##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-KSB
 þ
    
    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For fiscal year ended December 31, 2007
 Commission File Number 001-15069
 InPlay Technologies, Inc.
 (Exact Name of Registrant as Specified in Its Charter)
 Nevada
    
    88-0308867(State of Incorporation)
    
    (I.R.S. Employer Identification No.)
 13845 North Northsight Boulevard
Scottsdale, Arizona 85260
(480) 586-3300
 (Address, including zip code, and telephone number, including area code, of principal executive offices)
 Securities registered pursuant to Section 12(b) of the Exchange Act:
 Title of Each Class
    
    Name of Each Exchange on Which RegisteredCommon Stock, par value $0.001 per share
    
    The NASDAQ Stock Market LLC
 Securities registered pursuant to Section 12(g) of the Exchange Act:
  o þ
 þ o
 þ
 o þ
    Documents Incorporated by Reference




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##### 



INPLAY TECHNOLOGIES, INC.
 ANNUAL REPORT ON FORM 10-KSB
Fiscal Year Ended December 31, 2007
 TABLE OF CONTENTS
  
 PagePART IITEM 1. DESCRIPTION OF BUSINESS
    
    
    3ITEM 2. DESCRIPTION OF PROPERTY
    
    
    19ITEM 3. LEGAL PROCEEDINGS
    
    
    19ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    19PART IIITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES
    
    
    20ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS
    
    
    21ITEM 7. FINANCIAL STATEMENTS
    
    
    28ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
    
    
    46ITEM 8A. CONTROLS AND PROCEDURES
    
    
    47ITEM 8B. OTHER INFORMATION
    
    
    47PART IIIITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS
AND CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(A)
OF THE EXCHANGE ACT
    
    
    48ITEM 10. EXECUTIVE COMPENSATION
    
    
    51ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
    
    
    54ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
AND DIRECTOR INDEPENDENCE
    
    
    59ITEM 13. EXHIBITS
    
    
    59ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    61SIGNATURES
    
    
    63EX-21EX-23.1EX-31.1EX-31.2EX-32.1EX-32.2
  Statements Regarding Forward-Looking Statements
 The statements contained in this report on Form 10-KSB 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 revenue, margins, and expenses for fiscal year 2008 and thereafter; statements
regarding our licensees and customers ability to successfully market and manufacture products
using our technologies; the potential for our patented technologies in key markets; our estimation
of potential revenue from and timing of production using our technologies; our ability to
successfully execute on our corporate goal of leveraging our business model with additional
technologies; our ability to protect our intellectual property; and liquidity and anticipated cash
needs and availability. 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 1, Risk Factors.
 2




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##### Table of Contents



PART I
 
 Item 1. Description of Business
 Overview
  www.inplaytechnologies.com
 Strategy
  History
    3




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FinePoint Segment
 Digital Computing Pen Industry
    History of Digitizer Technology.
  
    
    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
     FinePoint Digital Computing Pen Technology
  4




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##### Table of Contents



FinePoint Markets
   Risk Factors  If we are unable to increase sales by gaining additional customers and design wins
for our technologies, our financial condition and operations will suffer.
 FinePoint Competitive Advantages
  Better Accuracy.
 Lower Cost.
 Increased Feature-Enhancement Capability.
 5




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Customization and differentiation.
 FinePoint Strategies
 Maintain and Further Our Patented Technologies Competitive Advantages.
 Broaden Pen-Input Capabilities Through Our Digital Roadmap.
 Expand Awareness of Our Technologies Advantages.
 Leverage Relationships with Target Partners.
 Capitalize on Market Trends.
 FinePoint Competition
   Duraswitch Segment
 Electronic Switch Industry
   6




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History of Electronic Switches.
   Duraswitch Electronic Switch Technologies
  The Duraswitch PushGate®.
  7




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
    
    PushGate Island construction which reduces the number of material layers and allows
for the switching element of the PushGate to be fabricated as a freestanding
subassembly that can be easily inserted into a foam layer, thereby simplifying the
manufacturing process and reduces cost;
    
    Unique constructions that provide distinct advantages in certain applications
including the Large-Key PushGate, High-Impact PushGate, Tact Switch, Extreme
Temperature/Altitude PushGate, Peel-and-Place PushGate, and Normally Closed-Normally
Open design incorporating PushGate technology.
 The Duraswitch thiNcoder .
  The Duraswitch MagnaMouse.
 The Duraswitch PushFlex.
 Duraswitch Markets
  8




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##### Table of Contents




    
    Click:an e-newsletter highlighting engineering, manufacturing, and procurement
updates;
    
    The Report:an e-newsletter with sales tips, licensee success stories, and
technology updates;
    
    web cast training: interactive presentations on Duraswitch technologies given
multiple times to accommodate various time zones, and also archived;
    
    online training manuals: complete design and manufacturing manuals for our
technologies available online to ensure updates and enhancements are available
immediately;
    
    sales presentations, marketing literature, images, and logos available for licensees
to download and integrate with their own branded sales materials; and
    
    strategic technology partner contacts for procurement and support for complementary
products that our licensees often use when manufacturing our technologies.
  Duraswitch Electronic Switch Competitive Advantages
  Significantly Greater Durability and Reliability.
 Inherent Feedback Response.
 Ease of Integration in Slim Profile, Environmentally Sealed Design.
 Value Engineering Alternative.
 Increased Design Capabilities.
 9




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Duraswitch Electronic Switch Technology Strategies
 Maintain and Further Our Patented Technologies Competitive Advantages.
 Increase Market Awareness of Our Patented Technological Advantages.
 License Switch Manufacturers and OEMs.
 Provide Training, Design Engineering, and Marketing Support.
 Target Key Industries with Potential for High-Volume Applications.
 Duraswitch Competition
  10




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Intellectual Property
     Research, Development, and Commercial Application Engineering
     11




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Employees
  Risk Factors
 If we are unable to increase sales by gaining additional customers and design wins for our
technologies, our financial condition and operations will suffer.
  
    
    the lengthy process and costs associated with building relationships with potential
customers;
    
    our ability to meet the demands of these customers in regard to manufacturing,
volumes, cost, quality and timing;
    
    challenges in persuading customers to displace current products and suppliers, even
if we are able to provide a compelling value proposition; and
    
    technical challenges which may or may not be related to components supplied by us.
  As a result of our history of operating losses, loss of two major customers and other factors, our
auditors have raised substantial doubt about our ability to continue as a going concern.
  12




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We may be unable to raise required cash to fund the business plan and net working capital
requirements on a go forward basis.
  
    
    further develop our integrated digital pen-and-touch technology;
    
    increase our patent coverage and protect our intellectual property rights;
    
    fund development of customer-specific product designs; and
    
    fund marketing and long-term business development.
  We may fail to meet expectations because our net sales, gross profit and cash flow will fluctuate
from period to period.
  
    
    our ability to adjust expenses for any particular quarter in response to changes in
net sales because a substantial component of our operating expenses are fixed costs;
    
    any change in the mix of products that we provide will impact our net sales and
gross profit depending on whether the sales are licensed components, which result in
lower sales prices but higher gross profit, or contract-manufactured products, which
result in higher net sales and lower gross profit;
    
    the cyclical nature of some of the markets in which we serve;
    
    the sensitivity of our production costs to declines in manufacturing yields, which
make yield problems both possible and costly when they occur;
    
    expenses associated with acquisitions; or
    
    general economic conditions.
  We have a lengthy sales cycle, which increases the likelihood that our quarterly net sales will
fluctuate and which may, in turn, adversely affect the trading price of our common stock.
  13




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Our customers may cancel orders, change production quantities, or delay production at any time, any
of which could materially reduce our net sales and operating results.
  We depend on limited suppliers for certain critical raw materials. Our inability to obtain
sufficient raw materials at favorable prices could increase our prices or otherwise harm our
business.
   Our failure to detect unknown defects in our products could materially harm our relationship with
customers, our reputation, and our business. Product liability or warranty claims could be
time-consuming and costly.
  We rely on our customers to design, market and sell end products using our technologies and our
operating results could be harmed if these products are unsuccessful or markets in which we sell
our products do not grow.
   
    
    computers and computer-related products, specifically tablet PC and convertible
notebooks;
 14




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
    
    medical electronics and equipment; and
    
    industrial controls.
  Downturns in the industries in which we operate could reduce the value of our inventories and cause
a reduction in our profits.
  We use manufacturing resources in Asia, which limits our control of the manufacturing process.
  
    
    the outsourcing contractors ability to manufacture products that meet our technical
specifications and that have minimal defects;
    
    the outsourcing contractors ability to honor product warranties;
    
    the financial solvency, labor concerns, and general business condition of our
outsourcing contractors;
    
    unexpected changes in and the burdens and costs of compliance with a variety of
foreign laws and regulatory requirements;
    
    increased chances of our intellectual property being infringed as a result of the
failure of foreign governments to enforce the protection of intellectual property
rights;
    
    political and economic instability in overseas locations; and
    
    global health related matters, such as SARS, Avian Flu, and other health concerns.
 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.
    15




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We are subject to litigation risks.
  Our business depends upon retaining key personnel and attracting new employees.
  We face risks related to rapidly changing technology.
  If we fail to develop, introduce, and sell new products our operating results could be adversely
affected.
   
    
    we fail to complete and introduce new technology designs in a timely manner;
    
    we are unable to design and manufacture products according to the requirements of
our customers;
    
    our customers do not successfully introduce new systems or products incorporating
our technologies;
    
    market demand for our technologies does not develop as anticipated;
    
    we are unable to obtain raw materials in a timely manner or at favorable prices; or
    
    we are unable to maintain pricing to sustain or grow our gross margins.
  16




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Our goodwill may become impaired in the future.
  We have made and may make other acquisitions and cannot assure you that any potential acquisition
will be successful.
  
    
    difficulties integrating the operations and personnel of acquired companies;
    
    exposure to unanticipated liabilities of an acquired company;
    
    the risk of entering into markets or producing products where we have limited or no
experience, including the integration of the purchased technologies and products with
our technologies and products;
    
    the diversion of the attention of our management team from other business concerns;
    
    the recording of goodwill and non-amortizable intangible assets that will be subject
to impairment testing on a regular basis and potential periodic impairment charges;
    
    potential loss of key customers or employees of acquired companies;
    
    significant expenditures to consummate acquisitions and additional resources
required to fund operations of acquired companies;
    
    difficulties in meeting applicable regulatory requirements; and
    
    our ability to assess, integrate, and implement internal controls of an acquired
company in accordance with Section 404 of the Sarbanes-Oxley Act of 2002.
  Our international business activities subject us to risks that could reduce the demand for our
products and increase our operating expenses.
  
    
    different technology standards and design requirements;
    
    longer payment cycles for and greater difficulties collecting accounts receivable;
    
    fluctuations in currency exchange rates;
    
    nationalization, expropriation, and limitations on repatriation of cash;
    
    social, economic, banking, and political risks;
    
    taxation;
 17




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
    
    changes in U.S. laws and policies affecting trade, foreign investment and loans; and
    
    changes in enforcement of laws protecting intellectual property.
 Our stock price has been volatile.
  
    
    establishment, growth or loss of licensee or customer relationships;
    
    timing of introductions, production, and sales cycles of new products by our
licensees or customers incorporating our technologies in their products, which is at
their discretion;
    
    future announcements concerning our company, our competitors or our principal
customers, such as quarterly operating results, adjustments to previously reported
results, changes in earnings estimates by analysts, technological innovations, new
product introductions, governmental regulations, or litigation;
    
    sales or purchase of common stock by our officers, directors, and other insiders;
    
    investor perceptions concerning the prospects of our business;
    
    market reaction to acquisitions, joint ventures, or strategic investments announced
by us or our competitors;
    
    the liquidity within the market of our common stock;
    
    market conditions and investor sentiment affecting market prices of equity
securities of high technology companies or small cap companies;
    
    general economic, political, and market conditions, such as recessions or
international currency fluctuations;
    
    lawsuits filed against us; and
    
    compliance with the Sarbanes-Oxley Act.
 Failure to maintain effective internal controls in accordance with Section 404 of the
Sarbanes-Oxley Act could have an adverse effect on our business and stock price.
  Rights to acquire shares of common stock could result in dilution to other holders of common stock.
  Certain provisions of our certificate of incorporation, granting our board of directors broad
discretion to issue shares of preferred stock, may adversely affect rights of common stockholders.
  18




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Item 2. Description of Property
  
 Item 3. Legal Proceedings
   
 Item 4. Submission of Matters to a Vote of Security Holders
  19




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PART II
 
 Item 5. Market for Common Equity, Related Stockholder Matters and Small Business Issuer Purchases
of Equity Securities
  High
    
    LowYear Ended December 31, 2006First Quarter
    
    $
    3.82
    
    
    $
    2.25Second Quarter
    
    
    3.00
    
    
    
    2.18Third Quarter
    
    
    2.75
    
    
    
    1.15Fourth Quarter
    
    
    1.90
    
    
    
    1.13Year Ended December 31, 2007First Quarter
    
    $
    2.20
    
    
    $
    1.07Second Quarter
    
    
    2.43
    
    
    
    0.80Third Quarter
    
    
    3.50
    
    
    
    0.86Fourth Quarter
    
    
    2.45
    
    
    
    1.10
  Dividend Policy
  Equity Compensation Plan Information
  (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 Plans
Approved by Stockholders
    
    
    1,775,873
    
    
    $
    5.73

    
    
    163,244Equity Compensation Plans
Not Approved by Stockholders
    
    
    509,091
    (1)
    
    $
    3.64

    
    
    Total
    
    
    2,284,964
    
    
    $
    5.27

    
    
    163,244
 
 (1)
    
    Issuance of warrants in connection with the December 2005 private placement of 1,272,728
shares. 20




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Item 6. Managements Discussion and Analysis
 Overview
       Application of Critical Accounting Policies
   Revenue Recognition.
 21




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Inventory Valuation.
 Impairment or Disposal of Long-Lived Assets.
   Income Taxes.
 22




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Results of Operations for the Year Ended December 31, 2007 Compared to the Year Ended December 31,
2006
 Net Revenue.
 Year ended December 31,
    
    
    Increase (Decrease)2007
    
    
    2006
    
    
    Amount
    
    
    PercentFinePoint
    
    $
    2,714,579
    
    
    $
    8,638,519
    
    
    $
    (5,923,940
    )
    
    
    (69
    %)Duraswitch  Delphi
    
    
    7,631,250
    
    
    
    
    
    
    
    7,631,250
    
    
    
    Duraswitch  Other
    
    
    991,955
    
    
    
    853,643
    
    
    
    138,312
    
    
    
    16
    %Total net revenue
    
    $
    11,337,784
    
    
    $
    9,492,162
    
    
    $
    1,845,622
    
    
    
    19
    %
  Net FinePoint Revenue.
 Net Duraswitch Revenue.
  Cost of Goods Sold.
 Year ended December 31,
    
    
    Increase (Decrease)2007
    
    
    2006
    
    
    Amount
    
    
    PercentFinePoint
    
    $
    2,260,073
    
    
    $
    7,919,064
    
    
    $
    (5,658,991
    )
    
    
    (71
    %)Duraswitch
    
    
    395,893
    
    
    
    306,440
    
    
    
    89,453
    
    
    
    29
    %Total COGS
    
    $
    2,655,966
    
    
    $
    8,225,504
    
    
    $
    (5,569,538
    )
    
    
    (68
    %)
  23




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##### Table of Contents



FinePoint COGS.
 Duraswitch COGS.
 Selling, General and Administrative Expenses.
 Year ended December 31,
    
    
    Increase2007
    
    
    2006
    
    
    Amount
    
    
    PercentFinePoint
    
    $
    1,124,348
    
    
    $
    1,088,268
    
    
    $
    36,080
    
    
    
    3
    %Duraswitch
    
    
    946,168
    
    
    
    244,939
    
    
    
    701,229
    
    
    
    286
    %Corporate
    
    
    3,073,946
    
    
    
    1,897,338
    
    
    
    1,176,608
    
    
    
    62
    %Total SG&A
    
    $
    5,144,462
    
    
    $
    3,230,545
    
    
    $
    1,913,917
    
    
    
    59
    %
 FinePoint SG&A.
 Duraswitch SG&A.
 Corporate SG&A.
 Research, Development and Commercial Application Engineering Expenses.
 Year ended December 31,
    
    
    Increase (Decrease)2007
    
    
    2006
    
    
    Amount
    
    
    PercentFinePoint
    
    $
    1,926,452
    
    
    $
    925,993
    
    
    $
    1,000,459
    
    
    
    108
    %Duraswitch
    
    
    354,462
    
    
    
    425,279
    
    
    
    (70,817
    )
    
    
    (17
    %)Total R&D
    
    $
    2,280,914
    
    
    $
    1,351,272
    
    
    $
    929,642
    
    
    
    69
    %
 FinePoint R&D.
 24




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Duraswitch R&D.
 Interest and Other Income  Net.
 Liquidity and Capital Resources
        25




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New Accounting Pronouncements.
      
 26




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27




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Item 7. Financial Statements
  
      
  28




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INPLAY TECHNOLOGIES, INC.
 CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2007
 2007ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    5,592,412Accounts receivable
    
    
    228,610Inventory (Note 5)
    
    
    108,562Prepaid expenses and other current assets
    
    
    128,932Total current assets
    
    
    6,058,516PROPERTY AND EQUIPMENT  Net (Note 6)
    
    
    437,248GOODWILL
    
    
    1,321,240PATENTS  Net (Note 7)
    
    
    1,205,977OTHER ASSETS
    
    
    17,731TOTAL
    
    $
    9,040,712LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESAccounts payable
    
    $
    642,781Accrued salaries and benefits
    
    
    777,987Accrued purchase commitments (Note 15)
    
    
    558,000Other accrued expenses and other current liabilities
    
    
    453,108Deferred licensing and other revenue
    
    
    15,695Total current liabilities
    
    
    2,447,571LONG-TERM LIABILITIESOther non-current liabilities
    
    
    173,228Total long-term liabilities
    
    
    173,228Total liabilities
    
    
    2,620,799COMMITMENTS AND CONTINGENCIES (Notes 5 and 15)STOCKHOLDERS EQUITY (Notes 9 and 10)Preferred stock, no par value, 10,000,000 shares authorized,
no shares issued and outstanding in 2007
    
    
    Common stock, $.001 par value, 40,000,000 shares
authorized 11,595,138 shares issued and outstanding
    
    
    11,595Additional paid-in capital
    
    
    31,706,458Accumulated deficit
    
    
    (25,298,140
    )Total stockholders equity
    
    
    6,419,913TOTAL
    
    $
    9,040,712
  29




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INPLAY TECHNOLOGIES, INC.
 CONSOLIDATED STATEMENTS OF OPERATIONS  YEARS ENDED DECEMBER 31, 2007 AND 2006
 2007
    
    
    2006NET REVENUE:FinePoint
    
    $
    2,714,579
    
    
    $
    8,638,519Duraswitch related party  Delphi (Note 8)
    
    
    7,631,250
    
    
    
    Duraswitch non-related parties
    
    
    991,955
    
    
    
    853,643Total net revenue
    
    
    11,337,784
    
    
    
    9,492,162COST OF GOODS SOLD:FinePoint
    
    
    2,260,073
    
    
    
    7,919,064Duraswitch
    
    
    395,893
    
    
    
    306,440Total cost of goods sold
    
    
    2,655,966
    
    
    
    8,225,504Gross profit
    
    
    8,681,818
    
    
    
    1,266,658OPERATING EXPENSES:Selling, general and administrative
    
    
    5,144,462
    
    
    
    3,230,545Research, development and commercial
application engineering
    
    
    2,280,914
    
    
    
    1,351,272Total operating expenses
    
    
    7,425,376
    
    
    
    4,581,817INCOME (LOSS) FROM OPERATIONS
    
    
    1,256,442
    
    
    
    (3,315,159
    )OTHER INCOME:Interest and other income  net
    
    
    285,101
    
    
    
    99,980NET INCOME (LOSS)
    
    $
    1,541,543
    
    
    $
    (3,215,179
    )NET INCOME (LOSS) PER COMMON SHARE,
BASIC
    
    $
    0.13
    
    
    $
    (0.28
    )NET INCOME (LOSS) PER COMMON SHARE,
DILUTED
    
    $
    0.13
    
    
    $
    (0.28
    )WEIGHTED AVERAGE SHARES OUTSTANDING,
BASIC
    
    
    11,530,233
    
    
    
    11,493,205WEIGHTED AVERAGE SHARES OUTSTANDING,
DILUTED
    
    
    11,566,553
    
    
    
    11,493,205
  30




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INPLAY TECHNOLOGIES, INC.
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
YEARS ENDED DECEMBER 31, 2007 AND 2006
 AdditionalCommon Stock
    
    Paid-in
    
    
    AccumulatedShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    TotalBALANCE, DECEMBER 31, 2005
    
    
    11,481,512
    
    
    $
    11,482
    
    
    $
    31,373,292
    
    
    
    ($23,624,504
    )
    
    $
    7,760,270Issuance of stock options
    
    
    
    
    
    
    
    
    
    
    73,573
    
    
    
    
    
    
    
    73,573Issuance of restricted stock
    
    
    4,803
    
    
    
    4
    
    
    
    7,496
    
    
    
    
    
    
    
    7,500Payments in connection with registration of
stock previously issued
    
    
    
    
    
    
    
    
    
    
    (56,189
    )
    
    
    
    
    
    
    (56,189
    )Employee stock options exercised
    
    
    16,000
    
    
    
    16
    
    
    
    26,264
    
    
    
    
    
    
    
    26,280Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,215,179
    )
    
    
    (3,215,179
    )BALANCE, 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 income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,541,543
    
    
    
    1,541,543BALANCE, DECEMBER 31, 2007
    
    
    11,595,138
    
    
    $
    11,595
    
    
    $
    31,706,458
    
    
    
    ($25,298,140
    )
    
    $
    6,419,913
  31




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##### Table of Contents



INPLAY TECHNOLOGIES, INC.
 CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2007 AND 2006
 2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    $
    1,541,543
    
    
    $
    (3,215,179
    )Adjustments to reconcile net loss to net cash used in
operating activities:Depreciation and amortization
    
    
    335,497
    
    
    
    335,559Stock compensation
    
    
    178,165
    
    
    
    81,073Loss on disposal of equipment
    
    
    103,194
    
    
    
    42,291Write down of inventory
    
    
    
    
    
    
    545,599Changes in operating assets and liabilities; net of assets
acquired and liabilities assumed:Accounts receivable
    
    
    150,759
    
    
    
    1,080,800Inventory
    
    
    1,051,066
    
    
    
    (394,151
    )Prepaid expenses and other current assets
    
    
    56,442
    
    
    
    (96,735
    )Accounts payable
    
    
    (55,814
    )
    
    
    (798,183
    )Accrued salaries and benefits
    
    
    279,895
    
    
    
    (12,702
    )Other accrued expenses and other current liabilities
    
    
    362,134
    
    
    
    109,188Other non-current liabilities
    
    
    172,377
    
    
    
    (10,614
    )Deferred licensing revenue
    
    
    (9,831
    )
    
    
    (57,353
    )Net cash provided by (used in) operating activities
    
    
    4,165,427
    
    
    
    (2,390,407
    )CASH FLOWS FROM INVESTING ACTIVITIES:Sale of restricted short-term investment
    
    
    
    
    
    
    400,000Increase in patents
    
    
    (41,473
    )
    
    
    (48,244
    )Proceeds from sale of equipment
    
    
    7,923
    
    
    
    Purchases of property and equipment
    
    
    (234,727
    )
    
    
    (196,948
    )Net cash provided by (used in) investing activities
    
    
    (268,277
    )
    
    
    154,808CASH FLOWS FROM FINANCING ACTIVITIES:Payments in connection with the registration of previously issued stock
    
    
    
    
    
    
    (56,189
    )Net proceeds from exercise of employee stock options
    
    
    103,950
    
    
    
    26,280Principal payments on capital leases and notes payable
    
    
    
    
    
    
    (165,914
    )Net cash provided by (used in) financing activities
    
    
    103,950
    
    
    
    (195,823
    )INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    4,001,100
    
    
    
    (2,431,422
    )CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
    
    
    1,591,312
    
    
    
    4,022,734CASH AND CASH EQUIVALENTS, END OF YEAR
    
    $
    5,592,412
    
    
    $
    1,591,312SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:Cash paid for interest
    
    $
    
    
    
    $
    2,755
  32




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##### Table of Contents



INPLAY TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
 1. NATURE OF BUSINESS
    2. GOING CONCERN
  3. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
  Principles of Consolidation.
 Cash Equivalents.
 Inventory.
 33




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##### Table of Contents



Property and Equipment.
 Computer software
    
    3 yearsComputer equipment
    
    3 to 5 yearsTooling
    
    5 to 7 yearsOther machinery and equipment
    
    5 yearsOffice furniture and fixtures
    
    7 years
  Patents.
 Goodwill.
 Revenue Recognition.
  34




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##### Table of Contents



Accounts Receivable.
  Stock-Based Compensation.
    35




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##### Table of Contents



Income Taxes.
 Income (Loss) Per Common Share.
  2007Weighted average shares outstanding  Basic
    
    
    11,530,233Effect of dilutive stock options
    
    
    36,320Weighted average shares outstanding  Fully diluted
    
    
    11,566,553
 Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of.
  New Accounting Pronouncements.
  36




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##### Table of Contents



 "
  Fair Value of Financial Instruments.
 Use of Estimates.
 4. CONCENTRATIONS
  37




---



##### Table of Contents



5. INVENTORY
  2007Raw materials
    
    $
    99,653Finished goods
    
    
    8,909Subtotal
    
    $
    108,562
  6. PROPERTY AND EQUIPMENT
  2007Computer equipment and software
    
    $
    547,319Tooling
    
    
    142,910Other machinery and equipment
    
    
    98,704Leasehold improvements
    
    
    19,400Office furniture and fixtures
    
    
    150,921Total
    
    
    959,254Accumulated depreciation
    
    
    (522,006
    )Property and equipment  net
    
    $
    437,248
  7. PATENTS
  2007Patents
    
    $
    1,789,192Accumulated amortization
    
    
    (583,215
    )Patents  net
    
    $
    1,205,977
  38




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##### Table of Contents



8. DEFERRED LICENSING REVENUE
     9. STOCKHOLDERS EQUITY
 Common Stock.
 Preferred Stock.
 Warrants.
 39




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##### Table of Contents



Warrants
    
    
    Price RangeBalance, December 31, 2006
    
    
    509,091
    
    
    $
    3.44 - $4.22Issued
    
    
    Exercised
    
    
    Expired
    
    
    Balance, December 31, 2007
    
    
    509,091
    
    
    $
    3.44 - $4.22
 10. STOCK OPTION PLANS
        WeightedAverageOption
    
    ExerciseShares
    
    PriceBalance, December 31, 2005
    
    
    1,351,056
    
    
    $
    7.16Granted
    
    
    210,000
    
    
    $
    2.09Exercised
    
    
    (16,000
    )
    
    $
    1.64Expired or terminated
    
    
    (76,583
    )
    
    $
    4.72Balance, 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
    
    
    $
    5.73
 40




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##### Table of Contents



2007
    
    
    2006Exercisable at the end of the year
    
    
    1,350,873
    
    
    
    1,378,473Weighted average fair value of options
granted during the year
    
    $
    0.90
    
    
    $
    1.00
  Options Outstanding
    
    Options ExercisableWeightedAverage
    
    Weighted
    
    
    
    
    
    WeightedRemaining
    
    Average
    
    
    
    
    
    AverageOptions
    
    Contractual
    
    Exercise
    
    Options
    
    ExerciseRange of Exercise Price
    
    
    
    Outstanding
    
    Life
    
    Price
    
    Exercisable
    
    Price$
    0.81
    
    
    
    
    
    
    $
    1.58
    
    
    
    
    
    385,500
    
    
    
    8.2
    
    
    $
    1.41
    
    
    
    242,500
    
    
    $
    1.37$
    1.60
    
    
    
    
    
    
    $
    3.38
    
    
    
    
    
    767,500
    
    
    
    8.0
    
    
    $
    2.12
    
    
    
    485,500
    
    
    $
    2.42$
    6.00
    
    
    
    
    
    
    $
    10.85
    
    
    
    
    
    382,401
    
    
    
    2.1
    
    
    $
    7.01
    
    
    
    382,401
    
    
    $
    7.01$
    17.51
    
    
    
    
    
    
    $
    22.31
    
    
    
    
    
    240,472
    
    
    
    0.1
    
    
    $
    22.16
    
    
    
    240,472
    
    
    $
    22.16$
    0.81
    
    
    
    
    
    
    $
    22.31
    
    
    
    
    
    1,775,873
    
    
    
    5.7
    
    
    $
    5.73
    
    
    
    1,350,873
    
    
    $
    7.05
 Years Ended December 31,
    
    2007
    
    2006Options exercisable at end of period
    
    
    1,350,873
    
    
    
    1,378,473Options available for future grant
    
    
    163,244
    
    
    
    63,467Intrinsic value of options exercised
    
    $
    94,740
    
    
    $
    16,493Aggregate intrinsic value of options outstanding
    
    $
    26,790
    
    
    $
    54,670Aggregate intrinsic value of options exercisable
    
    $
    24,580
    
    
    $
    53,920
  41




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##### Table of Contents



11. INCOME TAXES
  2007Deferred tax assets:Operating loss carryforwards
    
    $
    7,276,669Capitalized research and development
    
    
    2,078,538Deferred licensing revenue
    
    
    21,401Inventory reserve
    
    
    21,699Accruals
    
    
    498,796Other
    
    
    70,084Total
    
    
    9,967,187Less valuation allowance
    
    
    (9,445,671
    )Total
    
    
    521,516Deferred tax liabilities:Patents
    
    
    (471,594
    )Other
    
    
    (49,922
    )Total
    
    $
    
       42




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##### Table of Contents



2007
    
    
    2006Benefit calculated at statutory rate
    
    $
    524,125
    
    
    $
    1,093,162Increase (decrease) in income resulting from:Research and development and other tax credits
    
    
    1,398,235
    
    
    
    112,495State income taxes, net
    
    
    70,911
    
    
    
    147,073Permanent differences
    
    
    (25,903
    )
    
    
    (11,707
    )Expiration of state net operating loss carryforwards
    
    
    
    
    
    
    (351,988
    )Other, net
    
    
    (2,894
    )
    
    
    5,106Valuation allowance
    
    
    (1,990,403
    )
    
    
    (457,584
    )Adjustment for change in state income tax rate
    
    
    25,929
    
    
    
    (536,557
    )Total
    
    $
    
    
    
    $
    
  12. SEGMENTS
   2007
    
    
    2006RevenuesFinePoint
    
    $
    2,714,579
    
    
    $
    8,638,519Duraswitch
    
    
    8,623,205
    
    
    
    853,643Total revenue
    
    $
    11,337,784
    
    
    $
    9,492,162Cost of goods soldFinePoint
    
    $
    2,260,073
    
    
    $
    7,919,064Duraswitch
    
    
    395,893
    
    
    
    306,440Total cost of goods sold
    
    $
    2,655,966
    
    
    $
    8,225,504Gross profitFinePoint
    
    $
    454,506
    
    
    $
    719,455Duraswitch
    
    
    8,227,312
    
    
    
    547,203Total gross profit
    
    $
    8,681,818
    
    
    $
    1,266,658
 43




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##### Table of Contents



2007
    
    
    2006Selling, general and administrativeFinePoint
    
    $
    1,124,348
    
    
    $
    1,088,268Duraswitch
    
    
    946,168
    
    
    
    244,939Corporate
    
    
    3,073,946
    
    
    
    1,897,338Total selling, general and administrative
    
    $
    5,144,462
    
    
    $
    3,230,545Research, development and
application engineeringFinePoint
    
    $
    1,926,452
    
    
    $
    925,993Duraswitch
    
    
    354,462
    
    
    
    425,279Total research, development and application
engineering
    
    $
    2,280,914
    
    
    $
    1,351,272Income (loss) from operationsFinePoint
    
    $
    (2,596,294
    )
    
    $
    (1,294,806
    )Duraswitch
    
    
    6,926,682
    
    
    
    (123,015
    )Corporate
    
    
    (3,073,946
    )
    
    
    (1,897,338
    )Total income (loss) from operations
    
    $
    1,256,442
    
    
    $
    (3,315,159
    )
 December 31,2007GoodwillFinePoint
    
    $
    877,366Duraswitch
    
    
    443,874Total goodwill
    
    $
    1,321,240Total assetsFinePoint
    
    $
    1,843,229Duraswitch
    
    
    1,433,515Corporate
    
    
    5,763,968Total assets
    
    $
    9,040,712
 13. SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
  44




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##### Table of Contents



2007 - Quarter Ended,December 31
    
    September 30
    
    June 30
    
    March 31Net revenue
    
    $
    403,361
    
    
    $
    1,223,203
    
    
    $
    644,965
    
    
    $
    9,066,255Gross profit
    
    
    200,291
    
    
    
    126,438
    
    
    
    212,433
    
    
    
    8,142,557Net 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
 2006 - Quarter Ended,December 31
    
    September 30
    
    June 30
    
    March 31Net revenue
    
    $
    2,133,701
    
    
    $
    3,089,316
    
    
    $
    2,551,150
    
    
    $
    1,717,995Gross profit
    
    
    (371,499
    )
    
    
    805,167
    
    
    
    366,779
    
    
    
    466,211Net loss
    
    
    (1,741,810
    )
    
    
    (257,332
    )
    
    
    (683,646
    )
    
    
    (532,391
    )Net loss per common share,
basic and diluted
    
    $
    (0.15
    )
    
    $
    (0.02
    )
    
    $
    (0.06
    )
    
    $
    (0.05
    )
 14. GEOGRAPHIC CONCENTRATION
  2007
    
    
    2006United States
    
    $
    8,571,477
    
    
    $
    1,092,149China
    
    
    2,616,133
    
    
    
    8,234,047Europe
    
    
    62,072
    
    
    
    43,428Other
    
    
    88,102
    
    
    
    122,538Total
    
    $
    11,337,784
    
    
    $
    9,492,162
 15. COMMITMENTS
 Purchase Commitments.
 Management Services Agreement.
 FinePoint Earn-Out.
 45




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##### Table of Contents



Employment Agreements.
   Lease Agreements.
 Tooling.
 Litigation.
  16. EMPLOYEE BENEFIT PLANS
  
 Item 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
  46




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##### Table of Contents



Item 8A(T). Controls and Procedures
 Evaluation of Disclosure Controls and Procedures.
     Managements Report on Internal Control Over Financial Reporting; Changes in Internal Controls Over
Financial Reporting.
    
 Item 8B. Other Information
  47




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##### Table of Contents



PART III
 
 Item 9.Directors, Executive Officers, Promoters, Control Persons and Corporate Governance;
Compliance withSection 16(a)of the Exchange Act
  Name
    
    Age
    
    PositionSteven P. Hanson
    
    
    59
    
    
    Chairman and Chief Executive OfficerRamesh G. Ramchandani
    
    
    43
    
    
    President and Chief Operating OfficerMark R. Sokolowski
    
    
    48
    
    
    Chief Financial Officer, TreasurerDino D. Farfante
    
    
    45
    
    
    DirectorJohn W. Hail
    
    
    75
    
    
    DirectorP. Robert Moya
    
    
    63
    
    
    DirectorWilliam E. Peelle
    
    
    58
    
    
    DirectorJack L. Saltich
    
    
    64
    
    
    Director
 Steven P. Hanson
 Ramesh G. Ramchandani
 Mark R. Sokolowski
 Dino D. Farfante
 John W. Hail
 48




---



##### Table of Contents



P. Robert Moya
 William E. Peelle
 Jack L. Saltich
 Compliance with Section 16(a) of the Exchange Act
   49




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##### Table of Contents



Information Relating to Our Audit Committee of the Board of Directors
    Code of Ethics
 www.inplaytechnologies.com
 50




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##### Table of Contents



Item 10. Executive Compensation
 Summary Compensation Table
  Non-EquityIncentive Plan
    
    Option
    
    All OtherSalary
    
    Compensation
    
    Awards ($)
    
    CompensationName and Principal Position
    
    Year
    
    ($)
    
    ($)
    
    (8)
    
    ($)
    
    Total ($)Steven P. Hanson, Chairman
and Chief Executive
Officer (1)
    
    
    2007
    
    
    $
    98,462
    
    
    $
    
    
    
    $
    
    
    
    $
    43
    (1)
    
    $
    98,505Ramesh G. Ramchandani,
President and Chief
Operating Officer
(2)
    
    
    2007
    
    
    $
    179,808
    
    
    $
    
    
    
    $
    45,185
    
    
    $
    6,026
    (2)
    
    $
    231,0192006
    
    
    $
    6,346
    
    
    $
    
    
    
    $
    13,540
    
    
    $
    
    
    
    $
    19,886Mark R. Sokolowski, Chief
Financial Officer and
Treasurer (3)
    
    
    2007
    
    
    $
    38,077
    
    
    $
    50,000
    (3)
    
    $
    9,287
    
    
    $
    
    
    
    $
    97,364Robert J. Brilon, former
Chief Executive Officer,
former Chief Financial
Officer (4)
    
    
    2007
    
    
    $
    156,115
    
    
    $
    250,000
    (5)
    
    $
    
    
    
    $
    701,931
    (6)
    
    $
    1,108,0462006
    
    
    $
    270,600
    
    
    $
    79,338
    (5)
    
    $
    
    
    
    $
    29,032
    (7)
    
    $
    378,970
 
 (1)
    
    Mr. Hanson was appointed Chief Executive Officer effective June 28, 2007. Other compensation
relates to premiums paid for disability insurance.(2)
    
    Mr. Ramchandani was promoted to President and Chief Operating Officer June 24, 2007. Other
compensation includes matching contributions to the Companys Simple IRA, medical insurance
premiums, premiums paid for disability and life insurance,(3)
    
    Mr. Sokolowski was named Chief Financial Officer October 8, 2007. Non-Equity incentive plan
compensation includes a $50,000 sign on incentive.(4)
    
    Mr. Brilon resigned as Chief Executive Officer, President, Chief Financial Officer, Secretary
and Treasurer and as a Director effective June 27, 2007.(5)
    
    In 2007, Mr. Brilon received a $250,000 incentive bonus paid as part of his termination
agreement. For 2006, $79,338 bonus paid related to his achievement during fiscal 2006 of
performance standards and objectives set by the Compensation Committee.(6)
    
    All other compensation for Mr. Brilon includes (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 $128,928 representing Mr.
Brilons unpaid accrued vacation benefits; (c) approximately $6,660 representing one-half of
the remaining amount due under the automobile leased by us and Mr. Brilon; (d) $5,706 for Mr.
Brilons and his familys medical and dental insurance premiums; (e) $7,200 for matching
contributions to the Companys Simple IRA; and (g) $12,237 for an automobile allowance,
medical insurance premiums, premiums paid for disability and life insurance, and club dues. 51




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##### Table of Contents



(7)
    
    All other compensation for Mr. Brilon includes (a) $10,000 for matching contributions to the
Companys Simple IRA; (b) $9,989 for an automobile allowance; (c) $9,043 for medical insurance
premiums, premiums paid for disability and life insurance, and club dues.(8)
    
    Option awards represent the fair value of option awards granted, computed in accordance with
FAS 123R. Other Benefit Plans and Programs
  Option/SAR Grants
  Outstanding Equity Awards at Year End
 Name
    
    Date
    
    Exercisable
    
    Unexercisable
    
    Price
    
    DateSteven P. 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
    
    
    5/1/2017Ramesh G. Ramchandani
    
    8/31/2007
    
    
    
    
    
    
    100,000
    
    
    $
    1.60
    
    
    8/31/201712/12/2006
    
    
    30,000
    
    
    
    15,000
    
    
    $
    1.65
    
    
    12/12/2016Mark R. Sokolowski
    
    10/8/2007
    
    
    
    
    
    
    60,000
    
    
    $
    1.57
    
    
    10/8/2017Robert J. Brilon
    
    11/20/1998
    
    
    176,471
    
    
    
    
    
    
    $
    6.38
    
    
    11/20/20086/8/2000
    
    
    22,000
    
    
    
    
    
    
    $
    6.00
    
    
    6/8/20105/1/2002
    
    
    25,000
    
    
    
    
    
    
    $
    6.50
    
    
    5/1/201212/4/2002
    
    
    15,000
    
    
    
    
    
    
    $
    1.06
    
    
    12/4/201212/1/2003
    
    
    75,000
    
    
    
    
    
    
    $
    2.05
    
    
    12/1/201312/10/2004
    
    
    50,000
    
    
    
    
    
    
    $
    2.05
    
    
    12/10/20145/20/2005
    
    
    75,000
    
    
    
    
    
    
    $
    1.58
    
    
    5/20/201512/1/2005
    
    
    75,000
    
    
    
    
    
    
    $
    3.32
    
    
    12/1/2015
 Employment and Separation Agreements
   52




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##### Table of Contents



Director Compensation
  nd
  Fees Earnedor Paid in
    
    Stock
    
    Option AwardsCash
    
    Awards
    
    (1) (2)
    
    TotalName
    
    ($)
    
    ($)
    
    ($)
    
    ($)Steven P. Hanson (3)
    
    $
    16,500
    
    
    $
    5,000
    
    
    $
    2,723
    
    
    $
    24,223Dino Farfante (4)
    
    $
    
    
    
    $
    
    
    
    $
    8,001
    
    
    $
    8,001John W. Hail (5)
    
    $
    16,000
    
    
    $
    
    
    
    $
    6,798
    
    
    $
    22,798P. Robert Moya (6)
    
    $
    15,500
    
    
    $
    
    
    
    $
    6,798
    
    
    $
    22,298William E. Peelle (7)
    
    $
    15,500
    
    
    $
    
    
    
    $
    6,798
    
    
    $
    22,298Jack Saltich (8)
    
    $
    
    
    
    $
    
    
    
    $
    8,001
    
    
    $
    8,001Michael A. Van Zeeland (9)
    
    $
    3,000
    
    
    $
    
    
    
    $
    
    
    
    $
    3,000
 
 (1)
    
    Represents value of option awards vested in 2006 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 2006. For further
details, including InPlays
assumptions in calculating the fair value, please see Note 3, Summary of Significant
Accounting Principles, and Note 10, Stock Option Plans. 53




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##### Table of Contents



(2)
    
    Options to purchase 5,000 shares of our common stock were granted to Messrs. Hail, Hanson,
Moya and Peelle on May 1, 2007 at an exercise price of $0.97 and to Messrs. Hail, Moya and
Peelle on December 3, 2007 at an exercise price of $1.39. Options to purchase 10,000 shares
of our common stock were granted to Messrs. Farfante and Saltich on November 26, 2007 at an
exercise price of $1.36. Prices represent the fair market value of our common stock on each
of the grant dates.(3)
    
    As of December 31, 2007, Mr. Hanson held 7,626 shares of restricted stock and options to
purchase 40,000 shares of our common stock.(4)
    
    As of December 31, 2007, Mr. Farfante held options to purchase 10,000 shares of our common
stock.(5)
    
    As of December 31, 2007, Mr. Hail held options to purchase 85,000 shares of our common stock.(6)
    
    As of December 31, 2007, Mr. Moya held options to purchase 40,000 shares of our common stock.(7)
    
    As of December 31, 2007, Mr. Peelle held options to purchase 85,000 shares of our common
stock.(8)
    
    As of December 31, 2007, Mr. Saltich held options to purchase 10,000 shares of our common
stock.(9)
    
    As of December 31, 2007, Dr. Michael Van Zeeland held options to purchase 55,000 shares of
our common stock. Dr. Van Zeeland resigned as Director, effective April 4, 2007. 
 Item 11.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
   Name of Beneficial Owner
    
    Number of Shares (1)
    
    PercentageDirectors and Executive Officers:Robert J. Brilon
    
    
    513,497
    (2)
    
    
    4.4
    %Steven P. Hanson
    
    
    107,626
    (3)
    
    
    *John W. Hail
    
    
    100,625
    (4)
    
    
    *William E. Peelle
    
    
    95,864
    (5)
    
    
    *Ramesh Ramchandani
    
    
    77,333
    (6)
    
    
    *P. Robert Moya
    
    
    40,000
    (7)
    
    
    *Mark R. Sokolowski
    
    
    20,000
    (8)
    
    
    *Jack L. Saltich
    
    
    12,000
    (9)
    
    
    *Dino D. Farfante
    
    
    10,000
    (9)
    
    
    *All directors and officers as a group (nine persons)
    
    
    976,945
    
    
    
    8.4
    %
 54




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##### Table of Contents



Name of Beneficial Owner
    
    Number of Shares (1)
    
    Percentage5% Stockholders:J. Patterson McBaine
    
    
    1,724,255
    (10)(13)
    
    
    14.9
    %Jon D. Gruber
    
    
    1,665,855
    (11)(13)
    
    
    14.4
    %Delphi Corp.
    
    
    1,651,846
    (12)
    
    
    14.2
    %Gruber & McBaine Capital Management
    
    
    1,465,805
    (13)
    
    
    12.6
    %Anthony J. Van Zeeland
    
    
    700,000
    (14)
    
    
    6.0
    %
 
 *
    
    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 513,471 shares of common stock issuable upon exercise of stock options.(3)
    
    Includes 7,626 shares of restricted stock and 40,000 shares of common stock issuable upon
exercise of stock options.(4)
    
    Includes 3,742 shares owned by TVC, Inc., of which John W. Hail is the majority shareholder
and 85,000 shares of common stock issuable upon exercise of stock options.(5)
    
    Includes 85,000 shares of common stock issuable upon exercise of stock options.(6)
    
    Includes 63,333 shares of common stock issuable upon exercise of stock options.(7)
    
    Includes 40,000 shares of common stock issuable upon exercise of stock options.(8)
    
    Includes 20,000 shares of common stock issuable upon exercise of stock options.(9)
    
    Includes 10,000 shares of common stock issuable upon exercise of stock options.(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) 237,000 shares of common stock, 6,000
shares of common stock issuable upon exercise of warrants held by Gruber & McBaine
International; (c) 404,233 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) 30,625 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) 237,000 shares of common stock, 6,000
shares of common stock issuable upon exercise of warrants held by Gruber & McBaine
International; (c) 404,233 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)
    
    Information is given in reliance upon information set forth in the named stockholders
Schedule 13D dated June 23, 2000, 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 55




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##### Table of Contents



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.(13)
    
    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) 237,000 shares of common stock, 6,000
shares of common stock issuable upon exercise of warrants held by Gruber & McBaine
International; and (c) 404,233 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.(14)
    
    Information is given in reliance upon information provided to us by the named stockholder.
The principal address of the named stockholder is c/o InPlay Technologies, 13845 N. Northsight
Blvd., Scottsdale, Arizona 85260. Equity Compensation Plan Information
  (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 Plans
Approved by Stockholders
    
    
    1,775,873
    
    
    $
    5.73
    
    
    
    163,244Equity Compensation Plans
Not Approved by Stockholders
    
    
    509,091
    (1)
    
    $
    3.64
    
    
    
    Total
    
    
    2,284,964
    
    
    $
    5.27
    
    
    
    163,244
 
 (1)
    
    Represents warrants issued in connection with the December 2005 private placement of
1,272,728 shares. 1997 and 1999 Stock Option Plans
   56




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##### Table of Contents



2000 Stock Option Plan
     57




---



##### Table of Contents



2005 Stock Option Plan
       58




---



##### Table of Contents



Item 12. Certain Relationships and Related Transactions, and Director Independence
   
 Item 13. 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)3.1
    
    Amended and Restated Articles of Incorporation (3)3.2
    
    Amended and Restated Bylaws (4)4.1
    
    Specimen Common Stock Certificate (5)10.2
    
    1997 Stock Option Plan (5)10.3
    
    1999 Stock Option Plan (5)10.4
    
    2000 Stock Option Plan (6)10.5
    
    2000 Stock Option Plan Amendment (7)10.6
    
    Management Services Agreement dated May 1, 1997 by and between
Total Switch, Inc. and VanDun, LLC (5)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 (5)10.8
    
    Licensing Agreement, dated April 20, 2000, between Delphi
Automotive Systems LLC and Duraswitch Industries, Inc. (8)10.9
    
    Shareholders Agreement, dated June 19, 2000, among Duraswitch
Industries, Inc., Delphi Automotive Systems Corporation, and
the Primary Shareholders named therein (9)10.10
    
    Employment Agreement, dated July 1, 2003, by and between
Duraswitch Industries, Inc. and Anthony J. Van Zeeland (10)10.11
    
    Standard sublease, dated November 1, 2003, by and between 234
South Extension, L.L.C. and Duraswitch Industries, Inc. (11)
 59




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##### Table of Contents



Exhibit No.
    
    Description of Exhibit10.12
    
    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)10.13(b)
    
    2005 Stock Award Plan (14)10.19
    
    Securities Purchase Agreement, dated December 27, 2005, among
InPlay Technologies, Inc. and the investor parties thereto
(15)10.20
    
    Registration Rights Agreement, dated December 27, 2005, among
InPlay Technologies, Inc. and the investor parties thereto
(15)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 (15)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 (15)10.23
    
    Settlement Agreement between InPlay Technologies and Delphi
Automotive Systems, LLC (16)10.24
    
    First Amendment to InPlay Technologies, Inc. 2005 Stock Award
Plan, dated May 31, 2007 (17)10.25
    
    Lease Agreement, dated May 31, 2007, between The Reliable Life
Insurance Company and InPlay Technologies, Inc. (18)10.26
    
    Form of 2005 Stock Award Plan Stock Option Agreement (18)10.28
    
    Severance Agreement and Release of Claims, dated July 31, 2007
between InPlay Technologies, Inc. and Robert J. Brilon (19)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 Form 8-K
dated July 27, 2005, as filed with the Commission on August 2, 2005.(2)
    
    Incorporated by reference to InPlay Technologies, Inc.s Form 8-K
dated September 1, 2005, as filed with the Commission on September 8,
2005.(3)
    
    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.(4)
    
    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 April 2, 2007.(5)
    
    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.(6)
    
    Incorporated by reference to InPlay Technologies, Inc.s definitive
Proxy Statement, as filed with the Commission on or about May 12,
2000. 60




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##### Table of Contents



(7)
    
    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.(8)
    
    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.(9)
    
    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 May 20, 2005, as filed with the Commission
on or about May 25, 2005.(15)
    
    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.(16)
    
    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.(17)
    
    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.(18)
    
    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.(19)
    
    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. 
 Item 14. Principal Accountant Fees and Services
 Audit Fees
  Audit-Related Fees
  Summary of Fees Billed to the Company by Moss Adams LLP
 2007
    
    2006Audit Fees
    
    $
    87,770
    
    
    $
    65,530Audit-Related Fees
    
    
    3,150
    
    
    
    Tax Fees
    
    
    
    
    
    
    All Other Fees
    
    
    
    
    
    
    
 Audit Committee Pre-Approval Policies
  61




---



##### Table of Contents



62




---



##### Table of Contents



SIGNATURES
  InPlay Technologies, Inc./s/  Mark R. SokolowskiMark R. Sokolowski,Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)   Signature
    
    Capacity
    
    Date/s/ Steven P. Hanson
    
    Chairman of the BoardSteven P. Hanson
    
    Chief Executive Officer
    
    March 24,  2008/s/ Dino D. Farfante
    
    Director
    
    March 24, 2008Dino D. Farfante/s/ John W. Hail
    
    Director
    
    March 24, 2008John W. Hail/s/ P. Robert Moya
    
    Director
    
    March 24, 2008P. Robert Moya/s/ William E. Peelle
    
    Director
    
    March 24, 2008William E. Peelle/s/ Jack L. Saltich
    
    Director
    
    March 24, 2008Jack L. Saltich
 63




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##### Table of Contents



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)3.1
    
    Amended and Restated Articles of Incorporation (3)3.2
    
    Amended and Restated Bylaws (4)4.1
    
    Specimen Common Stock Certificate (5)10.2
    
    1997 Stock Option Plan (5)10.3
    
    1999 Stock Option Plan (5)10.4
    
    2000 Stock Option Plan (6)10.5
    
    2000 Stock Option Plan Amendment (7)10.6
    
    Management Services Agreement dated May 1, 1997 by and between
Total Switch, Inc. and VanDun, LLC (5)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 (5)10.8
    
    Licensing Agreement, dated April 20, 2000, between Delphi
Automotive Systems LLC and Duraswitch Industries, Inc. (8)10.9
    
    Shareholders Agreement, dated June 19, 2000, among Duraswitch
Industries, Inc., Delphi Automotive Systems Corporation, and
the Primary Shareholders named therein (9)10.10
    
    Employment Agreement, dated July 1, 2003, by and between
Duraswitch Industries, Inc. and Anthony J. Van Zeeland (10)10.11
    
    Standard sublease, dated November 1, 2003, by and between 234
South Extension, L.L.C. and Duraswitch Industries, Inc. (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)10.13(b)
    
    2005 Stock Award Plan (14)10.19
    
    Securities Purchase Agreement, dated December 27, 2005, among
InPlay Technologies, Inc. and the investor parties thereto
(15)10.20
    
    Registration Rights Agreement, dated December 27, 2005, among
InPlay Technologies, Inc. and the investor parties thereto
(15)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 (15)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 (15)10.23
    
    Settlement Agreement between InPlay Technologies and Delphi
Automotive Systems, LLC (16)10.24
    
    First Amendment to InPlay Technologies, Inc. 2005 Stock Award
Plan, dated May 31, 2007 (17)
 64




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##### Table of Contents



Exhibit No.
    
    Description of Exhibit10.25
    
    Lease Agreement, dated May 31, 2007, between The Reliable Life
Insurance Company and InPlay Technologies, Inc. (18)10.26
    
    Form of 2005 Stock Award Plan Stock Option Agreement (18)10.28
    
    Severance Agreement and Release of Claims, dated July 31, 2007
between InPlay Technologies, Inc. and Robert J. Brilon (19)14
    
    Code of Ethics of CEO and Senior Financial Officers (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 Form 8-K
dated July 27, 2005, as filed with the Commission on August 3, 2005.(2)
    
    Incorporated by reference to InPlay Technologies, Inc.s Form 8-K
dated September 1, 2005, as filed with the Commission on September 8,
2005.(3)
    
    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.(4)
    
    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 April 2, 2007.(5)
    
    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.(6)
    
    Incorporated by reference to InPlay Technologies, Inc.s definitive
Proxy Statement, as filed with the Commission on or about May 12,
2000.(7)
    
    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 27, 2002.(8)
    
    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.(9)
    
    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 May 20, 2005, as filed with the Commission
on or about May 25, 2005.(15)
    
    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.(16)
    
    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. 65




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##### Table of Contents



(17)
    
    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.(18)
    
    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.(19)
    
    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. 66