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UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-KSB

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THESECURITIES EXCHANGE ACT OF 1934FOR THE FISCAL YEAR ENDED DECEMBER31, 2005

Commission File Number 000-12817

SONA MOBILE HOLDINGS CORP.

(Exact name of small business issuer asspecified in its charter)

|                                                              |  |                                     |  |  |  |  |
|--------------------------------------------------------------|--|-------------------------------------|--|--|--|--|
| Delaware                                                     |  | 95-3087593                          |
| (Stateor other jurisdictionof incorporation or organization) |  | (I.R.S. EmployerIdentification No.) |
|                                                              |

825 Third Avenue, New York,New York 10022

(Address of principalexecutive office)

(866) 274-4040

(Issuer’s telephone number, includingarea code)

Check whether the issuer: (1) filedall reports required to be filed by Section 13 or 15(d) of the ExchangeAct during the past 12 months (or for such shorter period that theissuer was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.    Yes      No 

Indicate by checkmark if disclosure of delinquent filers pursuant to Rule 405 ofRegulation S-K is not contained herein, and will not be contained, tothe best of issuer’s knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of thisForm or any amendment to this Form 10-KSB.    

Indicate by check mark whether the registrant is a shellcompany (as defined in Rule 12b-2 of the ExchangeAct).    Yes     No 

Issuer’s revenues for its most recent fiscal year:$565,489.

As of March 28, 2006, the aggregatemarket value of the voting stock held by non-affiliates of the Issuerwas approximately $59.4 million. The market value of theIssuer’s voting stock was computed by reference to the averageof the closing bid and asked prices of the Issuer’s Common Stockon such date.

As of March  28,  2006, therewere 40,316,710 shares of the Issuer’s Common Stockoutstanding.

Transitional Small Business DisclosureFormat.    Yes     No 

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SONA MOBILEHOLDINGS CORP

YEAR ENDED DECEMBER 31, 2005FORM 10-KSB

ANNUAL REPORT

TABLE OF CONTENTS

|            |  |                                                                                                               |  |  |  |  |
|------------|--|---------------------------------------------------------------------------------------------------------------|--|--|--|--|
| PartI.     |  |                                                                                                          |
| Item1.     |  | Descriptionof Business                                                                                        |
| Item 2.    |  | Descriptionof Property                                                                                        |
| Item 3.    |  | LegalProceedings                                                                                              |
| Item 4.    |  | Submissionof Matters to a Vote of Security Holders                                                            |
| PartII.    |  |                                                                                                          |
| Item 5.    |  | Market forCommon Equity and Related Stockholders Matters                                                      |
| Item 6.    |  | Management's Discussion andAnalysis or Plan of Operation                                                      |
| Item7.     |  | Financial Statements                                                                                          |
| Item8.     |  | Changes in and Disagreements with Accountants on Accountingand Financial Disclosure                           |
| Item8A.    |  | Controls and Procedures                                                                                       |
| Item8B     |  | Other Information                                                                                             |
| PartIII.   |  |                                                                                                          |
| Item 9.    |  | Directors,Executive Officers, Promoters and Control Persons; Compliance withSection 16(a) of the Exchange Act |
| Item10.    |  | Executive Compensation                                                                                        |
| Item11.    |  | Security Ownership of Certain Beneficial Owners andManagement and Related Stockholder Matters                 |
| Item 12.   |  | Certain Relationships and RelatedTransactions                                                                 |
| Item13.    |  | Exhibits                                                                                                      |
| Item14.    |  | Principal Accountant Fees and Services                                                                        |
| Signatures |  |                                                                                                          |
|            |

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PART I

FORWARD-LOOKING STATEMENTS

Certain statements made in thisAnnual Report on Form 10-KSB are ‘‘forward-lookingstatements’’ within the meaning of Section 21E of theSecurities and Exchange Act of 1934 regarding the plans and objectivesof management for future operations and market trends and expectations.The words ‘‘expect,’’‘‘believe,’’ ‘‘plan,’’‘‘intend,’’‘‘estimate,’’‘‘anticipate,’’‘‘propose,’’ ‘‘seek’’and similar words and variations thereof, when used, are intended tospecifically identify forward-looking statements. Such statementsinvolve known and unknown risks, uncertainties and other factors thatmay cause our actual results, performance or achievements to bematerially different from any future results, performance orachievements expressed or implied by such forward-looking statements.The forward-looking statements included herein are based on currentexpectations that involve numerous risks and uncertainties. Our plansand objectives are based, in part, on assumptions involving thecontinued expansion of our business. Assumptions relating to theforegoing involve judgments with respect to, among other things, futureeconomic, competitive and market conditions and future businessdecisions, all of which are difficult or impossible to predictaccurately and many of which are beyond our control. Although webelieve that our assumptions underlying the forward-looking statementsare reasonable, any of the assumptions could prove inaccurate and,therefore, we cannot assure you that the forward-looking statementsincluded in this report will prove to be accurate. In light of thesignificant uncertainties inherent in the forward-looking statementsincluded herein, the inclusion of such information should not beregarded as a representation by us or any other person that ourobjectives and plans will be achieved. Readers are cautioned not toplace undue reliance on these forward-looking statements, which reflectmanagement’s analysis only as of the date hereof. We do notundertake any obligation to publicly revise these forward-lookingstatements to reflect events or circumstances that arise after the datehereof. Readers should carefully review the risk factors described inthis report and other documents we file from time to time with theSecurities and Exchange Commission, including our Quarterly Reports onForm 10-QSB and Current Reports on Form 8-K.

The terms‘‘we’’, ‘‘our’’,‘‘us’’, and derivatives thereof, as used hereinrefer to Sona Mobile Holdings Corp., a Delaware corporation, and itssubsidiaries and its predecessor, Sona Mobile, Inc., a State ofWashington corporation.(‘‘Sona-Washington’’).

|              |                         |
|--------------|-------------------------|
| Item1.  | Description of Business |

Introduction

We are a Wireless Software and ServiceProvider specializing in value-added services to data-intensivevertical and horizontal market segments. Through our subsidiaries, wedevelop, market and sell wireless data application software for mobiledevices in the rapidly growing wireless data marketplace. Our revenuesconsist project, licensing and support fees relating to the SonaWireless PlatformTM ("SWP")and related end-user wireless application software products madeavailable to enterprises and cellular operators.

Ourpredecessor, Sona-Washington, commenced operations in November2003. On April  19,  2005 (the ‘‘MergerDate’’) , pursuant to an Agreement and Plan of Merger datedas of March  7,  2005 (the ‘‘MergerAgreement’’), Sona-Washington, merged with and intoPerfectData Acquisition Corporation (‘‘MergerSub’’), a Delaware corporation and a wholly-ownedsubsidiary of PerfectData Corporation, a then inactive publicly heldDelaware corporation (‘‘PerfectData’’). Inconnection with the merger (the ‘‘Merger’’), onthe Merger Date,

|  |              |                                                                                                                                                                                                         |
|--|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | PerfectData’s directorsand officers resigned and Sona-Washington’s nominees wereelected to our Board of Directors; and officers designated bySona-Washington were elected by our Board; and |

|  |              |                                                                                                                                                                                                                                                                                                                    |
|--|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | the former shareholders ofSona-Washington received shares of our Series A Convertible PreferredStock (the ‘‘Series A Preferred Stock’’),convertible into shares of our Common Stock representing approximately76% of our then issued and outstanding Common Stock on a fullydiluted basis. |

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As a result, the Merger has been accountedfor as a reverse merger with Sona-Washington deemed to be theaccounting acquirer. In connection with the merger, Merger Sub changedits name to Sona Mobile, Inc. and, on November  17,  2005,we changed our corporate name from PerfectData to Sona Mobile HoldingsCorp. See Part II, Item 6, ‘‘Management’s Discussionand Analysis or Plan of Operation.’’

We market ourproducts and services principally to two large vertical markets:

|  |              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|--|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Financial services andenterprise software.    Our products and services extendenterprise applications to the wireless arena, such as customerrelationship management systems, sales force automation systems,information technology (IT) service desk and business continuityprotocols, all of which we believe are delivered in compliance with thecurrent regulatory environment. One of our primary focuses is todevelop software for the data-intensive investment banking communityand client-facing applications for the retail banking industry. |

|  |              |                                                                                                                                                                                                                                              |
|--|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Media, entertainment andgaming.    We propose to deliver content via significant channelpartners and content partners, including live streaming television,digital radio, specific theme phones and gaming applications. |

Wehave sales offices in New York, London and Toronto and research anddevelopment operations in Boulder, Colorado and Toronto. Our principalexecutive office is located at 825 Third Avenue, 32nd Floor,New York, New York 10022 and our telephone number is (866) 274-4040.Our Web address is www.sonamobile.com.

MissionStatement

Our mission is to allow widely distributed enterpriseemployees to use the standards based Sona WirelessPlatformTM (‘‘SWP’’), a secureclient-server wireless development environment, to achieve real-timewireless transactional solutions to their business problems, and toultimately become the de facto industry standard. We believe thatwireless services will have a direct and positive impact on those theseenterprises and on carriers who are able to adapt to the evolution ofwireless business applications. We believe that this business dynamicwill become the natural extension to existing business systems,platforms and technologies.

Our value proposition is based onthe fact that today's workspace has expanded far beyond the desk.In today's highly competitive global economy, business isconducted everywhere, from airports and convention centers toconstruction sites and distribution facilities. In a constantlyevolving technological business environment, wireless tools are quicklybecoming a necessity and not simply ‘‘nice tohave.’’ People need access to relevant business content onmobile devices. Our wireless software products transform handhelddevices into easy-to-use, secure and reliable pocket-sized computers.By giving mobile workforces the power to connect to existing enterprisesystems, we help businesses reach a new level of efficiency. Employeesare now capable of interacting with corporate databases and accessingapplications or mission-critical business information to mobiledevices, whether it is marketplace information, order forms or evenlive streaming TV feeds.

Since our inception, we have understoodthat to be a leader in the wireless application software workspace wewould need to balance the current market requirement for cutting edgevertical application software with the need to eventually deliver adevelopment platform for enterprise and carrier applications. With thisin mind, we have identified specific market segments in the wirelessarena that demand real-time, live and accurate information, and whichalso require transactional capabilities and interaction with thisinformation in order to help generate our initial commercialsuccesses.

The market demand for mobile and wireless applicationsoftware, both at the enterprise and consumer levels, continues to growrapidly. We believe that we are well-positioned to exploit thisopportunity with various focused initiatives, ranging from direct andchannel sales efforts to the enterprise market, combined withanticipated strategic alliance and joint venture agreements withcontent providers, to satisfy the significant growth in demand from theconsumer market for these types of services.

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Growth Strategy

In the highlycompetitive wireless application software market, we believe that ourprincipal competitive advantages are our focus and expertise. We aresingularly focused on wireless business applications based on our broadunderstanding of wireless technology and how best to leverage wirelesstechnology to increase productivity and efficiency. Our expertise hasearned us the 2004 Frost & Sullivan Award for Technology Innovationof the Year for the SWP, version 2.5 and the Sona MobileMarketsTM product set as well as accreditation byResearch in Motion (‘‘RIM’’), Microsoft, PalmSource, Vodafone, O2, and Cingular.

We believe that mostcompetitive software products originate from outside the wirelessworld. More often than not, our competitors attempt to migrate theirsoftware from PC-based ‘‘fat’’ data created forhigh-speed environments to thin wireless devices using cellularnetworks that are slower, use smaller screens, and have less processingpower. Another issue is that many competitors offer narrowly focusedproducts built on platforms that cannot be leveraged for other multiplewireless applications. We believe these approaches negatively impactperformance, efficiency, user satisfaction and adoption.

Ourapproach is to aggregate best-of-breed technology, data and contentinto our device-independent SWP and application software, which webelieve will enable customers to extend the functionality of theircurrent wireless devices. We continuously search for best-of-breedtechnology to be incorporated into our products and so that theseproducts will remain adaptable as market requirements change.

Our software products are developed from the ‘‘groundup’’ using the standards based SWP, a secure client-serverwireless development environment. The SWP consists of distinctclient-side and server-side software development kits(‘‘SDKs’’). These SDKs work together to producecompelling, intelligent client application software that deliveroptimum wireless performance using our MobileMulti-ThreadingTM technology on host devices withoutcompromising performance or security.

We intend to continue ourdevelopment and implementation of the SWP in a manner that will enablea multitude of separate and distinct applications to co-exist andfunction seamlessly on hand held business devices across a serviceprovider's global network.

To enable this functionality, weintend to extend the Sona Wireless Application Framework acrossapplications and devices with a common core, allowing for security,transport, administration and billing. The kernel of this frameworkexists in the form of the SWP and new elements and connectors are beingprioritized and launched on an ongoing basis.

FinancialServices

Financial markets are open 24 hours a day, five days aweek, and are often prone to volatility. Financial institutions andprofessionals are demanding market related information 24 hours a day,seven days a week, as well as cost-effective mobile solutions, in orderto increase information visibility, service availability, productivity,risk management and, ultimately, profitability. For these enterprises,we have developed application software products that deliver inreal-time information that may be required by professionals in thefinance sector, including traders, risk managers, investment bankersand stock brokers. Such information takes the form of live market dataand news, proprietary data and risk systems, research, internal Webcasts, as well as trade execution and regulatory compliance. With theconvergence of technologies, devices, connectivity, availability andpricing, there is now an opportunity to deliver financial and businessdata services in a wireless format, which meets the needs of the endusers in both the professional and retail space.

In the wirelessdata market place, there are many technology companies providingsolutions. However, we believe most of these providers lack an accurateunderstanding of their customers' requirements, resulting in thefollowing flaws:

|  |              |                                                                                                                                                                                                              |
|--|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Technologydriven. Many technology companies provide their clients with complextechnology products rather than solutions that meet their uniquerequirements — ease-of-use, timely data and reliability. |

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|  |              |                                                                                                                                                                                   |
|--|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Singletechnology delivery. Most technology companies offer only one commontechnology to deliver such data, whereas varying types of data willrequire different modes of delivery. |

|  |              |                                                                                                                                                                                                                                                                                                 |
|--|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Narrow product. Competitorsoffer narrow products rather than robust and customer-driven products.These narrow products are designed to meet only specific requirements,leaving the customer to cobble together an array of products on varyingplatforms to replicate the workplace environment. |

As analternative, we offer financial services companies the followingproducts and services:

Sona MobileMarketsTM

Sona Mobile MarketsTMis a suite of application software programs that we believe answers theneeds of trading, corporate finance and research professionals in thefinancial services industry. This suite provides real-time market data,quotes, graphs, portfolios, watch lists, news and trading transactionsfor the financial marketplace. Sona Mobile MarketsTM isan ‘‘out-of-the-box’’ product enabling mobileaccess to business-critical information previously only available tofinancial market professionals on the trading floor. This productserves as an access point for a full array of financial servicescomprised of carefully selected technologies, including: real-timestreaming of prices, up-to-the-second news, market analysis, researchand more, all combined into one device and benefiting from completesynergy with a user's workplace systems. While Sona MobileMarketsTM currently targets the financial servicesmarket, we believe that it can rapidly be modified to deliver contentto different markets.

Sona TransActTM

Sona TransActTM is an application software programthat allows wireless device users to perform look-up functions andprocess transactions in a secure environment. TransAct's primaryfunction is to enable traders to execute trades in real-time from theirwireless devices. However, we believe that this application program canbe modified to enable any type of wireless transaction (wirelesspayments, interacting with corporate systems, etc.).

EnterpriseSoftware

Our wireless enterprise software products allow mobileworkers to access all their critical applications from their handhelddevice and interact with enterprise data systems from anywhere. Whetherinvolving replication of corporate help desk software, capturinginspection data or transmitting any proprietary programs andinformation, we believe that our wireless enterprise applicationsoftware product make working outside the office simple andefficient.

The emergence of a new generation of mobile computershas compelled enterprises to deploy mobile applications software inmany areas. Mobile employees can access enterprise data andapplications and transact with them while in the field providingincreased efficiency, productivity, employee satisfaction, andresponsiveness.

We believe that our software products can beseamlessly integrated with existing infrastructure and createefficiency gains by allowing employees in the field to spend less timeon administrative tasks as follows:

|  |              |                                                                                                                                                     |
|--|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Existing forms and workflow arereplicated on handheld devices to provide an intuitive, easy-to-useexperience and to minimize training requirements. |

|  |              |                                                                                                                |
|--|--------------|----------------------------------------------------------------------------------------------------------------|
|  | •  | User interface features such aspre-populated fields, check-boxes and selectable menus reduce timerequirements. |

|  |              |                                                                                                                                                  |
|--|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Data iscaptured once and transmitted to a central repository immediately via awireless data connection or through an end-of-day synchronization. |

|  |              |                                                                                        |
|--|--------------|----------------------------------------------------------------------------------------|
|  | •  | Client history or siteinformation may be pre-loaded for reference for faster response. |

|  |              |                                                                                                                           |
|--|--------------|---------------------------------------------------------------------------------------------------------------------------|
|  | •  | Custom features are easilyincorporated into any application, including scheduling, route planningand employee visibility. |

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Sona Mobile Workflow and MobileFormsTM

This application software allowsorganizations with mobile workers to capture data anywhere utilizingPDAs, Rugged PDAs and SmartPhones instead of entering data into paperbased forms or on costly industrial notebook computers on a regularbasis, with a need to update enterprise databases. Sona MobileFormsTM allows companies to simplify the process ofbuilding mobile electronic forms for hand-held devices effortlessly.This application eliminates the cumbersome effort of transferringtraditional paper based forms into electronic formats across Palm,Pocket PC, RIM Blackberry or Tablet PC platforms.

Sona ServiceDeskTM

As an example of the modular flexibilityof our technology, we have combined the MobileWorkflowTM, Sona TransActTM and ourpatent pending Mobile Array TechnologyTM software tolaunch our mobile customer relations manager and HelpDeskTM/ Service DeskTM softwareapplications. We believe that these new programs extend thefunctionality of market leading trouble management and sales forceautomation software packages like Remedy, Peregrine, salesforce.com andSiebel software to RIM Blackberry, Symbian and Pocket PC devices.

We believe that Sona Service DeskTM provides themobile foundation for an integrated,"end-to-end" approach to informationtechnology service management. This product wirelessly enables a mobilework force to submit, monitor, and manage help desk cases, changetasks, and asset and inventory records. Sona ServiceDeskTM also indicates which business services areimpacted by a given incident or problem by sending trouble tickets toyour wireless device of choice. Sona Service DeskTMallows the user to determine priorities based on business need andrespond within seconds to address those priorities.

The valueproposition for Sona Service DeskTM is thefollowing:

|  |              |                                                                          |
|--|--------------|--------------------------------------------------------------------------|
|  | •  | Increases theadoption of Help Desk features for better trouble shooting. |

|  |              |                                                                          |
|--|--------------|--------------------------------------------------------------------------|
|  | •  | Improves productivity andeffectiveness of field service representatives. |

|  |              |                                                                                                                  |
|--|--------------|------------------------------------------------------------------------------------------------------------------|
|  | •  | Improves the product dataquality for forecasting, ordering, performance evaluation and customerservice requests. |

|  |              |                                                    |
|--|--------------|----------------------------------------------------|
|  | •  | Isscalable and adaptable to customer requirements. |

Sona ServiceDeskTM takes the capabilities of the enterprise's‘‘help desk’’ software and builds a tailoredinterface for the wireless handheld device of choice. This product isdesigned for the real world and seamlessly delivers the applications ofan enterprise to wireless devices in a personalized fashion. We believethat this product minimizes downtime and maximizes productivity. WithSona Service DeskTM, information technology staff canwirelessly access the same help desk they know and use in their officefrom wherever they may be located. By utilizing ourMulti-ThreadingTM technology, users can run Mobile HelpDesk in the background while accessing other key information andapplications on their wireless devices, such as short messagingservices (SMS), e-mail and voice services.

SalesMasterTM

Sona'sSalesMasterTM application software is designed to givesales executives mobile access to their sales force automationapplication (‘‘SFA’’). Our product is built onthe SWP and we believe it will easily integrate into the most widelyused SFA/CRM systems — be it hosted / on-demand or deployed,including salesforce.com, Siebel (in prototype) and NetSuite (inprototype).

We recognize the value in mobilizing businessprocesses, rather than simply mobilizing applications. Whereas most ofour competitors approach mobilizing SFA from a pure‘‘mobilize the application’’ perspective, weapproach mobilizing SFA from a business process perspective, with theaim of creating a product that addresses all of the needs of the mobilesales executive, some of which are addressed by particular SFAapplications. The mobilization of an SFA application is an importantfirst step in this process. The progression of steps is as follows:

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|  |          |                                                                          |
|--|----------|--------------------------------------------------------------------------|
|  | 1.  | Buildmobile SFA platform with connectors to various back-end SFAsystems. |

|  |          |                                                                                                                                                                                                                                                             |
|--|----------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | 2.  | Integrate key businessprocesses into product that the particular SFA back-end system does notcurrently offer. As an example, we can integrate remote file searchingand printing capabilities from a user's handheld device to theirdesktop and file server. |

|  |          |                                                                                                                                                                         |
|--|----------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | 3.  | Partnerwith leading companies to create a broader offering that addresses thewider range of mobile executives' needs, such as information andalerts related to traffic. |

Other features ofSalesMasterTM include the following:

|  |              |                                                                                                                                                                                                                                                                             |
|--|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | DeviceAgnostic:    SalesMasterTM will support a wide rangeof devices that run on the most widely used operating systems,including RIM Blackberry, PalmSource, Windows Mobile and Symbian.Support for various devices will be rolled out over time. |

|  |              |                                                                                                                                                                                                                                                              |
|--|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | On-Line and Off-LineCapabilities:    SalesMasterTM functions whether ornot the device is in cell range. When the device is out of range, itwill store required actions and will execute them immediately uponreturning to coverage. |

|  |              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|--|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Highly Intuitive:    Indesigning mobile SFA significant focus has been placed on assuring anintuitive, easy-to-navigate user experience. The goal was to give usersan experience similar to salesforce.com on a wireless handheld device -without ever needing the help of a user manual. Most of thefunctionality and layout of the mobile screens will mimic what the usersees online at salesforce.com. To assure a close tie-back to thesalesforce.com experience, our default product will use salesforce.comicons and color schemes (with flexibility to tailor look-and-feel toparticular customer requirements). |

|  |              |                                                                                                                                                                                                                                                                                           |
|--|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Seamless Integration toBack-end Systems:    While most (if not all) mobile SFA competitorshave built point solutions for a particular SFA system, ourplatform-based Mobile SFA integrates seamlessly into any SFA system— be it hosted / on-demand or deployed. |

|  |              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|--|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Sona Mobile WebPreferences:    We intend to deploy two versions of our PreferenceManagement website, to enable the enterprise SFA administrator toconfigure the wireless preferences, access, custom fields, and othervariables and end users to customize their preferences. We believe thatthis web preferences tool will grow as the product grows fromapplication mobilization to business process mobilization, giving theend user greater options and control. |

|  |              |                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|--|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Easy-to-Install andManage:    The client SFA program downloads over-the-air, as willupgrades and updates. The product requires a maximum of one megabyte ofrandom access memory but will function with less space if necessary. Incases where there is less space available, the application will alertthe end user of the amount of space available and the fact that theapplication will store fewer records on the device. |

|  |              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|--|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Highly Intuitive:    Indesigning mobile SFA significant focus has been placed on assuring anintuitive, easy-to-navigate user experience. The goal was to give usersan experience similar to salesforce.com on a wireless handheld device— without ever needing the help of a user manual. Most of thefunctionality and layout of the mobile screens will mimic what the usersees online at salesforce.com. To assure a close tie-back to thesalesforce.com experience, our default product will use salesforce.comicons and color schemes (with flexibility to tailor look-and-feel toparticular customer requirements). |

|  |              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|--|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Sona Mobile WebPreferences:    We intend to deploy two versions of our PreferenceManagement website, to enable enterprise SFA administrators toconfigure the wireless preferences, access, custom fields, and othervariables and end users to customize their preferences. We believe thatthis web preferences tool will grow as the product grows fromapplication mobilization to business process mobilization, giving theend user greater options and control. |

|  |              |                                                                                                          |
|--|--------------|----------------------------------------------------------------------------------------------------------|
|  | •  | Easy-to-Install andManage:    The client SFA program downloads over-the-air, as will |

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|  |        |                                                                                                                                                                                                                                                                                                                                          |
|--|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |   | upgrades and updates. The product requires amaximum of one megabyte of random access memory but will function withless space if necessary. In cases where there is less space available,the application will alert the end user of the amount of spaceavailable and the fact that the application will store fewer records onthe device. |

Media, Entertainment and Gaming

Using ourpatent pending mobile media player andMulti-ThreadingTM technology, we have made it possiblefor users to access and view live TV and on-demand video, news andmusic content on their handheld device. Our entertainment applicationsoftware products also give content providers a new platform to sellmarket and distribute their broadcast content to customers in a mobileformat that is true to their programming. The key differentiator of ourentertainment strategy is wrapping the entire viewing experience withinteractive data points supplied through the use of ourMulti-ThreadingTM technology. We believe thatparticular types of information will be purchased by retail customers,including: headline news clips, sports clips, full length sportingevents, entertainment news, music videos, etc. In addition, we believethat there is significant demand in the financial services sector forwireless access to analyst calls, morning market calls, and othertime-sensitive financial markets news.

By partnering withcontent providers, we plan to offer the ability to view streamed videoin real-time on most wireless devices (JAVA phones, PDAs, andSmartPhones).

In January  2006, we entered into astrategic alliance distribution and licensing agreement with ShuffleMaster, Inc. (‘‘Shuffle Master’’), a leadingprovider of table gaming content, to license, develop, distribute andmarket "in casino" wireless handheld gamingcontent and delivery systems to gaming venues throughout the world.Under the terms of the agreement, we have agreed to develop a ShuffleMaster-branded wireless gaming platform powered by Sona’s SWPfor in-casino use, which would feature handheld versions of ShuffleMaster's proprietary table game content as well as other popularpublic domain casino games.

Technology

We provide‘‘end-to-end’’ wireless software products toour customers. Our products rely on standards-based, proprietaryJ2EE-based SWP, Applications Programming Interfaces (API), SoftwareDeveloper Kit (SDK) and SonaSlimTM Client Plug-ins toprovide ‘‘end-to-end encryption,’’ avoiding theneed to decrypt and re-encrypt sensitive data, as is required bycompeting technologies. We believe that this ‘‘directconnect’’ approach, using ‘‘slim’’client technology, dramatically increases application security andspeed, thus enhancing the customer experience.

The SWP platformis deliverable to partners as a‘‘plug-and-play’’ system that includes allnecessary hardware and software. We believe that the SWP platform isconfigured to our clients’ needs and integrates seamlessly withlegacy systems and all content and presentation requirements,notably:

|  |              |                                                                          |
|--|--------------|--------------------------------------------------------------------------|
|  | •  | API Integration toany back-end trading, billing or other legacy systems; |

|  |              |                                                                                              |
|--|--------------|----------------------------------------------------------------------------------------------|
|  | •  | API Integration to most thirdparty systems or applications (profiling, IM, chat, CRM, etc.); |

|  |              |                                    |
|--|--------------|------------------------------------|
|  | •  | Integration of any definedcontent; |

|  |              |                                               |
|--|--------------|-----------------------------------------------|
|  | •  | Creation ormodification of required features; |

|  |              |                                                                                                                                                                                                                                                                                                                                                                                |
|--|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Full customization on theterminal side:    special features, graphical user interface (GUI),look and feel' etc. We are actively marketing four core wirelessbuilding-block products that ride on the SWP. Each of these buildingblocks is targeted to specific markets; however, each can be modifiedeasily to address similar needs in different markets. |

Incumbentin all of our products is that the technological development followsmany threads. With the experience of working for and with variousmobile networks around the world, we believe that we have anappreciation and understanding of what network operators require. As aresult, our 

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software products are designed to be‘network friendly', only transposing necessary data, i.e.changes, updates etc, which we believe results in a lower cost ofownership and a better utilization of network resources andbandwidth.

Sales and Marketing

We utilize acomprehensive distribution channel strategy in order to seek topenetrate a market as rapidly as possible and to reach a significantlyhigh number of users, while seeking to keep resource consumption low. Achannel marketing strategy involves integrating marketing methods withdistribution channels to reach customers. We are also in the initialstages of deploying a direct sales strategy, in tandem with thischannel strategy. We are currently targeting are companies in thefollowing businesses within the communications and informationtechnology (‘‘IT’’) sectors:

|  |              |                                                                                                                                                                                                                                                                               |
|--|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Cellular telephone operators,who could take SonaMobile MarketsTM, Sona MobileTVTM and the SWP to their client bases, satisfying boththe needs of their enterprise clients in this vertical space and theirown need to increase revenues and usage of data services; |

|  |              |                                                                                                                                               |
|--|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | IT systems integration andhosting companies — firms that can add our products to theirintegration services in their geographic regions; |

|  |              |                                                      |
|--|--------------|------------------------------------------------------|
|  | •  | Wireless device marketing anddistribution companies; |

|  |              |                                                 |
|--|--------------|-------------------------------------------------|
|  | •  | Hardware and operating systemssoftware vendors; |

|  |              |                                                                                                                            |
|--|--------------|----------------------------------------------------------------------------------------------------------------------------|
|  | •  | Verticalspecific channel companies having significant client bases and brandsin the financial services vertical space; and |

|  |              |                       |
|--|--------------|-----------------------|
|  | •  | Technology providers. |

Wecannot assure you that our marketing and sales efforts will result indefinitive business arrangements with any of these companies or if wedo enter into any such arrangements, that such arrangements will beadvantageous or profitable for us.

Product DevelopmentStrategy

We seek to operate according to the stringentrequirements providing real time financial data. We have developedimplementation processes and procedures that we believe surpassrequirements of the typical business environment. Our strategy seeks todeliver our software products worldwide in a flexible architecture.This flexible approach allows clients to select the approach bestsuited to them. We have combined a straightforward installation processwith a hosting capability we believe to be world class, and industryleading systems integrators and support teams.

Our productsundergo rigorous stress-testing and quality assurance cycles internallybefore deployment. We also seek to have our business and technologypartners measure the SWP by their own standards. To validate thisphilosophy, the SWP has been submitted to several quality assuranceprocedures. In 2004, Vodafone contracted National Software TestingLaboratories, Philadelphia, PA, USA) to analyze and accredit theSWP's performance on the Vodafone wireless data network as well asRIM devices. Having successfully completed this process, we are thefirst third party software vendor accredited on the Vodafone networkand on RIM devices.

In early 2005, PalmSource, Inc., thedeveloper of the Palm OS mobile device operating system, requested thatSona Mobile MarketsTM be tested and accredited forperformance on wirelessly enabled Palm devices. This applicationprogram was tested and approved for distribution to Treo users. Uponsuccessful completion of an in-house accreditation procedure, ourproducts were approved for usage on the Cingular Wireless data network.Most recently, Sona Mobile Help DeskTM, a troubleticketing application for BlackBerry devices based on the Remedyapplication, has been submitted for accreditation by BMCSoftware's third party testing contractor, Product QualityPartners, Inc. (Pleasanton, CA, USA). Sona's BlackBerry modulepassed the Quality Assurance test and has been officially endorsed byBMC Software.

We are committed to deploying software productsthat surpass not only industry standards for performance andresilience, but also meet the expectations of our partners throughindependent testing and verification. We believe that thisdistinguishes us from competing wireless software providers.

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With production proven installationprocesses, installing our SWP can be done by the client. Theinstallation processes are documented in the Installation Guide Boxwith easy to follow steps and testing procedures. Our goal is toprovide SWP flexibly so that the individual needs of our clients aremet through the above described multi pronged approach. Forexample:

|  |              |                                                                                                                      |
|--|--------------|----------------------------------------------------------------------------------------------------------------------|
|  | •  | a client may takea do-it-yourself approach, using our Installation Guide Box as acomplete implementation toolkit; or |

|  |              |                                                                                                                                                           |
|--|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | a client can provide servicesto their customers simply by connecting to MDS's hostingenvironment (which, in many cases, they are already connected to);or |

|  |              |                                                                                                                                       |
|--|--------------|---------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | a client could elect tohave SWP installed by Atos Origin, procedures that it may haveexperienced with Atos Origin for other services. |

Regardless of the approach selected, we seek to provide ourclients with multi-tier support capabilities on a seven day, 24 hourbasis.

Competition

We compete in the highly competitivebusiness of wireless enterprise application software, mobile andwireless telecommunications, systems integration and professionalservices. The competition is from a broad range of both large and smalldomestic and international corporations, including Dexterra, Outercurveand Sybase. Most of our competitors have far greater financial,technical and marketing resources than we do.

We believe thatour principal competitive advantages are our focus and expertise. Weare focused on wireless applications based on our broad understandingof wireless technology and how best to leverage wireless technology toincrease productivity and efficiency. The competitive factors importantto us are our technology, development and engineering expertise,subject matter expertise, customer support and customer relationships.Industry competitive factors include, but are not, limited to,technology, engineering capability, customer support, breadth and depthof strategic relationships, financial condition, and marketinginitiatives. We seek to leverage the quality of our development team,the depth and breadth of our customer relationships, and our ability torespond quickly to change and respond in order to be competitive andsuccessful.

Research and Development

We maintain ourresearch and development operations in Toronto, Ontario, Canada andBoulder, Colorado. As of February  28,  2006, we employed15 persons in research and development and engineering. We find itadvantageous to have the majority of our research and developmentactivities in Toronto due to the abundance of available, affordable andtalented software engineers in addition to the favorable tax conditionsassociated with software research and development in Canada. Totalcosts incurred in research and development amounted to approximately$894,000 for the year ended December  31,  2005 and$211,000 for the year ended December  31,  2004.

Intellectual Property

Our success and ability to competeeffectively are dependent in part upon our standards based andproprietary technology. We rely on a combination of copyright,provisional patent pending, trademark and trade secret laws, as well asnondisclosure agreements and other contractual restrictions, toestablish and protect our proprietary rights.

Employees arerequired to execute confidentiality and non-use agreements thattransfer any rights they may have in copyrightable works or patentabletechnologies to us. In addition, prior to entering into discussionswith potential business partners or customers regarding our businessand technologies, we generally require that such parties enter intonondisclosure agreements with us. If these discussions result in alicense or other business relationship, we also generally require thatthe agreement setting forth the parties' respective rights andobligations include provisions for the protection of our intellectualproperty rights. For example, the standard language in our agreementsprovides that we 

11

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retain ownership of all patents andcopyrights in our technologies and requires our customers to displayour copyright and trademark notices.

‘‘Sona’’ is a registered trademark of ours.In addition, we have applied for federal registration of other marks.However, we may not be successful in obtaining the service marks andtrademarks for which we have applied.

In addition, pendingprovisional patents may not provide us with any competitive advantagesand may be challenged by third parties. Our practice is to affixcopyright notices on our software and product literature in order toassert copyright protection for these works.

Despite our effortsto protect our proprietary rights, unauthorized parties may attempt toduplicate aspects of our products or to obtain and use information thatwe regard as proprietary. Our steps to protect our proprietarytechnology may not be adequate to prevent misappropriation of suchtechnology, and may not preclude competitors from independentlydeveloping products with functionality or features similar to ourproducts. If we fail to protect our proprietary technology, ourbusiness, financial condition and results of operations could be harmedsignificantly.

Companies in the software and wirelessapplication services and wireless industries have frequently resortedto litigation regarding intellectual property rights. We may have tolitigate to enforce our intellectual property rights, to protect ourtrade secrets or to determine the validity and scope of others'proprietary rights. From time to time, we have received, and mayreceive in the future, notice of claims of infringement of others'proprietary rights. Any such claims could be time-consuming, result incostly litigation, divert management's attention, cause product orservice release delays, require us to redesign our products or servicesor require us to enter into royalty or licensing agreements. If asuccessful claim of infringement were made against us and we could notdevelop non-infringing technology or license the infringed or similartechnology on timely and cost-effective basis, our business couldsuffer.

Employees

At February  28,  2006,we had 44 full-time employees and one part-time employee. Approximately24 of our employees are engaged in sales and marketing, six are engagedin executive management, finance and administration, and 15 inengineering. No employees are covered by a collective bargainingagreement. We believe that we have a good relationship with all of ouremployees.

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Risk Factors

In addition to the other information in this report, the followingrisk factors should be considered carefully in evaluating our businessand us.

Risks Related to Our Business

Ourlimited operating history makes evaluation of our business andprospects difficult.

Our limited operating history makes itdifficult to evaluate our business and prospects. We have encountered,and expect to continue to encounter, many of the difficulties anduncertainties often faced by early stage companies. You should considerour business and prospects in light of the risks, uncertainties anddifficulties frequently encountered by early stage companies, includinglimited capital, delays in product development, marketing and salesobstacles and delays, inability to gain customer acceptance of ourproducts and services, inability to attract and retain high-quality andtalented executives and other personnel and significant competition. Wecannot be certain that we will successfully address these risks. If weare unable to address these risks, our business may not grow, our stockprice may suffer and/or we may be unable to stay in business.

We have a history of losses, our auditors have stated that theselosses raise substantial doubt about our ability to continue as a goingconcern and we expect to continue to operate at a loss and to havenegative cash flow from operations for the foreseeable future.

We have a history of continuing losses and negative cash flow fromoperations. From our inception in November  2003 throughDecember  31,  2005, we had cumulative net losses ofapproximately $7.5  million and for our 2005 fiscal year, we hadnegative cash flow from operations of approximately $5.5million. We expect that our expenses will increase substantially as wecontinue to develop our products and services. In addition, as a publiccompany our general and administrative expenses have increasedsignificantly. As a result, we expect to continue to incur losses forthe foreseeable future.

Because of our history of continuinglosses, our auditors, in their report on our audited financialstatements included elsewhere in this report, have stated that theselosses raise substantial doubt about our ability to continue as a goingconcern. The going concern qualification from our auditors could have anegative impact on our future sales to customers, inhibit our abilityto obtain financing terms from vendors and may adversely impact ourability to raise additional financing. Accordingly, we cannot assureyou that we will ever be profitable. Whether we ever become profitablewill depend on many factors, but principally on our ability to raiseadditional capital and to successfully market our products andservices. See Item 6, Management’s Discussion and Analysis orPlan of Operations-Liquidity and Capital Resources.

We will berequired to seek additional financing, which may not be available.

We estimate that our current cash balances will be sufficient tomeet our working capital and capital expenditure requirements onlythrough June  2006. We are actively seeking to raise additionalfinancing. However, we do not currently have any commitment for suchfinancing. Such a financing could dilute the interests of our existingshareholders or increase our operating expenses and could resultin significant financial and operating covenants that wouldnegatively impact our business. We cannot assure you that we will beable to obtain such a financing on acceptable terms, if at all. If wecannot meet our revenue and cash flow forecasts and are also unable tosecure additional financing, we will be forced to restrict new productdevelopment and may be unable to continue our business operations. Seethe preceding risk factor as to the possible negative impact of thegoing concern qualification on our ability to raise additionalcapital

Our operating results may fluctuate dramatically,particularly from quarter to quarter.

We anticipate that ourquarterly and annual operating results will fluctuate dramatically overthe near terms as a result of a number of factors, including thefollowing:

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|  |              |                                      |
|--|--------------|--------------------------------------|
|  | •  | volumeand timing of orders received; |

|  |              |                                                                         |
|--|--------------|-------------------------------------------------------------------------|
|  | •  | the availability and cost ofproducts and components from our suppliers; |

|  |              |                                       |
|--|--------------|---------------------------------------|
|  | •  | the mix of products and servicessold; |

|  |              |                                                                                  |
|--|--------------|----------------------------------------------------------------------------------|
|  | •  | patterns of capitalspending by enterprises for technology products and services; |

|  |              |                                                      |
|--|--------------|------------------------------------------------------|
|  | •  | the timing of new productannouncements and releases; |

|  |              |                        |
|--|--------------|------------------------|
|  | •  | pricing pressures; and |

|  |              |                              |
|--|--------------|------------------------------|
|  | •  | general economic conditions. |

As a result of these and other factors, we have historicallyexperienced, and may continue to experience, fluctuations in revenuesand operating results. In addition, it is possible that in the futureour operating results may fall below the expectations of analysts andinvestors, and as a result, the price of our securities may fall.

Our future success depends on broad market acceptance of wirelesstechnology for data applications, which may not happen.

Themarket for wireless data application products and services has begun todevelop only recently and is characterized by rapid technologicalchange, evolving industry standards and strong customer demand for newproducts, applications and services. As is typical of a new and rapidlyevolving industry, the demand for, and market acceptance of, wirelessdata application products and services are highly uncertain. We cannotassure you that the use of wireless data application products andservices will become widespread. The commercial acceptance of wirelessdata application products and services may be affected by a number offactors including:

|  |              |                           |
|--|--------------|---------------------------|
|  | •  | qualityof infrastructure; |

|  |              |                   |
|--|--------------|-------------------|
|  | •  | securityconcerns; |

|  |              |                                                  |
|--|--------------|--------------------------------------------------|
|  | •  | equipment,software or other technology failures; |

|  |              |                        |
|--|--------------|------------------------|
|  | •  | government regulation; |

|  |              |                                     |
|--|--------------|-------------------------------------|
|  | •  | inconsistent quality of service;and |

|  |              |                                                                     |
|--|--------------|---------------------------------------------------------------------|
|  | •  | lack of availability ofcost-effective, high-speed network capacity. |

If the market forwireless data application products and services fails to develop,develops more slowly than we anticipate, or if wireless dataapplication products and services products and services fail to achievemarket acceptance, our business could be adversely affected.

Our business depends on the level of capital spending byenterprises for technology products and services.

As a supplierof technology products and services for enterprises, our businessdepends on the level of capital spending for technology products andservices by enterprises in our markets. We believe that anenterprise's investment in computer network and communicationssystems and related products and services depends largely on generaleconomic conditions that can vary significantly as a result of changingconditions in the economy as a whole. The market for technology andcommunications products and services may continue to grow at a modestrate or not at all. If the level of spending by our customers ontechnology and communications systems and related products and servicesdecreases, our revenue and operating results may be adverselyaffected.

If we fail to keep up with changes in our industry, wewill become less competitive, which will adversely affect our financialperformance.

In order to remain competitive and serve ourcustomers effectively, we must respond on a timely and cost-efficientbasis to technological changes as well as changes in industry standardsand 

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procedures and customer preferences. In somecases these changes may be significant and their cost may besubstantial. We cannot assure you that we will be able to adapt to anychanges in the future or that we will have the financial resources tokeep up with changes in the marketplace. The cost of adapting ourproducts and services may have a material and adverse effect on ouroperating results.

We have many competitors and expect newcompetitors to enter our market, which could increase price competitionand may affect the amount of business available to us and the pricesthat we can charge for our products and services.

The marketsfor our products and services are extremely competitive and may changerapidly. Substantial growth in demand for wireless technology productsand services has been predicted and we expect competition to increaseas existing competitors enhance and expand their products and servicesand as new participants enter the wireless data application market.There are relatively few barriers to entry to companies with computerand network experience. A rapid increase in competition couldnegatively affect the amount of business that we get and the pricesthat we can charge.

Additionally, many of our competitors andpotential competitors have substantially greater financial resources,customer support, technical and marketing resources, larger customerbases, longer operating histories, greater name recognition and moreestablished relationships than we do. We cannot be sure that we willhave the resources or expertise to compete successfully. Compared tous, our competitors may be able to:

|  |              |                                                             |
|--|--------------|-------------------------------------------------------------|
|  | •  | develop and expand theirproducts and services more quickly; |

|  |              |                                                                          |
|--|--------------|--------------------------------------------------------------------------|
|  | •  | adapt faster to new or emergingtechnologies and changing customer needs; |

|  |              |                                                                     |
|--|--------------|---------------------------------------------------------------------|
|  | •  | take advantage of acquisitionsand other opportunities more readily; |

|  |              |                                                  |
|--|--------------|--------------------------------------------------|
|  | •  | negotiate more favorableagreements with vendors; |

|  |              |                                                                      |
|--|--------------|----------------------------------------------------------------------|
|  | •  | devote greater resources tomarketing and selling their products; and |

|  |              |                                                  |
|--|--------------|--------------------------------------------------|
|  | •  | address customer service issuesmore effectively. |

Some of our competitors may also be able toincrease their market share by providing customers with additionalbenefits or by reducing their prices. We cannot be sure that we will beable to match price reductions by our competitors.

Our businessmay suffer from lack of diversification.

Our business iscentered solely on providing wireless data application softwareproducts and services. The risks associated with focusing on a limitedproduct line are substantial. If consumers do not accept our productsand services or if there is a general decline in market demand for, orany significant decrease in, the perceived need for our products andservices, we are not financially or operationally capable ofintroducing alternative products and services within a short timeframe. As a result, lack of acceptance of our products and services ora significant decline in the demand for our products and services couldcause us to cease operations.

Our future performance depends onour ability to retain key personnel.

Our future success dependson retaining our existing key employees. Losing any of our keyemployees could limit our ability to execute our growth strategy,resulting in lost sales and a slower rate of growth.

We dependon the continued efforts of our senior management team, including JohnBush,  Shawn Kreloff and Nicholas Glinsman. If for any reason, oursenior executives do not continue to be active in our business, ourbusiness, financial condition or results of operations could beadversely affected. Currently, we do not have employment agreementswith any of these executives. Also, we do not carry, nor do weanticipate obtaining, ‘‘key man’’ insurance onthem. It would be difficult for us to replace any of these individuals.We cannot assure you that we will be able to continue to retain oursenior executives or other personnel necessary for the development ofour business.

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We may not be able to hire and retainhighly skilled technical employees, which would affect our ability tocompete effectively and could adversely affect our operatingresults.

We depend on highly skilled technical personnel forresearch and development and to market and service our products. Tosucceed, we must hire and retain employees who are highly skilled inrapidly changing wireless technologies. In particular, as we implementour strategy of focusing on wireless data applications, we will needto:

|  |              |                                                                                                           |
|--|--------------|-----------------------------------------------------------------------------------------------------------|
|  | •  | hire more employees withexperience developing and providing advanced communications productsand services; |

|  |              |                                                                                         |
|--|--------------|-----------------------------------------------------------------------------------------|
|  | •  | train ourcurrent personnel to sell wireless data applications products andservices; and |

|  |              |                                         |
|--|--------------|-----------------------------------------|
|  | •  | trainpersonnel to service our products. |

Because the competition forqualified employees in our industry is intense, hiring and retainingqualified employees is both time-consuming and expensive. We may not beable to hire enough qualified personnel to meet our needs as ourbusiness grows or to retain the employees we currently have. Ourinability to hire and retain the individuals we need could hinder ourability to sell our existing products, systems, software or services orto develop and sell new ones. If we are not able to attract and retainqualified employees, we will not be able to successfully implement ourbusiness plan and our business will be harmed.

We may not beable to manage our growth effectively, which could adversely affect ouroperations and financial performance.

The ability to manage andoperate our business as we execute our growth strategy will requireeffective planning. Significant rapid growth could strain our internalresources, leading to a lower quality of customer service, reportingproblems and delays in meeting important deadlines resulting in loss ofmarket share and other problems that could adversely affect ourfinancial performance. Our efforts to grow have placed, and we expectwill continue to place, a significant strain on our personnel,management systems, infrastructure and other resources. If we do notmanage our growth effectively, our operations could be adverselyaffected, resulting in slower growth and a failure to achieve orsustain profitability.

If we are unable to protect ourintellectual property rights, our business may be harmed.

Although we attempt to protect our intellectual property throughpatents, trademarks, trade secrets, copyrights, confidentiality andnon-disclosure agreements and other measures, intellectual property isdifficult to protect and these measures may not provide adequateprotection. Patent filings by third parties, whether made before orafter the date of our patent filings, could render our intellectualproperty less valuable. Competitors may misappropriate our intellectualproperty, disputes as to ownership of intellectual property may ariseand our intellectual property may otherwise become known orindependently developed by competitors. The failure to protect ourintellectual property could seriously harm our business because webelieve that developing new products and technology that are unique tous is important to our success. If we do not obtain sufficientinternational protection for our intellectual property, ourcompetitiveness in international markets could be significantlyimpaired, which would limit our growth and future revenue.

Wemay be found to infringe third-party intellectual property rights.

Third parties may in the future assert claims or initiate litigationrelated to their patent, copyright, trademark and other intellectualproperty rights in technology that is important to us. The assertedclaims and/or litigation could include claims against us or oursuppliers alleging infringement of intellectual property rights withrespect to our products or components of those products. Regardless ofthe merit of the claims, they could be time consuming, result in costlylitigation and diversion of technical and management personnel, orrequire us to develop a non-infringing technology or enter into licenseagreements. We cannot assure you that licenses will be available onacceptable terms, if at 

16

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all. Furthermore, because of the potentialfor significant damage awards, which are not necessarily predictable,it is not unusual to find even arguably unmeritorious claims resultingin large settlements. If any infringement or other intellectualproperty claim made against us by any third party is successful, or ifwe fail to develop non-infringing technology or license the proprietaryrights on commercially reasonable terms and conditions, our business,operating results and financial condition could be materially adverselyaffected.

If we do not accurately predict demand for ourproducts when deciding to invest in new products, we will likely incursubstantial capital expenditures that will not benefit ourbusiness.

Research and development takes a significant amountof time and requires significant investment in skilled engineering andscientific personnel. We have made these investments, and intend tocontinue to make such investments based on internal projections of thepotential market for our products and services and of our potentialprofit margins on sales of these products and services. If thoseprojections are inaccurate, we may not be able to obtain an acceptablereturn on our investment in the development of these products andservices. If our projections of the prospects of new products areinaccurate, we may make investments in the development, testing andapproval of those products and services that may result inunsatisfactory returns.

General Company RelatedRisks

We do not intend to pay dividends and, consequently,the only opportunity for investors to achieve a return on theirinvestment is if a trading market develops and investors are able tosell their shares at a profit or if our business is sold at a pricethat enables investors to recognize a profit.

We will need allof our cash resources to fund our operations, including the developmentof future products and services. Accordingly, we do not expect to paycash dividends in the foreseeable future on our common stock. We cannotassure investors any return on their investment, other than inconnection with a sale of their shares or a sale of our business. Atthe present time there is a limited trading market for our shares.Therefore, holders of our securities may be unable to sell them. Wecannot assure investors that an active trading market will develop orthat any third party would offer to purchase our business on acceptableterms and at a price that would enable our investors to recognize aprofit.

Our compliance with the Sarbanes-Oxley Act and the U.S.Securities and Exchange Commission rules concerning internal controlsmay be time consuming, difficult and costly for us.

Our seniormanagement has limited experience with publicly-traded companies andmay not be fully familiar with the requirements of the Sarbanes-OxleyAct and other laws, rules and regulations that apply to companiesrequired to file reports with the U.S. Securities and ExchangeCommission. It may be time consuming, difficult and costly for us todevelop and implement the internal controls and reporting proceduresrequired by the Sarbanes-Oxley Act. We may need to hire additionalfinancial reporting, internal controls and other finance staff in orderto develop and implement appropriate internal controls and reportingprocedures. If we are unable to comply with the internal controlsrequirements of the Sarbanes-Oxley Act, we may not be able to obtainthe independent accountant certifications that the Sarbanes-Oxley Actrequires publicly-traded companies to obtain.

We are controlledby a limited number of shareholders, which will limit your ability toinfluence the outcome of key decisions.

Our executive officersand directors beneficially own, in the aggregate, shares of our capitalstock representing approximately 34% of the voting power of theissued and outstanding shares of our capital stock that are entitled tovote. As a result, these shareholders will have the ability to exercisesubstantial control over our affairs and corporate actions requiringshareholder approval, including electing and removing directors,selling all or substantially all of our assets, merging with anotherentity or amending our articles of incorporation. This de factocontrol could be disadvantageous to our 

17

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other shareholders with interests that differfrom those of the control group. For example, the control group coulddelay, deter or prevent a change in control even if a transaction ofthat sort would benefit the other shareholders. In addition,concentration of ownership could adversely affect the price thatinvestors might be willing to pay in the future for our securities.

As a result of our inclusion of certain securities in a resaleregistration statement, the Securities and Exchange Commission hasquestioned the availability of an exemption from the registrationrequirements of the Securities Act in connection with the sale of thosesecurities. If the exemption is not available, it could have adverseeconomic and financial consequences to us.

In January2006, while the registration statement was pending review by theSecurities and Exchange Commission, we entered into a strategicalliance licensing and distribution agreement with Shuffle Master, Inc.under which we agreed to develop certain wireless gaming technology forShuffle Master. In connection with that agreement, we sold 2,307,693shares of our Common Stock and warrants to purchase up to an additional1,200,000 shares of our Common Stock to Shuffle Master for $3.0million. The proceeds from the sale of those securities were intendedto provide us with the working capital we would need to fulfill ourobligations under the agreement. Since we agreed to register thepurchased shares and the shares underlying the warrants, we includedthem in an earlier version of the registration statement.

Wewere then informed by the staff of the Commission that, because weincluded those securities in a pending registration statement, theyquestioned the availability of the exemption from registration that wewere claiming. The availability of the exemption requires that thetransaction have a conclusion. Including the Shuffle Master securitiesin the pending registration statement raised the question as to whetherthe transaction with Shuffle Master had, in fact, concluded. TheCommission suggested that we remove the Shuffle Master securities fromthe then pending resale registration statement. We will comply withthat suggestion. However, if a court of competent jurisdiction were toultimately determine that an exemption was not available, we may haveto offer Shuffle Master rescission rights. If Shuffle Master assertedthat right and prevailed, we may not have the resources to return theconsideration and we might have to seek bankruptcy protection. Inaddition, we, and possibly some of our officers, may also be subject topenalties. We believe that the Shuffle Master transaction was exemptfrom the registration requirements of the Securities Act and we wouldvigorously contest any claim to the contrary. See Part II, Item 6,Management's Discussion and Analysis or Plan of Operation.

Delaware corporate law and our certificate of incorporation andbylaws contain provisions that could delay, defer or prevent a changein control of our company or our management.

These provisionscould discourage proxy contests and make it more difficult for you andother shareholders to elect directors and take other corporate actions.As a result, these provisions could limit the price that investors arewilling to pay in the future for shares of our common stock. Forexample:

|  |              |                                                                                                                                                                                                                                                     |
|--|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Without priorshareholder approval, the board of directors has the authority to issueone or more classes of preferred stock with rights senior to those ofcommon stock and to determine the rights, privileges and inference ofthat preferred stock. |

|  |              |                                                                                                                                                         |
|--|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Thereis no cumulative voting in the election of directors, which wouldotherwise allow less than a majority of shareholders to elect directorcandidates. |

Additional Information

We electronicallyfile annual, quarterly and current reports and amendments to suchreports, proxy statements and other information with the Securities andExchange Commission (the "SEC). You may read and copy anyreport or other document that we file at the Commission's PublicReference Room located at 100 F Street, N.E., Washington, D.C. 20549.Please call the Commission at 1-800-SEC-0330 for further information asto the operation of the Public Reference Room. The Commission alsomaintains an Internet site at www.sec.gov that contains reports, proxyand information statements and other information regarding issuers,including us, that electronically file documents with theCommission.

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|               |                        |
|---------------|------------------------|
| Item 2.  | Descriptionof Property |

We lease a total of approximately 12,000 squarefeet of office space for sales, support, research and development,accounting and administrative functions. Of this total, we lease

|  |              |                                                                                                                                                                                                                                                                                                                           |
|--|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | approximately 3,600 square feetin Toronto, Canada for sales, research and development, administrativeand accounting functions under a lease expiring in April  2007,at an annual rental of approximately $82,000, subject to escalation forour pro rata share of real estate taxes and operating expenses of thebuilding; |

|  |              |                                                                                                                                                                                                                                                                                                                         |
|--|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | approximately5,500 square feet in New York, New York, for our corporate headquartersand sales and support functions under a lease expiring inDecember  2007, at an annual rental of approximately $385,000,subject to escalation for our pro rata share of real estate taxes andoperating expenses of the building; and |

|  |              |                                                                                                                                                                                                                                                                                             |
|--|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | approximately 2,600 square feetof office space in Boulder, Colorado for research and development undera lease expiring in October, 2010, at annual rental of approximately$61,000, subject to escalation for our pro rata share of real estatetaxes and operating expenses of the building. |

We also lease asmall sales office in London, England.

|              |                   |
|--------------|-------------------|
| Item3.  | Legal Proceedings |

As of February28,  2006, we were not a party, and none of our property wassubject, to any material pending legal proceedings.

|              |                                                    |
|--------------|----------------------------------------------------|
| Item4.  | Submission of Matters to a vote of SecurityHolders |

We held our annual meeting of stockholders onNovember  17,  2005. At the meeting, the following actionwas taken:

|  |              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|--|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | The persons namedunder ‘‘Management’’ as members of our Board ofDirectors were elected by our stockholders to serve in those positionsuntil the annual meeting of stockholders in 2006 and until eachdirector’s successor is elected and qualified, other than Mr.Paul C. Meyer, who was appointed to our Board on March 28, 2006. Thenumber of votes cast for management’s nominees was 28,428,516and the number of votes cast against or withheld was 206,328. Therewere no abstentions and broker non-votes |

|  |              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|--|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Our stockholders approved theAmended and Restated Option Plan of 2000 (the ‘‘Amended andRestated Option Plan’’), which amends and restates theStock Option Plan of 2000 (the ‘‘OriginalPlan’’), adopted by PerfectData’s Board inMay  2000 and approved by the stockholders in October2000. The number of votes cast for this proposition was 28,059,356: thenumber of votes cast against or withheld was 571,788; and the number ofabstentions and broker non-votes was 3,700. |

The Amendedand Restated Plan, among other things, increases the number of sharesof our Common Stock subject to the Plan from 2,000,000 shares to5,000,000 shares and gives the Plan administrator the flexibility togrant various types of equity incentive compensation awards, inaddition to stock options, including, for example, restricted stockawards, stock appreciation rights and others.

|  |              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|--|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Our stockholders approved aproposal of our management to grant our Board of Directorsdiscretionary authority to amend our certificate of incorporation priorto December  31,  2006 to effect a reverse split of ouroutstanding Common Stock in the range of from one-for- three to one-to- five. The number of votes cast for this proposition was 26,838,025;the number of votes cast against or withheld was 1,666,490; and thenumber of abstentions and broker non-votes was130,329. |

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Part II

|               |                                                         |
|---------------|---------------------------------------------------------|
| Item 5.  | Market for Common Equity and RelatedStockholder Matters |

Our Common Stock is not listed on any stockexchange, but is quoted on the Over-the-Counter Bulletin Board (the‘‘OTC Bulletin Board’’) under the symbol‘‘SNMB.’’ The following table sets forth thehigh and low bid information for our Common Stock for the periodsindicated, as reported by the OTC Bulletin Board. The quotationsreflect inter-dealer prices, without retail mark-up, mark-down orcommission, and may not represent actual transactions.

|        |  |                      |  |            |        |        |  |        |        |        |  |  |  |  |
|--------|--|----------------------|--|------------|--------|--------|--|--------|--------|--------|--|--|--|--|
|   |  |                 |  | Bid Prices |
| Year   |  | Fiscal Quarter Ended |  | High       |        | Low    |
| 2004   |  | March  31,2004       |  | $          | 1.18   |   |  | $      | 0.38   |   |
|   |  | June30,  2004        |  | $          | 0.85   |   |  | $      | 0.40   |   |
|   |  | September  31,  2004 |  | $          | 0.94   |   |  | $      | 0.33   |   |
|   |  | December  31,  2004  |  | $          | 0.85   |   |  | $      | 0.30   |   |
| 2005   |  |                 |  |       |   |   |  |   |   |   |
|   |  | March31,  2005       |  | $          | 1.65   |   |  | $      | 0.66   |   |
|   |  | June  30,  2005      |  | $          | 1.90   |   |  | $      | 1.18   |   |
|   |  | September  30,  2005 |  | $          | 1.97   |   |  | $      | 1.15   |   |
|   |  | December31,  2005    |  | $          | 2.45   |   |  | $      | 1.55   |   |
|        |

Theapproximate number of shareholders of record at March  28,2005 was 134. The number of shareholders of record does not includebeneficial owners of common stock whose shares are held in the names ofvarious dealers, clearing agencies, banks, brokers and otherfiduciaries.

We have not declared any cash dividends on ourCommon Stock and do not expect to do so in the near future.

Equity Compensation Plan Information

The following tablesummarizes information about our equity compensation plans as ofDecember  31,  2005. All outstanding awards relate to ourCommon Stock. For additional information about our equity compensationplans, see notes 15 and 17 to our financial statements in Item 7.

Equity Compensation Plan Information

|                                                           |  |                                                                                        |           |                                                                         |  |                                                                                                                                    |         |        |  |        |           |        |  |  |
|-----------------------------------------------------------|--|----------------------------------------------------------------------------------------|-----------|-------------------------------------------------------------------------|--|------------------------------------------------------------------------------------------------------------------------------------|---------|--------|--|--------|-----------|--------|--|--|
| Plancategory                                              |  | Number of securities tobeissued upon exerciseof outstanding options,warrants andrights |           | Weighted-averageexercise price ofoutstandingoptions,warrants and rights |  | Number ofsecuritiesremaining available forfuture issuanceunderequity compensationplans (excludingsecuritiesreflected incolumn (a)) |
| Equity compensationplans approved by security holders     |  |                                                                                   | 1,925,000 |                                                                    |  | $                                                                                                                                  | 1.519   |   |  |   | 3,000,000 |   |
| Equity compensationplans not approved by security holders |  |                                                                                   | —   |                                                                    |  |                                                                                                                               | — |   |  |   | —   |   |
| Total                                                     |  |                                                                                   | 1,925,000 |                                                                    |  | $                                                                                                                                  | 1.519   |   |  |   | 3,000,000 |   |
|                                                           |

On July  19,  2005, ourBoard of Directors adopted a compensation plan for directors. Under theplan, each non-employee director will, immediately upon his or herelection or appointment to the Board, receive 40,000 shares of CommonStock, of which 20,000 shares will vest immediately and 20,000 willvest on the first anniversary of his or her election to the Board. Ifthe director leaves the Board for any reason, voluntarily orinvoluntarily, before the first anniversary of his or her election tothe Board, he or she will forfeit any unvested shares. No shares of ourCommon Stock have been reserved for issuance under this plan. Inaddition, each non-employee director will be granted an option underour Amended and Restated Plan to purchase 5,000 shares of Common Stock,which option will become exercisable in equal quarterlyinstallments.

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|              |                                                                 |
|--------------|-----------------------------------------------------------------|
| Item6.  | Management’s Discussion and Analysis andPlan of Operation |

The following discussion of our financialcondition and results of operations should be read in conjunction withthe consolidated financial statements and related notes includedelsewhere in this report. Certain statements in this discussion andelsewhere in this report constitute forward-looking statements withinthe meaning of Section 21E of the Securities and Exchange Act of 1934.See ‘‘Forward Looking Statements’’ in Part I ofthis report. Because this discussion involves risk and uncertainties,our actual results may differ materially from those anticipated inthese forward-looking statements.

Background

On theMerger Date, pursuant to the ‘‘Merger Agreement,Sona-Washington merged with and into Merger Sub. As contemplated by theMerger Agreement, on the Merger Date:

(i)    Four ofPerfectData’s five directors resigned, including the Chairman ofthe Board, and the remaining director appointed three ofSona-Washington’s designees of to fill those vacancies;

(ii)    PerfectData’s chief executive officer resigned andthe reconstituted Board of Directors appointed Sona-Washington’sdesignees as our new executive officers; and

(iii)    Eachformer shareholder of Sona-Washington received one share of our SeriesA Preferred Stock for every 10 shares of Sona-Washington’scapital stock owned by them; fractional shares were rounded up or downto the nearest whole share.

A total of 539,733 shares of SeriesA Preferred Stock were issued to Sona-Washington’s formershareholders - and an additional 28,407 shares of Series A PreferredStock were issued to Colebrooke Capital, Inc. Sona-Washington’sfinancial advisor in connection with the Merger (the‘‘Advisor’’). Each share of Series A PreferredStock was convertible into 48.11159 shares of our common stock, or atotal of 27,334,120  shares of our Common Stock, representing80% of the fully diluted number of shares of our Common Stockissued and outstanding.

Under the terms of the Merger Agreement,the former shareholders of Sona-Washington are entitled to receive anadditional 11,389,217 shares of Common Stock (the‘‘Additional Shares’’) if, for our fiscal yearsending December  31,  2005 and 2006, our aggregate revenuesare at least $12,000,000 and our gross profit margin, i.e., aggregaterevenues less aggregate cost of revenues, for those years, is at least50%.

Sona-Washington was organized in November2003 and in December  2003 acquired all of the stock of SonaInnovations, Inc., a Canadian corporation(‘‘Innovations’’). Innovations had developedand owned certain intangible assets, primarily software applications,for use in connection with wireless devices. In the Merger, Merger Subchanged its corporate name to Sona Mobile, Inc.

InNovember  2005, we amended our certificate of incorporation tochange our corporate name from PerfectData Corporation to‘‘Sona Mobile Holdings Corp.’’

As aresult of the Merger, our principal business is the business in whichSona-Washington had been engaged since November  2003. The Mergerwas accounted for as a reverse merger transaction with Sona-Washingtondeemed to be the accounting acquirer. No goodwill or other intangibleswere recorded.

Business Overview

We are a WirelessSoftware and Service Provider specializing in value-added services todata-intensive vertical and horizontal market segments. We develop andmarket wireless data applications for mobile devices in the rapidlygrowing wireless data marketplace.

Our value proposition is tounlock, integrate and seamlessly deliver all types of data to wirelessdevices, whether streaming financial markets data for the investmentbanking industry, complex databases and enterprise applications forsupporting all areas of a corporate organization or live television anddigital radio delivery to the growing consumer market via channel andcontent partners – anytime, anywhere. We market our products andservices principally to two large vertical markets.

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|  |              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|--|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Financialservices and enterprise software. Our products and services extendenterprise applications to the wireless arena, such as customerrelationship management systems, sales force automation systems,information technology (IT) service desk and business continuityprotocols, all of which we believe are delivered in compliance with thecurrent regulatory environment.  One of our primary focuses isto develop solutions for the data-intensive investment bankingcommunity and client-facing applications for the retail bankingindustry. |

|  |              |                                                                                                                                                                                                                       |
|--|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Media,entertainment and gaming. We propose to deliver content via significantchannel partners and content partners, including live streamingtelevision, digital radio, specific theme phones, and gamingapplications. |

These products and services are deliverableglobally across most of the major cellular networks and prominentwireless device operating systems. Our revenues consist of project,licensing and support fees relating to our SWP and related end-userwireless application software products made available to enterprisesand cellular operators.

Business Trends

The marketdemand for mobile and wireless solutions, both at the enterprise andconsumer levels, continues to grow rapidly. We believe that we arewell-positioned to exploit this opportunity with various focusedinitiatives, ranging from direct and channel sales to the enterprisemarket, combined with partnership and joint venture agreements withcontent providers to satisfy the significant growth in demand from theconsumer market for these types of services.

Approximatelytwo-thirds of our revenue for the year ended December  31,2005 resulted from project work and approximately one-third fromcontinuing license subscriptions. Much of our project work isattributable to new engagements for which we received upfrontdevelopment fees. We believe that ratio will move toward approximately50% license subscriptions and 50% projects. The trendamong our customers is to convert from one-time pilot programs with asingle development fee to ongoing projects with multiple user licensesand maintenance fees. In addition, our new version of Sona WirelessPlatform, MobileMarketsTM Enterprise Edition, iscurrently in trials in 10 major financial institutions. As these trialsprogress and new leads are generated, we anticipate that significantbusiness opportunities will emerge. However, we cannot assure you thatany such business opportunities will emerge, or if they do, that anysuch opportunity will result in a definitive arrangement with any suchfinancial institution, or that any such definitive arrangement will beprofitable.

Recent Transactions

Between June21,  2005 and July  8,  2005, we sold 3,848.7 sharesof our Series B Convertible Preferred Stock, (‘‘Series BPreferred Stock’’) convertible into 3,848,700 shares of ourCommon Stock, and warrants to purchase 962,175 shares (the‘‘Warrants’’) to a group of accreditedinvestors for an aggregate purchase price of $5.05  million (the‘‘Series B Financing’’). The warrants have afour-year term, expiring on June  20,  2009, an exerciseprice of $1.92969 per share (as adjusted) and ‘‘weightedaverage’’ anti-dilution protection. The proceeds from theSeries B Financing were used for working capital and general corporatepurposes.

On November  17,  2005,

(i)    as approved by our stockholders at their annualmeeting held on that date, we amended our certificate of incorporationto increase the authorized number of shares of our Common Stock from10,000,000 shares to 90,000,000 shares; and

(ii)    the 568,140 outstanding shares of Series APreferred Stock were converted into 27,334,120 shares of our CommonStock and the 3,848.7 outstanding shares of Series B Preferred Stockwere converted into 3,848,700 shares of our Common Stock.

Subsequent Event

In January  2006, we sold 2,307,693shares of our Common Stock to Shuffle Master for $3.0  millionand issued an 18-month warrant to purchase 1,200,000 shares of ourCommon Stock to 

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Shuffle Master. This warrant has an exerciseprice of $2.025 per share and expires on July  12,  2007.The sale of these shares and the issuance of this warrant were inconnection with a strategic alliance distribution and licensingagreement between us and Shuffle Master. See Part I, Item 1,Description of Business - Growth Strategy – Media, Entertainmentand Gaming and – Risk Factors.

Critical AccountingPolicies

We prepare our financial statements in accordance withU.S. generally accepted accounting principles(‘‘GAAP’’). These accounting principles requiremanagement to make estimates and assumptions that affect the reportedamounts of assets and liabilities, and the disclosure of contingentassets and liabilities at the date of its financial statements.Management is also required to make certain judgments that affect thereported amounts of revenues and expenses during each reporting period.Management periodically evaluates these estimates and assumptionsincluding those relating to revenue recognition, impairment of goodwilland intangible assets, the allowance for doubtful accounts, capitalizedsoftware, restructuring, income taxes, stock-based compensation andcontingencies and litigation. Management bases its estimates onhistorical experience and various other assumptions that it believes tobe reasonable based on specific circumstances. Management reviews thedevelopment, selection, and disclosure of these estimates with theAudit Committee of the Board. These estimates and assumptions form thebasis for judgments about the carrying value of certain assets andliabilities that are not readily apparent from other sources. Actualresults could differ from these estimates. Further, changes inaccounting and legal standards could adversely affect our futureoperating results. Our critical accounting policies include: revenuerecognition, impairment of goodwill and other intangible assets,allowance for doubtful accounts, capitalized software, income taxes,stock-based compensation, and contingencies and liabilities, each ofwhich are discussed below.

Revenue Recognition

We follow specific and detailed guidance in measuring revenue,although certain judgments affect the application of our revenuerecognition policy. These judgments include, for example, thedetermination of a customer’s creditworthiness, whether twoseparate transactions with a customer should be accounted for as asingle transaction, or whether included services are essential to thefunctionality of a product thereby requiring percentage of completionaccounting rather than software accounting.

We recognize revenuein accordance with Statement of Position(‘‘SOP’’) 97-2, ‘‘Software RevenueRecognition,’’ as amended by SOP 98-4 and SOP 98-9, and incertain instances in accordance with SOP 81-1, ‘‘Accountingfor Performance of Construction-Type and Certain Production-TypeContracts.’’ We license software under non-cancelablelicense agreements. License fee revenues are recognized when (a) anon-cancelable license agreement is in force, (b) the product has beendelivered, (c) the license fee is fixed or determinable and (d)collection is reasonably assured. If the fee is not fixed ordeterminable, revenue is recognized as payments become due from thecustomer.

Residual Method Accounting.    Insoftware arrangements that include multiple elements (e.g.,license rights and technical support services), We allocate the totalfees among each of the elements using the‘‘residual’’ method of accounting. Under thismethod, revenue allocated to undelivered elements is based onvendor-specific objective evidence of fair value of such undeliveredelements, and the residual revenue is allocated to the deliveredelements. Vendor specific objective evidence of fair value for suchundelivered elements is based upon the price we charge for such productor service when it is sold separately. We may modify our pricingpractices in the future, which would result in changes to our vendorspecific objective evidence. As a result, future revenue associatedwith multiple element arrangements could differ significantly from ourhistorical results.

Percentage of CompletionAccounting.    Fees from licenses sold together withconsulting services are generally recognized upon shipment of thelicenses, provided (i) the criteria described in subparagraphs (a)through (d) in the second paragraph under Revenue Recognition above aremet; (ii) payment of the license fee is not dependent upon performanceof the consulting services; and (iii)  the consulting services arenot essential to the functionality of the licensed software. If the

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services are essential to the functionalityof the software, or performance of services is a condition to paymentof license fees, both the software license and consulting fees arerecognized under the ‘‘percentage ofcompletion’’ method of contract accounting. Under thismethod, we are required to estimate the number of total hours needed tocomplete a project, and revenues and profits are recognized based onthe percentage of total contract hours as they are completed. Due tothe complexity involved in the estimating process, revenues and profitsrecognized under the percentage of completion method of accounting aresubject to revision as contract phases are actually completed.Historically, these revisions have not been material.

Sublicense Revenues.     We recognize sublicensefees as reported by our licensees. License fees for certain applicationdevelopment and data access tools are recognized upon direct shipmentby us to the end user or upon direct shipment to the reseller forresale to the end user. If collection is not reasonably assured inadvance, revenue is recognized only when sublicense fees are actuallycollected.

Service Revenues.     Technicalsupport revenues are recognized ratably over the term of the relatedsupport agreement, which in most cases is one year. Revenues fromconsulting services under time and materials contracts, and foreducation, are recognized as services are performed. Revenues fromother contract services are generally recognized based on theproportional performance of the project, with performance measuredbased on hours of work performed.

Impairment ofGoodwill and Other Intangible Assets

Goodwill and intangibleassets have generally resulted from our business combinations accountedfor as purchases. We are required to test amounts recorded as goodwillor recorded as intangible assets with indeterminate lives, at leastannually for impairment. The review of goodwill and indeterminate livedintangibles for potential impairment is highly subjective and requiresus to make numerous estimates to determine both the fair values and thecarrying values of our reporting units to which goodwill is assigned.If the estimated fair value of an asset is determined to be less thanits carrying value, we are required to perform an analysis similar to apurchase price allocation for an acquired business in order todetermine the amount of goodwill impairment, if any. This analysisrequires a valuation of certain other intangible assets includingin-process research and development, and developed technology. Changesin our internal business structure, changes in our future revenue andexpense forecasts, and certain other factors that directly impactvaluation could result in a future impairment charge.

Wecontinue to review other intangible assets (e.g., purchased technology)for indications of impairment whenever events or changes incircumstances indicate the carrying amount of any such asset may not berecoverable. For these purposes, recoverability of these assets ismeasured by comparing their carrying values to the future undiscountedcash flows the assets are expected to generate. This methodologyrequires us to estimate future cash flows associated with certainassets or groups of assets. Changes in these estimates could result inimpairment losses associated with other intangible assets. As ofDecember  31,  2005, all intangible assets have beenwritten off.

Allowance for Doubtful Accounts

Whenever relevant, we maintain an allowance for doubtful accounts toreflect the expected non-collection of accounts receivable based onpast collection history and specific risks identified in our portfolioof receivables. Additional allowances might be required ifdeteriorating economic conditions or other factors affect ourcustomers’ ability to make timely payments.

Capitalized Software

We capitalize certainsoftware development costs after a product becomes technologicallyfeasible and before its general release to customers. Significantjudgment is required in determining when a product becomes‘‘technologically feasible.’’ Capitalizeddevelopment costs are then amortized over the product’sestimated life beginning upon general release of the product.Periodically, we compare a product’s unamortized capitalizedcost to the product’s net realizable value. To the extentunamortized 

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capitalized cost exceeds net realizable valuebased on the product’s estimated future gross revenues (reducedby the estimated future costs of completing and selling the product)the excess is written off. This analysis requires us to estimate futuregross revenues associated with certain products and the future costs ofcompleting and selling certain products. Changes in these estimatescould result in write-offs of capitalized software costs. As ofDecember  31,  2005, we did not have any softwaredevelopment projects where the product being developed meets thecriteria for capitalization.

Income Taxes

Weuse the asset and liability approach to account for income taxes. Thismethodology recognizes deferred tax assets and liabilities for theexpected future tax consequences of temporary differences between thecarrying amounts and the tax bases of assets and liabilities. We thenrecord a valuation allowance to reduce deferred tax assets to an amountthat likely will be realized. We consider future taxable income andongoing prudent and feasible tax planning strategies in assessing theneed for the valuation allowance. If we determine during any periodthat we could realize a larger net deferred tax asset than the recordedamount, we would adjust the deferred tax asset and record acorresponding reduction to its income tax expense for the period.Conversely, if management determines that we would be unable to realizea portion of our recorded deferred tax asset, it would adjust thedeferred tax asset and record a charge to income tax expense for theperiod. Significant judgment is required in assessing the future taxconsequences of events that have been recognized in our financialstatements or tax returns. Fluctuations in the actual outcome of thesefuture tax consequences (e.g., the income we earn within the UnitedStates) could materially impact our financial position or results ofoperations.

Stock-Based Compensation

Statementof Financial Accounting Standards (‘‘SFAS’’)123, ‘‘Accounting for Stock-BasedCompensation,’’ currently encourages, but does not require,companies to record compensation cost for stock-based employeecompensation plans at fair value. However, as of January1,  2006, we will be required to apply Financial AccountingStandards Board (‘‘FASB’’) Statement 123R,Share-Based Payments, which will require us to measure compensationcost for all share-based payments at fair value.

Derivatives

We follow the provisions of SFAS No. 133,"Accounting for Derivative Instruments and HedgingActivities" ("SFAS No. 133"),along with related interpretations of EITF No. 00-19,"Accounting for Derivative Financial Instruments Indexedto, and Potentially Settled in, a Company's OwnStock" ("EITF 00-19"), and EITFNo. 05-2, "The Meaning of 'Conventional ConvertibleDebt Instrument' in Issue No. 00-19"("EITF 05-2"). SFAS No. 133 requires everyderivative instrument (including certain derivative instrumentsembedded in other contracts) to be recorded in the balance sheet aseither an asset or liability measured at its fair value, with changesin the derivative's fair value recognized currently in earningsunless specific hedge accounting criteria are met. We value thesederivative securities under the fair value method at the end of eachreporting period (quarter), and their value is marked to market at theend of each reporting period, with the gain or loss recognitionrecorded against earnings. We continue to revalue these instrumentseach quarter to reflect their current value in light of the currentmarket price of our Common Stock. We utilize the Black-Scholesoption-pricing model to determine fair value. Key assumptions of theBlack-Scholes option-pricing model include applicable volatility rates,risk-free interest rates and the instruments expected remaining life.These assumptions require significant managementjudgment.

Results of Operations

Our business is in itsearly stages and consequently our financial results are difficult tocompare from one period to the next. We expect such period-to-perioddifferences to continue to be significant over the next several yearsuntil we have a number of full years of operations.

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Since acquiring Innovations inDecember  2003, we have focused on two areas: (1) furtherdeveloping and enhancing the SWP and developing an array of productsfor the financial services, entertainment and general corporate marketthat leverage the functionality of the SWP; and (2) developing a salesstrategy that focuses on building teams to develop relationships withdirect customers, software manufacturers, multi-service operators andwireless carriers. Since we had limited capital, we lacked theresources to execute this strategy quickly. Once we began generatingoperating revenue – in late 2004 — and once we raised somemodest amounts of capital – in early 2005 – we were able tobegin hiring the sales and marketing and administrative personnelnecessary to execute - our strategy.

Our revenue resultsfrom:

|  |              |               |
|--|--------------|---------------|
|  | •  | project work; |

|  |              |                                                               |
|--|--------------|---------------------------------------------------------------|
|  | •  | developing and implementingapplications based on our SWP; and |

|  |              |                                                                                               |
|--|--------------|-----------------------------------------------------------------------------------------------|
|  | •  | licensing our technology as aone-time license fee, a periodic license fee, or a per user fee. |

In project work, we may be asked by a customer to develop anapplication working off our SWP to deliver certain data or informationto the customer’s wireless devices. In the case of a financialservices firm, it could be the delivery of real-time market data towireless devices used by traders. In these instances, we often receivean up-front fixed fee and, in some instances, will charge the customeran hourly rate for our developers. Once the application is developed,tested and deployed, we may receive a one-time license fee, a periodiclicense fee or a per user fee for its use. In other instances, we maypartner with a wireless service provider to develop an application thatthe wireless service provider can deliver to its customers. In theseinstances, we may receive an up-front development fee and a licensefee, in the form of a one-time fee or a share of the wireless serviceprovider’s user revenue.

Comparison of the YearEnded December  31,  2005 and 2004

For theyear ended December  31,  2005, we had a comprehensive lossof $6.8  million compared to a comprehensive loss of $654,000 forthe year ended December  31,  2004. Our increased loss isattributable to building an organization and infrastructure to supportour expanded sales and marketing effort and additional legal andaccounting expenses related to becoming a public company. The followingtable compares our consolidated statement of operations data for theyear ended December  31,  2005 and 2004.

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|                                     |  |                       |            |         |  |        |           |         |  |  |
|-------------------------------------|--|-----------------------|------------|---------|--|--------|-----------|---------|--|--|
|                                |  | Year ended December31 |
|                                |  | 2005                  |            | 2004    |
| Net Revenue                         |  | $                     | 565,489    |    |  | $      | 401,536   |    |
| Operatingexpenses:                  |  |                  |       |    |  |   |      |    |
| Depreciation andamortization        |  |                  | 439,370    |    |  |   | 142,588   |    |
| General and administrative expenses |  |                  | 1,348,461  |    |  |   | 174,790   |    |
| Professional fees                   |  |                  | 927,425    |    |  |   | 93,859    |    |
| Development expenses                |  |                  | 894,287    |    |  |   | 211,359   |    |
| Selling and marketingexpenses       |  |                  | 3,672,346  |    |  |   | 385,602   |    |
| Total operating expenses            |  |                  | 7,281,889  |    |  |   | 1,036,512 |    |
| Operating income/(loss)             |  | $                     | (6,716,400 | )  |  | $      | (634,976  | )  |
| Interest income                     |  |                  | 76,415     |    |  |   | 1,137     |    |
| Interest expense                    |  |                  | (6,480     | )  |  |   | (28,314   | )  |
| Other income and expense            |  |                  | (100,000   | )  |  |   | 7,683     |    |
| Net income/(loss)                   |  | $                     | (6,716,400 | )  |  | $      | (626,156  | )  |
| Gain/(loss) on currencytranslation  |  |                  | (70,007    | )  |  |   | (27,952   | )  |
| Comprehensive income/(loss)         |  | $                     | (6,816,492 | )  |  | $      | (654,108  | )  |
|                                     |

Revenue

Revenue in 2005was $565,489 compared to revenue of $401,536 for 2004, an increase of40.8%. 2005 revenue included $157,000 of licensing fees and$408,000 of project and support fees. Approximately 28% of therevenue is attributable to continuing license subscriptions and thebalance relates mostly to new projects begun this year. Our new versionof Sona Wireless Platform, MobileMarketsTM EnterpriseEdition is currently in trials in ten major financial institutions. Webelieve continuing increases in wireless IT spending and our continuingsales and marketing efforts will help drive revenue into 2006.

Operating Expenses

Total operating expenses for 2005 were$7.3  million compared to $1.0  million for 2004. Theincreased operating expenses are primarily attributable to the growthin sales, marketing, and software development staff to support anexpanded effort to market and sell the SWP and related products. Theincreased legal and accounting fees relate to the preparation andfiling of required reports with the SEC including the Form 8-K/A, theproxy, our quarterly reports on Form 10Q-SB, our annual report on Form10K-SB and general corporate governance related to being a publiccompany.

Depreciation and Amortization Expenses

Depreciation and amortization expenses, relating primarily to thecost of acquiring, developing and enhancing our suite of softwareproducts, including the SWP, MobileMarketsTM andServiceDeskTM, was $439,370 for 2005 compared to$142,588 for 2004, a 208% increase. The increase reflects thewrite-off of $416,000 representing the unamortized balances of thesoftware rights and deferred development costs resulting from theacquisition of Innovations in November  2003. Depreciationexpense for 2005 is $23,000.

General and AdministrativeExpenses

General and administrative expenses for 2005 were$1,348,461 compared to $174,790 for 2004, a 671% increase. Theincreased expenses are attributable to the increased overhead structurerequired to support our sales and marketing and development efforts in2005. We hired additional administrative, finance and accountingpersonnel, increasing our payroll to $503,000 in 2005 from $13,000 in2004. We leased office space for a new corporate headquarters, salesand customer support 

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office in New York, a sales office in Londonand a development facility in Boulder, Colorado, increasing our rent to$278,000 in 2005 from $30,000 in 2004. As a result of increased staffand office space, our expenses for office expenses, communication,insurance and other related expenses also increased. Most notably, ourcommunication expenses increased to $111,000 in 2005 from $31,000 in2004. Our insurance expense increased to $81,000 in 2005 from $4,000 in2004. General and administrative expenses also include the write-off ofintangible assets in the amount of $85,000 in 2005 from the acquisitionof the assets of SmartVideo.

Professional Fees

Professional fees for 2005 were $927,425 compared to $93,859 for2004, an 888% increase. Legal fees increased to $497,000 in 2005from $49,000 in 2004. The increase is mostly attributable to thepreparation and filing of public company documents with the SEC.Accounting fees increased to $143,000 in 2005 from $44,000 in 2004.This increase is attributable to additional accounting work requiredfor the public company filings in 2005. Other professional fees of$159,000 were incurred in 2005 relating to recruitment of newemployees, an investor relations consultant, transfer agent fees,architectural fees paid in connection with the new office space anddirectors fees. Additionally, each new director elected in 2005 wasgranted 40,000  shares of restricted stock. The fair market valueof this stock was amortized over the period of vesting. Professionalfees expense includes a charge of $123,000 relating to the amortizationof deferred stock based compensation for 2005.

DevelopmentExpenses

Research and development expenses for 2005 were$894,287 compared to $211,359 for 2004, a 323% increase. Payrolland related expenses comprise 92% of the total research anddevelopment expenses. The increase is predominantly due to the hiringof additional developers to support the increased sales and marketingeffort, which has produced a substantial increase in developmentprojects.

Sales and Marketing Expenses

Sales andmarketing expenses for 2005 were $3,672,346 compared to $385,602 for2004, an 852% increase. The increased expenses are attributableto the significant effort undertaken in 2005 to raise awareness of theSWP and related products in our two large vertical markets, (a) media,entertainment and gaming and (b) financial services, and enterprisesoftware, which we believe hold the greatest opportunities. We hiredadditional sales personnel, sales consultants and customer supportpersonnel increasing our payroll and related expenses to $2.2million in 2005 from $271,000 in 2004. Our travel and entertainmentexpenses related to sales and marketing increased proportionately to$539,000 in 2005, from $38,000 in 2004. We also substantially increasedour marketing and advertising efforts, including development ofmarketing literature, participation in trade shows, attendance at tradeconferences, and advertising targeted to specific industries within themarket segments where we focus. Our marketing, advertising andlicensing expenses increased to $678,000 in 2005 from $1,600 in2004.

Interest Income

Before the Merger, we had limitedcapital. As a result, we had only nominal interest income of $1,137 in2004. Interest income of $76,415 in 2005 reflects the fact that, in theMerger, Sona-Washington, the accounting acquirer, acquiredPerfectData’s net cash assets, which were in excess of $1million, and subsequently raised in excess of $5  million throughthe sale of series B preferred stock at the end of the second quarter.Interest income is derived from investing these funds in short-termliquid investments.

Interest Expense

Interest expensedecreased from $28,314 in 2004 to $6,480 in 2005. In 2004,approximately two thirds of the interest expense related to interest onthe convertible note with the remainder 

28

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attributable mainly to bank fees and vendorinterest. In 2005, the interest expense is entirely due to bank feesand vendor interest. We had no interest bearing debt in 2005.

Other income and expense

In 2005, other expense consistedof $100,020 relating to the December 31, 2005 revaluation of warrantscarried as a liability on the balance sheet. The other income amount in2004, relates to a Canadian tax credit for research and development.Under Canadian tax law, Innovations is entitled to a research anddevelopment tax credit equal to approximately 20% of itsresearch and development expenses as reflected on its tax returns. The2005 tax return has not yet been filed. The credits of $7,683 reflectedfor the 2004 period are based on Innovations’ research anddevelopment expenses reflected on its tax return for 2003. Our policyis to record and recognize the tax credits at the time we file our taxreturn.

Loss on Currency Translation

The balance sheetof Innovations, our Canadian subsidiary, is translated into U.S.dollars on the date thereof, using the official exchange rate on thatdate. Transactions that take place during the period are translatedinto U.S. dollars on the date of the transaction based on the officialexchange rate on that date. The resulting difference in period incomeis treated as gain or loss during the period due to currencytranslation. The fact that the loss was higher in the 2005 periodcompared to the 2004 period reflects the weakening of the U.S. dollarrelative to the Canadian dollar. Balances payable from Innovations tous are denominated in U.S. dollars and account for the majority of theexchange loss in 2005.

Liquidity and Capital Resources

Because of our limited capital, we are dependent on external sourcesof financing to support our working capital and capital expenditurerequirements. We have relied upon the proceeds of private securitiestransactions to satisfy our financing needs. Through December31,  2005, we had accumulated losses of approximately $7.5million, which were financed primarily through sales of equitysecurities. At the Merger Date, we had a net book value ofapproximately $1.146  million – mostly cash and cashequivalents. In the year ended December  31,  2005, weconsummated the following financing transactions:

|  |              |                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|--|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | in March, (i) the holder of a$100,000 convertible promissory note issued by us in June  2004converted that note into 1,162,655 shares of our Common Stock. Thoseshares were converted into shares of our Series A Preferred Stock inthe Merger and (ii) we sold 1,831,184 shares of our Common Stock for$475,000, which shares were subsequently converted into 25,000 sharesof our Series A Preferred Stock in the Merger; and |

|  |              |                                                                                                                                                                                                                                                                                          |
|--|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | In June, we sold 3,848.7 sharesof our Series B Preferred Stock and warrants to purchase 962,175 sharesof our Common Stock (the ‘‘Warrants’’). Thegross proceeds from the sale of the Series B Preferred Stock and thewarrants were approximately $5.05  million. |

AtDecember  31,  2005, we had total cash and cash equivalentsof $1.3  million held in current and short-term deposit accounts.Our working capital at December  31,  2005 wasapproximately $394,000, compared to our negative working capital of$452,000 at December  31,  2004. Our current ratio atDecember  31,  2005 was 1.3 to 1 compared to our currentratio of 0.4 to 1 at December  31,  2004. The current ratiois derived by dividing current assets by current liabilities and is ameasure used by lending sources to assess our ability to repayshort-term liabilities.

Overall, for year ended December31,  2005, we had a net cash increase of $1.2  millionattributable primarily to net cash provided by investing and financingactivities of $6.8  million offset by net cash used in operatingactivities of $5.6  million. The primary components of ouroperating cash flows are net loss adjusted for non-cash expenses, suchas depreciation and amortization, and the changes in accountsreceivable, and accounts payable. The largest component of cash flowprovided by financing activities was the proceeds from the Series BPreferred Stock financing with accompanying 

29

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warrants, which generated over $5million in gross proceeds of which approximately $4.7 was realized inthe second quarter and $300,000 in the third quarter.

Capitalexpenditures for the year ended December  31,  2005 wereapproximately $167,000, which consisted primarily of computers andcommunication devices.

At December  31,  2005, wehad no indebtedness, other than accrued salaries owing to twoemployees, including $104,000 owing to our chief executive officer.

At December  31,  2005, we had commitments relating tooffice leases in New York City and Boulder, Colorado in the UnitedStates, Toronto, Canada, and London, England, as well as some smallamounts for office equipment leases. The current Toronto lease expiresin April  2007. In New York, we have recently signed an officelease, which runs through December  2007 and in London, ashort-term lease, which runs to March  2006.

In January,2006, we sold 2,307,693 shares of our Common Stock to Shuffle Masterfor $3.0  million and issued to Shuffle Master an 18-monthwarrant to purchase 1,200,000 shares of our Common Stock at an exerciseprice of $2.025 per share. The sale of these shares and the issuance ofthe warrant were in connection with a strategic alliance distributionand licensing agreement between us and Shuffle Master.

As ofDecember  31,  2005, we had cash and cash equivalents ofapproximately $1.3  million. We believe that this existing cashon hand, in combination with $3,000,000 in proceeds received subsequentto year end from the sale of shares to Shuffle Master, will besufficient to fund our planned activities through at least June2006. Accordingly, we will have to raise additional capital during2006. We currently plan on raising capital to finance our plannedactivities at least through 2006. The form of the financing may includethe sale of additional equity securities or the issuance of options orwarrants. In addition to our efforts to raise additional capital, ourmanagement is implementing a program of careful management of our cash,reduction of expenses, including a reduction in work force, and seekingto develop new project work.

We cannot assure you that we willbe able to successfully implement our plans to raise additionalcapital, increase our revenue and reduce our expenses. We may not beable to obtain the required additional capital or obtain additionalproject work on a timely basis, on favorable terms, or atall. If we cannot successfully implement our plans, ourliquidity, financial condition and business prospects will bematerially and adversely affected. Such a financing could dilute theinterests of the existing shareholders or increase our operatingexpenses. If we cannot meet our revenue and cash flow forecasts, secureadditional financing and reduce our expenses, we may have tosignificantly curtail our operations or take other restructuringactions.

Our consolidated financial statements includedelsewhere in this report have been prepared assuming that we willcontinue as a going concern. Since our inception in November2003, we have generated minimal revenue and have incurred net losses.Accordingly, we have not generated cash flow from operations and haveprimarily relied upon the sale of shares of our Common Stock and theSeries B Preferred Stock financing to fund our operations. In view ofour continuing losses, our auditors, in their report on ourconsolidated financial statements, have stated that these continuinglosses raise substantial doubt about our ability to continue as a goingconcern.

The consolidated financial statements do not includeany adjustments to reflect the possible future effects on therecoverability and classification of assets or the amounts orclassification of liabilities that may result from the possibleinability of the Company to continue as a going concern.

Shares of our Common Stock and warrants sold to ShuffleMaster and included in a resale registration statement may have beenoffered and sold without an exemption from the registrationrequirements of the Securities Act.

In January  2006,while the registration statement was pending review by the SEC, weentered into a strategic alliance licensing and distribution agreementwith Shuffle Master under which we agreed to develop certain wirelessgaming technology for Shuffle Master. In connection with thatagreement, we sold 2,307,693 shares of our Common Stock and warrants topurchase up to an additional 1,200,000 

30

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shares of our Common Stock to Shuffle Masterfor $3.0  million. The proceeds from the sale of those securitieswere intended to provide us with the working capital we would need tofulfill our obligations under the agreement. Since we agreed toregister the purchased shares and the shares underlying the warrants,we included them in the pending registration statement. We weresubsequently informed by the staff of the Commission that, because weincluded those securities in a pending registration statement, theywere questioning the availability of the exemption from registrationthat we were claiming. The availability of the exemption requires thatthe transaction have a conclusion. Including the Shuffle Mastersecurities in the pending registration statement raises the questionwhether the transaction with Shuffle Master ever concluded. TheCommission suggested that we remove the Shuffle Master securities fromthe pending resale registration statement, which we will do.

Notwithstanding that removal, if a court of competent jurisdictionwere to ultimately determine that an exemption was not available, wemay have to offer Shuffle Master rescission rights. In addition, we,and possibly some of our officers, may also be subject to penalties.However, we believe the sale of securities to Shuffle Master was exemptfrom the registration requirements of the Securities Act as a validprivate placement transaction under Sections 4(2) and 4(6) of theSecurities Act. Our belief is based on a variety of factors, includingthe following:

|  |              |                                                                                                               |
|--|--------------|---------------------------------------------------------------------------------------------------------------|
|  | •  | ShuffleMaster is a sophisticated accredited investor that paid for and tookpossession of legended securities; |

|  |              |                                                                                                                                                                           |
|--|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | the negotiation of the strategicalliance agreement, including the sale of shares of our Common Stock toShuffle Master, began before the registration statement was filed; |

|  |              |                                                                                                                                                                                                                                                                                              |
|--|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | the sale of the shares and theissuance of the warrant were effected in connection with the strategicalliance agreement and the proceeds of the sale were intended to assistus in our development of the technology we agreed to develop forShuffle Master in accordance with that agreement; |

|  |              |                                                                                                                                                                                                                                   |
|--|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | although we agreed to registerthe shares sold to Shuffle Master and the shares underlying the warrantwe issued to Shuffle Master, we did not specifically agree to includethose securities in the pending registration statement; |

|  |              |                                                                                                     |
|--|--------------|-----------------------------------------------------------------------------------------------------|
|  | •  | we have not been soliciting ormarketing any of the securities covered by the registrationstatement; |

|  |              |                                                                                                                   |
|--|--------------|-------------------------------------------------------------------------------------------------------------------|
|  | •  | the shares soldto Shuffle Master and those underlying the warrant will be removed fromthe registration statement. |

For all of the foregoing reasons andbecause at this time the SEC has only questioned the availability of anexemption, we have determined that, in connection with this matter, weare not required to charge our 2005 earnings for any estimated losscontingency, provide pro forma financial data or disclose the existenceof a loss contingency. Nevertheless, we have disclosed in the notes toour consolidated financial statements the fact that the SEC hasquestioned the availability of anexemption.

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|              |                      |
|--------------|----------------------|
| Item7.  | Financial Statements |

|                                                             |  |      |  |  |  |  |
|-------------------------------------------------------------|--|------|--|--|--|--|
| FinancialStatements                                         |  | Page |
| Report of Independent Registered Public AccountingFirm      |  | 33   |
| Consolidated BalanceSheets                                  |  | 34   |
| Consolidated Statements ofOperations and Comprehensive Loss |  | 35   |
| Consolidated Statement of Stockholders’Deficiency     |  | 36   |
| ConsolidatedStatements of Cash Flows                        |  | 37   |
| Notes toConsolidated FinancialStatements                    |  | 38   |
|                                                             |

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REPORT OF INDEPENDENT REGISTERED PUBLICACCOUNTING FIRM

To the Board of Directors andStockholders of Sona Mobile Holdings Corp. and Subsidiaries

We have audited the accompanying consolidated balance sheetsof Sona Mobile Holdings Corp. and Subsidiaries (the‘‘Company’’) as at December  31,2005 and 2004, and the related consolidated statements of operationsand comprehensive loss, stockholders’ deficiency, and cash flowsfor each of the years in the two-year period ended December31,  2005. These consolidated financial statements are theresponsibility of the Company's management. Our responsibility isto express an opinion on these consolidated financial statements basedon our audits.

We conducted our audits in accordance withthe standards of the Public Accounting Oversight Board (United States).Those standards require that we plan and perform an audit to obtainreasonable assurance whether the consolidated financial statements arefree of material misstatement. An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accounting principlesused and significant estimates made by management, as well asevaluating the overall financial statement presentation. We believethat our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statementsreferred to above present fairly, in all material respects, thefinancial position of Sona Mobile Holdings Inc. and Subsidiary as ofDecember  31,  2005 and 2004 and the results of theiroperations and their cash flows for each of the two years in the periodended December  31,  2005, in conformity with accountingprinciples generally accepted in the United States of America.

The accompanying financial statements have been preparedassuming that the Company will continue as a going concern. Asdiscussed in Note 1 to the financial statements, the Company hassuffered recurring losses from operations that raise substantial doubtabout its ability to continue as a going concern. Management’splans in this regard to these matters are also described in Note 1. Thefinancial statements do not include any adjustments that might resultfrom the outcome of this uncertainty.

As discussed in Note21 to the consolidated financial statements, during the fourth quarterof 2005, the Company corrected its method of accounting for certainwarrants.

|                                                                                 |  |                           |  |  |  |  |
|---------------------------------------------------------------------------------|--|---------------------------|--|--|--|--|
|                                                                            |  | /s/ Horwath Orenstein LLP |
| Toronto,Canada                                                                  |  | Chartered Accountants     |
| February  28,  2006, except for Note 20, astowhich the date is March  28,  2006 |  |                      |
|                                                                                 |

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SONA MOBILE HOLDINGS CORP. ANDSUBSIDIARIESCONSOLIDATED BALANCE SHEETS

|                                                                                                                                                        |  |                         |            |                           |  |        |          |         |  |  |
|--------------------------------------------------------------------------------------------------------------------------------------------------------|--|-------------------------|------------|---------------------------|--|--------|----------|---------|--|--|
|                                                                                                                                                   |  | As at December  31,2005 |            | As at December  31,  2004 |
| Assets                                                                                                                                                 |  |                    |       |                      |  |   |     |    |
| Current:                                                                                                                                               |  |                    |       |                      |  |   |     |    |
| Cashand cash equivalents                                                                                                                               |  | $                       | 1,286,912  |                      |  | $      | 113,629  |    |
| Accounts receivable (net of allowance for doubtful accounts of$37,479 and $0, respectively)                                                            |  |                    | 413,122    |                      |  |   | 131,630  |    |
| Tax credits receivable                                                                                                                                 |  |                    | 30,929     |                      |  |   | 90,433   |    |
| Prepaid expenses &deposits                                                                                                                         |  |                    | 114,691    |                      |  |   | 17,852   |    |
| Total current assets                                                                                                                                   |  |                    | 1,845,654  |                      |  |   | 353,544  |    |
| Propertyand equipment:                                                                                                                                 |  |                    |       |                      |  |   |     |    |
| Computer equipment                                                                                                                                     |  |                    | 152,686    |                      |  |   | 9,761    |    |
| Furniture andequipment                                                                                                                                 |  |                    | 29,761     |                      |  |   | 5,469    |    |
| Less:accumulated depreciation                                                                                                                          |  |                    | (19,393    | )                    |  |   | (3,936   | )  |
| Total property and equipment                                                                                                                           |  |                    | 163,054    |                      |  |   | 11,294   |    |
| Software rights, net                                                                                                                                   |  |                    | —    |                      |  |   | 415,935  |    |
| Total assets                                                                                                                                           |  | $                       | 2,008,708  |                      |  | $      | 780,773  |    |
| Liabilities and Stockholders’Equity                                                                                                              |  |                    |       |                      |  |   |     |    |
| Current:                                                                                                                                               |  |                    |       |                      |  |   |     |    |
| Accountspayable                                                                                                                                        |  | $                       | 619,729    |                      |  | $      | 93,027   |    |
| Accruedliabilities                                                                                                                                     |  |                    | 701,206    |                      |  |   | 375,975  |    |
| NotePayable and other short term notes                                                                                                                 |  |                    | —    |                      |  |   | 55,325   |    |
| Redeemable Preferred Shares                                                                                                                            |  |                    | —    |                      |  |   | 280,000  |    |
| Deferred revenue                                                                                                                                       |  |                    | 130,287    |                      |  |   | 1,432    |    |
| Total current liabilities                                                                                                                              |  |                    | 1,451,222  |                      |  |   | 805,759  |    |
| Convertible note payable                                                                                                                               |  |                    | —    |                      |  |   | 85,630   |    |
| Common stock purchase warrants carried as a liability –962,175 issued and outstanding (see Note21)                                               |  |                    | 750,103    |                      |  |   |     |    |
| Total Liabilities                                                                                                                                      |  |                    | 2,201,325  |                      |  |   | 891,389  |    |
| Stockholders’equity:                                                                                                                             |  |                    |       |                      |  |   |     |    |
| Common Stock – 90,000,000shares authorized, par value $.01 per share – 37,907,350 and11,413,232 shares issued and outstanding respectively |  |                    | 379,074    |                      |  |   | 775,697  |    |
| Additional paid-incapital                                                                                                                              |  |                    | 7,064,433  |                      |  |   | 205,555  |    |
| Unamortized stock based compensation                                                                                                                   |  |                    | (53,000    | )                    |  |   | (325,237 | )  |
| Accumulated other comprehensiveincome                                                                                                                  |  |                    | (95,659    | )                    |  |   | (25,651  | )  |
| Accumulated deficit                                                                                                                                    |  |                    | (7,487,465 | )                    |  |   | (740,980 | )  |
| Total stockholders’ deficiency                                                                                                                   |  |                    | (192,617   | )                    |  |   | (110,616 | )  |
| Total liabilities and stockholders’ equity                                                                                                       |  | $                       | 2,008,708  |                      |  | $      | 780,773  |    |
|                                                                                                                                                        |

See accompanying notes toconsolidated financial statements.

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SONA MOBILE HOLDINGS CORP. ANDSUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVELOSS

|                                                                                       |  |                             |            |                             |  |        |            |         |  |  |
|---------------------------------------------------------------------------------------|--|-----------------------------|------------|-----------------------------|--|--------|------------|---------|--|--|
|                                                                                  |  | Year endedDecember31,  2005 |            | Year endedDecember  31,2004 |
| Net Revenue                                                                           |  | $                           | 565,489    |                        |  | $      | 401,536    |    |
| Operatingexpenses                                                                     |  |                        |       |                        |  |   |       |    |
| Depreciation andamortization                                                          |  |                        | 439,370    |                        |  |   | 142,588    |    |
| General and administrative expenses                                                   |  |                        | 1,348,461  |                        |  |   | 174,790    |    |
| Professional fees                                                                     |  |                        | 927,425    |                        |  |   | 93,859     |    |
| Development expenses                                                                  |  |                        | 894,287    |                        |  |   | 211,359    |    |
| Selling and marketingexpenses                                                         |  |                        | 3,672,346  |                        |  |   | 385,602    |    |
| Total operating expenses                                                              |  |                        | 7,281,889  |                        |  |   | 1,008,198  |    |
| Operating loss                                                                        |  |                        | (6,716,400 | )                      |  |   | (606,662   | )  |
| Interest income                                                                       |  |                        | 76,415     |                        |  |   | 1,137      |    |
| Interest expense                                                                      |  |                        | (6,480     | )                      |  |   | (28,314    | )  |
| Other income and expense                                                              |  |                        | (100,020   | )                      |  |   | 7,683      |    |
| Net loss                                                                              |  | $                           | (6,746,485 | )                      |  | $      | (626,156   | )  |
| Foreign currency translationadjustment                                                |  |                        | (70,007    | )                      |  |   | (27,952    | )  |
| Comprehensive loss                                                                    |  | $                           | (6,816,492 | )                      |  | $      | (654,108   | )  |
| Net loss per share of common stock– basic and diluted                           |  | $                           | (0.22      | )                      |  | $      | (0.06      | )  |
| Weighted average number of shares ofcommon stockoutstanding – basic and diluted |  |                        | 30,916,820 |                        |  |   | 10,626,442 |    |
|                                                                                       |

See accompanying notes toconsolidated financialstatements.

35

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SONA MOBILE HOLDINGS CORP. ANDSUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS’DEFICIENCY

|                                                                                  |  |              |             |                                                  |  |                          |            |                              |  |                                      |          |                    |  |                                |         |         |  |        |           |         |  |        |          |         |  |        |          |         |  |        |             |         |  |        |            |         |  |  |
|----------------------------------------------------------------------------------|--|--------------|-------------|--------------------------------------------------|--|--------------------------|------------|------------------------------|--|--------------------------------------|----------|--------------------|--|--------------------------------|---------|---------|--|--------|-----------|---------|--|--------|----------|---------|--|--------|----------|---------|--|--------|-------------|---------|--|--------|------------|---------|--|--|
|                                                                             |  | Common Stock |             | Series A & Series BConvertiblePreferredStock |  | Additionalpaid-inCapital |            | UnamortizedBasedCompensation |  | AccumulatedComprehensiveIncomeAmount |          | AccumulatedDeficit |  | TotalShareholder’sEquity |
|                                                                             |  | Shares       |             | Amount                                           |  | Shares                   |            | Amount                       |
| Balance atDecember  31,  2003                                                    |  |         | 6,812,010   |                                             |  | $                        | 35,000     |                         |  |                                 | —  |               |  | $                              | — |    |  | $      | —   |    |  | $      | —  |    |  | $      | 2,301    |    |  | $      | (114,824    | )  |  | $      | (77,523    | )  |
| Issuance of shares for cash                                                      |  |         | 4,601,222   |                                             |  |                     | 368,997    |                         |  |                                 |     |               |  |                           |    |    |  |   |      |    |  |   |     |    |  |   |     |    |  |   |        |    |  |   | 368,997    |    |
| Value of conversion option of convertible note                                   |  |         |        |                                             |  |                     |       |                         |  |                                 |     |               |  |                           |    |    |  |   | 30,555    |    |  |   |     |    |  |   |     |    |  |   |        |    |  |   | 30,555     |    |
| Cash received in advancefor common stock subscriptions                           |  |         |        |                                             |  |                     |       |                         |  |                                 |     |               |  |                           |    |    |  |   | 175,000   |    |  |   |     |    |  |   |     |    |  |   |        |    |  |   | 175,000    |    |
| Deferred stock basedcompensation                                                 |  |         |        |                                             |  |                     | 371,700    |                         |  |                                 |     |               |  |                           |    |    |  |   |      |    |  |   | (325,237 | )  |  |   |     |    |  |   |        |    |  |   | 46,463     |    |
| Foreign exchange translation                                                     |  |         |        |                                             |  |                     |       |                         |  |                                 |     |               |  |                           |    |    |  |   |      |    |  |   |     |    |  |   | (27,952  | )  |  |   |        |    |  |   | (27,952    | )  |
| Net loss                                                                         |  |         |        |                                             |  |                     |       |                         |  |                                 |     |               |  |                           |    |    |  |   |      |    |  |   |     |    |  |   |     |    |  |   | (626,156    | )  |  |   | (626,156   | )  |
| Balance at December  31,2004                                                     |  |         | 11,413,232  |                                             |  |                     | 775,697    |                         |  |                                 | —  |               |  |                           | — |    |  |   | 205,555   |    |  |   | (325,237 | )  |  |   | (25,651  | )  |  |   | (740,980    | )  |  |   | (110,616   | )  |
| Sona common stockissued prior to reverse merger                                  |  |         | 14,758,233  |                                             |  |                     | 683,707    |                         |  |                                 |     |               |  |                           |    |    |  |   |      |    |  |   |     |    |  |   |     |    |  |   |        |    |  |   | 683,707    |    |
| Convertible note conversion                                                      |  |         | 1,162,655   |                                             |  |                     | 70,420     |                         |  |                                 |     |               |  |                           |    |    |  |   |      |    |  |   |     |    |  |   |     |    |  |   |        |    |  |   | 70,420     |    |
| Common stock acquired in the reverse merger                                      |  |         | 6,584,530   |                                             |  |                     | 65,845     |                         |  |                                 |     |               |  |                           |    |    |  |   | 1,146,433 |    |  |   |     |    |  |   |     |    |  |   |        |    |  |   | 1,212,278  |    |
| Recapitalization andexchange of stock pursuant to merger                         |  |         | (27,334,120 | )                                           |  |                     | (1,529,823 | )                       |  |                                 |     |               |  |                           |    |    |  |   | 1,478,905 |    |  |   | 325,237  |    |  |   |     |    |  |   |        |    |  |   | 274,319    |    |
| Issuance of Series AConvertible Preferred Stock pursuant to merger               |  |         |        |                                             |  |                     |       |                         |  |                                 | 568,140  |               |  |                           | 5,681   |    |  |   |      |    |  |   |     |    |  |   |     |    |  |   |        |    |  |   | 5,681      |    |
| Issuance of Series BConvertible Preferred Stock                                  |  |         |        |                                             |  |                     |       |                         |  |                                 | 3,849    |               |  |                           | 38      |    |  |   | 4,365,049 |    |  |   |     |    |  |   |     |    |  |   |        |    |  |   | 4,365,087  |    |
| Conversion of Series A and Series B Convertible PreferredStock into common stock |  |         | 31,182,820  |                                             |  |                     | 311,828    |                         |  |                                 | (571,989 | )             |  |                           | (5,719  | )  |  |   | (306,109  | )  |  |   |     |    |  |   |     |    |  |   |        |    |  |   | —    |    |
| Deferred stock basedcompensation                                                 |  |         | 140,000     |                                             |  |                     | 1,400      |                         |  |                                 |     |               |  |                           |    |    |  |   | 174,600   |    |  |   | (53,000  | )  |  |   |     |    |  |   |        |    |  |   | 123,000    |    |
| Foreign exchangetranslation                                                      |  |         |        |                                             |  |                     |       |                         |  |                                 |     |               |  |                           |    |    |  |   |      |    |  |   |     |    |  |   | (70,008  | )  |  |   |        |    |  |   | (70,008    | )  |
| Net loss                                                                         |  |         |        |                                             |  |                     |       |                         |  |                                 |     |               |  |                           |    |    |  |   |      |    |  |   |     |    |  |   |     |    |  |   | (6,746,485  | )  |  |   | (6,746,485 | )  |
| Balance at December  31,2005                                                     |  |         | 37,907,350  |                                             |  | $                        | 379,074    |                         |  |                                 | 0        |               |  |                           | 0       |    |  | $      | 7,064,433 |    |  |   | ($53,000 | )  |  |   | ($95,659 | )  |  |   | ($7,487,465 | )  |  | $      | (192,617   | )  |
|                                                                                  |

See accompanying notes toconsolidated financialstatements.

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SONA MOBILE HOLDINGS CORP. ANDSUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                  |  |                             |            |                             |  |        |          |         |  |  |
|------------------------------------------------------------------|--|-----------------------------|------------|-----------------------------|--|--------|----------|---------|--|--|
|                                                             |  | Year endedDecember31,  2005 |            | Year endedDecember  31,2004 |
| Cash provided by (usedin):                                       |  |                        |       |                        |  |   |     |    |
| Operatingactivities                                              |  |                        |       |                        |  |   |     |    |
| Net loss                                                         |  | $                           | (6,746,485 | )                      |  | $      | (626,156 | )  |
| Adjustmentsfor:                                                  |  |                        |       |                        |  |   |     |    |
| Depreciation and amortization                                    |  |                        | 439,370    |                        |  |   | 142,588  |    |
| Amortization ofdeferred interest                                 |  |                        | 15,210     |                        |  |   | 16,185   |    |
| Revaluation of stock purchase warrants                           |  |                        | 100,020    |                        |  |   |     |    |
| Changes in non-cashworking capital assets andliabilities:        |  |                        |       |                        |  |   |     |    |
| Accounts receivable                                              |  |                        | (272,578   | )                      |  |   | (122,571 | )  |
| Tax creditsreceivable                                            |  |                        | 59,504     |                        |  |   | 69,184   |    |
| Prepaidexpenses & deposits                                   |  |                        | (96,839    | )                      |  |   | (11,659  | )  |
| Accounts payable                                                 |  |                        | 534,041    |                        |  |   | (67,929  | )  |
| Accrued liabilities                                              |  |                        | 330,882    |                        |  |   | 244,263  |    |
| Deferred revenue                                                 |  |                        | 128,855    |                        |  |   | 1,432    |    |
| Netcash provided by (used in) operating activities               |  | $                           | (5,508,020 | )                      |  | $      | (354,663 | )  |
| Investingactivities                                              |  |                        |       |                        |  |   |     |    |
| Capital expenditures                                             |  |                        | (167,217   | )                      |  |   | (2,155   | )  |
| Net cash provided by (used in) investing activities              |  | $                           | (167,217   | )                      |  | $      | (2,155   | )  |
| Financingactivities                                              |  |                        |       |                        |  |   |     |    |
| Convertible note payable,net                                     |  |                        | —    |                        |  |   | 100,000  |    |
| Redeemablepreferred shares                                       |  |                        | 150,000    |                        |  |   | 130,000  |    |
| Proceeds from the sale of common stock                           |  |                        | 683,707    |                        |  |   | 368,997  |    |
| Proceeds from stock basedcompensation                            |  |                        | 53,000     |                        |  |   | 46,463   |    |
| Proceeds from deposits on share subscriptions                    |  |                        | —    |                        |  |   | 175,000  |    |
| Cash acquired inreverse merger                                   |  |                        | 1,101,858  |                        |  |   | —  |    |
| Proceeds from the issuance of Series B Preferred Stock           |  |                        | 4,365,087  |                        |  |   | —  |    |
| Proceeds from theissuance of common stock purchase warrants |  |                        | 650,083    |                        |  |   | —  |    |
| Repayment of note payable and otherloans                         |  |                        | (55,325    | )                      |  |   | (322,274 | )  |
| Net cash provided by financingactivities                         |  | $                           | 6,948,410  |                        |  | $      | 498,186  |    |
| Effect of exchange rate changes oncash                           |  |                        | (99,890    | )                      |  |   | (27,952  | )  |
| Change in cash during the period                                 |  |                        | 1,173,283  |                        |  |   | 113,416  |    |
| Cash,beginning of period                                         |  |                        | 113,629    |                        |  |   | 213      |    |
| Cash, end of period                                              |  | $                           | 1,286,912  |                        |  | $      | 113,629  |    |
|                                                                  |

There were no amounts paid in cashfor taxes or interest in 2005 or 2004. There were several non-cashfinancing transactions in 2005. In early 2005, prior to the MergerDate, a convertible note in the principal amount of $100,000 wasconverted to 1,162,655 shares of Common Stock. On November17,  2005, the outstanding shares of Series A and B PreferredStock were automatically converted to 31,182,820 shares of Common Stockupon authorization of the increase in the authorized number shares ofCommon Stock to 90,000,000 shares.

See accompanying notesto consolidated financialstatements.

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SONA MOBILEHOLDINGS CORP. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIALSTATEMENTS (AUDITED)

Note 1,    Going Concern andManagement’s Plans

The accompanying consolidatedfinancial statements have been prepared assuming that the Company willcontinue as a going concern. Since our inception in November2003, we have generated minimal revenue and have incurred substantiallosses. Accordingly, we have not generated cash flow from operationsand have primarily relied upon the sale of shares of our common stockand the Series B Preferred Stock financing to fund our operations.These conditions raise substantial doubt about our ability to continueas a going concern.

The consolidated financial statementsdo not include any adjustments to reflect the possible future effectson the recoverability and classification of assets or the amounts orclassification of liabilities that may result from the possibleinability of the Company to continue as a going concern.

As of December  31,  2005, the Company had cashand cash equivalents of approximately $1.3  million. Ourmanagement believes that this existing cash on hand, in combinationwith $3,000,000 in proceeds received subsequent to year end from thesale of shares to Shuffle Master, will be sufficient to fund ourplanned activities through at least June  2006. Accordingly, wewill have to raise additional capital during 2006. We currently plan toraise capital to finance our planned activities at least through 2006.The form of the financing may include the sale of additional shares ofour common stock or preferred stock or the issuance of options orwarrants. We cannot assure that we will be successful in raising asufficient amount of capital in a timely manner. If we are notsuccessful in raising additional capital in a timely manner, ourliquidity, financial condition and business prospects will bematerially and adversely affected. Such a financing could dilute theinterests of our existing shareholders or increase our operatingexpenses. If we cannot meet our revenue and cash flow forecasts and arealso unable to secure additional financing, we may have tosignificantly curtail our operations or take other restructuringactions.

Note 2.    Basis of Presentation

Theaccompanying audited consolidated financial statements of Sona MobileHoldings Corp. (the ‘‘Company’’) and itssubsidiaries, included herein have been prepared by the Company inaccordance with U. S. generally accepted accounting principles("GAAP"). The audited consolidated financialstatements herein include the accounts of the Company and itswholly-owned subsidiary, Sona Mobile, Inc. (‘‘SonaMobile’’) and Sona Mobile’s wholly-owned subsidiary,Sona Innovations, Inc. (‘‘Innovations’’), aCanadian company, and Sona UK, Ltd., a wholly-owned subsidiary of theCompany formed in the United Kingdom in September  2005. Allmaterial inter-company accounts and transactions have been eliminatedin consolidation.

Recently issued accountingpronouncements

In December  2004, theFinancial Accounting Standards Board (‘‘FASB’’)issued Statement of Financial Accounting Standards ("SFAS)No. 123 (R), "Share Based Payment," whichaddresses the accounting for share-based payment transactions. SFAS No.123 (R) eliminates the ability to account for share-based compensationtransactions using  APB No. 25, and generally requires insteadthat such transactions be accounted and recognized in the statement ofincome based on their fair values. SFAS No. 123 (R) will be effectivefor public companies that file as small business issuers as of thefirst interim period in fiscal years that begin after December15,  2005. Management is evaluating the provisions of thisstandard. Depending upon the number and terms of options that may begranted in future periods, management believes that the implementationof this Standard could have a material impact on the Company'sfinancial statements.

In May  2003, the FASB issuedSFAS No. 150, "Accounting for Certain FinancialInstruments with Characteristics of Both Liabilities andEquity", which establishes standards for how an issuerclassifies and measures certain financial instruments withcharacteristics of both liabilities and equity.  SFAS No.

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150 requires that an issuer classify afinancial instrument that is within its scope, which may havepreviously been reported as equity, as a liability (or an asset is somecircumstances). Mandatorily redeemable instruments (i.e. instrumentsissued in the form of shares that unconditionally obligate the issuerto redeem the shares for cash or by transferring other assets) are tobe reported as liabilities by their issuers. This statement does notaffect the classification or measurement of convertible bonds, puttablestock, or other outstanding shares that are conditionally redeemable.The provisions of  SFAS No. 150 are generally effective for allfinancial instruments entered into or modified after May31,  2003, except for those provisions relating to mandatorilyredeemable non-controlling interests, which have been deferred. TheCompany has complied with the provisions of SFAS No. 150 since itsinception in November  2003. If the deferred provisions of SFASNo. 150 are finalized in their current form, management does not expectadoption to have a material effect on the Company's financialposition or results of operations.

Note 3.    CompanyBackground and Description of Business

PerfectDataCorporation (‘‘PerfectData’’) was incorporatedin the State of California on June  8,  1976. OnNovember  29,  2004, after obtaining the requisiteshareholder approval, PerfectData reincorporated in the State ofDelaware.

On April  19,  2005 (the‘‘Merger Date’’), pursuant to an Agreement andPlan of Merger dated as of March  7,  2005 (the‘‘Merger Agreement’’), Sona Mobile, Inc., aState of Washington corporation(‘‘Sona-Washington’’), was merged with and intoPerfectData Acquisition Corporation, a Delaware corporation(‘‘Merger Sub’’) and a wholly-owned subsidiaryof the Company (the ‘‘Merger’’). Merger Subsimultaneously changed its named to Sona Mobile, Inc. TheCompany’s name was changed to Sona Mobile Holdings Corp. uponapproval at the annual stockholders’ meeting on November17,  2005.

As contemplated by the Merger Agreement,on the Merger Date, four of PerfectData’s five directorsresigned, including the Chairman of the Board, and the remainingdirector appointed three designees of Sona-Washington to fill thosevacancies. Also, on the Merger Date the Company’s chiefexecutive officer resigned and the reconstituted board appointeddesignees of Sona-Washington as the Company’s new executiveofficers.

In the Merger, the Sona-Washington shareholdersreceived an aggregate of 539,733 shares of the Company’s SeriesA Convertible Preferred Stock (the ‘‘Series AStock’’). The conversion ratio for the Series A Stock was48.11159 to one – meaning each share of Series A Stock wasconvertible into 48.11159 shares of the Company’s common stock,par value $.01 per share (the ‘‘CommonStock’’), or a total of 25,967,413 shares of Common Stock.Sona Mobile’s financial advisor in connection with the Mergerreceived 28,407 shares of the Series A Stock, convertible into1,366,706 shares of Common Stock. The holders of the Series A Stockvote together with the holders of the Company’s Common Stock onall matters submitted for vote to the Company’s shareholders onan as converted basis. As a result, the holders of the Series A Stockhad 80% voting control of the Company on the Merger Date. Anadditional 11,389,217 shares of Common Stock will be issued to theoriginal holders of the Series A Stock and the Series B Stock (see Note6 below) if either of the following two conditions are satisfied: (1)if the Company, on a consolidated basis, has revenues of at least$3,000,000 and a gross profit margin of at least 50% for itsfiscal year ending December  31,  2005 or  (2) if theCompany’s aggregate revenues for 2005 and 2006 are at least$12,000,000 and the Company’s gross profit margin, combinedaggregate revenues and aggregate cost of revenues, for 2005 and 2006are at least 50%.

The Series A Preferred Stockconverted automatically into Common Stock at the time as theCompany’s stockholders approved an amendment to theCompany’s Certificate of Incorporation that increased the numberof authorized shares of Common Stock to an amount that would permit theconversion of the Series A Preferred Stock. At the annual shareholdersmeeting on November  17,  2005, the Company’sstockholders approved an amendment to the Company’s Certificateof Incorporation increasing the number of authorized shares of CommonStock from 10,000,000 to 90,000,000. In accordance with the terms ofthe Merger Agreement, the 568,140 shares of the Series A Stock wereautomatically converted into 27,334,119 shares of Common Stock at thatdate.

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Upon completion of the Merger, theCompany’s only business was the historical business ofSona-Washington and the former Sona-Washington shareholders controlledthe Company. Accordingly, the Merger was accounted for as a reverseacquisition of a public shell and a recapitalization ofSona-Washington. No goodwill was recorded in connection with the Mergerand the costs were accounted for as a reduction of additionalpaid-in-capital. The pre-Merger financial statements of Sona-Washingtonare treated as the historical financial statements of the combinedcompanies. The historical financial statements of PerfectData prior tothe Merger are not presented. Furthermore, because Sona-Washington isdeemed the accounting acquirer, its historical stockholders’equity has been adjusted to reflect the new capital structure.Immediately prior to the Merger, PerfectData was essentially a shellcompany with net assets (primarily cash) of approximately $1.1million.

Sona-Washington was organized on November12,  2003 in the State of Washington for the purpose of acquiringall of the stock of Sona Innovations, Inc., a Canadian corporation(‘‘Innovations’’). The acquisition wascompleted in December  2003. The Company operates as one businesssegment.

The Company develops and markets wireless dataapplications for mobile devices in the rapidly growing wireless datamarketplace. The Company is a Vertical Wireless Software and ServiceProvider specializing in value-added services to data-intensivevertical market segments. The Company's revenues consist ofproject, licensing and support fees relating to the Sona WirelessDevelopment Platform(TM) ("SWP")and related end-user wireless application software products madeavailable to enterprises and cellular operators.

TheCompany markets its products and services principally to two largevertical markets:

|  |              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|--|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Financialservices and enterprise Software. Our products and services extendenterprise applications to the wireless arena, such as customerrelationship management systems, sales force automation systems,information technology (IT) service desk and business continuityprotocols, all of which are delivered in compliance with the currentregulatory environment. One of the Company’s primary focuses isto develop wireless software applications for the data-intensiveinvestment banking community and client-facing applications for theretail banking industry. |

|  |              |                                                                                                                                                                                                                       |
|--|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Media, entertainment andgaming. Sona Mobile delivers content via significant channel partnersand content partners, including live streaming television, digitalradio, specific theme phones, and gaming applications. |

Note4.    Concentration of Credit Risk

Financialinstruments that potentially subject the Company to concentrations ofcredit risk consist primarily of trade accounts receivable. Receivablesarising from sales to customers are not collateralized and, as aresult, management continually monitors the financial condition of itscustomers to reduce the risk of loss. Customer account balances withinvoices dated over 90 days are considered delinquent. The Companymaintains reserves for potential credit losses based upon its losshistory, its aging analysis and specific account review. After allattempts to collect a receivable have failed, the receivable is writtenoff against the allowance. Such losses have been withinmanagement's expectations. The Company has some exposure to aconcentration of credit risk as it relates to specific industrysegments, as historically its customers have been primarilyconcentrated in the financial services industry. During 2005 and 2004,one customer comprised approximately 18% and 31%,respectively, of the Company's revenue. Since revenues are derivedin large part from single projects, the Company bears some credit riskdue to a high concentration of revenues from individual customers. In2005, there were two individual customer projects that made up31% and 20% of annual revenues respectively. In 2004,there were also two individual, but different customer projects thatmade up 16% and 10%of annual revenues.

Wehad a balance of $37,479 in our Allowance for Doubtful Accountsprovision as of December  31,  2005. This balance consistsentirely of provisions made in 2005. There were no bad debt write offsagainst the provision in 2005.

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Note 5.    Summary of SignificantAccounting Policies

These consolidated financialstatements are presented in United States dollars and have beenprepared in accordance with GAAP and reflect the followingpolicies:

(a)    Principles of consolidation

The consolidated financial statements include the accounts ofthe Company and its wholly-owned subsidiary, Sona Mobile, Inc., theaccounts of Sona Mobile’s wholly-owned subsidiary, SonaInnovations Inc., and the accounts of the Company’s wholly ownedsubsidiary in the United Kingdom, Sona Limited. All inter-companyaccounts and transactions have been eliminated in consolidation.

(b)    Cash and cash equivalents

Cashand cash equivalents are comprised of cash and term deposits withoriginal maturity dates of less than 90 days. Cash and cash equivalentsare stated at cost, which approximates market value, and areconcentrated in two major financial institutions.

(c)    Foreign currency translation

Thefunctional currency is the U.S. dollar. In accordance with theprovisions of SFAS No. 52, ‘‘Foreign CurrencyTranslation,’’ assets and liabilities denominated in aforeign currency have been translated at the period end rate ofexchange. Revenue and expense items have been translated at thetransaction date rate. For Sona Innovations, which uses its localcurrency (Canada) as its functional currency, the resulting translationadjustments are included in other comprehensive income. Other gains orlosses resulting from foreign exchange transactions are reflected inearnings.

(d)    Property and equipment

Property and equipment are stated at cost. Depreciation isprovided on a straight-line basis over the estimated useful lives ofthree to five years.

(e)    Use of estimates

The preparation of consolidated financial statements inconformity with GAAP requires management to make estimates andassumptions that affect the reported amounts of assets and liabilitiesand disclosure of contingent assets and liabilities, at the date of thefinancial statements and the reported amounts of revenues and expensesduring the reporting periods. Actual results could differ from theseestimates. These estimates are reviewed periodically and, asadjustments become necessary, they are reported in earnings in theperiod in which they become known.

(f)    Softwarerights

Software rights were recorded at the excess ofthe purchase price for Innovations, purchased in 2003, over the fairvalue of that company's identifiable net tangible assets. During2004 and 2005, the software rights were amortized on a straight-linebasis assuming a four-year life. As at December  31,  2005,we determined that our technology had moved beyond the levels for whichthese software rights were originally acquired. Accordingly, thesoftware rights were written off as of December  31,  2005.The related 2005 write off of approximately $347,000 has been includedin Depreciation and Amortization expense in the financialstatements.

(g)    Income taxes

TheCompany accounts for income taxes in accordance with SFAS No. 109,‘‘Accounting for Income Taxes,’’ which requiresan asset and liability approach to financial accounting and reportingfor income taxes. Deferred income tax assets and liabilities arecomputed periodically for differences between the financial statementand tax basis of assets and liabilities that will result in taxable ordeductible amounts in the future based on enacted tax laws and ratesapplicable to the periods in which the 

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differences are expected to affect taxableincome. Valuation allowances are established when necessary to reducedeferred tax assets to the amount expected to be realized. The incometax provision is the tax payable or refundable for the period plus orminus the change during the period in deferred tax assets andliabilities.

(h)    Revenue recognition

The Company derives revenue from license and service feesrelated to customization and implementation of the software beinglicensed. License fees are recognized in accordance with Statement ofPosition (‘‘SOP’’) 97-2, ‘‘SoftwareRevenue Recognition,’’ as amended by SOP 98-4 and SOP 98-9,and in certain instances in accordance with SOP 81-1,‘‘Accounting for Performance of Construction-Type andCertain Production-Type Contracts.’’ Service fees arerecorded on a percentage of completion or completed-contract basisdepending on whether or not reliable estimates of the costs to completethe work can be obtained. License fees are recognized over the serviceperiod when there is persuasive evidence of an arrangement, the fee isfixed or determinable and collection of the receivable is probable. Thedeferred revenues are amounts received prior to completion ofservice.

(i)    Research and development costs

The Company incurs costs on activities that relate toresearch and the development of new products. Research costs areexpensed as they are incurred. Costs are reduced by tax credits whereapplicable.

Development costs to establish thetechnological feasibility of software applications developed by theCompany are charged to expense as incurred. In accordance with SFAS 86,certain costs incurred subsequent to achieving technologicalfeasibility are capitalized. Accordingly, a portion of the internallabor costs and external consulting costs associated with essentialwireless software development and enhancement activities arecapitalized. Costs associated with conceptual design and feasibilityassessments as well as maintenance and routine changes are expensed asincurred. Capitalized costs are amortized based on current or futurerevenue for each product with an annual minimum equal to thestraight-line basis over the estimated economic lives of theapplications, not to exceed 5 years and are periodicallyevaluated for impairment.

Development costs for the yearsended December  31,  2005 and 2004 were $894,000 and$211,000 respectively.

(j)    Stock basedcompensation

The Company applies theintrinsic-value-based method of accounting prescribed by AccountingPrinciples Board (APB) Opinion No. 25, Accounting for Stock Issuedto Employees, and related interpretations including FASB

Interpretation No. 44, "Accounting for CertainTransactions Involving Stock Compensation, and Interpretation of APBOpinion No. 25," issued in March  2000, to accountfor its fixed-plan stock options. Under this method, compensationexpense is recorded on the date of grant only if the current marketprice of the underlying stock exceeded the exercise price. SFAS No.123, "Accounting for Stock-BasedCompensation," established accounting and disclosurerequirements using a fair-value-based method of accounting forstock-based employee compensation plans. As allowed by SFAS No. 123,the Company has elected to continue to apply the intrinsic-value-basedmethod of accounting described above and has adopted only thedisclosure requirements of SFAS No. 123.

SFAS No. 123, asamended by SFAS No. 148, permits companies to recognize, as expenseover the vesting period, the fair value of all stock-based awards onthe date of grant. The Black-Scholes option valuation model wasdeveloped for use in estimating the fair value of traded options, whichhave no vesting restrictions and are fully transferable. Because theCompany's stock-based compensation plan has characteristicssignificantly different from those of traded options and becausechanges in the subjective input assumptions can materially affect thefair value estimate, management believes that the existing optionvaluation models do not necessarily provide a reliable single measureof the fair value of awards from the plan. Therefore, as permitted, theCompany applies the existing accounting 

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rules under APB No. 25 and provides pro formanet income (loss) disclosures for stock-based awards made during theyear as if the fair value method defined in SFAS No. 123, as amended,had been applied.

The following table illustrates theeffect on net loss as if the Company had applied the fair valuerecognition provisions of SFAS No. 123 to stock based employeecompensation. The fair value of these options was estimated at the dateof grant using a Black-Scholes option-pricing model, assuming arisk-free interest rate of 4.24% - 4.83%, a three-yearterm, 65% volatility, and no expected dividend rate. There wereno options issued in 2004.

(000's, except per shareamounts)

|                                                                                                             |  |        |            |         |  |  |
|-------------------------------------------------------------------------------------------------------------|--|--------|------------|---------|--|--|
|                                                                                                        |  | 2005   |
| Net loss,as reported                                                                                        |  | $      | (6,646,465 | )  |
| Deduct totalstock-based employee compensation expense determined underfair-value-based method for allawards |  |   | 502,127    |    |
| Proforma net loss                                                                                           |  | $      | (7,148,592 | )  |
| Basic and diluted net loss per commonshare:                                                                 |  |   |       |    |
| As reported                                                                                                 |  | $      | (0.22      | )  |
| Pro forma                                                                                                   |  | $      | (0.23      | )  |
|                                                                                                             |

(k)    Reclassifications

Certain reclassifications of previously reported amounts havebeen made to conform to the current year’s presentation.

(l)    Derivatives

We follow the provisions ofSFAS No. 133, "Accounting for Derivative Instruments andHedging Activities" ("SFAS No.133"), along with related interpretations of EITF No.00-19, "Accounting for Derivative Financial InstrumentsIndexed to, and Potentially Settled in, a Company's OwnStock" ("EITF 00-19"), and EITFNo. 05-2, "The Meaning of 'Conventional ConvertibleDebt Instrument' in Issue No. 00-19"("EITF 05-2"). SFAS No. 133 requires everyderivative instrument (including certain derivative instrumentsembedded in other contracts) to be recorded in the balance sheet aseither an asset or liability measured at its fair value, with changesin the derivative's fair value recognized currently in earningsunless specific hedge accounting criteria are met. We value thesederivative securities under the fair value method at the end of eachreporting period (quarter), and their value is marked to market at theend of each reporting period, with the gain or loss recognitionrecorded against earnings. We continue to revalue these instrumentseach quarter to reflect their current value in light of the currentmarket price of our Common Stock. We utilize the Black-Scholesoption-pricing model to determine fair value. Key assumptions of theBlack-Scholes option-pricing model include applicable volatility rates,risk-free interest rates and the instruments expected remaining life.These assumptions require significant management judgment.

Note6.    Schedule of Stockholders’ Equity

The scheduleof stockholders’ equity reflects the Merger, which was treatedas a reverse acquisition with Sona-Washington as the accountingacquirer. The beginning equity is that of Sona Washington as ofDecember 31,  2003, and the schedule reflects the issuance ofCommon Stock pursuant to the merger and the Series B financingdescribed below.

Series B Financing

In June2005, the Company sold 3,848.7 shares of its Series B ConvertiblePreferred Stock,  $.01 per share (the ‘‘Series BPreferred Stock’’), and warrants to purchase 962,175 sharesof Common Stock (the ‘‘Warrants’’). The grossproceeds from the sale of the Series B Preferred Stock and the

43

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Warrants (the ‘‘Series BFinancing’’) were approximately $5.05  million,before related costs of approximately $34,000. The Series B Stockranked pari passu with the Series A Preferred Stock and wasidentical in all material respects to the Series A Preferred Stock,except that each share of Series B Preferred Stock converted into 1,000shares of Common Stock, or 3,848,700 in the aggregate, only upon anincrease in the Company’s authorized shares of Common Stock.

At the annual shareholders meeting on November17,  2005, the Company’s stockholders approved anamendment to the Company’s Certificate of Incorporationincreasing the number of authorized shares of Common Stock from10,000,000 to 90,000,000. In accordance with the terms of the Series BFinancing, the 3,848.7 shares of the Series B Preferred Stock wereautomatically converted into 3,848,700 shares of Common Stock at thatdate.

Note 7.    Earnings per Share

Basicearnings per share are computed by dividing income available to commonshareholders by the weighted-average number of common sharesoutstanding for the period. Diluted earnings per share considers thepotential dilution that could occur if securities or other contracts toissue common stock were exercised or converted into common stock orresulted in the issuance of common stock that shared in the earnings ofthe entity.

The calculation of diluted earnings per sharedid not include 1,925,000 shares of the Company’s Common Stockissuable upon the exercise of options nor did it include the 962,175shares issuable upon exercise of the common stock warrants, as theirinclusion would be anti-dilutive.

Note 8.    LeaseCommitments

The Company leases office space in Toronto,Ontario, New York, New York, Boulder, Colorado and London, UnitedKingdom. The Company also leases certain office equipment. These leaseshave been classified as operating leases. Lease commitments by year areas follows:

Future Lease Commitments by Year(US$)

|                         |  |        |         |        |  |        |         |        |  |        |        |        |  |        |        |        |  |        |        |        |  |  |
|-------------------------|--|--------|---------|--------|--|--------|---------|--------|--|--------|--------|--------|--|--------|--------|--------|--|--------|--------|--------|--|--|
|                    |  | 2006   |         | 2007   |  | 2008   |         | 2009   |  | 2010   |
| Office SpaceLeases:     |  |   |    |   |  |   |    |   |  |   |   |   |  |   |   |   |  |   |   |   |
| UnitedStates            |  | $      | 497,104 |   |  | $      | 500,915 |   |  | $      | 67,938 |   |  | $      | 74,732 |   |  | $      | 62,059 |   |
| Canada                  |  |   | 81,740  |   |  |   | 27,247  |   |  |   |   |   |  |   |   |   |  |   |   |   |
| United Kingdom          |  |   | 5,446   |   |  |   |    |   |  |   |   |   |  |   |   |   |  |   |   |   |
| TotalOffice Space       |  |   | 584,291 |   |  |   | 528,162 |   |  |   | 67,938 |   |  |   | 74,732 |   |  |   | 62,059 |   |
| Office Equipment        |  |   | 7,558   |   |  |   | 7,558   |   |  |   | 7,221  |   |  |   | 5,442  |   |  |   | 591    |   |
| Total Lease Commitments |  | $      | 591,849 |   |  | $      | 535,720 |   |  | $      | 75,159 |   |  | $      | 80,174 |   |  | $      | 62,650 |   |
|                         |

Office lease payments for 2005and 2004 were approximately $139,000 and $29,000 respectively. Officeequipment lease expense for 2005 and 2004 were approximately $5,000 and$3,000 respectively.

Note 9.    Convertible notepayable

In July  2004, the Company issued a notefor proceeds of $100,000, its face value. The note was dueJanuary  2006 and bears interest at 12% per annum, payableupon maturity. On the note's due date, 48,500 common shares wereto be issued to the note holder. The note was convertible to 1,162,655shares of our Common Stock, at any time before the due date. InMarch  2005, the note was converted to 1,162,500 shares of theCompany’s common stock.

In accordance with EITF98-5, the fair value of the conversion option on the date of issuancewas nil as the conversion price was equal to the current issue pricefor the underlying shares. The obligation 

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to issue the underlying shares has beenvalued at the market price at the time of issue in the amount of$30,555 and is reflected as part of "Additional paid-incapital" in stockholder's equity and the relatednote discount, netted against the note payable. Interest andamortization of the discount were charged to income over the term ofthe note. On March 2, 2005, the holder of the note exercised theconversion option. The other paid-in capital and the carrying value ofthe note payable, including accrued interest and unamortized discountof $21,580, have been recorded as proceeds for the issue of the1,162,655 shares.

Note 10.    Share Capital

Onthe Merger Date, the Company issued 568,140 shares of its Series AStock in connection with the Merger. At the annual shareholders meetingon November  17,  2005, the Company’s stockholdersapproved an amendment to the Company’s Certificate ofIncorporation increasing the number of authorized shares of CommonStock from 10,000,000 to 90,000,000. In accordance with the terms ofthe Merger Agreement, the 568,140 shares of the Series A Stock wereautomatically converted into 27,334,119 shares of Common Stock at thatdate.

In June  2005, the Company sold 3,849 sharesof its Series B Preferred Stock and 962,175 Common Stock purchasewarrants (the ‘‘Warrants’’). The total grossproceeds from the Series B Financing were $5,049,466. All of the SeriesB Peferred Stock subscription amounts were received by December 31,2005. The Warrants were valued at $650,083 using the Black-Scholesoption pricing formula based upon a four year term, a volatility factorof 65%, a risk free interest rate of 4.5% and the closingstock price on June  17,  2005, the date prior to theSeries B Financing. The Warrants expire four years from their date ofissuance and have a per share exercise price of $1.968. Allsubscription amounts were received by December  31,  2005.At the annual shareholders meeting on November  17,  2005,the Company’s stockholders approved an amendment to theCompany’s Certificate of Incorporation increasing the number ofauthorized shares of Common Stock from 10,000,000 to 90,000,000. Inaccordance with the terms of the Series B financing, the 3,848.7 sharesof the Series B Preferred Stock were automatically converted into3,848,700 shares of Common Stock at that date.

BetweenJanuary  1,  2004 and December  31,  2004, theCompany issued 4,601,222 shares of its Common Stock for cash. As ofDecember  31,  2004, the Company had 11,413,232 shares ofits Common Stock outstanding. An additional 14,758,233 shares wereissued for cash between January 1, 2005 and the Merger Date, of which$175,000 was received in December 2004. On March 2, 2005, 1,162,655shares were issued upon conversion of a note payable (see Note 9).Between the Merger Date and December  31,  2005, theCompany issued 27,334,120 of its Common Stock to convert 568,140 sharesof its Series A Preferred Stock,  3,848,700 shares of its CommonStock to convert 3,848.7 shares of its Series B Preferred Stock, and160,000 shares of restricted Common Stock to the four newly electedoutside directors for their services, of which 20,000 sharessubsequently forfeited to the Company.

Note 11.    FinancialInstruments

The Company's financial instrumentsconsist of cash, accounts receivable, accounts payable, and notespayable. The Company is subject to credit risk with respect to itsaccounts receivable to the extent that debtors do not meet theirobligations. The Company monitors the age of its accounts receivableand may delay development or terminate information fees if debtors donot meet payment terms. The fair value of all financial instrumentsapproximates book values.

The Company is subject toforeign currency risk with respect to financial instruments denominatedin a foreign currency.

Note 12.    Income Taxes

Deferred tax benefits arising from net operating loss carryforwards were determined using the applicable statutory rates. AtDecember  31,  2005, the Company had net deferred taxassets of approximately $2,539,000 arising from net operating loss(NOL) carry forwards. The NOL carry 

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forwards, which are available to offsetfuture profits of the Company begin to expire in 2010 if not utilizedand expire in varying amounts through 2024. These deferred taxesbenefits are fully offset by valuation allowances as there can be noassurance that the company will earn sufficient future profits toutilize the loss carry forwards.

The net operating losscarry forward balances vary from the applicable percentages of net lossdue to expenses, primarily amortization of software rights, recognizedunder generally accepted accounting principles, but not deductible fortax purposes.

|                            |  |        |            |         |  |        |          |         |  |        |         |         |  |        |            |         |  |  |
|----------------------------|--|--------|------------|---------|--|--------|----------|---------|--|--------|---------|---------|--|--------|------------|---------|--|--|
|                       |  | 2005   |            | 2004    |  | 2003   |          | Total   |
| United States loss         |  |   | 2,537,265  |    |  |   | 216,285  |    |  |   | 114,823 |    |  |   | 2,868,373  |    |
| Canada loss                |  |   | 3,782,636  |    |  |   | 409,871  |    |  |   | — |    |  |   | 4,192,507  |    |
| United Kingdom loss        |  |   | 326,564    |    |  |   | —  |    |  |   | — |    |  |   | 326,564    |    |
| Amortization ofintangibles |  |   | (415,935   | )  |  |   | (138,647 | )  |  |   | — |    |  |   | (554,582   | )  |
| Net loss for tax purposes  |  |   | 6,230,530  |    |  |   | 487,509  |    |  |   | 114,823 |    |  |   | 6,832,862  |    |
| Expected statutory rate    |  |   | 37.2       | %  |  |   | 36.7     | %  |  |   | 40.0    | %  |  |   | 37.2       | %  |
| Expected recovery of taxes |  |   | 2,314,916  |    |  |   | 179,048  |    |  |   | 45,929  |    |  |   | 2,539,256  |    |
| Valuation reserve          |  |   | (2,314,916 | )  |  |   | (179,048 | )  |  |   | (45,929 | )  |  |   | (2,539,256 | )  |
| Net taxasset               |  |   | —    |    |  |   | —  |    |  |   | — |    |  |   | —    |    |
|                            |

Note 13.    Commitments

On December  29,  2004, Innovations signed aletter of intent to acquire the assets and employee contracts of SmartVideo Canada Inc. for $83,195 ($100,000 Canadian). An initial depositof $4,160 ($5,000 Canadian) was paid as at December  31,2004, a second payment of $42,500 ($50,000 Canadian) was paid in thethird quarter of 2005 and the final payment of $36,535 ($45,000Canadian) was paid in the fourth quarter of 2005. The assets includedin the purchase had negligible value, so the purchase amount wasdetermined to be 100% goodwill relating to the employmentcontracts. The goodwill was estimated to have no future value as ofDecember  31,  2005 and was written off to General andAdministrative expenses in the fourth quarter of 2005.

Note14.    Amounts due to Affiliated Parties

Accruedliabilities at December  31,  2005 include an amount ofapproximately $82,000 due to an officer of the Company and an amount ofapproximately $22,000 owed to a former employee of the Company. AtDecember  31,  2004, these balances were approximately$164,000 and $46,000 respectively. Both amounts relate to compensationearned but not paid in 2004.

Note 15.    Related PartyTransactions

During 2005 and 2004, the Company paidconsulting and management fees to shareholders and directors of thecompany in the amount of $499,000 and $102,000, respectively. Thisincluded payments for the years ended December  31,  2005and December  31,  2004 for consulting fees of $140,808 and$0, respectively, to Mr.  Kreloff and $207,215 and $36,269,respectively, to Mr.  Glinsman.  In addition, relocationexpense of $32,884 was incurred by us in 2005 for Mr.Glinsman's benefit. We also granted options expiringOctober  13,  2010 to each of Messrs. Kreloff and Glinsmanto purchase up to 250,000 shares of our Common Stock at an exerciseprice of $1.60. On July  18,  2005, we entered into atwo-year consulting agreement with Mr.  Frank  Fanzilli, adirector, under which we pay him $5,000 per month for consultingservices. We also issued to each of Messrs. Castellano, Fanzilli andVittoria in connection with their appointment to our Board of Directorsin 2005, 40,000 shares of our Common Stock (an aggregate of 120,000shares) pursuant to the restricted stock equity compensation plandescribed under Part III, Item 10, ExecutiveCompensation—Compensation of Directors. Mr.  PaulMcAleese, who was also appointed to our Board of Directors in 2005 andwho resigned from the Board effective March  6,  2006, wasalso awarded 40,000 shares of our Common Stock under this equitycompensation plan , but, as provided in the plan, forfeited 20,000shares by reason of his resignation from the Board. We also grantedoptions to purchase up to 5,000 shares of our Common Stock to each ofsuch persons in 2005 in connection with their appointment to our Boardof Directors.

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As of December  31,2005, Accrued Liabilities includes the balance due to shareholders of$103,778, which is non-interest bearing and unsecured with no specificterms of repayment.

In 2004, the Company'ssubsidiary shared premises with the former majority shareholder ofInnovations Baldhead Systems that also owns 570,796 shares of theCompany’s Common Stock. During 2004, the Company paid rent tothe former majority shareholder in the amount of $22,590 on amonth-to-month basis with no commitment.

Note 16.    OptionGrants

Option /SAR Grants in Last Fiscal Year

(1)    2000 Option Plan

In May  2000, the Board of Directors of the Companyadopted the Stock Option Plan of 2000 (the ‘‘2000 OptionPlan’’). In October  2000, the stockholders of theCompany approved the 2000 Option Plan and ratified options previouslygranted. The Company registered under the Securities Act of 1933, asamended (the ‘‘Securities Act’’), the sharesissuable upon the exercise of options granted or to be granted pursuantto the 2000 Option Plan in a Registration Statement on Form S-8, FileNo. 333-51744, filed on December  13,  2000. As a result ofthis registration under the Securities Act, an optionee under optionsregistered under such registration statement who is not an affiliate ofthe Company may resell the shares of the Common Stock received uponexercise immediately and an optionee who is an affiliate(i.e., a director or an executive officer) may resell pursuantto the exemption of Rule 144 under the Securities Act withoutcompliance with any holding period under paragraph (d) of Rule 144.

The 2000 Option Plan provided for the grant of options topurchase shares of the Common Stock to directors, officers, employeesand consultants of the Company. Non-qualified stock options may begranted to directors, officers, employees and consultants. Incentivestock options, as such form is defined in Section 422 of the Code, maybe granted only to employees. The term of the 2000 Option Plan was forten years and it provided for the grant of options to purchase up anaggregate of 1,925,000 shares of Common Stock. The 2000 Option Planinitially provided for the grants of options to purchase an aggregateof 2,000,000 shares of Common Stock; however, three options to purchasean aggregate of 75,000 shares have been exercised. The 2000 Option Planwas administered by the Board during the first half of 2005 and inprior fiscal years and in now administered by the CompensationCommittee.

On November  12,  2005, theCompany’s stockholders approved the Amended and Restated OptionPlan of 2000 (the ‘‘Amended and Restated OptionPlan.’’), The Amended and Restated Option Plan amends andrestates the 2000 Option Plan and, among other things, increases thenumber of shares of our Common Stock subject to the 2000 Plan from2,000,000 shares to 5,000,000 shares and gives the Plan administratorthe flexibility to grant various types of equity incentive compensationawards, in addition to stock options, including, for example,restricted stock awards, stock appreciation rights and others., amongother things, increases the number of shares of our Common Stocksubject to the Plan from 2,000,000 shares to 5,000,000 shares and givesthe Plan administrator the flexibility to grant various types of equityincentive compensation awards, in addition to stock options, including,for example, restricted stock awards, stock appreciation rights andothers.

The Amended and Restated Option Plan providesthat the exercise price of an incentive stock option shall not be lessthan the fair market value of Common Stock on the date of grant, exceptthat, if the employee owns stock possessing more than 10% of thetotal combined voting power of all classes of stock, the exercise priceof the option must be at least 110% of the fair market value ofCommon Stock on the date of grant and the incentive stock option cannotbe exercised after five years from the date of grant. No stock optiongranted has, and no option to be granted under the 2000 Option Plan mayhave, a term in excess of ten years. The exercise price of anon-statutory or nonqualified option may be less than the fair marketvalue on the date of grant.

The number of shares subjectto an outstanding option and the exercise price thereof are subject toadjustment in the event of a stock dividend, stock split,reorganization, recapitalization, combination 

47

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of shares, change in corporate structure orsimilar events. No fractional shares will be issued upon exercise andthe Company has no obligation to pay for such fractional share.

Options granted prior to the reverse acquisition onApril  19,  2005 were not exercisable during the first yearafter the date of grant and thereafter became exercisable in annualinstallments of 25% each. Although the 2000 Option Plan permitssome options to be granted to employees to have performance goals asthe condition precedent to becoming exercisable, no option granted todate has such provision. Stock options granted subsequent toApril  19,  2005 had vesting provisions of 1/3 upon grant with  1/3 vestingannually in each of the two following years, with the exception of thedirector stock options, which vest at a rate of 25% at the endof each quarter over a one year period from the date of grant.

Options granted under the 2000 Option Plan arenon-transferable and not immediately exercisable. However, as a resultof the consummation of the Merger, all outstanding options becameimmediately exercisable, even if not already exercisable, and theirexpiration date became April  19,  2008.

Theprovisions described in this paragraph are applicable to futureoptions: If the optionee's employment will terminate for anyreason other than his or her death or disability, he or she may, for aperiod of up to three months, exercise the option to the extentexercisable upon the date of termination. If the optionee'semployment terminates because of his or her total and permanentdisability (as defined in the Code), the optionee will have 12 monthswithin which he or she can exercise the stock option to the extent itwas exercisable on the date of termination. In the event of otherdisability causing termination, the optionee may have six months (threemonths in the event the optionee wants continuous treatment of thestock option as an incentive stock option) to exercise the stock optionto the extent exercisable upon the date of termination. If the optioneedies, his estate may exercise the stock option to the extentexercisable upon the date of death of the optionee, whether it occurredduring the initial term or during the three, six or 12-month periodsdescribed in the three preceding sentences. In no event may a stockoption be exercised beyond its original expiration date. Similarprovisions are applicable to optionees who are not employees.

For a consultant to be eligible to receive a grant of a stockoption under the Amended and Restated Option Plan the optionee must bea natural person and the services rendered for the Company must be of abona fide nature and not in connection with the offer or sale ofsecurities of the Company in a capital raising transaction and do notdirectly or indirectly promote or maintain a market for theCompany's securities.

At the Merger Date, optionscovering a total of 249,000 shares of the Common Stock were outstandingunder the 2000 Option Plan at a weighted average exercise price of$1.003 per share.

During fiscal 2005, each of the fiveexternal directors was granted a stock option under the 2000 OptionPlan for 5,000 shares of Common Stock on the respective dates of theirappointment or re-election to the board. These grants vest over a oneyear period with 25% vesting at the end of each quarter afterthe grant date.

On October  13,  2005,1,697,665 options were granted to officers, employees and independentcontractors with an exercise price of $1.60, which was the closingmarket price on that date.

During fiscal 2005, optionscovering an aggregate of 46,665 shares of Common Stock werecancelled.

The Company has never granted any stockappreciation rights (SARs).

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Option, Grants, Exercises andValues

A summary of option transactions under the planfor fiscal 2005 is as follows:

|                                               |  |                 |           |                                 |  |        |       |        |  |  |
|-----------------------------------------------|--|-----------------|-----------|---------------------------------|--|--------|-------|--------|--|--|
|                                          |  | Numberof Shares |           | Weighted Average Exercise Price |
| Outstanding at April  19,  2005 (Merger Date) |  |            | 249,000   |                            |  |   | 1.003 |   |
| Granted todirectors                           |  |            | 25,000    |                            |  |   | 1.340 |   |
| Granted toofficers                            |  |            | 737,665   |                            |  |   | 1.600 |   |
| Granted toemployees & contractors         |  |            | 960,000   |                            |  |   | 1.600 |   |
| Canceled                                      |  |            | (46,665   | )                          |  |   | 1.600 |   |
| Outstanding, December  31,2005                |  |            | 1,925,000 |                            |  | $      | 1.519 |   |
|                                               |

There were no option exercisesin fiscal 2005 subsequent to the Merger Date. 

Note17.    Segmented Information

The Company operates inCanada and the United States. All revenues are currently from theCanadian subsidiary. The Company has commenced sales and marketingefforts in the United States and the United Kingdom.

Property and equipment by geographic region are asfollows:

|                        |  |             |         |        |  |        |        |        |  |  |
|------------------------|--|-------------|---------|--------|--|--------|--------|--------|--|--|
|                   |  | December31, |
| Property and Equipment |  |        | 2005    |   |  |   | 2004   |   |
| UnitedStates           |  | $           | 105,699 |   |  | $      | 0      |   |
| Canada                 |  |        | 57,355  |   |  |   | 11,294 |   |
| Total                  |  | $           | 163,054 |   |  | $      | 11,294 |   |
|                        |

Property and equipment includesonly assets held for use, and is reported by geography based on thephysical location of the assets at the end of the fiscal year. As ofDecember  31,  2005, property and equipment were held onlyin the United States and Canada.

Note 18,    Stock BasedCompensation

In accordance with the compensation planfor directors adopted by the Board on July  19,  2005, thefour new non-employee directors, immediately upon his election to theBoard, received 40,000 shares of Common Stock, of which 20,000 sharesvested immediately and 20,000 will vest on the first anniversary of hiselection to the Board. If a director leaves the Board for any reason,voluntarily or involuntarily, before the first anniversary of hiselection to the Board, he will forfeit any unvested shares. These160,000 shares of common stock were valued at the fair market value onthe date of grant and charged as compensation over the vestingperiod.

Note 19,    Deferred Revenues

Deferred revenue occurs where the Company invoices customersfor project work that has not been completed at the balance sheet date.The Company’s deferred revenue balances for 2005 and 2004 are$130,287 and $1,432, respectively.

Note 20,    SubsequentEvent

In January  2006, we sold 2,307,693 sharesof our Common Stock to Shuffle Master for $3.0  million andissued an 18-month warrant to purchase 1,200,000 shares of our CommonStock to Shuffle Master. This warrant has an exercise price of $2.025per share and expires on July  12,  2007. The sale of theseshares and the issuance of this warrant were in connection with astrategic alliance distribution and licensing agreement between us andShuffle Master. As part of our agreement with Shuffle Master, we agreedto register the shares of our Common Stock sold to Shuffle Master andthe shares underlying the warrant.

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In December  2005, we fileda resale registration statement with the Securities and ExchangeCommission (the ‘‘SEC’’) on behalf of variousstockholders. In January  2006, while the registration statementwas pending review by the SEC, we entered into a strategic alliancelicensing and distribution agreement with Shuffle Master under which weagreed to develop certain wireless gaming technology for ShuffleMaster. In connection with that agreement, we sold 2,307,693 shares ofour common stock and warrants to purchase up to an additional 1,200,000shares of our common stock to Shuffle Master, Inc. for $3.0million. The proceeds from the sale of those securities were intendedto provide us with the working capital we would need to fulfill ourobligations under the agreement. Since we agreed to register thepurchased shares and the shares underlying the warrants, we includedthem in the pending registration statement. We were subsequentlyinformed by the staff of the SEC that, because we included thosesecurities in a pending registration statement, they were questioningthe availability of the exemption from registration that we wereclaiming. The availability of the exemption requires that thetransaction have a conclusion. Including the Shuffle Master securitiesin the pending registration statement raises the question as to whetherthe transaction with Shuffle Master ever concluded. The SEC suggestedthat we remove the Shuffle Master securities from the pending resaleregistration statement, which we will do. Notwithstanding that removal,if a court of competent jurisdiction were to ultimately determine thatan exemption was not available, we may have to offer Shuffle Masterrescission rights. In addition, we, and possibly some of our officers,may also be subject to penalties. However, we believe the sale ofsecurities to Shuffle Master was exempt from the registrationrequirements of the Securities Act as a valid private placementtransaction under Sections 4(2) and 4(6) of the Securities Act for avariety of reasons and we will vigorously contest any claim to thecontrary.

Note 21,    Correction of error for misapplicationof SFAS 133, SFAS 150 and EITF 00-19 related to the issuance ofwarrants.

Management has determined that the prioraccounting for the Warrants issued in conjunction with the Series BPreferred Stock in June 2005 was in error. The company initiallyclassified the Warrants as an equity instrument, however the warrantagreement includes a registration rights agreement with an uneconomicpenalty which precludes this classification. The Warrants have beenreclassified as a liability in accordance with the provisions of SFAS133, SFAS 150 and EITF 00-19.

As a result of the error,stockholders' equity at June 30, 2005 and September 30, 2005 wereunderstated by $650,083. Liabilities for the same period wereoverstated by $650,083 and $749,730, respectively. Further thestandards require the Company to re-measure the value at the end ofeach reporting period with the resulting increase or decrease to theliability reported as a component of the Consolidated Statements ofOperation and Comprehensive Loss. As a result of the increase in thevalue of the warrants since issuance to December 31, 2005, arevaluation expense of $100,020 has been included in Other Income andExpense. Of this revaluation amount, $99,287 related to the quarterended September 30, 2005 and $733 related to quarter ended December 30,2005.

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|              |                                                                                     |
|--------------|-------------------------------------------------------------------------------------|
| Item8.  | Changes in and Disagreements with Accountants onAccounting and Financial Disclosure |

None

|               |                         |
|---------------|-------------------------|
| Item8A.  | Controls And Procedures |

Evaluation ofDisclosure Controls and Procedures.

Management, with theparticipation of our chief executive officer and the chief financialofficer, carried out an evaluation of the effectiveness of our‘‘disclosure controls and procedures’’ (asdefined in the Securities Exchange Act of 1934, as amended (the‘‘Exchange Act’’) and Rules 13a-15(e) and15-d-15(e)) as of the end of the period covered by this annual report(the ‘‘Evaluation Date’’). Based upon thatevaluation, the chief executive officer and the chief financial officerconcluded that, as of the Evaluation Date, our disclosure controls andprocedures are effective to ensure that information required to bedisclosed by us in the reports that we file or submit under theExchange Act (i) is recorded, processed, summarized and reported,within the time periods specified in the SEC's rules and forms and(ii) is accumulated and communicated to our management, including ourchief executive and chief financial officers, as appropriate to allowtimely decisions regarding required disclosure.

Changes inInternal Control over Financial Reporting.    There were nochanges in our internal controls over financial reporting that occurredduring the period covered by this report that has materially affected,or is reasonably likely to materially affect our internal control overfinancial reporting.

|               |                   |
|---------------|-------------------|
| Item 8B  | OtherInformation. |

None.

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Part III

|               |                                                                                                                |
|---------------|----------------------------------------------------------------------------------------------------------------|
| Item 9.  | Directors, Executive Officers,Promoters and Control Persons; Compliance with  Section 16(a) ofthe Exchange Act |

Executive Officers and Directors

The following table sets forth the names, ages and principalposition of our executive officers and directors:

|                        |  |        |    |          |  |                                                   |  |  |  |  |
|------------------------|--|--------|----|----------|--|---------------------------------------------------|--|--|--|--|
| Name                   |  | Age    |    | Position |
| ShawnKreloff           |  |   | 43 |     |  | Chairman of theBoard and Director                 |
| John Bush              |  |   | 42 |     |  | President, Chief Executive Officer and Director   |
| Nicholas H. Glinsman * |  |   | 45 |     |  | Secretary andDirector                             |
| John C. Rudy           |  |   | 63 |     |  | VicePresident and Chief Financial Officer         |
| Lance Yu               |  |   | 36 |     |  | Senior Vice President and Chief TechnologyOfficer |
| Bryan Maizlish         |  |   | 43 |     |  | Director                                          |
| Frank J. Fanzilli, Jr. |  |   | 48 |     |  | Director                                          |
| Michael P. Castellano  |  |   | 64 |     |  | Director                                          |
| Paul C. Meyer          |  |   | 58 |     |  | Director                                          |
| Joseph V. Vittoria     |  |   | 70 |     |  | Director                                          |
|                        |

|  |
|--|
|  |  |
|  |

|   |                                                                                                                                                                                                                                                                                    |
|---|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| * | Mr.Glinsman was appointed Interim Chief Financial Officer as of June1,  2005 upon the retirement of our former chief financial officerwho retired as of May  31,  2005. He resigned from thatposition on September  14,  2005 when John Rudy was appointedchief financial officer. |

Shawn Kreloff, 43, has beenour Chairman and a director since September  2004. From 2003 toSeptember  2004, and from 2001 to September  2002, he servedas a managing director of, and investor in, Jumpstart Capital Partners,From September  2002 to 2003, Mr.  Kreloff was executive vicepresident of sales, marketing and business development of PredictiveSystems, Corp., a network infrastructure and security consultingcompany. Mr.  Kreloff was a founding investor of Insight First, acompany that provides analytics software, which was sold to 24/7 Media(Nasdaq: TFSM) in 2003. From 1999 to 2002, he served as executive vicepresident of business development of Opus360 Corporation, as well afounding investor, Opus360 was acquired by Artemis InternationalSolutions (OTC: AMSI) in 2002. From September  2004 toJanuary  2006, Mr.  Kreloff served on the board of directorsof Secured Services, Inc., (OTCBB: SSVC.OB). Mr.  Kreloff alsoserved on the board of directors of Hudson Williams, a computerconsulting firm, from 1999 through 2004, when it was acquired byKeynote Systems. (Nasdaq NM: KEYN). Mr.  Kreloff holds a BS degreein Operations Research from Syracuse University, 1984.

JohnBush, 42, has been our President and Chief Executive Officer and adirector since our inception in November  2003. He was a foundinginvestor of Sona-Washington. He has been a senior telecommunicationsand technology executive for over 17 years. From November  2001through December  2003, he was self-employed and a privateinvestor. From December  1998 through December  2001, he wasVice President – Enterprise Marketing for Sprint Canada.

Nicholas H. Glinsman, 45, has been a director sinceSeptember  2004 and our Secretary since April  19,2005. In addition, he was our Interim Chief Financial Officer fromJune  1,  2005 through September  14,  2005,replacing our former Chief Financial Officer who retired as ofMay  31,  2005. Mr.  Glinsman has been the ChiefExecutive Officer of 1 EZcall, LLC, a private investment fund. Since2001, Mr.  Glinsman has been a member of the board of directors ofBraven Capital and Mirabella Funds Services, private investment funds.Prior to 2001, he held various senior management positions at SalomonBrothers, Inc. and Merrill Lynch Inc., Pierce & Smith, Inc.,including manager of the future sales group for Europe and the MiddleEast. He also represented the trading floor on European technologycommittee of Salomon Brothers.

Michael P. Castellano, 64,was appointed to the Board on September  14,  2005 and wasimmediately named chairman of the Audit Committee. Mr.  Castellanois a certified public accountant 

50

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with more than 40 years of experience in thefinancial sector. His career includes executive positions in corporateaccounting, finance, and administration at companies such as Avis,Inc., E.F. Hutton, Inc., and Fidelity Investments. At Fidelity, he heldthe positions of Vice President and Corporate Controller and was laterappointed Senior Vice President and Chief Accounting Officer of theFidelity Institutional Group. Later assignments included the positionsof Executive Vice President and Chief Administrative Officer at KobrenInsight Group where he became a member of the Board of Directors in1997. He was also a director and head of the Audit Committee forPuradyn Filter Technologies from 2001 through 2005 and ResortQuestInternational, a New York Stock Exchange listed property managementcompany, from 2002 until November  2003 when it was acquired byGaylord Entertainment. Mr.  Castellano currently serves as adirector and chairman of the Audit Committees of GlobetelCommunications Corp. and Sun Capital Advisers Trust.

BryanMaizlish, 43, was a director of PerfectData from March31,  2000 through the Merger Date and has continued to serve onour board since the Merger Date. Mr.  Maizlish joined LockheedMartin Corporation in August  2000 and has held various managerialpositions since then. He is currently serving as the Chief TechnologyOfficer – Program Team in the Integrated Systems and SolutionsDivision of Lockheed Martin Corporation. From January  1998 toAugust  2000, he was employed by Magnet Interactive Inc., aprivate Internet professional services company and its affiliate, NoorGroup Ltd., a full service Internet solutions and infrastructureprovider offering a full range of services from networking, hosting,and Internet service provision to web-based services and entertainmentbased in Cairo, Egypt, his last position at both companies beingExecutive Vice President, Chief Strategy Officer and Chief FinancialOfficer. Prior thereto, he held various managerial and consultingpositions for over a decade in the new media and entertainmentindustries, such as MCA Inc., Gulf Western Corporation and GeneRoddenberry's Norway Corporation.

Frank J.Fanzilli, Jr., 48, was appointed to the Board on July19,  2005 and is Chairman of the Compensation and NominatingCommittee and a member of the Audit Committee. Mr.  Fanzilli is aprivate investor and has been an independent business consultant sinceJune  2002. From 1985 through June  2002 Mr.  Fanzilliwas employed at Credit Suisse First Boston. In 1996 he was namedManaging Director and the Global Chief Information Officer of the bank.In that capacity he was responsible for the firm's world-wideinformation technology infrastructure, operations and applications.Mr.  Fanzilli is also a director of InterWoven Inc. (Nasdaq NM:IWOV), the Open Source Development Labs, a non-profit organizationdedicated to promoting open source, and several private firms.Mr.  Fanzilli received a BS in Management from FairfieldUniversity and MBA in Finance from the New York University Stern Schoolof Business.

Paul C. Meyer, 58, was appointed to theBoard on March  28,  2006. He has served as President ofShuffle Master, Inc., a publicly traded casino gaming supply company,since October 2003 and was appointed as Shuffle Master’schief operating officer in February 2004. Mr. Meyerserved as president of the Integrated Solutions Division of ConcurrentComputer Corporation from December 2000 until October toNovember 1998.

Joseph V. Vittoria, 70, wasappointed to the Board on September  14,  2005. Mr.Vittoria is chairman of Autoeurope, Inc., American Coach Lines andPuradyn Filter Technologies, Inc. In September  2000, he retiredas Chairman and Chief Executive Officer of Travel ServicesInternational, Inc., a company he founded and took public in 1997.Earlier in 2000, he had sold the company to Airtours, plc, a largeBritish tour operator. From 1987 to 1997, he was Chairman and ChiefExecutive Officer of Avis, Inc., and was President and Chief OperatingOfficer for the prior five years. Mr.  Vittoria serves as anAdvisory Director of the National Crime Prevention Counsel. Inrecognition of his efforts on behalf of missing children, he served onPresident Reagan's Child Safety Partnership. He was the foundingchairman of the Board of Visitors of the Georgetown University Schoolof Languages and Linguistics and is a member of the Board of Overseersof the Columbia Business School.

John C. Rudy, 63, wasappointed as Vice President and Chief Financial Officer onSeptember  14,  2005. Mr.  Rudy is the founder andprincipal of Beacon Consulting Associates, a firm specializing inproviding financial consulting services. Mr.  Rudy is a certifiedpublic accountant in  New York State.

51

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Lance Yu, 36, has been our SeniorVice President – Chief Technology Officer since our inception inNovember  2003. From January  2002 through November2004, he was the Vice President – Technology of Sona Innovations,Inc. which was purchased by Sona-Washington from Baldhead Systems, aprofessional services, web design and business consulting organizationbased in Toronto, Canada, first as a Senior Project Manager and then asVice President – Technology.

There are no familyrelationships among our directors or among our executive officers.

Committees of the Board of Directors

Our Board ofDirectors has established two standing committees to assist it indischarging its responsibilities: the Audit Committee and theCompensation and Nominating Committee.

AuditCommittee

The Audit Committee reviews our accounting functions,operations and management, our financial reporting process and theadequacy and effectiveness of our internal controls and internalauditing methods and procedures. The Audit Committee represents theBoard in overseeing our financial reporting processes, and, as part ofthis responsibility, consults with our independent public accountantsand with personnel from our internal audit and financial staffs withrespect to corporate accounting, reporting, and internal controlpractices. The Audit Committee recommends to the board the appointmentof our independent public accountants and is responsible for oversightof our independent public accountants. The Audit Committee held eightmeetings during 2005.

Until the Merger Date, the members of theAudit Committee were Timothy D. Morgan (Chairman), Bryan Maizlish andTracie Savage. Mr.  Morgan and Ms.  Savage resigned asdirectors on the Merger Date. From that the Merger Date untilJuly  19,  2005, the entire Board functioned as the AuditCommittee. On July  19,  2005, two new directors wereappointed to the Board — Frank Fanzilli and Paul McAleese.Messrs. Fanzilli and McAleese were immediately appointed to serve onthe Audit Committee, with Mr.  Fanzilli appointed as ActingChairman until we could identify an ‘‘audit committeefinancial expert’’ (see below). On September14,  2005, Mr.  Castellano, who qualifies as an‘‘audit committee financial expert,’’ wasappointed as the Chairman of the Audit Committee. Messrs. Castellanoand Fanzilli currently serve as the sole members of the Audit Committeeby reason of the resignation of Mr.  McAleese as a directoreffective March  6,  2006.

Audit CommitteeFinancial Expert

During our 2005 fiscal year prior to the MergerDate , the Board had determined that Timothy D. Morgan, then Chairmanof the Audit Committee, was an ‘‘audit committee financialexpert,’’ as such term is defined in Item 401(e)(1) ofRegulation S-B, and that Mr.  Morgan was independent, pursuant toItem 401(e)(1)(ii) of Regulation S-B. As discussed above, Mr.Morgan resigned from the Board on the Merger Date. On September14,  2005, Mr.  Castellano was appointed as Chairman of theAudit Committee and designated as the ‘‘audit committeefinancial expert.’’

Compensation andNominating Committee

The function of the Compensation andNominating Committee is to review and recommend the compensation andbenefits, payable to our officers, review general policy mattersrelating to employee compensation and benefits and administer ourvarious stock option plans and other incentive compensationarrangements. The Committee will also seek to identify individualsqualified to become members of the Board and make recommendations tothe Board of nominees to be elected by stockholders or to be appointedto fill vacancies on the Board.

From the Merger Date untilJuly  19,  2005, we did not have a nominating committee or acommittee performing similar functions. On July  19,  2005,our Board established the Compensation and Nominating Committee andapproved and adopted a Compensation and Nominating Committee Charter.Mr.  Fanzilli and Mr.  McAleese were appointed the solemembers of the Compensation and Nominating Committee, with Mr.McAleese appointed as Chairman. Mr.  Fanzilli currently serves asthe sole member of the Compensation and Nominating Committee by reasonof the resignation of Mr.  McAleese as a director effectiveMarch  6,  2006.

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PerfectData Compensation Committeeand Nominating Committee

During our 2005 fiscal year until theMerger Date, Harris A. Shapiro and Corey P. Schlossmann served asmembers of the Compensation Committee of PerfectData’s Board,with Mr.  Shapiro serving as the Chairman. On April19,  2005, Messrs. Harris and Schlossman resigned from the Board.PerfectData did not have a standing nominating committee or a committeeperforming similar functions because since March  2000 until theMerger Date, it had been seeking to identify a suitable acquisitioncandidate which, among other matters, would provide it with newdirectors. As a result, PerfectData’s Board did not believe itnecessary or appropriate to set up a formal nominating committee or toadopt a charter for such a committee.

Code of Ethics

Our Board has adopted a Code of Ethics, which remains in effect. TheCode applies to all of our employees and certain provisions of the Codeare particularly directed to our Chief Executive Officer, our ChiefFinancial Officer and financial managers. The Code provides writtenstandards that we believe are reasonably designed to deter wrongdoingand promote: (1) honest and ethical conduct, including the ethicalhandling of actual or apparent conflicts of interests between personaland professional relationships; (2) full, fair, accurate, timely andunderstandable disclosure in reports and documents that we file with orsubmit to the SEC or in other public communications we make;  (3)compliance with applicable laws, rules and regulations; (4) promptreporting of internal violations of the code; and (5) accountabilityfor the adherence to the Code.

Section 16(a) BeneficialOwnership Reporting Compliance

Section 16(a) of the SecuritiesExchange Act of 1934, as amended (the ‘‘ExchangeAct’’), requires our executive officers and directors andpersons who beneficially own more than 10% of our Common Stockto file initial reports of ownership and changes in ownership of ourCommon Stock with the SEC. Such executive officers, directors andgreater than 10% stockholders are also required by SEC rules tofurnish us with copies of all Section 16(a) reports they file. Basedsolely upon our review of copies of such forms we have received, andother information available to us, to the best of our knowledge:

John Bush, an officer and director, failed to file in a timelymanner a Form 3 and Form 4s reporting two transactions. Thecommencement of Mr.  Bush’s insider status was reportedlate on May 2, 2005 and the transactions were reported late on March 2,2006.

Lance Yu, an officer, failed to file in a timely mannerForm 4s reporting two transactions. These transactions were reportedlate on March  2,  2006.

Shawn Kreloff, an officer anddirector, failed to file in a timely manner a Form 3 and Form 4sreporting two transactions. The commencement of Mr.Kreloff’s insider status was reported late on May 2, 2005 andthe transactions were reported late on March 9, 2006.

NicholasGlinsman, an officer and director, failed to file in a timely manner aForm 3 and Form 4s reporting two transactions. The commencement ofMr.  Glinsman 's insider status was reported late onMay  2,  2005 and the transactions were reported onMarch  2,  2006.

Mr.  Frank  Fanzilli, adirector, failed to file in a timely manner a Form 3 and Form 4sreporting three transactions. The commencement of Mr.Fanzilli’s insider status and the transactions were reportedlate on March  16,  2006.

Mr.  JosephVittoria, a director, failed to file in a timely manner a Form 3 andForm 4s reporting two transactions. The commencement of Mr.Vittoria’s insider status and the transactions were reportedlate on March  10,  2006.

Mr.  MichaelCastellano, a director, failed to file timely a Form 3 and Form 4sreporting two transactions. Mr.  Castellano is working with ourcounsel to remedy these filings.

Mr.  Bryan  Maizlish,a director, failed to file timely a Form 3 and a Form 4 reporting onetransaction. Our counsel is seeking to work with Maizlish to remedythese filings.

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Mr.  Paul  McAleese, a formerdirector, failed to timely file a Form 3 and a Form 4 reporting twotransactions. Our counsel is seeking to work with McAleese to remedythese filings.

|                |                       |
|----------------|-----------------------|
| Item 10.  | ExecutiveCompensation |

The following table provides certain summaryinformation concerning the compensation earned for services rendered tous in all capacities during each of the fiscal years indicated by thepersons who served as our Chief Executive Officer and our Senior VicePresident and Chief Technology Officer during the fiscal year endedDecember  31,  2005, except that amounts shown for HarrisShapiro, Chief Executive Officer and Chairman of the Board ofPerfectdata prior to the Merger, for fiscal 2003, 2004 and 2005 are foryears ended March  31 (PerfectData's fiscal year priorto the Merger). No other executive officer earned salary and bonus inexcess of $100,000 during the fiscal year ended December31,  2005. See "Certain Relationships and RelatedParty Transactions" for information as to consulting feespaid and options granted to certain officers in fiscal 2005.

Summary Compensation Table

|                                                                     |  |                     |      |                       |  |                                   |         |                          |  |        |         |           |  |        |         |           |  |  |
|---------------------------------------------------------------------|--|---------------------|------|-----------------------|--|-----------------------------------|---------|--------------------------|--|--------|---------|-----------|--|--------|---------|-----------|--|--|
|                                                                |  | Annual Compensation |      | Long-TermCompensation |  |                              |
| Name and PrincipalPosition                                          |  | Year                |      | Salary ($)            |  | Securities Underlying Options (#) |         | AllOtherCompensation ($) |
| John Bush, Presidentand Chief Executive Officer (1)                 |  |                | 2005 |                  |  | $                                 | 190,479 |                     |  |   | 87,665  |      |  | $      | 106,666 | (2)  |
|                                                                |  |                | 2004 |                  |  |                              | 0       |                     |  |   | — |      |  | $      | 37,574  | (2)  |
|                                                                |  |                | 2003 |                  |  |                              | 0       |                     |  |   | — |      |  |   | 0       |      |
| Lance Yu, SeniorVice President – Chief Technology Officer (3) |  |                | 2005 |                  |  | $                                 | 137,946 |                     |  |   | 150,000 |      |  | $      | 5,453   | (4)  |
|                                                                |  |                | 2004 |                  |  | $                                 | 54,645  |                     |  |   | — |      |  |   | 0       |      |
|                                                                |  |                | 2003 |                  |  | $                                 | 5,883   |                     |  |   | — |      |  |   | 0       |      |
| Harris A. Shapiro (5)                                               |  |                | 2005 |                  |  | $                                 | 71,250  |                     |  |   | 25,000  | (6)  |  | $      | 1,750   | (7)  |
|                                                                |  |                | 2004 |                  |  | $                                 | 150,000 |                     |  |   | — |      |  | $      | 2,500   | (7)  |
|                                                                |  |                | 2003 |                  |  | $                                 | 150,000 |                     |  |   | 35,000  |      |  | $      | 2,250   | (7)  |
|                                                                     |

|  |
|--|
|  |  |
|  |

|     |                                                                                                       |
|-----|-------------------------------------------------------------------------------------------------------|
| (1) | Mr.Bush has served as our President and Chief Executive Officer sinceNovember  12,  2003 (inception). |

|     |                                                                                                                                                |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | For 2005,represents payment of consulting fees earned in 2004 and paid in 2005and for 2004, represents consulting fees earned and paid in2004. |

|     |                                                                                                                  |
|-----|------------------------------------------------------------------------------------------------------------------|
| (3) | Mr. Yu hasserved as our Senior Vice President and Chief Technology Officer sinceour inception in November  2003. |

|     |                                                   |
|-----|---------------------------------------------------|
| (4) | Representspayment of a vehicle expense allowance. |

|     |                                                                                                                                        |
|-----|----------------------------------------------------------------------------------------------------------------------------------------|
| (5) | Mr. Shapiroserved as Chief Executive Officer and Chairman of the Board ofPerfectData from September  2000 through the MergerDate. |

|     |                                                                                                   |
|-----|---------------------------------------------------------------------------------------------------|
| (6) | Mr. Shapiro wasgranted an option to purchase 25,000 shares of our Common Stock onJune  30,  2004. |

|     |                                                                                                                                                                                     |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (7) | Mr. Shapiro waspaid cash compensation for his services as a director in accordancewith the fee arrangements for directors as described below under"Compensation of Directors." |

Option, Grants, Exercises and Values

The following tableprovides certain summary information concerning the granting of optionsduring our fiscal year ended December  31,  2005 to thepersons who served as our Chief Executive Officer and our Senior VicePresident – Chief Technology Officer during that fiscal year:

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Option Grants In Last Fiscal Year

|           |  |                              |         |                                                     |  |                         |      |                |  |   |      |        |  |            |  |  |  |  |
|-----------|--|------------------------------|---------|-----------------------------------------------------|--|-------------------------|------|----------------|--|---|------|--------|--|------------|--|--|--|--|
| Name      |  | Number of OptionsGranted (#) |         | % of Total OptionsGranted to Employees inFiscalYear |  | Exercise Priceper Share |      | ExpirationDate |
| John Bush |  |                         | 87,665  |                                                |  |                    | 5.09 | %         |  | $ | 1.60 |   |  | 10/13/2010 |
| Lance Yu  |  |                         | 150,000 |                                                |  |                    | 8.71 | %         |  | $ | 1.60 |   |  | 10/13/2010 |
|           |

The following tableprovides certain summary information concerning the exercise of optionsduring the fiscal year ended December  31,  2005 andunexercisable options held as of the end of such fiscal year by thepersons who served as our Chief Executive Officer and Senior VicePresident – Chief Technology Officer:

Aggregated OptionExercises in Last Fiscal Year and Fiscal Year End OptionValues

|                           |  |                            |     |               |  |                                                    |     |                                                      |  |                |            |                 |  |              |  |  |  |  |
|---------------------------|--|----------------------------|-----|---------------|--|----------------------------------------------------|-----|------------------------------------------------------|--|----------------|------------|-----------------|--|--------------|--|--|--|--|
| Name                      |  | Shares Acquired OnExercise |     | ValueRealized |  | Numberof UnexercisedOptions Held at FiscalYear End |     | Value of Unexercised In-the-MoneyOptions atFY-End(1) |
| Exercisable/Unexercisable |  | Exercisable/Unexercisable  |
| John Bush                 |  |                       | -0- |          |  |                                               | -0- |                                                 |  | 29,221/58,444  |            | $5,844/$11,689  |
| Lance Yu                  |  |                       | -0- |          |  |                                               | -0- |                                                 |  | 50,000/100,000 |            | $10,000/$20,000 |
| HarrisA. Shapiro          |  |                       | -0- |          |  |                                               | -0- |                                                 |  |           | 60,000/-0- | (2)        |  | $54,000/$-0- |
|                           |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                                               |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------|
| (1) | Valueis based upon the market value of the Common Stock as of December31,  2005, less the exercise price payable per share under suchoptions. |

|     |                                                                              |
|-----|------------------------------------------------------------------------------|
| (2) | As ofDecember  31,  2005, options were exercisable to purchase60,000 shares. |

Compensation of Directors

Duringthe 2005 fiscal year prior to the Effective Date, each of the directorsof PerfectData then serving was granted an option underPerfectData’s pre-merger compensation plan for directors topurchase 25,000 shares of Common Stock. In addition, each director waseligible to receive $500 for each meeting attended in person, plusreimbursement for out-of-pocket expenses, and $250 for each meetingattended telephonically.

On July  19,  2005, our Boardadopted a new compensation plan for directors. Under the new plan, eachnon-employee director, immediately upon his or her election orappointment to the Board, receives 40,000 shares of Common Stock, ofwhich 20,000 shares will vest immediately and 20,000 will vest on thefirst anniversary of his or her election to the Board. If the directorleaves the Board for any reason, voluntarily or involuntarily, beforethe first anniversary of his or her election to the Board, he or shewill forfeit any unvested shares. In addition, each non-employeedirector receives an annual director's fee of $5,000 and an optionto purchase 5,000 shares of Common Stock, which option will becomeexercisable in equal quarterly installments and $250, plusreimbursement for actual out-of-pocket expenses, for each Board meetingattended in person and $125 for each Board meeting attendedtelephonically.

The Chairmen of the Audit Committee and theCompensation and Nominating Committee each receive an annual fee of$1,000, payable in equal quarterly installments. Each member of theAudit Committee and the Compensation and Nominating Committee receives$250, plus reimbursement for actual out-of-pocket expenses, for eachcommittee meeting attended in person and $125 for each committeemeeting attended telephonically, unless the committee meetingimmediately precedes or follows a Board meeting, in which event thecommittee members will receive $150, for attending the committeemeeting in person and $75.00 if they attend the committee meetingtelephonically.

|                |                                                                                              |
|----------------|----------------------------------------------------------------------------------------------|
| Item 11.  | Security Ownershipof Certain Beneficial Owners and Management and Related StockholderMatters |

The following table sets forth, as of March28,  2006, certain information regarding the beneficial ownershipof our Common Stock by the following:

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|  |              |                                                                                                                                   |
|--|--------------|-----------------------------------------------------------------------------------------------------------------------------------|
|  | •  | eachperson, or group of affiliated persons, known by us to be thebeneficial owner of more than 5% of our outstanding CommonStock; |

|  |              |                                             |
|--|--------------|---------------------------------------------|
|  | •  | each of our directorsand director nominees: |

|  |              |                                                                         |
|--|--------------|-------------------------------------------------------------------------|
|  | •  | eachexecutive officer named in the Summary Compensation Table above;and |

|  |              |                                                        |
|--|--------------|--------------------------------------------------------|
|  | •  | all of our directors andexecutive officers as a group. |

Except as otherwise indicated,the persons listed below have sole voting and investment power withrespect to all of the Common Stock owned by them. The individualshareholders have furnished all information concerning their respectivebeneficial ownership to us.

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|                                                                                                     |  |                                                        |  |                                             |  |  |  |  |  |  |
|-----------------------------------------------------------------------------------------------------|--|--------------------------------------------------------|--|---------------------------------------------|--|--|--|--|--|--|
| Nameand Address of Beneficial Owner                                                                 |  | Number ofShares ofCommonStock Beneficially Owned(1)(2) |  | PercentageofCommonStockBeneficiallyOwned(2) |
| Shawn Kreloff c/o Sona MobileHoldings Corp. 825 Third Avenue, 32 nd Floor NewYork, NY 10022         |  | 2,963,244(3)                                           |  | 7.3%                                        |
| John Bush c/o Sona Mobile Holdings Corp. 825 ThirdAvenue, 32 nd Floor New York, NY 10022            |  | 6,262,775(4)                                           |  | 15.5%                                       |
| Nicholas H. Glinsman c/o Sona Mobile Holdings Corp.825 Third Avenue, 32 nd Floor New York, NY 10022 |  | 2,488,912(5)                                           |  | 6.1%                                        |
| Bryan Maizlish 9705 Conestoga Way Potomac, MD 20854                                                 |  | 104,256(6)(7)                                          |  | *                                           |
| FrankJ. Fanzilli, Jr. 5 Old Lantern Place Norwalk, CT 06851                                         |  | 571,727(7)(8)                                          |  | 1.4%                                        |
| Michael P. Castellano 16 Sheldrake Lane Palm BeachGardens, FL 33418                                 |  | 42,500(7)(9)                                           |  | *                                           |
| Joseph V. Vittoria 1616 S. OceanBlvd. Palm Beach, FL 33480                                          |  | 42,500(7)(9)                                           |  | *                                           |
| Lance Yu c/o Sona Mobile HoldingsCorp. 44 Victoria Street, Suite 801 Toronto, Ontario M5C1Y2Canada  |  | 1,228,734(11)                                          |  | 3.0%                                        |
| Harris A. Shapiro c/oPerfectData Corporation 1445 East Los Angeles Avenue SimiValley, CA 93065      |  | 344,500(12)                                            |  | *                                           |
| John C. Rudy c/o Sona Mobile Holdings Corp. 825 ThirdAvenue, 32 nd Floor New York, NY 10022         |  | —                                                |  | *                                           |
| Paul C. Meyer c/oShuffle Master, Inc. 1006 Palms Airport Drive Las Vegas, Nevada89119               |  | 41,250(7)(10)                                          |  | *                                           |
| All directors and officers as a group (Ten in number)                                               |  | 13,660,898(13)                                         |  | 33.8%                                       |
| Thomas R. Ellis c/o P.T. Houston, LLC 2323 North 30thStreet, Suite 100 Tacoma, WA 98403             |  | 3,961,190(14)                                          |  | 9.8%                                        |
| Steven L. Martin c/o Slater Asset Management, LLC 825Third Avenue, 33 rd Floor New York, NY 10022   |  | 3,430,104(15)                                          |  | 8.3%                                        |
| Shuffle Master, Inc. 1106 Palms Airport DriveLas Vegas, Nevada 89119                           |  | 3,507,693(16)                                          |  | 8.5%                                        |
|                                                                                                     |

57

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|  |
|--|
|  |  |
|  |

|   |              |
|---|--------------|
| * | Lessthan 1%. |

|     |                                                                                                                                                                                                                  |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1) | Effect is given,pursuant to Rule 13-d(1)(i) promulgated under the Exchange Act, toshares issuable upon the exercise of options or warrants currentlyexercisable or exercisable within 60 days of March 28, 2006. |

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | None of theinformation in this table regarding number of shares and percentage ofCommon Stock beneficially owned takes into account the AdditionalShares (as described on page 16) that we will issue to the formerholders of the Series A Preferred Stock and Series B Preferred Stock ifand when we satisfy certain conditions relating to our operatingresults. As of the date of this prospectus, none of these conditionshave been met and none of the Additional Shares have been issued. Theshares of Series A Preferred Stock and the Series B Preferred Stockhave been converted into shares of our Common Stock. As of March28,  2006, 40,316,710 shares of our Common Stock wereoutstanding. |

|     |                                                                 |
|-----|-----------------------------------------------------------------|
| (3) | Includes 83,333shares underlying currently exercisable options. |

|     |                                                                                                                                                                                                       |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (4) | The shares ofour Common Stock reported in the table reflect 6,182,587 shares ownedby Mr.  Bush, including 29,221 shares underlying currentlyexercisable options, and 80,168 shares owned by his wife. |

|     |                                                                 |
|-----|-----------------------------------------------------------------|
| (5) | Includes 83,333shares underlying currently exercisable options. |

|     |                                                                                                                                                                                                           |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (6) | The sharesreported in the table include 60,000 shares issuable upon the exerciseof options granted under our Stock Option Plan of 2000 (the"Original Plan"). All these options expire onApril  19,  2008. |

|     |                                                                                                                                                                               |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (7) | Includes 40,000shares issued to the security holder upon his appointment to the Board,of which 20,000 vested immediately and 20,000 will vest one year fromthe date of grant. |

|     |                                          |
|-----|------------------------------------------|
| (8) | Includes 3,750shares underlying options. |

|     |                                          |
|-----|------------------------------------------|
| (9) | Includes 2,500shares underlying options. |

|      |                                          |
|------|------------------------------------------|
| (10) | Includes 1,250shares underlying options. |

|      |                                                       |
|------|-------------------------------------------------------|
| (11) | Includes 50,000shares underlying exercisable options. |

|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (12) | Mr. Shapiro wasthe Chairman of the Board, Chief Executive Officer and a director ofPerfectData until April  19,  2005 when he resigned inconnection with the Merger. The shares of Common Stock reported in thetable reflect (a) 284,500 shares owned by Millennium CapitalCorporation ("Millennium"), for whichMr.  Shapiro has voting power as its President; (b) 10,000 sharesissuable upon the exercise of an option expiring June  19,2012 under the Original Plan (c) 25,000 shares issuable upon theexercise of an option expiring September  25,  2012 under theOriginal Plan; and (d) 25,000 shares issuable upon the exercise of a anoption expiring June  9,  2014 under the Original Plan. As aresult of the Merger, all three options expire April  19,2008. |

|      |                                                                                                                                          |
|------|------------------------------------------------------------------------------------------------------------------------------------------|
| (13) | Includes318,387 shares underlying options granted to these officers anddirectors and does not include Mr. Shapiro's beneficialownership. |

|      |                                                                                                            |
|------|------------------------------------------------------------------------------------------------------------|
| (14) | All shares areregistered in the name of PT Houston LLC, of which Mr.  Ellis isthe sole member and manager. |

|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (15) | Includes sharesowned directly by Mr.  Martin (278,104) as well as shares he isdeemed to beneficially own through his wife (8,000), through his IRA(152,400) and through his wife's IRA (76,200); 628,800 sharesunderlying warrants held by Mr.  Martin, certain of the entitiesmentioned in this footnote and his wife’s IRA; but does notinclude shares underlying certain warrants that may be issuable by usto Mr. Martin, certain of the entities mentioned in this footnote andhis wife’s IRA if the registration statement in which thisprospectus is included does not become effective by March19,  2006. Mr.  Martin also has voting and investment controlover shares owned by Slater Equity Partners, L.P. (1,372,000), SlaterEquity Partner's Offshore Fund Ltd. (762,200) and Slater FF&EFund, LLC (152,400) by virtue of the fact that he is the Manager andcontrolling owner of Slater Asset Management, L.L.C.(‘‘SAM’’) and Slater Capital Management, L.L.C.(‘‘SCM’’). SAM is the general partner ofinvestment limited partnerships of which SCM is the investment advisor,including Slater Equity Partners, L.P. SCM is also the investmentadvisor to Slater Equity Partners Offshore Fund Ltd. and the manager ofSlater FF&E Fund, LLC. |

|      |                                                                                                                                                                                                                                                                                                                                                 |
|------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (16) | Includes1,200,000 shares underlying warrants. Dr.  Mark  L.Yoseloff and Messrs. Ken Robson, Garry W. Saunders and Louis Castle areall members of Shuffle Master’s Board of Directors and, as such,have shared voting and investment control over these securities. Thenamed individuals disclaim beneficial ownership of thesesecurities. |

|                |                                               |
|----------------|-----------------------------------------------|
| Item 12.  | CertainRelationships and Related Transactions |

For the years endedDecember  31,  2005 and December  31,  2004, wepaid aggregate consulting fees of $140,808 and $0, respectively, toMr.  Kreloff and $207,215 and $36,269, respectively, to Mr.Glinsman. In addition, relocation expense of $32,884 was incurred by usin 2005 for Mr.  Glinsman's benefit. On December1,  2005, Mr.  Kreloff became our full-time employee at anannual salary of $150,000, increasing to $240,000 for 2006. We alsogranted options expiring October  13,  2010 to each ofMessrs. Kreloff and Glinsman to purchase up to 250,000 shares of ourCommon Stock at an exercise price of $1.60.

On July18,  2005, we entered into a two-year consulting agreement withMr.  Frank  Fanzilli, a director, under which we pay him$5,000 per month for consulting services. We also issued to each ofMessrs. Castellano, Fanzilli and Vittoria in connection with theirappointment to our Board of Directors in 2005, 40,000 shares of ourCommon Stock (an aggregate of 120,000 shares) pursuant to therestricted stock equity compensation plan described under"Management — Compensation of 

58

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Directors." Mr.Paul  McAleese, who was also appointed to our Board of Directorsin 2005 and who resigned from the Board effective March  6,2006, was also awarded 40,000 shares of our Common Stock under thisequity compensation plan , but, as provided in the plan, forfeited20,000 shares by reason of his resignation from the Board. We havefiled a registration statement with the Securities and ExchangeCommission seeking to register all these shares for resale by suchpersons under the Securities Act. We also granted options to purchaseup to 5,000 shares of our Common Stock to each of such persons in 2005in connection with their appointment to our Board of Directors.

Messrs. Bryan Maizlish and Paul Meyer were each awarded 40,000restricted shares of our Common Stock and options to purchase 5,000shares of our Common Stock in connection with their appointments to ourBoard of Directors. The restricted stock awards and option grants wereeffected on March 28, 2006

|               |          |
|---------------|----------|
| Item13.  | Exhibits |

|                |  |                                                                                                                                   |  |  |  |  |
|----------------|--|-----------------------------------------------------------------------------------------------------------------------------------|--|--|--|--|
| Exhibit Number |  | Description                                                                                                                       |
| 3.1            |  | Agreementand Plan of Merger dated as of March  7,  2005 among Issuer,Perfect Data Acquisition Corporation and Sona Mobile,Inc.(1) |
| 3.2            |  | Certificate ofIncorporation, as amended(2)                                                                                        |
| 3.3            |  | By-laws of the Company(3)                                                                                                         |
| 4.1            |  | Form of Common StockCertificate.(4)                                                                                               |
| 4.2            |  | Form ofSubscription Agreement dated June  21,2005(5)                                                                              |
| 4.3            |  | Form of Common StockPurchase Warrant dated June  21, 2005(6)                                                                      |
| 4.4            |  | Option Agreement dated December  29,2005 between the Issuer and Shuffle Master, Inc.*                                             |
| 4.5            |  | Option Exercise Letter dated January24,  2005 from Shuffle Master, Inc. to Issuer.*                                               |
| 4.6            |  | Form of Common Stock Purchase Warrant datedJanuary  13,  2006 issued to Shuffle Master, Inc.*                                     |
| 10.3           |  | Amended and Restated Stock Option Plan of2000(7)                                                                                  |
| 14.1           |  | Code ofEthics*                                                                                                                    |
| 21.1           |  | Subsidiaries of theIssuer(8)                                                                                                      |
| 23.1           |  | Consent ofIndependent Registered Public Accounting Firm*                                                                          |
| 31.1           |  | Certification of Chief Executive Officer pursuantto Section 302 of the Sarbanes-Oxley Act of 2002.                                |
| 31.2           |  | Certification of Chief Financial Officer pursuantto Section 302 of the Sarbanes-Oxley Act of 2002.                                |
| 32.1           |  | Certification of Chief Executive Officer andChief Financial Officer pursuant to Section 906 of the Sarbanes-OxleyAct of2002.      |
|                |

|  |
|--|
|  |  |
|  |

|   |                |
|---|----------------|
| * | Filedherewith. |

|     |                                                                                                                                                              |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1) | Previouslyfiled as Exhibit 10.1 to the Issuer's Current Report on Form 8-Kfiled with the Commission on March  11,  2005 andincorporated herein by reference. |

|     |                                                                                                                                                                                                                                                                                                   |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | The following documentscomprising the Issuer's certificate of incorporation, as amended,are in incorporated herein by reference to the following filings withthe Commission: (i) the Registrant's Consent Solicitation datedOctober  26,  2004 as filed with the Commission onNovember  1,  2004; |

59

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|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|--|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | (ii) Certificate of designations for SeriesA Preferred Stock filed as Exhibit 4.2 to the Registrant's AnnualReport in Form 10-KSB for its fiscal year ended March  31,2005; (3) Certificate of designations for Series B Preferred Stockfiled as Exhibit 3.1 to the Registrants Current Report on Form 8-Kfiled with the Commission June  22,  2005; and (4) AppendixIV to the Registrant's definitive Proxy Statement datedOctober  27,  2005 and filed with the Commission on the samedate. |

|     |                                                                                                                                                                                            |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (3) | Previouslyfiled with the Issuer's definitive Consent Solicitation Statementdated October  26,  2004 as filed with the Commission onNovember  1,  2004 and incorporated herein byreference. |

|     |                                                                                                                                                                                 |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (4) | Previouslyfiled as Exhibit 4.1 to Amendment No.1 to the Issuer’sRegistration Statement on Form SB-2 (file no. 333-130461) filed withthe Commission on February  2,  2006. |

|     |                                                                                                                                                             |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (5) | Previously filed as Exhibit10.1 to the Registrant's Current Report on Form 8-K filed withCommission on June  22,  2005 and incorporated herein byreference. |

|     |                                                                                                                                                                |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (6) | Previouslyfiled as Exhibit 4.1 to the Registrant's Current Report on Form8-K filed with the Commission on June  22,  2005 andincorporated herein by reference. |

|     |                                                                                                                                                                                            |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (7) | Previously filed as AppendixIII to the Registrant's definitive Proxy Statement datedOctober  27,  2005 and filed with the Commission on the samedate and incorporated herein by reference. |

|     |                                                                                                                                                                |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (8) | Previously filed as Exhibit21.1 to the Issuer’s Registration Statement on Form SB-2 (fileno. 333-130461) filed with the Commission on December  19,2005. |

|                |                                       |
|----------------|---------------------------------------|
| Item 14.  | Principal AccountantFees and Services |

Year ended December  31,2005

Audit Fees:    The aggregate fees, includingexpenses, billed by the Company’s principal accountant inconnection with the audit of our consolidated financial statements forthe most recent fiscal year and for the review of our financialinformation included in our Annual Report on Form 10-KSB; and ourquarterly reports on Form 10-QSB during the fiscal year endingDecember  31,  2005 were $41,012.

Audit-RelatedFees:    The aggregate fees, including expenses, billed by theCompany’s principal accountant for services reasonably relatedto the audit for the year ended December  31,  2005 were$0.

Tax Fees: The aggregate fees, including expenses,billed by the Company’s principal accountant for servicesreasonably related to tax services during the year 2005 were $0.

All Other Fees:    The aggregate fees, including expenses,billed for all other services rendered to the Company by its principalaccountant during year 2005 was $15,636.

Year endedDecember  31,  2004

Audit Fees:    Theaggregate fees, including expenses, billed by the Company’sprincipal accountant in connection with the audit of our consolidatedfinancial statements for the most recent fiscal year and for the reviewof our financial information included in our Annual Report on Form10-KSB; and our quarterly reports on Form 10-QSB during the fiscal yearending December  31,  2004 were $18,700.

Audit-Related Fees:    The aggregate fees, includingexpenses, billed by the Company’s principal accountant forservices reasonably related to the audit for the year endedDecember  31,  2004 were 0.

Tax Fees:    Theaggregate fees, including expenses, billed by the Company’sprincipal accountant for services reasonably related to tax servicesduring the year 2004 were $0.

All Other Fees:    Theaggregate fees, including expenses, billed for all other servicesrendered to the Company by its principal accountant during year 2004were $0.

The Board of Directors has considered whetherthe provisions of the services covered above under the captions‘‘All Other Fees’’ is compatible withmaintaining the auditor’sindependence.

60

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SIGNATURES

In accordance with the requirements of the Exchange Act, theregistrant caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.

|                      |  |                                                     |  |  |  |  |
|----------------------|--|-----------------------------------------------------|--|--|--|--|
|                 |  | Sona Mobile HoldingsCorp(Registrant)                |
| Date: March 31, 2006 |  | /s/ John Bush                                       |
|                 |  | Chief Executive Officer                             |
| Date: March31, 2006  |  | /s/ John C.Rudy                                     |
|                 |  | Chief Financial Officer(PrincipalFinancial Officer) |
|                      |

Pursuant to the requirements ofthe Securities Exchange Act of 1934, this report has been signed belowby the following persons on behalf of the registrant and in thecapacities and on the datesindicated.

|                                     |  |                                                                                  |  |                                      |
|-------------------------------------|--|----------------------------------------------------------------------------------|--|--------------------------------------|
| Signature                           |  | Title                                                                            |  | Date                                 |
|                                     |
| /s/ John Bush                       |  | President and Chief Executive Officer, and Director (principalexecutive officer) |  | March  31,2006                       |
|                                     |
| John Bush                           |
|                                     |
| /s/John C. Rudy                     |  | Chief Financial and Accounting Officer (principalfinancial officer)              |  | March  31 , 2006                     |
|                                     |
| John C.Rudy                         |
|                                     |
| /s/ Shawn Kreloff                   |  | Chairman of the Board, Director                                                  |  | March31  ,2006                       |
|                                     |
| Shawn Kreloff                       |
|                                     |
| /s/ NicholasGlinsman                |  | Director                                                                         |  | March  31,  2006                     |
|                                     |
| Nicholas Glinsman                   |
|                                     |
|                 |  | Director                                                                         |  | March     , 2006 |
|                                     |
| Bryan Maizlish                      |
|                                     |
| /s/   Frank Fanzilli |  | Director                                                                         |  | March 31,2006                        |
|                                     |
| FrankFanzilli                       |
|                                     |
| /s/ MichaelCastellano               |  | Director                                                                         |  | March  31 , 2006                     |
|                                     |
| Michael Castellano                  |
|                                     |
| /s/Joseph Vittoria                  |  | Director                                                                         |  | March  31, 2006                      |
|                                     |
| Joseph Vittoria                     |
|                                     |
|                 |  | Director                                                                         |  | March    ,2006   |
|                                     |
| Paul C. Meyer                       |
|                                     |

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