      
                                      
                                      319,000
                                      
                                      
                                      $
                                      2.65$   6.00     -   $   10.85
                                      
                                      
                                      168,530
                                      
                                      
                                      
                                      2.1
                                      
                                      
                                      $
                                      7.50
                                      
                                      
                                      
                                      168,530
                                      
                                      
                                      $
                                      7.50$   0.18     -   $   10.85
                                      
                                      
                                      1,551,030
                                      
                                      
                                      
                                      7.3
                                      
                                      
                                      $
                                      2.02
                                      
                                      
                                      
                                      944,695
                                      
                                      
                                      $
                                      2.83




Years
      Ended December 31,
                        
                        2008
                        
                        
                        2007Options
      exercisable at end of period
                        
                        
                        944,695
                        
                        
                        
                        1,350,873Options
      available for future grant
                        
                        
                        1,360,657
                        
                        
                        
                        163,244Intrinsic
      value of options exercised
                        
                        $
                        -
                        
                        
                        $
                        94,740Aggregate
      intrinsic value of options outstanding
                        
                        $
                        -
                        
                        
                        $
                        26,790Aggregate
      intrinsic value of options exercisable
                        
                        $
                        -
                        
                        
                        $
                        24,580




The
aggregate intrinsic values in the preceding table represents the total pretax
intrinsic value, based on the Company’s closing stock price as of December 31,
which was $0.1698 and $1.32 for the years 2008 and 2007,
respectively.  These values would have been received by the option
holders had all option holders exercised their in-the-money options as of that
date.




10.
            INCOME
      TAXES




Net
deferred tax assets consist of the following at December 31:




2008Deferred
      tax assets:Operating
      loss carryforwards
                    
                    $
                    8,563,321Capitalized
      research and development
                    
                    
                    3,064,195Inventory
      reserve
                    
                    
                    21,367Accruals
                    
                    
                    237,259Other
                    
                    
                    156,481Total
                    
                    
                    12,042,623Less
      valuation allowance
                    
                    
                    (11,819,248
                    )Total
                    
                    
                    223,375Deferred
      tax liabilities:Patents
                    
                    
                    (158,408
                    )Other
                    
                    
                    (64,967
                    )Total
                    
                    $
                    -


30





During
the year ended December 31, 2008 the Company increased the valuation allowance
by $2,373,577.  In 2007, the Company decreased the valuation allowance
by $1,990,403.  The amount of the valuation allowance for deferred tax
assets associated with excess tax deductions from stock based compensation
arrangements that is allocated to contributed capital if the future tax benefits
are subsequently recognized is $1,004,793.  The valuation allowance
reduces deferred tax assets to an amount that represents management’s best
estimate of the amount of such deferred tax assets that, more likely than not,
will be realized.  Realization of the deferred tax assets is dependent
upon generating sufficient future taxable income in the period that temporary
differences and carry forwards are expected to be available to reduce taxable
income.





In 2007,
the Company eliminated its deferred tax asset related to R&D credit carry
forwards.  The majority of these R&D credit carry forwards arose
prior to current management joining the Company.  At present,
management cannot be assured, without undertaking substantial efforts, that the
facts and circumstances surrounding the build-up of these credit carry forwards
result in a more-likely-than-not tax position.  The Company would not
utilize these R&D credits to reduce future taxes payable unless and until it
was able to determine the amount of such credits that satisfy the
more-likely-than-not threshold.  As a result, the Company has
eliminated both the deferred tax asset and an equal amount of valuation
allowance.





The
Company has net operating loss carry forwards for federal income tax purposes of
$24.5 million which expire in 2019 through 2028 and net operating loss carry
forwards for state income tax purposes of $7.4 million which expire 2009 through
2013.





Current
federal and Arizona tax laws include substantial restrictions on the utilization
of net operating losses and tax credits in the event of an ownership change of a
corporation.  Accordingly, the Company’s ability to utilize net
operating loss and tax credit carry forwards may be limited as a result of such
ownership changes.  Such a limitation could result in the expiration
of carry forwards before they are utilized.





The
Company recognizes interest and penalties related to uncertain tax positions as
part of income tax expense.  For the year ended December 31, 2007 and
2008, the Company did not accrue any interest or penalties into income tax
expense.





The tax
years 1996 through 2008 remain open to examination for federal income tax
purposes and from 2002 to 2008 for state taxing jurisdictions to which the
Company is subject.





The
income tax provision differs from the amount of income tax determined by
applying the U.S. federal income tax rate to pretax income for 2008 and 2007 due
to the following:




2008
                    
                    
                    2007Benefit
      calculated at statutory rate
                    
                    $
                    (2,472,741
                    )
                    
                    $
                    524,125Increase
      (decrease) in income resulting from:Research
      and development and other tax credits
                    
                    
                    -
                    
                    
                    
                    1,398,235State
      income taxes, net
                    
                    
                    (334,547
                    )
                    
                    
                    70,911Permanent
      differences
                    
                    
                    342,873
                    
                    
                    
                    (25,903
                    )Expiration
      of state net operating loss carryforwards
                    
                    
                    92,766
                    
                    
                    
                    -Other,
      net
                    
                    
                    (1,928
                    )
                    
                    
                    (2,894
                    )Valuation
      allowance
                    
                    
                    2,373,577
                    
                    
                    
                    (1,990,403
                    )Adjustment
      for change in state income tax rate
                    
                    
                    -
                    
                    
                    
                    25,929Total
                    
                    $
                    -
                    
                    
                    $
                    -





In June
2006, the FASB issued Interpretation 48, “Accounting for Uncertainty in Income
Taxes – an interpretation of FASB Statement No. 109” (FIN 48), which became
effective for years beginning on January 1, 2007.  FIN 48 addressed
the determination of how tax benefits claimed or expected to be claimed on a tax
return should be recorded in the financial statements.  Under FIN 48,
the Company must recognize the tax benefit from an uncertain tax position only
if it is more likely than not that the tax position will be sustained on
examination by taxing authorities, based on the technical merits of the
position.  The Company’s assessments of its tax positions in
accordance with FIN 48 did not result in changes that had a material impact on
results of operations, financial condition or liquidity.  The Company
has no unrecognized income tax benefits at December 31, 2008.


31





11.
            SEGMENTS




The
Company has one reportable segment at December 31, 2008.  All
operations for the Duraswitch segment have been reclassified as discontinued
operations.




12.
            SELECTED
      QUARTERLY FINANCIAL DATA
(Unaudited)




The
following table presents unaudited operating results for each quarter within the
two most recent years.  The Company believes that all necessary
adjustments, consisting only of normal recurring adjustments, have been included
in the amounts stated below to present fairly the following quarterly results
when read in conjunction with the financial statements included elsewhere in
this report.  Results of operations for any particular quarter are not
necessarily indicative of results of operations for a full fiscal
year:




2008 - Quarter Ended,December 31
                                
                                
                                September 30
                                
                                
                                June 30
                                
                                
                                March 31Net
      revenue
                                
                                $
                                120,189
                                
                                
                                $
                                291,659
                                
                                
                                $
                                63,176
                                
                                
                                $
                                8,951Gross
      profit
                                
                                
                                (354,671
                                )
                                
                                
                                264,859
                                
                                
                                
                                58,998
                                
                                
                                
                                (667
                                )Income
      (loss) from discontinuedDuraswitch
      Segment
                                
                                
                                (23,028
                                )
                                
                                
                                110,127
                                
                                
                                
                                21,206
                                
                                
                                
                                103,733Net
      income (loss)
                                
                                
                                (3,017,558
                                )
                                
                                
                                (1,278,848
                                )
                                
                                
                                (1,379,881
                                )
                                
                                
                                (1,596,481
                                )Net
      income (loss) per common share,basic
      and diluted
                                
                                $
                                (0.26
                                )
                                
                                $
                                (0.11
                                )
                                
                                $
                                (0.12
                                )
                                
                                $
                                (0.14
                                )




2007 - Quarter Ended,December 31
                            
                            
                            September 30
                            
                            
                            June 30
                            
                            
                            March 31Net
      revenue
                            
                            $
                            123,140
                            
                            
                            $
                            1,019,423
                            
                            
                            $
                            403,982
                            
                            
                            $
                            1,168,034Gross
      profit
                            
                            
                            28,205
                            
                            
                            
                            (11,746
                            )
                            
                            
                            127,386
                            
                            
                            
                            310,661Income
      (loss) from discontinuedDuraswitch
      Segment
                            
                            
                            18,836
                            
                            
                            
                            (39,473
                            )
                            
                            
                            (72,309
                            )
                            
                            
                            7,019,628Net
      income (loss)
                            
                            
                            (1,969,437
                            )
                            
                            
                            (1,070,913
                            )
                            
                            
                            (1,649,921
                            )
                            
                            
                            6,231,814Net
      income (loss) per common share,basic
      and diluted
                            
                            $
                            (0.17
                            )
                            
                            $
                            (0.09
                            )
                            
                            $
                            (0.14
                            )
                            
                            $
                            0.54




13.
            GEOGRAPHIC
      CONCENTRATION




Substantially
all of the Company’s assets are located in the United States but there is some
tooling held by suppliers in foreign countries, primarily
China.  Revenue by geographic area is determined based upon the
location of the licensee or customer.  The United States and China are
the only countries with net revenue in excess of 10% of total net
revenue.  Net revenue by geographic region for the years ended
December 31, 2008 and 2007 is as follows:





2008
                          
                          
                          2007United
      States
                          
                          $
                          166,830
                          
                          
                          $
                          2,654,579Japan
                          
                          
                          179,727
                          
                          
                          
                          60,000China
                          
                          
                          135,000
                          
                          
                          
                          -Other
                          
                          
                          2,418
                          
                          
                          
                          -Total
                          
                          $
                          483,975
                          
                          
                          $
                          2,714,579


32




14.
            COMMITMENTS




Management
Services Agreement.  Until the sale of the Duraswitch segment,
the Company had a management services agreement with a company owned and
operated by the founders.  This management agreement required the
Company to pay a management service fee equal to 1.1% of the invoiced sales
price for all Duraswitch-patented technology component switches and integrated
switch panels sold by the Company.  Also, the Company paid an
equivalent percentage of any license or sublicense fees received from the
Duraswitch patented switch technologies.  During 2008 and 2007, the
Company paid approximately $9,702 and $94,250, respectively, under this
agreement.





Employment
Agreements.





Robert
J. Brilon





On July
31, 2007, the Company entered into a severance and release agreement with Robert
J. Brilon, its former Chief Executive Officer and Chief Financial
Officer.  Pursuant to the settlement and release agreement, Mr.
Brilon’s employment with the Company terminated effective July 27, 2007, and he
resigned from the Board of Directors effective July 27, 2007.





Pursuant
to the settlement and release agreement, Mr. Brilon released the Company from,
among other things, any and all claims or liabilities through July 31, 2007
arising out of his employment agreement and any option agreements with the
Company, his employment, or the termination of his employment.  In
addition, Mr. Brilon released the Company from claims or charges relating to
violations of certain employment laws.




In
consideration for the release and in accordance with the provisions of his
employment agreement, the Company paid, or will pay, Mr. Brilon (a)
approximately $541,200, which is equal to two times his current gross annual
salary as a severance benefit, to be paid to Mr. Brilon over a two-year period
in equal installments; (b) approximately $125,500 representing Mr. Brilon’s
unpaid accrued vacation benefits; (c) $250,000 representing an agreed upon
amount relating to a bonus payment obligation; (d) approximately $6,700
representing one-half of the remaining amount due under the automobile leased by
the Company and Mr. Brilon; and (e) Mr. Brilon’s and his family’s medical and
dental insurance premiums to maintain coverage under the Company’s group medical
and dental insurance plans, only to the extent such premiums are not covered by
any subsequent employer during the two-year period following the separation
date.  In addition, all of Mr. Brilon’s stock options or other rights
provided to him under any of the Company’s long-term incentive plans immediately
vested on the day prior to the effective date of the settlement and release
agreement.




Van
H. Potter




In
September 2008, the Company entered into an employment agreement with Van H.
Potter, granting him an annual base salary of $200,000 and an option grant of
200,000 shares. Until the Company has secured additional funding and established
a sufficient cash position to continue ongoing operations, $75,000 of Mr.
Potter’s base salary will be deferred on a semi-monthly basis. Upon his
appointment as Chief Executive Officer, his agreement was amended to reflect an
annual salary of $250,000. Beginning in 2009, Mr. Potter will be eligible for a
performance bonus of up to 100% of his base salary, as decided by the Board of
Directors. Additionally, Mr. Potter will be eligible for all medical, dental and
vacation benefits per the standard Company Policy.





The Company also entered into a Change
of Control Severance Agreement Mr. Potter. Under the Agreement, upon a change of
control or at any time during the twelve months following a change in control,
Mr. Potter’s employment with the Company is terminated for any reason other than
for “cause” or by the Mr. Potter for “good reason,” then the Company will pay
the Mr. Potter, within 10 days following the termination of his employment, the
following:




- an amount equal to the his annual
base salary, and


33


- an amount equal to the greater of all
cash incentive compensation payable to him on account of the current fiscal year
as if he had achieved 100% of all of his targets or goals for that fiscal year,
or all cash incentive compensation actually paid to him on account of the
immediately preceding fiscal year.




Mr.
Potter, or his family, will be eligible for participation under the Company’s
benefit plans for a period of 12 months. Any stock options granted to Mr. Potter
that remain unvested as of the effective date of the his termination shall
become fully vested.




Lease
Agreements.  Rent expense for the periods ended December 31,
2008 and 2007 approximated $277,000 and $225,000, respectively.  In
May 2007, the Company entered into a five year lease for new corporate
headquarters located in Scottsdale, Arizona and transferred operations there in
June 2007.  Future minimum rental payments will be approximately
$255,000 in 2009 through 2011, and $190,000 in 2012.  In April 2009,
the company vacated the property, and subsequently agreed to pay the landlord
$209,749 to terminate the lease if payment is received by landlord by October 5,
2009.





Litigation.  The
Company is involved in various claims and legal actions arising from the
ordinary course of business.  In the opinion of management, the
ultimate disposition of these matters will not have a material adverse effect on
the Company’s financial position, results of operations, or
liquidity.





In May
2007, Stephen Caldwell, the former president of FinePoint Innovations, Inc.
filed a Demand for Arbitration with the American Arbitration Association
alleging various claims against InPlay.  He alleged that InPlay
terminated his employment in violation of his employment agreement, and that
InPlay breached the terms of a 2005 Merger Agreement between InPlay, FinePoint,
and him, for which he sought compensatory and other damages.  In March
2008, pending final documentation, the Company entered into a Settlement and
Release of Claims Agreement whereby the Company paid a cash settlement of
$330,000 to resolve all of Mr. Caldwell's claims and dismiss his case in its
entirety.





15.
            EMPLOYEE
      BENEFIT PLANS




The
Company has offered eligible employees a comprehensive employee benefits plan
that includes health, dental, life and accidental death, short-term disability,
and long-term disability.  Additionally, the Company has offered a
Simple IRA plan that enables eligible employees to save on a tax-deferred basis
up to the limits allowable under the Internal Revenue Service Code and that
requires the Company to offer matching contributions up to 3% of participating
employee salaries.  Matching contributions provided by the Company
totaled $60,084 and $45,782 for fiscal 2008 and 2007, respectively.





16.
            DISCONTINUED
      OPERATIONS




In
October 2008, the Company sold its Duraswitch electronic switch
operations.  The Company sold these assets to provide cash to enable
it to focus on its pen technology products.  On October 28, 2008,
Company entered into an agreement with a licensee of the Duraswitch technology
to sell substantially all of the operating assets for $1.6 million in
cash.  The agreement calls for the potential for the Company to earn
an additional $800,000 if certain operating milestones are met by the acquirer
within the Duraswitch business.





Therefore, pursuant to the criteria
established by SFAS No. 144,
Accounting for the Impairment of Disposal of Long-Lived Assets, the
Company has determined that all of its electronic switch operations for the
years ended December 31, 2008 and 2007 should be reclassified as income from
discontinued operations.


34




A summary of the results from
discontinued operations are as follows:





December 312008
                  
                  
                  2007Duraswitch
      revenues
                  
                  $
                  1,003,396
                  
                  
                  $
                  8,623,195Cost
      of Duraswitch revenues
                  
                  
                  327,795
                  
                  
                  
                  395,883Gross
      profit
                  
                  
                  675,601
                  
                  
                  
                  8,227,312Operating
      expenses and other
                  
                  
                  405,839
                  
                  
                  
                  1,300,630Income
      from discontinued operations
                  
                  
                  269,762
                  
                  
                  
                  6,926,682(Loss)
      on sale of Duraswitch
                  
                  
                  (57,724
                  )
                  
                  
                  —Net
      income from discontinued operations
                  
                  $
                  212,038
                  
                  
                  $
                  6,926,682





There was
no tax effect within the discontinued operations.





17.
            SUBSEQUENT
      EVENTS




On March
10, 2009, the Company executed a binding Letter of Intent (LOI) to enter into a
merger agreement with U.S. Rental Housing REIT, Inc. (USRHR). Under the terms of
the LOI, USRHR had agreed to provide funding to InPlay for audit and consulting
fees and working capital. As of May 5, 2009, USRHR had not provided the agreed
upon funding. On May 7, 2009, InPlay announced that it had terminated pursuit of
the merger.




As a
result of a lack of funding, the Company significantly wound down operations
during the first quarter of 2009, and focused its attention on the sale of
assets. The Company’s goal is to negotiate outstanding obligations with
creditors, satisfy legal and regulatory requirements associated with any sale
and wind down of the company, and close operations with the approval of
stockholders.




In April
2009, the Nasdaq Stock Market notified the Company that its shares were subject
to delisting due to non-payment of annual listing fees, among other
deficiencies. The Company did not appeal the delisting and trading of its common
shares on Nasdaq was suspended on April 27, 2009. Nasdaq subsequently filed a
Form 25 with the Securities and Exchange Commission to complete the
delisting.




On May
18, 2009, the Company filed a Form 15 with the SEC, deregistering its common
shares and suspending reporting requirements under the Securities Exchange Act
of 1934. The Company anticipates that the deregistration will become effective
approximately 90 days after the filing.




On June
26, 2009, the Company executed an asset purchase agreement (APA) with Wacom Co.
Ltd. pursuant to which it has agreed to sell all of its ownership right, title
and interest in and to the intellectual property pertaining to the digital
computer pen and digitizer segment of its business, including, without
limitation, the human interface device technology used in the Magic Point Pen
and the Write Sense products, which represents substantially all of the
Company’s remaining assets, for a price of $2.0 million.  This
transaction is conditioned on, among other things, stockholder approval of the
APA.  Upon completion of the transaction, the Company intends to
negotiate settlements for amounts owed to creditors, cease business operations,
and dissolve the company and its subsidiaries, including FinePoint Innovations.
If the Company is able to successfully negotiate settlements of its obligations,
the Company believes it will be able to avoid bankruptcy. In connection with the
dissolution, if any proceeds remain following the payment of transaction costs
and the settlement and payment of its outstanding liabilities, the Company
intends to distribute any remaining proceeds to its stockholders and dissolve
the company in accordance with the plan of liquidation and dissolution. Wacom
may terminate the APA if, among other reasons, the transaction is not
consummated by October 5, 2009.


35


During
July 2009, the Company entered into amendments to our Change of Control
Severance Agreements with Mr. Potter and Mark Sokolowski, its Chief Financial
Officer.  The Company entered into these agreements to incent Messrs.
Potter and Sokolowski to remain employed with the Company to assure the
successful wind down of its operations and the payment and settlement of
outstanding payables and liabilities.  Under the agreements, as
amended, each of Messrs. Potter and Sokolowski will be paid closing bonuses of
$215,000 subsequent to the closing of the asset purchase transaction with
Wacom.  The closing payments will be paid in three installments, with
(a) $161,250 due within three business days following the closing date of the
asset purchase transaction, (b) $43,000 due within three business days after the
Company’s board of directors approves a plan providing for the settlement of all
of the outstanding creditors’ claims and the creditors’ approval of such plan,
and (c) $10,750 due within three business days after the Company’s board of
directors approves a plan to terminate business affairs and dissolve the
Company.  The Company will also provide each of Messrs. Potter and
Sokolowski lump sum payment amounts equal to the amount of premium necessary as
of the date the last closing bonus installment is paid to continue all medical,
dental, vision, life, accidental death and dismemberment, and short-term and
long-term disability insurance as is presently provided by the Company, for the
period commencing on the date the last closing bonus installment is paid through
and until December 31, 2009.  In the event the Company files for
bankruptcy protection, all remaining closing bonus payments that have not been
paid to Messrs. Potter and Sokolowski as of the date of that filing, as well as
the payment for continued group insurance benefits, shall accelerate and become
immediately due.




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




None.




Item
9A(T). Controls and
Procedures




Evaluation
of Disclosure Controls and Procedures.





We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized, and reported within the time periods specified in the
SEC's rules and forms, and that such information is accumulated and communicated
to management, including our Chief Executive Officer and our Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosure.




As of the
end of the period covered by this report, we carried out an evaluation, under
the supervision and with the participation of our Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures.  Based on the foregoing, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were effective as of the end of the period covered by
this report to provide reasonable assurance that material information required
to be disclosed by us in reports that we file or submit under the Exchange Act
is recorded, processed, summarized, and reported within the time periods
specified in SEC rules and forms.




A control
system, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met.
Because of the inherent limitations in all control systems no evaluation of
controls can provide absolute assurance that all control issues, if any, within
a company have been detected.  Such limitations include the fact that
human judgment in decision-making can be faulty and that breakdowns in internal
control can occur because of human failures, such as simple errors or mistakes
or intentional circumvention of the established process.




Management’s
Report on Internal Control Over Financial Reporting; Changes in Internal
Controls Over Financial Reporting.





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act.  Our internal control over financial reporting
is designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles.  Our internal control over financial reporting includes
those policies and procedures that are intended to:





(1)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of our assets;


36





(2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that our receipts and expenditures are being made
only in accordance with authorizations of our management and directors;
and





(3)
provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of our assets that could have a
material effect on our financial statements.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.





In
connection with the preparation of this Annual Report on Form 10-K for the
fiscal year ended December 31, 2008, our management, with the participation of
our Chief Executive Officer and Chief Financial Officer and the assistance of
external advisors and our audit committee, has assessed the effectiveness of our
internal control over financial reporting based on the framework in Internal
Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.  Our management has
concluded that the design and operation of our internal control over financial
reporting are ineffective as of December 31, 2008 due to the identification of a
material weakness, as defined in Public Company Accounting Oversight Board
Standard No. 2, related to a lack of segregation of duties over our financial
reporting function.





Management
is aware that there is a lack of segregation of duties due to the small number
of employees dealing with general administrative and financial matters. However,
at this time, management has decided that considering the employees involved,
the control procedures in place, the outsourcing of certain financial functions,
and our plans to dissolve our company following the consummation of the asset
purchase transaction with Wacom, the risks associated with such lack of
segregation are low and the potential benefits of adding additional employees to
clearly segregate duties do not justify the expenses associated with such
increases.  Our management will periodically review this
situation.





There
were no significant changes in our internal controls over financial reporting
that occurred during the fourth fiscal quarter that have materially affected, or
are reasonably likely to materially affect, our internal control over financial
reporting.





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





Item
9B.    Other
Information




None.




37


PART
III




Item
10.  Directors,
Executive Officers  and Corporate Governance.




The
following table sets forth certain information regarding our directors and
executive officers:




Name
                      
                      Age
                      
                      PositionSteven
      P. Hanson
                      
                      60
                      
                      ChairmanVan
      H. Potter
                      
                      50
                      
                      Director,
      President and Chief Executive OfficerMark
      R. Sokolowski
                      
                      49
                      
                      Chief
      Financial Officer, TreasurerDino
      D. Farfante
                      
                      46
                      
                      DirectorJohn
      W. Hail
                      
                      78
                      
                      DirectorP.
      Robert Moya
                      
                      64
                      
                      DirectorWilliam
      E. Peelle
                      
                      59
                      
                      Director





Steven P. Hanson has served
as Chairman since April 2005 and as a Director since July 2004.  From
June 2007 to November 2008, he served as Chief Executive Officer. Mr. Hanson has
served as a partner at Southwest Value Acquisitions, a private equity firm,
since September 2004.  From 2003 to 2007, Mr. Hanson served as a
partner at Knowledge Capital Alliance, a consulting firm in leadership
development and organizational performance.  Mr. Hanson has over 32
years of senior executive experience in the high technology industry, including
28 years at Motorola and three years as President and Chief Executive
Officer of ON Semiconductor.  Mr. Hanson holds a BSEE degree from the
College of Engineering at Arizona State University.  Mr. Hanson also
serves as a director for Vitesse Semiconductor Corporation (Pink Sheets:
VTSS).





Van H. Potter has served as
Director and Chief Executive Officer since November 2008. Mr. Potter served as
President and Chief Operating Officer since September 2008. Prior to his
employment with us, Mr. Potter served as Vice President, Business Development of
Pixtronix, an emerging provider of portable display technologies. Previously,
Mr. Potter served as Senior Vice President of Marketing for International
Display Works, which had acquired Three-Five Systems’ small form-factor display
business. From 2002-2005, Mr. Potter held senior management positions with
Three-five Systems, including Senior Vice President, Electronic Manufacturing
Services; Senior Vice President, Business Groups and heading up the Display
Products division. From 1994 to 2002, Mr. Potter held management, marketing and
new business development posts at Rogers Corp. and Durel Corp. Mr. Potter holds
a B.S. in mechanical engineering from Northeastern University and an M.B.A. from
Arizona State University.





Mark R. Sokolowski was named
Chief Financial Officer in October 2007.  Mr. Sokolowski joined InPlay from Isola
Group S.a.r.l., a privately held circuit board laminate manufacturer where he
was Corporate Treasurer.  Prior, he was with ON Semiconductor where he
held positions as Division Controller and Assistant Treasurer, Read-Rite Corp.
where he was Treasurer, and Maxtor Corp. where he was Director of
Accounting.  Mr. Sokolowski holds a bachelor of science in
accounting from Central Michigan University.  He is a Certified Public
Accountant.





Dino D. Farfante has served
as an independent director since November 2007.  Mr. Farfante is
President and Chief Operating Officer for American Barcode and RFID, Inc.
(AB&R), a provider of automatic identification and data collection solutions
for the manufacturing, healthcare and distribution markets.  Before
joining AB&R in 2006, Mr. Farfante consulted for various companies
developing go-to-market strategies.  Prior, Mr. Farfante was
President, Insight Direct Worldwide, a wholly owned subsidiary of Insight
Enterprises.  He joined Insight in 1996, serving in a progression of
senior management positions during his nine-year tenure with the Fortune 1000
company.  Mr. Farfante began his career at Merisel, Inc., a Fortune
500 worldwide hardware and software technology distributor.  Mr.
Farfante holds a B.S. in computer engineering from the University of
Florida.


38




John W. Hail has served as an
independent director since March 1999.  From 1988 to 2006, Mr. Hail
served as Chief Executive Officer and Chairman of the Board of Directors of AMS
Health Services, Inc., a publicly held provider of health and beauty
products.  Mr. Hail also serves on the Board of Directors of Pre-Paid
Legal Services, Inc., a publicly held company engaged in the sale of legal
services contracts.  Mr. Hail received an honorary doctorate degree
from Oklahoma City University.




P. Robert Moya has served as
an independent director since 2005.  Mr. Moya is an Executive Vice
President and the General Counsel and Secretary of Apollo Group, Inc. and also
serves as Of Counsel to Quarles & Brady LLP.  From 2002 through
2004, Mr. Moya served as Executive Vice President, and General Counsel of
Insight Enterprises, Inc.  He was also designated Insight’s Chief
Administrative Officer in 2003.  Prior to joining Insight, Mr. Moya
served as a partner in the Phoenix, Arizona office of Quarles & Brady LLP
where he specialized in corporation and securities law and mergers/acquisitions
for middle-market and emerging growth companies.  He also served as a
member of Quarles & Brady’s National Executive Committee and Arizona
Management Committee and as Co-Chairman of the Corporate and Securities Law
Group.  Between 2003 and 2007 he served on the board of PlusNet plc,
one of the U.K.’s leading Internet providers.  From 2000 until 2005,
he also served on the board of BIGe Realestate, Inc. which provides software and
services relating to the management of real property  Mr. Moya served
two years as chairman of the securities law section of the State Bar of Arizona
and one year as chairman of the law practice management section.  He
is a member of the American Bar Association and Hispanic Bar
Association.  Mr. Moya received a B.A. in History from Princeton
University and has a J.D. degree from Stanford Law School.




William E. Peelle has served
as an independent director since 1999.  Mr. Peelle founded Peelle Law
Offices Co. in 1977 and has practiced law and represented a number of businesses
since 1975.  Mr. Peelle has also served as the elected prosecuting
attorney of Clinton County, Ohio, since 1993.  Mr. Peelle has served
as counsel or as a member of the board of several community
organizations.  Mr. Peelle received his J.D. degree from Ohio Northern
University and has a B.S. degree in Business Administration from Ohio State
University.





Compliance
with Section 16(a) of the Exchange Act





Section
16(a) of the Exchange Act requires our officers and directors and persons who
beneficially own more than 10% of a registered class of our equity securities to
file reports of ownership and changes in ownership with the Securities and
Exchange Commission.  Officers, directors, and greater than 10%
stockholders are required by Exchange Act regulations to furnish us with copies
of all Section 16(a) forms they file.





Based
solely on the review of the copies of such forms received by us, or written
representations from certain reporting persons that no forms were required for
such persons, we believe that during the fiscal year ended December 31, 2008,
our officers, directors, and greater than 10% beneficial owners have complied
with all filing requirements applicable to them with the exception of the
following: Mr. Farfante filed two late filings, with one transaction each; Mr.
Hail filed two late filings, with one transaction each; Mr. Moya filed two late
filings, with one transaction each; and Mr. Peelle filed two late filings with
one transaction each. All transactions were subsequently reported on Form
4.





Information
Relating to Our Audit Committee of the Board of Directors




The
purpose of the Audit Committee is to oversee the accounting and financial
reporting processes of our company and the audits of our financial
statements.  The Audit Committee provides assistance to our Board of
Directors with respect to its oversight of (a) the integrity of our financial
statements, (b) our compliance with legal and regulatory requirements, (c) the
independent registered public accountant’s qualifications and independence, and
(d) the performance of our independent registered public
accountants.  The primary responsibilities of the Audit Committee are
set forth in its charter, which is reviewed annually, and includes various
matters with respect to the oversight of our company’s accounting and financial
reporting process and audits of the financial statements of our company on
behalf of our Board of Directors.


39


The Audit
Committee also selects the independent registered public accountants to conduct
the annual audit of the financial statements of our company; reviews the
proposed scope of such audit, reviews accounting and financial controls of our
company with the independent registered public accountants and our financial
accounting staff; and reviews and approves transactions between us and our
directors, officers, and their affiliates.





The Audit
Committee currently consists of Messrs. Farfante, Hail, Moya and Peelle, each of
whom is an independent director of our company under rules adopted by the
Securities and Exchange Commission pursuant to the Sarbanes-Oxley Act of
2002.  The Board of Directors has determined that Mr. Hail qualifies
as an “audit committee financial expert” in accordance with applicable rules and
regulations of the SEC.  Mr. Hail serves as Chair of the Audit
Committee.





Code
of Ethics




Our Board
of Directors has adopted a Code of Conduct and a Code of Ethics for the CEO and
Senior Financial Officers.  Our corporate governance materials
including our Audit Committee Charter, Code of Conduct, and Code of Ethics for
the CEO and Senior Financial Officers.  These documents are also
available in print to any stockholder requesting a copy in writing from our
corporate secretary at our executive offices.


40


Item
11.        Executive
Compensation




Summary
Compensation Table




The table
below sets forth total compensation earned for services in all capacities to our
company for the fiscal year ended December 31, 2008 and 2007, by our Chief
Executive Officer, former Chief Executive Officer and two other executive
officers as of December 31, 2008, whose total annual salary and bonus exceeded
$100,000 during fiscal 2008.








Non-Equity
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    All
      OtherIncentive
      Plan
                                                                                    
                                                                                    
                                                                                    Option
                                                                                    
                                                                                    
                                                                                    CompensationCompensation
                                                                                    
                                                                                    
                                                                                    Awards
      ($)
                                                                                    
                                                                                    
                                                                                    ($)Name
      and Principal Position
                                                                                    Year
                                                                                    
                                                                                    Salary
      ($)
                                                                                    
                                                                                    
                                                                                    ($)
                                                                                    
                                                                                    
                                                                                    (5)
                                                                                    
                                                                                    
                                                                                    (6)
                                                                                    
                                                                                    
                                                                                    Total
      ($)Steven
      P. Hanson, Chairman (1)
                                                                                    2008
                                                                                    
                                                                                    $
                                                                                    186,577
                                                                                    
                                                                                    
                                                                                    $
                                                                                    -
                                                                                    
                                                                                    
                                                                                    $
                                                                                    -
                                                                                    
                                                                                    
                                                                                    $
                                                                                    866
                                                                                    (1)
                                                                                    
                                                                                    $
                                                                                    187,4432007
                                                                                    
                                                                                    $
                                                                                    98,462
                                                                                    
                                                                                    
                                                                                    $
                                                                                    -
                                                                                    
                                                                                    
                                                                                    $
                                                                                    -
                                                                                    
                                                                                    
                                                                                    $
                                                                                    43
                                                                                    (1)
                                                                                    
                                                                                    $
                                                                                    98,505Van
      H. Potter, President and ChiefExecutive Officer
      (2)
                                                                                    2008
                                                                                    
                                                                                    $
                                                                                    37,058
                                                                                    
                                                                                    
                                                                                    $
                                                                                    -
                                                                                    
                                                                                    
                                                                                    $
                                                                                    5,279
                                                                                    
                                                                                    
                                                                                    $
                                                                                    86
                                                                                    (2)
                                                                                    
                                                                                    $
                                                                                    42,4232007
                                                                                    
                                                                                    $
                                                                                    -
                                                                                    
                                                                                    
                                                                                    $
                                                                                    -
                                                                                    
                                                                                    
                                                                                    $
                                                                                    -
                                                                                    
                                                                                    
                                                                                    $
                                                                                    -
                                                                                    
                                                                                    
                                                                                    $
                                                                                    -Mark
      R. Sokolowski, Chief FinancialOfficer and Treasurer
      (3)
                                                                                    2008
                                                                                    
                                                                                    $
                                                                                    181,000
                                                                                    
                                                                                    
                                                                                    $
                                                                                    -
                                                                                    
                                                                                    
                                                                                    $
                                                                                    35,109
                                                                                    
                                                                                    
                                                                                    $
                                                                                    5,567
                                                                                    (3)
                                                                                    
                                                                                    $
                                                                                    221,6762007
                                                                                    
                                                                                    $
                                                                                    38,077
                                                                                    
                                                                                    
                                                                                    $
                                                                                    50,000
                                                                                    (3)
                                                                                    
                                                                                    $
                                                                                    9,287
                                                                                    
                                                                                    
                                                                                    $
                                                                                    -
                                                                                    
                                                                                    
                                                                                    $
                                                                                    97,364Ramesh
      G. Ramchandani, President andChief Operating Officer
      (4)
                                                                                    2008
                                                                                    
                                                                                    $
                                                                                    146,356
                                                                                    
                                                                                    
                                                                                    $
                                                                                    -
                                                                                    
                                                                                    
                                                                                    $
                                                                                    27,371
                                                                                    
                                                                                    
                                                                                    $
                                                                                    4,479
                                                                                    (4)
                                                                                    
                                                                                    $
                                                                                    178,2062007
                                                                                    
                                                                                    $
                                                                                    179,808
                                                                                    
                                                                                    
                                                                                    $
                                                                                    -
                                                                                    
                                                                                    
                                                                                    $
                                                                                    45,185
                                                                                    
                                                                                    
                                                                                    $
                                                                                    6,026
                                                                                    (4)
                                                                                    
                                                                                    $
                                                                                    231,019





(1)
            Mr.
      Hanson served as Chief Executive Officer from June 2007 to November 2008,
      and as Executive Chairman since November 2008.  Other
      compensation relates to premiums paid for disability
      insurance.




(2)
            Mr.
      Potter served as President and Chief Operating Officer from September to
      November 2008. He was appointed Director and Chief Executive Officer in
      November 2008.  Other compensation includes matching
      contributions to our company’s Simple IRA, medical insurance premiums,
      premiums paid for disability and life
insurance.




(3)
            Mr.
      Sokolowski was named Chief Financial Officer in October
      2007.  Non-Equity incentive plan compensation includes a $50,000
      sign on incentive in 2007. Other compensation includes matching
      contributions to our company’s Simple IRA, medical insurance premiums,
      premiums paid for disability and life
insurance.




(4)
            Mr.
      Ramchandani was named President and Chief Operating Officer in June 2007,
      and resigned in September 2008.  Other compensation includes
      matching contributions to our company’s Simple IRA, medical insurance
      premiums, premiums paid for disability and life
  insurance.




(5)
            Option
      awards represent the fair value of option awards granted, computed in
      accordance with FAS 123R.




(6)
            All
      other compensation includes Company Match for Simple IRA plan and imputed
      income related to group term life
insurance.




41


Other
Benefit Plans and Programs




Executives
are eligible to participate in benefit programs designed for all of our
company’s full-time employees.  These programs include Simple IRA
plan, health, dental, life and accidental death, short-term disability, and
long-term disability.





Option/SAR
Grants




The
following table provides information with respect to outstanding equity
awards.




Outstanding
Equity Awards at Year End




Name
                        
                        Grant Date
                        
                        Exercisable
                        
                        
                        Unexercisable
                        
                        
                        Price
                        
                        Expiration DateSteve
      Hanson
                        
                        12/1/2004
                        
                        
                        5,000
                        
                        
                        
                        -
                        
                        
                        $
                        2.12
                        
                        12/1/20143/10/2005
                        
                        
                        10,000
                        
                        
                        
                        -
                        
                        
                        $
                        1.96
                        
                        3/10/20155/2/2005
                        
                        
                        5,000
                        
                        
                        
                        -
                        
                        
                        $
                        1.55
                        
                        5/2/201512/1/2005
                        
                        
                        5,000
                        
                        
                        
                        -
                        
                        
                        $
                        3.32
                        
                        12/1/20155/1/2006
                        
                        
                        5,000
                        
                        
                        
                        -
                        
                        
                        $
                        2.75
                        
                        5/1/201612/1/2006
                        
                        
                        5,000
                        
                        
                        
                        -
                        
                        
                        $
                        1.74
                        
                        12/1/20165/1/2007
                        
                        
                        5,000
                        
                        
                        
                        -
                        
                        
                        $
                        0.97
                        
                        5/1/2017Van
      H. Potter
                        
                        9/22/2008
                        
                        
                        -
                        
                        
                        
                        200,000
                        
                        
                        $
                        0.22
                        
                        9/22/2018Mark
      R. Sokolowski
                        
                        10/8/2007
                        
                        
                        20,000
                        
                        
                        
                        40,000
                        
                        
                        $
                        1.57
                        
                        10/8/20174/25/2008
                        
                        
                        28,333
                        
                        
                        
                        56,667
                        
                        
                        $
                        0.59
                        
                        4/25/2018




Employment
and Separation Agreements




In
September 2008, we entered into an employment agreement with Van H. Potter,
granting him an annual base salary of $200,000 and an option grant of 200,000
shares. Until our company has secured additional funding and established a
sufficient cash position to continue ongoing operations, $75,000 of Mr. Potter’s
base salary will be deferred on a semi-monthly basis. Upon his appointment as
Chief Executive Officer, his agreement was amended to reflect an annual salary
of $250,000. Beginning in 2009, Mr. Potter will be eligible for a performance
bonus of up to 100% of his base salary, as decided by the Board of Directors.
Additionally, Mr. Potter will be eligible for all medical, dental and vacation
benefits per the standard Company Policy.





During July 2009, our company also
entered into Change of Control Severance Agreements with Mr. Potter and Mark R.
Sokolowski.  We entered into these agreements to incent Messrs. Potter
and Sokolowski to remain employed with our company to assure the successful wind
down of our operations and the payment and settlement of our outstanding
payables and liabilities.  Under the agreements, as amended, each of
Messrs. Potter and Sokolowski will be paid closing bonuses of $215,000
subsequent to the closing of the asset purchase transaction with
Wacom.  The closing payments will be paid in three installments, with
(a) $161,250 due within three business days following the closing date of the
asset purchase transaction, (b) $43,000 due within three business days after our
board of directors approves a plan providing for the settlement of all of our
outstanding creditors’ claims and our creditors’ approval of such plan, and (c)
$10,750 due within three business days after our board of directors approves a
plan to terminate our business affairs and dissolve our company.  We
will also provide each of Messrs. Potter and Sokolowski lump sum payment amounts
equal to the amount of premium necessary as of the date the last closing bonus
installment is paid to continue all medical, dental, vision, life, accidental
death and dismemberment, and short-term and long-term disability insurance as is
presently provided by our company, for the period commencing on the date the
last closing bonus installment is paid through and until December 31,
2009.  In the event our company files for bankruptcy protection, all
remaining closing bonus payments that have not been paid to Messrs. Potter and
Sokolowski as of the date of that filing, as well as the payment for continued
group insurance benefits, shall accelerate and become immediately
due.


42


Director
Compensation




Employees
of our company do not receive compensation for serving as members of our Board
of Directors.  Directors are reimbursed for reasonable expenses
incurred in attending meetings and carrying out duties as board and committee
members.  All non-employee directors are compensated with a cash
retainer of $3,000 per quarter and semiannual grants of options to purchase
5,000 shares of common stock at exercise prices equal to the fair market value
of our common stock on the date of the grant. All non-employee directors also
received $250 quarterly for each committee on which they
serve.  Committee chairmen received $375 quarterly, other than the
Audit Committee Chair, who received $500 quarterly.





Beginning
January 1, 2008, the amounts of cash compensation previously paid to
non-employee directors will be paid 50% in cash and 50% in the form of
restricted stock, to be priced on the last trading day of the 2nd month
of each quarter. Effective August 2008, Directors elected to defer all cash
compensation until such time as our company has secured additional
funding.





The
following table provides information relating to non-employee director
compensation paid for fiscal 2008.




Fees Earnedor Paid in
                                      
                                      
                                      Stock
                                      
                                      
                                      Option AwardsCash
                                      
                                      
                                      Awards
                                      
                                      
                                      (1)  (2)
                                      
                                      
                                      TotalName
                                      
                                      ($)
                                      
                                      
                                      ($)
                                      
                                      
                                      ($)
                                      
                                      
                                      ($)Dino
      Farfante (3)
                                      
                                      $
                                      3,500
                                      
                                      
                                      $
                                      3,500
                                      
                                      
                                      $
                                      2,229
                                      
                                      
                                      $
                                      9,229John
      W. Hail (4)
                                      
                                      $
                                      4,000
                                      
                                      
                                      $
                                      4,000
                                      
                                      
                                      $
                                      2,229
                                      
                                      
                                      $
                                      10,229P.
      Robert Moya (5)
                                      
                                      $
                                      3,875
                                      
                                      
                                      $
                                      3,875
                                      
                                      
                                      $
                                      2,229
                                      
                                      
                                      $
                                      9,979William
      E. Peelle (6)
                                      
                                      $
                                      3,875
                                      
                                      
                                      $
                                      3,875
                                      
                                      
                                      $
                                      2,229
                                      
                                      
                                      $
                                      9,979Jack
      Saltich (7)
                                      
                                      $
                                      3,500
                                      
                                      
                                      $
                                      3,500
                                      
                                      
                                      $
                                      1,766
                                      
                                      
                                      $
                                      8,766





(1)
            Represents
      value of option awards vested in 2008 calculated in accordance with the
      fair value recognition provisions of Statement of Financial Accounting
      Standards No. 123 (revised 2004), Share-Based Payment
      (“SFAS 123R”), and charged to InPlay’s operations in 2008.  For
      further details, including InPlay’s assumptions in calculating the fair
      value, please see Note 3, Summary of Significant
      Accounting Principles, and Note 9, Stock Option
      Plans.




(2)
            Options
      to purchase 5,000 shares of our common stock were granted to Messrs.
      Farfante, Hail, Moya,  Peelle and Saltich on May 1, 2008 at an
      exercise price of $0.60 and to Messrs. Farfante, Hail, Moya and Peelle on
      December 1, 2008 at an exercise price of $0.18.  Prices
      represent the fair market value of our common stock on each of the grant
      dates.




(3)
            As
      of December 31, 2008, Mr. Farfante held 5,120 shares of restricted stock
      and options to purchase 20,000 shares of our common
  stock.




(4)
            As
      of December 31, 2008, Mr. Hail held 5,852 shares of restricted stock and
      options to purchase 95,000 shares of our common
  stock.




(5)
            As
      of December 31, 2008, Mr. Moya held 5,669 shares of restricted stock and
      options to purchase 50,000 shares of our common
  stock.




(6)
            As
      of December 31, 2008, Mr. Peelle held 5,669 shares of restricted stock and
      options to purchase 95,000 shares of our common
  stock.




43


(7)
            As
      of December 31, 2008, Mr. Saltich held 5,120 shares of restricted stock
      and options to purchase 15,000 shares of our common stock. Mr. Saltich
      resigned as Director, effective August 18,
2008.




Item
12.        Security Ownership of Certain
Beneficial Owners and Management and Related StockholderMatters




The
following table sets forth, as of June 30, 2009, the number and percentage of
outstanding shares of common stock beneficially owned by (a) each person known
by us to beneficially own more than 5% of such stock, (b) each of our directors,
(c) each of the officers listed in the Summary Compensation Table in the section
entitled “Executive Compensation”, and (d) all our directors and executive
officers as a group.  The address of each officer and director listed
below is c/o InPlay Technologies, Inc., PO Box 28936., Scottsdale, Arizona
85255.





Unless
otherwise indicated, the persons below have sole voting and investment power
with respect to the number of shares set forth opposite their
names.  The percentages shown are calculated based upon 11,622,568
shares of common stock outstanding on June 30, 2009.  The numbers and
percentages shown include the shares of common stock actually owned as of June
30, 2009 and the shares of common stock that the identified person or group had
the right to acquire within 60 days of such date.  In calculating the
percentage of ownership, all shares of common stock that the identified person
or group had the right to acquire within 60 days of June 30, 2009, upon the
exercise of options are deemed to be outstanding for the purpose of computing
the percentage of the shares of common stock owned by such person or group, but
are not deemed to be outstanding for the purpose of computing the percentage of
the shares of common stock owned by any other person.




Name
      of Beneficial Owner
                    
                    Number
      of Shares (1)
                    
                    
                    PercentageDirectors
      and Executive Officers:Van
      H. Potter
                    
                    
                    282,107
                    (2)
                    
                    
                    2.4
                    %John
      W. Hail
                    
                    
                    131,477
                    (3)
                    
                    
                    1.1
                    %William
      E. Peelle
                    
                    
                    126,533
                    (4)
                    
                    
                    1.1
                    %Steven
      P. Hanson
                    
                    
                    107,626
                    (5)
                    
                    
                    *P.
      Robert Moya
                    
                    
                    70,669
                    (6)
                    
                    
                    *Mark
      R. Sokolowski
                    
                    
                    68,333
                    (7)
                    
                    
                    *Dino
      D. Farfante
                    
                    
                    40,120
                    (8)
                    
                    
                    *All
      directors and officers as a group (seven persons)
                    
                    
                    826,865
                    
                    
                    
                    7.1
                    %5%
      Stockholders:Delphi
      Corp.
                    
                    
                    1,535,621
                    (9)
                    
                    
                    13.2
                    %J.
      Patterson McBaine
                    
                    
                    1,321,047
                    (10)
      (12)
                    
                    
                    11.4
                    %Jon
      D. Gruber
                    
                    
                    1,265,847
                    (11)(12)
                    
                    
                    10.9
                    %Gruber
      & McBaine Capital Management
                    
                    
                    1,068,347
                    (12)
                    
                    
                    9.2
                    %





* Less
than 1.0%




(1)
            Except
      as otherwise indicated, each person named in the table has sole voting and
      investment power with respect to all shares of common stock beneficially
      owned by him or her, subject to applicable community property
      law.




(2)
            Includes
      66,666 shares of common stock issuable upon exercise of stock
      options.




(3)
            Includes
      3,742 shares owned by TVC, Inc., of which John W. Hail is the
      majority shareholder, 5,852 shares of restricted stock and
      110,000 shares of common stock issuable upon exercise of stock
      options.




44


(4)
            Includes
      5,669 shares of restricted stock and 110,000 shares of common stock
      issuable upon exercise of stock
options




(5)
            Includes
      7,626 shares of restricted stock and 40,000 shares of common stock
      issuable upon exercise of stock
options.




(6)
            Includes
      5,669 shares of restricted stock and 65,000 shares of common stock
      issuable upon exercise of stock
options.




(7)
            Includes
      63,333 shares of common stock issuable upon exercise of stock
      options.




(8)
            Includes
      5,120 shares of restricted stock and 35,000 shares of common stock
      issuable upon exercise of stock
options.




(9)
            Information
      is given in reliance upon information set forth in the named stockholder’s
      Schedule 13D/A dated February 19, 2009, as filed with the Securities and
      Exchange Commission.  The principal business office of Delphi
      Corporation is located at 5725 Delphi Drive, Troy, Michigan
      48098.  We and certain of our stockholders have entered into a
      stockholders’ agreement with Delphi Corp., pursuant to which Delphi has
      the option to designate one member of our Board of
      Directors.  Delphi’s designee resigned from our Board of
      Directors during 2003 and Delphi has not designated a new director to fill
      that vacancy.  On or about May 2003, Delphi notified us that our
      Board of Directors had the right to appoint an independent director in
      place of Delphi’s designee.  In addition, we were a party to a
      license agreement with Delphi that was terminated during fiscal 2005 and
      is described under “Certain Relationships and Related
      Transactions.”




(10)
            Includes
      (a) 800,572 shares of common stock and 18,000 shares of common stock
      issuable upon exercise of warrants held by Lagunitas Partners LP; (b)
      180,000 shares of common stock, 6,000 shares of common stock issuable upon
      exercise of warrants held by Gruber & McBaine International; (c)
      63,775 shares of common stock under management of Gruber & McBaine
      Capital Management; (d) 225,275 shares of common stock and 2,550 shares of
      common stock issuable upon exercise of warrants held by J. Patterson
      McBaine; and (e) 27,425 shares of common stock held by family
      accounts.




(11)
            Includes
      (a) 800,572 shares of common stock and 18,000 shares of common stock
      issuable upon exercise of warrants held by Lagunitas Partners LP; (b)
      180,000 shares of common stock, 6,000 shares of common stock issuable upon
      exercise of warrants held by Gruber & McBaine International; (c)
      63,775 shares of common stock under management of Gruber & McBaine
      Capital Management; (d) 145,400 shares of common stock and 2,550 shares of
      common stock issuable upon exercise of warrants held by Jon D. and Linda
      W. Gruber Trust; and (e) 52,100 shares of common stock held by family
      accounts.  Jon D. Gruber is the trustee of the Jon D. and Linda
      W. Gruber Trust and retains voting and dispositive power over the shares
      held by the trust.




(12)
            Includes
      (a) 800,572 shares of common stock and 18,000 shares of common stock
      issuable upon exercise of warrants held by Lagunitas Partners LP; (b)
      180,000 shares of common stock, 6,000 shares of common stock issuable upon
      exercise of warrants held by Gruber & McBaine International; and (c)
      63,775 shares of common stock under management of Gruber & McBaine
      Capital Management.  Jon D. Gruber and J. Patterson McBaine
      serve as the managing members of Gruber & McBaine Capital Management
      (“GMCM”), and retain voting and dispositive power over such shares under
      the control of GMCM.  GMCM serves as the general partner of
      Lagunitas Partners LP and as the investment advisor for Gruber &
      McBaine International.  The principal business office of Gruber
      & McBaine Capital Management is located at 50 Osgood Place, San
      Francisco, California 94133.




Equity
Compensation Plan Information




The
following table sets forth information with respect to shares of our common
stock that may be issued upon the exercise of outstanding warrants as well as
outstanding stock options under our 1997 Stock Option Plan, our 1999 Stock
Option Plan, our 2000 Stock Option Plan, and our 2005 Stock Award Plan as of
December 31, 2008.


45





(c)(a)
                              
                              
                              
                              
                              
                              Number of SecuritiesNumber of Securities
                              
                              
                              (b)
                              
                              
                              Remaining Available forto be Issued Upon
                              
                              
                              Weighted Average
                              
                              
                              Future Issuance UnderExercise of
                              
                              
                              Exercise Price of
                              
                              
                              Equity CompensationOutstanding
                              
                              
                              Outstanding
                              
                              
                              Plans (ExcludingOptions, Warrants,
                              
                              
                              Options, Warrants,
                              
                              
                              Securities Reflected inPlan Category
                              
                              and Rights
                              
                              
                              and Rights
                              
                              
                              Column (a))Equity
      Compensation PlansApproved
      by Stockholders
                              
                              
                              1,551,030
                              
                              
                              $
                              2.02
                              
                              
                              
                              1,360,657Equity
      Compensation PlansNot
      Approved by  Stockholders
                              
                              
                              509,091
                              (1)
                              
                              $
                              3.64
                              
                              
                              
                              -Total
                              
                              
                              2,060,121
                              
                              
                              $
                              2.42
                              
                              
                              
                              1,360,657





(1)           Represents
warrants issued in connection with the December 2005 private placement of
1,272,728 shares.




1997
and 1999 Stock Option Plans




Our 1997
stock option plan was adopted by the board of directors and approved by our
stockholders effective as of May 1, 1997.  Our 1999 stock option plan
was adopted by the board of directors and approved by our stockholders effective
as of March 8, 1999.  Under the 1997 Plan, 823,535 shares are
authorized for issuance and under the 1999 Plan, 235,294 shares are authorized
for issuance.  Both plans provide for the granting of incentive and
nonqualified stock options to officers, directors and employees of the
company.  Both plans also provide for the granting of nonqualified
stock options to any director, consultant and appropriate third
parties.  As of December 31, 2008, there were outstanding options to
acquire 349,044 and 63,886 shares of our common stock under the 1997 and 1999
plans, respectively, and there were 200,029 and 13,284 options available for
future grants under the 1997 and 1999 plans, respectively.





Under
both plans, the exercise price is determined by the board of directors or the
compensation committee.  The exercise price of incentive stock options
granted under the plans must be at least the fair market value of the common
stock on the date of grant.  The exercise price of any incentive stock
option granted to an optionee who beneficially owns more than 10% of our voting
stock must be at least 110% of the fair market value of the underlying shares on
the date of grant.  The exercise price of nonqualified stock options
may be any amount determined in good faith by the board of directors or the
Compensation Committee.  All outstanding options that we have granted
under the plans have exercise prices at least equal to the fair market value of
the common stock on the dates of grant and we intend to continue this policy
with respect to future option grants.  No option may be exercised more
than 10 years, or, in the case of an incentive stock option granted to a 10%
holder, more than five years, after its grant date.





If the
outstanding shares of stock of the class then subject to either plan are
increased or decreased, or are changed into or exchanged for a different number
or kind of shares or securities as a result of one or more reorganizations,
stock splits, reverse stock splits, stock dividends, spin-offs or other
distribution of assets to shareholders, appropriate adjustments shall be made to
the number/type of shares for which options may thereafter be granted or
existing grants which may be exercised.  Similar changes will also be
made if our company engages in any merger, consolidation, or reclassification in
which is it the surviving entity.  In the event that we are not the
surviving entity, our company may make a substitution on an equitable basis of
appropriate shares of the surviving corporation or an appropriate provision may
be made for the cancellation of such option.




Our board
may suspend, terminate, modify, or amend the 1997 and 1999 plans provided that,
in certain instances, the holders of a majority of our common stock issued and
outstanding approve the amendment.  Solely with respect to the
granting of incentive stock option grants, the 1997 Plan expired in 2007 and the
1999 Plan expired in March 2009.  There is no expiration date for the
issuance of non-qualified options under the plan until such date is established
by the Board of Directors.


46


2000
Stock Option Plan




In April
2000, the Board of Directors adopted the 2000 Stock Option Plan which was
subsequently approved by our company’s stockholders.  In 2002 the
Board of Directors amended the 2000 Plan to increase the number of shares
authorized for issuance under the plan from 250,000 to 500,000.  The
amendment was subsequently approved by our company’s stockholders in May
2002.  The 2000 Plan provides for the granting of incentive and
nonqualified stock options to officers, directors and employees of the company
and nonqualified stock options to any director, consultant and appropriate third
parties.  As of December 31, 2008, there were outstanding options to
acquire 309,100 shares of our common stock and 37,400 options available for
future grants.





The
exercise price of incentive stock options granted under the 2000 Plan must be at
least the fair market value of the common stock on the date of
grant.  The exercise price of any incentive stock option granted to an
optionee who beneficially owns more than 10% of our voting stock must be at
least 110% of the fair market value of the underlying shares on the date of
grant.  The exercise price of nonqualified stock options may be any
amount determined in good faith by the board of directors or the compensation
committee.





If the
outstanding shares of stock of the class then subject to either Plan are
increased or decreased, or are changed into or exchanged for a different number
or kind of shares or securities as a result of one or more reorganizations,
stock splits, reverse stock splits, stock dividends, spin-offs or other
distribution of assets to shareholders, appropriate adjustments shall be made to
the number/type of shares for which options may thereafter be granted or
existing grants which may be exercised.  Similar changes will also be
made if our company engages in any merger, consolidation, or reclassification in
which is it the surviving entity.  In the event that we are not the
surviving entity, we may make a substitution on an equitable basis of
appropriate shares of the surviving corporation or an appropriate provision may
be made for the cancellation of such option.




Our board
may suspend, terminate, modify, or amend the 2000 Plan provided that, in certain
instances, the holders of a majority of our common stock issued and outstanding
approve the amendment.  Solely with respect to the granting of
incentive stock options, the 2000 Plan expires in April 2010.  There
is no expiration date for the issuance of non-qualified options under the plan
until such date is established by the Board of Directors.





2005
Stock Option Plan




During
March 2005, our Board of Directors adopted the 2005 Stock Award Plan, or “2005
Plan”, which was subsequently approved by our stockholders in May
2005.  Stockholders approved amendments to the plan in May 2007 and
December 2008.  The 2005 Plan authorizes the Board or the Compensation
Committee of the Board to grant options or other awards to employees, directors
and consultants of our company.  The 2005 Plan provides for the
issuance of stock awards to purchase up to 2,000,000 shares of our common stock.
As of December 31, 2008, there were outstanding options to acquire 829,000
shares of our common stock and 1,145,000 options available for future
grants.





The 2005
Plan provides for the granting of awards in the form of incentive stock options,
nonqualified stock options, stock appreciation rights, shares of restricted
common stock, bonus stock in lieu of obligations, or other stock-based awards to
employees, directors, and independent contractors who provide valuable services
to our company.  The 2005 Plan authorizes the issuance of
2,000,000shares of
our common stock all of which shares may be issued pursuant to incentive stock
options.  The maximum number of shares of common stock covered by
awards granted to any individual in any year may not exceed
250,000.  If any award previously granted under the 2005 Plan is
forfeited, terminated, canceled, surrendered, does not vest, or expires without
having been exercised in full, stock not issued under such award will again be
available for grant for purposes of the 2005 Plan.




If any
change is made in the stock subject to the 2005 Plan, or subject to any award
granted under the 2005 Plan (through consolidation, spin-off, recapitalization,
stock dividend, split-up, combination of shares, exchange of shares, or
otherwise), the 2005 Plan provides that appropriate adjustments will be made as
to the aggregate number and type of shares available for awards, the maximum
number and type of shares that may be subject to awards to any individual, the
number and type of shares covered by each outstanding award, the exercise price
grant price, or purchase price relating to any award, and any other aspect of
any award that the Board of Directors or Committee determines
appropriate.


47


The plan
administrator may, in its discretion, accelerate the vesting, exercisability,
lapsing of restrictions, or expiration of deferral of any award, including if we
undergo a “change in control,” as defined in the plan.  In addition,
the plan administrator may provide in an award agreement or employment agreement
that the performance goals relating to any performance-based award will be
deemed to have been met upon the occurrence of any “change in
control.”  The plan administrator may, in its discretion and without
the consent of the participant, either (a) accelerate the vesting of all awards
in full or as to some percentage of the award to a date prior to the effective
date of the “change in control;” or (b) provide for a cash payment in exchange
for the termination of an award or any portion of an award where such cash
payment is equal to the fair market value of the shares that the participant
would receive if the award were fully vested and exercised as of such date, less
any applicable exercise price.  The plan administrator will determine
whether each award is assumed, continued, substituted, or
terminated.  In connection with a “change in control,” we may assign
to the acquiring or successor company any repurchase rights associated with any
awards, and the plan administrator may provide that any repurchase rights held
by us associated with such awards will lapse in whole or in part contingent upon
the “change in control.”




In the
event of a “corporate transaction” (as defined in the plan), the acquiror may
assume or substitute for each outstanding stock award.  If the
acquiror does not assume or substitute for an outstanding stock option, such
stock option will terminate immediately prior to the close of such corporate
transaction to the extent the option is not exercised.




Our Board
of Directors may amend, alter, suspend, discontinue, or terminate the plan or
the plan administrator’s authority to grant awards without further stockholder
approval, except stockholder approval must be obtained for any amendment or
alteration if such approval is required by law or regulation or under the rules
of any stock exchange or quotation system on which shares of our common stock
are then listed or quoted.  Stockholder approval will not be deemed to
be required under laws or regulations, such as those relating to ISOs, that
condition favorable treatment of participants on such approval, although our
Board of Directors may, in its discretion, seek stockholder approval in any
circumstance in which it deems such approval advisable.  Unless
earlier terminated by our Board of Directors, the plan shall terminate no later
than ten (10) years from the date of the later of the effective date and the
date an increase in the number of shares reserved for issuance under the Plan is
approved by the Board (so long as such increase is also approved by the
stockholders).




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




In April
2000, we entered into a license agreement with Delphi that gave Delphi the
exclusive right to utilize and manufacture our patented switch technologies for
the automotive industry.  In connection with the license agreement, we
also issued to Delphi a warrant to purchase 225,000 shares of our common stock
at an exercise price of $7.00 per share, which expired in April 2004, and a
short-term option to purchase 1,651,846 shares of common stock at an exercise
price of $7.00 per share.  In exchange, Delphi paid us a
non-refundable payment of $4.0 million and agreed to pay a royalty fee for each
switch sold by Delphi.  The term of the exclusive license agreement
was seven years.  The agreement also required Delphi to make minimum
royalty payments totaling $12 million during the initial term ending June 30,
2007.  The first minimum royalty payments of $1 million and $2 million
were received in 2004 and 2005, respectively.  During October 2005, in
connection with Delphi’s bankruptcy, the license agreement was
terminated.  We subsequently filed a proof of claim for $9 million
which is equivalent to the unpaid minimum royalty commitment of the exclusive
license agreement.  In January 2007, we reached a settlement agreement
with Delphi in which Delphi agreed to allow a pre-petition general unsecured
claim against Delphi Automotive Systems, LLC in the amount of $7.5
million.  This agreement was approved by the bankruptcy court in
February 2007.  In March 2007, we sold our rights to this claim and
received a cash payment of approximately $7.6 million.




Our Board
of Directors has determined that four directors, each of Messrs. Farfante, Hail,
Moya and Peelle are independent under the standards specified by the SEC
rules.


48


Item
14.        Principal Accountant Fees and
Services




Audit
Fees




Moss
Adams LLP billed us $162,420, in aggregate, for professional audit services
rendered during fiscal years 2008 and 2007.  Fees for fiscal 2008 and
2007 consisted of billings for the audit of our consolidated financial
statements and the reviews of the interim financial statements included in our
quarterly reports.




Audit-Related
Fees




During
fiscal year 2008, Moss Adams LLP billed us $0, in aggregate, for assurance and
related services that were reasonably related to the performance of the audit or
review of our financial statements that are not reported under Audit Fees
above.  These services include accounting consultation in connection
with consultations concerning financial accounting and reporting standards and
included professional services related to preparations for compliance with
Section 404 of the Sarbanes-Oxley Act of 2002.




Summary
of Fees Billed to our company by Moss Adams LLP




2008
                
                
                2007Audit
      Fees
                
                $
                74,650
                
                
                $
                87,770Audit-Related
      Fees
                
                
                -
                
                
                
                3,150Tax
      Fees
                
                
                -
                
                
                
                -All
      Other Fees
                
                
                -
                
                
                
                -




Audit
Committee Pre-Approval Policies




The
charter of our Audit Committee provides that the duties and responsibilities of
our Audit Committee include the pre-approval of all audit, audit related, tax,
and other services permitted by law or applicable SEC regulations (including fee
and cost ranges) to be performed by our independent registered public
accountant.  Any pre-approved services that will involve fees or costs
exceeding pre-approved levels will also require specific pre-approval by the
Audit Committee.  Unless otherwise specified by the Audit Committee in
pre-approving a service, the pre-approval will be effective for the 12-month
period following pre-approval.  The Audit Committee will not approve
any non-audit services prohibited by applicable SEC regulations or any services
in connection with a transaction initially recommended by the independent
registered public accountants, the purpose of which may be tax avoidance and the
tax treatment of which may not be supported by the Internal Revenue Code and
related regulations.




To the
extent deemed appropriate, the Audit Committee may delegate pre-approval
authority to the Chairman of the Committee or any one or more other members of
the Audit Committee provided that any member of the Audit Committee who has
exercised any such delegation must report any such pre-approval decision to the
Audit Committee at its next scheduled meeting.  The Audit Committee
will not delegate the pre-approval of services to be performed by the
independent registered public accountants to management.




Our Audit
Committee requires that our independent registered public accountant, in
conjunction with our Chief Financial Officer, be responsible for seeking
pre-approval for providing services to us and that any request for pre-approval
must inform the Audit Committee about each service to be provided and must
provide detail as to the particular service to be provided.




Item
15. Exhibits, Financial Statements and
Schedules.




(a)              The
following documents are filed as part of this report.




1.              
Consolidated Financial
Statements. The following consolidated financial statements of InPlay
Technologies, Inc., are included in Item 8.




·      Report
of Independent Registered Public Accounting Firm


49


·      Consolidated
Balance Sheet at December 31, 2008


·      Consolidated
Statements of Operations for the years ended December 31, 2008 and
2007


·      Consolidated
Statements of Stockholders’ Equity for the years ended December 31, 2008 and
2007


·      Consolidated
Statements of Cash Flows for the years ended December 31, 2008 and
2007


·      Notes
to Consolidated Financial Statements




2.  Financial Statement
Schedules.  All schedules are omitted as the information is
included in the consolidated financial statements or the notes thereto or that
they are not required or not applicable.




3.  Exhibits.
  Exhibit No.
                    
                    Description of Exhibit2.2
                    
                    Agreement
      and Plan of Merger, dated as of July 27, 2005, among InPlay Technologies,
      Inc., FPI Acquisition, Inc., FinePoint Innovations, Inc., and Stephen
      Caldwell (1)2.3
                    
                    Amendment
      No. 1 to Agreement and Plan of Merger, dated as of July 27, 2005, among
      InPlay Technologies, Inc., FPI Acquisition, Inc., FinePoint Innovations,
      Inc., and Stephen Caldwell (2)2.4
                    
                    Asset
      Purchase Agreement dated October 28, 2008, between InPlay Technologies,
      Inc. and Memtron Technologies Co. (3)2.5
                    
                    Asset
      Purchase Agreement dated June 26, 2009, among InPlay Technologies, Inc.,
      FinePoint Innovations, Inc. and Wacom Co. Ltd (4)2.6
                    
                    Loan
      and Security Agreement dated June 26, 2009 among InPlay Technologies,
      Inc., FinePoint Innovations, Inc. and Wacom Co. Ltd. filed
      herein.2.7
                    
                    Patent,
      Trademark and Copyright Security Agreement dated June 26, 2009 among
      InPlay Technologies, Inc., FinePoint Innovations, Inc. and Wacom Co. Ltd.
      filed herein.3.1
                    
                    Amended
      and Restated Articles of Incorporation (5)3.2
                    
                    Amended
      and Restated Bylaws (6)4.1
                    
                    Specimen
      Common Stock Certificate (7)10.2
                    
                    1997
      Stock Option Plan (7)10.3
                    
                    1999
      Stock Option Plan (7)10.4
                    
                    2000
      Stock Option Plan (8)10.5
                    
                    2000
      Stock Option Plan Amendment (9)10.6
                    
                    Management
      Services Agreement dated May 1, 1997 by and between Total Switch, Inc. and
      VanDun, LLC (7)10.7
                    
                    Agreement
      for Assignment of Present and Future Inventions in Certain Subject Matter,
      dated May 1, 1997, by and between Total Switch, Inc. and Anthony J. Van
      Zeeland (7)10.8
                    
                    Licensing
      Agreement, dated April 20, 2000, between Delphi Automotive Systems LLC and
      Duraswitch Industries, Inc. (10)10.9
                    
                    Shareholders’
      Agreement, dated June 19, 2000, among Duraswitch Industries, Inc., Delphi
      Automotive Systems Corporation, and the Primary Shareholders named therein
      (11)10.12
                    
                    Form
      of Indemnification Agreement (12)10.13(a)
                    
                    Employment
      Agreement, dated October 1, 2005, by and between InPlay Technologies, Inc.
      and Robert J. Brilon
(13)
 
 50
 
 10.19
                    
                    Securities
      Purchase Agreement, dated December 27, 2005, among InPlay Technologies,
      Inc. and the investor parties thereto (14)10.20
                    
                    Registration
      Rights Agreement, dated December 27, 2005, among InPlay Technologies, Inc.
      and the investor parties thereto (14)10.21
                    
                    Form
      of Investor Warrant, dated December 27, 2005, issued by InPlay
      Technologies, Inc. to the investors in connection with the December 2005
      private offering (14)10.22
                    
                    Form
      of Agent Warrant, dated December 27, 2005, issued by InPlay Technologies,
      Inc. to the placement agent in connection with the December 2005 private
      offering (14)10.23
                    
                    Settlement
      Agreement between InPlay Technologies and Delphi Automotive Systems, LLC
      (15)10.24
                    
                    First
      Amendment to InPlay Technologies, Inc. 2005 Stock Award Plan, dated May
      31, 2007 (16)10.25
                    
                    Lease
      Agreement, dated May 31, 2007, between The Reliable Life Insurance Company
      and InPlay Technologies, Inc. (17)10.26
                    
                    Form
      of 2005 Stock Award Plan Stock Option Agreement (17)10.28
                    
                    Severance
      Agreement and Release of Claims, dated July 31, 2007 between InPlay
      Technologies, Inc. and Robert J. Brilon (18)10.30
                    
                    Form
      of Change in Control Severance Agreement (19)10.31
                    
                    Amended
      and Restated 2005 Stock Award Plan, dated October 17,
  200810.32
                    
                    Amendment
      No. 1 to Change in Control Severance Agreement, by and among InPlay
      Technologies, Inc. and Van Potter, dated July 16, 2009, filed
      herein.10.33
                    
                    Amendment
      No. 1 to Change in Control Severance Agreement, by and among InPlay
      Technologies, Inc. and Mark Sokolowski, dated July 16, 2009, filed
      herein.14
                    
                    Code
      of Ethics (12)21
                    
                    List
      of  Subsidiaries23.1
                    
                    Consent
      of Moss Adams LLP31.1
                    
                    Certification
      of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a),
      promulgated under the Securities Exchange Action of 1934, as
      amended31.2
                    
                    Certification
      of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a),
      promulgated under the Securities Exchange Action of 1934, as
      amended32.1
                    
                    Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  200232.2
                    
                    Certification
      of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002





(1)
              
              Incorporated
      by reference to InPlay Technologies, Inc.’s Current Report on Form 8-K
      dated July 27, 2005, as filed with the Commission on or about August 2,
      2005.(2)
              
              Incorporated
      by reference to InPlay Technologies, Inc.’s Current Report on Form 8-K
      dated September 1, 2005, as filed with the Commission on or about
      September 8, 2005.(3)
              
              Incorporated
      by reference to InPlay Technologies, Inc.’s Current Report on Form 8-K
      dated October 28, 2008, as filed with the Commission on or about October
      29, 2008.(4)
              
              Incorporated
      by reference to InPlay Technologies, Inc.’s Current Report on Form 8-K
      dated June 26, 2009, as filed with the Commission on or about July 6,
      2009.
  51
  (5)
              
              Incorporated
      by reference to InPlay Technologies, Inc.’s Quarterly Report on Form
      10-QSB for the quarterly period ended June 30, 2005, as filed with the
      Commission on or about August 5, 2005.(6)
              
              Incorporated
      by reference to InPlay Technologies, Inc.’s Annual Report on Form 10-KSB
      for the period ended December 31, 2006, as filed with the Commission on or
      about April 2, 2007.(7)
              
              Incorporated
      by reference to InPlay Technologies, Inc.’s Registration Statement on Form
      SB-2, as filed with the Commission on or about June 4,
    1999.(8)
              
              Incorporated
      by reference to InPlay Technologies, Inc.’s definitive Proxy Statement, as
      filed with the Commission on or about May 12, 2000.(9)
              
              Incorporated
      by reference to InPlay Technologies, Inc.’s Annual Report on Form 10-K for
      the year ended December 31, 2001, as filed with the Commission on or about
      March 23, 2002.(10)
              
              Incorporated
      by reference to InPlay Technologies, Inc.’s Current Report on Form 8-K
      dated April 20, 2000, as filed with the Commission on or about April 26,
      2000.(11)
              
              Incorporated
      by reference to InPlay Technologies, Inc.’s Annual Report on Form 10-K for
      the year ended December 31, 2002, as filed with the Commission on or about
      March 25, 2003.(10)
              
              Incorporated
      by reference to InPlay Technologies, Inc.’s Quarterly Report on Form 10-Q
      for the quarterly period ended June 30, 2003, as filed with the Commission
      on or about August 5, 2003.(11)
              
              Incorporated
      by reference to InPlay Technologies, Inc.’s Annual Report on Form 10-K for
      the year ended December 31, 2003, as filed with the Commission on or about
      March 29, 2004.(12)
              
              Incorporated
      by reference to InPlay Technologies, Inc.’s Annual Report on Form 10-KSB
      for the year ended December 31, 2004, as filed with the Commission on or
      about March 29, 2005.(13)
              
              Incorporated
      by reference to InPlay Technologies, Inc.’s Current Report on Form 8-K
      dated September 30, 2005, as filed with the Commission on or about
      September 30, 2005.(14)
              
              Incorporated
      by reference to InPlay Technologies, Inc.’s Current Report on Form 8-K
      dated December 27, 2005, as filed with the Commission on or about December
      29, 2005.(15)
              
              Incorporated
      by reference to InPlay Technologies, Inc.’s Current Report on Form 8-K
      dated February 27, 2007, as filed with the Commission on or about February
      27, 2007.(16)
              
              Incorporated
      by reference to InPlay Technologies, Inc.’s Current Report on Form 8-K,
      dated May 31, 2007, as filed with the Commission on or about June 1,
      2007.(17)
              
              Incorporated
      by reference to InPlay Technologies, Inc.’s Quarterly Report on Form
      10-QSB for the quarterly period ended June 30, 2007, as filed with the
      Commission on August 13, 2007.(18)
              
              Incorporated
      by reference to InPlay Technologies, Inc.’s Current Report on Form 8-K,
      dated July 31, 2007, as filed with the Commission on or about August 6,
      2007.(19)
              
              Incorporated
      by reference to InPlay Technologies, Inc.’s Current Report on Form 8-K,
      dated April 16, 2008, as filed with the Commission on or about April 21,
      2008.


52


SIGNATURES




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




InPlay
      Technologies, Inc./s/  Mark R.
      SokolowskiMark
      R. Sokolowski,Chief
      Financial Officer and Treasurer(Principal
      Financial and Accounting Officer)





Date:  August
11, 2009




In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.




Signature
                  
                  Capacity
                  
                  Date/s/ Steven P. Hanson
                  
                  Chairman
      of the Board
                  
                  August
      11, 2009Steven
      P. Hanson/s/ Dino D. Farfante
                  
                  Director
                  
                  August
      11, 2009Dino
      D. Farfante/s/ John W. Hail
                  
                  Director
                  
                  August
      11, 2009John
      W. Hail/s/ P. Robert Moya
                  
                  Director
                  
                  August
      11, 2009P.
      Robert Moya/s/ William E. Peelle
                  
                  Director
                  
                  August
      11, 2009William
      E. Peelle/s/ Van H. Potter
                  
                  Director
                  
                  August
      11, 2009Van
      H. Potter
                  
                  Chief
      Executive Officer




53


INDEX
TO EXHIBITS




Exhibit No.
            
            Description of Exhibit2.2
            
            Agreement
      and Plan of Merger, dated as of July 27, 2005, among InPlay Technologies,
      Inc., FPI Acquisition, Inc., FinePoint Innovations, Inc., and Stephen
      Caldwell (1)2.3
            
            Amendment
      No. 1 to Agreement and Plan of Merger, dated as of July 27, 2005, among
      InPlay Technologies, Inc., FPI Acquisition, Inc., FinePoint Innovations,
      Inc., and Stephen Caldwell (2)2.4
            
            Asset
      Purchase Agreement dated October 28, 2008, between InPlay Technologies,
      Inc. and Memtron Technologies Co. (3)2.5
            
            Asset
      Purchase Agreement dated June 26, 2009, among InPlay Technologies, Inc.,
      FinePoint Innovations, Inc. and Wacom Co. Ltd (4)2.6
            
            Loan
      and Security Agreement dated June 26, 2009 among InPlay Technologies,
      Inc., FinePoint Innovations, Inc. and Wacom Co. Ltd. filed
      herein.2.7
            
            Patent,
      Trademark and Copyright Security Agreement dated June 26, 2009 among
      InPlay Technologies, Inc., FinePoint Innovations, Inc. and Wacom Co. Ltd.
      filed herein.3.1
            
            Amended
      and Restated Articles of Incorporation (5)3.2
            
            Amended
      and Restated Bylaws (6)4.1
            
            Specimen
      Common Stock Certificate (7)10.2
            
            1997
      Stock Option Plan (7)10.3
            
            1999
      Stock Option Plan (7)10.4
            
            2000
      Stock Option Plan (8)10.5
            
            2000
      Stock Option Plan Amendment (9)10.6
            
            Management
      Services Agreement dated May 1, 1997 by and between Total Switch, Inc. and
      VanDun, LLC (7)10.7
            
            Agreement
      for Assignment of Present and Future Inventions in Certain Subject Matter,
      dated May 1, 1997, by and between Total Switch, Inc. and Anthony J. Van
      Zeeland (7)10.8
            
            Licensing
      Agreement, dated April 20, 2000, between Delphi Automotive Systems LLC and
      Duraswitch Industries, Inc. (10)10.9
            
            Shareholders’
      Agreement, dated June 19, 2000, among Duraswitch Industries, Inc., Delphi
      Automotive Systems Corporation, and the Primary Shareholders named therein
      (11)10.12
            
            Form
      of Indemnification Agreement (12)10.13(a)
            
            Employment
      Agreement, dated October 1, 2005, by and between InPlay Technologies, Inc.
      and Robert J. Brilon (13)10.19
            
            Securities
      Purchase Agreement, dated December 27, 2005, among InPlay Technologies,
      Inc. and the investor parties thereto (14)10.20
            
            Registration
      Rights Agreement, dated December 27, 2005, among InPlay Technologies, Inc.
      and the investor parties thereto (14)10.21
            
            Form
      of Investor Warrant, dated December 27, 2005, issued by InPlay
      Technologies, Inc. to the investors in connection with the December 2005
      private offering (14)10.22
            
            Form
      of Agent Warrant, dated December 27, 2005, issued by InPlay Technologies,
      Inc. to the placement agent in connection with the December 2005 private
      offering (14)  54
  10.23
              
              Settlement
      Agreement between InPlay Technologies and Delphi Automotive Systems, LLC
      (15)10.24
              
              First
      Amendment to InPlay Technologies, Inc. 2005 Stock Award Plan, dated May
      31, 2007 (16)10.25
              
              Lease
      Agreement, dated May 31, 2007, between The Reliable Life Insurance Company
      and InPlay Technologies, Inc. (17)10.26
              
              Form
      of 2005 Stock Award Plan Stock Option Agreement (17)10.28
              
              Severance
      Agreement and Release of Claims, dated July 31, 2007 between InPlay
      Technologies, Inc. and Robert J. Brilon (18)10.30
              
              Form
      of Change in Control Severance Agreement (19)10.31
              
              Amended
      and Restated 2005 Stock Award Plan, dated October 17,
  200810.32
              
              Amendment
      No. 1 to Change in Control Severance Agreement, by and among InPlay
      Technologies, Inc. and Van Potter, dated July 16, 2009, filed
      herein.10.33
              
              Amendment
      No. 1 to Change in Control Severance Agreement, by and among InPlay
      Technologies, Inc. and Mark Sokolowski, dated July 16, 2009, filed
      herein.14
              
              Code
      of Ethics (12)21
              
              List
      of  Subsidiaries23.1
              
              Consent
      of Moss Adams LLP31.1
              
              Certification
      of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a),
      promulgated under the Securities Exchange Action of 1934, as
      amended31.2
              
              Certification
      of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a),
      promulgated under the Securities Exchange Action of 1934, as
      amended32.1
              
              Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  200232.2
              
              Certification
      of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002





(1)
              
              Incorporated
      by reference to InPlay Technologies, Inc.’s Current Report on Form 8-K
      dated July 27, 2005, as filed with the Commission on or about August 2,
      2005.(2)
              
              Incorporated
      by reference to InPlay Technologies, Inc.’s Current Report on Form 8-K
      dated September 1, 2005, as filed with the Commission on or about
      September 8, 2005.(3)
              
              Incorporated
      by reference to InPlay Technologies, Inc.’s Current Report on Form 8-K
      dated October 28, 2008, as filed with the Commission on or about October
      29, 2008.(4)
              
              Incorporated
      by reference to InPlay Technologies, Inc.’s Current Report on Form 8-K
      dated June 26, 2009, as filed with the Commission on or about July 6,
      2009.(5)
              
              Incorporated
      by reference to InPlay Technologies, Inc.’s Quarterly Report on Form
      10-QSB for the quarterly period ended June 30, 2005, as filed with the
      Commission on or about August 5, 2005.(6)
              
              Incorporated
      by reference to InPlay Technologies, Inc.’s Annual Report on Form 10-KSB
      for the period ended December 31, 2006, as filed with the Commission on or
      about April 2, 2007.(7)
              
              Incorporated
      by reference to InPlay Technologies, Inc.’s Registration Statement on Form
      SB-2, as filed with the Commission on or about June 4,
    1999.(8)
              
              Incorporated
      by reference to InPlay Technologies, Inc.’s definitive Proxy Statement, as
      filed with the Commission on or about May 12, 2000.(9)
              
              Incorporated
      by reference to InPlay Technologies, Inc.’s Annual Report on Form 10-K for
      the year ended December 31, 2001, as filed with the Commission on or about
      March 23, 2002.
  55
  (10)
              
              Incorporated
      by reference to InPlay Technologies, Inc.’s Current Report on Form 8-K
      dated April 20, 2000, as filed with the Commission on or about April 26,
      2000.(11)
              
              Incorporated
      by reference to InPlay Technologies, Inc.’s Annual Report on Form 10-K for
      the year ended December 31, 2002, as filed with the Commission on or about
      March 25, 2003.(10)
              
              Incorporated
      by reference to InPlay Technologies, Inc.’s Quarterly Report on Form 10-Q
      for the quarterly period ended June 30, 2003, as filed with the Commission
      on or about August 5, 2003.(11)
              
              Incorporated
      by reference to InPlay Technologies, Inc.’s Annual Report on Form 10-K for
      the year ended December 31, 2003, as filed with the Commission on or about
      March 29, 2004.(12)
              
              Incorporated
      by reference to InPlay Technologies, Inc.’s Annual Report on Form 10-KSB
      for the year ended December 31, 2004, as filed with the Commission on or
      about March 29, 2005.(13)
              
              Incorporated
      by reference to InPlay Technologies, Inc.’s Current Report on Form 8-K
      dated September 30, 2005, as filed with the Commission on or about
      September 30, 2005.(14)
              
              Incorporated
      by reference to InPlay Technologies, Inc.’s Current Report on Form 8-K
      dated December 27, 2005, as filed with the Commission on or about December
      29, 2005.(15)
              
              Incorporated
      by reference to InPlay Technologies, Inc.’s Current Report on Form 8-K
      dated February 27, 2007, as filed with the Commission on or about February
      27, 2007.(16)
              
              Incorporated
      by reference to InPlay Technologies, Inc.’s Current Report on Form 8-K,
      dated May 31, 2007, as filed with the Commission on or about June 1,
      2007.(17)
              
              Incorporated
      by reference to InPlay Technologies, Inc.’s Quarterly Report on Form
      10-QSB for the quarterly period ended June 30, 2007, as filed with the
      Commission on August 13, 2007.(18)
              
              Incorporated
      by reference to InPlay Technologies, Inc.’s Current Report on Form 8-K,
      dated July 31, 2007, as filed with the Commission on or about August 6,
      2007.(19)
              
              Incorporated
      by reference to InPlay Technologies, Inc.’s Current Report on Form 8-K,
      dated April 16, 2008, as filed with the Commission on or about April 21,
      2008.




56