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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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Form 10-K/A

(Amendment No. 1)

(Mark One)

|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended December 31, 2006

OR

| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from              to

Commission File Number: 000-51023



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INPHONIC, INC.

(Exact name of Registrant as specified in its Charter)



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|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Delaware                                                       |  | 52-2199384                             
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. employer identification number)
|                                                               | 
|1010 Wisconsin Avenue, Suite 600 Washington, D.C.              |  | 20007                                  
|(Address of principal executive offices)                       |  | (Zip Code)                             

(202) 333-0001

(Registrants telephone number, including area code)

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





|                                        |  |                                          
|--------------------------------------- |  | -----------------------------------------
|Title of Each Class                     |  | Name of Each Exchange on Which Registered
|Common Stock, par value $0.01 per share |  | NASDAQ Stock Market LLC                  

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

None



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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ̈No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ̈No x

Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes ̈No x

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein and will not be contained, to the best of the 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 or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ̈Accelerated
filer x   Non-accelerated filer ̈

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

As of
June 30, 2006, the aggregate market value of the common stock held by non-affiliates of the registrant was approximately $117,332,977.

As of May 21, 2007, 36,964,003 shares of the registrants common stock were outstanding.



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DOCUMENTS INCORPORATED BY REFERENCE

None.



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Explanatory Note

This Annual Report on Form 10-K/A (Amendment No. 1) (this Amendment) is being filed by InPhonic, Inc. (InPhonic) to amend InPhonics Annual Report on Form 10-K for the year ended December
31, 2006 (the Original Filing). The audited financial statements and schedules are being refiled solely to include the conformed signatures of KPMG LLP and are otherwise unchanged from the audited financial statements and schedules
included in the Original Filing. Part IV, Item 15 is being amended to file Exhibit 23.2. This Amendment does not otherwise update or amend any exhibits to or disclosure set forth in the Original Filing. Pursuant to Rule 12b-15 under the Securities
Exchange Act of 1934, as amended, this Amendment contains new certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.



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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

The following documents are filed as part of this
Annual Report:



| | (1) | Index to Financial Statements
| | --- | -----------------------------



|                                                                                                     |  |            
|---------------------------------------------------------------------------------------------------- |  | -----------
|                                                                                                     |  | Page Number
|Report of Grant Thornton LLP, Independent Registered Public Accounting Firm                          |  | F-2        
|Report of KPMG, LLP, Independent Registered Public Accounting Firm                                   |  | F-4        
|Consolidated Balance Sheets as of December 31, 2005 and 2006                                         |  | F-5        
|Consolidated Statements of Operations for the years ended December 31, 2004, 2005 and 2006           |  | F-6        
|Consolidated Statements of Stockholders Equity for the years ended December 31, 2004, 2005 and 2006 |  | F-7        
|Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2005 and 2006           |  | F-8        
|Notes to Consolidated Financial Statements                                                           |  | F-9        



| | (2) | Financial Statement Schedules
| | --- | -----------------------------

The following consolidated
financial statement schedule of InPhonic, Inc. and subsidiaries is filed herewith:



|                                                                            |  |            
|--------------------------------------------------------------------------- |  | -----------
|                                                                            |  | Page Number
|Report of Grant Thornton LLP, Independent Registered Public Accounting Firm |  | S-1        
|Report of KPMG LLP, Independent Registered Public Accounting Firm           |  | S-2        
|Schedule IIValuation and Qualifying Accounts                               |  | S-3        

All other schedules have been omitted because the information required to be shown in the
schedules is not applicable or is included elsewhere in our financial statements or the notes thereto.



| | (3) | Exhibits
| | --- | --------



|            |  |                                                                                                                                                                                                              
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                  
|            | 
|2.1(c)(d)   |  | Asset Purchase Agreement dated as of December 17, 2004, between A1 Wireless USA, Inc. and CAIS Acquisition LLC                                                                                               
|            | 
|2.2(d)      |  | First Amendment to the Asset Purchase Agreement dated as of December 17, 2004, between A1 Wireless USA, Inc., CAIS Acquisition LLC and InPhonic, Inc.                                                        
|            | 
|2.3(c)(e)   |  | Asset Purchase Agreement dated as of April 26, 2005, between VMC Satellite, Inc., InPhonic, Inc. and CAIS Acquisition II, LLC                                                                                
|            | 
|2.4(f)(g)   |  | First Amendment to the Asset Purchase Agreement dated as of September 1, 2005, by and among CAIS Acquisition II, LLC, InPhonic, Inc., RR Holding, Inc. (formerly known as VMC Satellite, Inc.)
and Rick Rahim
|            | 
|3.1(a)      |  | Eleventh Amended and Restated Certificate of Incorporation of InPhonic, Inc.                                                                                                                                 
|            | 
|3.2(a)      |  | Third Amended and Restated Bylaws of InPhonic, Inc.                                                                                                                                                          



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|            |  |                                                                                                                                                                                                                                                                                                                            
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                
|4.1(a)      |  | Specimen stock certificate for shares of common stock of InPhonic, Inc.                                                                                                                                                                                                                                                    
|            | 
|10.1(a)     |  | Seventh Amended and Restated Investor Rights Agreement dated as of June 12, 2003 by and among InPhonic, Inc. and the Purchasers listed therein                                                                                                                                                                             
|            | 
|10.2(s)     |  | Credit Agreement dated as of November 7, 2006 among InPhonic, Inc., The lenders from time to time, Goldman Sachs Credit Partners L.P., and Citicorp North America Inc, as Administrative
Agent.                                                                                                                            
|            | 
|10.3(s)     |  | Amendment No. 1 dated February 6, 2007 to Credit Agreement dated as of November 7, 2006 among InPhonic, Inc., the lenders from time to time,
Goldman Sachs Credit Partners, L.P. and Citicorp North America Inc., as Administrative Agent.                                                                                 
|            | 
|10.4(c)(s)  |  | Amendment No. 2 to Credit Agreement dated as of March 30, 2007, to the Credit Agreement dated as of November 7, 2006 among InPhonic, Inc. the
lenders from time to the and Citicorp North America, Inc. as Administrative Agent.                                                                                           
|            | 
|10.5(s)     |  | Amendment No. 3 to Credit Agreement dated as of April 9, 2007, to the Credit Agreement dated as of November 7, 2006, as amended, among InPhonic, Inc. the lenders from time to the and Citicorp
North America, Inc. as Administrative Agent.                                                                               
|            | 
|10.6(s)     |  | Amendment No. 4 to Credit Agreement dated as of April 23, 2007, to the Credit Agreement dated as of November 7, 2006, as amended, among InPhonic, Inc. the lenders from time to the and
Citicorp North America, Inc. as Administrative Agent.                                                                              
|            | 
|10.7(s)     |  | Amendment No. 5 to Credit Agreement dated as of May 1, 2007, to the Credit Agreement dated as of November 7, 2006, as amended, among InPhonic, Inc. the lenders from time to the and Citicorp
North America, Inc. as Administrative Agent.                                                                                 
|            | 
|10.8(s)     |  | Warrant Agreement dated as of November 7, 2006 by and between InPhonic, Inc., Goldman, Sachs & Co., Citicorp North America, Inc. and AP InPhonic Holdings, LLC                                                                                                                                                             
|            | 
|10.9(a)     |  | Form of Assignment of Invention, Nondisclosure and Noncompetition Agreement                                                                                                                                                                                                                                                
|            | 
|10.10(a)    |  | Employment Agreement dated as of February 4, 2000 by and between InPhonic, Inc. and David A. Steinberg, as amended by Amendment No. 1 dated March 1, 2004 and Amendment No. 2 dated May 14,
2004                                                                                                                           
|            | 
|10.11(k)    |  | Employment Agreement between InPhonic, Inc. and Lawrence S. Winkler, entered into on July 25, 2005 and effective as of January 19, 2004                                                                                                                                                                                    
|            | 
|10.12(n)    |  | Employment Agreement between InPhonic, Inc. and Andrew B. Zeinfeld, entered into on December 20, 2006                                                                                                                                                                                                                      
|            | 
|10.13(n)    |  | Employment Agreement between InPhonic, Inc. and Brian J. Curran, entered into on December 20, 2006                                                                                                                                                                                                                         
|            | 
|10.14(a)    |  | Employment Agreement effective April 2, 2002, by and between InPhonic, Inc. and Frank C. Bennett, III                                                                                                                                                                                                                      
|            | 
|10.15(a)    |  | Lease dated as of February 26, 2001 by and between Rouse Commercial Properties, LLC, Rouse Office Management, LLC and InPhonic, Inc., as amended by First Amendment to Lease, dated
May 29, 2002                                                                                                                           
|            | 
|10.16(l)    |  | Second Amendment to Lease dated September 23, 2004 by and between Inglewood Business Park III, LLC and Inglewood Business Park IV, LLC (assignees of Rouse Commercial Properties, LLC), by
MTM Builder/Developer, Inc. and InPhonic, Inc., as amended by Third Amendment to Lease made and entered into as of July 19, 2005
|            | 
|10.17(a)    |  | Lease Agreement dated April 29, 2003 by and between Waterfront Center Limited Partnership and InPhonic, Inc., as amended by Addendum No. 1, dated September 9, 2003 and Addendum
No. 2, dated May 14, 2004                                                                                                                 



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|            |  |                                                                                                                                                                                                            
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                
|10.18(l)    |  | Deed of Lease by and between Parkridge Phase Two Associates Limited Partnership and InPhonic, Inc. dated July 27, 2005                                                                                     
|            | 
|10.19(m)    |  | First Amendment to Lease by and between Parkridge Phase Two Associates Limited Partnership and InPhonic, Inc. dated November 8, 2005                                                                       
|            | 
|10.20(h)    |  | Sublease dated November 17, 2004, by and between CareerBuilder, LLC and InPhonic, Inc.                                                                                                                     
|            | 
|10.21(a)(b) |  | Premier I-Dealer Agreement dated March 1, 2001 by and between T-Mobile USA, Inc., and its subsidiaries and affiliates and InPhonic, Inc. and its affiliates and related entities, as
amended               
|            | 
|10.22(o)(r) |  | Cingular Wireless Non-Exclusive Dealer Agreement and Cingular Wireless Internet Dealer and Master Dealer Addendum (the Agreements) with Cingular Wireless II, LLC
(Cingular), effective October 1, 2006
|            | 
|10.23(c)(j) |  | Asset Purchase Agreement dated as of May 26, 2005, between FONcentral.com, Inc. and FON Acquisition, LLC                                                                                                   
|            | 
|10.24(a)    |  | 1999 Amended and Restated Stock Incentive Plan                                                                                                                                                             
|            | 
|10.25(h)    |  | 2004 Equity Incentive Plan                                                                                                                                                                                 
|            | 
|10.26(k)    |  | Form of Stock Option Agreement for options granted under the 2004 Equity Incentive Plan                                                                                                                    
|            | 
|10.27(k)    |  | Form of Restricted Stock Agreement for awards granted under the 2004 Equity Incentive Plan                                                                                                                 
|            | 
|10.28(q)    |  | Outside Director Compensation Summary                                                                                                                                                                      
|            | 
|10.29(p)    |  | First Amendment to Employment Agreement effective March 16, 2006 by and between InPhonic, Inc. and Lawrence S. Winkler                                                                                     
|            | 
|10.30(s)    |  | Employment Agreement effective May 1, 2004 by and between InPhonic, Inc. and Michael Walden.                                                                                                               
|            | 
|16.1(n)     |  | Letter from KPMG LLP to the Securities and Exchange Commission dated September 20, 2005                                                                                                                    
|            | 
|21.1(s)     |  | Subsidiaries of InPhonic, Inc.                                                                                                                                                                             
|            | 
|23.1(s)     |  | Consent of Grant Thornton LLP, Independent Registered Public Accounting Firm                                                                                                                               
|            | 
|23.2        |  | Consent of KPMG LLP, Independent Registered Public Accounting Firm                                                                                                                                         
|            | 
|31.1        |  | Rule 13a-14(a) Certification of Principal Executive Officer.                                                                                                                                               
|            | 
|31.2        |  | Rule 13a-14(a) Certification of Principal Financial and Accounting Officer.                                                                                                                                
|            | 
|32.1        |  | Section 1350 Certification of Principal Executive Officer.                                                                                                                                                 
|            | 
|32.2        |  | Section 1350 Certification of Principal Financial and Accounting Officer.                                                                                                                                  

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|(a) | Incorporated by reference to our Registration Statement on Form S-1 (File No. 333-116420).
|--- | ------------------------------------------------------------------------------------------

|(b) | Confidential treatment granted for certain portions of this Exhibit pursuant to Rule 406 under the Securities Act of 1933, as amended which portions are omitted and filed separately
with the Securities and Exchange Commission.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | Confidential treatment granted for certain portions of this Exhibit pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended, which portions are omitted and
filed separately with the Securities and Exchange Commission.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(d) | Incorporated by reference to our Current Report on Form 8-K filed on January 10, 2005.
|--- | --------------------------------------------------------------------------------------

|(e) | Incorporated by reference to our Current Report on Form 8-K/A filed on December 22, 2006.
|--- | -----------------------------------------------------------------------------------------

|(f) | Appendix 1 to this First Amendment to Asset Purchase Agreement has been omitted in reliance upon the rules of the Securities and Exchange Commission. A copy will be delivered to the
Securities and Exchange Commission upon request.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|(g) | Incorporated by reference to our Current Report on Form 8-K/A filed on December 22, 2006.
|--- | -----------------------------------------------------------------------------------------

|(h) | Incorporated by reference to our Annual Report on Form 10-K for the year ended December 31, 2004.
|--- | -------------------------------------------------------------------------------------------------

|(i) | Incorporated by reference to our Quarterly Report on Form 10-Q for the three months ended March 31, 2005.
|--- | ---------------------------------------------------------------------------------------------------------

|(j) | Incorporated by reference to our Current Report on Form 8-K filed on June 3, 2005.
|--- | ----------------------------------------------------------------------------------

|(k) | Incorporated by reference to our Current Report on Form 8-K filed on July 29, 2005.
|--- | -----------------------------------------------------------------------------------

|(l) | Incorporated by reference to our Quarterly Report on Form 10-Q for the three months ended June 30, 2005.
|--- | --------------------------------------------------------------------------------------------------------

|(m) | Incorporated by reference to our Quarterly Report on Form 10-Q for the three months ended September 30, 2005.
|--- | -------------------------------------------------------------------------------------------------------------

|(n) | Incorporated by reference to our Current Report on Form 8-K filed on December 22, 2006
|--- | --------------------------------------------------------------------------------------

|(o) | Incorporated by reference to our Quarterly Report on Form 10-Q for the three months ended September 30, 2006
|--- | ------------------------------------------------------------------------------------------------------------

|(p) | Incorporated by reference to our Annual Report on Form 10-K for the year ended December 31, 2005.
|--- | -------------------------------------------------------------------------------------------------

|(q) | Incorporated by reference to our Current Report on Form 8-K filed on March 24, 2006.
|--- | ------------------------------------------------------------------------------------

|(r) | Confidential treatment requested for certain portions of this Exhibit pursuant to Rule 24b-2 under the Securities Exchange Act of 1939, as amended which portions are omitted and
filed separately with the Securities and Exchange Commission.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(s) | Incorporated by reference to our Annual Report on Form 10-K for the year ended December 31, 2006.
|--- | -------------------------------------------------------------------------------------------------



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SIGNATURES

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



INPHONIC, INC.By:

/S/    DAVID A.
STEINBERGDavid A. Steinberg Chairman of the Board and Chief Executive Officer


Dated: June 4, 2007

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



|                                             |  |                                                                                 |  |             
|-------------------------------------------- |  | ------------------------------------------------------------------------------- |  | ------------
|Signature                                    |  | Title                                                                           |  | Date        
|                                             |  |                                                                                
|/s/    DAVID A.
STEINBERG David A. Steinberg |  | Chairman of the Board and Chief Executive Officer (Principal Executive Officer) |  | June 4, 2007
|                                             |  |                                                                                
|/s/    GEORGE Z.
MORATIS George Z. Moratis   |  | Principal Financial and Accounting Officer                                      |  | June 4, 2007



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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



|                                                                                                     |  |           
|---------------------------------------------------------------------------------------------------- |  | ----------
|                                                                                                     |  | PageNumber
|                                                                                                     | 
|Reports of Grant Thornton LLP, Independent Registered Public Accounting Firm                         |  | F-2       
|                                                                                                     | 
|Report of KPMG LLP, Independent Registered Public Accounting Firm                                    |  | F-6       
|                                                                                                     | 
|Consolidated Balance Sheets at December 31, 2005 and 2006                                            |  | F-7       
|                                                                                                     | 
|Consolidated Statements of Operations for the years ended December 31, 2004, 2005 and 2006           |  | F-8       
|                                                                                                     | 
|Consolidated Statements of Stockholders Equity for the years ended December 31, 2004, 2005 and 2006 |  | F-9       
|                                                                                                     | 
|Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2005 and 2006           |  | F-10      
|                                                                                                     | 
|Notes to Consolidated Financial Statements                                                           |  | F-11      



F-1



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and shareholders

Inphonic, Inc.

We have audited the accompanying consolidated balance sheets of Inphonic, Inc. and subsidiaries (the Company) as of December 31, 2006 and 2005, and the related consolidated statements of operations, common stockholders equity,
and cash flows for each of the two years in the period ended December 31, 2006. 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 audit.

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. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of the Company as of December 31, 2006 and 2005, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2006 in conformity with accounting
principles generally accepted in the United States of America.

Our audits were conducted for the purpose of forming an opinion on the
basic consolidated financial statements taken as a whole. Schedule II is presented for the purpose of additional analysis and is not a required part of the basic consolidated financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic consolidated financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic consolidated financial statements taken as a whole.

As discussed in Note 2 to the Notes to Consolidated Financial Statements, the Company adopted SFAS No. 123R, Share-Based
Payment, effective January 1, 2006.

We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of the Companys internal control over financial reporting as of December 31, 2006, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) and our report dated May 31, 2007 expressed an unqualified opinion on managements assessment of the effectiveness of the Companys internal control over financial reporting
and an adverse opinion on the effectiveness of the Companys internal control over financial reporting.

/s/ Grant
Thornton LLP

McLean, Virginia

May 31, 2007



F-2



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

Inphonic, Inc.

We have audited managements assessment, included in the accompanying Managements
Report on Internal Control Over Financial Reporting, that Inphonic, Inc. (a Delaware Corporation) and subsidiaries did not maintain effective internal control over financial reporting as of December 31, 2006, because of the effect of material
weaknesses in the lack of the appropriate level of financial and operational support or adequate internal communications to process internal controls, the revenue recognition of carrier commissions, bonuses and related allowances, revenue
recognition of consumer cancellation fees and accounting for certain inventories based on criteria establishedinInternal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Inphonics management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to
express an opinion on managements assessment and an opinion on the effectiveness of the companys internal control over financial reporting based on our audit.

We conducted our audit 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 effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating managements assessment, testing and
evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A companys internal control over financial reporting is a process 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. A companys internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (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 receipts and expenditures of the company are being made only in accordance with authorizations of management and directors
of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the 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.

A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material
misstatement of the annual or interim financial statements will not be prevented or detected. The following material weaknesses have been identified and included in managements assessment:



| |  |  | The Company did not maintain an appropriate level of staffing in operational and financial resources to provide the level of controls and analysis required on a
timely basis. The failure to provide an adequate level of staffing resulted in certain accounting processes not being performed on a timely basis and the inability to maintain an adequate control environment. Maintaining appropriate levels of
staffing is an important entity level control that is essential to maintaining the operating effectiveness of the underlying process level controls. This material weakness contributed to errors such as those relating to proper revenue recognition.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-3



---

| |  |  | The Company failed to establish effective communication channels between operations and finance to adequately identify and record certain transactions during 2006.
The failure to provide this communication manifested itself in situations such as 1) a 2005 liability not being recorded on a timely basis, and 2) accounts receivable reserves not being appropriately stated based on the status of
collection efforts involving operational personnel and 3) the deactivation reserve being understated due to the fact that certain consumer focused marketing programs impacting the customer deactivation behavior not being properly reflected in
the underlying data and the deactivation reserve model. Establishing effective communication between the Finance Department and operational departments will allow the company to reflect any necessary commitments in the financial statements. This
material weakness contributed to errors relating to accounting and reporting of revenue, expenses and liabilities.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Company did not utilize an appropriate methodology during the year in recording receivables from carriers associated with disputed deactivations, churn bonuses
and other carrier related fees. Similar to other newly disputed amounts with carriers, revenue should not be recorded until the carrier agrees to pay the amount or collection is probable. The Company overstated accounts receivable by using a
methodology that could not be supported by past experience and failed to include current results and other information received from the carriers.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In addition, the Company did not take steps to adequately identify and appropriately record certain commission and bonus revenues received during the year from various carriers in a timely and accurate manner.
Recording amounts received from carriers in the appropriate accounts in a timely and accurate manner is an important business process control that is essential to the correct reporting of amounts in the financial statements. This material weakness
contributed to errors relating to accounting and reporting for revenue and accounts receivable. This material weakness contributed to errors relating to accounting and reporting of revenues.



| |  |  | The Company did not utilize an appropriate methodology during the year in recording certain Equipment Discount Provision fees due from consumers when contracts are
cancelled within specified time periods and the wireless device is not returned to the Company. Specifically, the Company overstated revenue and account receivable by using collection percentages in excess of that which could be supported by past
collection experience. As a result of this material weakness, an adjustment was necessary to properly record revenue and related receivables from these fees.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Company did not utilize an appropriate methodology during the year in recording rebates payable to eligible consumers. The Company understated the product
rebate liability by not considering the appropriate amount of open periods eligible for rebates and the backlog of possible eligible rebates that had been delivered to outsourced payment service providers. Additionally, the Company failed to reflect
actual rebate payments made to customers in its calculation of accrued product rebate liability. As a result of this material weakness, an adjustment was necessary to properly record product rebate expense and the related liability.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Company did not maintain adequate documentation to support the proper accounting for inventory movements related to phone shipments for refitting and
refurbishment. Consequently, the Company overstated inventory or receivables by not maintaining adequate documentation of track phones provided to outside services providers. As a result of this material weakness, an adjustment was necessary to
properly record costs of goods sold and amounts due from vendors.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Company did not consider all of the factors in determining its estimate of allowance for doubtful accounts. The proper accounting for the allowance for doubtful
accounts requires that estimates must be made on the future collectibility of receivables. In the course of concluding on its analysis of reserves necessary related to accounts receivable, the Company concluded that an additional reserve was
necessary for current receivables which based on historical experience will not be paid in the initial carrier payment. Receivables not paid in initial carrier payments are reclassified to disputed receivables and the related collection efforts are
addressed through a specific process. We recommend that in future periods, management consider in its reserve an estimate of current
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-4



---

receivables expected to be reclassified as disputed receivables and the related collection experience. As a result of this material weakness, an adjustment
was necessary to properly record the allowance for doubtful accounts and bad debt expense.

These material weaknesses were considered in
determining the nature, timing, and extent of audit tests applied in our audit of the 2006 financial statements, and this report does not affect our report dated May 31, 2007, which expressed an unqualified opinion on those financial statements.

In our opinion, managements assessment that Inphonic, Inc. and Subsidiaries did not maintain effective internal control over
financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also in
our opinion, because of the effect of the material weaknesses described above on the achievement of the objectives of the control criteria, Inphonic, Inc. and Subsidiaries has not maintained effective internal control over financial reporting as of
December 31, 2006, based on Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

/s/    Grant Thornton LLP

McLean, Virginia

May 31, 2007



F-5



---

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Report of Independent Registered Public Accounting
Firm

The Board of Directors and Stockholders

InPhonic,
Inc. and subsidiaries:

We have audited the accompanying consolidated statement of operations, stockholders equity (deficit), and
cash flows of InPhonic, Inc. and subsidiaries for the year ended December 31, 2004. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.

We conducted our audit 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. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the results of operations and the cash flows of InPhonic, Inc. and subsidiaries for the year ended December 31, 2004, in conformity with U.S. generally accepted accounting principles.

/s/ KPMG LLP

McLean,
Virginia

March 8, 2005, except

as to note 1(c) and note 4,

which are as of March 16, 2006



F-6



---

INPHONIC, INC. & SUBSIDIARIES

Consolidated Balance Sheets

As of December 31, 2005 and 2006

(in thousands, except per share and share amounts)



|                                                                                                                                                                 |  |      |          |   |      |   |          |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | -------- | - | ---- | - | -------- | -
|                                                                                                                                                                 |  | 2005 |          |   | 2006 |  
|Assets                                                                                                                                                           |  |      |          |   |      |   |          |  
|Current assets:                                                                                                                                                  |  |      |          |   |      |   |          |  
|Cash and cash equivalents                                                                                                                                        |  | $    | 70,783   |   |      | $ | 89,972   |  
|Accounts receivable (net of allowance of $2,042 and $9,749, respectively)                                                                                        |  |      | 34,606   |   |      |   | 63,820   |  
|Inventory, net                                                                                                                                                   |  |      | 19,680   |   |      |   | 23,164   |  
|Prepaid expenses                                                                                                                                                 |  |      | 2,405    |   |      |   | 6,507    |  
|Deferred costs and other current assets                                                                                                                          |  |      | 6,823    |   |      |   | 3,122    |  
|Current assets of discontinued operations                                                                                                                        |  |      | 2,430    |   |      |   | 391      |  
|                                                                                                                                                                 |  |      |          |   |      |   |          |  
|Total current assets                                                                                                                                             |  |      | 136,727  |   |      |   | 186,976  |  
|Restricted cash and cash equivalents                                                                                                                             |  |      | 400      |   |      |   | 38       |  
|Property and equipment, net                                                                                                                                      |  |      | 12,121   |   |      |   | 22,746   |  
|Goodwill                                                                                                                                                         |  |      | 31,140   |   |      |   | 38,223   |  
|Intangible assets, net                                                                                                                                           |  |      | 12,651   |   |      |   | 8,092    |  
|Deposits and other assets                                                                                                                                        |  |      | 3,058    |   |      |   | 8,330    |  
|                                                                                                                                                                 |  |      |          |   |      |   |          |  
|Total assets                                                                                                                                                     |  | $    | 196,097  |   |      | $ | 264,405  |  
|                                                                                                                                                                 |  |      |          |   |      |   |          |  
|                                                                                                                                                                 |  |     
|Liabilities and Stockholders Equity                                                                                                                             |  |      |          |   |      |   |          |  
|Current liabilities:                                                                                                                                             |  |      |          |   |      |   |          |  
|Accounts payable                                                                                                                                                 |  | $    | 31,543   |   |      | $ | 85,975   |  
|Accrued expenses and other current liabilities                                                                                                                   |  |      | 31,588   |   |      |   | 22,521   |  
|Current portion of deferred revenue                                                                                                                              |  |      | 13,851   |   |      |   | 16,604   |  
|Current maturities of capital leases                                                                                                                             |  |      | 377      |   |      |   | 301      |  
|Current liabilities of discontinued operations                                                                                                                   |  |      | 3,130    |   |      |   | 1,103    |  
|                                                                                                                                                                 |  |      |          |   |      |   |          |  
|Total current liabilities                                                                                                                                        |  |      | 80,489   |   |      |   | 126,504  |  
|Long-term debt and capital lease obligations, net of current maturities                                                                                          |  |      | 15,474   |   |      |   | 63,826   |  
|Deferred revenue, net of current portion                                                                                                                         |  |      | 284      |   |      |   | 478      |  
|                                                                                                                                                                 |  |      |          |   |      |   |          |  
|Total liabilities                                                                                                                                                |  |      | 96,247   |   |      |   | 190,808  |  
|                                                                                                                                                                 |  |      |          |   |      |   |          |  
|Commitments and Contingencies                                                                                                                                    |  |      |         |   |      |   |         |  
|Stockholders equity:                                                                                                                                            |  |      |          |   |      |   |          |  
|Common stock, $0.01 par value                                                                                                                                    |  |      |          |   |      |   |          |  
|Authorized 200,000,000 shares at December 31, 2005 and 2006; issued and outstanding 35,232,869 and 37,138,480 shares at December 31,
2005 and 2006, respectively |  |      | 353      |   |      |   | 371      |  
|Additional paid-in capital                                                                                                                                       |  |      | 264,155  |   |      |   | 301,611  |  
|Accumulated deficit                                                                                                                                              |  |      | (164,658 | ) |      |   | (228,385 | )
|                                                                                                                                                                 |  |      |          |   |      |   |          |  
|Total stockholders equity                                                                                                                                       |  |      | 99,850   |   |      |   | 73,597   |  
|                                                                                                                                                                 |  |      |          |   |      |   |          |  
|Total liabilities and stockholders equity                                                                                                                       |  | $    | 196,097  |   |      | $ | 264,405  |  
|                                                                                                                                                                 |  |      |          |   |      |   |          |  

See accompanying notes to consolidated financial statements



F-7



---

INPHONIC, INC. & SUBSIDIARIES

Consolidated Statements of Operations

Years Ended December 31, 2004, 2005 and 2006

(in thousands, except per share and share amounts)



|                                                                       |  |      |            |   |      |   |            |      |  |   |            |  
|---------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                                       |  | 2004 |            |   | 2005 |   |            | 2006 | 
|Revenue:                                                               |  |      |            |   |      |   |            |      |  |   |            |  
|Activations and services                                               |  | $    | 123,265    |   |      | $ | 233,730    |      |  | $ | 298,090    |  
|Equipment                                                              |  |      | 31,603     |   |      |   | 86,809     |      |  |   | 71,484     |  
|                                                                       |  |      |            |   |      |   |            |      |  |   |            |  
|Total revenue                                                          |  |      | 154,868    |   |      |   | 320,539    |      |  |   | 369,574    |  
|Cost of revenue, exclusive of depreciation and amortization:           |  |      |            |   |      |   |            |      |  |   |            |  
|Activations and services                                               |  |      | 1,752      |   |      |   | 1,221      |      |  |   | 2,653      |  
|Equipment                                                              |  |      | 83,075     |   |      |   | 190,509    |      |  |   | 215,201    |  
|                                                                       |  |      |            |   |      |   |            |      |  |   |            |  
|Total cost of revenue                                                  |  |      | 84,827     |   |      |   | 191,730    |      |  |   | 217,854    |  
|Operating expenses:                                                    |  |      |            |   |      |   |            |      |  |   |            |  
|Sales and marketing, exclusive of depreciation and amortization        |  |      | 42,867     |   |      |   | 93,726     |      |  |   | 118,756    |  
|General and administrative, exclusive of depreciation and amortization |  |      | 34,942     |   |      |   | 63,131     |      |  |   | 76,571     |  
|Depreciation and amortization                                          |  |      | 6,444      |   |      |   | 9,840      |      |  |   | 17,067     |  
|Restructuring costs                                                    |  |      |           |   |      |   | 847        |      |  |   | 2,551      |  
|Loss on investment                                                     |  |      | 150        |   |      |   | 228        |      |  |   |           |  
|                                                                       |  |      |            |   |      |   |            |      |  |   |            |  
|Total operating expenses                                               |  |      | 84,403     |   |      |   | 167,772    |      |  |   | 214,945    |  
|                                                                       |  |      |            |   |      |   |            |      |  |   |            |  
|Operating loss                                                         |  |      | (14,362    | ) |      |   | (38,963    | )    |  |   | (63,225    | )
|                                                                       |  |      |            |   |      |   |            |      |  |   |            |  
|Other income (expense):                                                |  |      |            |   |      |   |            |      |  |   |            |  
|Interest income                                                        |  |      | 757        |   |      |   | 2,167      |      |  |   | 2,329      |  
|Interest expense                                                       |  |      | (980       | ) |      |   | (970       | )    |  |   | (2,638     | )
|                                                                       |  |      |            |   |      |   |            |      |  |   |            |  
|Total other income (expense)                                           |  |      | (223       | ) |      |   | 1,197      |      |  |   | (309       | )
|                                                                       |  |      |            |   |      |   |            |      |  |   |            |  
|Loss from continuing operations                                        |  |      | (14,585    | ) |      |   | (37,766    | )    |  |   | (63,534    | )
|                                                                       |  |      |            |   |      |   |            |      |  |   |            |  
|Discontinued operations:                                               |  |      |            |   |      |   |            |      |  |   |            |  
|Income (loss) from discontinued operations                             |  |      | 4,346      |   |      |   | (1,784     | )    |  |   | (193       | )
|Gain on sale                                                           |  |      |           |   |      |   | 1,355      |      |  |   |           |  
|                                                                       |  |      |            |   |      |   |            |      |  |   |            |  
|Total income (loss) from discontinued operations                       |  |      | 4,346      |   |      |   | (429       | )    |  |   | (193       | )
|                                                                       |  |      |            |   |      |   |            |      |  |   |            |  
|Net loss                                                               |  |      | (10,239    | ) |      |   | (38,195    | )    |  |   | (63,727    | )
|Preferred stock dividends and accretion                                |  |      | (22,049    | ) |      |   |           |      |  |   |           |  
|                                                                       |  |      |            |   |      |   |            |      |  |   |            |  
|Net loss attributable to common stockholders                           |  | $    | (32,288    | ) |      | $ | (38,195    | )    |  | $ | (63,727    | )
|                                                                       |  |      |            |   |      |   |            |      |  |   |            |  
|Basic and diluted net loss per share:                                  |  |      |            |   |      |   |            |      |  |   |            |  
|Net loss from continuing operations                                    |  | $    | (2.60      | ) |      | $ | (1.10      | )    |  | $ | (1.75      | )
|Net income (loss) from discontinued operations                         |  |      | 0.31       |   |      |   | (0.01      | )    |  |   |           |  
|                                                                       |  |      |            |   |      |   |            |      |  |   |            |  
|Basic and diluted net loss per share                                   |  | $    | (2.29      | ) |      | $ | (1.11      | )    |  | $ | (1.75      | )
|                                                                       |  |      |            |   |      |   |            |      |  |   |            |  
|Basic and diluted weighted average shares outstanding                  |  |      | 14,074,505 |   |      |   | 34,417,954 |      |  |   | 36,312,970 |  
|                                                                       |  |      |            |   |      |   |            |      |  |   |            |  

See accompanying notes to consolidated financial statements



F-8



---

INPHONIC, INC. & SUBSIDIARIES

Consolidated Statements of Stockholders Equity

Years Ended December 31, 2004, 2005 and 2006

(in thousands, except share amounts)



|                                                                              |  |                                        |   |  |                                        |        |   |                                        |          |   |                                      |   |        |              |  |          |                            |  |   |                                  |   |  |                     |   |  |        |      |   |        |            |   |  |   |     |   |  |   |         |   |  |   |        |   |  |   |          |   |  |   |         |  
|----------------------------------------------------------------------------- |  | -------------------------------------- | - |  | -------------------------------------- | ------ | - | -------------------------------------- | -------- | - | ------------------------------------ | - | ------ | ------------ |  | -------- | -------------------------- |  | - | -------------------------------- | - |  | ------------------- | - |  | ------ | ---- | - | ------ | ---------- | - |  | - | --- | - |  | - | ------- | - |  | - | ------ | - |  | - | -------- | - |  | - | ------- | -
|                                                                              |  | Series D-5 convertible preferred
stock |   |  | Series D-3 convertible preferred
stock |        |   | Series D-2 convertible preferred
stock |          |   | Series A convertible preferred
stock |   |        | Common stock |  |          | Additional paid-in capital |  |   | Note receivable from stockholder |   |  | Accumulated deficit |   |  | Total  |     
|                                                                              |  |                                        |   |  |                                        |        |   |                                       
|                                                                              |  | Shares                                 |   |  | Amount                                 |        |   | Shares                                 |          |   | Amount                               |   |        | Shares       |  |          | Amount                     |  |   | Shares                           |   |  | Amount              |   |  | Shares |      |   | Amount |            |   |  |   |    
|Balance, January 1, 2004                                                      |  | 672,389                                |   |  | $                                      | 1,884  |   |                                        | 792,775  |   |                                      | $ | 2,137  |              |  | 416,667  |                            |  | $ | 688                              |   |  | 668,782             |   |  | $      | 500  |   |        | 11,547,514 |   |  | $ | 115 |   |  | $ | 34,540  |   |  | $ | (1,120 | ) |  | $ | (94,175  | ) |  | $ | (55,431 | )
|Issuance of common stock                                                      |  |                                       |   |  |                                        |       |   |                                        |         |   |                                      |   |       |              |  |         |                            |  |   |                                 |   |  |                    |   |  |        |     |   |        | 8,504      |   |  |   | 1   |   |  |   | 49      |   |  |   |       |   |  |   |         |   |  |   | 50      |  
|Warrants issued in connection with long-term debt                             |  |                                       |   |  |                                        |       |   |                                        |         |   |                                      |   |       |              |  |         |                            |  |   |                                 |   |  |                    |   |  |        |     |   |        |           |   |  |   |    |   |  |   | 817     |   |  |   |       |   |  |   |         |   |  |   | 817     |  
|Stock-based compensation expense                                              |  |                                       |   |  |                                        |       |   |                                        |         |   |                                      |   |       |              |  |         |                            |  |   |                                 |   |  |                    |   |  |        |     |   |        |           |   |  |   |    |   |  |   | 7,381   |   |  |   |       |   |  |   |         |   |  |   | 7,381   |  
|Proceeds of initial public offering, net of costs                             |  |                                       |   |  |                                        |       |   |                                        |         |   |                                      |   |       |              |  |         |                            |  |   |                                 |   |  |                    |   |  |        |     |   |        | 6,500,000  |   |  |   | 65  |   |  |   | 110,773 |   |  |   |       |   |  |   |         |   |  |   | 110,838 |  
|Conversion of preferred stock upon initial public offering                    |  | (672,389                               | ) |  |                                        | (1,884 | ) |                                        | (792,775 | ) |                                      |   | (2,137 | )            |  | (416,667 | )                          |  |   | (688                             | ) |  | (668,782            | ) |  |        | (500 | ) |        | 13,619,536 |   |  |   | 136 |   |  |   | 92,172  |   |  |   |       |   |  |   |         |   |  |   | 87,099  |  
|Conversion of preferred stock to common stock warrants                        |  |                                       |   |  |                                        |       |   |                                        |         |   |                                      |   |       |              |  |         |                            |  |   |                                 |   |  |                    |   |  |        |     |   |        |           |   |  |   |    |   |  |   | 2,744   |   |  |   |       |   |  |   |         |   |  |   | 2,744   |  
|Note receivable from stockholder                                              |  |                                       |   |  |                                        |       |   |                                        |         |   |                                      |   |       |              |  |         |                            |  |   |                                 |   |  |                    |   |  |        |     |   |        |           |   |  |   |    |   |  |   |        |   |  |   | 1,120  |   |  |   |         |   |  |   | 1,120   |  
|Dividends and accretion on redeemable preferred stock                         |  |                                       |   |  |                                        |       |   |                                        |         |   |                                      |   |       |              |  |         |                            |  |   |                                 |   |  |                    |   |  |        |     |   |        |           |   |  |   |    |   |  |   |        |   |  |   |       |   |  |   | (22,049  | ) |  |   | (22,049 | )
|Preferred stock dividends declared                                            |  |                                       |   |  |                                        |       |   |                                        |         |   |                                      |   |       |              |  |         |                            |  |   |                                 |   |  |                    |   |  |        |     |   |        |           |   |  |   |    |   |  |   | (10,306 | ) |  |   |       |   |  |   |         |   |  |   | (10,306 | )
|Exercise of common stock warrants and options                                 |  |                                       |   |  |                                        |       |   |                                        |         |   |                                      |   |       |              |  |         |                            |  |   |                                 |   |  |                    |   |  |        |     |   |        | 577,019    |   |  |   | 7   |   |  |   | 71      |   |  |   |       |   |  |   |         |   |  |   | 78      |  
|Net loss                                                                      |  |                                       |   |  |                                        |       |   |                                        |         |   |                                      |   |       |              |  |         |                            |  |   |                                 |   |  |                    |   |  |        |     |   |        |           |   |  |   |    |   |  |   |        |   |  |   |       |   |  |   | (10,239  | ) |  |   | (10,239 | )
|                                                                              |  |                                        |   |  |                                        |        |   |                                        |          |   |                                      |   |        |              |  |          |                            |  |   |                                  |   |  |                     |   |  |        |      |   |        |            |   |  |   |     |   |  |   |         |   |  |   |        |   |  |   |          |   |  |   |         |  
|Balance, December 31, 2004                                                    |  |                                       |   |  |                                        |       |   |                                        |         |   |                                      |   |       |              |  |         |                            |  |   |                                 |   |  |                    |   |  |        |     |   |        | 32,252,573 |   |  |   | 324 |   |  |   | 238,241 |   |  |   |       |   |  |   | (126,463 | ) |  |   | 112,102 |  
|Issuance of common stock in connection with the acquisition of:               |  |                                        |   |  |                                        |        |   |                                        |          |   |                                      |   |        |              |  |          |                            |  |   |                                  |   |  |                     |   |  |        |      |   |        |            |   |  |   |     |   |  |   |         |   |  |   |        |   |  |   |          |   |  |   |         |  
|A1 Wireless, Inc.                                                             |  |                                       |   |  |                                        |       |   |                                        |         |   |                                      |   |       |              |  |         |                            |  |   |                                 |   |  |                    |   |  |        |     |   |        | 236,526    |   |  |   | 2   |   |  |   | 4,907   |   |  |   |       |   |  |   |         |   |  |   | 4,909   |  
|VMC Satellite, Inc.                                                           |  |                                       |   |  |                                        |       |   |                                        |         |   |                                      |   |       |              |  |         |                            |  |   |                                 |   |  |                    |   |  |        |     |   |        | 257,215    |   |  |   | 3   |   |  |   | 3,297   |   |  |   |       |   |  |   |         |   |  |   | 3,300   |  
|FONcentral.com, Inc.                                                          |  |                                       |   |  |                                        |       |   |                                        |         |   |                                      |   |       |              |  |         |                            |  |   |                                 |   |  |                    |   |  |        |     |   |        | 131,876    |   |  |   | 1   |   |  |   | 1,548   |   |  |   |       |   |  |   |         |   |  |   | 1,549   |  
|Costs related to initial public offering                                      |  |                                       |   |  |                                        |       |   |                                        |         |   |                                      |   |       |              |  |         |                            |  |   |                                 |   |  |                    |   |  |        |     |   |        |           |   |  |   |    |   |  |   | (292    | ) |  |   |       |   |  |   |         |   |  |   | (292    | )
|Stock-based compensation expense                                              |  |                                       |   |  |                                        |       |   |                                        |         |   |                                      |   |       |              |  |         |                            |  |   |                                 |   |  |                    |   |  |        |     |   |        |           |   |  |   |    |   |  |   | 17,886  |   |  |   |       |   |  |   |         |   |  |   | 17,886  |  
|Repurchase and retirement of common stock                                     |  |                                       |   |  |                                        |       |   |                                        |         |   |                                      |   |       |              |  |         |                            |  |   |                                 |   |  |                    |   |  |        |     |   |        | (1,081,487 | ) |  |   | (11 | ) |  |   | (13,077 | ) |  |   |       |   |  |   |         |   |  |   | (13,088 | )
|Exercise of common stock warrants, options, restricted stock awards and other |  |                                       |   |  |                                        |       |   |                                        |         |   |                                      |   |       |              |  |         |                            |  |   |                                 |   |  |                    |   |  |        |     |   |        | 3,436,166  |   |  |   | 34  |   |  |   | 11,645  |   |  |   |       |   |  |   |         |   |  |   | 11,679  |  
|Net loss                                                                      |  |                                       |   |  |                                        |       |   |                                        |         |   |                                      |   |       |              |  |         |                            |  |   |                                 |   |  |                    |   |  |        |     |   |        |           |   |  |   |    |   |  |   |        |   |  |   |       |   |  |   | (38,195  | ) |  |   | (38,195 | )
|                                                                              |  |                                        |   |  |                                        |        |   |                                        |          |   |                                      |   |        |              |  |          |                            |  |   |                                  |   |  |                     |   |  |        |      |   |        |            |   |  |   |     |   |  |   |         |   |  |   |        |   |  |   |          |   |  |   |         |  
|Balance, December 31, 2005                                                    |  |                                       |   |  |                                        |       |   |                                        |         |   |                                      |   |       |              |  |         |                            |  |   |                                 |   |  |                    |   |  |        |     |   |        | 35,232,869 |   |  |   | 353 |   |  |   | 264,155 |   |  |   |       |   |  |   | (164,658 | ) |  |   | 99,850  |  
|Issuance of common stock in connection with the acquisition of:               |  |                                        |   |  |                                        |        |   |                                        |          |   |                                      |   |        |              |  |          |                            |  |   |                                  |   |  |                     |   |  |        |      |   |        |            |   |  |   |     |   |  |   |         |   |  |   |        |   |  |   |          |   |  |   |         |  
|A1 Wireless, Inc.                                                             |  |                                       |   |  |                                        |       |   |                                        |         |   |                                      |   |       |              |  |         |                            |  |   |                                 |   |  |                    |   |  |        |     |   |        | 15,408     |   |  |   |    |   |  |   | 235     |   |  |   |       |   |  |   |         |   |  |   | 235     |  
|VMC Satellite, Inc.                                                           |  |                                       |   |  |                                        |       |   |                                        |         |   |                                      |   |       |              |  |         |                            |  |   |                                 |   |  |                    |   |  |        |     |   |        | 697,045    |   |  |   | 7   |   |  |   | 4,960   |   |  |   |       |   |  |   |         |   |  |   | 4,967   |  
|Issuance of common stock warrant                                              |  |                                       |   |  |                                        |       |   |                                        |         |   |                                      |   |       |              |  |         |                            |  |   |                                 |   |  |                    |   |  |        |     |   |        |           |   |  |   |    |   |  |   | 15,173  |   |  |   |       |   |  |   |         |   |  |   | 15,173  |  
|Stock-based compensation expense                                              |  |                                       |   |  |                                        |       |   |                                        |         |   |                                      |   |       |              |  |         |                            |  |   |                                 |   |  |                    |   |  |        |     |   |        |           |   |  |   |    |   |  |   | 15,551  |   |  |   |       |   |  |   |         |   |  |   | 15,551  |  
|Repurchase and retirement of common stock                                     |  |                                       |   |  |                                        |       |   |                                        |         |   |                                      |   |       |              |  |         |                            |  |   |                                 |   |  |                    |   |  |        |     |   |        | (350,261   | ) |  |   | (4  | ) |  |   | (3,734  | ) |  |   |       |   |  |   |         |   |  |   | (3,738  | )
|Exercise of common stock warrants, options, restricted stock awards and other |  |                                       |   |  |                                        |       |   |                                        |         |   |                                      |   |       |              |  |         |                            |  |   |                                 |   |  |                    |   |  |        |     |   |        | 1,543,419  |   |  |   | 15  |   |  |   | 5,271   |   |  |   |       |   |  |   |         |   |  |   | 5,286   |  
|Net loss                                                                      |  |                                       |   |  |                                        |       |   |                                        |         |   |                                      |   |       |              |  |         |                            |  |   |                                 |   |  |                    |   |  |        |     |   |        |           |   |  |   |    |   |  |   |        |   |  |   |       |   |  |   | (63,727  | ) |  |   | (63,727 | )
|                                                                              |  |                                        |   |  |                                        |        |   |                                        |          |   |                                      |   |        |              |  |          |                            |  |   |                                  |   |  |                     |   |  |        |      |   |        |            |   |  |   |     |   |  |   |         |   |  |   |        |   |  |   |          |   |  |   |         |  
|Balance, December 31, 2006                                                    |  |                                       |   |  | $                                      |       |   |                                        |         |   |                                      | $ |       |              |  |         |                            |  | $ |                                 |   |  |                    |   |  | $      |     |   |        | 37,138,480 |   |  | $ | 371 |   |  | $ | 301,611 |   |  | $ |       |   |  | $ | (228,385 | ) |  | $ | 73,597  |  
|                                                                              |  |                                        |   |  |                                        |        |   |                                        |          |   |                                      |   |        |              |  |          |                            |  |   |                                  |   |  |                     |   |  |        |      |   |        |            |   |  |   |     |   |  |   |         |   |  |   |        |   |  |   |          |   |  |   |         |  

See accompanying notes to consolidated financial statements



F-9



---

INPHONIC, INC. & SUBSIDIARIES

Consolidated Statements of Cash Flows

Years Ended December 31, 2004, 2005 and 2006

(in thousands)



|                                                                                                               |  |      |         |   |      |   |         |      |  |   |         |  
|-------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                                               |  | 2004 |         |   | 2005 |   |         | 2006 | 
|Cash flows from operating activities:                                                                          |  |      |         |   |      |   |         |      |  |   |         |  
|Net loss                                                                                                       |  | $    | (10,239 | ) |      | $ | (38,195 | )    |  | $ | (63,727 | )
|Adjustments to reconcile net loss to net cash used in operating activities:                                    |  |      |         |   |      |   |         |      |  |   |         |  
|Depreciation and amortization                                                                                  |  |      | 6,444   |   |      |   | 9,840   |      |  |   | 17,067  |  
|Non-cash interest expense, sales and marketing expense and other                                               |  |      | 306     |   |      |   | 594     |      |  |   | 954     |  
|Stock-based compensation                                                                                       |  |      | 7,381   |   |      |   | 18,618  |      |  |   | 14,274  |  
|Increase in allowance for doubtful accounts                                                                    |  |      |        |   |      |   |        |      |  |   | 7.707   |  
|Gain from the sale of Liberty Wireless                                                                         |  |      |        |   |      |   | (1,355  | )    |  |   |        |  
|Write off of investment                                                                                        |  |      | 150     |   |      |   | 228     |      |  |   |        |  
|Changes in operating assets and liabilities, net of assets and liabilities received from business acquisition: |  |      |         |   |      |   |         |      |  |   |         |  
|Accounts receivable                                                                                            |  |      | (8,428  | ) |      |   | (15,916 | )    |  |   | (36,575 | )
|Inventory                                                                                                      |  |      | (7,255  | ) |      |   | (7,540  | )    |  |   | (1,167  | )
|Prepaid expenses                                                                                               |  |      | (321    | ) |      |   | (1,721  | )    |  |   | (5,577  | )
|Deferred costs and other current assets                                                                        |  |      | (120    | ) |      |   | (4,152  | )    |  |   | 4,276   |  
|Deposits and other assets                                                                                      |  |      | 167     |   |      |   | (2,595  | )    |  |   | (1,167  | )
|Accounts payable                                                                                               |  |      | 3,217   |   |      |   | 8,956   |      |  |   | 53,236  |  
|Accrued expenses and other liabilities                                                                         |  |      | 4,143   |   |      |   | 8,973   |      |  |   | (7,297  | )
|Deferred revenue                                                                                               |  |      | (2,035  | ) |      |   | 4,188   |      |  |   | 2,947   |  
|                                                                                                               |  |      |         |   |      |   |         |      |  |   |         |  
|Net cash used in operating activities                                                                          |  |      | (6,590  | ) |      |   | (20,077 | )    |  |   | (15,008 | )
|Cash flows from investing activities:                                                                          |  |      |         |   |      |   |         |      |  |   |         |  
|Capitalized expenditures, including internal capitalized labor                                                 |  |      | (5,544  | ) |      |   | (11,836 | )    |  |   | (22,172 | )
|Cash paid for acquisitions                                                                                     |  |      | (11,142 | ) |      |   | (8,781  | )    |  |   | (4,662  | )
|Cash paid for purchase of intangible assets                                                                    |  |      |        |   |      |   | (2,725  | )    |  |   | (193    | )
|Purchase of short-term investments                                                                             |  |      |        |   |      |   |        |      |  |   | (5,000  | )
|Proceeds from the maturity of short-term investments                                                           |  |      |        |   |      |   |        |      |  |   | 5,000   |  
|Proceeds from the sale of assets                                                                               |  |      |        |   |      |   | 101     |      |  |   | 1,111   |  
|Note receivable from stockholder                                                                               |  |      | 1,120   |   |      |   |        |      |  |   |        |  
|Reduction in restricted cash and cash equivalent                                                               |  |      | 100     |   |      |   | 100     |      |  |   | 362     |  
|                                                                                                               |  |      |         |   |      |   |         |      |  |   |         |  
|Net cash used in investing activities                                                                          |  |      | (15,466 | ) |      |   | (23,141 | )    |  |   | (25,554 | )
|Cash flows from financing activities:                                                                          |  |      |         |   |      |   |         |      |  |   |         |  
|Principal repayments on long-term debt and capital leases                                                      |  |      | (11,046 | ) |      |   | (284    | )    |  |   | (21,784 | )
|Borrowings on line of credit                                                                                   |  |      |        |   |      |   | 15,000  |      |  |   | 6,355   |  
|Proceeds from term loan and other debt, net of fees                                                            |  |      | 3,976   |   |      |   |        |      |  |   | 73,632  |  
|Cash paid for repurchase of common stock                                                                       |  |      |        |   |      |   | (13,088 | )    |  |   | (3,738  | )
|Proceeds from exercise of warrants and options                                                                 |  |      | 91      |   |      |   | 11,679  |      |  |   | 5,286   |  
|Net proceeds (costs) of initial public offering, net of costs                                                  |  |      | 110,838 |   |      |   | (292    | )    |  |   |        |  
|Preferred stock dividend payments                                                                              |  |      | (9,865  | ) |      |   |        |      |  |   |        |  
|                                                                                                               |  |      |         |   |      |   |         |      |  |   |         |  
|Net cash provided by financing activities                                                                      |  |      | 93,994  |   |      |   | 13,015  |      |  |   | 59,751  |  
|                                                                                                               |  |      |         |   |      |   |         |      |  |   |         |  
|Net increase (decrease) in cash and cash equivalents                                                           |  |      | 71,938  |   |      |   | (30,203 | )    |  |   | 19,189  |  
|Cash and cash equivalents, beginning of year                                                                   |  |      | 29,048  |   |      |   | 100,986 |      |  |   | 70,783  |  
|                                                                                                               |  |      |         |   |      |   |         |      |  |   |         |  
|Cash and cash equivalents, end of year                                                                         |  | $    | 100,986 |   |      | $ | 70,783  |      |  | $ | 89,972  |  
|                                                                                                               |  |      |         |   |      |   |         |      |  |   |         |  
|Supplemental disclosure of cash flows information:                                                             |  |      |         |   |      |   |         |      |  |   |         |  
|Cash paid during the period for:                                                                               |  |      |         |   |      |   |         |      |  |   |         |  
|Interest                                                                                                       |  | $    | 849     |   |      | $ | 253     |      |  | $ | 917     |  
|Income taxes                                                                                                   |  |      |        |   |      |   |        |      |  |   |        |  
|Supplemental disclosure of non-cash activities:                                                                |  |      |         |   |      |   |         |      |  |   |         |  
|Issuance of warrants to purchase common stock with debt                                                        |  | $    | 817     |   |      | $ |        |      |  | $ | 11,945  |  
|Issuance of warrant to purchase common stock to vendor                                                         |  |      |        |   |      |   |        |      |  |   | 3,228   |  
|Inventory exchanged for advertising credits                                                                    |  |      |        |   |      |   |        |      |  |   | 2,323   |  
|Stock-based compensation capitalized as website and internal use software costs                                |  |      |        |   |      |   |        |      |  |   | 616     |  
|Issuance of common stock in business acquisitions                                                              |  |      |        |   |      |   | 8,209   |      |  |   | 5,202   |  
|Issuance of common stock in intangible asset purchase                                                          |  |      |        |   |      |   | 1,549   |      |  |   |        |  
|Issuance of common stock to settle a liability                                                                 |  |      | 50      |   |      |   |        |      |  |   |        |  
|Equipment purchase on capital lease                                                                            |  |      | 635     |   |      |   | 595     |      |  |   | 152     |  
|Release of funds in escrow related to acquisitions                                                             |  |      |        |   |      |   | 10,700  |      |  |   |        |  
|Purchase consideration included in accrued liabilities                                                         |  |      |        |   |      |   | 3,000   |      |  |   | 1,120   |  
|Preferred stock dividends and accretion to redemption value                                                    |  |      | 22,049  |   |      |   |        |      |  |   |        |  
|Conversion of preferred stock, total preferred shares converted into 13,619,536 shares of common stock         |  |      | 92,308  |   |      |   |        |      |  |   |        |  

See accompanying notes to consolidated financial statements



F-10



---

INPHONIC, INC. & SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share and share amounts)



|(1) | The Company
|--- | -----------



| | (a) | Business Description
| | --- | --------------------

We are
a leading online seller of wireless services and devices based on the number of activations of wireless services sold online in the United States. We are headquartered in Washington D.C. and maintain our technology and operations centers in Largo,
Maryland and Reston and Great Falls, Virginia. We sell wireless service plans, including satellite television services through our branded websites; including Wirefly.com, A1 Wireless.com, and VMCsatellite.com and through websites that we create and
manage for third parties. We offer marketers the ability to sell wireless voice and data services and devices under mobile virtual network enabler (MVNE) agreements. We provide customers the ability to organize personal communication by
providing real time wireless access to e-mail, voicemail, faxes, contacts, scheduling, calendar and conference calling functionality through a website or telephone.



| | (b) | Risk and Uncertainties
| | --- | ----------------------

Our
operations are subject to certain risks and uncertainties including, among others, actual and potential competition by entities with greater financial resources, rapid technological changes, the need to retain key personnel and protect intellectual
property and the availability of additional capital financing on terms acceptable to us.

Since inception, we have incurred
net losses attributable to common stockholders of approximately $228,385. To date, management has relied on debt and equity financings to fund our operating deficit. We had $89,972 of cash and cash equivalents on hand at December 31, 2006. We
may require additional financing to fund future operations.



| | (c) | Discontinued Operations
| | --- | -----------------------

On
December 31, 2005, we sold the operating assets of our mobile virtual network operator (MVNO) Liberty Wireless (Liberty) to Teleplus Wireless Corp., a subsidiary of Teleplus Enterprises, Inc. The sale of Liberty has
enabled us to streamline and focus our resources on our other operations including the growth of our MVNE business. The sale of Liberty was recorded as a discontinued operation in the financial statements pursuant to Statement of Financial
Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No. 144). We have classified these operations as discontinued operations and, accordingly, have
segregated assets and liabilities of the discontinued operations in the accompanying Consolidated Balance Sheets as of December 31, 2005 and 2006 and the revenue and expenses of the discontinued operation in the accompanying Consolidated
Statements of Operations for each of the three years ended December 31, 2006. Cash flows pertaining to discontinued operations were not disclosed separately in the Consolidated Statements of Cash Flows.



|(2) | Summary of Significant Accounting Policies
|--- | ------------------------------------------



| | (a) | Principles of Consolidation and Basis of Presentation
| | --- | -----------------------------------------------------

The consolidated financial statements include the accounts of InPhonic, Inc. and its subsidiaries. All significant intercompany accounts and transactions are eliminated upon consolidation.



F-11



---

INPHONIC, INC. & SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(in thousands,
except per share and share amounts)



| | (b) | Use of Estimates
| | --- | ----------------

The
preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of certain assets and
liabilities, revenue and expenses, and the related disclosure of contingent assets and liabilities in the consolidated financial statements and accompanying notes. The most significant of such estimates include our reserve for future deactivations,
allowance for rebates, allowance for uncollectible accounts receivable, valuation of inventory, estimated useful life of assets, impairment of long-lived assets and goodwill, valuation of deferred tax assets and reserves for contingent tax
liabilities. Actual results could differ from those estimates.

In preparation of the accompanying financial statements for
the year ended December 31, 2005, we recorded an adjustment to reduce depreciation and amortization expense by $891. These adjustments to depreciation were made to correct a computational error in the fixed asset subledger that caused
depreciation expense to be overstated in each prior period between fiscal years 2001 and 2005. We do not believe the impact of the adjustment was material to fiscal year 2005 or any period prior.



| | (c) | Cash and Cash Equivalents
| | --- | -------------------------

We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents.



| | (d) | Financial Instruments
| | --- | ---------------------

Fair Value of Financial Instruments

Our financial instruments, as defined under SFAS No. 107,
Disclosures about Fair Value of Financial Instruments, include our cash, accounts receivable, accounts payable, borrowings under our line of credit with Comerica and our term loan. The fair value of cash, accounts receivable, and
accounts payable were equal to their respective carrying values at December 31, 2005 and 2006. At December 31, 2005, the borrowings outstanding under our line of credit were equal to the respective carrying value. We retired our line
of credit in November 2006. We hold cash and cash equivalents primarily in four financial institutions, which often exceed FDIC insured limits. Historically, we have not experienced any losses due to such concentration of credit risk.

As of December 31, 2006, the carrying value of the term loan was $63.6 million and the fair value of the debt approximated $72.4
million. The carrying value of the debt was recorded at a discount primarily as the result of a portion of the proceeds allocated to the fair value of detachable warrants issued with the debt. See Note 6 for further discussion.

Concentration Risk

Financial instruments that potentially subject us to a concentration risk consist principally of accounts receivable and accounts payable. We extend credit to wireless network carriers (carriers) on an
unsecured basis in the normal course of business. Three carriers accounted for approximately 74% and 69% of accounts receivable, net of the deactivation reserve, as of December 31, 2005 and 2006, respectively.



F-12



---

INPHONIC, INC. & SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(in thousands,
except per share and share amounts)



For each of the years ended December 31, 2004, 2005 and 2006, revenue from three
carriers exceeded 10% of the total revenue. Revenue as a percentage of total revenues for these carriers was as follows:



|          |  |      |  |      |  |     
|--------- |  | ---- |  | ---- |  | ----
|          |  | 2004 |  | 2005 |  | 2006
|Carrier A |  | 22%  |  | 30%  |  | 36% 
|Carrier B |  | 28%  |  | 16%  |  | 17% 
|Carrier C |  | 26%  |  | 21%  |  | 15% 
|          |  |      |  |      |  |     
|Total     |  | 76%  |  | 67%  |  | 68% 
|          |  |      |  |      |  |     

We are extended credit from wireless carriers at up to 60 day trade payable terms
in the normal course of business to purchase certain handset equipment. The three carriers described above accounted for approximately 31% and 46% of accounts payable as of December 31, 2005 and 2006, respectively.

We depend primarily on our carriers to supply cellular phones and accessories in a timely manner in adequate quantities and consistent
quality. If we are unable to obtain cellular phones in adequate quantities, we may incur delays in shipment or be unable to meet demand for our products. At December 31, 2005 and 2006, one carrier accounted for approximately 32% and 25% of our
total purchases of cellular phones.



| | (e) | Allowance for Doubtful Accounts
| | --- | -------------------------------

We maintain allowances for doubtful accounts for estimated losses resulting from the inability of customers to pay. The amount of the allowance is based on a combination of factors including the status of collection efforts with the
respective wireless carriers on balances in which additional source information or other transaction details continue to be exchanged between us and the carrier. Our allowance for receivables due from carriers is estimated based on previous
experience with collection efforts of similar nature. If the financial condition of any of the larger carrier customers we do business with were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may
be required.



| | (f) | Inventory
| | --- | ---------

Inventory
consists primarily of wireless devices. The carrying value of inventory is stated at the lower of its cost or market value. Cost is determined using a consistent method which approximates the first-in-first-out method. We write down inventory for
estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value or replacement cost based upon assumptions about future demand and market conditions. If actual market conditions
are less favorable than those projected, additional inventory write-downs may be required. During the years ended December 31, 2004, 2005, and 2006, we wrote down inventory approximately $423, $506, and $179, respectively, in order to record
certain inventory to a fair market value, which was lower than our cost. In addition during the year ended December 31, 2006, we have written-off or fully reserved for amounts due from equipment vendors for wireless devices returned to them
totaling $3,990 for which credit has yet to be received.

Effective January 1, 2006, we adopted SFAS No. 151,
Inventory Costs that is an amendment to ARB No. 43, Chapter 4 (SFAS No. 151), amends chapter 4 Inventory Pricing of ARB No. 43 and paragraph A3 of SFAS No. 144. Previously, ARB 43 did not define the
term so abnormal which could lead to unnecessary incomparable financial reporting. SFAS No. 151 clarifies that abnormal costs related to idle facility expense, freight, handling costs, and wasted materials (spoilage) should be
recognized as period costs. There was no material effect on our consolidated financial position, result of operations or cash flows as a result of this adoption.



F-13



---

INPHONIC, INC. & SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(in thousands,
except per share and share amounts)



| | (g) | Long-Lived Assets
| | --- | -----------------

Property and Equipment

Property and equipment is recorded at cost or at fair value if it is acquired in a
business acquisition. Replacements and improvements that extend the useful life of property and equipment are capitalized. Property and equipment is depreciated over the following useful lives. Leasehold improvements are depreciated over the stated
useful life or the contractually stated period of the underlying lease.



|                              |  |                                
|----------------------------- |  | -------------------------------
|                              |  | Estimated usefullife (in years)
|Computer and equipment        |  | 3                              
|Software                      |  | 3                              
|Furniture and fixtures        |  | 7                              
|Leasehold improvements        |  | 3                              
|Website development           |  | 1.5                            
|Internal software development |  | 2                              

We account for the costs relating to the development of our e-commerce platform
for internal use based on AICPA Statement of Position (SOP) No. 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, and the Emerging Issues Task Force (EITF) No.
00-02, Accounting for Web Site Development Costs. Website development costs consist of internal and external costs incurred to purchase and implement the web software and enhancements to the functionality of the web software, used in our
business.

In accordance with SFAS No. 144, we are required to evaluate the carrying value of long-lived assets and
certain intangible assets. SFAS No. 144 first requires an assessment of whether circumstances currently exist which suggest the carrying value of long-lived assets may not be recoverable. At December 31, 2005 and 2006, we did not believe
any such conditions existed. Had these conditions existed, we would have assessed the recoverability of the carrying value of our long-lived assets and amortizable intangible assets based on estimated undiscounted cash flows to be generated from
such assets. In assessing the recoverability of these assets, we would have projected estimated cash flows based on various operating assumptions such as average revenue per activation, deactivation rates, and sales and workforce productivity
ratios. If the projection of undiscounted cash flows did not exceed the carrying value of the long-lived assets, we would have been required to record an impairment charge to the extent the carrying value exceeded the fair value of such assets.

Goodwill and Intangible Assets

Goodwill and intangible assets with indefinite useful lives are not amortized and are evaluated for impairment at least annually, or when
events or circumstances suggest a potential impairment may have occurred. In accordance with SFAS No. 142, Goodwill and Other Intangible Assets (SFAS No. 142), we have selected the fourth quarter to perform the annual
impairment test. SFAS No. 142 requires us to compare the fair value of the reporting unit to its carrying amount on an annual basis to determine if there is a potential impairment. If the fair value of the reporting unit is less than its
carrying value, an impairment loss is recorded to the extent that the fair value of the goodwill within the reporting unit is less than the carrying value. The fair value for goodwill and other intangible assets not subject to amortization is
determined based on discounted cash flows, market multiples or other measures, as appropriate. Based on our assessment for the year ended December 31, 2006, no impairments of goodwill or other intangible assets were noted.



F-14



---

INPHONIC, INC. & SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(in thousands,
except per share and share amounts)



For the year ended December 31, 2005, we originally determined that a supplier
relationship valued at $3,730 had an indefinite useful life as of the April 26, 2005 acquisition date of VMC Satellite, Inc. During 2006, we determined that as of the acquisition date, the supplier relationship had a useful life of ten years in
accordance with SFAS No. 142. During the fourth quarter of 2006, we recognized $255 of amortization expense for the period from April 26, 2005 to December 31, 2005. We do not believe the impact of this adjustment in 2006 to be material to the fiscal
year 2006 or 2005 as a result of this change.

Intangible assets with determinable useful lives, which primarily consist of
software and technology, customer contracts, affiliate relationships, a supplier relationship and a non-compete agreement, were recorded at fair value at the date of acquisition and amortized over the following economic lives:



|                        |  |                                  
|----------------------- |  | ---------------------------------
|                        |  | Estimated economiclife (in years)
|Software and technology |  | 1.5 to 5                         
|Customer contracts      |  | 1.5 to 3                         
|Affiliate relationships |  | 5                                
|Non-compete agreement   |  | 2 to 5                           
|Supplier relationship   |  | 10                               
|Other                   |  | 1.5 to 5                         

Intangible assets not subject to amortization include trade names.



| | (h) | Revenue Recognition
| | --- | -------------------

Activations and Services Revenue

We recognize revenue from the sale of wireless services and the
provisioning of MVNE and data services.

Wireless Services:We generate revenue from wireless carriers, including a
satellite television carrier, who pay commissions and volume and performance-based bonuses, for activating wireless services and features on their networks. We recognize commissions from wireless carriers upon shipment of activated devices to the
customer. In addition to activation commissions, certain carriers pay us a monthly residual fee either for as long as a customer who we activate for that carrier continues to be its subscriber, or for a fixed period of time depending on the carrier.
Within our Satellite Television business unit, we receive satellite activation certificates evidencing activation rights in advance of their resale to customers. Revenue from satellite television customers includes commissions earned at the time of
the satellite service activation, net of an estimate for deactivations, as we are acting as an agent in the transaction. Revenue is reduced for estimated deactivations of its wireless services by customers prior to the expiration of a time period
that ranges 90 to 180 days from the date of activation, depending on the wireless carrier. We estimate deactivations based on historical experience, which we developed based on our experience with carriers, customer behavior and sources of
customers, among other factors, allowing us to accrue estimates with what we believe is a high degree of certainty. If we determine that we cannot accurately predict future deactivation experience, we may be required to defer 100% of our carrier
commissions revenue until the expiration of the appropriate chargeback period. Our reserves for deactivations are included in accounts receivable and deferred revenue on the accompanying balance sheets. Accounts receivable at December 31, 2005
and 2006 included reserve for deactivations of $7,540 and $7,639, respectively. Deferred revenue at December 31, 2005 and 2006 included reserve for deactivations of $10,796 and $14,546, respectively.



F-15



---

INPHONIC, INC. & SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(in thousands,
except per share and share amounts)



In addition to receiving commissions for each wireless subscriber activated, we earn
performance bonuses from the wireless carriers based on negotiated performance targets. The most significant bonuses we earn are the quarterly volume bonuses, which we collect from wireless carriers on a monthly basis, based on current month
activations. We record these bonuses as deferred revenue at the time of billing until we achieve the quarterly targets. We also earn other quarterly bonuses from certain carriers for maintaining low customer churn and signing up wireless customers
for certain additional monthly features such as data service or text messaging. Wireless carriers also periodically offer bonuses for achieving monthly volume and other performance targets. We recognize these monthly bonuses as earned in
accordance with the provisions of the Securities and Exchange Commissions (SEC) Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition in Financial Statements (SAB No. 104). Revenue is
recognized only when all of the following criteria are met: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the sellers price to the buyer is fixed or determinable,
and (4) collectibility is reasonably assured. Amounts collected in cash prior to meeting the above criteria are recorded as deferred revenue. Through 2005, commission revenue earned from the activation of carrier features had been deferred
until the contractual chargeback period had lapsed as we did not have adequate historical information to estimate a reserve. Beginning in 2006, we began to estimate commission revenue earned from feature activations based on historical experience
which we have developed based on our experience with carriers and customer behavior over a period of time in excess of 24 months. As of December 31, 2005, $1,383 of feature activations revenue was deferred, which would have been accrued for
less an estimated reserve for deactivations, in the event that we had the appropriate experience with carriers and customer behavior at December 31, 2005. As of December 31, 2006, our estimated reserve for deactivations of feature
activations was $629.

In the ordinary course of recording and collecting commissions from our wireless carrier partners,
we engage in a matching and reconciling process (the matching process) between source information for customer wireless carrier activations generated and maintained in our back-office sales information systems and each carriers
billing system. Although the substantial majority of our sales information matches to that of the carriers, matching differences do arise. Examples of such differences include (i) instances in which an activation per our records does
not correlate to a commission fee payment schedule submitted by the carrier; (ii) commission fee payment collected from the carrier that is less than the expected payment per our sales records; (iii) a deactivation identified on a carrier
statement that does not match the carriers original commission fee payment for such activation and (iv) commission or other fee payment we collect that is in excess of expected payment per our sales records.

Data files supported by our billing records related to differences are submitted monthly to each carrier for resolution. Resolution
of these differences is usually an iterative process and it can take up to 12 months or longer for final resolution of any difference. Information is exchanged between us and the carrier throughout this process. We recognize revenue based on
the underlying data maintained in our back-office sales information systems unless the carrier provides us details that supersedes our information. Given the nature of these differences and based on our experience in resolving such items with
the carriers, we are also able to determine an appropriate reserve against revenue to reflect the likely success or failure of resolving these differences. In certain instances when a wireless carrier denies a claim we may file in resolving
differences of this nature, we will write-off the related accounts receivable while pursuing further collection efforts and will record into income at a future date if collected. To the extent that we collect commission or other fee payments in
excess of expectations, we will record revenue in the period of receipt net of estimated chargeback requirements.



F-16



---

INPHONIC, INC. & SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(in thousands,
except per share and share amounts)



MVNE Services:

We offer marketers the ability to sell wireless services to their customers under their own brands using our e-commerce platform and
operational infrastructure through MVNE contracts. We receive fees for development of the network platform, as well as for operational support services. We defer the fees attributable to the production of the network platform and recognize these
fees and costs over the expected life of the agreement (typically 12 to 48 months). Fees received for custom functional enhancements to the network platform and for operational services are deferred until all revenue criteria have been satisfied.
Deferred revenue from MVNE contracts as of December 31, 2005 and 2006 included $1,852 and $1,195, respectively.

Other Revenue:

We sell data services, including a service that allows customers to access email, voicemail, facsimiles, contacts and
personal calendar information through a website or a telephone. We bill customers monthly and revenue is recognized monthly, as the services are performed.

Equipment Revenue:

Revenue from the sale of wireless devices and accessories in a
multiple-element arrangement with services is recognized at the time of sale in accordance with EITF No. 00-21, Revenue Arrangements with Multiple Deliverables, when fair value of the services element exists. Customers have the right
to return devices within a specific period of time or usage, whichever occurs first. We provide an allowance for estimated returns of devices based on historical experience. Return rights of indirect retailers for wireless devices are limited to
warranty claims, which are generally covered by the device manufacturers original warranties. In accordance with the provisions of SAB No. 104, we determined we have sufficient operating history to estimate equipment returns. In
connection with wireless activations, we sell the wireless device to the customer at a significant discount, which is generally in the form of a rebate (equipment discount provisions or EDP). Rebates are recorded as a
reduction of revenue. We recognize equipment revenue net of rebate costs based on historical experience of rebates claimed. Future experience could vary based upon rates of consumers redeeming rebates.

In the event a customer terminates their wireless service with the carrier within six months of activation and opts not to return the
wireless device to us within the time frames permitted within our return policy, in many instances our sales contracts with the customer permit us to charge the customer an EDP termination fee for each unreturned device. Prior to the three months
ended June 30, 2006, revenue recognition of such fee was deferred until such fee was collected from the customer pursuant to SAB 104 as we did not have adequate historical collection data to reasonably estimate the ultimate collectibility of the
receivable. Beginning April 1, 2006, we began to estimate EDP termination fee revenue based on historical experience of customer collection behavior which we have developed over a time period of 24 months which provides the basis on which to accrue
revenue with an appropriate assurance of collectibility pursuant to SAB 104. As of March 31, 2006, $293 of such revenue was deferred, which would have been accrued for in the event that we had adequate customer collection history, less an estimated
reserve for uncollectible amounts. As of December 31, 2006, we had accrued as accounts receivable approximately $1,686 in such EDP fees.



| | (i) | Cost of Revenue
| | --- | ---------------

The major
components of cost of revenue, exclusive of depreciation and amortization, are:

Activations and services. Cost of
activations and services revenue includes costs incurred from providers of telecommunications and data center services.



F-17



---

INPHONIC, INC. & SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(in thousands,
except per share and share amounts)



Equipment. We purchase wireless devices and accessories from wireless
carriers, device manufacturers and third-party vendors to sell to customers and indirect retailers in the WAS business unit. We sell these wireless devices and accessories at a price below cost to encourage the sale and use of the services. We do
not manufacture any of this equipment. Costs from the sale of wireless devices and accessories sold directly to customers are recognized at the time of sale. From time to time, we receive price protection credits on equipment purchased from certain
vendors. We recognize price protection credits received for equipment that has been sold and shipped as a reduction of cost of revenue. Cost of revenue included shipping expenses of $4,677, $8,575 and $11,385 for the years ended December 31,
2004, 2005 and 2006, respectively.



| | (j) | Advertising Costs
| | --- | -----------------

We
expense advertising and other marketing costs as incurred and principally include amounts paid to marketing partners based on the delivery of customers to our websites for wireless activation and services. Advertising and other marketing costs for
the years ended December 31, 2004, 2005 and 2006 were $36,185, $79,078 and $104,351, respectively.

Beginning in 2007,
we expect to begin capitalizing and amortizing a portion of our advertising costs (as direct response advertising) associated with activity pursuant to an agreement with a vendor.



| | (k) | Accrued Consumer Liabilities
| | --- | ----------------------------



Under certain conditions, consumers purchasing wireless devices from us may be eligible for a product rebate depending on the
wireless device purchased, service contract activated and the consumer maintaining their service with the wireless carrier for a period of up to six months. We estimate and record an accrued consumer liability and cost of revenue for such rebate at
the time of sale based on the terms of the rebate and our rebate redemption experience over the most recent 18 months following the lapse of the contractual rebate redemption period. Our rebate redemptions are generally processed by a third party
vendor that validates the consumers rebate redemption materials to ensure that the redemption request satisfies all terms and conditions of the rebate program to be eligible for payment. Only consumers that satisfy the redemption requirements
of the rebate program receive the rebate amount.

During the last six months of 2006, we incurred and paid $7,950 of
payments made to consumers outside our customary rebate redemption process to parties that we believed generally had not satisfied all the terms and conditions of the respective rebate redemption program. Such amounts were paid to satisfy customer
complaints and are viewed by us as customer credits and reflected in general and administrative expenses.



| | (l) | Accounts payable
| | --- | ----------------

Accounts
payable at December 31, 2005 and 2006 consisted of:



|                             |  |      |        |      |   |       
|---------------------------- |  | ---- | ------ | ---- | - | ------
|                             |  | 2005 |        | 2006
|Trade payables for inventory |  | $    | 14,353 |      | $ | 50,989
|Other accounts payable       |  |      | 17,190 |      |   | 34,986
|                             |  |      |        |      |   |       
|                             |  | $    | 31,543 |      | $ | 85,975
|                             |  |      |        |      |   |       



F-18



---

INPHONIC, INC. & SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(in thousands,
except per share and share amounts)



| | (m) | Accrued Expenses and Other Current Liabilities
| | --- | ----------------------------------------------

Accrued expenses and other liabilities at December 31, 2005 and 2006 consisted of:



|                                                        |  |      |        |      |   |       
|------------------------------------------------------- |  | ---- | ------ | ---- | - | ------
|                                                        |  | 2005 |        | 2006
|Accrued consumer liabilities, including accrued rebates |  | $    | 18,289 |      | $ | 8,203 
|Accrued payroll and related expenses                    |  |      | 1,452  |      |   | 1,685 
|Accrued acquisition costs and severance costs           |  |      | 5,063  |      |   | 1,674 
|Accrued sales taxes payable                             |  |      | 593    |      |   | 443   
|Accrued interest                                        |  |      | 83     |      |   | 995   
|Accrued product costs                                   |  |      | 697    |      |   | 2,245 
|Other                                                   |  |      | 5,411  |      |   | 7,276 
|                                                        |  |      |        |      |   |       
|                                                        |  | $    | 31,588 |      | $ | 22,521
|                                                        |  |      |        |      |   |       



| | (n) | Restructuring Costs
| | --- | -------------------

In the
first quarter of 2005, we implemented a restructuring plan to take advantage of synergies gained through the acquisition of A1 Wireless and to restructure other operating segments. During the year ended December 31, 2005, we recognized $847 in
restructuring costs, $811 of which related to workforce reduction and $36 related to exited facilities and contracts. We paid all restructuring costs related to this plan by December 31, 2005.

During 2006, we implemented a restructuring plan related to changes in our management and operations structure. We recognized $2,551
related to the termination of our former president and chief operating officer and thirty-four other senior executives and employees. Of this amount, $1,017 related to severance benefits that will be paid out in cash to the recipients on a monthly
or semi-monthly basis over the terms of their respective severance agreements, $1,513 related to expenses incurred as a result of the modification of stock-based compensation awards under which vesting of 50% of unvested restricted share and option
awards was accelerated for three of the former employees, and $21 related to other costs. As of December 31, 2006, we have $303 included in accrued expenses and other current liabilities for these expenses which have not yet been paid. We
expect all remaining costs will be paid by June 30, 2007.



| | (o) | Income Taxes
| | --- | ------------

SFAS
No. 109, Accounting for Income Taxes (SFAS No. 109), establishes financial accounting and reporting standards for the effect of income taxes. During the years ended December 31, 2004, 2005 and 2006, we did not have any
income tax expense or benefit because a full valuation allowance was provided against our net deferred tax assets. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized
as a component of net income in the period that includes the enactment date.



| | (p) | Stock-Based Compensation
| | --- | ------------------------

We
adopted SFAS No. 123 (revised 2004), Share Based Payment (SFAS No. 123(R)) on January 1, 2006 using the modified prospective application method (MPA). SFAS No. 123(R)



F-19



---

INPHONIC, INC. & SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(in thousands,
except per share and share amounts)



established standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. SFAS
No. 123(R) requires us to measure the cost of employee services received in exchange for an award of equity instruments (usually stock options or unvested (restricted) stock awards based on the grant-date fair value of the award. That cost
is recognized over the period during which an employee is required to provide service in exchange for the awardthe requisite service period (usually the vesting period). In March 2005, the SEC issued SAB No. 107, Valuation of
Share-Based Payment Arrangements for Public Companies (SAB 107) relating to the interaction of the adoption of SFAS No. 123(R) and the SEC rules and regulations. We have applied the provisions of SAB 107 in our adoption of SFAS
123(R).

Prior to our adoption of SFAS No. 123(R), we applied the intrinsic value method of accounting for employee
stock-based compensation as prescribed by Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations including FASB Interpretation (FIN) No. 44,
Accounting for Certain Transactions involving Stock Compensation an Interpretation of APB Opinion No. 25, to account for our stock option grants to employees. Under this method, compensation expense was recorded on the date of the grant
only if the current market price of the underlying stock exceeded the exercise price. SFAS No. 123, Accounting for Stock-Based Compensation(SFAS No. 123), established accounting and disclosure requirements using a
fair value-based method of accounting for stock-based employee compensation plans. As permitted by SFAS No. 123, we have elected to continue to apply the intrinsic value-based method of accounting described above, and had adopted the disclosure
requirements of SFAS No. 123. All shares of restricted stock awarded to employees were accounted for at fair value in accordance with SFAS No. 123.

Under the MPA method, compensation cost for all share-based payments granted prior to, but not vested as of December 31, 2005, is
based on the grant date fair value estimated in accordance with the pro forma provisions of SFAS No. 123, and compensation cost for all share based payments granted or modified subsequent to December 31, 2005, will be based on the grant
date fair value estimated in accordance with the provisions of SFAS No. 123(R). Results for prior periods have not been restated. We use the ratable method of attributing the value of stock-based compensation to expense. SFAS
No. 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. In our pro forma information required under SFAS No. 123 for the
periods prior to January 1, 2006, we accounted for forfeitures as they occurred. The fair value of each option granted is estimated on the grant date using the Black-Scholes option pricing model which takes into account as of the grant date the
exercise price and expected life of the option, the current price of the underlying stock and its expected volatility, expected dividends on the stock and the risk-free interest rate for the term of the option.

For the year ended December 31, 2006 as a result of our adoption of SFAS No. 123(R), we recognized stock-based compensation
expense related to employee options granted prior to January 1, 2006 of $6,260, of which $405 was capitalized in accordance with our compensation policies and SFAS No. 123(R).



F-20



---

INPHONIC, INC. & SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(in thousands,
except per share and share amounts)



In addition, we granted options to certain of our employees to purchase 1,012,200
shares of our common stock during the year ended December 31, 2006. The options granted were granted at a weighted average exercise price of $7.14. The grant date fair value of employee share options was estimated using the Black-Scholes
option-pricing model with the following assumptions:



|                         |  |       |   |  |       |   |  |       |  
|------------------------ |  | ----- | - |  | ----- | - |  | ----- | -
|                         |  | 2004  |   |  | 2005  |   |  | 2006  |  
|Expected volatility      |  | 70.00 | % |  | 70.00 | % |  | 72.00 | %
|Risk free interest rate  |  | 3.12  | % |  | 3.82  | % |  | 4.72  | %
|Expected dividend rate   |  | 0.00  | % |  | 0.00  | % |  | 0.00  | %
|Expected life (in years) |  | 4.0   |   |  | 4.0   |   |  | 5.6   |  

The weighted average fair value per share of options granted using these
assumptions was $4.65. Compensation cost of the grant was reduced by an estimated forfeiture amount based on an annual experience rate of 9.93%. As of the date of grants, total compensation cost related to the grants including estimated forfeitures
was approximately $4,705 for the stock options granted during the year ended December 31, 2006. Stock-based compensation expense for these grants for the year ended December 31, 2006 was $670.

The impact of adopting SFAS No. 123(R) increased stock-based compensation expense included in our operating expenses and increased
net loss from continuing operations by approximately $2,464 for the year ended December 31, 2006 or $0.07 per basic and diluted share. There was no impact from the adoption on cash flow from operations or cash flows from financing activities.

Our pro forma net loss applicable to common shareholders, and pro forma net loss per common share, basic and diluted, for
periods prior to our adoption of SFAS No. 123(R) was as follows.



|                                                                                                                                        |  |                    |         |   |      |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------- | - | ---- | - | ------- | -
|                                                                                                                                        |  | For the year ended |        
|                                                                                                                                        |  | 2004               |         |   | 2005 |  
|Net loss attributable to common stockholders, as reported                                                                               |  | $                  | (32,288 | ) |      | $ | (38,195 | )
|Add: Stock-based compensation expense included in net loss attributable to common stockholders, as reported                             |  |                    | 5,289   |   |      |   | 17,482  |  
|Less: Total stock-based compensation expense determined under fair value based methods for all stock awards, net of related tax
effects |  |                    | (6,472  | ) |      |   | (15,599 | )
|                                                                                                                                        |  |                    |         |   |      |   |         |  
|Pro forma net loss attributable to common stockholders                                                                                  |  | $                  | (33,471 | ) |      | $ | (36,312 | )
|                                                                                                                                        |  |                    |         |   |      |   |         |  
|Net loss per common share, basic and diluted, as reported                                                                               |  | $                  | (2.29   | ) |      | $ | (1.11   | )
|Net loss per common share, basic and diluted, pro forma                                                                                 |  | $                  | (2.38   | ) |      | $ | (1.06   | )

We account for equity grants issued to non-employees at fair value, in accordance
with the provisions of SFAS No. 123 and EITF No. 96-16, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services. We use a Black-Scholes model to
estimate the fair value of such awards and compensation expense relating to such equity issuances is recognized over the applicable vesting period of the options, warrants, or stock, in accordance with the method prescribed by FIN No. 28,
Accounting for Stock Appreciation Rights and Other Variable Stock Option of Award Plans.



F-21



---

INPHONIC, INC. & SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(in thousands,
except per share and share amounts)



Stock-based compensation, which includes compensation recognized on stock option
grants and restricted stock awards for employees and non-employees was included in the following line items on the accompanying financial statements. We have capitalized $616 of stock-based compensation as internally developed software for the year
ended December 31, 2006. No such costs were capitalized in 2005. There were no tax benefits recognized in the statements of operations for stock based awards in any periods:

Balance Sheets:

Statements of operations:



|                                           |  |                                 |       |      |   |        |  |   |       
|------------------------------------------ |  | ------------------------------- | ----- | ---- | - | ------ |  | - | ------
|                                           |  | For the year ended December 31,
|                                           |  | 2004                            |       | 2005 |   | 2006  
|Sales and marketing                        |  | $                               | 2,111 |      | $ | 2,201  |  | $ | 2,891 
|General and administrative                 |  |                                 | 5,096 |      |   | 15,585 |  |   | 9,860 
|Restructuring costs                        |  |                                 |      |      |   |       |  |   | 1,513 
|Income (loss) from discontinued operations |  |                                 | 174   |      |   | 832    |  |   | 112   
|                                           |  |                                 |       |      |   |        |  |   |       
|                                           |  | $                               | 7,381 |      | $ | 18,618 |  | $ | 14,376
|                                           |  |                                 |       |      |   |        |  |   |       

Stock-based compensation from continuing operations in 2005 included $7,851
related to the modification of the terms of original restricted stock awards or option grants related to six employees that were terminated in 2005. Stock based compensation from continuing operations in 2006 included $1,370 related to the
modification of stock-based awards for five employees. Such modifications accelerated the vesting of 81,035 shares of restricted stock and options underlying 122,258 shares of our common stock. Unrecognized compensation cost for all unvested options
and restricted stock awards was $36,459 as of December 31, 2006 which will be recognized over a weighted average period of 1.5 years.



| | (q) | Net Loss Per Common Share
| | --- | -------------------------

We calculate net loss per common share in accordance with SFAS No. 128, Earnings Per Share(SFAS No. 128). Basic net loss per common share excludes any dilutive effects of options, warrants, restricted stock
awards and convertible securities and is calculated by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted net loss per common share equals basic net loss per
common share as the effects of options, warrants, restricted stock awards and convertible securities would have been anti-dilutive.



F-22



---

INPHONIC, INC. & SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(in thousands,
except per share and share amounts)



The following table reconciles net loss attributable to common stockholders and basic
and diluted weighted average common shares outstanding to the historical or pro forma net loss attributable to common stockholders and the historical or pro forma basic and diluted weighted average common shares outstanding for the years ended
December 31, 2004, 2005 and 2006. Information presented for 2004 has been prepared on a pro forma basis assuming outstanding preferred stock was converted into common stock at the beginning of the period in connection with our initial public
offering. Weighted average shares outstanding presented for 2006 includes the effect 1,250,000 shares representing detachable warrants issued with the term loan on November 7, 2006, as described in Note 6. These warrants are exercisable at
$0.01 per share.



|                                                                        |  |      |            |   |      |   |            |      |  |   |            |  
|----------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                                        |  | 2004 |            |   | 2005 |   |            | 2006 | 
|Numerator:                                                              |  |      |            |   |      |   |            |      |  |   |            |  
|Net loss from continuing operations                                     |  | $    | (14,585    | ) |      | $ | (37,766    | )    |  | $ | (63,534    | )
|Preferred stock dividends and accretion                                 |  |      | (22,049    | ) |      |   |           |      |  |   |           |  
|                                                                        |  |      |            |   |      |   |            |      |  |   |            |  
|Net loss from continuing operations attributable to common stockholders |  |      | (36,634    | ) |      |   | (37,766    | )    |  |   | (63,534    | )
|Income (loss) from discontinued operations                              |  |      | 4,346      |   |      |   | (429       | )    |  |   | (193       | )
|                                                                        |  |      |            |   |      |   |            |      |  |   |            |  
|Net loss attributed to common stockholders                              |  | $    | (32,288    | ) |      | $ | (38,195    | )    |  | $ | (63,727    | )
|                                                                        |  |      |            |   |      |   |            |      |  |   |            |  
|Denominator:                                                            |  |      |            |   |      |   |            |      |  |   |            |  
|Weighted average shares outstanding                                     |  |      | 14,074,505 |   |      |   | 34,417,954 |      |  |   | 36,312,970 |  
|Basic and diluted net gain (loss) per share:                            |  |      |            |   |      |   |            |      |  |   |            |  
|Net loss from continuing operations attributable to common stockholders |  | $    | (2.60      | ) |      | $ | (1.10      | )    |  | $ | (1.75      | )
|Net income (loss) from discontinued operations                          |  |      | 0.31       |   |      |   | (0.01      | )    |  |   |           |  
|                                                                        |  |      |            |   |      |   |            |      |  |   |            |  
|Basic and diluted earnings per share:                                   |  | $    | (2.29      | ) |      | $ | (1.11      | )    |  | $ | (1.75      | )
|                                                                        |  |      |            |   |      |   |            |      |  |   |            |  

For the years ended December 31, 2004, 2005 and 2006, we incurred a net loss.
If our outstanding common stock equivalents were exercised or converted into common stock, the result would have been anti-dilutive and, accordingly, basic and diluted net loss attributable to common stockholders per share are identical for all
periods presented in the accompanying condensed consolidated statements of operations. The following summarizes our potential outstanding common stock equivalents as of the end of each period.



|                                                             |  |              |  |           |  |          
|------------------------------------------------------------ |  | ------------ |  | --------- |  | ---------
|                                                             |  | December 31,
|                                                             |  | 2004         |  | 2005      |  | 2006     
|Options to purchase common stock                             |  | 6,629,469    |  | 5,115,969 |  | 4,043,103
|Restricted stock awards                                      |  |             |  | 1,137,878 |  | 2,964,649
|Warrants to purchase common stock                            |  | 1,780,923    |  | 787,863   |  | 2,754,740
|                                                             |  |              |  |           |  |          
|Total common stock equivalents convertible into common stock |  | 8,410,392    |  | 7,041,710 |  | 9,762,492
|                                                             |  |              |  |           |  |          



F-23



---

INPHONIC, INC. & SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(in thousands,
except per share and share amounts)



| | (r) | Adoption of SAB 108
| | --- | -------------------

In
September 2006, the SEC released Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements(SAB 108). SAB 108 provides
guidance on how the effects of the carryover or reversal of prior year financial statement misstatements should be considered in quantifying a current year misstatement. Prior practice allowed the evaluation of materiality on the basis of
(1) the error quantified as the amount by which the current year income statement was misstated (rollover method) or (2) the cumulative error quantified as the cumulative amount by which the current year balance sheet was misstated (iron
curtain method). SAB 108 is effective for fiscal years ending after November 15, 2006. SAB 108 requires a dual approach that consists of both the rollover and iron curtain methods. We adopted SAB 108 effective in the fourth quarter ended
December 31, 2006. There was no material effect on our financial position, results of operations or cash flows as a result of this adoption.



| | (s) | Recent Accounting Pronouncements
| | --- | --------------------------------

In May 2005, the Financial Accounting Standards Board (FASB) FASB issued SFAS No. 154, Accounting Changes and Error Corrections (SFAS No. 154), a replacement of APB Opinion No. 20, Accounting
Changes, and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements. SFAS No. 154 changes the requirements for the accounting for, and reporting of, a change in accounting principle. Previously, voluntary
changes in accounting principles were generally required to be recognized by way of a cumulative effect adjustment within net income during the period of the change. SFAS No. 154 requires retrospective application to prior periods
financial statements of changes in accounting principles, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS No. 154 is effective for accounting changes made in fiscal years
beginning after December 15, 2005; however, the statement does not change the transition provisions of any existing accounting pronouncements. We adopted the pronouncement effective January 1, 2006. There was no material effect on our
financial position, results of operations or cash flows as a result of this adoption.

In June 2006, the FASB ratified the
EITF Issue No. 06-3, How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (EITF 06-3). EITF No. 06-3 requires an entity to disclose transactional tax
amounts assess by government authorities that are considered significant. EITF No. 06-3 is effective for interim and annual reporting periods beginning after December 15, 2006. We have determined that the adoption of this pronouncement will have no
material impact to our consolidated financial position, results of operations, or cash flows.

In June, 2006, the FASB
issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109 (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an
enterprises financial statements in accordance with SFAS No. 109. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken
in a tax return. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 will apply to fiscal years beginning after December 15, 2006, with
earlier adoption permitted. We will adopt FIN 48 effective January 1, 2007. As prescribed in the interpretation, the cumulative effect of applying the provisions of FIN No. 48 should be reflected as an adjustment to the opening balance of
Stockholders' Equity. We do not believe the adoption of this pronouncement will have any material effects on our consolidated financial position, results of operations, or cash flows.



F-24



---

INPHONIC, INC. & SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(in thousands,
except per share and share amounts)



In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements
(SFAS No. 157). SFAS 157 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 emphasizes that fair value
is a market-based measurement, not an entity-specific measurement, and states that a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. SFAS 157 will become
effective for our fiscal year beginning January 1, 2008. We do not believe the adoption of this pronouncement will have any material effects on our consolidated financial position, results of operations, or cash flows.

In February 2007, the Financial Accounting Standards Board issued SFAS 159, The Fair Value Option for Financial Assets and Financial
Liabilitiesincluding an amendment of FASB Statement No. 115( SFAS No. 159),which allows measurement at fair value of eligible financialassets and liabilities that are not otherwise measured at fair value.
If the fair value option for an eligible item is elected, unrealized gains and losses for that itemwill be reported in current earnings at each subsequent reporting date. SFAS 159 also establishes presentation and disclosure requirements
designed to drawcomparison between the different measurement attributes the company elects for similar types of assets and liabilities. SFAS No. 159 is effective for fiscal yearsbeginning after November 15, 2007. Early adoption is
permitted. We do not believe the adoption of this pronouncement will have any material effects on our consolidated financial position, results of operations, or cash flows.



|(3) | Business Acquisitions
|--- | ---------------------



| | (a) | Acquisition of A1 Wireless
| | --- | --------------------------

On January 4, 2005, we acquired certain assets and assumed certain obligations of A1 Wireless, Inc. in a transaction accounted for using the purchase method of accounting in accordance with SFAS No. 141, Business
Combinations (SFAS No. 141). A1 Wireless activated and sold wireless services and devices to consumers through their own branded websites, branded partner websites, that it created and managed, and through sophisticated online
search advertising campaigns. This acquisition enhanced our existing distribution channels in the WAS business unit. The results of A1 Wireless operations were included in our financial statements beginning January 1, 2005, and are
reported in the WAS business unit.

Purchase consideration consisted of cash and shares of common stock for an aggregate
purchase price of $24,582, including acquisition costs of $2,148 and contingent consideration of $5,173. At the closing, we paid approximately $10,700 in cash, which was held by an escrow agent as of December 31, 2004 and issued 160,226 shares
of common stock with a fair value of $3,736. The contingent consideration included cash of $4,000 and 76,300 shares of our common stock with a fair value of $1,173.



| | (b) | Acquisition of VMC Satellite, Inc.
| | --- | ----------------------------------

On April 26, 2005, we completed the acquisition of certain assets and liabilities of VMC Satellite, Inc., (VMC) in a transaction accounted for using the purchase method of accounting in accordance with SFAS No. 141.
VMC is a marketer of digital broadcast satellite services. This acquisition has enabled us to expand our service offerings, creating additional revenue opportunities from consumers that visit its portfolio of websites and marketing partners each
month. The results of VMCs operations were included in our financial statements beginning April 26, 2005, and are reported in the WAS business unit.



F-25



---

INPHONIC, INC. & SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(in thousands,
except per share and share amounts)



The aggregate consideration for the net assets acquired was approximately $10,979
which consisted of $4,679 in cash paid and includes acquisition costs of approximately $725 and shares of our common stock, with a fair value of $6,300, issuable in two tranches. The first tranche of stock consideration was distributed in July and
September 2005 and included a total of 257,215 shares of our common stock with a fair value of approximately $3,300. Pursuant to the asset purchase agreement, as amended, the second tranche of stock consideration was to be distributed by us no later
than April 26, 2006, and required us to issue common stock or cash with a fair value of $3,000 on the distribution date. We recorded the second tranche of stock consideration in accrued liabilities as of December 31, 2005 and reclassified
the amount to additional paid in capital when the distribution was made in April 2006.

In addition, we agreed to pay up to
an aggregate of $5,050 in cash plus 334,288 shares of our common stock upon the acquired operations attaining certain EBITDA (earnings before interest, tax, depreciation and amortization) benchmarks between April 26, 2005 and April 30,
2007. For the year ended December 31, 2006, certain EBITDA benchmarks were met and $5,116 of cash (of which $1,120 was accrued as of December 31, 2006) and shares of common stock with a fair value of $1,967 were issued as a result of VMC
attaining certain EBITDA targets. This contingent consideration increased the carrying value of goodwill by $7,083. The goodwill recorded in connection with the transaction is deductible for tax purposes.



|(4) | Discontinued Operations
|--- | -----------------------

On
December 31, 2005, we completed the sale of substantially all of the operating assets of our Liberty Wireless business for approximately $2,318 including consideration payable in cash of up to $1,491 and notes receivable of approximately $755,
net of $35 discount. Of the consideration payable at closing in cash, approximately $784 was received in January 2006 and $707 was offset against service liabilities assumed by the buyer in the transaction. We recorded a net gain on the sale of
$1,355. In connection with this gain recognition on the sale, we considered the guidance of SAB Topic 5:E, Accounting for a Divesture Of A Subsidiary or Other Business Operation.

Under the terms of the notes receivable, we received proceeds due in installments through 2006. Although the notes do not bear interest,
we have recorded the notes at a discount and accreted interest income over their outstanding terms. Between January 1, 2006 and December 31, 2006, we received scheduled principal repayments of $1,111 on the notes receivable, and have
offset certain payables in amounts of $130 regarding collection of the notes receivable. As of December, 31, 2006, $250 of receivables have not yet been collected. However, we believe these amounts are fully collectible.

Summary operating results for the discontinued operating segment were as follows:



|                                           |  |                                 |        |      |   |        |      |  |   |      |  
|------------------------------------------ |  | ------------------------------- | ------ | ---- | - | ------ | ---- |  | - | ---- | -
|                                           |  | For the Year Ended December 31, |       
|                                           |  | 2004                            |        | 2005 |   |        | 2006 | 
|Revenue                                    |  | $                               | 49,332 |      | $ | 23,221 |      |  | $ |     |  
|Costs and expenses                         |  |                                 | 44,986 |      |   | 23,650 |      |  |   | 193  |  
|                                           |  |                                 |        |      |   |        |      |  |   |      |  
|Income (loss) from discontinued operations |  | $                               | 4,346  |      | $ | (429   | )    |  | $ | (193 | )
|                                           |  |                                 |        |      |   |        |      |  |   |      |  



F-26



---

INPHONIC, INC. & SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(in thousands,
except per share and share amounts)



Balance sheet data included:



|                                       |  |                    |       |      |   |      
|-------------------------------------- |  | ------------------ | ----- | ---- | - | -----
|                                       |  | As of December 31,
|                                       |  | 2005               |       | 2006
|Accounts and notes receivable, net     |  | $                  | 1,848 |      | $ | 391  
|Other current assets                   |  |                    | 4     |      |   |     
|Other non-current assets               |  |                    | 578   |      |   |     
|                                       |  |                    |       |      |   |      
|Assets of discontinued operations      |  | $                  | 2,430 |      | $ | 391  
|                                       |  |                    |       |      |   |      
|Accounts payable                       |  | $                  | 931   |      | $ |     
|Other accrued expenses                 |  |                    | 2,199 |      |   | 1,103
|                                       |  |                    |       |      |   |      
|Liabilities of discontinued operations |  | $                  | 3,130 |      | $ | 1,103
|                                       |  |                    |       |      |   |      



|(5) | Long-lived Assets
|--- | -----------------

Property and Equipment

Property and equipment, stated net of accumulated depreciation and amortization, consisted of the following as of
December 31, 2005 and 2006:



|                                                     |  |      |        |   |      |   |         |  
|---------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------- | -
|                                                     |  | 2005 |        |   | 2006 |  
|Computer and equipment                               |  | $    | 7,117  |   |      | $ | 10,187  |  
|Software                                             |  |      | 5,117  |   |      |   | 6,367   |  
|Furniture and fixtures                               |  |      | 834    |   |      |   | 785     |  
|Leasehold improvements                               |  |      | 1,675  |   |      |   | 2,039   |  
|Other equipment                                      |  |      |       |   |      |   | 554     |  
|Capitalized leases                                   |  |      | 1,243  |   |      |   | 1,397   |  
|Less: Accumulated depreciation and amortization      |  |      | (9,504 | ) |      |   | (13,101 | )
|                                                     |  |      |        |   |      |   |         |  
|                                                     |  |      | 6,482  |   |      |   | 8,228   |  
|                                                     |  |      |        |   |      |   |         |  
|Website and internal software development costs      |  |      | 14,162 |   |      |   | 31,169  |  
|Less: Accumulated depreciation and amortization      |  |      | (8,523 | ) |      |   | (16,651 | )
|                                                     |  |      |        |   |      |   |         |  
|Website and internal software development costs, net |  |      | 5,639  |   |      |   | 14,518  |  
|                                                     |  |      |        |   |      |   |         |  
|Total property and equipment, net                    |  | $    | 12,121 |   |      | $ | 22,746  |  
|                                                     |  |      |        |   |      |   |         |  

Depreciation expense for the years ended December 31, 2004, 2005 and 2006 was
$5,373, $6,702 and $12,315, respectively. The cost of property and equipment under capital leases was $1,243 and $1,397 at December 31, 2005 and 2006, respectively. Accumulated depreciation for assets under capital leases was $278 and $751 at
December 31, 2005 and 2006, respectively.

Website and internal software development costs

We capitalized a total of approximately $253, $647 and $1,385 during 2004, 2005 and 2006, respectively, relating to the development of the
e-commerce platform. In addition, we capitalized costs incurred to develop certain internal use software of approximately $3,008, $6,729 and $15,622 in 2004, 2005 and 2006, respectively. We are amortizing the web development costs over a period of
18 months and internal use software costs over a period of 24 months. These costs are included in depreciation and amortization in the accompanying consolidated statements of operations. Amortization expense on



F-27



---

INPHONIC, INC. & SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(in thousands,
except per share and share amounts)



the e-commerce platform and other internal use software development costs was approximately $2,784, $3,749, and $8,127 during 2004, 2005 and 2006,
respectively.

Goodwill and intangible assets

Amortizable intangible assets were comprised of the following:



|                                    |  |                      |        |                         |   |                    |  |   |      
|----------------------------------- |  | -------------------- | ------ | ----------------------- | - | ------------------ |  | - | -----
|                                    |  | December 31, 2005   
|                                    |  | Gross CarryingAmount |        | AccumulatedAmortization |   | Net CarryingAmount
|Software and technology             |  | $                    | 1,123  |                         | $ | 1,045              |  | $ | 78   
|Customer contracts                  |  |                      | 885    |                         |   | 885                |  |   |     
|Affiliate and carrier relationships |  |                      | 3,960  |                         |   | 676                |  |   | 3,284
|Non-compete agreement (a)           |  |                      | 5,049  |                         |   | 1,431              |  |   | 3,618
|Other                               |  |                      | 1,935  |                         |   | 1,104              |  |   | 831  
|                                    |  |                      |        |                         |   |                    |  |   |      
|Total                               |  | $                    | 12,952 |                         | $ | 5,141              |  | $ | 7,811
|                                    |  |                      |        |                         |   |                    |  |   |      

| | 
| | 

| | (a) | On May 27, 2005, we completed the purchase of certain intangible assets of FONcentral.com, Inc. The aggregate consideration for the assets acquired was approximately $4,139
which consisted of $2,590 in cash, which included acquisition costs and accrued expenses of $151, plus 131,876 shares of common stock with a fair value equal to approximately $1,549.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                    |  |                      |        |                         |   |                    |  |   |      
|----------------------------------- |  | -------------------- | ------ | ----------------------- | - | ------------------ |  | - | -----
|                                    |  | December 31, 2006   
|                                    |  | Gross CarryingAmount |        | AccumulatedAmortization |   | Net CarryingAmount
|Software and technology             |  | $                    | 90     |                         | $ | 31                 |  | $ | 59   
|Affiliate and carrier relationships |  |                      | 3,960  |                         |   | 1,496              |  |   | 2,464
|Non-compete agreement               |  |                      | 5,049  |                         |   | 3,788              |  |   | 1,261
|Supplier relationships              |  |                      | 3,730  |                         |   | 628                |  |   | 3,102
|Other                               |  |                      | 2,128  |                         |   | 2,032              |  |   | 96   
|                                    |  |                      |        |                         |   |                    |  |   |      
|Total                               |  | $                    | 14,957 |                         | $ | 7,975              |  | $ | 6,982
|                                    |  |                      |        |                         |   |                    |  |   |      

Aggregate amortization expense for intangible assets subject to amortization was
approximately $3,138 in 2005 and $4,752 in 2006. Estimated amortization expense based on current intangible balances is $2,301, $1,303, $1,303, $465, and $373 for the years ended December 31, 2007, 2008, 2009, 2010 and 2011, respectively.

The carrying value of intangible assets with indefinite lives was $4,840 and $1,110 for December 31, 2005 and 2006,
respectively. Intangible assets with indefinite lives consisted of trade names. For the year ended December 31, 2005, we originally determined that a supplier relationship valued at $3,730 had an indefinite life as of the acquisition date.
During 2006, we determined that as of the acquisition date, the supplier relationship had a useful life of ten years in accordance with SFAS No. 142. During the fourth quarter of 2006, we recognized $255 of amortization expense for the period from
April 26, 2005 to December 31, 2005. We do not believe the impact of this adjustment in 2006 to be material to fiscal year 2006 or 2005 as a result of this change.



F-28



---

INPHONIC, INC. & SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(in thousands,
except per share and share amounts)



The following table reflects the changes to goodwill for the years ended
December 31, 2005 and 2006:



|                                                  |  |             |        |                     |   |      |       |  |   |        |  
|------------------------------------------------- |  | ----------- | ------ | ------------------- | - | ---- | ----- |  | - | ------ | -
|                                                  |  | WAS Segment |        | DataServicesSegment |   |      | Total | 
|Balance as of January 1, 2005                     |  | $           | 9,258  |                     | $ | 221  |       |  | $ | 9,479  |  
|Goodwill arising from the A1 Wireless acquisition |  |             | 17,988 |                     |   |     |       |  |   | 17,988 |  
|Goodwill arising from the VMC acquisition         |  |             | 3,894  |                     |   |     |       |  |   | 3,894  |  
|Sale of Data Services software assets             |  |             |       |                     |   | (221 | )     |  |   | (221   | )
|                                                  |  |             |        |                     |   |      |       |  |   |        |  
|Balance as of December 31, 2005                   |  |             | 31,140 |                     |   |     |       |  |   | 31,140 |  
|Goodwill arising from the VMC acquisition         |  |             | 7,083  |                     |   |     |       |  |   | 7,083  |  
|                                                  |  |             |        |                     |   |      |       |  |   |        |  
|Balance as of December 31, 2006                   |  | $           | 38,223 |                     | $ |     |       |  | $ | 38,223 |  
|                                                  |  |             |        |                     |   |      |       |  |   |        |  



|(6) | Debt
|--- | ----

Debt consisted of the
following:



|                                    |  |              |        |   |      |   |         |  
|----------------------------------- |  | ------------ | ------ | - | ---- | - | ------- | -
|                                    |  | December 31, |       
|                                    |  | 2005         |        |   | 2006 |  
|Borrowings under credit facility    |  | $            | 15,000 |   |      | $ |        |  
|Borrowings under term loan          |  |              |       |   |      |   | 75,000  |  
|Capital leases                      |  |              | 851    |   |      |   | 574     |  
|                                    |  |              |        |   |      |   |         |  
|                                    |  |              | 15,851 |   |      |   | 75,574  |  
|Less discount from warrant issuance |  |              |       |   |      |   | (11,447 | )
|Less current maturities             |  |              | (377   | ) |      |   | (301    | )
|                                    |  |              |        |   |      |   |         |  
|Long-term debt                      |  | $            | 15,474 |   |      | $ | 63,826  |  
|                                    |  |              |        |   |      |   |         |  



| | (a) | $100 million term loan
| | --- | ----------------------

On
November 7, 2006, we executed a $100,000 aggregate principal amount senior secured term loan with Goldman Sachs Credit Partners, L.P., Citicorp North America, Inc. and AP Inphonic Holdings Inc. bearing a fixed rate of interest of nine percent
per annum and secured by substantially all our assets. As of November 7, 2006, the Goldman Sachs Group, Inc., an affiliate of Goldman Sachs Credit Partners, L.P., beneficially-owned approximately 15.5% of our common stock. This term loan matures in
November 2011. Beginning in November 2009, we have the ability to repay principal on the loan without penalty and conversely, the lenders have the right to call the remaining outstanding principal of the debt without penalty. As additional
consideration, we also granted the lenders warrants to purchase 1,250,000 shares of our common stock at an exercise price of $0.01 per share. We received proceeds of $75,000 aggregate principal amount of the term loan proceeds on November 7,
2006, and have the option to draw-down the remaining amount at a later date. Proceeds from the term loan will be used to repay all indebtedness under the existing credit facility, fund share repurchases of our common stock, and for general corporate
and working capital needs. In conjunction with the loan transaction above, we terminated our credit facility with Comerica Bank and used proceeds from the term loan to repay the outstanding principal obligation of $19,924 plus accrued interest. For
the period November 7, 2006 to December 31, 2006, we accrued $994 of interest on the term loan, which was included as accrued expenses and other current liabilities on the accompanying balance sheet at December 31, 2006.



F-29



---

INPHONIC, INC. & SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(in thousands,
except per share and share amounts)



Under the terms of the term loan, we are required to maintain certain minimum levels
of EBITDA on a quarterly basis beginning December 31, 2006, maintain a minimum $25,000 cash balance at a certain financial institution beginning July 31, 2007, maintain a maximum level of capitalized expenditures and maintain certain other
financial and non-financial covenants, including our delivery of our audited financial statements with the opinion of our independent registered public accounting firm within 90 days of our year-end in accordance with the financial statement
delivery requirements under the term loan agreement. On May 1, 2007, we amended the term loan agreement to extend the draw date for an additional $25 million of borrowings to July 31, 2007. Additionally, we received an extension of time to satisfy
the delivery requirements of our annual 2006 and first quarter 2007 financial statements and related certificates under the term loan agreement to May 31, 2007 and June 15, 2007, respectively. We were in compliance with the covenants under the
term loan agreement.

The warrants to purchase 1,250,000 shares of common stock at $0.01 per share were valued at $13,715
using a Black-Scholes model. Assumptions used in the model included a five year term based on the contractual life, 72% volatility and a risk free rate of 4.6%. We estimated the fair value of our long-term fixed rate term loan using a discounted
cash flow analysis based on a current borrowing rate of companies with a similar debt rating. We assumed a life of the debt equal to the earliest period in which we can repay or refinance the debt. The estimated fair value of the term loan with a
fixed interest rate at 9.00% was $72,400. In accordance with APB No. 14, Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants,we allocated the $75,000 proceeds to the term loan and detachable warrants based on
the relative fair value of each on a standalone basis. As such, $63,055 and $11,945 of the $75,000 proceeds were allocated to the term loan and the detachable warrants, respectively. The amount of proceeds allocated to the fair value of the
detachable warrants has resulted in a discount of $11,945 on the term loan as of November 7, 2006. For the year ended December 31, 2006, $498 of this discount has been amortized using the effective interest method and reflected in interest
expense. As of December 31, 2006, the remaining unamortized discount on the debt was $11,447.

As a result of the
completion of the financing transaction, we incurred $1,368 of financing costs. For the period of November 7, 2006 to December 31, 2006, we have amortized $76 of these costs, which was reflected as interest expense. As of December 31,
2006, $495 and $797 of these costs are deferred and included in deferred costs and other current assets and deposits and other assets, respectively, on the accompanying balance sheet. Additionally, we are required to pay a $75 management fee on an
annual basis. This fee is amortized over the annual period and included in interest expense on the accompanying consolidated statements of operations.



| | (b) | $25 million Credit Facility
| | --- | ---------------------------

As of December 31, 2005, we maintained a revolving operating line of credit with Comerica Bank, (Comerica), which allowed for aggregate borrowing of up to $25,000 subject to certain limits based on accounts receivable and
inventory levels and secured by substantially all our assets. At December 31, 2005, we had $15,000 outstanding the revolving line of credit and we had an additional $1,700 of availability under the line of credit based on the limits described
above. Borrowings outstanding under the revolving line of credit accrued interest at the banks LIBOR rate plus a margin of 2%. Interest payments were made on the last business day of each month. We were assessed a line of credit commitment fee
quarterly by Comerica, based on the availability under the line of credit. We paid commitment fees of $25 during 2005. The revolving line of credit was repaid on November 7, 2006. At that time, the agreement with Comerica was
terminated.



F-30



---

INPHONIC, INC. & SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(in thousands,
except per share and share amounts)



| | (c) | Standby Letters of Credit
| | --- | -------------------------

At December 31, 2005 and 2006, we had approximately $400 and $38, respectively, of standby letters of credit in connection with vendor obligations.



| | (c) | Capital Leases
| | --- | --------------

In 2004,
2005 and 2006, we entered into capital leases for the purchase of $635, $595 and $152 of leased computer equipment, respectively. Capital lease obligations totaled $851 as of December 31, 2005 and $574 as of December 31, 2006.



| | (d) | Maturities of Long-Term Debt
| | --- | ----------------------------

The aggregate maturities of long-term debt which included amounts outstanding under the term loan and capital lease obligations, at December 31, 2006, approximate the following: $301 in 2007; $216 in 2008; $75,031 in 2009 and $25 in
2010. Under the term loan agreement, we may repay or the lender may require the repayment of the debt on the third anniversary of the agreement. For the purpose of this presentation, we have included the contractual obligation due on the third
anniversary. If not prepaid, the debt matures in November 2011.



|(7) | Capital Stock
|--- | -------------

As of
December 31, 2006, we had 200,000,000 and 10,000,000 authorized shares of common and preferred stock, respectively. At December 31, 2005 and 2006, there were 35,232,869 and 37,138,480 shares of common stock issued and outstanding,
respectively. There were no shares of preferred stock outstanding as of December 31, 2005 and 2006.

During the
year ended December 31, 2006, we issued 712,453 shares of our common stock related to contingent consideration related to business acquisitions in prior years as described in Notes 3 and 5; repurchased 350,261 shares under a stock repurchase
program; issued 998,389 and 539,564 shares in connection with stock option exercises and lapses of restrictions on common stock, respectively; and 33,597 shares were issued in exercise of warrants and other events.

During the year ended December 31, 2005, we issued 625,617 shares of our common stock related to business and intangible asset
acquisitions during 2005 as described in Notes 3 and 5; repurchased 1,081,487 shares under a stock repurchase program; issued 2,450,495 and 75,226 shares in connection with stock option exercises and lapses of restrictions on common stock,
respectively; and 910,418 shares were issued in exercise of warrants and other events.

On November 19, 2004, we
issued 6,500,000 additional shares of our common stock in an initial public offering, at a price of $19.00 per share for proceeds of $110,838 net of issuance costs of $4,017. In connection with this offering, we also issued 13,619,536 shares of
common stock in exchange for all outstanding preferred stock.



| | (a) | Preferred Stock
| | --- | ---------------

In November
2004, upon the closing of the initial public offering, all issued and outstanding shares of our redeemable convertible preferred stock were automatically converted into approximately 13.6 million shares of common stock. Each share of Series A
and B preferred stock outstanding was converted into common stock at an exchange ratio of 0.83 shares of common stock for 1 share of preferred stock. Each share of Series C, D, and D-1 preferred stock outstanding was converted into



F-31



---

INPHONIC, INC. & SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(in thousands,
except per share and share amounts)



common stock at an exchange ratio of 0.42 shares of common stock for 1 share of preferred stock. All other shares of preferred stock outstanding were
converted into common stock at an exchange ratio of 0.33 shares of common stock for 1 share of preferred stock, as follows:



|                                                  |  |                            
|------------------------------------------------- |  | ---------------------------
|                                                  |  | Shares ofcommonstock issued
|Series A                                          |  | 557,320                    
|Series B                                          |  | 1,902,239                  
|Series C                                          |  | 2,808,696                  
|Series D and D-1                                  |  | 4,412,779                  
|Series D-2                                        |  | 138,892                    
|Series D-3                                        |  | 264,261                    
|Series D-4                                        |  |                           
|Series D-5                                        |  | 224,132                    
|Series E                                          |  | 3,311,217                  
|                                                  |  |                            
|Shares of common stock issued for preferred stock |  | 13,619,536                 
|                                                  |  |                            



| | (b) | Common Stock
| | --- | ------------

Holders of
shares of common stock are entitled to one vote per common share held on all matters voted on by the stockholders. Dividends may be declared and paid on common stock shares at the discretion of our board of directors and are subject to any
preferential dividend rights of any outstanding preferred stockholders. No dividends on shares of common stock have been declared or paid through December 31, 2006.



| | (c) | Repurchase of Common Stock
| | --- | --------------------------

In 2005 and 2006, our board had authorized us to repurchase shares of our common stock. For the period August 17, 2005 to December 31, 2005, we repurchased 1,018,487 shares of our common stock at an average price of $12.10 per
share for approximately $13,088. In 2006, through August 6, 2006, we purchased an additional 62,761 shares of common stock at an average price of $8.01 per share for approximately $502.

On November 3, 2006, our board of directors authorized the repurchase of up to an additional $30,000 of our common stock through
November 2007. The shares may be repurchased from time to time at prevailing market prices. The timing and amount of any shares repurchased will be based on market conditions and other factors. Repurchases may also occur under a Rule 10b5-1 plan,
which permit shares to be repurchased when we may otherwise be precluded from doing so by laws prohibiting insider trading or by self imposed trading black out periods. There is no guarantee as to the exact number of shares that will be repurchased
under the stock repurchase program, and we may discontinue purchases at any time. We intend to fund the share repurchases with cash on hand, proceeds from the term loan and cash generated from future operations. Between November 3, 2006 and
December 31, 2006, we repurchased 287,500 shares of common stock at an average price of $11.25 per share for approximately $3,236.



| | (d) | Stock-Based Benefit Plans
| | --- | -------------------------

1999 Stock
Incentive Plan

Our 1999 Stock Incentive Plan (the 1999 Plan), which was adopted by the board of directors
in December 1999, provided for grants of stock-based awards from time to time to our employees,



F-32



---

INPHONIC, INC. & SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(in thousands,
except per share and share amounts)



officers, directors and consultants at exercise prices determined by the board of directors. Options granted under the 1999 Plan generally vest over a
four-year period and expire ten years from the grant date. As of November 19, 2004, no additional options were available for grant under the 1999 Plan due to the adoption of the 2004 Equity Incentive Plan (the 2004 Plan).

2004 Equity Incentive Plan

The 2004 Plan, which was adopted by the board of directors and approved by the stockholders in September 2004, allows for grants of stock-based awards from time to time to our employees, officers, directors and
consultants at exercise prices determined by the board of directors. Options to purchase a total of 3,000,000 shares of common stock were originally authorized for issuance under the 2004 Plan, which number was increased by up to an additional
3,987,853 as of December 31, 2006 from the following sources: (1) shares subject to options or other awards outstanding under the 1999 Plan as of the date of its termination which expire or otherwise terminate for any reason, without
having been exercised or settled in full and (2) shares acquired under the 1999 Plan forfeited to us on or after the date of its termination.

For incentive stock options, the exercise price must be at least equal to fair market value at the date of grant. For nonqualified stock options, the option may be granted with an exercise price less than fair market
value. Options granted under the 2004 Plan generally vest over a period to be determined by the administrator and expire ten years from the grant date. As of December 31, 2006, 434,272 options were available for future grant under the 2004
Plan.

During 2004, 2005 and 2006, we granted to non-employees options to purchase 86,600, 18,000 and 51,000, respectively,
shares or our common stock, pursuant to the Plans. The estimated fair value of the options was determined using the Black-Scholes Model (see note 2(n)). The 51,000 options issued in 2006 only had a contractually stated life of 5 months. We recorded
compensation expense relating to the options of approximately $1,232, $243 and $229, respectively, for the years ended December 31, 2004, 2005 and 2006.

The following table summarizes the activity for stock options granted to employees and non-employees for the year ended December 31,
2006. The intrinsic value of options exercised for the years ended December 31, 2005 and 2006 was $24,462 and $4,156, respectively.



|                                 |  |                  |   |  |                               |       |                  |   |                                        |  |                          |  |   |       
|-------------------------------- |  | ---------------- | - |  | ----------------------------- | ----- | ---------------- | - | -------------------------------------- |  | ------------------------ |  | - | ------
|                                 |  | Number ofoptions |   |  | Weightedaverageexercise price |       | Range ofexercise |   | Weightedaveragecontractualterm (years) |  | Aggregateintrinsic value
|Balance January 1, 2006          |  | 5,115,969        |   |  |                               | 9.47  |                  | $ | 0.60  25.36                           |  |                          |  |   |       
|Granted                          |  | 1,063,200        |   |  |                               | 7.36  |                  |   | 6.46  11.76                           |  |                          |  |   |       
|Exercised                        |  | (998,389         | ) |  |                               | 5.74  |                  |   | 0.60  10.07                           |  |                          |  |   |       
|Forfeited                        |  | (1,137,677       | ) |  |                               | 12.44 |                  |   | 1.80  25.36                           |  |                          |  |   |       
|                                 |  |                  |   |  |                               |       |                  |   |                                        |  |                          |  |   |       
|Balance December 31, 2006        |  | 4,043,103        |   |  | $                             | 9.01  |                  | $ | 0.60 25.36                            |  | 7.67                     |  | $ | 14,673
|                                 |  |                  |   |  |                               |       |                  |   |                                        |  |                          |  |   |       
|Ending vested & expected to vest |  | 3,830,535        |   |  | $                             | 8.97  |                  |   |                                        |  | 7.62                     |  | $ | 14,021
|                                 |  |                  |   |  |                               |       |                  |   |                                        |  |                          |  |   |       
|Exercisable at December 31, 2006 |  | 2,164,739        |   |  | $                             | 8.63  |                  |   |                                        |  | 6.95                     |  | $ | 8,405 
|                                 |  |                  |   |  |                               |       |                  |   |                                        |  |                          |  |   |       



F-33



---

INPHONIC, INC. & SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(in thousands,
except per share and share amounts)



Weighted average grant date fair value per share was $12.36, $10.26 and $4.65 as of
December 31, 2004, 2005 and 2006, respectively.

Information regarding options outstanding at December 31, 2006
was as follows:



|                        |  |                     |  |                                                   |  |                  |  |                              |      
|----------------------- |  | ------------------- |  | ------------------------------------------------- |  | ---------------- |  | ---------------------------- | -----
|                        |  | Options Outstanding |  | Options Exercisable                              
|Range of exercise price |  | Number ofoptions    |  | Weight averageremainingcontractual life(in years) |  | Number ofoptions |  | Weightedaverageexerciseprice
|$   0.60  $3.90        |  | 289,290             |  | 6.0                                               |  | 209,751          |  | $                            | 2.26 
|$   5.88  $ 5.88       |  | 1,459,157           |  | 7.3                                               |  | 1,005,660        |  |                              | 5.88 
|$   6.46  $ 6.46       |  | 504,200             |  | 9.2                                               |  | 3,000            |  |                              | 6.46 
|$   6.51  $ 7.80       |  | 545,688             |  | 6.6                                               |  | 377,188          |  |                              | 7.80 
|$ 10.00  $ 14.04       |  | 463,938             |  | 8.5                                               |  | 197,678          |  |                              | 12.13
|$ 15.25  $ 15.28       |  | 303,410             |  | 8.5                                               |  | 122,139          |  |                              | 15.26
|$ 15.60  $ 15.60       |  | 19,168              |  | 5.7                                               |  | 19,168           |  |                              | 15.60
|$ 16.00  $ 16.00       |  | 98,512              |  | 7.8                                               |  | 55,467           |  |                              | 16.00
|$ 16.49  $ 16.49       |  | 128,500             |  | 8.6                                               |  | 62,250           |  |                              | 16.49
|$ 25.36  $ 25.36       |  | 231,200             |  | 8.1                                               |  | 112,438          |  |                              | 25.36
|                        |  |                     |  |                                                   |  |                  |  |                              |      
|                        |  | 4,043,103           |  | 7.7                                               |  | 2,164,739        |  | $                            | 8.63 
|                        |  |                     |  |                                                   |  |                  |  |                              |      

As of December 31, 2005 and 2006, the weighted average remaining contractual
life of the options outstanding was approximately 8.2, and 7.7 years, respectively. Options to purchase 2,146,924 and 2,164,739 shares of common stock with a weighted average exercise price of $7.74 and $8.63 were exercisable at December 31,
2005 and 2006, respectively.

Restricted Common Stock

During the twelve months ended December 31, 2006, we granted 2,643,048 shares of restricted common stock to certain of our key
employees. The restrictions on this common stock lapse and the stock vests over periods ranging up to 4 years from the grant date. The weighted average grant date fair value for such awards was $15.70 and $9.16 for 2005 and 2006, respectively. The
following table summarizes the activity for restricted stock awards granted in 2006:



|                                |  |                                  |   |  |                                       |      
|------------------------------- |  | -------------------------------- | - |  | ------------------------------------- | -----
|                                |  | Number of RestrictedStock Awards |   |  | Weighted-averagegrant date fair value
|Non-vested at January 1, 2006   |  | 1,137,878                        |   |  | $                                     | 15.58
|Granted                         |  | 2,643,048                        |   |  |                                       | 9.16 
|Vested                          |  | (539,564                         | ) |  |                                       | 14.38
|Surrendered for taxes           |  | (51,221                          | ) |  |                                       | 15.19
|Forfeited                       |  | (225,492                         | ) |  |                                       | 14.02
|                                |  |                                  |   |  |                                       |      
|Non-vested at December 31, 2006 |  | 2,964,649                        |   |  | $                                     | 10.20
|                                |  |                                  |   |  |                                       |      

At December 31, 2005 and 2006 shares that have vested were included as
outstanding shares in the calculations of basic and diluted weighted average shares.



F-34



---

INPHONIC, INC. & SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(in thousands,
except per share and share amounts)



Stock Purchase Warrants

Warrants to purchase shares of common stock were granted with exercise prices ranging between $0.01 and $15.60, and terms ranging between
5 and 9 years. The estimated fair value of the warrants granted was determined using the Black-Scholes Model. Weighted average grant date fair value per share of warrants granted in 2004 and 2006 were $11.44 and $8.36, respectively. There were no
warrants granted in 2005.

The following table summarizes the activity for warrants to purchase common stock, including
warrants granted in connection with long-term debt (see Note 6) in 2006:



|                                  |  |                   |   |  |                              |       |                  |   |              
|--------------------------------- |  | ----------------- | - |  | ---------------------------- | ----- | ---------------- | - | -------------
|                                  |  | Number ofwarrants |   |  | Weightedaverageexerciseprice |       | Range ofexercise
|Balance January 1, 2006           |  | 787,863           |   |  |                              | 8.44  |                  | $ | 0.03 - 24.00 
|Granted                           |  | 1,816,324         |   |  |                              | 2.30  |                  |   | 0.01 -   7.35
|Exercised                         |  | (33,597           | ) |  |                              | 0.29  |                  |   | 0.03 -   2.49
|Surrendered for cashless exercise |  | (1,291            | ) |  |                              | 2.30  |                  |   | 0.03 -   2.49
|Forfeited                         |  | (3,334            | ) |  |                              | 24.00 |                  |   | 24.00        
|                                  |  |                   |   |  |                              |       |                  |   |              
|Balance December 31, 2006         |  | 2,565,965         |   |  | $                            | 4.48  |                  | $ | 0.01 - 15.60 
|                                  |  |                   |   |  |                              |       |                  |   |              

In April 2006, we issued an additional warrant to purchase 188,775 shares of our
common stock to a vendor that is exercisable upon certain minimum performance conditions. The exercise price of the warrant will be based on the trading price of our common stock at the time the performance conditions are met by the vendor. Once it
is probable that the vendor will achieve the performance conditions set forth under the terms of the warrant, the fair value of the warrant will be amortized to sales and marketing expense over the remaining contractual term of the vendor
commitment. This warrant is excluded from the table above.

Pursuant to SFAS No. 128, warrants to purchase 1,250,000
shares of our common stock at $0.01 issued in connection with our term loan in November 2006 were included in the calculation of our basic weighted average shares outstanding for the purposes of calculating earnings per share as these warrants were
exercisable for little cash consideration.



F-35



---

INPHONIC, INC. & SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(in thousands,
except per share and share amounts)



(8) Income Taxes

SFAS No. 109 establishes financial accounting and reporting standards for the effects of income taxes. During the years ended
December 31, 2004, 2005 and 2006, we did not have any income tax expense or benefit because a full valuation allowance was provided against our net deferred tax assets. As of December 31, 2005 and 2006, the components of the net deferred
tax asset were as follows:



|                                 |  |      |         |   |      |   |         |  
|-------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                 |  | 2005 |         |   | 2006 |  
|Deferred tax assets:             |  |      |         |   |      |   |         |  
|Accrued compensation             |  | $    | 2,482   |   |      | $ | 7,953   |  
|Capitalized costs & other items  |  |      | 2,931   |   |      |   | 2,666   |  
|Net operating loss carryforwards |  |      | 50,353  |   |      |   | 75,019  |  
|                                 |  |      |         |   |      |   |         |  
|Total deferred tax assets        |  |      | 55,766  |   |      |   | 85,638  |  
|Deferred tax liabilities:        |  |      |         |   |      |   |         |  
|Depreciation                     |  |      | (2,003  | ) |      |   | (5,379  | )
|Acquired intangibles             |  |      | (340    | ) |      |   | (631    | )
|Other                            |  |      | (1,916  | ) |      |   | (645    | )
|                                 |  |      |         |   |      |   |         |  
|Total deferred tax liabilities   |  |      | (4,259  | ) |      |   | (6,655  | )
|                                 |  |      |         |   |      |   |         |  
|Net deferred tax assets          |  |      | 51,507  |   |      |   | 78,982  |  
|Less: Valuation allowance        |  |      | (51,507 | ) |      |   | (78,982 | )
|                                 |  |      |         |   |      |   |         |  
|                                 |  | $    |        |   |      | $ |        |  
|                                 |  |      |         |   |      |   |         |  

SFAS No. 109 requires us to evaluate the recoverability of our deferred tax
assets on an ongoing basis. The assessment is required to consider all available positive and negative evidence to determine whether, based on such evidence, it is more likely than not that some portion or all of our net deferred assets will be
realized in future periods. The ultimate recoverability of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon such factors as the lack of a significant history of material profits, possible increases in expense levels to
support growth, the fact that the market in which we compete is intensely competitive and characterized by rapidly changing technology, the lack of carryback capacity to realize the deferred tax assets, and the uncertainty regarding the market
acceptance of new product offerings, management does not at this time believe it is more likely than not that we will realize the benefits of these net deferred tax assets. Therefore, a full valuation allowance against the net deferred tax assets
has been provided as of December 31, 2005 and 2006.

The net changes in the total valuation allowance, for the years
ended December 31, 2005 and 2006 were an increase of $12,962 and $27,475, respectively. Approximately $5,465 of the valuation allowance relates to acquired deferred tax assets, and pursuant to the requirements of FAS 109 any subsequent
recognition of these deferred tax assets will be applied to reduce goodwill and other intangibles.

As of December 31,
2006, we had approximately $196,128 of available net operating loss (NOL) carryforwards. Due to ownership changes, certain of these NOL carryforwards are subject to limitations under Section 382 of the Internal Revenue Code. Generally, these
limitations restrict the availability of NOL carryforwards on an annual basis. The net operating loss carryforwards will begin to expire in 2019.



F-36



---

INPHONIC, INC. & SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(in thousands,
except per share and share amounts)



We did not have any income tax expense or benefit nor make any cash payments for
income taxes for the years ended December 31, 2004, 2005 and 2006. The difference between the expected income tax benefit for the years ended December 31, 2004, 2005 and 2006, computed by applying the U.S. federal income tax rate of 35%,
and actual income tax benefit, was as follows:



|                                           |  |      |        |   |      |   |         |      |  |   |         |  
|------------------------------------------ |  | ---- | ------ | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                           |  | 2004 |        |   | 2005 |   |         | 2006 | 
|Expected Federal income tax benefit        |  | $    | (3,584 | ) |      | $ | (13,368 | )    |  | $ | (22,305 | )
|Permanent differences                      |  |      | 45     |   |      |   | 76      |      |  |   | (25     | )
|State income taxes, net of Federal benefit |  |      | (505   | ) |      |   | (1,234  | )    |  |   | (2,073  | )
|Change in valuation allowance              |  |      | 4,044  |   |      |   | 12,962  |      |  |   | 27,475  |  
|Change in provisional rate/other           |  |      |       |   |      |   | 1,564   |      |  |   | (3,072  | )
|                                           |  |      |        |   |      |   |         |      |  |   |         |  
|Income tax expense                         |  | $    |       |   |      | $ |        |      |  | $ |        |  
|                                           |  |      |        |   |      |   |         |      |  |   |         |  

(9) Segment Information

As a result of the sale of our MVNO operations on December 31, 2005, we believe we no longer have reportable segments as MVNE and
Data Service Segments are immaterial to the consolidated entity.

(10) Commitments and Contingencies



| | Operating | Leases
| | --------- | ------

We lease office and
warehouse space under various operating leases through 2009. Rent expense was approximately $1,088, $1,760, and $1,923 for the years ended December 31, 2004, 2005 and 2006, respectively. Minimum future lease payments under these operating
leases as of December 31, 2006 approximate the following: $1,806 for 2007; $1,272 for 2008; and $1,001 for 2009.



| | Legal | Matters
| | ----- | -------

On May 7 and 18,
2007, two putative federal securities law class actions were filed in the United States District Court for the District of Columbia on behalf of persons who purchased our common stock between August 2, 2006, and May 3, 2007. These substantially
similar lawsuits assert claims pursuant to Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, against us, our chief executive officer and our chief financial officer. These claims are related to
our April 3, 2007, and May 4, 2007 announcements concerning our restatement of certain previously issued financial statements. Potential plaintiffs have until July 6, 2007, to move the court for appointment as lead plaintiff. We have not yet
responded to the complaints. We are unable to estimate the amount of any potential claim arising from these matters at this time. We believe that the allegations contained within these class action lawsuits are without merit and intend to vigorously
defend the litigation.

On August 5, 2004, Avesair, Inc., one of the companies the assets of which we acquired, filed
suit against us demanding, among other matters, that we issue to Avesair shares of our common stock valued at approximately $4.0 million as of June 30, 2004. The stock demanded by Avesair represents the maximum value of shares that they could
have earned for achieving certain performance-based targets under the asset purchase agreement. We believe the performance-based targets were not achieved and intend to vigorously contest this matter. However, any adverse resolution of this matter
could have a material adverse impact on our financial results if we are required to issue additional shares and would result in dilution to our stockholders.



F-37



---

INPHONIC, INC. & SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(in thousands,
except per share and share amounts)



On May 3, 2007, the Federal Communications Commission (FCC) issued an Order of
Forfeiture and Further Notice of Apparent Liability in which it imposed a forfeiture of $819,905 against us for being late in complying with certain regulatory obligations that arose in 2004 and 2005 from a business that we sold in December 2005.
Those obligations included: registering with the FCC, filing certain reports, and paying certain Universal Service Fund fees. The FCCs order also proposed imposing an additional fine of $100,000 for not having maintained in 2006 and 2007 a
license necessary to conduct the business that was discontinued by us in 2005. As we did not operate the business in 2006 and 2007 we will request that the proposed fine be dismissed. With regard to the forfeiture itself, we are evaluating our legal
options, which include appealing the ruling in federal court and/or negotiating a different and possibly lesser forfeiture. This forfeiture issue was initially raised by the FCC in July 2005. We advised the FCC then, and believe now, that no fine is
appropriate under the circumstances.

Fifteen related putative federal court class actions have been filed against us
arising out of InPhonic-sponsored rebate offers for online purchases of wireless telephones. Several of these lawsuits also name either our current or former third-party rebate processor as a defendant. On October 25, 2006 we received a
decision by the Judicial Panel on Multidistrict Litigation (JPML) granting our motion to consolidate the federal court actions in the United States District Court for the District of Columbia before the Honorable Ellen Segal Huvelle. The
consolidated amended class action complaint alleges, among other things, that we and our current or former third-party rebate processor (depending on the particular claim) violated the consumer protection laws of various States, various D.C. state
laws and the federal RICO (anti-racketeering) statute in connection with our disclosure and implementation of the terms and conditions of rebate offers. The class action plaintiffs seek compensatory damages and/or restitution, statutory penalties
and treble damages under D.C. consumer protection laws and RICO, attorneys fees and punitive damages, as well as injunctions concerning the content of our websites. The federal lawsuit is in an early stage. We intend to vigorously defend that
action but cannot predict its outcome.

On April 27, 2007 we and the Federal Trade Commission (FTC) announced that we had
entered into a consent agreement with the FTC in which InPhonic agreed to clearly and prominently disclose certain information regarding its rebate offers, such as when consumers can expect to receive their rebates, any time period that consumers
must wait before submitting a rebate request, and certain information that would disqualify a consumer from receiving a rebate. We also agreed to provide rebates within time frames and under terms and conditions reasonably specified by us in our
communications with our customers. We also agreed to provide rebates to certain customers whom had previously been denied them. As required by its rules, the FTC has requested comment on the consent agreement and we expect that it will become
effective shortly. We have accrued an estimate of our liability associated with this consent agreement in the accompanying financial statements.

On February 15, 2007, we reached a final settlement with the District of Columbia Attorney General's Office concerning our use of mail-in rebates. We have accrued for the settlement and estimated costs of
compliance in the accompanying financial statements at December 31, 2006.

From time to time we are party to other
disputes or legal proceedings. We do not believe that any of the pending proceedings are likely to have a material adverse effect on our business.

(11)
Related-Party Transactions

Goldman Sachs Credit Partners, L.P., Citicorp North America Inc. and AP InPhonic Holdings,
LLC hold shares of our common stock and are the lending agents with regards to our term loan. See Note 6.



F-38



---

INPHONIC, INC. & SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(in thousands,
except per share and share amounts)



Mr. Laurence E. Harris, a member of our board of directors since March 2006, is
of counsel in the law firm of Patton Boggs LLP (Patton Boggs). The total cost of various legal services provided to us by Patton Boggs in 2006 was approximately $2,219. Mr. Harris does not share in any profits of
Patton Boggs or any of the fees paid by us to Patton Boggs.

(12) InPhonic, Inc., 401(k) Plan

Our 401(k) Plan provides retirement and incidental benefits for its employees. As allowed under Section 401(k) of the Internal
Revenue Code, the 401(k) plan provides tax-deferred salary deductions of up to 15% of compensation for eligible employees. Employees are eligible to participate beginning the first day of the quarter subsequent to their start of employment. We may
make discretionary matching contributions to the 401(k) plan. We did not make any discretionary matching contributions during 2004, 2005 and 2006.

(13)
Quarterly Results (unaudited)

The following sets forth unaudited selected financial data on a quarterly basis for the
years ended December 31, 2005 and 2006.



|                                             |  |                     |            |   |         |   |            |              |  |   |             |   |  |   |            |  
|-------------------------------------------- |  | ------------------- | ---------- | - | ------- | - | ---------- | ------------ |  | - | ----------- | - |  | - | ---------- | -
|                                             |  | Quarters Ended 2005 |           
|                                             |  | March 31            |            |   | June 30 |   |            | September 30 |  |   | December 31 |  
|Revenue                                      |  | $                   | 68,151     |   |         | $ | 75,226     |              |  | $ | 91,960      |   |  | $ | 85,202     |  
|Cost of revenue                              |  |                     | 40,123     |   |         |   | 42,004     |              |  |   | 53,753      |   |  |   | 55,850     |  
|Loss from continuing operations              |  |                     | (7,418     | ) |         |   | (1,162     | )            |  |   | (4,366      | ) |  |   | (24,820    | )
|Income (loss) from discontinued operations   |  |                     | 424        |   |         |   | (490       | )            |  |   | (587        | ) |  |   | (1,131     | )
|Net loss                                     |  |                     | (6,994     | ) |         |   | (1,652     | )            |  |   | (4,953      | ) |  |   | (24,596    | )
|Basic and diluted loss per share:            |  |                     |            |   |         |   |            |              |  |   |             |   |  |   |            |  
|Net loss from continuing operations          |  | $                   | (0.22      | ) |         | $ | (0.04      | )            |  | $ | (0.12       | ) |  | $ | (0.70      | )
|Net gain (loss) from discontinued operations |  |                     | 0.01       |   |         |   | (0.01      | )            |  |   | (0.02       | ) |  |   | 0.01       |  
|                                             |  |                     |            |   |         |   |            |              |  |   |             |   |  |   |            |  
|Basic and diluted net loss per share         |  | $                   | (0.21      | ) |         | $ | (0.05      | )            |  | $ | (0.14       | ) |  | $ | (0.69      | )
|                                             |  |                     |            |   |         |   |            |              |  |   |             |   |  |   |            |  
|Basic and diluted weighted average shares    |  |                     | 32,901,398 |   |         |   | 33,847,007 |              |  |   | 35,515,210  |   |  |   | 35,463,559 |  



F-39



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INPHONIC, INC. & SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(in thousands,
except per share and share amounts)





|                                             |  |                     |            |   |         |   |            |              |  |   |             |   |  |   |            |  
|-------------------------------------------- |  | ------------------- | ---------- | - | ------- | - | ---------- | ------------ |  | - | ----------- | - |  | - | ---------- | -
|                                             |  | Quarters Ended 2006 |           
|                                             |  | March 31            |            |   | June 30 |   |            | September 30 |  |   | December 31 |  
|Revenue                                      |  | $                   | 86,978     |   |         | $ | 92,128     |              |  | $ | 95,103      |   |  | $ | 95,365     |  
|Cost of revenue                              |  |                     | 48,181     |   |         |   | 51,575     |              |  |   | 53,521      |   |  |   | 64,577     |  
|Loss from continuing operations              |  |                     | (4,348     | ) |         |   | (9,370     | )            |  |   | (15,591     | ) |  |   | (34,225    | )
|Income (loss) from discontinued operations   |  |                     | 35         |   |         |   | (206       | )            |  |   | 72          |   |  |   | (94        | )
|Net loss                                     |  |                     | (4,313     | ) |         |   | (9,576     | )            |  |   | (15,519     | ) |  |   | (34,319    | )
|Basic and diluted loss per share:            |  |                     |            |   |         |   |            |              |  |   |             |   |  |   |            |  
|Net loss from continuing operations          |  | $                   | (0.12      | ) |         | $ | (0.26      | )            |  | $ | (0.43       | ) |  | $ | (0.91      | )
|Net gain (loss) from discontinued operations |  |                     | 0.00       |   |         |   | (0.01      | )            |  |   | 0.00        |   |  |   | 0.00       |  
|                                             |  |                     |            |   |         |   |            |              |  |   |             |   |  |   |            |  
|Basic and diluted net loss per share         |  | $                   | (0.12      | ) |         | $ | (0.27      | )            |  | $ | (0.43       | ) |  | $ | (0.91      | )
|                                             |  |                     |            |   |         |   |            |              |  |   |             |   |  |   |            |  
|Basic and diluted weighted average shares    |  |                     | 35,348,335 |   |         |   | 35,856,253 |              |  |   | 36,304,160  |   |  |   | 37,688,951 |  

Restatement

The unaudited selected financial data for the quarters ended March 31, June 30, and September 30, 2006 have been
adjusted to reflect corrections of accounting errors that occurred in the respective periods from amounts originally reported in our Forms 10-Q for those periods as filed with the SEC. The following provides a summary of the corrections within
each quarterly reporting period. We have amended our quarterly reports on Forms 10-Q for these periods to reflect these corrections:

Quarter ended March 31, 2006  During the three months ended March 31, 2006, we had recorded revenue for certain of our features activations and services commissions in which it was
subsequently determined that collectibility was not reasonably assured pursuant to SAB 104. As a result we reduced our revenue and accounts receivable by approximately $393 for this adjustment. The impact on the unaudited selected financial data for
the quarter ended March 31, 2006 was as follows:



|                                                                |  |                              |        |   |            |   |       |          |  |   |        |  
|--------------------------------------------------------------- |  | ---------------------------- | ------ | - | ---------- | - | ----- | -------- |  | - | ------ | -
|                                                                |  | Quarter Ended March 31, 2006 |       
|                                                                |  | Reported                     |        |   | Adjustment |   |       | Restated | 
|Revenue                                                         |  | $                            | 87,371 |   |            | $ | (393  | )        |  | $ | 86,978 |  
|Loss from continued operations                                  |  |                              | (3,955 | ) |            |   | (393  | )        |  |   | (4,348 | )
|Net loss                                                        |  |                              | (3,920 | ) |            |   | (393  | )        |  |   | (4,313 | )
|Net loss from continuing operations per basic and diluted share |  |                              | (0.11  | ) |            |   | (0.01 | )        |  |   | (0.12  | )
|Net loss per basic and diluted share                            |  |                              | (0.11  | ) |            |   | (0.01 | )        |  |   | (0.12  | )

Quarter ended June 30, 2006  During the three months
ended June 30, 2006, we had recorded activations and services revenue net of related reserves as a change in estimate of certain carrier commissions in dispute which we had previously deemed as collectible. Upon further evaluation, we believe
that it was inappropriate to have recorded revenue associated with this matter until such commissions are collected from the carrier. In addition, we identified other errors related to the recording of activations and services revenue of
approximately $923 as it was subsequently determined



F-40



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INPHONIC, INC. & SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(in thousands,
except per share and share amounts)



that collectibility of these amounts was not reasonably assured based on our collection experience. Accordingly, we reduced our revenue and accounts
receivable by approximately $3,674 for this matter.

In addition, we identified errors that occurred in the recordation of
cost of revenue and accounts receivable in the amount of $627 that have been corrected in the accompanying financial statements. The impact on the unaudited selected financial data for the quarter ended June 30, 2006 was as follows:



|                                                                |  |                             |        |   |            |   |        |          |  |   |        |  
|--------------------------------------------------------------- |  | --------------------------- | ------ | - | ---------- | - | ------ | -------- |  | - | ------ | -
|                                                                |  | Quarter Ended June 30, 2006 |       
|                                                                |  | Reported                    |        |   | Adjustment |   |        | Restated | 
|Revenue                                                         |  | $                           | 95,802 |   |            | $ | (3,674 | )        |  | $ | 92,128 |  
|Loss from continued operations                                  |  |                             | (5,069 | ) |            |   | (4,301 | )        |  |   | (9,370 | )
|Net loss                                                        |  |                             | (5,275 | ) |            |   | (4,301 | )        |  |   | (9,576 | )
|Net loss from continuing operations per basic and diluted share |  |                             | (0.14  | ) |            |   | (0.12  | )        |  |   | (0.26  | )
|Net loss per basic and diluted share                            |  |                             | (0.15  | ) |            |   | (0.12  | )        |  |   | (0.27  | )

Quarter ended September 30, 2006  During the three
months ended September 30, 2006, we identified errors in accounting for our activations and services revenue, equipment revenue and rebates and amounts paid to consumers as customer accommodation credits prior to our settlement with
the Attorney General of the District of Columbia.

Activations and services revenue  We had recorded
revenue for certain types of residual and churn bonuses due from wireless carriers for activations which occurred during the quarter. Upon further evaluation, we subsequently determined revenue recognition was in error as collectibility of such
amounts was not reasonably assured pursuant to SAB 104 based on the nature of the amounts due and our lack of collection experience of similar items. Accordingly, we reduced revenue and accounts receivable by $2,916 and will not record revenue on
such amounts until collections are received.

In addition, upon further evaluation of carrier commission receivable
balances, we identified several receivable balances that the respective carriers were disputing. Based on correspondence and other information received from the carrier during the three months ended September 30, 2006, although we may continue
our collection pursuits, we now believe that based on the nature of the carrier response we should have written off these balances during our third quarter. Accordingly we have reduced activation and services revenue and accounts receivable by
$1,551 and will not record revenue on such items until collections are received.

Equipment
revenue  We identified a deficiency in our process for recording certain fees due from consumers when they cancel their wireless service contract within specified time periods or the wireless device is not returned to us as is
required under the contract with the customer. Specifically, in the third quarter we accrued revenue using estimated collection rates which were higher than our prior historical experience, in part because we were implementing new collection
processes. As a result of this deficiency we reduced equipment revenue and accounts receivable $1,961 during the quarter.

Consumer product rebates and rebates paid to consumers as customer accommodation credits  We identified an error in accounting for accrued expenses and reserves for consumer product rebates (accrued
consumer liabilities) totaling $3,950 for the quarter. Of this amount, we determined that our reserve for such liabilities was understated $3,297 from payments made to consumers during the three month period which were outside our customary
rebate validation process (customer accommodation credits) which erroneously reduced accrued consumer liabilities when



F-41



---

INPHONIC, INC. & SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(in thousands,
except per share and share amounts)



paid rather than expensing such amounts. Accordingly, we increased general and administrative expenses and accrued consumer liabilities by $3,297 as of
September 30, 2006. In addition, we identified that we underestimated our accrued consumer liability reserve requirements $653 as a result of misestimating the number of periods that continued to be subject to consumer rebate eligibility.
Accordingly, we decreased equipment revenue and increased our reserve for accrued consumer liabilities for this amount.

Other  We identified of errors that occurred in the recordation of selling and marketing and general and administrative expenses cost of revenue and accounts receivable in the amount of $325 that also have been
corrected in the accompanying financial statements. The impact on the unaudited selected financial data for the quarter ended September 30, 2006 was as follows:



|                                                                |  |                                  |         |   |            |   |         |          |  |   |         |  
|--------------------------------------------------------------- |  | -------------------------------- | ------- | - | ---------- | - | ------- | -------- |  | - | ------- | -
|                                                                |  | Quarter Ended September 30, 2006 |        
|                                                                |  | Reported                         |         |   | Adjustment |   |         | Restated | 
|Revenue                                                         |  | $                                | 102,184 |   |            | $ | (7,081  | )        |  | $ | 95,103  |  
|Loss from continued operations                                  |  |                                  | (4,888  | ) |            |   | (10,703 | )        |  |   | (15,591 | )
|Net loss                                                        |  |                                  | (4,816  | ) |            |   | (10,703 | )        |  |   | (15,519 | )
|Net loss from continuing operations per basic and diluted share |  |                                  | (0.13   | ) |            |   | (0.29   | )        |  |   | (0.43   | )
|Net loss per basic and diluted share                            |  |                                  | (0.13   | ) |            |   | (0.29   | )        |  |   | (0.43   | )



F-42



---

See report of Grant Thornton LLP, Independent Registered Public Accounting Firm on page F-2.



S-1



---

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

InPhonic, Inc. and subsidiaries:

Under date of March 8, 2005, except
as to note 1(c) and note 4, which are as of March 16, 2006, we reported on the consolidated statements of operations, stockholders equity (deficit), and cash flows for the year ended December 31, 2004, as contained in the
2006 annual report on Form 10-K. In connection with our audit of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule. This financial statement schedule is the
responsibility of the Companys management. Our responsibility is to express an opinion on this financial statement schedule based on our audit.

In
our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

/s/ KPMG LLP

McLean, Virginia

March 8, 2005, except

as to note 1(c) and note 4,

which are as of March 16, 2006



S-2



---

INPHONIC, INC. & SUBSIDIARIES

SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS



|                                       |  |                              |        |                             |   |                         |  |   |            |      |                        |   |   |  |   |       
|-------------------------------------- |  | ---------------------------- | ------ | --------------------------- | - | ----------------------- |  | - | ---------- | ---- | ---------------------- | - | - |  | - | ------
|                                       |  |                              |        | Additions                   |   |                         |  |   |           
|Description                            |  | Balance atbeginningof period |        | Charged tocosts andexpenses |   | Chargedto otheraccounts |  |   | Deductions |      | Balance atend ofperiod
|                                       |  |                              |        | (in thousands)              |   |                        
|Year ended December 31, 2004           |  |                              |        |                             |   |                         |  |   |            |      |                        |   |   |  |   |       
|Deferred tax asset valuation allowance |  | $                            | 33,626 |                             | $ | 4,919                   |  | $ |           |      |                        | $ |  |  | $ | 38,545
|Reserve for doubtful accounts          |  |                              | 246    |                             |   | 706                     |  |   |           |      |                        |   |  |  |   | 952   
|                                       |  |                              |        |                             |  
|Year ended December 31, 2005           |  |                              |        |                             |   |                         |  |   |            |      |                        |   |   |  |   |       
|Deferred tax asset valuation allowance |  |                              | 38,545 |                             |   | 12,962                  |  |   |           |      |                        |   |  |  |   | 51,507
|Reserve for doubtful accounts          |  |                              | 952    |                             |   | 1,702                   |  |   | (612       | )(a) |                        |   |  |  |   | 2,042 
|                                       |  |                              |        |                             |  
|Year ended December 31, 2006           |  |                              |        |                             |   |                         |  |   |            |      |                        |   |   |  |   |       
|Deferred tax asset valuation allowance |  |                              | 51,507 |                             |   | 27,475                  |  |   |           |      |                        |   |  |  |   | 78,982
|Reserve for doubtful accounts          |  |                              | 2,042  |                             |   | 7,707                   |  |   |           |      |                        |   |  |  |   | 9,749 

---

|(a) | Represents amount included in discontinued operations due to the sale of Liberty Wireless in December 2005.
|--- | -----------------------------------------------------------------------------------------------------------



S-3