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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-KSB/A

Amendment No. 2



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ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15 (d)

OF

THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2005

Commission file number 000-50299



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CATCHER HOLDINGS, INC.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Delaware                                                       |  | 62-1751433                             
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification Number)
|                                                              

39526 Charlestown Pike

Hamilton, Virginia 20158

(540) 882-3087



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

None

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

Common Stock, par value $0.001
per share



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

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

Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2).    Yes ̈No  x

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

Registrant had revenues for its most recent fiscal year of $0.

Indicate the number of shares outstanding of each issuers classes of Common Stock, as of the latest practicable date. At March 17, 2006, 17,139,726 shares of Common Stock, $.001 par value, were outstanding.

The aggregate market value of the voting and non-voting common equity held by non-affiliates of Registrant on March 17, 2006, was
$40,407,843.



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EXPLANATORY NOTE

Catcher Holdings, Inc. is filing this Amendment No. 2 to its Form 10-KSB for the year ended December 31, 2005, to reflect the restatement of its previously issued financial statements and other information
to correct an error in the application of accounting principles with respect to the accounting for acquired research and development.

The
information contained in this Amendment, including the financial statements and the notes hereto, amends only Items 6, 7 and 8A of the Companys originally filed Annual Report on Form 10-KSB for the year ended December 31, 2005 and no
other items in its originally filed Form 10-KSB are amended hereby. In accordance with Rule 12b-15 of the Securities and Exchange Act of 1934, the complete text of those items in which amended language appears is set forth herein, including those
portions of the text that have not been amended from that set forth in the original Form 10-KSB. Except for the restatement, this Form 10-KSB/A does not materially modify or update other disclosures in the original Form 10-KSB, including the nature
and character of such disclosure to reflect events occurring after March 29, 2006, the filing date of the original Form 10-KSB. Accordingly this Form 10-KSB/A should be read in conjunction with the Companys other filings made with the
Securities and Exchange Commission. Currently dated certifications from its Chief Executive Officer and Chief Financial Officer have been included as exhibits to this amendment.



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PART II

ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS AND PLAN OF OPERATION

The following
discussion and analysis of our financial condition and plan of operation contain forward-looking information that involve risks and uncertainties. Our actual results could differ materially from those anticipated by the forward-looking information.
Factors that may cause such differences include, but are not limited to, availability and cost of financial resources, product demand, market acceptance and other factors discussed in this prospectus under the heading Risk Factors. This
discussion and analysis of our financial condition and plan of operation should be read in conjunction with our financial statements and the related notes included elsewhere in this prospectus.

The accompanying managements discussion and analysis of financial condition and results of operations and plan of operation gives effect to the
restatement of our consolidated financial statements for the year ended December 31, 2005. See Note 1B to our condensed consolidated financial statements.

OVERVIEW

Our Acquisition of Catcher, Inc.

We were incorporated under the laws of the state of Delaware on August 25, 1998. On May 20, 1999, we merged with Woodland Communications Group,
Inc. On June 3, 1999, Woodland Communications Group, Inc. changed its name to U.S. Telesis Holdings, Inc. (UST). On May 4, 2005, we acquired all of the outstanding capital stock of Catcher, Inc. (Catcher) and
Catcher became our wholly-owned subsidiary. On June 23, 2005, we changed our name to Catcher Holdings, Inc. Our principal business became the ownership of Catcher, which acts as our operating subsidiary.

Catcher was originally formed during April 2005, principally to operate the business of developing, manufacturing and distributing the CATCHER device, a portable, ruggedized, wireless handheld
computing and communications device. Pursuant to an asset purchase agreement between Catcher and LCM Technologies, Inc. (LCM), Catcher purchased certain assets and assumed certain liabilities of LCM and its founder, Ira Tabankin,
relating to the CATCHER device and the business
of LCM (the Acquisition). For financial reporting purposes, the Acquisition was treated as a reverse merger.

Organizational History of UST

UST was originally organized to provide diverse telecommunications products and services to the small and medium business community in
the southeastern United States and to develop a niche market strategy of reselling long distance services to the electrical cooperative community. As a result of the dramatic decline in the telecommunications industry, UST abandoned its business
objective to provide such telecommunications products and services.

On March 1, 2001, the State of Delaware revoked USTs
charter for failure to file its annual report with the State of Delaware for the years 1999 and 2000 and to pay its franchise tax for those years. On May 29, 2003, UST filed a Form 10SB with the SEC to become a reporting company under the
Securities Exchange Act of 1934 (the Exchange Act). UST amended the Form 10-SB in July, 2003. USTs charter in the State of Delaware was revived on March 31, 2005 and franchise taxes due were paid with penalties and interest in
an amount equal to $592.40.

USTs plan was to identify and complete a merger or acquisition primarily in consideration of the
issuance of shares of its capital stock with a private entity whose business presented an opportunity for USTs stockholders. Consistent with that plan, UST acquired Catcher on May 4, 2005, as described above.



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Since the Acquisition of Catcher Inc., we have accomplished the following:



| |  |  | Named our independent Directors and established compensation, audit, and nominating and corporate governance committees;
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | Completed the prototype development of the CATCHER device;
| | - |  | -----------------------------------------------------------



| |  |  | Obtained the necessary FCC equipment certification to permit sale within the United States;
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | Obtained certification to post the CE mark required of all electrical and mechanically operated equipment of non-European Community origin to be legally operated and
sold within the European Union;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Entered into an outsourcing contract manufacturing agreement with KeyTronic Corporation for production of the device and commenced efforts required to begin initial low rate
production;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Engaged the market by entering into Value Added Reseller (VAR) and manufacturing services representative agreements, and have been named as a certified supplier to
Unisys Corporation, and;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Received initial low volume purchase orders from sources including Unisys Corp., EPS Corp., CGI Communications Services, Inc., and Battelle Memorial Institute on behalf of an agency
of the US government. The purchasers intend to use the units for testing, evaluation and demonstration purposes.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Plan of Operation

From inception to date, Catcher has been primarily involved in organizational activity, negotiating vendor contracts, making
arrangements for the commercial use and deployment of the CATCHER technology, engaging and developing its initial customer base, and recruiting and managing staff.

Catcher
intends to negotiate agreements with VARs, distributors, integrators and OEMs. Catchers VARs, distributors and OEMs will purchase or license the CATCHER devices directly from Catcher, and then in return sell devices to end-users. We have developed standard VAR agreements
(one agreement for U.S. government sales and the other agreement for private sector and governmental sales other than U.S. government sales) for use in the ordinary course of our business. These standard VAR agreements provide that (i) the
VARs appointment and the related licenses are non-exclusive; (ii) we are free to accept or reject orders placed by the VAR, and acceptances must be in writing; (iii) the pricing and payment terms will be as set forth in our price
list, which we may change unilaterally within 30 days notice; (iv) the initial term is for two years, and the agreement will not continue unless the parties affirmatively agree to renew the agreement; and (v) we may terminate the
agreement immediately in several situations, including an uncured material breach by the VAR. To date, we have entered into standard VAR agreements with Engineering and Professional Services, Inc. (EPS) and CGI Communications, Inc.
Additionally the Company has received initial purchase orders for testing and evaluation units from these VARs.

We are in the early
stage of transitioning from development stage into an operational stage. Accordingly, at the current stage of our operations, we do not believe that period to period comparisons of our results of operations are meaningful and have elected not to
provide a description of the comparisons between our financial position at December 31, 2005 and December 31, 2004 and for the periods then ended. The relationships between revenue, cost of revenue and operating expenses reflected in the
financial information included herein do not represent future expected financial results as evidenced in the table below.

Our costs
associated with production of units of the CATCHER device will be variable based on the units that we decide to have manufactured. Management currently does not anticipate that Catcher will operate its own production facilities, and instead will outsource production to
a third party manufacturer.

On November 22, 2005, we entered into a manufacturing agreement with KeyTronic pursuant to which
KeyTronic will manufacture the CATCHER device for
us, at unit prices depending on monthly purchase



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volumes. Prices are subject to change if parts and material costs change or process or test procedures change. The initial term of the agreement expires on
December 31, 2009 and the agreement may be renewed for additional two-year terms upon the mutual written agreement of the parties. Either party may terminate the agreement immediately upon written notice if the other party fails to comply with
any material term or condition of the agreement, becomes insolvent or has a bankruptcy petition filed by or against it and such petition is not dismissed within 60 days of the filing date. Neither party may terminate the agreement during the initial
term or any renewal term other than for cause. We are not obligated under the agreement to purchase any particular number of units from KeyTronic. However, if our average monthly purchases fall below 2,000 units at any time during the initial term
of the agreement, then we must immediately pay to KeyTronic $58,000 to reimburse KeyTronic for non-recurring engineering costs.

On
October 25, 2005 we paid $289,450 to KeyTronic in order for KeyTronic to set up an initial production line for the CATCHER device. The $289,450 payment consisted of $204,950 for KeyTronic to purchase equipment on Catchers behalf to set up the production line and
$84,500 charge for engineering services to be performed by KeyTronic in connection with setting up the production line.

We expect our
operating expenses will increase as we increase our transaction volumes, research and development activities, and sales and marketing activities. We anticipate developing new product versions with improved functionality or additional features which
will require retesting and recertification, although no specific schedule exists or has been presently committed to for future development versions. However, we anticipate over the next 12 months that our operating expenses will increase at a slower
rate than the rate of increase in our revenues.

In addition to costs associated with production of units of the CATCHER device which, as noted above, will vary based on the
number of units that we decide to have manufactured, we anticipate that our most significant costs during the next 12 months will include the following items:



| |  |  | Research and development expenses, including salaries and associated employee benefits and travel, engineering and design services, and testing and certification for FCC Type and
Military Standard 810F, which are currently anticipated to total approximately $5.2 million;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Sales and marketing expenses, which consist primarily of salaries, associated employee benefits, travel expenses of sales and marketing personnel, promotional expenses and the costs
of programs aimed at increasing revenue such as advertising, trade shows, public relations and other market development programs, which are currently anticipated to total approximately $2.3 million; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | General and administrative expenses, which consist of salaries of our management, finance and administrative staff, and associated employee benefits and travel; facilities costs;
information systems costs; legal, accounting and other professional fees; and other corporate costs, which are currently anticipated to total approximately $3.3 million.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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RESULTS OF OPERATIONS

The following condensed financial information includes Catcher Holdings, Inc. plus the results of operations of all companies acquired from their respective dates of acquisition.



|                                                |  |                                         |            |   |                                                                       |   |          |  
|----------------------------------------------- |  | --------------------------------------- | ---------- | - | --------------------------------------------------------------------- | - | -------- | -
|                                                |  | Year ended December 31,2005 As
Restated |            |   | For the period frominception (March 31,2004 throughDecember 31,) 2004 |  
|Net Revenue                                     |  | $                                       |           |   |                                                                       | $ |         |  
|                                                |  |                                        
|Operating expenses:                             |  |                                         |            |   |                                                                       |   |          |  
|Research and development expenses               |  |                                         | 2,211,133  |   |                                                                       |   | 647,472  |  
|Selling, general and administrative expenses    |  |                                         | 2,282,263  |   |                                                                       |   | 100,894  |  
|Stock-based compensation and consulting expense |  |                                         | 3,639,494  |   |                                                                       |   |         |  
|                                                |  |                                         |            |   |                                                                       |   |          |  
|Operating loss                                  |  |                                         | (8,132,890 | ) |                                                                       |   | (748,366 | )
|Financing costs                                 |  |                                         |           |   |                                                                       |   |         |  
|                                                |  |                                        
|Interest income (expense)                       |  |                                         | (16,697    | ) |                                                                       |   |         |  
|                                                |  |                                         |            |   |                                                                       |   |          |  
|                                                |  |                                        
|Loss from operations and net loss               |  | $                                       | (8,149,587 | ) |                                                                       | $ | (748,366 | )
|                                                |  |                                         |            |   |                                                                       |   |          |  

Revenue

We have not generated any revenue since inception. We completed the initial prototype of the CATCHER device during August 2005,
completed development and began production on evaluation units in the first quarter of 2006, received a declaration of conformity from the FCC during July 2006, and expect to begin initial production during the second half of 2006 versus the second
quarter of 2006 as previously reported due to additional development and testing requirements. We have received orders for the first production units which will be used for evaluation by our customers. We delivered our first shipments of a portion
of these orders during the second quarter of 2006 and will recognize revenue when the evaluation and testing has been substantially completed. We believe the units will have a suggested base retail unit list price of at least $7,000. The unit price
charged to VARs will depend on volume commitments. At volume production levels, we expect the gross margin, at volume production levels, to be approximately 40%. We also expect to begin shipping units and recognize revenue from these sales
during the second half of 2006.

Cost of Sales

Cost of sales will consist primarily of direct costs of the manufactured units, wages of operational employees and cost of training. Many factors are anticipated to affect our gross margin including, but not limited to, market conditions,
competition, production order volumes and supplier pricing. Our management currently does not anticipate that we will operate our own production facilities, but instead will outsource production to a third party contract manufacturer. We have not
sold any products through December 31, 2005. We expect to incur cost of sales as we begin to sell units during 2006.

Research and Development

Research and development expenses incurred in the design, development and testing of our product include compensation and benefits for
management and staff, engineering and consulting services, electronic parts, testing, and other miscellaneous expenses.

Research and
development expense includes $45,000 of purchased software. We have expensed this item, but we expect that costs of this nature will be capitalized on an on-going basis once the product reaches technological feasibility.



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Research and development expense represented 27.1% of total expenditures in 2005. In the future, the
rate of research and development spending related to the CATCHER device is likely to increase as we begin development of product accessories, add headcount for research programs, translate the product interface for use in other countries and begin development on the next version of
the product.

Selling, General and Administrative

Selling, general and administrative expenses include all corporate and administrative functions that serve to support Catchers current and future operations and provide an infrastructure to support future
growth. Major items in this category include compensation and benefits for management and staff, travel related expenses and professional services. Approximately $186,000 of the $2,282,263 expense was for sales and marketing. In the future, the rate
of spending on selling and marketing is expected to increase significantly as we add headcount for sales and marketing management, as we expand our marketing campaign for the CATCHER device and participate in industry and trade shows.

General and administrative expense was
approximately $2,096,000 or 25.7% of total expenditures for the year ended December 31, 2005. We expect that total spending on general and administrative expenses will increase in the future due to increased headcount, expansion of corporate
facilities and related equipment offset by reduced spending on professional services. However, we expect that the spending for general and administrative items as a percentage of total expenditures will decrease related to other operating activities
including sales and marketing and research and development.

Stock-Based Compensation and Consulting Expense

Approximately $3,523,000 compensation and consulting expense resulted from 3,987,398 shares of common stock that we issued to employees and consultants
for $0.001 per share. Since the shares were issued in consideration for employment agreements with members of management and to consultants for services rendered, the difference between the fair value of the shares of $0.89 and the price paid was
recognized as stock based compensation and consulting expense during the year ended December 31, 2005. In addition, we recorded approximately $116,000 in non-cash compensation expense related to the vested stock options issued to our Chief
Financial Officer in October 2005. The aggregate compensation expense to be recognized for unvested awards is approximately $380,000 which will be recognized over the next 4.5 years. These stock based compensation charges can fluctuate substantially
from period to period based on the fair value of our stock and the number of options granted during each period.

Interest Income (Expense)

Interest expense consisted of $41,345 related to shares issued to certain promissory note holders as consideration for the release of
all claims to certain intellectual property of LCM that collateralized certain defaulted loans to LCM. This amount was offset by $24,738 of interest income resulting from short term investment of the cash balances that we have remaining from the
private placement in May 2005 and the subsequent warrant exercise in October 2005.

Income Tax Expense

Since inception, we have incurred operating losses and accordingly have not recorded a provision for income taxes for any of the periods presented. As of
December 31, 2005, we had net operating loss carry forwards for federal and state income tax purposes of approximately $4.1 million. We also had federal and state research and development tax credits each of approximately $100,000. If not
utilized, the net operating losses and credits will expire in the years 2006 through 2025. Utilization of net operating losses and credits are subject to a substantial annual limitation due to ownership change limitations provided by the Internal
Revenue Code of 1986, as amended. The annual limitation could result in the expiration of our net operating losses and credit carryforwards before they can be used.



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LIQUIDITY AND CAPITAL RESOURCES

Since inception, cash used in operations primarily consists of the loss from operation offset by non-cash charges related to stock based compensation and
acquired research and development. As of March 17, 2006, we had a cash balance of approximately $6.6 million.

Since inception, we have
incurred approximately $322,000 in capital asset expenditures. Future requirements will include computers, office equipment, software and similar equipment. We do not anticipate significant capital expenditure spending in the future for capital
equipment or machinery.

Our primary source of liquidity has been proceeds generated from the private offering of shares of common stock
and warrants to acquire shares of common stock. The principal uses of cash have been for product development and general and administrative expenses. In May 2005, we received $4.5 million in proceeds from the sale of shares of our common stock and
Series A and Series B Warrants. In October 2005, $1.66 million in proceeds was generated when 22 of the May 2005 investors voluntarily exercised Series A Warrants resulting in the issuance of 1,108,027 shares of our common stock. In February 2006,
an additional $854,000 in proceeds was generated when 28 of the May 2005 investors exercised all remaining portions of their original Series A Warrants. As part of the February 2006 Series A Warrant exercise, we issued 1,677,285 new Series C
Warrants as an inducement to exercise the Series A Warrants. In March 2006, we completed a private placement whereby we sold 2,682,000 shares of our common stock (the Shares) and issued warrants to purchase another 1,341,000 shares of
our common stock (the Warrant Shares), resulting in net proceeds of approximately $6,111,000. In conjunction with the private placement, we issued a warrant to the placement agent to purchase 101,280 private placement units, with each
unit consisting of two shares of our common stock and one Series D warrant, at $5.00 per unit.

We currently have outstanding Series A,
Series B, Series C and Series D Warrants to purchase an aggregate of 5,841,386 shares of our common stock (the Warrants). There are 572,908 Series A Warrants outstanding. Each Series A Warrant entitles the holder to purchase one share of
our common stock at $1.50 per share (the Series A Exercise Price), exercisable for a period of five years. Once the resale of the common stock issuable upon exercise of the Series A Warrants is registered with the SEC, we may call the
Series A Warrants upon notice to the warrant holder from time to time at any time that the common stock closes at or above $2.50 per share for ten (10) consecutive trading days at an average volume of 40,000 shares per day during the ten-day
trading period, provided that, within twenty (20) business days after the date of such notice, the warrant holder will have the right to exercise, under the terms and conditions of the Series A Warrants, all or a part (but not less than 25%) of
the Series A Warrants held at the Series A Exercise Price. From and after the expiration of such twenty (20) business day notice, we may repurchase all Series A Warrants then held for a purchase price of $0.01 per Series A Warrant unless and to
the extent that the Series A Warrant holder first exercises the Series A Warrants at the Series A Exercise Price.

There are 2,250,193
Series B Warrants outstanding. Each Series B Warrant entitles the holder to purchase one share of common stock at $2.00 per share (the Series B Exercise Price), exercisable for a period of five years. Once the resale of the common stock
issuable upon exercise of the Series B Warrants is registered with the SEC, we may call the Series B Warrants upon notice to the warrant holder from time to time at any time that the common stock closes at or above $3.33 per share, for ten
(10) consecutive trading days at an average volume of 40,000 shares per day during the ten-day trading period; provided that, within twenty (20) business days after the date of such notice, the warrant holder will have the right to
exercise, under the terms and conditions of the Series B Warrants, all or a part (but not less than 25%) of the Series B Warrants held at the Series B Exercise Price. From and after the expiration of such twenty (20) business day notice, we may
repurchase all Series B Warrants then held for a purchase price of $0.01 per Series B Warrant unless and to the extent that the Series B Warrant holder first exercises the Series B Warrants at the Series B Exercise Price.

There are 1,677,285 Series C Warrants outstanding. Each Series C Warrant entitles the holder to purchase one share of common stock at $2.50 per share
(the Series C Exercise Price), exercisable for a period of five years. The Series C Warrants are non-callable.



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There are 1,341,000 Series D Warrants outstanding. Each Series D Warrant entitles the holder to
purchase one share of common stock at $3.50 per share (the Series D Exercise Price), exercisable for a period of five years. The Series D Warrants are non-callable.

We have issued outstanding warrants to purchase 101,280 units. Each warrant entitles the holder to purchase one unit at $5.00 per unit. The units are
identical to the units sold in the March 2006 private placement and consist of two shares of common stock and one Series D warrant. These warrants are non-callable.

We also have outstanding a warrant to purchase 65,000 shares of our common stock issued to Jeff Gilford, our Chief Financial Officer, for an exercise price of $3.74 per share and a warrant to purchase 20,000 shares of
our common stock issued to Stanley Blackburn, who is unaffiliated with us, for an exercise price of $3.74 per share, each of which was issued in connection with accounting and advisory services rendered by Blackford Partners.

The maximum potential amount of funds that we may receive from the exercise of all of the outstanding warrants is approximately $15.4 million, in
addition to the approximately $2.52 million already received upon partial exercise of the Series A Warrants.

Based on expectations under
our current operating plan, we anticipate that we will require, in addition to the $6.1 million raised in March 2006, a minimum of $10 million of additional capital during 2006. Should our actual results exceed these expectations, our capital
requirements could increase significantly. Our most significant anticipated costs during the next 12 months are described above under Plan of Operation. These factors create a substantial doubt about our ability to continue as a going
concern.

In light of the limited stockholders equity as well as our lack of operating history, there can be no assurance that we
will be able to obtain the necessary additional capital on a timely basis or on acceptable terms, if at all, to fund the capital that may be required for the development of our business. In any of such events, the growth of our business and
prospects would be materially and adversely affected. As a result of any such capital financing, if available, the holders of the common stock may experience substantial dilution.

Since inception, we have not generated revenue and there can be no assurance that we will generate revenue in the future. We have experienced losses
since inception and our cumulative loss as of December 31, 2005 was ($8,897,953). In addition, we have not generated cash from operations and our cumulative cash used in operations as of December 31, 2005 was ($4,676,313).

CONTRACTUAL OBLIGATIONS

Below is a table
setting forth contractual obligations (including interest payments as applicable) as of December 31, 2005:



|                  |  |                  |         |           |   |           |  |       |        |  |   |        
|----------------- |  | ---------------- | ------- | --------- | - | --------- |  | ----- | ------ |  | - | -------
|                  |  | Less than 1 year |         | 1-3 years |   | 4-5 years |  | Total
|Operating Leases  |  | $                | 93,590  |           | $ | 230,486   |  | $     | 11,358 |  | $ | 335,434
|Minimum Royalties |  |                  | 229,687 |           |   | 131,250   |  |       |       |  |   | 360,937
|                  |  |                  |         |           |   |           |  |       |        |  |   |        
|Total             |  | $                | 323,277 |           | $ | 361,736   |  | $     | 11,358 |  | $ | 696,371
|                  |  |                  |         |           |   |           |  |       |        |  |   |        

OFF BALANCE SHEET FINANCING ARRANGEMENTS

We do not have any off balance sheet financing arrangements.



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CRITICAL ACCOUNTING POLICIES AND MANAGEMENT JUDGMENT

Below is a brief description of key accounting principles which the Company has adopted in determining its recognition of revenues and expenses.

Revenue Recognition

The Company
intends to recognize revenue in accordance with the SEC Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements as updated by SEC Staff Accounting Bulletin No. 104, Revenue Recognition. Under
these guidelines, revenue is recognized when persuasive evidence of an arrangement exists, shipment has occurred or services rendered, the price is fixed or determinable and payment is reasonably assured. Under these requirements, when the terms of
sale include customer acceptance provisions, and compliance with those provisions have not been previously demonstrated, revenues are recognized upon acceptance. The Company is in its development phase and has no existing customers or revenue.

Stock Based Compensation

Awards
under our stock option plans are accounted for in accordance with Statement of Financial Accounting Standards (SFAS) No. 123R (SFAS 123R) Share Based Payment, and SAB No. 107. The Company adopted SFAS 123R under the modified prospective
method. In accordance with the modified prospective transition method, the Companys Consolidated Financial Statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS 123(R). Prior to the adoption of
SFAS 123(R), there were no awards outstanding being accounted for under APB No. 25, therefore, the future impact of adopting 123(R) is limited to the fair value of future grants. Compensation is measured on the grant date of an award and recognized
over the service period for which the award was granted, generally the vesting period. For awards with graded vesting, compensation is recorded using the straight line method over the vesting period, but in no event shall total compensation
recognized under the awards be less than the aggregate fair value of shares vested under such awards. Compensation is equal to the fair value of the award which we determine using a binomial option-pricing model.

Income Taxes

The Company accounts for income taxes
using the asset and liability method, as provided by SFAS 109, Accounting for Income Taxes (SFAS 109) which requires the recognition of different tax assets and liabilities for the future tax consequences of temporary differences between the
financial statement and tax basis carrying amounts of assets and liabilities. No income taxes were provided since the Company incurred losses from its inception. Due to the uncertainty of future taxable income, no future tax benefits have been
recognized.

RECENTLY ISSUED ACCOUNTING STANDARDS

Effective February 3, 2006, the FASB decided to move forward with the issuance of a final FSP FAS 123R-4, Classification of Options and Similar Instruments Issued as Employee Compensation That Allow for Cash
Settlement upon the Occurrence of a Contingent Event. The guidance in this FSP FAS 123R-4 amends paragraphs 32 and A229 of FASB Statement No. 123R to incorporate the concept articulated in footnote 16 of FAS 123R. That is, a cash settlement
feature that can be exercised only upon the occurrence of a contingent event that is outside the employees control does not meet the condition in paragraphs 32 and A229 until it becomes probable that the event will occur. Originally under FAS
123R, a provision in a share-based payment plan that required an entity to settle outstanding options in cash upon the occurrence of any contingent event required classification and accounting for the share based payment as a liability. This caused
an issue under certain awards that require or permit, at the holders election, cash settlement of the option or similar instrument upon (a) a change in control or other liquidity event of the entity or (b) death or disability of the
holder. With this new FSP, these types of cash settlement features will not require liability accounting so long as the feature can be exercised



10



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only upon the occurrence of a contingent event that is outside the employees control (such as an initial public offering) until it becomes probable
that event will occur. The guidance in this FSP shall be applied upon initial adoption of Statement 123(R). An entity that adopted Statement 123(R) prior to the issuance of the FSP shall apply the guidance in the FSP in the first reporting period
beginning after February 2006. Early application of FSP FAS 123R-4 is permitted in periods for which financial statements have not yet been issued. The Company does not anticipate that this new FSP will have any material impact upon its financial
condition or results of operations.

The adoption of the following recent accounting pronouncements did not have a material impact on the
Companys results of operations and financial condition:

Emerging Issues Task Force (EITF) Issue No. 03-1, The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.

In December 2004, the FASB issued
SFAS No. 153, Exchanges of Non-monetary Assetsan amendment of APB opinion No. 29 (SFAS 153). SFAS 153 clarifies that exchanges of non-monetary assets should be measured based on the fair value of the assets exchanged, with a general
exception for exchanges that have no commercial substance. SFAS 153 is effective for non-monetary asset exchanges occurring in fiscal periods beginning after June 15, 2005.

In March 2005, the FASB issued FIN 47, Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement
No. 143 (FIN 47), which requires an entity to recognize a liability for the fair value of a conditional asset retirement obligation when incurred if the liabilitys fair value can be reasonably estimated. FIN 47 is effective for fiscal
years ending after December 15, 2005.

In May 2005, the FASB issued SFAS No. 154 Accounting Changes and
Error Correctionsa replacement of APB Opinion No. 20, and FASB Statement No. 3. (SFAS 154) SFAS 154 replaces APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim
Financial Statements, and changes the requirements for the accounting for and reporting of a change in accounting principle. This statement applies to all voluntary changes in accounting principle. It also applies to changes required by an
accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. When a pronouncement includes specific transition provisions, those provisions should be followed. SFAS 154 is effective for
accounting changes and corrections of errors made in fiscal years beginning after December 31, 2005.

In February 2006,
the Financial Accounting Standards Board issued SFAS No. 155, Accounting for Certain Hybrid Financial Instrumentsan amendment of FASB Statements No. 133 and 140. SFAS No. 155 simplifies the accounting for certain
hybrid financial instruments, eliminates the FASBs interim guidance which provides that beneficial interests in securitized financial assets are not subject to the provisions of SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, and eliminates the restriction on the passive derivative instruments that a qualifying special-purpose entity may hold. SFAS No. 155 is effective for all financial instruments acquired or issued after the beginning
of an entitys first fiscal year that begins after September 15, 2006.



11



---

ITEM 7. FINANCIAL STATEMENTS

CATCHER HOLDINGS, INC.

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED FINANCIAL STATEMENTS

For the
Year Ended December 31, 2005 and the

Period from Inception (March 31, 2004) to December 31, 2004



|                                                                                          |  |           
|----------------------------------------------------------------------------------------- |  | ----------
|                                                                                          |  | PAGENUMBER
|Consolidated Financial Statements:                                                        |  |           
|                                                                                          | 
|Report of Stonefield Josephson, Inc., Independent Registered Public Accounting Firm       |  | 13        
|                                                                                          | 
|Report of Vitale, Caturano & Company, Ltd., Independent Registered Public Accounting Firm |  | 14        
|                                                                                          | 
|Consolidated Balance Sheets                                                               |  | 15        
|                                                                                          | 
|Consolidated Statements of Operations                                                     |  | 16        
|                                                                                          | 
|Consolidated Statements of Cash Flows                                                     |  | 17        
|                                                                                          | 
|Consolidated Statements of Shareholders Equity                                           |  | 18        
|                                                                                          | 
|Notes to Consolidated Financial Statements                                                |  | 19-34     



12



---

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and
Stockholders of

Catcher Holdings Inc. and Subsidiary

We have audited the accompanying consolidated balance sheet of Catcher Holdings Inc. and Subsidiary (a development stage enterprise) as of
December 31, 2005 and the related consolidated statements of operations, shareholders equity and cash flows for the year ended December 31, 2005 and for the period from inception on March 31, 2004 to December 31, 2005.
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. The financial statements for the period from
March 31, 2004 (date of inception) to December 31, 2004 were audited by other auditors whose report, dated June 28, 2005, expressed an unqualified opinion. Our opinion on the statements of operations and cash flows for the period from
March 31, 2004 (date of inception) to December 31, 2005, insofar as it relates to amounts for the period from March 31, 2004 (date of inception) to December 31, 2004, is based solely on the report of the other auditors.

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 consolidated financial statements are free of material misstatement. We were not engaged to perform an audit of the Companys internal control over
financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated 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
consolidated financial position of Catcher Holdings Inc. and Subsidiary as of December 31, 2005 and the results of their operations and cash flows for the year ended December 31, 2005 and for the period from March 31, 2004 (date of
inception) to December 31, 2005, in conformity with accounting principles generally accepted in the United States of America.

The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1A to the consolidated financial statements, the Company is a development stage enterprise, has no
revenues, has negative cash flows from operations and has an accumulated deficit. These circumstances, amongst others, raise substantial doubt about the Companys ability to continue as a going concern. Managements plans regarding these
matters are also described in Note 1A. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.



|                                                                           
|---------------------------------------------------------------------------
|/s/ Stonefield Josephson, Inc.                                             
|Los Angeles, California                                                    
|March 17, 2006, except for Note 1B, as to which the date is August 10, 2006



13



---

INDEPENDENT AUDITORS REPORT

To the Board of Directors

LCM Holdings

San Diego, California

We have audited the accompanying balance sheet of LCM Holdings (the Company), a Delaware corporation in the
development stage, as of December 31, 2004 and the related statements of operations and cash flows for the period from inception (March 31, 2004) to December 31, 2004. 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 audit in
accordance with auditing standards generally accepted in the United States of America. 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 financial statements referred to above present fairly, in all material respects, the financial position of LCM Holdings as of December 31, 2004, and the results of its operations and its cash flows for the period from inception
(March 31, 2004) to December 31, 2004 in conformity with accounting principles generally accepted in the United States of America.



|                                    
|------------------------------------
|/s/ Vitale, Caturano & Company, Ltd.
|                                    
|VITALE, CATURANO & COMPANY, LTD.    
|                                    
|June 28, 2005                       
|Boston, Massachusetts               



14



---

CATCHER HOLDINGS, INC.

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED BALANCE SHEETS



|                                                                                                                    |  |                         |            |   |                   |   |          |  
|------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ---------- | - | ----------------- | - | -------- | -
|                                                                                                                    |  | December 31, 2005       |            |   | December 31, 2004 |  
|                                                                                                                    |  | As Restated See Note 1B |            |   |                   |  
|Assets                                                                                                              |  |                         |            |   |                   |   |          |  
|Current Assets:                                                                                                     |  |                         |            |   |                   |   |          |  
|Cash and cash equivalents                                                                                           |  | $                       | 913,182    |   |                   | $ | 364      |  
|Prepaid expenses and other current assets                                                                           |  |                         | 566,671    |   |                   |   |         |  
|                                                                                                                    |  |                         |            |   |                   |   |          |  
|Total current assets                                                                                                |  |                         | 1,479,853  |   |                   |   | 364      |  
|                                                                                                                    |  |                        
|Fixed Assets, net                                                                                                   |  |                         | 320,862    |   |                   |   |         |  
|Deposits                                                                                                            |  |                         | 4,857      |   |                   |   |         |  
|                                                                                                                    |  |                         |            |   |                   |   |          |  
|Total Assets                                                                                                        |  | $                       | 1,805,572  |   |                   | $ | 364      |  
|                                                                                                                    |  |                         |            |   |                   |   |          |  
|Liabilities and Shareholders Equity                                                                                |  |                         |            |   |                   |   |          |  
|Current Liabilities:                                                                                                |  |                         |            |   |                   |   |          |  
|Accounts payable                                                                                                    |  |                         | 463,470    |   |                   |   | 718,730  |  
|Notes Payable                                                                                                       |  |                         |           |   |                   |   | 30,000   |  
|Accrued and other current liabilities                                                                               |  |                         | 647,703    |   |                   |   |         |  
|                                                                                                                    |  |                         |            |   |                   |   |          |  
|Total current liabilities                                                                                           |  |                         | 1,111,173  |   |                   |   | 748,730  |  
|                                                                                                                    |  |                        
|Total Liabilities                                                                                                   |  |                         | 1,111,173  |   |                   |   | 748,730  |  
|                                                                                                                    |  |                        
|Commitments and Contingencies (See Note 7)                                                                          |  |                         |            |   |                   |   |          |  
|                                                                                                                    |  |                        
|Shareholders Equity (Deficit):                                                                                     |  |                         |            |   |                   |   |          |  
|Common Stock, $0.001 value, 50,000,000 shares authorized; 13,578,970 and 2,232,333 shares outstanding, respectively |  |                         | 13,578     |   |                   |   | 2,232    |  
|Preferred Stock, $0.001 par value, 1 million shares authorized; 1 and 0 shares outstanding, respectively            |  |                         |           |   |                   |   |         |  
|Additional paid in capital                                                                                          |  |                         | 9,578,774  |   |                   |   | (2,232   | )
|Deficit accumulated during the development stage                                                                    |  |                         | (8,897,953 | ) |                   |   | (748,366 | )
|                                                                                                                    |  |                         |            |   |                   |   |          |  
|Total Shareholders Equity (Deficit)                                                                                |  |                         | 694,399    |   |                   |   | (748,366 | )
|                                                                                                                    |  |                         |            |   |                   |   |          |  
|                                                                                                                    |  |                        
|Total Liabilities and Shareholders Equity (Deficit)                                                                |  | $                       | 1,805,572  |   |                   | $ | 364      |  
|                                                                                                                    |  |                         |            |   |                   |   |          |  

See Notes to Consolidated Financial Statements.



15



---

CATCHER HOLDINGS, INC.

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF OPERATIONS



|                                                                                                |  |                              |            |   |                                                            |   |           |                                                            |  |   |            |  
|----------------------------------------------------------------------------------------------- |  | ---------------------------- | ---------- | - | ---------------------------------------------------------- | - | --------- | ---------------------------------------------------------- |  | - | ---------- | -
|                                                                                                |  | Year Ended December 31, 2005 |            |   | Period from Inception (March31, 2004) to December 31, 2004 |   |           | Period from Inception(March 31, 2004) to December 31, 2005 | 
|                                                                                                |  | As Restated See Note 1B      |            |   |                                                            |   |           | As Restated See Note 1B                                    | 
|Net revenue                                                                                     |  | $                            |           |   |                                                            | $ |          |                                                            |  | $ |           |  
|Operating expenses:                                                                             |  |                              |            |   |                                                            |   |           |                                                            |  |   |            |  
|Research and development                                                                        |  |                              | 2,211,133  |   |                                                            |   | 647,472   |                                                            |  |   | 2,858,605  |  
|Selling, general and administrative                                                             |  |                              | 2,282,263  |   |                                                            |   | 100,894   |                                                            |  |   | 2,383,157  |  
|Stock-based compensation(1)and consulting expense, on stock issued primarily to related parties |  |                              | 3,639,494  |   |                                                            |   |          |                                                            |  |   | 3,639,494  |  
|                                                                                                |  |                              |            |   |                                                            |   |           |                                                            |  |   |            |  
|Operating loss                                                                                  |  |                              | (8,132,890 | ) |                                                            |   | (748,366  | )                                                          |  |   | (8,881,256 | )
|Financing Costs                                                                                 |  |                              |           |   |                                                            |   |          |                                                            |  |   |           |  
|Interest income                                                                                 |  |                              | (16,697    | ) |                                                            |   |          |                                                            |  |   | (16,697    | )
|                                                                                                |  |                              |            |   |                                                            |   |           |                                                            |  |   |            |  
|Loss from operations before income taxes                                                        |  |                              | (8,149,587 | ) |                                                            |   | (748,366  | )                                                          |  |   | (8,897,953 | )
|Income taxes                                                                                    |  |                              |           |   |                                                            |   |          |                                                            |  |   |           |  
|                                                                                                |  |                              |            |   |                                                            |   |           |                                                            |  |   |            |  
|Net loss                                                                                        |  | $                            | (8,149,587 | ) |                                                            | $ | (748,366  | )                                                          |  | $ | (8,897,953 | )
|                                                                                                |  |                              |            |   |                                                            |   |           |                                                            |  |   |            |  
|Net loss per share:                                                                             |  |                              |            |   |                                                            |   |           |                                                            |  |   |            |  
|                                                                                                |  |                              |           
|Basic & Diluted                                                                                 |  | $                            | (0.93      | ) |                                                            | $ | (0.34     | )                                                          |  | $ | (1.50      | )
|                                                                                                |  |                              |            |   |                                                            |   |           |                                                            |  |   |            |  
|Weighted-average number of shares outstandingBasic and Diluted:                                |  |                              | 8,726,518  |   |                                                            |   | 2,232,333 |                                                            |  |   | 5,936,048  |  
|__________ (1)The following summarizes the allocation of stock based compensation.              | 
|                                                                                                |  |                              |           
|Research and development expenses                                                               |  | $                            | 268,647    |   |                                                            | $ |          |                                                            |  | $ | 268,647    |  
|Selling, general and administrative expenses                                                    |  |                              | 3,370,847  |   |                                                            |   |          |                                                            |  |   | 3,370,847  |  
|                                                                                                |  |                              |            |   |                                                            |   |           |                                                            |  |   |            |  
|Total                                                                                           |  | $                            | 3,639,494  |   |                                                            | $ |          |                                                            |  | $ | 3,639,494  |  
|                                                                                                |  |                              |            |   |                                                            |   |           |                                                            |  |   |            |  

See Notes to Consolidated Financial Statements.



16



---

CATCHER HOLDINGS, INC.

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                             |  |                             |            |   |                                                          |   |          |                                                          |  |   |            |  
|---------------------------------------------------------------------------- |  | --------------------------- | ---------- | - | -------------------------------------------------------- | - | -------- | -------------------------------------------------------- |  | - | ---------- | -
|                                                                             |  | Year EndedDecember 31, 2005 |            |   | Period fromInception(March 31, 2004) toDecember 31, 2004 |   |          | Period fromInception(March 31, 2004) toDecember 31, 2005 | 
|                                                                             |  | As Restated See Note 1B     |            |   |                                                          |   |          | As Restated See Note 1B                                  | 
|Cash Flows From Operating Activities:                                        |  |                             |            |   |                                                          |   |          |                                                          |  |   |            |  
|Net loss                                                                     |  | $                           | (8,149,587 | ) |                                                          | $ | (748,366 | )                                                        |  | $ | (8,897,953 | )
|Adjustments to reconcile net cash provided by operating activities:          |  |                             |            |   |                                                          |   |          |                                                          |  |   |            |  
|Depreciation                                                                 |  |                             | 1,156      |   |                                                          |   |         |                                                          |  |   | 1,156      |  
|Non-cash stock compensation and consulting expense                           |  |                             | 3,622,464  |   |                                                          |   |         |                                                          |  |   | 3,622,464  |  
|Warrants issued in connection with consulting contract                       |  |                             | 17,030     |   |                                                          |   |         |                                                          |  |   | 17,030     |  
|Non-cash interest expense                                                    |  |                             | 41,345     |   |                                                          |   |         |                                                          |  |   | 41,345     |  
|Changes in assets and liabilities:                                           |  |                             |            |   |                                                          |   |          |                                                          |  |   |            |  
|Prepaid expenses and other current assets                                    |  |                             | (566,671   | ) |                                                          |   |         |                                                          |  |   | (566,671   | )
|Other Assets                                                                 |  |                             | (4,857     | ) |                                                          |   |         |                                                          |  |   | (4,857     | )
|Accounts payable                                                             |  |                             | (255,260   | ) |                                                          |   | 718,730  |                                                          |  |   | 463,470    |  
|Accrued expenses and other liabilities                                       |  |                             | 647,703    |   |                                                          |   |         |                                                          |  |   | 647,703    |  
|                                                                             |  |                             |            |   |                                                          |   |          |                                                          |  |   |            |  
|Net cash used in operating activities                                        |  |                             | (4,646,677 | ) |                                                          |   | (29,636  | )                                                        |  |   | (4,676,313 | )
|                                                                             |  |                             |           
|Cash Flows Used In Investing Activities:                                     |  |                             |            |   |                                                          |   |          |                                                          |  |   |            |  
|                                                                             |  |                             |           
|Capital expenditures, net                                                    |  |                             | (322,018   | ) |                                                          |   |         |                                                          |  |   | (322,018   | )
|                                                                             |  |                             |           
|Cash Flows From Financing Activities:                                        |  |                             |            |   |                                                          |   |          |                                                          |  |   |            |  
|Issuance (Repayment) of short-term debt                                      |  |                             | (30,000    | ) |                                                          |   | 30,000   |                                                          |  |   |           |  
|Proceeds from issuance of Common Stock and warrants net of in issuance costs |  |                             | 4,293,690  |   |                                                          |   |         |                                                          |  |   | 4,293,690  |  
|Proceeds from issuance of Common Stock                                       |  |                             | 17         |   |                                                          |   |         |                                                          |  |   | 17         |  
|Proceeds from exercise of warrants                                           |  |                             | 1,617,806  |   |                                                          |   |         |                                                          |  |   | 1,617,806  |  
|                                                                             |  |                             |            |   |                                                          |   |          |                                                          |  |   |            |  
|Net cash provided by financing activities                                    |  |                             | 5,881,513  |   |                                                          |   | 30,000   |                                                          |  |   | 5,911,513  |  
|                                                                             |  |                             |            |   |                                                          |   |          |                                                          |  |   |            |  
|Net increase in cash and cash equivalents                                    |  |                             | 912,818    |   |                                                          |   | 364      |                                                          |  |   | 913,182    |  
|Cash and cash equivalents at beginning of period                             |  |                             | 364        |   |                                                          |   |         |                                                          |  |   |           |  
|                                                                             |  |                             |            |   |                                                          |   |          |                                                          |  |   |            |  
|Cash and cash equivalents at end of period                                   |  | $                           | 913,182    |   |                                                          | $ | 364      |                                                          |  | $ | 913,182    |  
|                                                                             |  |                             |            |   |                                                          |   |          |                                                          |  |   |            |  

See Notes to Consolidated Financial Statements.



17



---

CATCHER HOLDINGS, INC.

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY

Period from Inception (March 31, 2004) to December 31, 2005



|                                                                                          |  |                                  |   |  |                                |      |   |                               |            |                             |   |                           |  |   |                                              |   |  |       |            |   |  |   |            |  
|----------------------------------------------------------------------------------------- |  | -------------------------------- | - |  | ------------------------------ | ---- | - | ----------------------------- | ---------- | --------------------------- | - | ------------------------- |  | - | -------------------------------------------- | - |  | ----- | ---------- | - |  | - | ---------- | -
|                                                                                          |  | Number ofShares ofPreferredStock |   |  | PreferredStock$0.0001par value |      |   | Number ofShares ofCommonStock |            | CommonStock$0.0001par value |   | AdditionalPaid In Capital |  |   | DeficitAccumulatedDuring theDevelopmentStage |   |  | Total |           
|Balance at Inception(1)                                                                   |  | 1                                |   |  | $                              |     |   |                               | 2,232,333  |                             | $ | 2,232                     |  | $ | (2,232                                       | ) |  | $     |           |   |  | $ |           |  
|                                                                                          |  |                                  |   |  |                                |      |  
|Net loss                                                                                  |  |                                 |   |  |                                |     |   |                               |           |                             |   |                          |  |   |                                             |   |  |       | (748,366   | ) |  |   | (748,366   | )
|                                                                                          |  |                                  |   |  |                                |      |   |                               |            |                             |   |                           |  |   |                                              |   |  |       |            |   |  |   |            |  
|Balance at 12/31/04                                                                       |  | 1                                |   |  | $                              |     |   |                               | 2,232,333  |                             | $ | 2,232                     |  | $ | (2,232                                       | ) |  | $     | (748,366   | ) |  | $ | (748,366   | )
|                                                                                          |  |                                  |   |  |                                |      |  
|Issuance of convertible preferred stock to employees and consultants on April 21, 2005(2) |  | 454,735                          |   |  |                                | 455  |   |                               |           |                             |   |                          |  |   | 3,236,813                                    |   |  |       |           |   |  |   | 3,237,268  |  
|                                                                                          |  |                                  |   |  |                                |      |  
|Issuance of Common Stock for services and interest expense on April 21, 2005(2)           |  |                                 |   |  |                                |     |   |                               | 348,515    |                             |   | 349                       |  |   | 309,830                                      |   |  |       |           |   |  |   | 310,179    |  
|                                                                                          |  |                                  |   |  |                                |      |  
|Issuance of Common Stock and warrants to private investors on May 4, 2005                 |  |                                 |   |  |                                |     |   |                               | 4,500,386  |                             |   | 4,500                     |  |   | 4,289,190                                    |   |  |       |           |   |  |   | 4,293,690  |  
|                                                                                          |  |                                  |   |  |                                |      |  
|Issuance of Common Stock to U.S. Telesis Holdings, Inc. shareholders on May 4, 2005       |  |                                 |   |  |                                |     |   |                               | 1,781,295  |                             |   | 1,781                     |  |   | (1,764                                       | ) |  |       |           |   |  |   | 17         |  
|                                                                                          |  |                                  |   |  |                                |      |  
|Conversion of convertible preferred stock to Common Stock on June 23, 2005(2)             |  | (454,735                         | ) |  |                                | (455 | ) |                               | 3,637,904  |                             |   | 3,638                     |  |   | (3,183                                       | ) |  |       |           |   |  |   |           |  
|                                                                                          |  |                                  |   |  |                                |      |  
|Issuance of warrants to consultants on June 23, 2005                                      |  |                                 |   |  |                                |     |   |                               |           |                             |   |                          |  |   | 17,030                                       |   |  |       |           |   |  |   | 17,030     |  
|                                                                                          |  |                                  |   |  |                                |      |  
|Issuance of Common Stock pursuant to warrant exercises in October 2005                    |  |                                 |   |  |                                |     |   |                               | 1,078,537  |                             |   | 1,078                     |  |   | 1,616,728                                    |   |  |       |           |   |  |   | 1,617,806  |  
|                                                                                          |  |                                  |   |  |                                |      |  
|Compensation Expense                                                                      |  |                                 |   |  |                                |     |   |                               |           |                             |   |                          |  |   | 116,362                                      |   |  |       |           |   |  |   | 116,362    |  
|                                                                                          |  |                                  |   |  |                                |      |  
|Net loss(2)                                                                               |  |                                 |   |  |                                |     |   |                               |           |                             |   |                          |  |   |                                             |   |  |       | (8,149,587 | ) |  |   | (8,149,587 | )
|                                                                                          |  |                                  |   |  |                                |      |   |                               |            |                             |   |                           |  |   |                                              |   |  |       |            |   |  |   |            |  
|                                                                                          |  |                                  |   |  |                                |      |  
|Balance at 12/31/05                                                                       |  | 1                                |   |  | $                              |     |   |                               | 13,578,970 |                             | $ | 13,578                    |  | $ | 9,578,774                                    |   |  | $     | (8,897,953 | ) |  | $ | 694,399    |  
|                                                                                          |  |                                  |   |  |                                |      |   |                               |            |                             |   |                           |  |   |                                              |   |  |       |            |   |  |   |            |  

---

|(1) | The Common Share amount represents common stock issued to the sole owner of LCM Technologies, Inc. upon the conversion of his preferred stock on June 23, 2005 as if
they were outstanding at the inception of LCM Technologies, Inc. Ira Tabankin was issued 279,043 shares of Convertible Preferred Stock on April 21, 2005, of which 279,042 were converted on June 23, 2005 into 2,232,333 shares of Common Stock. Mr.
Tabankin still holds one share of Convertible Preferred Stock.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | As Restated See Note 1B
|--- | -----------------------

See Notes to
Consolidated Financial Statements.



18



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CATCHER HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

For the year ended December 31, 2005 and for the period

from inception (March 31, 2004) to December 31, 2004

(1A) Nature of Business and Basis of Presentation

U.S. Telesis Holdings, Inc. (UST) was originally organized to provide diverse telecommunications products and services
to the small and medium business community in the southeastern United States and to develop a niche market strategy of reselling long distance services to the electrical cooperative community. As a result of the dramatic decline in the
telecommunications industry, UST abandoned the business objective to provide such telecommunications products and services, and instead intended to identify and complete a merger or acquisition primarily in consideration of the issuance of shares of
the USTs capital stock with a private entity whose business presents an opportunity for USTs stockholders.

Effective May
4, 2005, UST acquired 100% of the outstanding stock of Catcher, Inc. (Catcher) by issuing 4,848,875 shares of USTs common stock and 733,778 shares of its Series A preferred stock. The Series A preferred stock is convertible into
5,870,245 shares of USTs common stock (the UST Merger). On June 23, 2005, all but one share of the issued and outstanding Series A Preferred Stock was automatically converted to common stock simultaneously with the effectiveness of
the filing of an amended and restated certificate of incorporation changing USTs name to Catcher Holdings, Inc. and providing for a 1 for 7.2 reverse stock split in respect of the Companys issued and outstanding common stock. In
addition, on May 4, 2005, UST assumed Catcher Inc.s obligations under its issued and outstanding warrants to purchase an aggregate of 4,500,386 shares of common stock. Catcher Holdings, Inc. together with its wholly owned subsidiary is
hereinafter referred to as the Company.

Catcher was organized in Delaware on April 20, 2005 principally to acquire the assets
of LCM Technologies, Inc. (LCM) and to operate the business of developing, manufacturing and distributing a portable, ruggedized, wireless handheld security device (the CATCHER device). LCM was organized in Delaware on March 31, 2004. Pursuant to an asset
purchase agreement between Catcher and LCM, Catcher, Inc. purchased certain assets and assumed certain liabilities of LCM and its founder, Ira Tabankin, relating to the CATCHER device and the business of LCM (the LCM Merger) (See Note 3).

The UST Merger and the LCM Merger (collectively the Mergers) were treated as reverse mergers from a historical accounting perspective, and
accordingly, the period from inception of the Company begins on March 31, 2004, the date of inception of LCM. The financial statements of the Company presented reflect the historical results of LCM prior to the Mergers, and of the combined
entities following the Mergers, and do not include the historical financial results of UST prior to the consummation of the UST Merger. Shareholders equity has been retroactively restated to reflect the number of shares received in the Mergers
after giving effect to the difference in par value, with the offset to additional paid-in capital. The stock retained by the shareholders of UST has been adjusted to reflect a financing transaction with the proceeds equal to the net asset value of
UST immediately prior to the Mergers, which was $17. This amount has been reflected in the accompanying statement of shareholders equity as an issuance of common stock to UST shareholders.

The Companys stockholders approved an amendment to the Companys certificate of incorporation to change the Companys name to Catcher
Holdings, Inc. and effectuate a 1 for 7.2 reverse split, which was effective on June 23, 2005. All share and per share data included in these statements and notes thereto have been adjusted to reflect the reverse split.

The Company is a developmental stage company which has designed a portable, ruggedized wireless, hand-held GPS-based command control device through
multiple years of research and development effort. Utilizing proprietary operating software, the CATCHER device offers critical real-time wireless communications through the convergence of voice, video, data and biometric capabilities.



19



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Going Concern

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. Subsequent to the acquisition of Catcher, the Company has continued to develop the technology acquired with a goal of developing a device that is ready for sale. The Companys
ability to continue as a going concern depends on a number of factors, including but not limited to, the ability to get its product to market and the ability to raise additional capital if required. Since inception, we have not generated revenue and
there can be no assurance that we will generate revenue in the future. We have experienced losses since inception and our cumulative loss to date is ($8,897,953). In addition, we have not generated cash from operations and our cumulative cash used
in operations to date is $(4,676,313). We do not currently have any financing arrangements or lines of credit with lenders. These factors raise substantial doubt about the Companys ability to continue as a going concern. The maximum potential
amount of funds that we may receive from the exercise of all of the outstanding Warrants is approximately $15.4 million, in addition to the approximately $2.52 million already received upon partial exercise of the Series A warrants. The Company
intends to continue to seek the additional financing it needs to fund its operations. There can be no assurance that such financing will be available on terms acceptable to the Company, or at all.

(1B) Restatement of Prior Period Financial Statements

In its originally filed consolidated financial statements for the year ended December 31, 2005 (including interim periods), the Company recorded as research and development expense the value of shares issued to Ira Tabankin in Catcher
Inc. prior to the merger with the Company described in Note 1A. Subsequent to the issuance of such consolidated financial statements, the Company determined that such shares should not have been recorded at fair value. Rather, since LCM was
considered the accounting acquirer, no value was assigned to the shares issued (See Note 1A).

As a result, the Companys consolidated
financial statements for the year ended December 31, 2005 have been restated.

The impact of this correction of an error was a
reduction in acquired research and development expense in the Companys Statement of Operations by $1,986,784 for the year ended December 31, 2005. Consequently, the additional paid in capital and deficit accumulated during the development
stage originally recorded in the consolidated balance sheet as of December 31, 2005 were overstated by $1,986,784, and have been reduced by that amount in the accompanying restated financial statements. Certain line items in the Companys
consolidated statement of cash flows and statement of shareholders equity have been restated as a result of the correction of an error identified above.

In addition, the Company reclassified $41,345 from acquired research and development expense into interest expense for the year ended December 31, 2005. This amount represents the value of the Catcher, Inc.
shares issued to certain promissory note holders as consideration for the release of all claims to certain intellectual property of LCM that collateralized certain defaulted loans to LCM.



20



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A summary of the significant effects of the restatement for the year ended December 31, 2005 is
presented in the tables below.



|                                                                |  |                              |             |   |                                     |   |            |             |  |   |             |   |  |   |            |  
|--------------------------------------------------------------- |  | ---------------------------- | ----------- | - | ----------------------------------- | - | ---------- | ----------- |  | - | ----------- | - |  | - | ---------- | -
|                                                                |  | Year Ended December 31, 2005 |             |   | Inception to date December 31, 2005 |  
|                                                                |  | As Reported                  |             |   | As Restated                         |   |            | As Reported |  |   | As Restated |  
|Statements of Operations                                        |  |                              |             |   |                                     |   |            |             |  |   |             |   |  |   |            |  
|Acquired research and development                               |  | $                            | 2,028,129   |   |                                     | $ |           |             |  | $ | 2,028,129   |   |  | $ |           |  
|Operating loss                                                  |  |                              | (10,161,019 | ) |                                     |   | (8,132,890 | )           |  |   | (10,909,385 | ) |  |   | (8,881,256 | )
|Interest income (expense), net                                  |  |                              | 24,648      |   |                                     |   | (16,697    | )           |  |   | 24,648      |   |  |   | (16,697    | )
|Loss from operations and net loss                               |  |                              | (10,136,371 | ) |                                     |   | (8,149,587 | )           |  |   | (10,884,737 | ) |  |   | (8,897,953 | )
|Loss per share:                                                 |  |                              |             |   |                                     |   |            |             |  |   |             |   |  |   |            |  
|Basic & Diluted                                                 |  | $                            | (1.16       | ) |                                     | $ | (0.93      | )           |  | $ | (1.83       | ) |  | $ | (1.50      | )
|Weighted-average number of shares outstanding basic and diluted |  |                              | 8,740,701   |   |                                     |   | 8,726,518  |             |  |   | 5,944,137   |   |  |   | 5,936,048  |  



|                                  |  |                              |             |   |                                     |   |            |             |  |   |             |   |  |   |            |  
|--------------------------------- |  | ---------------------------- | ----------- | - | ----------------------------------- | - | ---------- | ----------- |  | - | ----------- | - |  | - | ---------- | -
|                                  |  | Year Ended December 31, 2005 |             |   | Inception to date December 31, 2005 |  
|                                  |  | As Reported                  |             |   | As Restated                         |   |            | As Reported |  |   | As Reported |  
|Statements of Cash Flow           |  |                              |             |   |                                     |   |            |             |  |   |             |   |  |   |            |  
|Net loss                          |  | $                            | (10,136,371 | ) |                                     | $ | (8,149,587 | )           |  | $ | (10,884,737 | ) |  | $ | (8,897,953 | )
|Acquired research and development |  |                              | 2,028,129   |   |                                     |   |           |             |  |   | 2,028,129   |   |  |   |           |  
|Non-cash interest expense         |  |                              |            |   |                                     |   | 41,345     |             |  |   |            |   |  |   | 41,345     |  



|                                                 |  |                   |             |   |             |   |            |  
|------------------------------------------------ |  | ----------------- | ----------- | - | ----------- | - | ---------- | -
|                                                 |  | December 31, 2005 |            
|                                                 |  | As Reported       |             |   | As Restated |  
|Balance Sheet                                    |  |                   |             |   |             |   |            |  
|Additional paid in capital                       |  | $                 | 11,565,558  |   |             | $ | 9,578,774  |  
|Deficit accumulated during the development stage |  |                   | (10,884,737 | ) |             |   | (8,897,953 | )

(2) Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of Catcher Holdings, Inc. (a development-stage company) and its wholly-owned subsidiary, Catcher, Inc. All intercompany accounts and transactions have been eliminated in
consolidation.

Use of Estimates

The preparation of financial statements in accordance with United States generally accepted accounting principles requires the Company to make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Cash Equivalents

The Company considers short-term investments with original maturity dates of three months or less at the date of
purchase to be cash equivalents. Cash equivalents consist of money market accounts.

Fair Value of Financial Instruments

The Companys financial instruments consist of cash and cash equivalents, accounts payable and accrued liabilities which are
carried at cost and approximate fair value due to the short-term nature of these instruments.



21



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Concentrations of Credit Risk

Financial instruments that potentially subject the Company to credit risk primarily consist of cash and cash equivalents. Cash and cash
equivalents are maintained in bank deposit accounts with high-quality financial institutions in the United States, which at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company believes
it is not exposed to any significant credit risk on cash.

Fixed Assets

Fixed assets are stated at cost. The Company provides for depreciation using the straight-line method based on the respective assets
estimated useful life. Expenditures for maintenance and repairs are charged to operating expenses as incurred.

Impairment of Long-Lived
Assets

The Company follows Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (SFAS 144). Under SFAS 144, the Company reviews long-lived assets for impairment when circumstances indicate the carrying amount of an asset may not be recoverable based on the undiscounted future cash flows of the
asset. If the carrying amount of the asset is determined not to be recoverable, a write-down to fair value is recorded. As of December 31, 2005 and 2004, there was no impairment of long-lived assets.

Revenue Recognition

The Company intends to recognize revenue in accordance with the SEC Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements (SAB 101) as updated by SAB No. 104, Revenue Recognition (SAB 104). Under SAB
104, revenue is recognized when persuasive evidence of an arrangement exists, shipment has occurred or services rendered, the price is fixed or determinable and payment is reasonably assured. Under these requirements, when the terms of sale include
customer acceptance provisions, and compliance with those provisions has not been previously demonstrated, revenues are recognized upon acceptance. The Company is in its development phase and has no existing customers or revenue.

Research and Development Costs

Costs incurred for research and development are expensed as incurred. Research and development expense primarily comprises salaries and associated employee benefits, stock based compensation, travel, engineering and
design services, testing and certification and materials and allocations of indirect costs related to research and development efforts.

Software Development Costs

SFAS No. 86, Accounting for the Costs of Computer Software to Be Sold,
Leased or Otherwise Marketed, requires the capitalization of certain computer software development costs incurred after technological feasibility is established. The Company has not yet established technological feasibility of a software product.
The Company did not capitalize any software development costs related to internal development efforts at December 31, 2005.

The Company may in the course of business purchase software to be used in its products. If the purchased software is included in a product which has reached technological feasibility in accordance with SFAS No. 86 or which has an
alternative future use to the Company, the cost to purchase this software is capitalized and amortized at the greater of the ratio of current period revenues to the total of anticipated future revenues or the straight-line method over its remaining
useful life. The Company assesses the



22



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recoverability of capitalized purchased software costs at each quarter end by comparing the carrying value to its net realizable value (NRV). NRV
is the estimated future gross revenues from products that incorporate the software reduced by the estimated future costs of disposal. If NRV is less than the carrying value, the excess is written-off and the then current NRV becomes the new carrying
value of the software. The Company did not capitalize any costs related to purchased software in the year ended December 31, 2005 as its product, and included purchased software, had not reached technological feasibility.

Income Taxes

The
Company accounts for income taxes using the asset and liability method, as provided by SFAS No. 109, Accounting for Income Taxes (SFAS 109) which requires the recognition of different tax assets and liabilities for the future tax consequences
of temporary differences between the financial statement and tax basis carrying amounts of assets and liabilities. No income taxes were provided since the Company incurred losses from its inception. Management evaluates the available evidence about
future taxable income and other possible sources of realization of deferred tax assets. The valuation allowance reduces deferred tax assets to an amount that represents managements best estimate of the amount of such deferred tax assets that
are more likely than not to be realized. Due to the uncertainty of future taxable income, no future tax benefits have been recognized.

Stock Based Compensation

During the fourth quarter of 2005 the Company adopted SFAS No. 123R,
Share Based Payment (SFAS 123R) using the modified prospective transition method and SAB No. 107 regarding SFAS 123R (SAB 107). In accordance with the modified prospective transition method, the Companys Consolidated Financial Statements
for prior periods have not been restated to reflect, and do not include, the impact of SFAS 123(R). Prior to adoption of these statements the Company did not issue any options for which a grant date, as defined, was achieved.

Under SFAS 123R and SAB 107, compensation is measured on the grant date of an award and recognized over the service period for which the
award was granted, generally the vesting period. Compensation is equal to the fair value of the award determined using a binomial option-pricing model. The binomial option-pricing requires subjective assumptions, including future stock price
volatility and expected time to exercise, which greatly affect the calculated values. The expected term of options granted is derived from historical data on employee exercises and post-vesting employment termination behavior. The risk-free rate
selected to value any particular grant is based on the U.S Treasury rate that corresponds to the pricing term of the grant effective as of the date of the grant. The expected volatility is partially based on the historical volatility of the
Companys stock price. As a result of our thinly traded stock, these estimates may not be indicative of fair value; but we believe that they provide a reasonable basis for our conclusions. These factors could change in the future, affecting the
determination of stock-based compensation expense in future periods.

Stock-based compensation expense recognized during the
period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. The Company records stock-based compensation expenses for instruments with graded vesting using the straight line method
over the vesting period, but in no event shall the amount expensed be less than the aggregate fair value of shares vested under such instruments. Stock-based compensation expense recognized in the Companys Consolidated Statement of Operations
for the year ended December 31, 2005 does not include compensation expense for share-based payment awards granted prior to, but not yet vested prior to the adoption of SFAS 123R since no instruments were outstanding. As stock-based compensation
expense recognized in the Consolidated Statement of Operations for the year ended is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. SFAS 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. The Company has estimated that no awards will be forfeited under the current award since that award contains acceleration provisions upon
termination.

SFAS 123(R) requires the cash flows resulting from the tax benefits resulting from tax deductions in excess of
the compensation cost recognized for those options to be classified as financing cash flows. Due to the Companys loss position, there were no such tax benefits during the year ended December 31, 2005.



23



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Prior to the adoption of SFAS 123(R) those benefits would have been reported as operating cash flows had the Company received any tax benefits related to
stock option exercises.



The weighted-average fair
value of the 918,000 options granted during the year ended December 31, 2005 was $0.54. The fair value of each option grant is estimated as of the date of grant using a binomial option-pricing model. The following assumptions were made for the
2005 grant:



|                                     |  |      
|------------------------------------ |  | -----
|                                     |  | 2005 
|Expected volatility                  |  | 80%  
|Expected dividend yield              |  | 0%   
|Expected lives of options (in years) |  | 5    
|Suboptimal Exercise Factor           |  | 2    
|Risk-free interest rate              |  | 4.00%

As a result of adopting SFAS 123(R) during the fourth quarter of 2005, the
Companys net loss for the year ended December 31, 2005 was approximately $8,150,000. Since no instruments were outstanding prior to adoption, the Companys net loss for the year ended December 31, 2005 was approximately $116,000 higher
than it would have been if it had continued to account for share-based compensation under APB Opinion No. 25. The Companys net loss per common share, basic and diluted, for the year ended December 31, 2005 was $0.93. The Companys
net loss per common share, basic and diluted, for the year ended December 31, 2005 would have been $0.92 if it had continued to account for share-based compensation under APB Opinion No. 25.

The aggregate compensation expense to be recognized for unvested awards is approximately $380,000 which will be recognized over the next
4.5 years. The intrinsic value of vested awards was $0 at December 31, 2005 as fair value of the Companys stock was less than the exercise price for all awards.

Net Loss per Common Share

Basic loss per share is computed by dividing net loss for the period by the weighted average number of common shares outstanding during the period. Diluted loss per share is computed by dividing net loss by the weighted average number of
common shares plus the dilutive effect of outstanding warrants.

The following potentially dilutive common share equivalents were excluded
from the calculation of diluted earnings per share at December 31, 2005 because they were anti-dilutive. There were no potentially dilutive common share equivalents at December 31, 2004.



|                |  |          
|--------------- |  | ---------
|                |  | 2005     
|Preferred Stock |  | 8        
|Options         |  | 918,000  
|Warrants        |  | 3,477,360
|                |  |          
|Total           |  | 4,395,368
|                |  |          

Comprehensive Loss

The Company reports its comprehensive loss in accordance with SFAS No. 130, Reporting Comprehensive Income, which requires
presentation of the components of comprehensive earnings. Comprehensive loss is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. The Company does
not have any additional components of Comprehensive Loss, and as such comprehensive loss is equal to the net loss for all periods presented.

Segment and Geographic Information

To date, the Company has viewed its operations and manages its business
as principally one segment. As a result, the financial information disclosed herein represents all of the material financial information related to the Companys principal operating segment in accordance with SFAS No. 131, Disclosures
About Segments of an Enterprise and Related Information. The Company has not had any sales through December 31, 2005 or conducted any operations outside of the United States.



24



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Recently Issued Accounting Standards

Effective February 3, 2006, the FASB decided to move forward with the issuance of a final FSP FAS 123R-4, Classification of Options
and Similar Instruments Issued as Employee Compensation That Allow for Cash Settlement upon the Occurrence of a Contingent Event. The guidance in this FSP FAS 123R-4 amends paragraphs 32 and A229 of FASB Statement No. 123R to incorporate the
concept articulated in footnote 16 of FAS 123R. That is, a cash settlement feature that can be exercised only upon the occurrence of a contingent event that is outside the employees control does not meet the condition in paragraphs 32 and A229
until it becomes probable that the event will occur. Originally under FAS 123R, a provision in a share-based payment plan that required an entity to settle outstanding options in cash upon the occurrence of any contingent event required
classification and accounting for the share based payment as a liability. This caused an issue under certain awards that require or permit, at the holders election, cash settlement of the option or similar instrument upon (a) a change in
control or other liquidity event of the entity or (b) death or disability of the holder. With this new FSP, these types of cash settlement features will not require liability accounting so long as the feature can be exercised only upon the
occurrence of a contingent event that is outside the employees control (such as an initial public offering) until it becomes probable that event will occur. The guidance in this FSP shall be applied upon initial adoption of Statement 123(R).
An entity that adopted Statement 123(R) prior to the issuance of the FSP shall apply the guidance in the FSP in the first reporting period beginning after February 2006. Early application of FSP FAS 123R-4 is permitted in periods for which financial
statements have not yet been issued. The Company does not anticipate that this new FSP will have any material impact upon its financial condition or results of operations.

The adoption of the following recent accounting pronouncements did not have a material impact on the Companys results of operations
and financial condition:

Emerging Issues Task Force (EITF) Issue No. 03-1, The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments.

In December 2004, the FASB issued SFAS No. 153, Exchanges of
Non-monetary Assetsan amendment of APB opinion No. 29 (SFAS 153). SFAS 153 clarifies that exchanges of non-monetary assets should be measured based on the fair value of the assets exchanged, with a general exception for exchanges that
have no commercial substance. SFAS 153 is effective for non-monetary asset exchanges occurring in fiscal periods beginning after June 15, 2005.

In March 2005, the FASB issued FIN 47, Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143 (FIN 47), which requires an entity to recognize a liability for the fair
value of a conditional asset retirement obligation when incurred if the liabilitys fair value can be reasonably estimated. FIN 47 is effective for fiscal years ending after December 15, 2005.

In May 2005, the FASB issued SFAS No. 154 Accounting Changes and Error Correctionsa replacement of APB Opinion
No. 20, and FASB Statement No. 3. (SFAS 154) SFAS 154 replaces APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements, and changes the requirements for
the accounting for and reporting of a change in accounting principle. This statement applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the
pronouncement does not include specific transition provisions. When a pronouncement includes specific transition provisions, those provisions should be followed. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal
years beginning after December 31, 2005.

In February 2006, the Financial Accounting Standards Board issued SFAS
No. 155, Accounting for Certain Hybrid Financial Instrumentsan amendment of FASB Statements No. 133 and 140. SFAS No. 155 simplifies the accounting for certain hybrid financial instruments, eliminates the FASBs
interim guidance which provides that beneficial interests in securitized financial assets are not



25



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subject to the provisions of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and eliminates the restriction on
the passive derivative instruments that a qualifying special-purpose entity may hold. SFAS No. 155 is effective for all financial instruments acquired or issued after the beginning of an entitys first fiscal year that begins after
September 15, 2006.

(3) LCM Merger

Pursuant to an asset purchase agreement, dated April 21, 2005, between Catcher and LCM, Catcher acquired certain assets in exchange for the assumption of $836,000 in accounts payable and notes payable of LCM and
its founder, and sole stockholder, Ira Tabankin, relating to the CATCHER device and the business of LCM. Mr. Tabankin was involved in the formation of Catcher and as of the date of the asset purchase owned approximately 36% of Catcher, Inc. The transaction was accounted for as a
reverse merger, and as such, the historical statements of the acquired business became the historical statements of Catcher. The Company assumed approximately $836,000 in accounts payable and notes payable. Certain patent rights held by creditors of
the Company, at the time of the asset purchase, were exchanged for shares in Catcher.

Prior to the LCM Merger, Catcher issued the
equivalent of 6,218,739 shares of Common Stock pursuant to subscription agreements for $0.001 per share and in exchange for property from a founder and future services of the newly hired members of management and certain consultants of Catcher. The
subscription agreements were contingent upon the closing of the UST Merger and a private placement of at least $4,500,000 (See Note 9). Both conditions were satisfied on May 4, 2005 and the shares were issued and then exchanged for shares of
UST (see Note 1A).

The Company attributed no value to the shares issued to Mr. Tabankin in Catcher as LCM was considered the acquirer
for accounting purposes pursuant to reverse merger accounting. In addition to Ira Tabankin, eight other individuals or entities were issued shares in Catcher. The Company determined that these eight parties received value in excess of what they paid
for their shares. The difference between the fair value of the shares of $0.89 and the price paid has been expensed during the year ended December 31, 2005 as follows:

The shares issued to Charles Sander and John Sutton were issued primarily for services as employees of Catcher. The value of the 2,472,973
fully vested shares of $2,200,656 has been recorded as stock based compensation expense in the accompanying statement of operations on May 4, 2005, the date on which a measurement date occurred in accordance with APB No. 25
Accounting for Stock Issued to Employees.

The shares issued to three consultants (See Note 7) and an outside
service provider were issued primarily for services rendered to Catcher. The Company determined that performance, as defined in EITF 96-18 Accounting for Equity Instruments That are Issued to Non-Employees for Acquiring, or in Conjunction with
Selling Goods or Services, was completed on May 4, 2005. The value of the 1,466,792 shares of $1,305,445 has been recorded as non-cash consulting expense in the accompanying statement of operations on May 4, 2005 as the shares were
fully vested and non-forfeitable on that date.

The shares issued to two promissory note holders, were issued as
consideration for the release of all claims to certain intellectual property of LCM that was collateral against certain defaulted loans. The Company determined that the release met the definition of a significant modification in accordance with EITF
96-19 Debtors Accounting for a Modification or Exchange of Debt Instruments (EITF No. 96-19). In accordance with EITF 96-19, the value of the 46,639 shares of $41,345 has been recorded as interest expense in the accompanying
statement of operations on May 4, 2005.

In December 2005, the Company reflected the preferred stock issued by Catcher, Inc. to the
sole stockholder as common stock outstanding since inception in the accompanying statement of Shareholders Equity (Deficit). The common stock reflects the conversion from preferred into common stock as well as the 1 for 7.2 reverse stock
split. This amount does not reflect the single share of preferred stock retained by the stockholder.



26



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(4) Prepaid expenses and other current assets

Prepaid expenses and other current assets consist of the following at:



|                                |  |                   |        
|------------------------------- |  | ----------------- | -------
|                                |  | December 31, 2005
|                                |  |                  
|Manufacturing Molds and Tooling |  | $                 | 419,088
|Units Released to Production    |  |                   | 102,707
|Software Royalties              |  |                   | 32,813 
|Retainers                       |  |                   | 10,000 
|Other                           |  |                   | 2,063  
|                                |  |                   |        
|Total                           |  | $                 | 566,671
|                                |  |                   |        

Units released to production consists of payments to the Companys
contract manufacturer to initiate production. These amounts will be recorded as inventory or cost of sales upon shipment of the completed product to the Company or to its customers, respectively.

(5) Fixed Assets

Fixed assets consist of the
following:



|                               |  |                   |         |   |             |            
|------------------------------ |  | ----------------- | ------- | - | ----------- | -----------
|                               |  | December 31, 2005 |         |   | Useful Life
|                               |  |                   |         |   |            
|Manufacturing Equipment        |  | $                 | 289,450 |   |             | 3 - 7 years
|Computer Equipment             |  |                   | 13,837  |   |             | 3 years    
|Office Equipment               |  |                   | 2,693   |   |             | 5 years    
|Furniture and Fixtures         |  |                   | 16,038  |   |             | 7 years    
|                               |  |                   |         |   |             |            
|                               |  |                   | 322,018 |   |             |            
|Less: Accumulated Depreciation |  |                   | (1,156  | ) |             |            
|                               |  |                   |         |   |             |            
|Fixed Assets, Net              |  | $                 | 320,862 |   |             |            
|                               |  |                   |         |   |             |            

Depreciation expense was $1,156 for the year ended December 31, 2005. We did not
record any depreciation on manufacturing equipment as it was not placed in service as of December 31, 2005.

(6) Accrued Expenses and Other Current
Liabilities

Accrued expenses and other current liabilities consist of the following:



|                     |  |                  |        
|-------------------- |  | ---------------- | -------
|                     |  | December 31,2005
|                     |  |                 
|Employee Benefits    |  | $                | 316,310
|Professional Fees    |  |                  | 164,000
|Subscription Payable |  |                  | 44,235 
|Settlement (Note 7)  |  |                  | 50,000 
|Industrial Design    |  |                  | 39,136 
|Other                |  |                  | 34,022 
|                     |  |                  |        
|Total                |  | $                | 647,703
|                     |  |                  |        



27



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(7) Commitments and Contingencies

Operating Leases

In
December 2005, the Company entered into an operating lease for office space in Carlsbad, California. The lease, which expires in 2009, contains a renewal option by the Company for two additional one-year terms. In addition, the Company has an option
to terminate the lease after two years. In February 2005, the Company entered into a lease for office space in Round Rock, Texas. The lease contains an option to terminate the lease after two years. Total rent expense under operating leases was
$4,642 for the year ended December 31, 2005. Future minimum lease payments required under non-cancelable operating leases at December 31, 2005, including the Round Rock, Texas lease, are as follows:



|                                |  |   |        
|------------------------------- |  | - | -------
|2006                            |  | $ | 93,590 
|2007                            |  |   | 114,231
|2008                            |  |   | 116,255
|2009                            |  |   | 11,358 
|                                |  |   |        
|Total minimum lease commitments |  | $ | 335,434
|                                |  |   |        

Employment Contracts

Catcher entered into employment agreements with its Chief Executive Officer, Chief Technology Officer, Chief Financial Officer and Vice
President of Engineering. The employment agreements expire at various times through 2008. The agreements provide for initial aggregate annual base compensation of $816,000 per year. With the exception of Vice President of Engineering, whos
bonus amount is at the discretion of the board, each of the other employment agreement provide for the participation in any incentive bonus program adopted by the Company, provided that in no event will such incentive bonus program provide for a
bonus of less than 50% of the respective base salary upon achievement of certain goals.

Consulting Agreements

Catcher entered into a Consulting Agreement with Hayden Communications, Inc. dated as of May 1, 2005 for a one year period at a fee
of $5,000 per month. Immediately following the Acquisition, a fee totaling $160,000 was paid to Hayden Communications, Inc. for services performed prior to May 2005. Hayden Communications, Inc. is a stockholder in the Company.

Catcher entered into a Consulting Agreement with The Del Mar Consulting Group, Inc. (DCG) dated April 21, 2005 for a one
year period at a fee of $5,000 per month. DCG is a stockholder of the Company.

Catcher entered into a Consulting Agreement
with Kai Hansen dated April 21, 2005 for a one year period at a fee of $5,000 per month. Kai Hansen is a stockholder of the Company.

The Company recorded an aggregate expense of $295,000 for services provided under the contracts described above which is included in selling, general and administrative expense for the year ended December 31,
2005.

In addition, Catcher entered into a Services Agreement with BlackFord Partners, Inc., dated as of May 6, 2005,
whereby BlackFord Partners, Inc. agreed to provide financial and accounting services. Pursuant to an Amendment to the Services Agreement, dated as of June 24, 2005, warrants to purchase 85,000 shares of the Companys common stock at an
exercise price of $3.74 were issued to the principals of BlackFord Partners, Inc. which include Jeff Gilford, the Companys Chief Financial Officer. The Company has valued the warrants at $17,030 using the binomial option pricing model and the
following assumptions; Stock Price $0.89, Volatility, 80%, Risk Fee Interest Rate 3.37%, Dividends 0%. The value of the warrant is included in selling, general and administrative expense for the year ended December 31, 2005.



28



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Software License Agreements

In October 2005 the Company entered into a license agreement which included the purchase of a source code license for $50,000 and provides
for royalty payments of $2.00 per end user license. Payment for the source code license is due upon the achievement of certain milestones as defined in the agreement. The Company paid $15,000 during the year ended December 31, 2005 which is
included in research and development expenses in the accompanying statement of operations. The agreement can be terminated by the counterparty in the event that the Company does not purchase 200,000 end user licenses through 2008. In addition to the
royalty payment, the Company will pay an additional $20,000 for maintenance of end user licenses beginning in 2006.

In
November 2005 the Company entered into a software license agreement which included the purchase of a source code license for $30,000 and provides for royalty payments of $5.25 per end user license. The Company has committed to purchase the end user
licenses pursuant to the following schedule:



|      |  |          |  |         |        
|----- |  | -------- |  | ------- | -------
|      |  | Licenses |  | Royalty
|2006  |  | 43,750   |  | $       | 229,687
|2007  |  | 25,000   |  |         | 131,250
|      |  |          |  |         |        
|Total |  | 68,750   |  | $       | 360,937
|      |  |          |  |         |        

The Company recorded payments of $32,813 as prepaid royalties which is
included in prepaid expenses and other current assets at December 31, 2005. The Company recorded the source code license fee as expense which is included in research and development expenses for the year ended December 31, 2005.

Manufacturing Agreement

In November 2005, the Company entered into a manufacturing agreement with a supplier to manufacture its product. Under the agreement, the Company incurred production startup costs including $204,950 for tooling and
$84,500 for non-recurring engineering costs which have been capitalized. The Company may be obligated to pay an additional $58,000 of non-recurring engineering costs under certain conditions defined in the agreement.

Teaming Agreement

In
June 2005, an entity, with which the Company entered into a teaming agreement, asserted that it retained exclusive rights to distribute the CATCHER device. On November 10, 2005, the Company entered into a release and settlement agreement with the entity pursuant to which the parties terminated
the prior teaming agreement and granted mutual releases. As part of the release and settlement agreement, the Company agreed to pay the entity an aggregate of $50,000 as follows: $25,000 upon completion of the first 1,001 production units and
$25,000 upon completion of the first 5,001 production units or in the event that either of these milestones do not occur before June 30, 2006 the entire amount is due on that date. The Company has recorded an accrued liability of $50,000
related to this settlement at December 31, 2005.

(8) Income Taxes

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. As of
December 31, 2005, the Company has net operating loss carry forwards of approximately $4,098,000, available to offset future federal and state taxable income to the extent permitted under the Internal Revenue Code (IRC), expiring in varying
amounts through 2025. Under the IRC, certain substantial changes in the Companys ownership may limit the amount of net operating loss carry forwards that can be utilized in any one year to offset future taxable income.



29



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The Company experienced a change in ownership, as defined, in May 2005. As a result, the Company has
limited use of operating loss carry forwards from both LCM Technologies, Inc. and U.S. Telesis Holdings, Inc.

The Company has net deferred
tax assets at December 31, 2005 that consist of the following:



|                                     |  |      |            |   |      |   |          |  
|------------------------------------ |  | ---- | ---------- | - | ---- | - | -------- | -
|                                     |  | 2005 |            |   | 2004 |  
|Deferred tax assets:                 |  |      |            |   |      |   |          |  
|Net operating loss carryforwards     |  | $    | 1,650,000  |   |      | $ | 254,000  |  
|Capitalized research and development |  |      | 40,000     |   |      |   | 0        |  
|Research credits carryforwards       |  |      | 100,000    |   |      |   | 0        |  
|Accrued expenses                     |  |      | 112,000    |   |      |   | 0        |  
|Stock-based compensation             |  |      | 47,000     |   |      |   | 0        |  
|                                     |  |      |            |   |      |   |          |  
|Total deferred tax assets            |  |      | 1,949,000  |   |      |   | 254,000  |  
|Valuation allowance                  |  |      | (1,949,000 | ) |      |   | (254,000 | )
|                                     |  |      |            |   |      |   |          |  
|Net deferred tax assets              |  | $    |           |   |      | $ | 0        |  
|                                     |  |      |            |   |      |   |          |  

The Company has provided a valuation allowance for the full amount of these net deferred
tax assets, since it is more likely than not that these future benefits will not be realized. However, these deferred tax assets may be available to offset future income tax liabilities and expenses. The change in the valuation allowance of
$1,949,000 is primarily attributable to the net loss for the year ended December 31, 2005.

The differences between the provision for
income taxes and income taxes computed using the U.S. federal income tax rate was as follows for the years ended December 31:



|                                                                                   |  |                            |            |   |      |   |          |  
|---------------------------------------------------------------------------------- |  | -------------------------- | ---------- | - | ---- | - | -------- | -
|                                                                                   |  | 2005As RestatedSee Note 1B |            |   | 2004 |  
|Amount computed using statutory rate (34%)                                         |  | $                          | (2,771,000 | ) |      | $ | (254,000 | )
|Net change in valuation allowance for net deferred tax assets                      |  |                            | 1,595,000  |   |      |   | 254,000  |  
|Non-deductible stock compensation and acquired in process research and development |  |                            | 1,174,000  |   |      |   |         |  
|Other                                                                              |  |                            | 2,000      |   |      |   |         |  
|                                                                                   |  |                            |            |   |      |   |          |  
|Provision for Income taxes                                                         |  | $                          |           |   |      | $ |         |  
|                                                                                   |  |                            |            |   |      |   |          |  

(9) Equity Transactions

Private Placement

On
May 4, 2005, Catcher sold in a private placement 4,500,386 shares of Common Stock and warrants to purchase an additional 4,500,386 shares of Common Stock to private investors for net proceeds of $4,293,690 (the Private Placement).
These shares, together with the 348,515 common shares and 733,778 preferred shares issued to the founders, were exchanged for shares in UST on May 4, 2005 (see Note 1A). The warrants vested immediately and expire in May of 2015. The warrants
have exercise prices ranging from $1.00 to $1.50. The warrants are callable at the exercise price by the Company upon completing certain milestones defined in the agreement. The warrants were assumed by the Company in the Acquisition.

In connection with the Private Placement, the Company entered into a Registration Rights Agreement which provided that the Company would
incur penalties if it failed to file a registration statement within 90 days of the Private Placement (the Filing Deadline). Prior to the Filing Deadline, the Company filed the registration statement on August 1, 2005.



30



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The Company may incur penalties pursuant to the Registration Rights Agreement in the
event that, due to the fault of the Company, its registration statement is not deemed effective by the Securities and Exchange Commission within 180 days of the Private Placement. In the event that the Company fails to meet the filing deadline or,
at the fault of the Company, does not cause the registration statement to become effective within 180 days of the private placement, the Company must pay, at the option of the holder, either 1% of the total proceeds of the private placement for each
30 day period in which the Company is in default or issue the equivalent number of warrants to purchase private placement units at the private placement price. The registration statement was not declared effective by the Securities and Exchange
Commission prior to being withdrawn in January 2006 (See Note 12). The Company has amended the related Registration Rights Agreement (See Note 12). The amendment does not require the Company to file a registration statement for these securities
unless a demand is made by at least 25% of the holders upon effectiveness of a registration statement of shares from new equity financings which in the aggregate exceed $10 million.

The Company has the ability to deliver unregistered shares as payment of liquidated damages under the agreement and has determined that
the maximum potential liquidated damages that can be realized under the Amended and Restated Registration Rights Agreement does not represent a penalty as defined in EITF 00-19, Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Companys Own Stock. Therefore, net-share settlement was presumed and liability classification was not appropriate, because the maximum liquidated damages was less than a reasonable discount between registered and
unregistered shares. The Company believes that the contract does not require net-cash settlement and has classified the instrument as equity.

Series A Warrant Exercise

In October, 2005, a total of 22 investors holding Series A warrants to purchase
shares of the Companys Common Stock made a partial exercise of such Series A warrants purchasing approximately 1,108,000 shares of the Companys Common Stock in exchange for aggregate proceeds to the Company of approximately $1.66
million. At December 31, 2005, the Company had not issued stock to an investor that tendered proceeds to exercise their warrant due to the lack of appropriate documentation. The Company included the $44,235 in accrued expenses at
December 31, 2005. The Company reserved 29,490 shares for issuance upon receipt of the appropriate documentation and has included these shares in the calculation of basic and diluted loss per share at for the year ended December 31, 2005
and for the period from inception (March 31, 2004) through December 31, 2005. These shares were issued in conjunction with the Series A exercise in February 2006, see below.

(10) Stock Based Compensation

Adoption of 2005 Stock Incentive Plan and Termination of Prior
Plans

On October 24, 2005, the Companys Board of Directors (the Board) approved the
Companys 2005 Stock Incentive Plan (the 2005 Stock Incentive Plan). The Company has reserved 2,219,000 shares of the Companys common stock for issuance under the 2005 Stock Incentive Plan, subject to adjustment for a stock
split, or any future stock dividend or other similar change in the Companys common stock or capital structure. The continuance of the 2005 Stock Incentive Plan is subject to approval of the plan by the Companys stockholders which must be
obtained within 12 months of Board approval date of the 2005 Stock Incentive Plan. The 2005 Stock Incentive Plan provides for the grant of stock options, restricted stock, restricted stock units, stock appreciation rights and dividend equivalent
rights, collectively referred to as awards. Stock options granted under the 2005 Stock Incentive Plan may be either incentive stock options under the provisions of Section 422 of the Internal Revenue Code, or non-qualified stock
options. Incentive stock options may be granted only to employees. Awards other than incentive stock options may be granted to employees, directors and consultants. The Board or a committee designated by the Board, referred to as the plan
administrator, will administer the 2005 Stock Incentive Plan, including selecting the participants,



31



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determining the number of shares to be subject to each award, determining the exercise or purchase price of each award and determining the vesting and
exercise periods of each award. Unless terminated sooner, the 2005 Stock Incentive Plan will automatically terminate in 2015. The Board will have authority to amend or terminate the 2005 Stock Incentive Plan. No amendment or termination of the 2005
Stock Incentive Plan shall adversely affect any rights under awards already granted to a participant unless agreed to by the affected participant. To the extent necessary to comply with applicable provisions of federal securities laws, state
corporate and securities laws, the Internal Revenue Code, the rules of any applicable stock exchange or national market system, and the rules of any non-U.S. jurisdiction applicable to awards granted to residents therein, the Company will obtain
stockholder approval of any such amendment to the 2005 Stock Incentive Plan in such a manner and to such a degree as required.

On October 24, 2005, the Board terminated the Employee Stock Plan and Director Stock Plan that the Board previously had approved on June 24, 2005 (the Prior Plans). The Prior Plans had been approved subject to
stockholder approval. The Prior Plans never became effective and no awards were granted under the Prior Plans prior to their termination.

On October 24, 2005, the Board approved the form of option agreement evidencing the June 24, 2005 grant to Jeff Gilford, the Companys Chief Financial Officer. The Board had previously approved the
option grant to Mr. Gilford on June 24, 2005, but the form of option agreement was not finalized and approved by the Board until October 24, 2005. The Board also clarified on October 24, 2005 that the grant was not subject to
stockholder approval. The Company has determined that the measurement date occurred on October 24, 2005 and valued the shares at $0.54 using a binomial option-pricing model. The Company recorded compensation expense of $116,363, during the year
ending December 31, 2005 for options that vested under this award. At December 31, 2005, 217,500 options had vested under this award.

The award to Mr. Gilford was for an option to purchase 918,000 shares of the Companys common stock at an exercise price of $3.74 per share. This option was granted pursuant to the terms of a Notice of Stock
Option Award (including a Stock Option Agreement) outside of any stock incentive plan of the Company. In addition to the other terms set forth in the Notice of Stock Option Award, the First Tranche of the Mr. Gilfords option
represents the right to purchase 580,000 shares, 25% of the shares subject to the First Tranche vested on June 16, 2005 (the Vesting Commencement Date), and 1/36 of the remaining shares subject to the First Tranche vest on each
monthly anniversary of the Vesting Commencement Date, such that the shares subject to the First Tranche will be fully vested three years after the Vesting Commencement Date. The Second Tranche of the option represents the right to
purchase 193,000 shares, 25% of the shares subject to the Second Tranche vest 12 months after the Vesting Commencement Date and 1/36 of the remaining shares subject to the Second Tranche vest on each monthly anniversary of the Vesting Commencement
Date thereafter, such that the shares subject to the Second Tranche will be fully vested four years after the Vesting Commencement Date. The Third Tranche of the option represents the right to purchase 145,000 shares, 25% of the shares
subject to the Third Tranche vest 24 months after the Vesting Commencement Date and 1/36 of the remaining shares subject to the Third Tranche vest on each monthly anniversary of the Vesting Commencement Date thereafter, such that the shares subject
to the Third Tranche will be fully vested five years after the Vesting Commencement Date. The vesting of the shares underlying the option accelerates in certain circumstances relating to the termination of Mr. Gilfords service to the
Company or a change in control of the Company. The options expire on June 15, 2005.

In December 2005, the Board approved
the grant of 430,000 options, to purchase its common stock to employees. A grant date, as defined in SFAS 123R, will not occur for these awards or subsequent awards until the plan has been approved by the shareholders.



32



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A summary of stock option activity under all plans is as follows:



|                             |  |         |  |                          |     
|---------------------------- |  | ------- |  | ------------------------ | ----
|                             |  | Shares  |  | Weighted-AverageExercise
|Balance at Inception         |  |        |  | $                        |    
|2004 Activity:               |  |         |  |                          |     
|Granted                      |  |        |  |                          |    
|Exercised                    |  |        |  |                          |    
|Cancelled                    |  |        |  |                          |    
|                             |  |         |  |                          |     
|Balance at December 31, 2004 |  |        |  | $                        |    
|2005 Activity:               |  |         |  |                          |     
|Granted                      |  | 918,000 |  |                          | 3.74
|Exercised                    |  |        |  |                          |    
|Cancelled                    |  |        |  |                          |    
|                             |  |         |  |                          |     
|Balance at December 31, 2005 |  | 918,000 |  | $                        | 3.74
|                             |  |         |  |                          |     

Stock options exercisable and available for future grants are as follows:



|                            |  |           |  |                               |      |                               |          
|--------------------------- |  | --------- |  | ----------------------------- | ---- | ----------------------------- | ---------
|                            |  | 2005     
|                            |  | Shares    |  | Weighted-AverageExercisePrice |      | Weighted-AverageRemainingLife
|Exercisable                 |  | 217,500   |  | $                             | 3.74 |                               | 9.5 years
|Available for future grants |  | 1,789,000 |  |                               |      |                               |          

Restricted Stock

In December 2005, the Board approved the grant of 280,000 shares of restricted stock to an officer and the three independent members of
the board of directors for services to be provided. The awards vest over various periods through 2009. The awards were contingent upon the Company filing a valid registration statement on Form S-8 as well as the Company obtaining the necessary state
approvals. Compensation will be measured on the date upon which the grants are deemed to occur (the contingencys are resolved). Compensation will be recognized from that date forward as the awards vest.

On March 14, 2006 the Company satisfied the necessary requirements and issued the restricted common stock agreements described above. The
Company valued the stock at $3.69 per share based on the market price on the date of grant and will record this as deferred compensation in the first quarter of 2006 and recognize compensation expense as the awards vest.

(11) Related Party Transactions

Office Space

During the year ended December 31, 2005, an officer contributed office space to the Company. No expense was attributed
to these services as the Company is still in the early stage of development.

Consulting Agreements

The Company has entered into consulting agreements with certain related parties (See Note 7).



33



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(12) Subsequent Events

Series A Warrant Exercise

On February 2, 2006, the Company issued Series C
Warrants to each Series A Holder (collectively, the Participating Series A Holders) that (i) exercised all Series A Warrants held by the Series A Holder, (ii) executed the Amended and Restated Registration Rights Agreement and
(iii) executed the Warrant Amendment, by February 2, 2006. An aggregate of 1,677,285 Series C Warrants were issued to the Participating Series A Holders and are now outstanding. The Series C Warrants are non-callable, entitle the holder to
purchase one share of the Common Stock at $2.50 per share and are exercisable for a period of five years (the Exercise Period). The Company valued the Series C Warrants at $0.64 per share using a binomial option-pricing model. The
Company will record the value of the warrants as interest expense in the quarter ending March 31, 2006.

In connection
with the issuance of the Series C Warrants, the Company issued to the Participating Series A Holders an aggregate of 569,258 shares of our Common Stock upon the exercise of outstanding Series A Warrants held by such investors. The Company received
total proceeds of approximately $854,000 in cash upon such exercises.

Amendment to Series A and Series B Warrants

On February 2, 2006, the Company entered into Amendment No. 1 to the Series A and Series B Warrants effective as of
February 2, 2006 (the Warrant Amendment) with the Participating Series A Holders. The Amendment changed the reference in Section 13 of the Series A Warrants and in Section 13 of the Series B Warrants to the
Registration Rights Agreement to instead reference the Amended and Restated Registration Rights Agreement, dated as of February 2, 2006, as amended from time to time.

Registration Statement and Amendment to Registration Rights Agreement

On January 3, 2006 the Company withdrew its registration statement on form SB-2 prior to it being declared effective by the SEC. In
addition, on February 2, 2006, the Company entered into an Amended and Restated Registration Rights Agreement (the Amended Rights Agreement), The Amended Rights Agreement subordinates the contractual registration rights of
Mr. Tabankin and Mr. Sander (the Officers) such that they will not have the right to register their shares on any registration statement until all of the Registrable Securities held by persons that are not affiliates of the
Company have been registered.

The Amended Rights Agreement further provides that (i) all parties to the Amended Rights
Agreement are to be subordinate to the registration rights to be granted in certain future financings by the Company as defined; (ii) any amounts that may have been due to them on account of any default under the Prior Rights Agreement are
waived and such penalty provisions are eliminated on a going forward basis; and (iii) the Company may, in its discretion, reduce the amount of Registrable Securities to be included in any registration statement on a pari passu basis with each
other party to the Amended Rights Agreement and with any other parties as defined in the Amended Rights Agreement.

In the
event that the Company receives, at any time after the consummation of one or more equity financings in which the Company receives gross proceeds of at least $10,000,000 in the aggregate (the Next Financing), a written request from the
Holders of a majority of the Registrable Securities then outstanding that the Company file a registration statement under the Securities Act covering the registration of at least 25% of the then outstanding Registrable Securities and, following such
request, the Company fails to include at least 70% of the securities so requested to be registered, (such excluded securities hereinafter referred to as the Excluded Securities) and fails to file an additional registration statement
including the Excluded Securities as required by the registration rights agreement, the Company must pay, at the option of the holder, liquidated damages equal to either each holders pro-rata portion of $45,000 for each 30 day period in which
the Company is in default, or each holders pro-rata portion of private placement units which could have been purchased for an aggregate of $45,000.



34



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Private Placement

In January 2006, the Company entered into an agreement with a placement agent to conduct the offer of its securities in a private
placement (Offering). Certain of the Companys stockholders have an ownership interest in the placement agent. The contract provides for the Placement Agent to be paid a fee equal to 8% of the gross proceeds received from the sale
of units comprising the Companys shares and warrants (Units) sold in the Offering. In addition, the Company will issue to the Placement Agent warrants to purchase Units equal to 8% of the Units sold in the Offering. The placement
agent will receive a reduced fee equal to 4% cash and 4% warrants to purchase Units on any proceeds invested by certain existing or known investors. In addition, the placement agent is entitled to receive 2% of the proceeds from the exercise of
warrants issued in the offering, and for a period of 12 months from the closing date of the Offering, the placement agent will receive 8% of the proceeds received from any investor who participated in the Offering.

On March 15 and March 17, 2006, the Company completed a private placement whereby it sold 2,682,000 shares of our Common Stock
(the Shares) and issued Series D warrants to purchase another 1,341,000 shares of our Common Stock (the Series D Warrant Shares) to accredited investors (as defined by Rule 501 under the Securities Act of 1933, as amended),
resulting in proceeds, net of issuance costs, of approximately $6,111,000 (the transaction is referred to herein as the 2006 Private Placement). Included in the issuance costs is the placement agents fee of $506,400. In addition,
the Company issued a warrant to the placement agent to purchase 101,280 units sold in the private placement at $5.00 per unit. The purchase of these units would result in the issuance of an additional 202,560 shares of Common Stock and 101,280
Series D warrants to purchase Common Stock. The Series D warrants have an exercise price of $3.50 per share and expire 5 years from the date of issuance. The Company will evaluate the appropriate classification of the warrants issued in accordance
with EITF Issue No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Companys Own Stock, during the first quarter of 2006.

In connection with the 2006 Private Placement, the Company entered into a Registration Rights Agreement which provides for the
registration of the Shares within 45 days of the closing date and registration of the Series D Warrant Shares at a later date as defined in the Registration Rights Agreement (the March 2006 Registration Rights Agreement). The Company may
incur liquidated damages for every 30 days that it is in default of the following provisions:



| |  |  | The Company fails to file registration statements, as defined in the March 2006 Registration Rights Agreement.
| | - |  | --------------------------------------------------------------------------------------------------------------



| |  |  | The Company fails respond to comments from the Commission on a timely basis, as defined in the March 2006 Registration Rights Agreement.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The registration statements are not declared effective by the Commission, as defined in the March 2006 Registration Rights Agreement.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------



| |  |  | After a registration statement is first declared effective by the Commission, if it ceases for any reason to remain continuously effective, as defined in the March 2006 Registration
Rights Agreement, as to all registrable securities.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The amount of liquidated damages is the amount of Shares
and Warrants equal to one percent (1%) of the respective number of Shares and Warrants sold to such Investor pursuant to the Purchase Agreement which would be issued to investors for no additional cost.



35



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ITEM 8A. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is
recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms and that such information is accumulated and communicated to our management including our Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and
operated can provide only reasonable assurance of achieving the desired control objectives and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by Rule 13a-15(b) under the Exchange Act, we conducted an evaluation under the supervision and with the participation of our management,
including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based upon the foregoing
evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of the end of the fiscal period covered by this report.

After completing our evaluation, in July 2006 we received comments from the SEC staff in relation to Amendment No. 1 to our
Registration Statement on Form SB-2. After considering the staffs comments, our management and the Audit Committee of the Companys Board of Directors concluded that we needed to restate certain of our consolidated financial statements to
correct an error in the application of accounting principles with respect to the accounting for acquired research and development. Such restatement is described in more detail in Note 1B to our Consolidated Financial Statements included in our
Annual Report on Form 10-KSB/A for the year ended December 31, 2005. Based on the foregoing, our Chief Executive Officer and our Chief Financial Officer reviewed and reevaluated the effectiveness of our disclosure controls and procedures as of the
end of the period covered by this report to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commissions rules and forms. Our Chief Executive Officer and our Chief Financial Officer determined that our disclosure controls and procedures were effective at the reasonable assurance level
as of the end of the period covered by this report, notwithstanding the error requiring the restatement. This was based on their conclusion that the error was not indicative of inadequate disclosure controls and procedures.

There has been no change in our internal controls over financial reporting during our most recent fiscal quarter that has materially affected, or is
reasonably likely to have a materially affect, our internal controls over financial reporting.

ITEM 13. EXHIBITS



|          |  |                                                                                                                                   
|--------- |  | ----------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT # |  | DESCRIPTION                                                                                                                       
|23.1      |  | Consent of Stonefield Josephson, Inc.                                                                                             
|          | 
|23.2      |  | Consent of Vitale, Caturano & Company, Ltd.                                                                                       
|          | 
|31.1      |  | Certification of Chief Executive Officer pursuant to Rule 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as amended.
|          | 
|31.2      |  | Certification of Chief Financial Officer pursuant to Rule 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as amended.
|          | 
|32.1      |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.           



36



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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.

September 19, 2006

Catcher Holdings, Inc.



By

/s/ Charles SanderCharles SanderPresident(Principal Executive Officer)


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



|                                       |  |                                                                               |  |                   
|-------------------------------------- |  | ----------------------------------------------------------------------------- |  | ------------------
|SIGNATURE                              |  | TITLE                                                                         |  | DATE              
|                                       |  |                                                                              
|/s/ Charles Sander                     |  | Chief Executive Officer, President and Director (Principal Executive Officer) |  | September 19, 2006
|Charles Sander                         |  |                                                                              
|                                       |  |                                                                              
|/s/ Debra R. Hoopes                    |  | Chief Financial Officer (Principal Financial and Accounting Officer)          |  | September 19, 2006
|Debra R. Hoopes                        |  |                                                                              
|                                       |  |                                                                              
|/s/ Ira Tabankin                       |  | Secretary and Director                                                        |  | September 19, 2006
|Ira Tabankin                           |  |                                                                              
|                                       |  |                                                                              
|/s/ *                                  |  | Director                                                                      |  | September 19, 2006
|Harry Casari                           |  |                                                                              
|                                       |  |                                                                              
|/s/ *                                  |  | Director                                                                      |  | September 19, 2006
|Rear Admiral (Retired) Cathal L. Flynn |  |                                                                              
|                                       |  |                                                                              
|/s/ *                                  |  | Director                                                                      |  | September 19, 2006
|H. Clayton Foushee, Jr.                |  |                                                                              



|     |  |                   
|---- |  | ------------------
|*By: |  | /s/ Charles Sander
|     |  | Charles Sander    
|     |  | Attorney-in-fact  



37