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  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="5" face="Times New Roman" style="font-size:18.0pt;font-weight:bold;">UNITED STATES</font></b></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="5" face="Times New Roman" style="font-size:18.0pt;font-weight:bold;">SECURITIES AND EXCHANGE COMMISSION</font></b></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">WASHINGTON, D.C. 20549</font></b></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="5" face="Times New Roman" style="font-size:18.0pt;font-weight:bold;">FORM&nbsp;8-K</font></b></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="3" face="Times New Roman" style="font-size:12.0pt;font-weight:bold;">CURRENT REPORT</font></b></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="3" face="Times New Roman" style="font-size:12.0pt;font-weight:bold;">Pursuant to Section&nbsp;13 or 15(d)&nbsp;of the<br>
  Securities Exchange Act of 1934</font></b></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p align="center" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Date of Report (Date
  of earliest event reported):</font><b><font face="Times New Roman" style="font-weight:bold;"> April&nbsp;22, 2008</font></b></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
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    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="5" face="Times New Roman" style="font-size:18.0pt;font-weight:bold;">Tripath Technology Inc.</font></b></p>
    </td>
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    <td width="100%" valign="top" style="border:none;padding:0in 0in 0in 0in;width:100.0%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(Exact name of
    registrant as specified in its charter)</font></p>
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  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
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    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Delaware</font></b></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="32%" valign="top" style="padding:0in 0in 0in 0in;width:32.0%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">000-31081</font></b></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="32%" valign="top" style="padding:0in 0in 0in 0in;width:32.0%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">77-0407364</font></b></p>
    </td>
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    <td width="32%" valign="top" style="padding:0in 0in 0in 0in;width:32.0%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(State or Other
    Jurisdiction of Incorporation)</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="32%" valign="top" style="padding:0in 0in 0in 0in;width:32.0%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(Commission File
    Number)</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="32%" valign="top" style="padding:0in 0in 0in 0in;width:32.0%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(I.R.S. Employer
    Identification No.)</font></p>
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  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
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    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">1900 O&#146;Farrell St.,
    Suite&nbsp;320, San Mateo, California</font></b></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
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    <td width="32%" valign="top" style="padding:0in 0in 0in 0in;width:32.16%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">94403</font></b></p>
    </td>
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    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(Address of principal
    executive offices)</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="32%" valign="top" style="padding:0in 0in 0in 0in;width:32.16%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(Zip Code)</font></p>
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  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Registrant&#146;s
  telephone number, including area code: <b>425-458-4510</b></font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Check the appropriate box
  below if the Form&nbsp;8-K filing is intended to simultaneously satisfy the
  filing obligation of the registrant under any of the following provisions:</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;"><font size="2" face="Wingdings" style="font-size:10.0pt;">o</font>&#160;&#160;&#160; Written communications pursuant to Rule&nbsp;425
  under the Securities Act (17 CFR 230.425)</p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;"><font size="2" face="Wingdings" style="font-size:10.0pt;">o</font>&#160;&#160;&#160; Soliciting material pursuant to Rule&nbsp;14a-12
  under the Exchange Act (17 CFR 240.14a-12)</p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;"><font size="2" face="Wingdings" style="font-size:10.0pt;">o</font>&#160;&#160;&#160; Pre-commencement
  communications pursuant to Rule&nbsp;14d-2(b)&nbsp;under the Exchange Act (17
  CFR 240.14d-2(b))</p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;"><font size="2" face="Wingdings" style="font-size:10.0pt;">o</font>&#160;&#160;&#160; Pre-commencement
  communications pursuant to Rule&nbsp;13e-4(c)&nbsp;under the Exchange Act (17
  CFR 240.13e-4(c))</p>
  
  <div style="border:none;border-bottom:double windowtext 6.0pt;padding:0in 0in 0in 0in;">
  
  <p style="border:none;margin:0in 0in .0001pt;padding:0in;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
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  <p style="font-weight:bold;margin:0in 0in .0001pt;page-break-after:auto;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS</font></b></p>
  
  <p style="font-weight:bold;margin:0in 0in .0001pt;page-break-after:auto;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our disclosure and analysis in this report contains
  some forward-looking statements. Certain of the matters discussed concerning
  our operations, cash flows, financial position, economic performance and
  financial condition, including, in particular, future sales, product demand,
  the market for our products, competition and the effect of economic conditions
  include forward-looking statements.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Statements that are predictive in nature, that
  depend upon or refer to future events or conditions or that include words such
  as &#147;expects,&#148; &#147;anticipates,&#148; &#147;intends,&#148; &#147;plans,&#148; &#147;believes,&#148; &#147;estimates,&#148; and
  similar expressions are forward-looking statements. Although we believe that
  these statements are based upon reasonable assumptions, including projections
  of orders, sales, operating margins, earnings, cash flow, research and
  development costs, working capital, capital expenditures, and other
  projections, they are subject to several risks and uncertainties, and
  therefore, we can give no assurance that these statements will be achieved.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Investors are cautioned that our forward-looking
  statements are not guarantees of future performance and the actual results or
  developments may differ materially from the expectations expressed in the
  forward-looking statements.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">As for the forward-looking statements that relate to
  future financial results and other projections, actual results will be
  different due to the inherent uncertainty of estimates, forecasts and
  projections may be better or worse than projected. Given these uncertainties,
  you should not place any reliance on these forward-looking statements. These
  forward-looking statements also represent our estimates and assumptions only as
  of the date that they were made. We expressly disclaim a duty to provide
  updates to these forward-looking statements, and the estimates and assumptions
  associated with them, after the date of this filing to reflect events or
  changes in circumstances or changes in expectations or the occurrence of
  anticipated events.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We undertake no obligation to publicly update any
  forward-looking statement, whether as a result of new information, future
  events or otherwise. You are advised, however, to consult any additional
  disclosures we make in our annual, quarterly and current reports. We also note
  that we have provided a cautionary discussion of risks and uncertainties under
  the caption &#147;Risk Factors&#148; in this report. These are factors that we think
  could cause our actual results to differ materially from expected results.
  Other factors besides those listed here could also adversely affect us.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Information regarding market and industry statistics
  contained in this report is included based on information available to us,
  which we believe is accurate. We have not reviewed or included data from all
  sources, and cannot assure stockholders of the accuracy or completeness of the
  data included in this report. Forecasts and other forward-looking information
  obtained from these sources are subject to the same qualifications and the
  additional uncertainties accompanying any estimates of future market size,
  revenue and market acceptance of products and services.</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2</font></p>
  
  <div align="center" style="margin:0in 0in .0001pt;text-align:center;"><hr size="3" width="100%" noshade color="#010101" align="center"></div>
  
  </div>
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  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Item 2.01 Completion of Acquisition or Disposition of Assets.</font></b></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman"><font style="font-size:10.0pt;">This report is being filed by </font>Tripath
  Technology Inc.,<b>  </b></font>a Delaware<b>  </b>corporation (&#147;<b>Tripath</b>&#148;
  or the &#147;<b>Company</b>&#148;), in connection with the
  merger of Etelos, Incorporated, a Washington corporation (&#147;<b>Etelos</b>&#148;),
  with and into Tripath.&#160; Tripath changed
  its name to Etelos,&nbsp;Inc.</p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman"><font style="font-size:10.0pt;">As discussed in more detail in Item 5.06 of this report,
  as a result of the </font>merger</font>,
  Tripath ceased being a shell company as such term is defined in Rule&nbsp;12b-2
  under the Securities Exchange Act of 1934, as amended (the &#147;<b>Exchange Act</b>&#148;).</p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-weight:bold;margin:0in 0in .0001pt;page-break-after:auto;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">FORM&nbsp;10-SB DISCLOSURE</font></b></p>
  
  <p style="font-weight:bold;margin:0in 0in .0001pt;page-break-after:auto;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></b></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">As disclosed elsewhere in this report, on April&nbsp;</font><font face="Symbol">22</font>, 2008, Etelos<b>  </b>merged
  with and into Tripath in a reverse
  merger transaction. Item 2.01(f)&nbsp;of Form&nbsp;8-K states that if the
  registrant was a shell company, like Tripath was immediately before the merger, then the registrant must disclose the
  information that would be required if the registrant were filing a general form
  for registration of securities on Form&nbsp;10-SB.</p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman"><font style="font-size:10.0pt;">Accordingly, Tripath is providing below the
  information that would be included in a Form&nbsp;10-SB if Tripath were to file
  a Form&nbsp;10-SB.&#160; Note that the
  information provided below generally relates to the business enterprise after
  the merger, except that information relating to periods prior to the effective
  time of the merger only relates to </font>Tripath<b>  </b></font>unless the context suggests otherwise.&#160; In this report the terms &#147;we,&#148; &#147;us,&#148; &#147;our,&#148;
  and other similar terms refer to the surviving corporation after the merger.</p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In this report, we rely on and refer to information
  and statistics regarding our industry that we have obtained from a variety of
  sources. This information is publicly available for free and has not been
  specifically prepared for us for use in this report or otherwise. Although we
  believe that this information is generally reliable, we cannot guarantee, nor
  have we independently verified, the accuracy and completeness of this
  information.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">DESCRIPTION OF BUSINESS</font></b></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Tripath History</font></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">On April&nbsp;</font><font face="Symbol">22</font>, 2008, Etelos merged with and into Tripath,
  and the surviving corporation changed its name to Etelos,&nbsp;Inc., a Delaware
  corporation.</p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman"><font style="font-size:10.0pt;">Before the effective date of the merger, and since </font>February&nbsp;8,
  2007, Tripath </font>was in a Chapter
  11 bankruptcy proceeding in the United States Bankruptcy Court for the Northern
  District of California, Case No.&nbsp;07-50358.&#160;
  As a &#147;debtor in possession,&#148; Tripath remained in possession of its
  assets and properties and continued to operate its business pursuant to Section&nbsp;1107(a)&nbsp;and
  1108 of the Bankruptcy Code. On December&nbsp;20, 2007, Tripath and Enable
  Growth Partners LP filed with the bankruptcy court the Third Amended Disclosure
  Statement Accompanying Third Amended Plan of Reorganization dated December&nbsp;20,
  2007 Proposed by Tripath Technology&nbsp;Inc. and Enable Growth Partners LP,
  for itself and as agent for the Secured Parties (the &#147;<b>Plan of
  Reorganization</b>&#148;), which contemplated the merger of Etelos with and
  into Tripath.&#160; On February&nbsp;1, 2008,
  the bankruptcy court issued an order confirming approval of the Plan of
  Reorganization, including the merger and the transfer of all of Tripath&#146;s
  existing assets into a separate bankruptcy estate and the discharge of all of
  Tripath&#146;s liabilities.&#160; As a result of
  the foregoing, on April&nbsp;&#149;, 2008, Tripath entered into an agreement
  and plan of merger with Etelos (the &#147;<b>Merger Agreement</b>&#148;),
  pursuant to which Etelos merged with and into Tripath, at which time the separate
  corporate existence of Etelos ceased and Tripath continued after the merger as
  the surviving corporation and changed its name to Etelos,&nbsp;Inc.&#160; The surviving corporation will conduct the
  business that was previously conducted by Etelos.</p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">3</font></p>
  
  <div style="margin:0in 0in .0001pt;"><hr size="3" width="100%" noshade color="#010101" align="left"></div>
  
  </div>
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  <div style="font-family:Times New Roman;">
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Until Tripath ceased operations, Tripath was a
  fabless semiconductor company that focused on developing highly efficient power
  amplification to the digital media and electronics markets.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">History of Etelos</font></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Overview</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman"><font style="font-size:10.0pt;">Etelos is a leading provider of software solutions
  that assist organizations to effectively use Web Applications to accomplish
  their goals.&#160; Etelos provides </font>a
  revolutionary Software as a Service (SaaS) ecosystem for building, distributing,
  and using Web Applications, including a marketplace to deploy and support them;
  giving businesses choices in Web Applications, hosting, and support services to
  cost effectively accomplish their goals.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Etelos has developed products for Web Applications, which include open standards-based
  tools for Web developers, businesses and individual users such as the Etelos
  Application Server</font><font face="Symbol">&#212;</font>
  (EAS<font face="Symbol">&#212;</font>) and the Etelos Development Environment<font face="Symbol">&#212;</font>
  (EDE<font face="Symbol">&#212;</font>).&#160; EAS and
  EDE support many common programming languages and also support the English Application
  Scripting Engine (EASE<font face="Symbol">&#212;</font>), a simple-to-use
  open standards-based scripting language developed by Etelos.&#160; In order to support broader adoption of
  Etelos<font face="Symbol">&#212;</font> products, EASE and other components of the EDE
  are provided to developers and users at market appropriate pricing.&#160; This is done to support the development of
  new Web Applications and the migration of existing Web Applications into the
  Etelos&#153; ecosystem where there are tools and other support mechanisms for the
  marketing, distribution, sales and support of these applications.&#160; Etelos generally receives a transaction fee or
  a license fee in exchange transactions that occur within the Etelos ecosystem
  via the Etelos Marketplace<font face="Symbol">&#212;</font>.</p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The Etelos Marketplace supports and encourages communities of
  developers, distributors, and consumers to expand their offerings, collaborate
  on new ideas and improvements, and provide scalable solutions using Web
  Applications available to others.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">For the year ended December&nbsp;31, 2007, Etelos
  had revenue of $304 thousand, a decrease of $12 thousand from the year ended
  December 31, 2006. As of December&nbsp;31, 2007, Etelos had over 5,000 active
  free and paying customers.&#160; Etelos,
  headquartered in San Mateo, California, with offices in Renton, Washington, was
  founded in May&nbsp;1999.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Industry Background</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The 1990s saw the widespread adoption among large
  enterprises of packaged business management applications that automated a
  variety of departmental functions, such as accounting, finance, order and
  inventory management, human resources, sales, and customer support. These
  sophisticated applications required significant cash outlays for the initial
  purchase and for ongoing maintenance and support. In addition, these
  applications were internally managed and maintained by enterprise customers, requiring
  increasingly large staffs to support complex information technology
  infrastructures. Most importantly, the applications generally were provided by
  multiple vendors, with each application providing only a departmental view of
  the enterprise. To gain an enterprise-wide view, organizations attempted to tie
  together their various incompatible packaged applications through long, complex,
  and costly integration efforts. Many of these attempts failed, in whole or in
  part, often after significant delay and expense. As a consequence, many large
  enterprises have transitioned from multiple point products to comprehensive,
  integrated business management suites, such as those offered by Oracle and SAP,
  as their core business management platforms.</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">4</font></p>
  
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  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Small-to-Medium sized Businesses (SMBs), which we
  define as businesses with up to 1,000 employees, have application software
  requirements that are similar, in many respects, to large enterprises because
  their core business processes are substantially the same. These requirements
  include the integration of back-office activities, such as managing payroll and
  tracking inventory; front-office activities, including order management and
  customer support; and, increasingly, sophisticated e-commerce capabilities.
  According to a 2006 forecast for the CRM market and 2007 forecasts for the ERP
  and supply chain management, or SCM, markets from Gartner,&nbsp;Inc., companies
  in North America spent approximately $13.7 billion on ERP, CRM, and SCM
  software applications in 2006, of which SMBs accounted for $4.4 billion, or
  32%. Gartner projects that SMB spending on these applications will grow 8.7%
  annually from 2006 to 2010, compared to 5.7% for large businesses.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">SMBs are generally less capable than large
  enterprises of performing the costly, complex, and time-consuming integration
  of multiple point products from one or more vendors. As a result, SMBs can
  frequently derive greater benefits from a comprehensive business suite. Suites
  designed for, and broadly adopted by, large enterprises to provide a
  comprehensive, integrated platform for managing these core business processes,
  generally are not well suited to SMBs due to the complexity and cost of such
  applications.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Recently, SMBs have begun to benefit from the
  development of the on-demand SaaS model. SaaS uses the Internet to deliver
  access to software applications from a centrally hosted computing facility by
  users through a web browser. SaaS eliminates the costs associated with
  installing and maintaining applications within the customer&#146;s information
  technology infrastructure. On-demand applications are generally licensed for a
  monthly, quarterly or annual subscription fee, as opposed to on-premise
  enterprise applications that typically require the payment of a much larger,
  upfront license fee. As a result, on-demand applications require substantially
  less initial and ongoing investment in software, hardware and implementation
  services and lower ongoing support and maintenance, making them more affordable
  for SMBs.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">To date, the on-demand software model has been
  applied to a variety of types of business software applications, including CRM,
  security, accounting, human resources management, messaging, and others, and it
  has been broadly adopted by a wide variety of businesses. IDC estimates
  worldwide on-demand enterprise software vendor revenues were approximately $3.7
  billion in 2006 and that they will grow 32% annually through 2011 to $14.8
  billion.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">While SaaS applications have enabled SMBs to benefit
  from enterprise-class capabilities, most are still products that require
  extensive, costly, and time-consuming integration to work with other
  applications. SMBs generally have been unable to implement a comprehensive set
  of business management products at an affordable level of cost that will enable
  them to run their businesses using a single system of records, provide
  real-time views of their operations, and be readily customizable and rapidly
  deployed and implemented, especially in a geographically dispersed
  organization.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Etelos&#153; Products and Services</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Etelos has developed and offers a range of products and services for
  developers and for consumers of Web Applications.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Etelos development products for Web Applications include open
  standards-based tools for Web developers, business and individual users such as
  the Etelos Application Server</font><font face="Symbol">&#212;</font>
  (EAS<font face="Symbol">&#212;</font>) and the Etelos Development Environment<font face="Symbol">&#212;</font>
  (EDE<font face="Symbol">&#212;</font>).&#160; EAS and
  EDE support many common application languages and also support the English
  Application Scripting Engine (EASE<font face="Symbol">&#212;</font>), a simple-to-use
  open standards scripting language developed by Etelos.&#160; In order to support broader adoption of
  Etelos-based products, EASE and other components of the Etelos platform are
  provided to developers and users at market appropriate pricing.&#160; This is done to support the development of
  new Web Applications and the migration of existing Web Applications into the
  Etelos ecosystem where there are tools and other support mechanisms for the marketing,
  distribution, sales and support of these applications.&#160; Etelos generally receives a transaction fee,
  a subscription fee or a license fee in exchange transactions that occur within
  the Etelos ecosystem via the Etelos Marketplace<font face="Symbol">&#212;</font>.</p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">5</font></p>
  
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  </div>
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  <div style="font-family:Times New Roman;">
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Web
  Applications built with or brought to the Etelos ecosystem are made available
  for distribution in the Etelos Marketplace </font>as a subscription service using the
  Software-as-a-Service (SaaS) or software-on-demand business model. The
  Etelos Marketplace gives developers of Web Applications, including Etelos, an
  easy place to distribute and support Web Applications.&#160; Web Applications delivered through the Etelos
  Marketplace can be easily and conveniently billed, distributed and configured
  to provide updates and support to users exactly in accordance with the
  developer&#146;s desires, without requiring the developer to perform development
  unrelated to the underlying Web Application or to operate a robust licensing
  and delivery infrastructure.&#160; The Etelos
  Marketplace relieves the burdens to developers of delivery and support to the
  users of their Web Applications.&#160; Etelos
  also provides additional paid professional services and support on behalf of
  our development partners.</p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Etelos
  also offers Etelos Ad Serve</font><font face="Symbol">&#212;</font>,
  an on-demand system for purchasing or publishing advertising in the Etelos
  ecosystem. Etelos Ad Serve allows a customer to purchase ads to be displayed in
  Etelos applications (i.e. in Etelos CRM<font face="Symbol">&#212;</font>
  or Etelos Projects<font face="Symbol">&#212;</font>), or in the Etelos Marketplace. Etelos Ad Serve
  also allows Etelos partners to become advertising publishers in their own web
  site or on their applications hosted in the Etelos Marketplace.&#160; Etelos Ad Serve is an important tool for
  Etelos and development partners to receive revenue while delivering trial or &#147;free&#148;
  ad-supported subscriptions to applications in the Etelos Marketplace.&#160; In addition to the benefits of revenue, this
  tool enables wider adoption of Web Applications through reduced or no-cost
  subscriptions, which serves important viral marketing goals.</p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman"><font style="font-size:10.0pt;">The Etelos Marketplace enables rapid adoption of Web
  Applications by </font>giving customers freedom of choice to select from a wide
  array of fully customizable, on-demand business applications.&#160; These applications may be deployed in the
  hosting environment of the customer&#146;s choice, including hosting services
  provided through Etelos. </font>Web
  Applications built on the Etelos platform may be integrated with other Web
  Applications through the use of Etelos App Sync<font face="Symbol">&#212;</font>, hosted anywhere, and customized to create
  highly flexible business solutions.&#160;
  Not only can businesses easily
  choose from a range of Web Applications, but they can instantly &#147;try or buy&#148;
  them. The flexibility of the Etelos ecosystem enables businesses to assemble a
  Web Applications suite.&#160; The
  Build-a-Suite<font face="Symbol">&#212;</font> concept is ideally tailored for particular business
  needs and building scalable solutions.</p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The advantages of Etelos products and services are:</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Open Standards</font></u>.&#160;
  Products delivered in the Etelos Marketplace are developed on open
  standards.&#160; This foundation makes the
  products easy to develop, easy to adopt and integrate with other Web
  Applications, and easy to swap or modify to meet specific customer needs.&#160; The use of open standards for business
  applications distinguishes the products in the Etelos Marketplace not only from
  comprehensive product suites from such vendors of proprietary software as
  Microsoft, Oracle, and SAP, but also from products other SaaS vendors such as
  salesforce.com or NetSuite, that require developers of Web Applications to
  adopt a high-cost proprietary foundation for their products, resulting in
  higher costs to both developers and their customers.</p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">On-Demand Delivery Model</font></u>. Etelos delivers its products over the
  Internet as a license based or subscription based service using a SaaS model,
  making adoption easy and scalability simple.&#160;
  The SaaS delivery model also eliminates the need for customers to buy
  and maintain on-premise hardware and software. Etelos products are designed to
  be reliable, scalable and secure. The Etelos architecture enables businesses to
  maintain very high levels of availability, scale easily as their business and
  customers grow while providing a safe and secure environment for
  business-critical data and applications.</p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">6</font></p>
  
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  </div>
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  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Low Total Cost of Ownership</font></u>. the Etelos SaaS delivery model and each
  different Web Application&#146;s ease of use and configurability aids in helping to
  significantly reduce implementation and maintenance costs of hardware, software
  and services. The Etelos<font face="Symbol">&#212;</font> model virtually eliminates the need for
  dedicated software development or information technology support personnel.
  Customers subscribe to products through the Etelos Marketplace for a monthly
  fee based on the number of users and the products they select.&#160; Subscription fees paid to Etelos
  periodically, typically monthly, tend to be significantly less than typical
  upfront costs paid by businesses to purchase product licenses from other
  providers. The Etelos on-demand delivery model virtually eliminates ongoing
  maintenance and upgrade costs associated with a typical distributed
  infrastructure. Because Web Applications in the Etelos Marketplace are
  developed on open standards and delivered over the Internet, any desired
  customization can be highly targeted, and therefore usually performed at lower
  cost to the business customer.</p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Rapid Implementation</font></u>. The Internet-based on-demand delivery model
  implemented by the Etelos Marketplace enables remote deployment and eliminates
  many of the steps and costs typically associated with on-premise installations.
  Developers and their customers can implement Etelos offerings themselves, or
  work with Etelos development partners or the Etelos professional services
  organization to meet their specific needs.</p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Security, Control and Choice</font></u>.&#160; The
  combination of open standards and Internet-based on-demand delivery and support
  enabled using the Etelos Marketplace provides customers with security for their
  important business data, control over the use and portability of that data, and
  flexibility and freedom of choice in Web Applications that provide built-in
  quality and scalability as solutions to specific business needs.</p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Business Strategy</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The key elements of the Etelos strategy include:</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Expanding Leadership in Open Standards-based Web
  Applications for Business</font></u>. We are leaders in the development of open standards Web Applications
  for business.&#160; We provide a comprehensive
  solution for developers of Web Applications to develop, deliver, support, and
  sell their products to customers.&#160; We
  intend to continue to build on our leadership position by continuing to promote
  the development of high quality open standards Web Applications for business
  and to expand the range of high quality open standards Web Applications offered
  in the Etelos Marketplace.</p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Growing Our Customer Base</font></u>. We intend to expand the range of products
  offered in the Etelos ecosystem and through the Etelos Marketplace and to
  continue to expand our direct and indirect sales efforts to generate revenue by
  providing an environment for the development, distribution, and support of Web
  Applications.</p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Fostering the Continued Development of the Etelos
  ecosystem</font></u>. We provide
  a dynamic development, distribution, and consumption environment for scaling
  and providing business solutions to common business problems.&#160; Our ecosystem is being expanded to contain
  the tools and support programs that help foster continued development of a
  network of value added development and distribution partners. We also provide
  programs that enable our development and distribution partners to resell Web
  Applications we have developed, along with their own products. By using the
  programming language developers choose, including our own EASE language, and by
  hosting Web Applications wherever users want, utilizing the Etelos Application
  Server, the Etelos Development Environment allows our partners to extend
  solutions using the Etelos platform. We encourage development and sales of Web
  Applications both separately and as bundled solutions.&#160; Scalable business solutions are more simply
  achieved at a lower cost through the Build-a-Suite&nbsp;concept, which
  incorporates the benefits of App Sync and Apps on a Plane<font face="Symbol">&#212;</font> to enable customers to achieve scalable
  business solutions.</p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">7</font></p>
  
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  </div>
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  <div style="font-family:Times New Roman;">
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Adding new developers, distributors and consumers to
  the Etelos Marketplace</font></u>.
  SMBs are increasingly seeking global business opportunities, supported in large
  part by leveraging Web Applications. We believe that there is significant
  opportunity to address this opportunity and directly provide cost effective
  scalable solutions to the needs of SMBs globally. In the future, we expect to
  offer localized versions of products in the Etelos Marketplace for a number of
  countries and languages.</p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Etelos Offerings</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Etelos Ecosystem</font></u>. We provide a dynamic development,
  distribution, and consumption environment for scaling applications and
  providing business solutions to common business problems.&#160; Our ecosystem is constantly being improved
  and expanded to contain the tools and support programs that help foster
  continued development of a network of added value development and distribution
  partners.&#160; These include:</p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Etelos Developed Web Applications</font></u>. We provide programs that enable our
  development and distribution partners to resell Web Applications we have developed,
  along with their own products.</p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Customer Developed Web Applications</font></u>. We encourage development and sales of Web
  Applications both separately and as bundled solutions.</p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Etelos Web Application Hosting</font></u>. By using almost any programming language a
  developer chooses, including our own EASE language, and by hosting Web
  Applications wherever users want, utilizing our Etelos Application Server, the
  Etelos Development Environment allows our partners to extend solutions using
  our platform.</p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Programming, Marketing and Distribution Services and
  Support</font></u>. Scalable
  business solutions are more simply achieved at a lower cost through the
  Build-a-Suite&nbsp;concept.&#160; Build-a-Suite&nbsp;incorporates
  the benefits of App Sync and Apps on a Plane, together with our professional services
  offerings, to provide developers, distributors, and business customers the
  means to deliver and use scalable business solutions.</p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Sales and Marketing</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Sales</font></u>.&#160; We generate sales through both
  indirect and direct approaches. Most selling of Web Applications and Hosting is
  done over the Internet.&#160; Sales of custom
  products and Professional Services tend to be direct. Our direct sales team
  consists of professionals in various locations in the United States, with additional
  development, distribution, and business relationships being developed in North
  America, South America, Europe, and the Asia-Pacific region.</p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our Web Applications and Hosting sales generally are
  the result of word of mouth, marketing programs, or user referrals.&#160; As leads self qualify and most often use
  credit cards for payment, our sales and support personnel provide web based
  seminars, forums, and direct support services to ensure continued subscription
  sales.&#160; The sales cycle typically ranges
  from days to months, and can vary based on the Web Application, the scope of
  any customization desired, and the scope of any Professional Services required
  to meet specific customer requirements.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our sales process for Custom Products and
  Professional Services typically begins with the generation of a sales lead from
  a marketing program or customer referral. After the lead is qualified, our
  sales personnel conduct focused web-based demonstrations along with initial
  price discussions. Members of our professional services team are engaged, as
  needed, to offer insight around aspects of the implementation. Our sales cycle
  typically ranges from days to months, but can vary based on the specific
  application, the size and complexity of the potential customer&#146;s information
  technology environment, and many other factors.</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">8</font></p>
  
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  </div>
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  <div style="font-family:Times New Roman;">
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Marketing</font></u>.&#160; We tailor our marketing
  efforts around relevant application categories, customer sizes, and customer
  industries. As part of our marketing strategy, we have established a number of
  key programs and initiatives including online and search engine advertising,
  email campaigns, web based seminars, product launch events, trade show and
  industry event sponsorship and participation, and marketing support for
  development and distribution partners.</p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Service and Support</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Professional Services</font></u>. We are developing repeatable,
  cost-effective consulting and implementation services to assist our customers
  with integrating Web Applications, using them on and off-line and importing
  data from other systems. We provide support services to aid in changing their
  business processes to take advantage of the enhanced flexibility enabled by our
  Build-a-Suite concept. Build-a-Suite enables our customers to implement cost
  reducing, scalable business processes within their organization and
  identifying, configuring, and customizing our products and those of our
  partners for each unique business process and requirement, with a goal of
  entering data once and using it across the organization and across the
  applications used by the business.</p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our consulting and implementation methodology
  leverages the nature of our on-demand Web Application software architecture,
  the industry-specific expertise of our professional services employees, and the
  design of the Etelos ecosystem and the Etelos Marketplace. They are used to
  simplify, reduce costs and expedite the implementation of scalable Web
  Applications to aid in better business operations. We generally employ a joint
  staffing model for implementation projects in which we involve the customer
  more actively in the implementation process than traditional software
  companies. We believe this better prepares our customers to support their own application
  set.&#160; In addition, because our Web
  Applications are on-demand, our Professional Services employees can remotely
  configure many applications for most situations. Our consulting and
  implementation services are generally offered on a fixed price basis. Our
  network of partners also provides professional services to our customers.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Client Support and Management</font></u>. Our technical support organization, with
  personnel in the United States, offers support via the Web 24 hours a day,
  seven days a week. Our system allows for skills-based and time zone-based
  routing to address general and technical inquiries across all aspects of our
  services. For our direct customers and development partners, we offer tiered
  customer support programs depending upon the service needs of both our and
  their customers&#146; Web Applications. Support contracts typically have a one-year
  term. For customers who purchase Web Applications through distribution
  partners, we attempt to assure a quality customer experience by providing
  primary product support, instead of permitting the distribution partner to
  provide that support.</p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Operations, Technology, and
  Development</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our customers rely on our products and the products
  of our partners to run their businesses, and, as a result, it is our
  responsibility to ensure the availability of our service. We continue to
  improve our infrastructure with the goal of maximizing the availability of our
  Web Applications and those of our developers, distributors and users.&#160; We host on a highly-scalable network located
  in a two, secured third-party facilities.&#160;
  We have facility space, power, and Internet connectivity provided by
  Network OS and ServePath. In anticipation of future growth, we may engage
  additional providers and/or expand the number of data centers utilized with
  existing vendors. Our hosting operations incorporate industry-standard hardware
  and our EAS operating system and databases and application servers provide a
  flexible, scalable architecture. Elements of our products&#146; infrastructure can
  be replaced or added with no interruption in service, helping to ensure that
  the failure of any single device will not cause a broad service outage.</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">9</font></p>
  
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  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our multi-tenant individual account package
  architecture allows us to provide our customers with enterprise-class
  capabilities, high quality of service, security and scalability, all at costs
  that scale as their use of Web Applications scales. Our architecture enables us
  to host multiple smaller customers on a single server while preserving the
  ability to migrate any customer to its own server without interruption or
  alteration when the customers&#146; growth and business needs dictate it. In
  addition to the enhanced flexibility and scalability that our architecture
  provides, it also is designed to work on inexpensive, industry-standard
  hardware, thereby providing us a significant cost savings that is reflected in
  the pricing we are able to offer our customers.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Unlike other SaaS companies that deploy major new
  releases to all customers at once, or roll out all major releases and many
  upgrades of their products to a portion of their customer base at any one time,
  we allow our development partners to choose between an &#147;all at once&#148; approach
  or a &#147;phased release&#148; approach, depending upon the needs and desires of their
  customers and the nature of their Web Applications.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In developing our service offerings, we rely on
  customer feedback and are spending significantly more time with our customers
  in user testing sessions as well as informal &#147;ride-alongs&#148; and customer forums.
  We use the Etelos Idea Network together with forums, email, and blogs to track
  customer interest in service enhancements and actual results of these
  enhancements. We develop our offerings using EASE, which is a high performance,
  robust and easy to use programming language. Finally, we expose many of our
  internal development tools to third party developers via the Etelos ecosystem
  to allow extensions to the service that allow any LAMP (Linux, Apache, MySQL
  and PHP) or LAPP (Linux, Apache, PostGres and PHP) stack application take
  advantage of the capabilities we develop internally including App Sync and AOP.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Customers</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">As of December&nbsp;31, 2007, Etelos served over 5,000
  active customers of diverse sizes and types across a wide variety of
  industries, with a focus on SMBs, which Etelos defines as businesses with fewer
  than 1,000 employees, and divisions of larger companies. No single customer
  accounted for more than 10% percent of Etelos&#146; revenue in 2006 or 2007.&#160; Customers of all types use Etelos products to
  achieve a wide variety of business objectives.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Competition</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Etelos competes with a broad array of Enterprise
  Software, On-line Advertising and SaaS companies. These markets are highly
  competitive, fragmented, and subject to rapid changes in technology. Many of
  our potential customers are seeking their first business Web Application and,
  as such, evaluate a wide range of alternatives during their purchase process.
  Etelos faces significant competition within each of its markets from companies
  with broad product suites and greater name recognition and resources than
  Etelos.&#160; We also face competition from
  smaller companies focused on specialized solutions. To a lesser extent, Etelos
  competes with internally developed and maintained solutions.&#160; Current competitors include NetSuite,Inc.,
  Epicor Software Corporation, Intuit Inc., Microsoft Corporation, SAP, The Sage
  Group plc, Amazon, salesforce.com, inc., and others not listed here, both
  public and private.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Etelos
  believes </font>that the
  principal competitive factors in its markets include:</p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="color:black;margin:0in 0in .0001pt 1.25in;text-autospace:none;text-indent:-.25in;"><font size="2" color="black" face="Symbol" style="color:windowtext;font-size:10.0pt;">&#183;</font><font size="1" color="black" style="color:windowtext;font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="2" color="black" style="color:windowtext;font-size:10.0pt;">Freedom of
  choice in Web Applications</font></p>
  
  <p style="color:black;margin:0in 0in .0001pt 1.25in;text-autospace:none;text-indent:-.25in;"><font size="2" color="black" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="2" style="font-size:10.0pt;">Service breadth and functionality;</font></p>
  
  <p style="color:black;margin:0in 0in .0001pt 1.25in;text-autospace:none;text-indent:-.25in;"><font size="2" color="black" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="2" style="font-size:10.0pt;">Performance, security, and reliability;</font></p>
  
  <p style="color:black;margin:0in 0in .0001pt 1.25in;text-autospace:none;text-indent:-.25in;"><font size="2" color="black" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="2" style="font-size:10.0pt;">&#147;Try and Buy&#148;: the ability to tailor and customize
  services for a specific company, vertical or industry;</font></p>
  
  <p style="color:black;margin:0in 0in .0001pt 1.25in;text-autospace:none;text-indent:-.25in;"><font size="2" color="black" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="2" style="font-size:10.0pt;">Ease of use and replacement;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">10</font></p>
  
  <div style="margin:0in 0in .0001pt;"><hr size="3" width="100%" noshade color="#010101" align="left"></div>
  
  </div>
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  <br clear="all" style="page-break-before:always;">
  <div style="font-family:Times New Roman;">
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt 1.0in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Speed
  and ease of deployment, integration and configuration;</p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt 1.0in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Total
  cost of ownership, including subscription, implementation and support costs;</p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt 1.0in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Sales
  and marketing approach; and</p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt 1.0in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Financial
  resources and reputation.</p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We believe that Etelos competes favorably with most
  of its competitors on the basis of each of the factors listed above and many
  others.&#160; We further note however, that
  certain of our competitors have greater sales, marketing, and financial
  resources, more extensive geographic presence, and greater name recognition
  than Etelos. In addition, although Etelos has extended the number of
  applications it has introduced for specific vertical markets, Etelos may be at
  a disadvantage in certain other vertical markets compared to certain of its competitors.
  Etelos may face future competition in its markets from other large, established
  companies, as well as from emerging companies. In addition, we expect that
  there is likely to be continued consolidation in the industry that could lead
  to increased technology, price, and other forms of competition.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Intellectual Property</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our success depends upon our ability to protect our
  core technology and intellectual property. To accomplish this, we rely on a
  combination of intellectual property rights, including trade secrets, patents,
  copyrights and trademarks, as well as customary contractual protections. We
  view our patents, trade secrets, and know-how as a significant component of our
  intellectual property assets, as we have spent years designing and developing
  our products, which we believe differentiates us from our competitors.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">As of April&nbsp;</font><font face="Symbol">22</font> 2008, we had four U.S. and no foreign patent applications pending. We
  plan to file additional patent applications in the United States, but since the
  filing of some of these applications may have been, or will be, made after the
  date of first sale or disclosure of the subject inventions, patent protection
  may not be available for some of these inventions outside the United
  States.&#160; We do not know whether our
  pending or future patent applications will result in the issuance in of patents
  in the United States or elsewhere, or whether the examination process will
  require us to narrow our claims. Even if granted, there can be no assurance
  that the pending patent applications will provide us with protection.</p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We have a number of unregistered trademarks.&#160; We have not registered any trademarks or
  service marks.&#160; We maintain a policy
  requiring our employees, consultants and other third parties to enter into
  confidentiality and proprietary rights agreements and to control access to
  software, documentation and other proprietary information.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We have not maintained operating controls or logs,
  or initiated or conducted any forensic, code history, &#145;genealogy&#146; or other form
  of audit, analysis, processes, training, or code review of software code
  incorporated into any Etelos product or in other products offered by others in
  the Etelos Marketplace.&#160; These products
  may include code subject to various forms of &#145;open source&#146;, &#145;copyleft&#146; or
  similar licenses that require as a condition of modification or distribution of
  software subject to such license(s)&nbsp;that [a] such software or other
  software combined or distributed with such software be disclosed or distributed
  in source code form, or [b] such software or other software combined or
  distributed with such software, and any related intellectual property,&#160; be licensed on a royalty-free basis,
  including for the purposes of making additional copies or derivative works of
  such software.&#160; This may adversely affect
  our ability to patent certain inventions or to license or distribute certain
  products &#150; whether by open source license or other form of license or right &#150;
  and may result in liability to unknown parties for infringement of their
  patents or other intellectual property rights.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In addition, we license third-party technologies that
  are incorporated into some elements of our services. Licenses of third-party
  technologies may not continue to be available to us at a reasonable cost, or at
  all.</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">11</font></p>
  
  <div align="center" style="margin:0in 0in .0001pt;text-align:center;"><hr size="3" width="100%" noshade color="#010101" align="center"></div>
  
  </div>
  <!-- SEQ.=1,FOLIO='11',FILE='C:\JMS\tsauer\08-10653-1\task2883250\10653-1-bc.htm',USER='tsauer',CD='Apr 22 18:00 2008' -->
  
  
  <br clear="all" style="page-break-before:always;">
  
  
  <div>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The steps we have taken to protect our intellectual
  property rights may not be adequate. Third parties may infringe or
  misappropriate our proprietary rights. Competitors may also independently
  develop technologies that are substantially equivalent or superior to the
  technologies we employ in our services. Failure to protect our proprietary
  rights adequately could significantly harm our competitive position and
  operating results.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The software and technology industries are
  characterized by the existence of a large number of patents, copyrights,
  trademarks, and trade secrets and by frequent litigation based on allegations
  of infringement or other violations of intellectual property rights. As we face
  increasing competition, the possibility of intellectual property rights claims
  against us grows. Many of our partnership agreements require us to indemnify
  our customers for third-party intellectual property infringement claims, which
  would increase our costs as a result of defending those claims and might
  require that we pay damages if there were an adverse ruling in any such claims.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">With respect to any intellectual property rights
  claim against us or our customers, we may have to pay damages or stop using
  technology found to be in violation of a third party&#146;s rights. We may have to
  seek a license for the technology, which may not be available on reasonable
  terms, may significantly increase our operating expenses, or may require us to
  restrict our business activities in one or more respects. The technology also
  may not be available for license to us at all. As a result, we may be required
  to develop alternative non-infringing technology, which could require
  significant effort and expense.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Research and Development</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">During the fiscal years ended December&nbsp;31, 2006
  and December&nbsp;31, 2007, research and development expenses were $839
  thousand and $1.9 million, respectively, and consisted primarily of employee
  and employee related expenses.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Employees</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">As of December&nbsp;31, 2007, we had approximately 34
  full-time employees and 1 part-time employee. We consider our employee
  relationships to be satisfactory.&#160; From
  time to time, we also engage temporary employees and consultants. None of our
  employees are represented by a labor union with respect to his or her
  employment with us.</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">12</font></p>
  
  <div align="center" style="margin:0in 0in .0001pt;text-align:center;"><hr size="3" width="100%" noshade color="#010101" align="center"></div>
  
  </div>
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  <br clear="all" style="page-break-before:always;">
  
  
  <div style="font-family:Times New Roman;">
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">RISK FACTORS</font></b></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">An investment in our common stock involves a high
  degree of risk. You should carefully consider the risks described below and the
  other information contained in this report before deciding to invest in our
  common stock.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Risks Related to our Business</font></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">We have a limited operating
  history, have experienced significant expenditures related to funding our
  initial product development, and are currently carrying a net loss.&#160; If our business model is not successful, or if
  we are unable to generate sufficient revenue to offset our start-up
  expenditures, then we may not become profitable, and the value of your
  investment may decline.</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Etelos began its operations in 1999 but it did not
  adopt the SaaS on-demand Web Application delivery model until 2005. As such,
  Etelos has a limited operating history in the SaaS industry from which to
  evaluate its business and prospects.&#160;
  Etelos incurred a net loss of $3.9 million for the year ended December&nbsp;31,
  2007, and has an accumulated deficit of $10.4 million at December&nbsp;31,
  2007.&#160; We cannot assure you that our
  future planned operations will be implemented successfully or that we will ever
  have profits.&#160; Furthermore, we are
  experiencing the initial costs and uncertainties of a young operating company,
  including start-up expenditures, unforeseen costs and difficulties,
  complications, and delays, all of which must be resolved and/or paid without
  the benefit of a predictable revenue stream.&#160;
  We cannot be sure that we will be successful in meeting these challenges
  and addressing these risks and uncertainties.&#160;
  If we are unable to do so, then our business will not be successful.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Our limited operating history may
  not serve as an adequate basis to judge our future prospects and results of
  operations.</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Etelos began its operations in 1999 but we did not
  adopt the SaaS on-demand Web Application delivery model until 2005. Our limited
  operating history in the SaaS industry may not provide a meaningful basis on
  which to evaluate our business. Since our inception our revenues have not
  always grown from year to year.&#160; We
  cannot assure you that we will achieve our growth targets, or that we will
  achieve positive cash-flow or profitability, or that we will not incur negative
  cash flow or net losses in the future. We expect that our operating expenses
  will increase as we expand. Any significant failure to realize anticipated
  revenue growth could result in significant operating losses beyond our
  forecasts. We will continue to encounter risks and difficulties frequently experienced
  by companies at a similar stage of development, including our potential failure
  to:</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>maintain our technology;</p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>expand our product offerings and maintain the
  high quality of our products;</p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>manage our expanding operations, including
  the integration of any future acquisitions;</p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>obtain sufficient working capital to support
  our expansion and to fill customers&#146; orders in time;</p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>maintain adequate control of our expenses;</p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>implement our product development, marketing,
  sales, and acquisition strategies and adapt and modify them as needed; and/or</p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>anticipate and adapt to changing conditions
  in the markets in which we operate as well as the impact of any changes in
  government regulation, mergers and acquisitions involving our competitors,
  technological developments and other significant competitive and market
  dynamics.</p>
  
  <p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">If we are not successful in addressing any or all of
  these risks, then our business may be materially and adversely affected.</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">13</font></p>
  
  <div align="center" style="margin:0in 0in .0001pt;text-align:center;"><hr size="3" width="100%" noshade color="#010101" align="center"></div>
  
  </div>
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  <br clear="all" style="page-break-before:always;">
  
  
  <div>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">We may encounter substantial
  competition in our business and our failure to compete effectively may
  adversely affect our ability to generate revenue.</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We believe that existing and new competitors will
  continue to improve the design and performance of their products and to
  introduce new products with competitive price and performance characteristics.
  We expect that we will be required to continue to invest in product development
  and productivity improvements to compete effectively in our markets. Our
  competitors could develop better technology or more efficient products or
  undertake more aggressive and costly marketing campaigns than ours, which may
  adversely affect our marketing strategies and could have a material adverse
  effect on our business, results of operations, and financial condition.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our major competitors may be better able than we to
  successfully endure downturns in our markets. In periods of reduced demand for
  our products, we can either choose to maintain market share by reducing our
  selling prices to meet competition or maintain selling prices, which would
  likely sacrifice market share. Sales and overall profitability would be reduced
  and sustained losses may continue in either case. In addition, we cannot assure
  you that additional competitors will not enter our existing markets, or that we
  will be able to compete successfully against existing or new competition.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Our inability to fund our capital
  to meet our expenditure requirements may adversely affect our growth and
  profitability.</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our continued growth is dependent upon our ability
  to raise capital from outside sources. Our ability to obtain financing will
  depend upon a number of factors, including our financial condition and results
  of operations, the condition of the economy, and conditions in relevant
  financial markets.&#160; If we are unable to
  obtain financing, as needed, on a timely basis and on acceptable terms, our
  financial position, competitive position, growth, and profitability may be
  adversely affected.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">We may not be able to effectively
  control and manage our growth.</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">If our business and markets grow and develop, it
  will be necessary for us to finance and manage expansion in an orderly fashion.
  In addition, we may face challenges in managing expanding product offerings and
  in integrating acquired businesses with our own. Such eventualities will
  increase demands on our existing management, workforce, and facilities. Failure
  to satisfy such increased demands could interrupt or adversely affect our
  operations and cause longer product development time frames and administrative
  inefficiencies.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">We depend on a large number of
  customers.</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our revenue is dependent, in large part, on many
  orders from a large number of customers. Sales to our five largest customers were
  <i>de minimus</i> during the years ended December&nbsp;31,
  2007 and 2006, respectively. We believe that revenue derived from the current
  and future large number of customers will continue to represent a significant
  portion of our total revenue.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our inability to secure and maintain a sufficient
  number of large customers would also have a material adverse effect on our
  business, operating results, and financial condition. Moreover, our success
  will depend in part upon our ability to obtain orders from new customers, as
  well as the financial condition and success of our customers and general
  economic conditions.</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">14</font></p>
  
  <div align="center" style="margin:0in 0in .0001pt;text-align:center;"><hr size="3" width="100%" noshade color="#010101" align="center"></div>
  
  </div>
  <!-- SEQ.=1,FOLIO='14',FILE='C:\JMS\tsauer\08-10653-1\task2883250\10653-1-bc.htm',USER='tsauer',CD='Apr 22 18:00 2008' -->
  
  
  <br clear="all" style="page-break-before:always;">
  
  
  <div>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Any significant fluctuation in
  price of servers or related support may have a material adverse effect on the
  cost of our products and services.</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The prices of servers and related support are
  subject to market conditions and generally we do not, and do not expect to,
  have long-term contracts with our suppliers for those items. While these items
  are generally available and we have not experienced any shortage in the past,
  we cannot assure you that the necessary servers or support will continue to be
  available to us at prices currently in effect or acceptable to us. The prices
  for these items have varied significantly in the past and may vary significantly
  in the future. Numerous factors, most of which are beyond our control,
  influence prices of servers and related support. These factors include general
  economic conditions, industry capacity utilization, vendor backlogs and delays
  and other uncertainties.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We may not be able to adjust our product prices,
  especially in the short-term, to recover cost increases in these items. Our
  future profitability may be adversely affected to the extent we are unable to
  pass on higher server and support related costs to our customers.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">We may not be able to prevent
  others from unauthorized use of our patents and other intellectual property,
  which could harm our business and competitive position.</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our success depends, in part, on our ability to
  protect our proprietary technologies. We own four United States patent applications
  covering our technology and we expect to file more patents applications in the
  near future. The process of seeking patent protection can be lengthy and
  expensive and we cannot assure you that our patent applications will result in
  patents being issued, or that our existing or future issued patents will be
  sufficient to provide us with meaningful protection or commercial advantages.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We also cannot assure you that our current or
  potential competitors do not have, and will not obtain, patents that will
  prevent, limit or interfere with our ability to make, use or sell our products.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">We do not have key man insurance
  on our key officers, on whom we rely for the management of our business.</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We depend, to a large extent, on the abilities and
  participation of our current management team, but have a particular reliance
  upon Daniel J. A. Kolke, our Chief Technology Officer and Chairman of the
  Board, and Jeffrey L. Garon, our President and Chief Executive Officer. The
  loss of the services of either or both of Messrs.&nbsp;Kolke or Garon for any
  reason may have a material adverse effect on our business and prospects. We
  cannot assure you that the services of either Messrs.&nbsp;Kolke or Garon will
  continue to be available to us, or that we will be able to find a suitable
  replacement for either of them. We do not carry key man life insurance for any
  key personnel.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">We may not be able to hire and
  retain qualified personnel to support our growth and if we are unable to retain
  or hire such personnel in the future, our ability to improve our products and
  implement our business objectives could be adversely affected.</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">If one or more of our senior executives or other key
  personnel are unable or unwilling to continue in their present positions, we
  may not be able to replace them easily or at all, and our business may be
  disrupted and our financial condition and results of operations may be
  materially and adversely affected. Although both Messrs.&nbsp;Kolke and Garon
  are under employment agreements, their continued employment cannot be
  assured.&#160; In addition, competition for
  senior management and senior technology personnel is intense, the pool of
  qualified candidates is very limited, and we may not be able to retain the
  services of our senior executives or senior technology personnel, or attract
  and retain high-quality senior executives or senior technology personnel in the
  future. Such failure could materially and adversely affect our future growth
  and financial condition.</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">15</font></p>
  
  <div align="center" style="margin:0in 0in .0001pt;text-align:center;"><hr size="3" width="100%" noshade color="#010101" align="center"></div>
  
  </div>
  <!-- SEQ.=1,FOLIO='15',FILE='C:\JMS\tsauer\08-10653-1\task2883250\10653-1-bc.htm',USER='tsauer',CD='Apr 22 18:00 2008' -->
  
  
  <br clear="all" style="page-break-before:always;">
  
  
  <div style="font-family:Times New Roman;">
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">We have a history of losses and
  we may not achieve profitability in the future.</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We have not been profitable on a quarterly or annual
  basis since our formation. Our operations resulted in a net loss of $3.9
  million for 2007 and $ 1.5 million for 2006.&#160;
  As of December&nbsp;31, 2007, our accumulated deficit was $10.4 million.
  We expect to make significant future expenditures related to the development
  and expansion of our business. In addition, as a public company, we will incur
  significant legal, accounting, and other expenses that we did not incur as a
  private company. As a result of these increased expenditures, we will have to
  generate and sustain increased revenue to achieve and maintain future
  profitability. While our revenue has grown somewhat in recent periods, revenue
  growth may not be sustainable and we may not achieve sufficient revenue to
  achieve or maintain profitability. We may incur significant losses in the
  future for a number of reasons, including due to the other risks described in
  this report, and we may encounter unforeseen expenses, difficulties,
  complications, delays, and other unknown factors. Accordingly, we may not be
  able to achieve or maintain profitability and we may continue to incur
  significant losses for the foreseeable future.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">The market for on-demand Web
  Applications may develop more slowly than we expect.</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our success will depend, to a large extent, on the
  willingness of SMBs to accept on-demand services for Web Applications that they
  view as critical to the success of their business. Many companies have invested
  substantial effort and financial resources to integrate traditional enterprise
  software into their businesses and may be reluctant or unwilling to switch to a
  different application or to migrate these applications to on-demand Web
  Applications.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Other factors that may affect market acceptance of
  our Web Applications include our ability to:</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>minimize the time and resources required to
  implement products from the Etelos Marketplace;</p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>maintain high levels of customer
  satisfaction;</p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>implement upgrades and other changes to our
  products without disrupting our service; and/or</p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>provide rapid response time during periods of
  intense activity on customer websites.</p>
  
  <p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In addition, market acceptance of our Web
  Applications may be affected by:</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>the security capabilities, reliability, and
  availability of on-demand services;</p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>customer concerns with entrusting a third
  party to store and manage their data, especially confidential or sensitive
  data;</p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>the level of customization or configuration
  we offer; and/or</p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>the price, performance, and availability of
  competing products and services.</p>
  
  <p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The market for our products may not develop further,
  or it may develop more slowly than we expect, either of which would harm our
  business.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Our customers are small and
  medium-sized businesses and divisions of large companies, which may increase
  our costs to reach, acquire and retain customers.</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We market and sell our products to SMBs and
  divisions of large companies. To grow our revenue quickly, we must add new
  customers, sell additional services to existing customers, and encourage
  existing customers to renew their subscriptions. However, selling to and
  retaining SMBs can be more difficult than selling to and retaining large
  enterprises because SMB customers tend to be more price sensitive and more
  difficult to reach with broad marketing campaigns.&#160; In addition, SMBs have high churn rates in
  part because of the nature of their businesses and often lack the staffing to
  benefit fully from our products.&#160;
  Further, SMBs often require higher sales, marketing and support
  expenditures by vendors that sell to them per revenue dollar generated for
  those vendors.</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">16</font></p>
  
  <div align="center" style="margin:0in 0in .0001pt;text-align:center;"><hr size="3" width="100%" noshade color="#010101" align="center"></div>
  
  </div>
  <!-- SEQ.=1,FOLIO='16',FILE='C:\JMS\tsauer\08-10653-1\task2883250\10653-1-bc.htm',USER='tsauer',CD='Apr 22 18:00 2008' -->
  
  
  <br clear="all" style="page-break-before:always;">
  
  
  <div>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">If we are unable to cost-effectively market and sell
  our products to our target customers, then our ability to grow our revenue
  quickly and become profitable will be harmed.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Our quarterly operating results
  may fluctuate in the future. As a result, we may fail to meet or exceed the
  expectations of research analysts or investors, which could cause our stock
  price to decline.</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our quarterly operating results may fluctuate as a result
  of a variety of factors, many of which are outside of our control. Fluctuations
  in our quarterly operating results may be due to a number of factors, including
  the risks and uncertainties discussed elsewhere in this report. Fluctuations in
  our quarterly operating results could cause our stock price to decline rapidly,
  may lead analysts to change their long-term model for valuing our common stock,
  could cause us to face short-term liquidity issues, may impact our ability to
  retain or attract key personnel, or cause other unanticipated issues. If our
  quarterly operating results or guidance fall below the expectations of research
  analysts or investors, then the price of our common stock could decline
  substantially.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We believe that our quarterly revenue and operating
  results may vary significantly in the future and that period-to-period
  comparisons of our operating results may not be meaningful. You should not rely
  on the results of one quarter as an indication of future performance.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Our limited operating history
  makes it difficult to evaluate our current business and future prospects, and
  may increase the risk of your investment.</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our limited operating history may make it difficult
  to evaluate our current business and our future prospects. We have encountered
  and will continue to encounter risks and difficulties frequently experienced by
  growing companies in rapidly changing industries. If we do not address these
  risks successfully, then our business will be harmed.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">We use third-party data centers
  to support our services. Any disruption of service at these facilities could
  interrupt or delay our ability to deliver our service to our customers.</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We host many of our services and serve a significant
  number of our customers from either of two third-party data center facilities
  with Network OS and with ServePath both located in the greater Seattle
  Washington area. We do not control the operation of these facilities. These
  facilities may be vulnerable to damage or interruption from earthquakes,
  hurricanes, floods, fires, terrorist attacks, power losses, telecommunications
  failures, and similar events. These facilities also could be subject to
  break-ins, computer viruses, sabotage, intentional acts of vandalism and other
  misconduct. The occurrence of a natural disaster or an act of terrorism, a
  decision to close the facilities without adequate notice, or other
  unanticipated problems could result in lengthy interruptions in our services.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our data center facility providers have no
  obligation to renew their agreements with us on commercially reasonable terms,
  or at all. If we are unable to renew our agreements with any facility provider
  on commercially reasonable terms, then we may experience increased costs or
  downtime in connection with the transfer to a new data center facility.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Any errors, defects, disruptions, or other
  performance problems with our services could harm our reputation and may damage
  our customers&#146; businesses. Interruptions in our services might reduce our
  revenue, cause us to issue credits to customers, subject us to potential
  liability, cause customers to terminate their subscriptions, and harm our
  renewal rates.</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">17</font></p>
  
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  </div>
  <!-- SEQ.=1,FOLIO='17',FILE='C:\JMS\tsauer\08-10653-1\task2883250\10653-1-bc.htm',USER='tsauer',CD='Apr 22 18:00 2008' -->
  
  
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  <div>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">We may become liable to our
  customers and lose customers if we have defects or disruptions in our service
  or if we provide poor service.</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Because we deliver our products as a service, errors
  or defects in the Web Applications underlying our service, or a failure of our
  hosting infrastructure may make our service unavailable to our customers.
  Because our customers use our products to manage critical aspects of their
  business, any errors, defects, disruptions in service, or other performance
  problems with our products, whether in connection with the day-to-day operation
  of our products, upgrades or otherwise, could damage our customers&#146; businesses.
  If we have any errors, defects, disruptions in service, or other performance
  problems with our products, then customers could elect not to renew, or delay
  or withhold payment to us. As a result, we could lose future sales or customers
  may make warranty claims against us, which could result in an increase in our
  provision for doubtful accounts, an increase in collection cycles for accounts
  receivable, or costly litigation.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Our business depends substantially
  on customers renewing, upgrading, and expanding their subscriptions for our
  products.</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We sell our products pursuant to agreements of
  varying subscription periods. Our customers have no obligation to renew their
  subscriptions after their subscription period expires, and these subscriptions
  may not be renewed at the same or higher levels. Moreover, under specific
  circumstances, our customers may have the right to cancel their agreements
  before they expire. We have limited historical data with respect to rates of
  customer subscription renewals, upgrades, and expansions so we may not
  accurately predict future trends in customer renewals. Our customers&#146; renewal
  rates may decline or fluctuate because of several factors, including their
  satisfaction or dissatisfaction with our products, the prices of our service,
  the prices of services offered by our competitors, or reductions in our
  customers&#146; spending levels. If our customers do not renew their subscriptions,
  renew on less favorable terms, or do not purchase additional functionality or
  subscriptions, then our revenue may grow more slowly than expected or decline
  and our profitability and gross margins may be harmed.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">If our security measures are
  breached and unauthorized access is obtained to a customer&#146;s data, then we may
  incur significant liabilities, our service may be perceived as not being
  secure, and customers may curtail or stop using our products.</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The service we offer involve the storage of large
  amounts of our customers&#146; sensitive and proprietary business information. If
  our security measures are breached as a result of third-party action, employee
  error, malfeasance, or otherwise, and someone obtains unauthorized access to
  our customers&#146; data, then we could incur significant liability to our customers
  and to individuals or businesses whose information was being stored by our
  customers, our business may suffer, and our reputation will be damaged. Because
  techniques used to obtain unauthorized access to, or to sabotage, systems
  change frequently and generally are not recognized until launched against a
  target, we may be unable to anticipate these techniques or to implement
  adequate preventive measures. If an actual or perceived breach of our security
  occurs, then the market perception of the effectiveness of our security
  measures could be harmed and we could lose sales and customers.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">We have experienced rapid growth
  in recent periods. If we fail to manage our growth effectively, then we may be
  unable to execute our business plan, maintain high levels of service, or
  address competitive challenges adequately.</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We have increased our number of full-time employees
  to 34 at December&nbsp;31, 2007 from 16 at December&nbsp;31, 2006 and have
  experienced a drop in our revenue to $304 thousand in 2007 from $316 thousand in
  2006. Our operating plan has placed, and our anticipated growth plan is
  expected to continue to place, a significant strain on our managerial,
  administrative, operational, financial, and other resources. We intend to
  further expand our overall business, customer base, headcount, and operations.
  We will be required to continue to improve our operational, financial, and
  management controls and our reporting procedures and we may not be able to do
  so effectively. As such, we may be unable to manage our expenses effectively in
  the future, which may negatively impact our gross margins or operating expenses
  in any particular quarter.</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">18</font></p>
  
  <div align="center" style="margin:0in 0in .0001pt;text-align:center;"><hr size="3" width="100%" noshade color="#010101" align="center"></div>
  
  </div>
  <!-- SEQ.=1,FOLIO='18',FILE='C:\JMS\tsauer\08-10653-1\task2883250\10653-1-bc.htm',USER='tsauer',CD='Apr 22 18:00 2008' -->
  
  
  <br clear="all" style="page-break-before:always;">
  
  
  <div>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">The market in which we
  participate is intensely competitive, and if we do not compete effectively, then
  our operating results may be harmed.</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The market for Web Applications for business is
  highly competitive and rapidly changing with relatively low barriers to entry.
  With the introduction of new technologies and market entrants, we expect
  competition to intensify in the future. In addition, pricing pressures and
  increased competition generally could result in reduced sales, reduced margins,
  or the failure of our products to achieve or maintain more widespread market
  acceptance. Often we compete to sell our products against existing systems that
  our potential customers have already made significant expenditures to install.
  Competition in our market is based principally upon service breadth and
  functionality; service performance, security and reliability; ability to tailor
  and customize services for a specific company, vertical or industry; ease of
  use of the service; speed and ease of deployment, integration and
  configuration; total cost of ownership, including price and implementation and
  support costs; professional services implementation; and financial resources of
  the vendor.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We face competition from both traditional software
  vendors and SaaS providers. Many of our actual and potential competitors enjoy
  substantial competitive advantages over us, such as greater name recognition,
  longer operating histories, more varied products and services, and larger
  marketing budgets, as well as substantially greater financial, technical, and
  other resources. In addition, many of our competitors have established
  marketing relationships and access to larger customer bases, and have major
  distribution agreements with consultants, system integrators, and resellers. If
  we are not able to compete effectively, then our operating results will be
  harmed.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Many of our customers are price
  sensitive, and if the prices we charge for our products are unacceptable to our
  customers, then our operating results will be harmed.</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Many of our customers are price sensitive, and we
  have limited experience with respect to determining the appropriate prices for
  our products. As the market for our products matures, or as new competitors
  introduce new products or services that compete with ours, we may be unable to
  renew our agreements with existing customers or attract new customers at the
  same price or based on the same pricing model as previously used. As a result,
  it is possible that competitive dynamics in our market may require us to change
  our pricing model or reduce our prices, which could harm our revenue, gross margin,
  and operating results.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">If we do not effectively expand
  and train our sales force and our services and support teams, then we may be
  unable to add new customers and retain existing customers.</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We plan to continue to expand our sales force and
  our services and support teams to increase our customer base and revenue. We
  believe that there is significant competition for sales, service, and support
  personnel with the skills and technical knowledge that we require. Our ability
  to achieve significant revenue growth will depend, in large part, on our
  success in recruiting, training, and retaining sufficient numbers of personnel
  to support our growth. New hires require significant training and, in most
  cases, take significant time before they achieve full productivity. Our recent
  hires and planned hires may not become as productive as we expect and we may be
  unable to hire or retain sufficient numbers of qualified individuals in the
  markets where we do business. If these expansion efforts are not successful or
  do not generate a corresponding increase in revenue, then our business will be
  harmed.</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">19</font></p>
  
  <div align="center" style="margin:0in 0in .0001pt;text-align:center;"><hr size="3" width="100%" noshade color="#010101" align="center"></div>
  
  </div>
  <!-- SEQ.=1,FOLIO='19',FILE='C:\JMS\tsauer\08-10653-1\task2883250\10653-1-bc.htm',USER='tsauer',CD='Apr 22 18:00 2008' -->
  
  
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  <div>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">If we are unable to develop new
  products or sell our products into new markets, then our revenue growth will be
  harmed and we may not be able to achieve profitability.</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our ability to attract new customers and increase
  revenue from existing customers will depend in large part on our ability to
  enhance and improve our existing products and to introduce new products and services
  and sell into new markets. The success of any enhancement or new product or
  service depends on several factors, including the timely completion,
  introduction, and market acceptance of the enhancement, product or service. Any
  new product or service we develop or acquire may not be introduced in a timely
  or cost-effective manner and may not achieve the broad market acceptance
  necessary to generate significant revenue. Any new markets into which we
  attempt to sell our products may not be receptive. If we are unable to
  successfully develop or acquire new products or services, enhance our existing
  products and services to meet customer requirements, or sell our products and
  services into new markets, then our revenue will not grow as expected and we
  may not be able to achieve profitability.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Assertions by third parties that
  we infringe their intellectual property, whether successful or not, could
  subject us to costly and time-consuming litigation or expensive licenses.</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The software and technology industries are
  characterized by the existence of a large number of patents, copyrights,
  trademarks, and trade secrets and by frequent litigation based on allegations
  of infringement or other violations of intellectual property rights. As we face
  increasing competition, the possibility of intellectual property rights claims
  against us may grow; the costs of defending against such claims can be very
  large. Our technologies may not be able to withstand any third-party claims or
  rights against their use. Additionally, many of our partner and product
  agreements require us to indemnify our customers for certain third-party
  intellectual property infringement claims, which could increase our costs as a
  result of defending such claims and may require that we pay damages or purchase
  expensive licenses, if there were an adverse ruling related to any such claims.
  These types of claims could harm our relationships with our customers, may
  deter future customers from subscribing to our services, or could expose us to
  litigation for these claims. Even if we are not a party to any litigation
  between a customer and a third party, an adverse outcome in any such litigation
  could make it more difficult for us to defend our intellectual property in any
  subsequent litigation in which we are a named party.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Any intellectual property rights
  claim against us or our customers, with or without merit, could be
  time-consuming, expensive to litigate or settle, and could divert management
  attention and financial resources. An adverse determination also could prevent
  us from offering our products to our customers and may require that we procure
  or develop substitute services that do not infringe.</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">For any intellectual property rights claim against
  us or against our customers, we may have substantial direct and indirect
  costs.&#160; Direct costs can include a
  requirement to pay damages or stop using technology found to be in violation of
  a third party&#146;s rights. We may have to purchase a license for the technology,
  which may not be available on reasonable terms, if at all, may significantly
  increase our operating expenses, or may require us to restrict our business
  activities in one or more respects. As a result, we may also be required to
  develop alternative non-infringing technology, which could require significant
  effort and expense.&#160; Substantial indirect
  costs also may be expected in the form of diversion of development and
  management resources in strategic planning for legal, technology, and business
  defenses to such claims.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Our success depends in large part
  on our ability to protect and enforce our intellectual property rights.</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We rely on a combination of patent, copyright,
  service mark, trademark, and trade secret laws, as well as confidentiality
  procedures and contractual restrictions, to establish and protect our
  proprietary rights on a global basis, all of which provide only limited
  protection. We cannot assure you that any patent will issue from our currently
  pending patent applications in a manner that gives us the protection that we
  seek, if at all, or that any future patents issued to us will not be
  challenged, invalidated, or circumvented. Since the filing of some of these
  patent applications may have been, or will be, made after the date of first
  sale or disclosure of the subject inventions, patent protection may not be
  available for these inventions outside the United States.&#160; Any patents that may issue in the future may
  not provide sufficiently broad protection or they may not prove to be
  enforceable in actions against alleged infringers. Also, we cannot assure you
  that any future service mark or trademark registrations will be issued for
  pending or future applications or that any registered service marks or
  trademarks will be enforceable or provide adequate protection of our domestic
  and foreign proprietary rights.</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">20</font></p>
  
  <div align="center" style="margin:0in 0in .0001pt;text-align:center;"><hr size="3" width="100%" noshade color="#010101" align="center"></div>
  
  </div>
  <!-- SEQ.=1,FOLIO='20',FILE='C:\JMS\tsauer\08-10653-1\task2883250\10653-1-bc.htm',USER='tsauer',CD='Apr 22 18:00 2008' -->
  
  
  
  <br clear="all" style="page-break-before:always;">
  <div>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We have not maintained operating controls or logs,
  or initiated or conducted any forensic, code history, &#145;genealogy&#146; or other form
  of audit, analysis, processes, training, or code review of software code
  incorporated into any Etelos product or in other products offered by others in
  the Etelos Marketplace.&#160; These products
  may include code subject to various forms of &#145;open source&#146;, &#145;copyleft&#146;, or
  similar licenses that require as a condition of modification or distribution of
  software subject to such license(s)&nbsp;that [a] such software or other
  software combined or distributed with such software be disclosed or distributed
  in source code form, or [b] such software or other software combined or
  distributed with such software, and any related intellectual property,&#160; be licensed on a royalty-free basis,
  including for the purposes of making additional copies or derivative works of
  such software.&#160; This may adversely affect
  our ability to patent certain inventions or to license or distribute certain
  products &#151; whether by open source license or other form of license or right &#150;
  and may result in liability to unknown parties for infringement of their
  patents or other intellectual property rights.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We endeavor to enter into agreements with our
  employees and contractors and agreements with parties with whom we do business
  to limit access to and disclosure of our proprietary information. The steps we
  have taken, however, may not prevent unauthorized use or the reverse
  engineering of our technology. Moreover, others may independently develop
  technologies that are competitive to ours or infringe our intellectual
  property. Enforcement of our intellectual property rights also depends on our
  successful legal actions against these infringers, but these actions may not be
  successful, even when our rights have been infringed.&#160; In addition, the legal standards relating to
  the validity, enforceability, and scope of protection of intellectual property
  rights in Internet-related industries are uncertain and still evolving.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">When we become subject to Section
  404 of the Sarbanes-Oxley Act of 2002, if we fail to maintain proper and
  effective internal controls or are unable to remediate the material weakness in
  our internal controls, then our ability to produce accurate and timely
  financial statements could be impaired and investors&#146; views of us could be
  harmed.</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Ensuring that we have adequate internal financial
  and accounting controls and procedures in place so that we can produce accurate
  financial statements on a timely basis is a costly and time-consuming effort
  that needs to be re-evaluated frequently. Our internal control over financial
  reporting is a process designed to provide reasonable assurance regarding the
  reliability of financial reporting and the preparation of financial statements in
  accordance with generally accepted accounting principles. We are in the process
  of documenting, reviewing, and improving our internal controls and procedures
  for compliance with Section&nbsp;404 of the Sarbanes-Oxley Act of 2002, or the
  Sarbanes-Oxley Act, which requires annual management assessment of the
  effectiveness of our internal control over financial reporting and a report by
  our independent auditors addressing this assessment. Both we and our
  independent auditors will be testing our internal controls in connection with
  the audit of our internal controls for the year ending December&nbsp;31, 2008
  and, as part of that documentation and testing, identifying areas for further
  attention and improvement.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">During our review for the year ended December&nbsp;31,
  2007, we identified material weakness in our internal controls. The material
  weakness relates to the need for accounting personnel who possess the skill
  sets necessary to operate and report as a public company, and specifically the
  skills necessary to ensure that adequate review of critical account
  reconciliations is performed and that supporting documentation is complete,
  accurate, and in accordance with generally accepted accounting principles. We
  have recruited and are continuing to recruit additional finance and accounting
  personnel to address this observation. We believe we have made progress in
  addressing this material weakness and expect to complete the remediation in the
  next six to nine months. If our remediation efforts are insufficient to address
  the material weakness or take longer than we expect, or if additional material
  weaknesses in our internal controls are discovered in the future, then we may
  fail to meet our future reporting obligations, our financial statements may
  contain material misstatements and the price of our common stock may decline.</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">21</font></p>
  
  <div align="center" style="margin:0in 0in .0001pt;text-align:center;"><hr size="3" width="100%" noshade color="#010101" align="center"></div>
  
  </div>
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  <br clear="all" style="page-break-before:always;">
  
  
  <div style="font-family:Times New Roman;">
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Implementing any appropriate changes to our internal
  controls may distract our officers and employees, entail substantial costs to
  modify our existing processes, and add personnel and take significant time to
  complete. These changes may not, however, be effective in maintaining the
  adequacy of our internal controls, and any failure to maintain that adequacy,
  or consequent inability to produce accurate financial statements on a timely
  basis, could increase our operating costs and harm our business. In addition,
  investors&#146; perceptions that our internal controls are inadequate or that we are
  unable to produce accurate financial statements on a timely basis may harm our
  stock price and make it more difficult for us to effectively market and sell
  our service to new and existing customers.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Because we recognize subscription
  revenue over the term of the applicable agreement, the lack of subscription
  renewals or new service agreements may not be reflected immediately in our
  operating results.</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The majority of our quarterly revenue is
  attributable to subscription agreements entered into during the current and
  previous quarters. A decline in new or renewed service agreements in any one
  quarter may not be fully reflected in our revenue in that quarter but will harm
  our revenue in future quarters. As a result, the effect of significant
  downturns in sales and market acceptance of our products and services in a
  particular quarter may not be fully reflected in our operating results until
  future periods. Our subscription model also can make it difficult for us to
  rapidly increase our revenue through additional sales in any period, because
  revenue from new customers must be recognized over the applicable subscription
  term.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Material defects or errors in the
  software we use to deliver our services could harm our reputation, result in
  significant costs to us, and impair our ability to sell our services.</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The Web Applications underlying our services are
  inherently complex and may contain material defects or errors, particularly
  when first introduced or when new versions or enhancements are released. We
  have, from time to time, found defects in our software and services, and new errors
  in our existing software and services may be detected in the future. Any
  defects that cause interruptions to the availability of our services could
  result in:</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>a reduction in sales or delay in market
  acceptance of our services;</p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>sales credits or refunds to our customers;</p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>loss of existing customers and difficulty in
  attracting new customers;</p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>diversion of development resources;</p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>harm to our reputation; and/or</p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>increased warranty and insurance costs.</p>
  
  <p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">After the release of our services, defects or errors
  may also be identified from time to time by our internal team and by our
  customers. The costs incurred in correcting any material defects or errors in
  our services may be substantial and could harm our operating results.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Government regulation of the
  Internet and e-commerce is evolving, and unfavorable changes or our failure to
  comply with regulations could harm our operating results.</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">As Internet commerce continues to evolve, increasing
  regulation by super-national, federal, state or local government agencies
  becomes more likely. Increased regulation in the area of data privacy, and laws
  and regulations applying to the solicitation, collection, processing, or use of
  personal or consumer information could affect our customers&#146; ability to use and
  share data, potentially reducing demand for Web-based applications and
  restricting our ability to store, process, and share our customers&#146; data. In
  addition, taxation of services provided over the Internet or other charges
  imposed by government agencies or by private organizations for accessing the
  Internet may also be imposed. Any regulation imposing greater fees for Internet
  access or use or restricting information exchange over the Internet could
  result in a decline in the use of the Internet and the viability of Web-based
  services, which could harm our business and operating results.</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">22</font></p>
  
  <div align="center" style="margin:0in 0in .0001pt;text-align:center;"><hr size="3" width="100%" noshade color="#010101" align="center"></div>
  
  </div>
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  <br clear="all" style="page-break-before:always;">
  
  
  <div>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Privacy concerns and laws or other
  regulations may reduce the effectiveness of our products and services and harm
  our business.</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our customers can use our services to store personal
  or identifying information regarding their customers and contacts.
  Super-national, federal, state and other government bodies and agencies have
  adopted or are considering adoption of laws and regulations regarding the
  collection, use, and disclosure of personal information obtained from consumers
  and other individuals. The costs of compliance with, and other burdens imposed
  by, such laws and regulations that are applicable to the businesses of our
  customers may limit the use and adoption of our products and services and
  reduce overall demand.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In addition to government activity, privacy advocacy
  groups and the technology and other industries are considering various new,
  additional, or different self-regulatory standards that may place additional
  burdens on us. If the gathering of personal information were to be curtailed, then
  Web-based applications would be less effective, which may reduce demand for our
  products and services and harm our business.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Our operating results may be
  harmed if we are required to collect taxes for our subscription services in
  jurisdictions where we have not historically done so.</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We have not collected any sales or other taxes from
  our customers or remitted any such taxes to any taxing jurisdiction where we
  may be required to do so. We have begun an analysis of this issue but to date
  have not made any accrual for any potential liability. &#160;In addition, additional taxing jurisdictions
  at various local, national and super-national levels may seek to impose sales
  or other tax collection obligations on us.&#160;
  We have not recorded sales or other tax liabilities for the years ended December&nbsp;31,
  2007 or 2006, in respect of sales or other tax liabilities in any jurisdiction.
  A successful assertion that we should be collecting sales or other taxes on our
  service could result in substantial tax liabilities for past sales, discourage
  customers from purchasing our products, or otherwise harm our business and
  operating results.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Our future operating expenses may
  be adversely affected by changes in our stock price.</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Some of our outstanding stock options are subject to
  variable accounting. Under variable accounting, we are required to remeasure
  the value of the options, and the corresponding compensation expense, on the
  basis of the value of our common stock at the end of each reporting period
  until the options are exercised and vested, cancelled, modified, or expire
  unexercised. As a result, the stock-based compensation expense we recognize in
  any given period can vary substantially due to changes in the market value of
  our common stock.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Changes in our stock price will result in a decrease
  in stock-based compensation expense when our stock price declines relative to
  the previous period and an increase in stock-based compensation expense when
  our stock price increases relative to the previous period. We are unable to
  predict the future market value of our common stock and, therefore, are unable
  to predict the compensation expense that we will record in future periods.</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">23</font></p>
  
  <div align="center" style="margin:0in 0in .0001pt;text-align:center;"><hr size="3" width="100%" noshade color="#010101" align="center"></div>
  
  </div>
  <!-- SEQ.=1,FOLIO='23',FILE='C:\JMS\tsauer\08-10653-1\task2883250\10653-1-be.htm',USER='tsauer',CD='Apr 22 18:05 2008' -->
  
  
  <br clear="all" style="page-break-before:always;">
  
  
  <div style="font-family:Times New Roman;">
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Changes in financial accounting
  standards or practices may cause adverse, unexpected financial reporting
  fluctuations, and harm our operating results.</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman"><font style="font-size:10.0pt;">A change in accounting standards or practices could
  harm our operating results and may even affect our reporting of transactions
  completed before the change is effective. New accounting pronouncements and
  varying interpretations of accounting pronouncements have occurred and may
  occur in the future. Changes to existing rules&nbsp;or the questioning of
  current practices may harm our operating results or the way we</font>  </font>conduct our business. For example, on December&nbsp;16,
  2004, the Financial Accounting Standards Board, or FASB, issued Statement of
  Financial Accounting Standards 123(R) (revised 2004), &#147;<i>Share-Based
  Payment</i>,&#148; or SFAS No.&nbsp;123(R). SFAS No.&nbsp;123(R), which
  became effective for fiscal periods beginning after June&nbsp;15, 2005,
  requires that employee stock-based compensation be measured based on its
  fair-value on the grant date and treated as an expense that is reflected in the
  financial statements over the related service period.</p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">We may expand by acquiring or investing
  in other companies, which may divert management&#146;s attention, result in
  additional dilution to our stockholders, and consume resources that are
  necessary to operate and sustain our business.</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Although we have no ongoing negotiations or current
  agreements or commitments for any acquisitions, our business strategy may
  include acquiring complementary services, technologies, or businesses. We also
  may enter into relationships with other businesses to expand our product or
  service offerings or our ability to provide service in foreign jurisdictions,
  which could involve preferred or exclusive licenses, additional channels of
  distribution, discount pricing, investments in other companies, or other
  strategies. Negotiating these transactions can be time-consuming, difficult,
  and expensive, and our ability to close these transactions may often be subject
  to approvals that are beyond our control. Consequently, these transactions,
  even if undertaken and announced, may not close.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">An acquisition, investment, or business relationship
  may result in unforeseen operating difficulties and expenditures. In
  particular, we may encounter difficulties assimilating or integrating the
  businesses, technologies, products, personnel, or operations of the acquired
  companies, particularly if the key personnel of the acquired company choose not
  to work for us, the target&#146;s software is not easily adapted to work with ours,
  or we are unable to retain the customers of any acquired business due to
  changes in management or otherwise. Acquisitions may also disrupt our business,
  divert our resources, and require significant management attention that would
  otherwise be available for operation and development of our business. Moreover,
  the anticipated benefits of any acquisition, investment, or business
  relationship may not be realized or we may be exposed to unknown liabilities.
  For one or more of those transactions, we may:</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>issue additional equity securities that would
  dilute our stockholders;</p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>use cash that we may need in the future to
  operate our business;</p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>incur debt on terms unfavorable to us or that
  we are unable to repay;</p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>incur large charges or substantial liabilities;</p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>encounter difficulties retaining key
  employees of the acquired company or integrating diverse software codes or
  business cultures; and/or</p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>become subject to adverse tax consequences,
  substantial depreciation, or deferred compensation charges.</p>
  
  <p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Any of these risks could harm our business and
  operating results.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">We rely on our management team
  and need additional personnel to grow our business, and the loss of one or more
  key employees or our inability to attract and retain qualified personnel could
  harm our business.</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our success and future growth depends to a
  significant degree on the skills and continued services of our management team,
  especially Daniel J.A. Kolke, our Chief Technology Officer and Chairman of the
  Board, and Jeffrey L. Garon, our President and Chief Executive Officer. We do
  not maintain key man insurance on any members of our management team, including
  Messrs.&nbsp;Garon and Kolke. Our future success also depends on our ability to
  attract, retain and motivate highly skilled technical, managerial, sales,
  marketing and service and support personnel, including members of our
  management team. Competition for sales, marketing, and technology development
  personnel is particularly intense in the software and technology industries. As
  a result, we may be unable to successfully attract or retain qualified
  personnel. Our inability to attract and retain the necessary personnel could
  harm our business.</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">24</font></p>
  
  <div align="center" style="margin:0in 0in .0001pt;text-align:center;"><hr size="3" width="100%" noshade color="#010101" align="center"></div>
  
  </div>
  <!-- SEQ.=1,FOLIO='24',FILE='C:\JMS\tsauer\08-10653-1\task2883250\10653-1-be.htm',USER='tsauer',CD='Apr 22 18:05 2008' -->
  
  
  <br clear="all" style="page-break-before:always;">
  
  
  <div style="font-family:Times New Roman;">
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Risks Related to an Investment in our Common Stock.</font></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Our officers, directors, and
  affiliates control us through their positions and stock ownership and their
  interests may differ from other stockholders.</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our officers, directors, and affiliates beneficially
  own approximately 40.4% of our common stock. As a result, they are able to
  influence the outcome of stockholder votes on various matters, including the
  election of directors and extraordinary corporate transactions, including
  business combinations. The interests of our officers, directors, and affiliates
  may differ from other stockholders. Furthermore, the current ratios of
  ownership of our common stock reduce the public float and liquidity of our
  common stock which can in turn affect the market price of our common stock.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">We are responsible for the indemnification
  of our officers and directors.</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our articles of incorporation and bylaws provide for
  the indemnification of our directors, officers, employees, and agents, and, under
  certain circumstances, against costs and expenses incurred by them in any litigation
  to which they become a party arising from their association with or activities
  on our behalf. Consequently, we may be required to expend substantial funds to
  satisfy these indemnity obligations.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">The sale of the shares of our
  common stock acquired in private placements could cause the price of our common
  stock to decline.</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Under the terms of the securities purchase agreement
  dated January&nbsp;31, 2008, pursuant to which we issued $2.0 million in
  principal amount of 6% secured convertible debentures and warrants to purchase
  666,667 shares of our common stock, the purchasers thereof may rely on the
  provisions of Rule&nbsp;144 to effect sales and may resell the shares of our
  common stock acquired upon the conversion of the debentures and exercise of the
  warrants.&#160; We have no way of knowing
  whether or when such shares may be sold.&#160;
  Depending upon market liquidity at the time, a sale of shares by such
  investors at any given time could cause the trading price of our common stock
  to decline.&#160; The sale of a substantial
  number of shares of our common stock, or anticipation of such sales, could make
  it more difficult for us to sell equity or equity-related securities in the
  future at a time and at a price that we might otherwise wish to effect sales.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Anti-takeover provisions
  contained in our amended and restated certificate of incorporation and amended
  and restated bylaws, as well as provisions of Delaware law, could impair a
  takeover attempt.</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our amended and restated certificate of
  incorporation, amended and restated bylaws and Delaware law contain provisions
  that could have the effect of rendering more difficult or discouraging an
  acquisition deemed undesirable by our board of directors. Our corporate
  governance documents include provisions:</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>authorizing blank check preferred stock,
  which could be issued with voting, liquidation, dividend, and other rights
  superior to our common stock;</p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>limiting the liability of, and providing
  indemnification to, our directors and officers;</p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>limiting the ability of our stockholders to
  call and bring business before special meetings;</p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>requiring advance notice of stockholder
  proposals for business to be conducted at meetings of our stockholders and for
  nominations of candidates for election to our board of directors;</p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>controlling the procedures for the conduct
  and scheduling of board and stockholder meetings; and</p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>limiting, generally, the filling of vacancies
  or newly created seats on the board to our board of directors then in office.</p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">25</font></p>
  
  <div align="center" style="margin:0in 0in .0001pt;text-align:center;"><hr size="3" width="100%" noshade color="#010101" align="center"></div>
  
  </div>
  <!-- SEQ.=1,FOLIO='25',FILE='C:\JMS\tsauer\08-10653-1\task2883250\10653-1-be.htm',USER='tsauer',CD='Apr 22 18:05 2008' -->
  
  
  <br clear="all" style="page-break-before:always;">
  
  
  <div style="font-family:Times New Roman;">
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">These provisions, alone or together, could delay
  hostile takeovers and changes in control or changes in our management.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Any provision of our amended and restated
  certificate of incorporation or bylaws or Delaware law that has the effect of
  delaying or deterring a change in control could limit the opportunity for our
  stockholders to receive a premium for their shares of our common stock, and
  could also affect the price that some investors are willing to pay for our
  common stock.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Significant amounts of our
  outstanding common stock will be available for resale into the market, which
  could potentially cause the market price of our common stock to drop
  significantly, even if our business is doing well.</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman"><font style="font-size:10.0pt;">As of April&nbsp;</font>22</font>, 2008, we had 22,700,634 split adjusted
  shares of common stock issued and outstanding held by approximately 145
  shareholders of record, including 5,010,000 shares approved for issue under our
  Plan of Reorganization.&#160; The shares
  issued under our Plan of Reorganization will be freely trading securities.&#160; The market price of our common stock could
  drop significantly if the holders of these shares sell them or are perceived by
  the market as intending to sell them in an excessive amount relative to the
  market demand for our shares. An excessive sale of our shares may result in a
  substantial decline in the price of our common stock and limit our ability to
  raise capital, even if our business is doing well.</p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">We may issue additional shares of
  our capital stock, including through convertible debt securities, to finance
  future operations or complete a business combination, which would reduce the
  equity interest of our stockholders and could cause a change in control of our
  ownership.</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Although we have no commitments as of the date of
  this report to issue any additional securities, we may issue a substantial
  number of additional shares of our common stock or preferred stock, or a
  combination of both, including through convertible debt securities, to finance
  future operations.&#160; We may not be able to
  obtain additional debt or equity financing on favorable terms, if at all.&#160; If we engage in debt financing, then we may
  be required to accept terms that restrict our ability to incur additional
  indebtedness and force us to maintain specified liquidity or other ratios.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Further, the issuance of additional shares of our
  common stock or any number of shares of preferred stock, including upon
  conversion of any debt securities, may:</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>significantly reduce the equity interest of
  our current stockholders;</p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>cause a change in control if a substantial
  number of our shares of common stock or voting preferred stock are issued,
  which may affect, among other things, our ability to use our net operating loss
  carry-forwards, if any, and could also result in a change in management; and/or</p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>adversely affect prevailing market prices for
  our common stock.</p>
  
  <p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">If we need additional capital and cannot raise it on
  acceptable terms, we may not be able to, among other things:</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>develop or enhance our products and services;</p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>continue to expand our development, sales and
  marketing organizations;</p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>acquire complementary technologies, products
  or businesses;</p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>expand operations;</p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>hire, train and retain employees; and/or</p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>respond to competitive pressures or
  unanticipated working capital requirements.</p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">26</font></p>
  
  <div align="center" style="margin:0in 0in .0001pt;text-align:center;"><hr size="3" width="100%" noshade color="#010101" align="center"></div>
  
  </div>
  <!-- SEQ.=1,FOLIO='26',FILE='C:\JMS\tsauer\08-10653-1\task2883250\10653-1-be.htm',USER='tsauer',CD='Apr 22 18:05 2008' -->
  
  
  <br clear="all" style="page-break-before:always;">
  
  
  <div style="font-family:Times New Roman;">
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">We may issue additional shares of
  our capital stock, including through convertible debt securities, to finance
  future operations or complete a business combination, which would reduce the
  equity interest of our stockholders and likely cause a change in control of our
  ownership.</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Although we have no commitments as of the date of
  this report to issue any additional securities, we may issue a substantial
  number of additional shares of our common stock or preferred stock, or a
  combination of both, including through convertible debt securities, to finance
  future operations or complete a business combination.&#160; The issuance of additional shares of our
  common stock or any number of shares of preferred stock, including upon
  conversion of any debt securities:</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>may significantly reduce the equity interest
  of our current stockholders;</p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>will likely cause a change in control if a
  substantial number of our shares of common stock or voting preferred stock are
  issued and could also result in a change in management; and/or</p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>may adversely affect prevailing market prices
  for our common stock.</p>
  
  <p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">A limited number of stockholders
  own substantially all of our stock and may act, or prevent certain types of
  corporate actions, to the detriment of other stockholders.</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman"><font style="font-size:10.0pt;">As of April&nbsp;</font>22</font>, 2008, our directors, officers and greater
  than 5% stockholders own substantially all of our issued and outstanding common
  stock.&#160; Accordingly, these stockholders
  may, if they act together, exercise significant influence over all matters
  requiring stockholder approval, including the election of a majority of the
  directors and the determination of significant corporate actions.&#160; This concentration could also have the effect
  of delaying or preventing a change in control that could otherwise be
  beneficial to our stockholders.</p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">The 2007 Stock Incentive Plan and
  all options issued under the 2007 Stock Incentive Plan contain provisions for
  acceleration of all unvested options in the event of a change of control, which
  might be a disincentive to acquisition of the Company as a liquidation
  strategy.</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The 2007 Stock Incentive Plan and all options
  currently issued thereunder and options granted outside such plan provides for
  accelerated vesting of all unvested options in the event of a change of
  control,which is defined as an acquisition by a single person of more than 50%
  of the total combined voting power of all outstanding securities of the
  Company. This may be regarded as a barrier to retention of key employees
  following a change-of-control acquisition and therefore make such an
  acquisition more costly or difficult, and therefore an unattractive strategic
  option, for a prospective acquiror.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">We have never paid dividends on
  our capital stock and we do not anticipate paying any cash dividends in the
  foreseeable future.</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We have paid no cash dividends on any of our classes
  of capital stock to date and we currently intend to retain our future earnings,
  if any, to fund the development and growth of our business.&#160; In addition, the terms of the Notes prohibit
  us from making any dividend payment or distribution to holders of our common
  stock while any portion of the Notes remain outstanding.&#160; As a result, capital appreciation, if any, of
  our common stock will be your sole source of gain for the foreseeable future.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Our securities may be thinly
  traded on the Over-the-Counter Pink Sheets, which may not provide liquidity for
  our investors.</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our common stock is quoted on the Over-the-Counter
  Pink Sheets. The Over-the-Counter Pink Sheets is an inter-dealer,
  over-the-counter market that provides significantly less liquidity than the
  NASDAQ Stock Market or national or regional exchanges. Securities traded on the
  Over-the-Counter Pink Sheets are usually thinly traded, highly volatile, have
  fewer market makers, and are not followed by analysts.</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">27</font></p>
  
  <div align="center" style="margin:0in 0in .0001pt;text-align:center;"><hr size="3" width="100%" noshade color="#010101" align="center"></div>
  
  </div>
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  <div>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The Securities and Exchange
  Commission&#146;s (&#147;<b>SEC</b>&#148;) order handling rules, which
  apply to NASDAQ-listed securities, do not apply to securities quoted on the
  Over-the-Counter Pink Sheets. Quotes for stocks included on the
  Over-the-Counter Pink Sheets are not listed in newspapers. Therefore, prices
  for securities traded solely on the Over-the-Counter Pink Sheets may be
  difficult to obtain and holders of our securities may be unable to resell their
  securities at or near their original acquisition price, or at any price.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Investors must contact a
  broker-dealer to trade Over-the-Counter Pink Sheets securities. As a result,
  you may not be able to buy or sell our common stock at the times that you may
  wish.</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Even though our common stock is quoted on the
  Over-the-Counter Pink Sheets, the Over-the-Counter Pink Sheets may not permit
  our investors to sell securities when and in the manner that they wish. Because
  there are no automated systems for negotiating trades on the Over-the-Counter
  Pink Sheets, they are conducted via telephone. In times of heavy market volume,
  the limitations of this process may result in a significant increase in the
  time it takes to execute investor orders. Therefore, when investors place
  market orders to buy or sell a specific number of shares at the current market
  price it is possible for the price of a stock to go up or down significantly
  during the lapse of time between placing a market order and its execution.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Our stock price may be volatile
  and you may not be able to sell your shares for more than what you paid.</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our stock price is likely to be subject to
  significant volatility and you may not be able to sell shares of common stock
  at or above the price you paid for them. The market price of the common stock
  could continue to fluctuate in the future in response to various factors
  including, but not limited to: quarterly variations in operating results; our
  ability to control costs and improve cash flow; announcements of technological
  innovations or new products by us or our competitors; changes in investor
  perceptions; and new products or produce enhancements by us or our competitors.
  The stock market in general has continued to experience volatility, which may
  further affect our stock price. As such, you may not be able to resell your
  shares of common stock at or above the price you paid for them.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Our common stock is likely to be
  subject to penny stock rules.</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our common stock is subject to Rule&nbsp;15g-1
  through 15g-9 under the Securities Exchange Act of 1934, as amended (the &#147;<b>Exchange Act</b>&#148;), which imposes certain sales practice
  requirements on broker-dealers which sell our common stock to persons other
  than established customers and &#147;accredited investors&#148; (generally, individuals
  with net worths in excess of $1 million or annual incomes exceeding $200,000
  (or $300,000 together with their spouses)).&#160;
  For transactions covered by this rule, a broker-dealer must make a
  special suitability determination for the purchaser and have received the
  purchaser&#146;s written consent to the transaction prior to the sale.&#160; This rule&nbsp;adversely affects the ability
  of broker-dealers to sell our common stock and purchasers of our common stock
  to sell their shares of such common stock.&#160;
  Additionally, our common stock is likely to be subject to the SEC
  regulations for &#147;penny stock.&#148;&#160; Penny
  stock includes any equity security that is not listed on a national exchange
  and has a market price of less than $5.00 per share, subject to certain
  exceptions.&#160; The regulations require that
  prior to any non-exempt buy/sell transaction in a penny stock, a disclosure
  schedule set forth by the SEC relating to the penny stock market must be
  delivered to the purchaser of such penny stock.&#160;
  This disclosure must include the amount of commissions payable to both
  the broker-dealer and the registered representative and current price
  quotations for the common stock.&#160; The
  regulations also require that monthly statements be sent to holders of penny
  stock which disclose recent price information for the penny stock and
  information of the limited market for penny stocks.&#160; These requirements adversely affect the
  market liquidity of our common stock.</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">28</font></p>
  
  <div align="center" style="margin:0in 0in .0001pt;text-align:center;"><hr size="3" width="100%" noshade color="#010101" align="center"></div>
  
  </div>
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  <br clear="all" style="page-break-before:always;">
  
  
  <div>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">We will incur increased costs and
  demands upon management as a result of complying with the laws and regulations
  affecting public companies, which could harm our operating results.</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">As a public company, we will incur significant
  legal, accounting, and other expenses that we did not incur as a private
  company, including costs associated with public company reporting requirements.
  We also have incurred and will incur costs associated with current corporate
  governance requirements, including requirements under Section&nbsp;404 and
  other provisions of the Sarbanes-Oxley Act, as well as rules&nbsp;implemented
  by the Securities and Exchange Commission, or SEC. The expenses incurred by
  public companies for reporting and corporate governance purposes have increased
  dramatically. We expect these rules&nbsp;and regulations to substantially
  increase our legal and financial compliance costs and to make some activities
  more time-consuming and costly. We are unable to currently estimate these costs
  with any degree of certainty. We also expect these new rules&nbsp;and
  regulations may make it more difficult and more expensive for us to obtain
  director and officer liability insurance, and we may be required to accept
  reduced policy limits and coverage or incur substantially higher costs to
  obtain the same or similar coverage than used to be available. As a result, it
  may be more difficult for us to attract and retain qualified individuals to
  serve on our board of directors or as our executive officers.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">DESCRIPTION OF PROPERTY</font></b></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our corporate headquarters are located in San Mateo,
  California and comprise approximately 4,500 hundred square feet of space leased
  through October&nbsp;2009.&#160;&#160; In addition,
  we maintain an office in Renton, Washington that comprises approximately 6,000
  square feet of space leased through June&nbsp;2010.&#160; We believe that our existing properties are
  in good condition and are sufficient and suitable for the conduct of our
  business. As our existing leases expire and as we continue to expand our
  operations, we believe that suitable space will be available to us on
  commercially reasonable terms.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS</font></b></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The following discussion and analysis of the
  consolidated financial condition and results of operations should be read with
  our consolidated financial statements and related notes appearing elsewhere in
  this report. This discussion and analysis contains forward-looking statements
  that involve risks, uncertainties and assumptions. The actual results may
  differ materially from those anticipated in these forward-looking statements as
  a result of certain factors, including, but not limited to, those set forth
  under &#147;Risk Factors&#148; and elsewhere in this report. See &#147;Forward-Looking
  Statements,&#148; above.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Overview</font></b></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Business</font></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman"><font style="font-size:10.0pt;">Etelos is a leading provider of software solutions
  that assist organizations to effectively use Web Applications to accomplish
  their goals.&#160; Etelos provides </font>a
  revolutionary SaaS ecosystem for building, distributing, and using Web
  Applications, including a marketplace to deploy and support them; giving
  businesses choices in applications, hosting and support services to cost
  effectively accomplish their goals.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The Etelos Marketplace supports and encourages communities of
  developers, distributors, and consumers to expand their offerings, collaborate
  on new ideas and improvements, and provide scalable solutions using Web
  Applications available to others.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Etelos revenue has fallen from $316 thousand in 2006
  to $304 thousand in 2007, while the cost of goods sold increased from $130
  thousand in 2006 to $315 thousand in 2007. As of December&nbsp;31, 2007, Etelos
  had over 5,000 active free and paying customers.</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">29</font></p>
  
  <div align="center" style="margin:0in 0in .0001pt;text-align:center;"><hr size="3" width="100%" noshade color="#010101" align="center"></div>
  
  </div>
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  <div style="font-family:Times New Roman;">
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Recent Financings</font></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">January&nbsp;2008
  Private Placement</font></i></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">On January&nbsp;31, 2008, we entered into a
  securities purchase agreement with three unaffiliated institutional investors
  for the sale of original issue discount 6% convertible debentures and common
  stock purchase warrants.&#160; We refer to
  this transaction as our January&nbsp;2008 Private Placement.&#160; In this transaction we issued an aggregate of
  $2.0 million principal amount of debentures and warrants to purchase an
  aggregate of up to 666,667 shares of our common stock.&#160; The warrants have a term of five years and an
  exercise price of $0.60 per share, subject to adjustment, including
  full-ratchet anti-dilution protection.&#160;
  This transaction resulted in net proceeds to us of $1.9 million.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In this report we may refer to the debentures we
  issued in our January&nbsp;2008 Private Placement as our January&nbsp;debentures.&#160; The following summarizes the terms of our January&nbsp;debentures
  and is qualified by reference to a copy of the debenture which is filed as an
  exhibit to this report:</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <table border="0" cellspacing="0" cellpadding="0" width="100%" style="border-collapse:collapse;width:100.0%;">
   <tr>
    <td width="5%" valign="top" style="padding:0in .7pt 0in .7pt;width:5.28%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font></p>
    </td>
    <td width="4%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:4.64%;">
    <p style="margin:0in 0in .0001pt;"><i><font size="2" face="Times New Roman" style="font-size:1.0pt;font-style:italic;">&nbsp;</font></i></p>
    </td>
    <td width="90%" valign="top" style="padding:0in .7pt 0in .7pt;width:90.08%;">
    <p style="font-size:10.0pt;margin:0in 0in .0001pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Term</font></i>. The debentures are due and payable on
    January&nbsp;31, 2010.</p>
    </td>
   </tr>
   <tr>
    <td width="5%" valign="top" style="padding:0in .7pt 0in .7pt;width:5.28%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font></p>
    </td>
    <td width="4%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:4.64%;">
    <p style="margin:0in 0in .0001pt;"><i><font size="2" face="Times New Roman" style="font-size:1.0pt;font-style:italic;">&nbsp;</font></i></p>
    </td>
    <td width="90%" valign="top" style="padding:0in .7pt 0in .7pt;width:90.08%;">
    <p style="font-size:10.0pt;margin:0in 0in .0001pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Interest</font></i>. Interest accrues at the rate of 6% per
    annum and is payable semiannually on January&nbsp;1 and July&nbsp;1,
    commencing on July&nbsp;1, 2008.</p>
    </td>
   </tr>
   <tr>
    <td width="5%" valign="top" style="padding:0in .7pt 0in .7pt;width:5.28%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font></p>
    </td>
    <td width="4%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:4.64%;">
    <p style="margin:0in 0in .0001pt;"><i><font size="2" face="Times New Roman" style="font-size:1.0pt;font-style:italic;">&nbsp;</font></i></p>
    </td>
    <td width="90%" valign="top" style="padding:0in .7pt 0in .7pt;width:90.08%;">
    <p style="font-size:10.0pt;margin:0in 0in .0001pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Monthly
    Principal Payments</font></i>.
    Monthly principal payments equal to 1/18th of the principal amount due under
    each debenture begin on September&nbsp;1, 2008.</p>
    </td>
   </tr>
   <tr>
    <td width="5%" valign="top" style="padding:0in .7pt 0in .7pt;width:5.28%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font></p>
    </td>
    <td width="4%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:4.64%;">
    <p style="margin:0in 0in .0001pt;"><i><font size="2" face="Times New Roman" style="font-size:1.0pt;font-style:italic;">&nbsp;</font></i></p>
    </td>
    <td width="90%" valign="top" style="padding:0in .7pt 0in .7pt;width:90.08%;">
    <p style="font-size:10.0pt;margin:0in 0in .0001pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Payments
    of Principal and Interest</font></i>. We have the right to pay interest and monthly principal payments in
    cash, or upon notice to the holders and compliance with certain equity
    conditions, we can pay all or a portion of any such payment in common stock
    valued at a price equal to the lesser of the then effective conversion price
    (initially $0.45) or 85% of the average of the volume weighted average price,
    or VWAP, per share as reported on Bloomberg for our common stock for the 10
    consecutive trading days immediately prior to the applicable payment date.</p>
    </td>
   </tr>
   <tr>
    <td width="5%" valign="top" style="padding:0in .7pt 0in .7pt;width:5.28%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font></p>
    </td>
    <td width="4%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:4.64%;">
    <p style="margin:0in 0in .0001pt;"><i><font size="2" face="Times New Roman" style="font-size:1.0pt;font-style:italic;">&nbsp;</font></i></p>
    </td>
    <td width="90%" valign="top" style="padding:0in .7pt 0in .7pt;width:90.08%;">
    <p style="font-size:10.0pt;margin:0in 0in .0001pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Early
    Redemption</font></i>. We have
    the option to redeem the debentures before their maturity by payment in cash
    of 120% of the then outstanding principal amount plus accrued interest and
    other charges. To redeem the debentures we must meet certain equity conditions,
    including having an effective registration statement covering the sale by the
    investors of the shares of our common stock issued upon conversion of the
    debentures. The payment of the debentures would occur on the 10th day
    following the date we gave the holders notice of our intent to redeem the
    debentures. We agreed to honor any notices of conversion that we receive from
    a holder before the date we pay off the debentures.</p>
    </td>
   </tr>
   <tr>
    <td width="5%" valign="top" style="padding:0in .7pt 0in .7pt;width:5.28%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font></p>
    </td>
    <td width="4%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:4.64%;">
    <p style="margin:0in 0in .0001pt;"><i><font size="2" face="Times New Roman" style="font-size:1.0pt;font-style:italic;">&nbsp;</font></i></p>
    </td>
    <td width="90%" valign="top" style="padding:0in .7pt 0in .7pt;width:90.08%;">
    <p style="font-size:10.0pt;margin:0in 0in .0001pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Voluntary
    Conversion by Holder</font></i>.
    The debentures are convertible at anytime at the discretion of the holder at
    a conversion price per share of $0.45, subject to adjustment including
    full-ratchet, anti-dilution protection, and subject to a cap on the beneficial
    ownership of our shares of common stock by the holder and its affiliates
    following such conversion. See <br>
    &#147;SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT,&#148; below, for
    more information regarding the beneficial ownership caps.</p>
    </td>
   </tr>
   <tr>
    <td width="5%" valign="top" style="padding:0in .7pt 0in .7pt;width:5.28%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font></p>
    </td>
    <td width="4%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:4.64%;">
    <p style="margin:0in 0in .0001pt;"><i><font size="2" face="Times New Roman" style="font-size:1.0pt;font-style:italic;">&nbsp;</font></i></p>
    </td>
    <td width="90%" valign="top" style="padding:0in .7pt 0in .7pt;width:90.08%;">
    <p style="font-size:10.0pt;margin:0in 0in .0001pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Forced
    Conversion</font></i>. Subject
    to compliance with certain equity conditions, including having an effective
    registration statement covering the sale by the investors of the shares of
    our common stock issued upon conversion of the debentures, and subject to the
    applicable cap on the beneficial ownership of our shares of common stock by
    the holder and its affiliates following such conversion, we also have the
    right to force conversion if the average of the VWAP for our common stock
    exceeds $1.13 for 20 trading days out of a consecutive 30 trading day period.</p>
    </td>
   </tr>
   <tr>
    <td width="5%" valign="top" style="padding:0in .7pt 0in .7pt;width:5.28%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font></p>
    </td>
    <td width="4%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:4.64%;">
    <p style="margin:0in 0in .0001pt;"><i><font size="2" face="Times New Roman" style="font-size:1.0pt;font-style:italic;">&nbsp;</font></i></p>
    </td>
    <td width="90%" valign="top" style="padding:0in .7pt 0in .7pt;width:90.08%;">
    <p style="font-size:10.0pt;margin:0in 0in .0001pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Security</font></i>. The debentures are secured by all of our
    assets under the terms of a security agreement we entered into with the
    investors.</p>
    </td>
   </tr>
  </table>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">&nbsp;</font></i></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">April&nbsp;2008
  Private Placement</font></i></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">On April&nbsp;22, 2008, we entered into a securities
  purchase agreement with two unaffiliated institutional investors for the sale
  of original issue discount 6% convertible debentures and common stock purchase
  warrants.&#160; We refer to this transaction
  as our April&nbsp;2008 Private Placement.&#160;
  In this transaction we issued an aggregate of $3.5 million principal
  amount of debentures and warrants to purchase an aggregate of up to 1,166,667
  shares of our common stock.&#160; The warrants
  have a term of five years and an exercise price of $0.60 per share, subject to
  adjustment, including full-ratchet anti-dilution protection.&#160; This transaction resulted in net proceeds to
  us of $3.4 million.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In this report we may refer to the debentures we
  issued in our April&nbsp;2008 Private Placement as our April&nbsp;debentures.&#160; The following summarizes the terms of our April&nbsp;debentures
  and is qualified by reference to a copy of the debenture which is filed as an
  exhibit to this report:</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <table border="0" cellspacing="0" cellpadding="0" width="100%" style="border-collapse:collapse;width:100.0%;">
   <tr>
    <td width="5%" valign="top" style="padding:0in .7pt 0in .7pt;width:5.28%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font></p>
    </td>
    <td width="4%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:4.64%;">
    <p style="margin:0in 0in .0001pt;"><i><font size="2" face="Times New Roman" style="font-size:1.0pt;font-style:italic;">&nbsp;</font></i></p>
    </td>
    <td width="90%" valign="top" style="padding:0in .7pt 0in .7pt;width:90.08%;">
    <p style="font-size:10.0pt;margin:0in 0in .0001pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Term</font></i>. The debentures are due and payable on April&nbsp;30,
    2010.</p>
    </td>
   </tr>
   <tr>
    <td width="5%" valign="top" style="padding:0in .7pt 0in .7pt;width:5.28%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font></p>
    </td>
    <td width="4%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:4.64%;">
    <p style="margin:0in 0in .0001pt;"><i><font size="2" face="Times New Roman" style="font-size:1.0pt;font-style:italic;">&nbsp;</font></i></p>
    </td>
    <td width="90%" valign="top" style="padding:0in .7pt 0in .7pt;width:90.08%;">
    <p style="font-size:10.0pt;margin:0in 0in .0001pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Interest</font></i>. Interest accrues at the rate of 6% per
    annum and is payable semiannually on January&nbsp;1 and July&nbsp;1,
    commencing on July&nbsp;1, 2008.</p>
    </td>
   </tr>
   <tr>
    <td width="5%" valign="top" style="padding:0in .7pt 0in .7pt;width:5.28%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font></p>
    </td>
    <td width="4%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:4.64%;">
    <p style="margin:0in 0in .0001pt;"><i><font size="2" face="Times New Roman" style="font-size:1.0pt;font-style:italic;">&nbsp;</font></i></p>
    </td>
    <td width="90%" valign="top" style="padding:0in .7pt 0in .7pt;width:90.08%;">
    <p style="font-size:10.0pt;margin:0in 0in .0001pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Monthly
    Principal Payments</font></i>.
    Monthly principal payments equal to 1/18th of the principal amount due under
    each debenture begin on September&nbsp;1, 2008.</p>
    </td>
   </tr>
   <tr>
    <td width="5%" valign="top" style="padding:0in .7pt 0in .7pt;width:5.28%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font></p>
    </td>
    <td width="4%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:4.64%;">
    <p style="margin:0in 0in .0001pt;"><i><font size="2" face="Times New Roman" style="font-size:1.0pt;font-style:italic;">&nbsp;</font></i></p>
    </td>
    <td width="90%" valign="top" style="padding:0in .7pt 0in .7pt;width:90.08%;">
    <p style="font-size:10.0pt;margin:0in 0in .0001pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Payments
    of Principal and Interest</font></i>. We have the right to pay interest and monthly principal payments in
    cash, or upon notice to the holders and compliance with certain equity
    conditions, we can pay all or a portion of any such payment in common stock
    valued at a price equal to the lesser of the then effective conversion price
    (initially $0.45) or 85% of the average of the volume weighted average price,
    or VWAP, per share as reported on Bloomberg for our common stock for the 10
    consecutive trading days immediately prior to the applicable payment date.</p>
    </td>
   </tr>
   <tr>
    <td width="5%" valign="top" style="padding:0in .7pt 0in .7pt;width:5.28%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font></p>
    </td>
    <td width="4%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:4.64%;">
    <p style="margin:0in 0in .0001pt;"><i><font size="2" face="Times New Roman" style="font-size:1.0pt;font-style:italic;">&nbsp;</font></i></p>
    </td>
    <td width="90%" valign="top" style="padding:0in .7pt 0in .7pt;width:90.08%;">
    <p style="font-size:10.0pt;margin:0in 0in .0001pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Early
    Redemption</font></i>. We have
    the option to redeem the debentures before their maturity by payment in cash
    of 120% of the then outstanding principal amount plus accrued interest and
    other charges. To redeem the debentures we must meet certain equity conditions,
    including having an effective registration statement covering the sale by the
    investors of the shares of our common stock issued upon conversion of the
    debentures. The payment of the debentures would occur on the 10th day
    following the date we gave the holders notice of our intent to redeem the
    debentures. We agreed to honor any notices of conversion that we receive from
    a holder before the date we pay off the debentures.</p>
    </td>
   </tr>
   <tr>
    <td width="5%" valign="top" style="padding:0in .7pt 0in .7pt;width:5.28%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font></p>
    </td>
    <td width="4%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:4.64%;">
    <p style="margin:0in 0in .0001pt;"><i><font size="2" face="Times New Roman" style="font-size:1.0pt;font-style:italic;">&nbsp;</font></i></p>
    </td>
    <td width="90%" valign="top" style="padding:0in .7pt 0in .7pt;width:90.08%;">
    <p style="font-size:10.0pt;margin:0in 0in .0001pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Voluntary
    Conversion by Holder</font></i>.
    The debentures are convertible at anytime at the discretion of the holder at
    a conversion price per share of $0.45, subject to adjustment including
    full-ratchet, anti-dilution protection, and subject to a cap on the beneficial
    ownership of our shares of common stock by the holder and its affiliates
    following such conversion. See <br>
    &#147;SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT,&#148; below, for
    more information regarding the beneficial ownership caps.</p>
    </td>
   </tr>
   <tr>
    <td width="5%" valign="top" style="padding:0in .7pt 0in .7pt;width:5.28%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font></p>
    </td>
    <td width="4%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:4.64%;">
    <p style="margin:0in 0in .0001pt;"><i><font size="2" face="Times New Roman" style="font-size:1.0pt;font-style:italic;">&nbsp;</font></i></p>
    </td>
    <td width="90%" valign="top" style="padding:0in .7pt 0in .7pt;width:90.08%;">
    <p style="font-size:10.0pt;margin:0in 0in .0001pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Forced
    Conversion</font></i>. Subject
    to compliance with certain equity conditions, including having an effective
    registration statement covering the sale by the investors of the shares of
    our common stock issued upon conversion of the debentures, and subject to the
    applicable cap on the beneficial ownership of our shares of common stock by
    the holder and its affiliates following such conversion, we also have the
    right to force conversion if the average of the VWAP for our common stock
    exceeds $1.13 for 20 trading days out of a consecutive 30 trading day period.</p>
    </td>
   </tr>
   <tr>
    <td width="5%" valign="top" style="padding:0in .7pt 0in .7pt;width:5.28%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font></p>
    </td>
    <td width="4%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:4.64%;">
    <p style="margin:0in 0in .0001pt;"><i><font size="2" face="Times New Roman" style="font-size:1.0pt;font-style:italic;">&nbsp;</font></i></p>
    </td>
    <td width="90%" valign="top" style="padding:0in .7pt 0in .7pt;width:90.08%;">
    <p style="font-size:10.0pt;margin:0in 0in .0001pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Security</font></i>. The debentures are secured by all of our
    assets under the terms of a security agreement we entered into with the
    investors.</p>
    </td>
   </tr>
  </table>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">30</font></p>
  
  <div style="margin:0in 0in .0001pt;"><hr size="3" width="100%" noshade color="#010101" align="left"></div>
  
  </div>
  <!-- SEQ.=1,FOLIO='30',FILE='C:\JMS\tsauer\08-10653-1\task2883250\10653-1-be.htm',USER='tsauer',CD='Apr 22 18:05 2008' -->
  
  
  
  <br clear="all" style="page-break-before:always;">
  <div style="font-family:Times New Roman;">
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The debentures impose certain covenants on us,
  including restrictions against incurring additional indebtedness, creating any
  liens on our property, amending our certificate of incorporation or bylaws,
  redeeming or paying dividends on shares of our outstanding common stock, and
  entering into certain related party transactions.&#160; The debentures define certain events of
  default, including without limitation failure to make a payment obligation,
  failure to observe other covenants of the debenture or related agreements
  (subject to applicable cure periods), breach of representation or warranty,
  bankruptcy, default under another significant contract or credit obligation,
  delisting of our common stock, a change in control, failure to secure and
  maintain an effective registration statement covering the resale of the common
  stock underlying the debentures and the warrants, or failure to deliver share
  certificates in a timely manner.&#160; In the
  event of default, the holders of the debentures have the right to accelerate all
  amounts outstanding under the debenture and demand payment of a mandatory
  default amount equal to 130% of the amount outstanding plus accrued interest
  and expenses.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">As further discussed under &#147;Liquidity and Capital
  Resources,&#148; below, we believe our cash balance at December&nbsp;31, 2007, plus
  the net proceeds from our January&nbsp;2008 and April 2008 Private Placements,
  is sufficient to fund our operations through at least December&nbsp;2008.&#160; If cash reserves are not sufficient to
  sustain operations, we plan to raise additional capital by selling shares of
  capital stock or other debt or equity securities.&#160; However, there are no commitments or
  arrangements for future financings in place at this time, and there can be no
  assurance that such capital will be available on favorable terms to us or at
  all.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Going Concern Issue</font></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We remain dependent on outside sources of funding
  until our results of operations provide positive cash flows.&nbsp;&nbsp;Our
  independent auditors issued a going concern qualification in their report dated
  April&nbsp;</font><font face="Symbol">22</font>, 2008, with our current level of funding substantial doubt about our
  ability to continue as a going concern is a reasonable conclusion.</p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">During the years ended December&nbsp;31, 2007 and
  2006, we have been unable to generate cash flows sufficient to support our
  operations and have been dependent on debt and equity raised from qualified
  individual investors.&nbsp;&nbsp;We experienced negative financial results as
  follows (in thousands):</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <table border="0" cellspacing="0" cellpadding="0" width="70%" style="border-collapse:collapse;margin-left:1.0in;width:70.0%;">
   <tr>
    <td width="61%" valign="bottom" style="padding:0in 0in 0in 0in;width:61.54%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="3%" valign="bottom" style="padding:0in 0in 0in 0in;width:3.2%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="15%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:15.4%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">2007</font></b></p>
    </td>
    <td width="3%" valign="bottom" style="padding:0in 0in 0in 0in;width:3.22%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="14%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:14.64%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">2006</font></b></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.0%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="61%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:61.54%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Net loss attributable to common
    shareholders</font></p>
    </td>
    <td width="3%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:3.2%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:1.44%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="13%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:13.96%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(3,956</font></p>
    </td>
    <td width="3%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:3.22%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:1.44%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="13%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:13.2%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(1,462</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>
    </td>
   </tr>
   <tr>
    <td width="61%" valign="top" style="padding:0in 0in 0in 0in;width:61.54%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Negative cash flow from operations</font></p>
    </td>
    <td width="3%" valign="bottom" style="padding:0in 0in 0in 0in;width:3.2%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="15%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:15.4%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(3,060</font></p>
    </td>
    <td width="3%" valign="bottom" style="padding:0in 0in 0in 0in;width:3.22%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>
    </td>
    <td width="14%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:14.64%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(1,022</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>
    </td>
   </tr>
   <tr>
    <td width="61%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:61.54%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Working capital</font></p>
    </td>
    <td width="3%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:3.2%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="15%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:15.4%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(3,391</font></p>
    </td>
    <td width="3%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:3.22%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>
    </td>
    <td width="14%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:14.64%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(2,038</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>
    </td>
   </tr>
   <tr>
    <td width="61%" valign="top" style="padding:0in 0in 0in 0in;width:61.54%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Stockholders&#146; deficit</font></p>
    </td>
    <td width="3%" valign="bottom" style="padding:0in 0in 0in 0in;width:3.2%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="15%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:15.4%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(4,946</font></p>
    </td>
    <td width="3%" valign="bottom" style="padding:0in 0in 0in 0in;width:3.22%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>
    </td>
    <td width="14%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:14.64%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(2,054</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>
    </td>
   </tr>
   <tr height="0">
    <td width="322" style="border:none;"></td>
    <td width="17" style="border:none;"></td>
    <td width="8" style="border:none;"></td>
    <td width="73" style="border:none;"></td>
    <td width="17" style="border:none;"></td>
    <td width="8" style="border:none;"></td>
    <td width="69" style="border:none;"></td>
    <td width="10" style="border:none;"></td>
   </tr>
  </table>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">These factors raise substantial doubt about our
  ability to continue as a going concern.&nbsp;&nbsp;The financial statements
  contained herein do not include any adjustments relating to the recoverability
  and classification of recorded asset amounts or amounts and classification of
  liabilities that might be necessary should we be unable to continue in
  existence.&nbsp;&nbsp;Our ability to continue as a going concern is dependent
  upon our ability to generate sufficient cash flows to meet our obligations on a
  timely basis, to obtain additional financing as may be required, and ultimately
  to attain profitable operations.&#160;
  However, there is no assurance that profitable operations or sufficient
  cash flows will occur in the future.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We have supported current operations by raising
  additional operating cash through the private sale of our convertible
  debentures.&#160; This has provided us with
  the cash flows to continue our business plan, but have not resulted in
  significant improvement in our financial position. We are considering
  alternatives to address our cash flow situation that include: (1)&nbsp;raising
  capital through additional sale of our common stock and/or debentures and (2)&nbsp;reducing
  cash operating expenses to levels that are in line with current revenues.</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">31</font></p>
  
  <div style="margin:0in 0in .0001pt;"><hr size="3" width="100%" noshade color="#010101" align="left"></div>
  
  </div>
  <!-- SEQ.=1,FOLIO='31',FILE='C:\JMS\brosent\08-10653-1\task2883422\10653-1-bg.htm',USER='brosent',CD='Apr 22 19:09 2008' -->
  
  
  <br clear="all" style="page-break-before:always;">
  
  
  <div style="font-family:Times New Roman;">
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The first alternative could result in substantial
  dilution of existing stockholders. There can be no assurance that our current
  financial position can be improved, that we can raise additional working
  capital, or that we can achieve positive cash flows from operations. Our
  long-term viability as a going concern is dependent upon our ability to (i)&nbsp;locate
  sources of debt or equity funding to meet current commitments and near-term
  future requirements and (ii)&nbsp;achieve profitability and ultimately generate
  sufficient cash flow from operations to sustain our continuing operations.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Critical Accounting Policies
  Involving Management Estimates and Assumptions</font></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our discussion and analysis of our financial
  condition and results of operations is based on our financial statements.&#160; In preparing our financial statements in
  conformity with accounting principles generally accepted in the United States,
  we must make a variety of estimates that affect the reported amounts and
  related disclosures.&#160; We have identified
  the following accounting policies that we believe require application of
  management&#146;s most subjective judgments, often requiring the need to make
  estimates about the effect of matters that are inherently uncertain and may
  change in subsequent periods.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Allowance
  for Doubtful Accounts</font></i></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The Company provides, when appropriate, an allowance
  for doubtful accounts to ensure trade receivables are not overstated due to
  un-collectibility. The collectibility of the Company&#146;s receivables is evaluated
  based on a variety of factors, including the length of time receivables are
  past due, indication of the customer&#146;s willingness to pay, significant one-time
  events and historical experience. As of December&nbsp;31, 2007 and 2006 there
  was no allowance for doubtful accounts.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Revenue Recognition</font></i></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The Company recognizes revenue in accordance with
  Securities and Exchange Commission Staff Accounting Bulletin No.&nbsp;104, or
  SAB&nbsp;104, &#147;<i>Revenue Recognition in Financial Statements</i>&#148;.
  The Company recognizes revenue when all of the following criteria are met:
  1)&nbsp;there is persuasive evidence that an arrangement exists,
  2)&nbsp;delivery of goods has occurred, 3)&nbsp;the sales price is fixed or
  determinable, and 4)&nbsp;collectibility is reasonably assured.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our significant accounting policies are described in
  more detail in the notes to consolidated financial statements included
  elsewhere in this filing.&#160; If actual
  results differ significantly from our estimates and projections, then there
  could be a material effect on our financial statements.&#160; Please see &#147;Note 3. Summary of Significant
  Accounting Policies&#148; to our financial statements included in this report.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Results of Operations</font></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Fluctuations in Operating Results</font></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We are in the early stages of our operations. Our
  results of operations are likely to fluctuate from period to period.&#160; We anticipate that our quarterly and annual
  results of operations will be impacted for the foreseeable future by several
  factors, including the timing and volume of sales of our products.&#160; Due to these factors, each of which will have
  a substantial impact on our future operations, we believe that the
  period-to-period comparisons of our operating results are not a good indication
  of our future performance.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Year Ended December&nbsp;31, 2007
  Compared with Year Ended December&nbsp;31, 2006</font></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Revenues</font></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Revenues were $304 thousand and $316 thousand for
  fiscal 2007 and 2006, respectively. Revenues decreased by $12 thousand, or
  3.8%, in fiscal 2007 compared to fiscal 2006. The decrease in fiscal 2007
  revenue is due in part to our focus on fewer key products and the timing of
  release of those products.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Cost of Good Sold</font></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Cost of good sold includes our costs of hardware,
  software and other resources used in delivery of our products and services.
  Cost of good sold were $315 thousand and $130 thousand for fiscal year 2007 and
  2006, respectively. Cost of good sold for 2007 increased by $185 thousand, or
  by 142.3%.&#160; The increase in cost of good
  sold from 2006 to 2007 was primarily attributable to the increased costs of
  hosting and Internet band-width associated with the deployment of our products
  and services. Stated as a percentage of revenues, cost of good sold for the
  corresponding periods was 103.6% and 41.1%, respectively.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Operating Expenses</font></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Research and Development.</font></i><b>&#160; </b>Research and development expenses include
  primarily employee and employee related expenses. Research and development
  expenses were $1,856 thousand and $839 thousand for fiscal year 2007 and 2006,
  respectively. Stated as a percentage of revenues, research and development
  expense for the corresponding periods was 610.5% and 265.5%, respectively.&#160; Research and development expenses increased
  by $1,017 thousand, or by 121.2%, in fiscal 2007 compared to fiscal 2006.&#160; This increase was primarily due to increased
  hiring of engineers for research and development.</p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">32</font></p>
  
  <div style="margin:0in 0in .0001pt;"><hr size="3" width="100%" noshade color="#010101" align="left"></div>
  
  </div>
  <!-- SEQ.=1,FOLIO='32',FILE='C:\JMS\brosent\08-10653-1\task2883422\10653-1-bg.htm',USER='brosent',CD='Apr 22 19:09 2008' -->
  
  
  <br clear="all" style="page-break-before:always;">
  
  
  <div style="font-family:Times New Roman;">
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Sales and Marketing Expenses.</font></i><b>&#160; </b>Sales and marketing expenses include payroll,
  employee benefits, and other headcount-related costs associated with sales and
  marketing personnel and travel, advertising, promotions, trade shows, seminars,
  and other programs. Sales and marketing expenses were $771 thousand and $348
  thousand for fiscal year 2007 and 2006, respectively. The $423 thousand, or
  121.6%, increase in sales and marketing expense was due to increased hiring of
  sales and marketing personnel and greater focus on sales and marketing
  activities. Stated as a percentage of revenues, sales and marketing expense for
  the corresponding periods was 253.6% and 110.2%, respectively.</p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">General and Administrative.</font></i><b>&#160; </b>General and administrative expenses include
  payroll and related employee benefits, and other headcount-related costs
  associated with finance, facilities, and legal and other administrative fees.
  General and administrative expenses were $876 thousand and $396 thousand for
  fiscal year 2007 and 2006, respectively. The $480 thousand, or 121.2%, increase
  in general and administrative expense was primarily attributable to increased
  hiring of accounting, administrative, legal and compliance personnel and
  greater use of consultants and temporary personnel.&#160; Stated as a percentage of revenues, general
  and administrative expense for the corresponding periods was 288.2% and 125.2%,
  respectively.</p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Other Income (Expense)</font></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Interest Expense</font></i>.
  Net interest expense was $362 thousand for 2007 compared to $97 thousand for
  2006. The increase in interest expense was primarily due to multiple rounds of
  convertible debt financing during 2007.</p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Net Loss</font></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our net loss was $3.9 million and $1.5 million for
  fiscal year 2007 and 2006, respectively, an increase of $2.4 million, or 270.5%.&#160; The percentage change in the net loss from
  2006 to 2007 was primarily due to increased hiring and employee-related costs
  and decreased revenues in a period of transition for Etelos.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Liquidity and Capital Resources</font></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">On December&nbsp;31, 2007, we had $928 thousand in
  cash and cash equivalents, and prepaid expenses of $21 thousand. Our working
  capital deficit at December&nbsp;31, 2007 was $3.4 million, compared to a
  deficit of $2.0 million at December&nbsp;31, 2006.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Net cash used by operating activities during the
  year ended December&nbsp;31, 2007 was $3.1 million, compared to $979 thousand
  during the year ended December&nbsp;31, 2006. The primary use of cash from
  operating activities in 2007 was research and development expenses of $1.9
  million.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Net cash provided by financing activities for 2007
  was $4 million, primarily from the issuance of notes.&#160; During the year ended December&nbsp;31, 2007,
  we issued 6% convertible notes at an original issue discount of 10% with a face
  value of $3.3 million.&#160; These notes
  mature on March&nbsp;31, 2009, with interest due and payable on February&nbsp;1,
  2008, and on the last day of each calendar quarter thereafter. We are required
  to make payments on the outstanding principal balance beginning September&nbsp;1,
  2008 and on the 1st day of each calendar quarter thereafter.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In connection with the issuance of these notes, we
  issued warrants to purchase up to 3,174,000 shares of our common stock at an
  exercise price of $0.40 and a term of 5 years.&#160;
  At December&nbsp;31, 2007, warrants to purchase 1,929,000 shares have
  been exercised.</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">33</font></p>
  
  <div style="margin:0in 0in .0001pt;"><hr size="3" width="100%" noshade color="#010101" align="left"></div>
  
  </div>
  <!-- SEQ.=1,FOLIO='33',FILE='C:\JMS\brosent\08-10653-1\task2883422\10653-1-bg.htm',USER='brosent',CD='Apr 22 19:09 2008' -->
  
  
  <br clear="all" style="page-break-before:always;">
  
  
  <div style="font-family:Times New Roman;">
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We believe our cash balance, including the net
  proceeds from our January&nbsp;2008 and April 2008 Private Placements, is
  sufficient to fund our operations through at least December&nbsp;2008.&#160; If cash reserves and our credit facility are
  not sufficient to sustain operations, then we plan to raise additional capital
  by selling shares of capital stock or other securities. &nbsp;However, there
  are no commitments or arrangements for future financings in place at this time
  and we can give no assurance that such capital will be available on favorable
  terms or at all.&#160; We may need additional
  financing thereafter until we can achieve profitability. &nbsp;If we cannot, then
  we will be forced to curtail our operations or possibly be forced to evaluate a
  sale or liquidation of our assets. &nbsp;Even if we are successful in raising
  additional funds, there is no assurance regarding the terms of any additional
  investment. &nbsp;Any future financing may involve substantial dilution to
  existing investors.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Commitments and Contingencies</font></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><i><u><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">January&nbsp;Debentures</font></u></i></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In January&nbsp;2008, we issued our January&nbsp;debentures
  with an aggregate principal amount of $2.0 million. Under the terms of these
  debentures, we are to begin making monthly redemption payments upon the earlier
  of the effective date of the registration statement we are required to file to
  register for resale of the shares of common stock issuable upon conversion of
  these debentures or November 1, 2008.&#160;
  The maturity date of these debentures is January&nbsp;31, 2010.&#160; The aggregate face value of our outstanding
  debentures is $2.0 million at April&nbsp;22, 2008.&#160; The total monthly principal payment amounts
  on our January&nbsp;debentures are scheduled to be paid as follows, Under assuming
  such payments begin on September 1, 2008:</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Monthly Principal Payment Amount</font></b></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <table border="0" cellspacing="0" cellpadding="0" width="40%" style="border-collapse:collapse;margin-left:2.25in;width:40.64%;">
   <tr>
    <td width="61%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:61.54%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Date</font></b></p>
    </td>
    <td width="6%" valign="bottom" style="padding:0in 0in 0in 0in;width:6.74%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="29%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:29.14%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">January<br>
    Debentures</font></b></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.58%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="61%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:61.54%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">9/1/2008</font></p>
    </td>
    <td width="6%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:6.74%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:7.7%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="21%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:21.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">111,111.12</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="61%" valign="top" style="padding:0in 0in 0in 0in;width:61.54%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">10/1/2008</font></p>
    </td>
    <td width="6%" valign="bottom" style="padding:0in 0in 0in 0in;width:6.74%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" style="padding:0in 0in 0in 0in;width:7.7%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="21%" valign="bottom" style="padding:0in 0in 0in 0in;width:21.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">111,111.12</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="61%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:61.54%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">11/1/2008</font></p>
    </td>
    <td width="6%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:6.74%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:7.7%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="21%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:21.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">111,111.12</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="61%" valign="top" style="padding:0in 0in 0in 0in;width:61.54%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">12/1/2008</font></p>
    </td>
    <td width="6%" valign="bottom" style="padding:0in 0in 0in 0in;width:6.74%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" style="padding:0in 0in 0in 0in;width:7.7%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="21%" valign="bottom" style="padding:0in 0in 0in 0in;width:21.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">111,111.12</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="61%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:61.54%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">1/1/2009</font></p>
    </td>
    <td width="6%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:6.74%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:7.7%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="21%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:21.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">111,111.12</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="61%" valign="top" style="padding:0in 0in 0in 0in;width:61.54%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2/1/2009</font></p>
    </td>
    <td width="6%" valign="bottom" style="padding:0in 0in 0in 0in;width:6.74%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" style="padding:0in 0in 0in 0in;width:7.7%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="21%" valign="bottom" style="padding:0in 0in 0in 0in;width:21.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">111,111.12</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="61%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:61.54%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">3/1/2009</font></p>
    </td>
    <td width="6%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:6.74%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:7.7%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="21%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:21.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">111,111.12</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="61%" valign="top" style="padding:0in 0in 0in 0in;width:61.54%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">4/1/2009</font></p>
    </td>
    <td width="6%" valign="bottom" style="padding:0in 0in 0in 0in;width:6.74%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" style="padding:0in 0in 0in 0in;width:7.7%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="21%" valign="bottom" style="padding:0in 0in 0in 0in;width:21.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">111,111.12</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="61%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:61.54%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">5/1/2009</font></p>
    </td>
    <td width="6%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:6.74%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:7.7%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="21%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:21.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">111,111.12</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="61%" valign="top" style="padding:0in 0in 0in 0in;width:61.54%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">6/1/2009</font></p>
    </td>
    <td width="6%" valign="bottom" style="padding:0in 0in 0in 0in;width:6.74%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" style="padding:0in 0in 0in 0in;width:7.7%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="21%" valign="bottom" style="padding:0in 0in 0in 0in;width:21.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">111,111.12</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="61%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:61.54%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">7/1/2009</font></p>
    </td>
    <td width="6%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:6.74%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:7.7%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="21%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:21.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">111,111.12</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="61%" valign="top" style="padding:0in 0in 0in 0in;width:61.54%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">8/1/2009</font></p>
    </td>
    <td width="6%" valign="bottom" style="padding:0in 0in 0in 0in;width:6.74%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" style="padding:0in 0in 0in 0in;width:7.7%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="21%" valign="bottom" style="padding:0in 0in 0in 0in;width:21.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">111,111.12</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="61%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:61.54%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">9/1/2009</font></p>
    </td>
    <td width="6%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:6.74%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:7.7%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="21%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:21.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">111,111.12</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="61%" valign="top" style="padding:0in 0in 0in 0in;width:61.54%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">10/1/2009</font></p>
    </td>
    <td width="6%" valign="bottom" style="padding:0in 0in 0in 0in;width:6.74%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" style="padding:0in 0in 0in 0in;width:7.7%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="21%" valign="bottom" style="padding:0in 0in 0in 0in;width:21.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">111,111.12</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="61%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:61.54%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">11/1/2009</font></p>
    </td>
    <td width="6%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:6.74%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:7.7%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="21%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:21.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">111,111.12</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="61%" valign="top" style="padding:0in 0in 0in 0in;width:61.54%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">12/1/09</font></p>
    </td>
    <td width="6%" valign="bottom" style="padding:0in 0in 0in 0in;width:6.74%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" style="padding:0in 0in 0in 0in;width:7.7%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="21%" valign="bottom" style="padding:0in 0in 0in 0in;width:21.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">111,111.12</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="61%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:61.54%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">1/1/2010</font></p>
    </td>
    <td width="6%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:6.74%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:7.7%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="21%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:21.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">111,111.12</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="61%" valign="top" style="padding:0in 0in 0in 0in;width:61.54%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">1/31/2010</font></p>
    </td>
    <td width="6%" valign="bottom" style="padding:0in 0in 0in 0in;width:6.74%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:7.7%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="21%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:21.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">111,111.12</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="61%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:61.54%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="6%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:6.74%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:7.7%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="21%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:21.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2,000,000</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
  </table>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Assuming monthly principal payments are made in
  accordance with the schedule set forth above, the amount of interest to be paid
  through the January&nbsp;31, 2010 maturity date is $240 thousand with respect
  to our January&nbsp;debentures, or on average, $13.3 thousand per month.</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><i><u><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">April&nbsp;Debentures</font></u></i></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In April&nbsp;2008, we issued our April&nbsp;debentures
  with an aggregate principal amount of $3.5 million. Under the terms of these
  debentures, we are to begin making monthly redemption payments upon the earlier
  of the effective date of the registration statement we are required to file to
  register for resale of the shares of common stock issuable upon conversion of
  these debentures or November 1, 2008.&#160;
  The maturity date of these debentures is April&nbsp;30, 2010.&#160; The aggregate face value of our outstanding
  debentures is $3.5 million at April&nbsp;</font><font face="Symbol">22</font>, 2008.&#160;
  The total monthly principal payment amounts on our April&nbsp;debentures
  are scheduled to be paid as follows, Under assuming such payments begin on
  September 1, 2008 (dollar amounts in thousands):</p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Monthly Principal Payment Amount</font></b></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <table border="0" cellspacing="0" cellpadding="0" width="40%" style="border-collapse:collapse;margin-left:2.25in;width:40.64%;">
   <tr>
    <td width="61%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:61.54%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Date</font></b></p>
    </td>
    <td width="6%" valign="bottom" style="padding:0in 0in 0in 0in;width:6.74%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="29%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:29.14%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">April<br>
    Debentures</font></b></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.58%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="61%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:61.54%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">9/1/2008</font></p>
    </td>
    <td width="6%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:6.74%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:7.7%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="21%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:21.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">194,400.00</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="61%" valign="top" style="padding:0in 0in 0in 0in;width:61.54%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">10/1/2008</font></p>
    </td>
    <td width="6%" valign="bottom" style="padding:0in 0in 0in 0in;width:6.74%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" style="padding:0in 0in 0in 0in;width:7.7%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="21%" valign="top" style="padding:0in 0in 0in 0in;width:21.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">194,400.00</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="61%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:61.54%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">11/1/2008</font></p>
    </td>
    <td width="6%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:6.74%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:7.7%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="21%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:21.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">194,400.00</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="61%" valign="top" style="padding:0in 0in 0in 0in;width:61.54%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">12/1/2008</font></p>
    </td>
    <td width="6%" valign="bottom" style="padding:0in 0in 0in 0in;width:6.74%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" style="padding:0in 0in 0in 0in;width:7.7%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="21%" valign="top" style="padding:0in 0in 0in 0in;width:21.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">194,400.00</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="61%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:61.54%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">1/1/2009</font></p>
    </td>
    <td width="6%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:6.74%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:7.7%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="21%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:21.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">194,400.00</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="61%" valign="top" style="padding:0in 0in 0in 0in;width:61.54%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2/1/2009</font></p>
    </td>
    <td width="6%" valign="bottom" style="padding:0in 0in 0in 0in;width:6.74%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" style="padding:0in 0in 0in 0in;width:7.7%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="21%" valign="top" style="padding:0in 0in 0in 0in;width:21.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">194,400.00</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="61%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:61.54%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">3/1/2009</font></p>
    </td>
    <td width="6%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:6.74%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:7.7%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="21%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:21.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">194,400.00</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="61%" valign="top" style="padding:0in 0in 0in 0in;width:61.54%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">4/1/2009</font></p>
    </td>
    <td width="6%" valign="bottom" style="padding:0in 0in 0in 0in;width:6.74%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" style="padding:0in 0in 0in 0in;width:7.7%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="21%" valign="top" style="padding:0in 0in 0in 0in;width:21.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">194,400.00</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="61%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:61.54%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">5/1/2009</font></p>
    </td>
    <td width="6%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:6.74%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:7.7%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="21%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:21.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">194,400.00</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="61%" valign="top" style="padding:0in 0in 0in 0in;width:61.54%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">6/1/2009</font></p>
    </td>
    <td width="6%" valign="bottom" style="padding:0in 0in 0in 0in;width:6.74%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" style="padding:0in 0in 0in 0in;width:7.7%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="21%" valign="top" style="padding:0in 0in 0in 0in;width:21.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">194,400.00</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="61%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:61.54%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">7/1/2009</font></p>
    </td>
    <td width="6%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:6.74%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:7.7%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="21%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:21.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">194,400.00</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="61%" valign="top" style="padding:0in 0in 0in 0in;width:61.54%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">8/1/2009</font></p>
    </td>
    <td width="6%" valign="bottom" style="padding:0in 0in 0in 0in;width:6.74%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" style="padding:0in 0in 0in 0in;width:7.7%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="21%" valign="top" style="padding:0in 0in 0in 0in;width:21.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">194,400.00</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="61%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:61.54%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">9/1/2009</font></p>
    </td>
    <td width="6%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:6.74%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:7.7%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="21%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:21.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">194,400.00</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="61%" valign="top" style="padding:0in 0in 0in 0in;width:61.54%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">10/1/2009</font></p>
    </td>
    <td width="6%" valign="bottom" style="padding:0in 0in 0in 0in;width:6.74%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" style="padding:0in 0in 0in 0in;width:7.7%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="21%" valign="top" style="padding:0in 0in 0in 0in;width:21.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">194,400.00</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="61%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:61.54%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">11/1/2009</font></p>
    </td>
    <td width="6%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:6.74%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:7.7%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="21%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:21.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">194,400.00</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="61%" valign="top" style="padding:0in 0in 0in 0in;width:61.54%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">12/1/09</font></p>
    </td>
    <td width="6%" valign="bottom" style="padding:0in 0in 0in 0in;width:6.74%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" style="padding:0in 0in 0in 0in;width:7.7%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="21%" valign="top" style="padding:0in 0in 0in 0in;width:21.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">194,400.00</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="61%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:61.54%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">1/1/2010</font></p>
    </td>
    <td width="6%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:6.74%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:7.7%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="21%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:21.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">194,400.00</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="61%" valign="top" style="padding:0in 0in 0in 0in;width:61.54%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">1/31/2010</font></p>
    </td>
    <td width="6%" valign="bottom" style="padding:0in 0in 0in 0in;width:6.74%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:7.7%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="21%" valign="top" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:21.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">194,400.00</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="61%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:61.54%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="6%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:6.74%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:7.7%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="21%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:21.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">3,500,000</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
  </table>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Assuming monthly principal
  payments are made in accordance with the schedule set forth above, the amount
  of interest to be paid through the April&nbsp;30, 2010, maturity date is $420
  thousand with respect to our April&nbsp;debentures, or on average, $23.3
  thousand per month.</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">34</font></p>
  
  <div style="margin:0in 0in .0001pt;"><hr size="3" width="100%" noshade color="#010101" align="left"></div>
  
  </div>
  <!-- SEQ.=1,FOLIO='34',FILE='C:\JMS\brosent\08-10653-1\task2883422\10653-1-bg.htm',USER='brosent',CD='Apr 22 19:09 2008' -->
  
  
  <br clear="all" style="page-break-before:always;">
  
  
  <div style="font-family:Times New Roman;">
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We have the right to pay interest and monthly
  principal payments due in respect of our January&nbsp;and April debentures in
  cash, or upon notice to the holders and compliance with certain equity
  conditions, we can pay all or a portion of any such payment in common stock
  valued at a price equal to the lesser of the then effective conversion price
  (currently $0.45) or 85% of the average of the VWAP per share as reported on Bloomberg
  for our common stock for the 10 consecutive trading days immediately prior to
  the applicable payment date.&#160; On the
  other hand, if the holders voluntarily elect to convert all or a portion of the
  debentures into common stock, then the conversion price will be the then-effective
  conversion price.&#160; The conversion of
  these debentures could result in substantial dilution to our existing
  stockholders.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Subject to compliance with certain equity
  conditions, and subject also to the applicable cap on the beneficial ownership
  of our shares of common stock by the holder and its affiliates following such
  conversion, we have the right to force conversion of the entire amount of
  principal and accrued interest of the debentures if the average of the VWAP for
  our common stock exceeds $1.13 for 20 trading days out of a consecutive 30
  trading day period.&#160; If the price of our
  common stock is below $1.13 per share but is substantially above $0.45 per
  share, then we anticipate that the holders of these debentures will elect to
  convert monthly payments of interest and principal into shares of common stock
  rather than receive cash. &nbsp;If the price of our common stock is below
  $0.45, the current conversion price, then we intend to make principal and
  interest payments in cash to the extent that our cash flows from operations
  provide sufficient ability to do so.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">If our cash flows from operations are not sufficient
  to make principal and interest payments in cash, then we will evaluate other
  equity financing opportunities, the proceeds of which could be used to repay
  the debentures. &nbsp;If we are unable to pay the principal and interest in
  cash, or elect not to do so to preserve working capital, then we will make the
  payments with our common stock pursuant to the terms of the agreements
  including a conversion price based on the lower of the then effective
  conversion price or 85% of the average of the VWAP per share as reported on
  Bloomberg for our common stock for the 10 consecutive trading days immediately
  prior to the applicable payment date.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><i><u><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Operating and Capital Leases</font></u></i></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We have non-cancelable leases for corporate
  facilities and equipment.&#160; Rent expense
  under the leases totaled $146.7 thousand and $44.3 thousand for the years ended
  December&nbsp;31, 2007 and 2006, respectively.&#160;
  Future minimum rental payments required under non-cancelable leases are
  as follows for the years ending December&nbsp;31:</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <table border="0" cellspacing="0" cellpadding="0" width="100%" style="border-collapse:collapse;width:100.0%;">
   <tr>
    <td width="60%" valign="bottom" style="padding:0in 0in 0in 0in;width:60.26%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="9%" valign="bottom" style="padding:0in 0in 0in 0in;width:9.96%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.64%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:11.76%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Operating<br>
    Leases</font></b></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.64%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="10%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:10.9%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Capital<br>
    Leases</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.84%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="60%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:60.26%;">
    <p align="center" style="margin:0in 0in .0001pt 10.0pt;text-align:center;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2008</font></p>
    </td>
    <td width="9%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:9.96%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.64%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:1.12%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="10%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:10.64%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">269</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.64%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:1.12%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="9%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:9.78%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">25,895</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.84%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="60%" valign="top" style="padding:0in 0in 0in 0in;width:60.26%;">
    <p align="center" style="margin:0in 0in .0001pt 10.0pt;text-align:center;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2009</font></p>
    </td>
    <td width="9%" valign="top" style="padding:0in 0in 0in 0in;width:9.96%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.64%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:11.76%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">269</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.64%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="10%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:10.9%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">20,570</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.84%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="60%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:60.26%;">
    <p align="center" style="margin:0in 0in .0001pt 10.0pt;text-align:center;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2010</font></p>
    </td>
    <td width="9%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:9.96%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.64%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:11.76%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">97</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.64%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="10%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:10.9%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">13,286</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.84%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="60%" valign="top" style="padding:0in 0in 0in 0in;width:60.26%;">
    <p align="center" style="margin:0in 0in .0001pt 10.0pt;text-align:center;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2011</font></p>
    </td>
    <td width="9%" valign="top" style="padding:0in 0in 0in 0in;width:9.96%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.64%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:11.76%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.64%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="10%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:10.9%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">13,286</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.84%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="60%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:60.26%;">
    <p align="center" style="margin:0in 0in .0001pt 10.0pt;text-align:center;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2012</font></p>
    </td>
    <td width="9%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:9.96%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.64%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:11.76%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.64%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="10%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:10.9%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2,214</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.84%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="60%" valign="top" style="padding:0in 0in 0in 0in;width:60.26%;">
    <p align="center" style="margin:0in 0in .0001pt 10.0pt;text-align:center;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Thereafter</font></p>
    </td>
    <td width="9%" valign="top" style="padding:0in 0in 0in 0in;width:9.96%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.64%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:11.76%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.64%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="10%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:10.9%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.84%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="60%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:60.26%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Total
    minimum lease payments</font></p>
    </td>
    <td width="9%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:9.96%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.64%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:1.12%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="10%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:10.64%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;635</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.64%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:1.12%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="9%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:9.78%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">75,251</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.84%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="60%" valign="top" style="padding:0in 0in 0in 0in;width:60.26%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Less
    amount representing interest</font></p>
    </td>
    <td width="9%" valign="top" style="padding:0in 0in 0in 0in;width:9.96%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.64%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:11.76%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.64%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="10%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:10.9%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">22,841</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.84%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="60%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:60.26%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Present
    value of minimum lease payments</font></p>
    </td>
    <td width="9%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:9.96%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.64%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:11.76%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.64%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="10%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:10.9%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">52,410</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.84%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="60%" valign="top" style="padding:0in 0in 0in 0in;width:60.26%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Less
    current portion</font></p>
    </td>
    <td width="9%" valign="top" style="padding:0in 0in 0in 0in;width:9.96%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.64%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:11.76%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.64%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="10%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:10.9%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">16,179</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.84%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="60%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:60.26%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Total
    long term portion</font></p>
    </td>
    <td width="9%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:9.96%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.64%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:11.76%;">
    <p align="right" style="margin:0in 0in .0001pt 10.0pt;text-align:right;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.64%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:1.12%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="9%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border-bottom:solid windowtext 1.0pt;border-left:none;border-right:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:9.78%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">36,231</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.84%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
  </table>
  
  <p align="center" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:center;">&nbsp;</p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">35</font></p>
  
  <div style="margin:0in 0in .0001pt;"><hr size="3" width="100%" noshade color="#010101" align="left"></div>
  
  </div>
  <!-- SEQ.=1,FOLIO='35',FILE='C:\JMS\brosent\08-10653-1\task2883422\10653-1-bg.htm',USER='brosent',CD='Apr 22 19:09 2008' -->
  
  
  <br clear="all" style="page-break-before:always;">
  
  
  <div>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Recent Financings</font></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><i><u><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">January and April &nbsp;2008
  Private Placements</font></u></i></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The
  following table sets forth the (i)&nbsp;gross proceeds we received from each
  investor in our January&nbsp;and April 2008 Private Placement and (ii)&nbsp;amount
  of payments that we may be required to make under the terms of our January&nbsp;and
  April debentures assuming all such payments are made in cash when due and
  monthly redemption payments begin September&nbsp;1, 2008 (dollar amounts in
  thousands).</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <table border="0" cellspacing="0" cellpadding="0" width="100%" style="border-collapse:collapse;width:100.02%;">
   <tr>
    <td width="25%" valign="bottom" style="padding:0in 0in 0in 0in;width:25.94%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">(In Thousands)</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.88%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="9%" colspan="3" valign="bottom" style="padding:0in 0in 0in 0in;width:9.5%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Gross</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.86%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="29%" colspan="11" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:29.3%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Payments&nbsp;through&nbsp;December&nbsp;31,&nbsp;2008</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.86%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="28%" colspan="11" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:28.7%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Payments&nbsp;from&nbsp;January&nbsp;1,&nbsp;2009&nbsp;through<br>
    January&nbsp;31,&nbsp;2010</font></b></p>
    </td>
    <td width="0%" valign="bottom" style="padding:0in 0in 0in 0in;width:.94%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="25%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:25.94%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Investor Name</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.88%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="9%" colspan="3" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:9.5%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Proceeds</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.86%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="8%" colspan="3" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:8.48%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Principal</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.88%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="8%" colspan="3" valign="bottom" style="border-bottom:solid windowtext 1.0pt;border-left:none;border-right:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:8.48%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Interest</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.86%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="8%" colspan="3" valign="bottom" style="border-bottom:solid windowtext 1.0pt;border-left:none;border-right:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:8.6%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Total (1)</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.86%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="8%" colspan="3" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:8.48%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Principal</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.86%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="8%" colspan="3" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:8.44%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Interest</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.86%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="8%" colspan="3" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:8.08%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Total (2)</font></b></p>
    </td>
    <td width="0%" valign="bottom" style="padding:0in 0in 0in 0in;width:.94%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="25%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:25.94%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Enable Growth Partners LP</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:1.12%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="8%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:8.38%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">4,000</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.86%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:1.12%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="7%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:7.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">889</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:1.12%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="7%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:7.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">73</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.86%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:1.12%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="7%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:7.48%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">962</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.86%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:1.12%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="7%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:7.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">3,111</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.86%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:1.12%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="7%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:7.32%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">117</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.86%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:1.12%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="6%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:6.96%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">3,228</font></p>
    </td>
    <td width="0%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:.94%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="25%" valign="top" style="padding:0in 0in 0in 0in;width:25.94%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Hudson Bay Fund LP</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:1.3%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="8%" valign="bottom" style="padding:0in 0in 0in 0in;width:8.2%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">970</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.86%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:1.3%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="7%" valign="bottom" style="padding:0in 0in 0in 0in;width:7.18%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">216</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:1.3%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="7%" valign="bottom" style="padding:0in 0in 0in 0in;width:7.18%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">18</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.86%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:1.3%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="7%" valign="bottom" style="padding:0in 0in 0in 0in;width:7.3%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">234</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.86%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:1.3%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="7%" valign="bottom" style="padding:0in 0in 0in 0in;width:7.18%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">754</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.86%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:1.3%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="7%" valign="bottom" style="padding:0in 0in 0in 0in;width:7.14%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">14</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.86%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:1.3%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="6%" valign="bottom" style="padding:0in 0in 0in 0in;width:6.78%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">768</font></p>
    </td>
    <td width="0%" valign="bottom" style="padding:0in 0in 0in 0in;width:.94%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="25%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:25.94%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Hudson Bay Overseas Fund LTD</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:1.3%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="8%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:8.2%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">530</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.86%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:1.3%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:7.18%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">118</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:1.3%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:7.18%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">10</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.86%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:1.3%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:7.3%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">128</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.86%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:1.3%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:7.18%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">412</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.86%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:1.3%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:7.14%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">15</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.86%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:1.3%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="6%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:6.78%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">427</font></p>
    </td>
    <td width="0%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:.94%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="25%" valign="top" style="padding:0in 0in 0in 0in;width:25.94%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:1.12%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="8%" colspan="2" valign="bottom" style="border-bottom:double windowtext 1.5pt;border-left:none;border-right:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:8.38%;">
    <p align="right" style="margin:0in 0in .0001pt 10.0pt;text-align:right;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">5,500</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.86%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:1.12%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="7%" colspan="2" valign="bottom" style="border-bottom:double windowtext 1.5pt;border-left:none;border-right:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:7.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">1,222</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:1.12%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="7%" colspan="2" valign="bottom" style="border-bottom:double windowtext 1.5pt;border-left:none;border-right:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:7.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">101</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.86%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:1.12%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="7%" colspan="2" valign="bottom" style="border-bottom:double windowtext 1.5pt;border-left:none;border-right:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:7.48%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">1,323</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.86%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:1.12%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="7%" colspan="2" valign="bottom" style="border-bottom:double windowtext 1.5pt;border-left:none;border-right:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:7.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">4,278</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.86%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:1.12%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="7%" colspan="2" valign="bottom" style="border-bottom:double windowtext 1.5pt;border-left:none;border-right:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:7.32%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">146</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.86%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:1.12%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="6%" colspan="2" valign="bottom" style="border-bottom:double windowtext 1.5pt;border-left:none;border-right:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:6.96%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">4,423</font></p>
    </td>
    <td width="0%" valign="bottom" style="padding:0in 0in 0in 0in;width:.94%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr height="0">
    <td width="194" style="border:none;"></td>
    <td width="14" style="border:none;"></td>
    <td width="8" style="border:none;"></td>
    <td width="1" style="border:none;"></td>
    <td width="61" style="border:none;"></td>
    <td width="14" style="border:none;"></td>
    <td width="8" style="border:none;"></td>
    <td width="1" style="border:none;"></td>
    <td width="54" style="border:none;"></td>
    <td width="14" style="border:none;"></td>
    <td width="8" style="border:none;"></td>
    <td width="1" style="border:none;"></td>
    <td width="54" style="border:none;"></td>
    <td width="14" style="border:none;"></td>
    <td width="8" style="border:none;"></td>
    <td width="1" style="border:none;"></td>
    <td width="55" style="border:none;"></td>
    <td width="14" style="border:none;"></td>
    <td width="8" style="border:none;"></td>
    <td width="1" style="border:none;"></td>
    <td width="54" style="border:none;"></td>
    <td width="14" style="border:none;"></td>
    <td width="8" style="border:none;"></td>
    <td width="1" style="border:none;"></td>
    <td width="53" style="border:none;"></td>
    <td width="14" style="border:none;"></td>
    <td width="8" style="border:none;"></td>
    <td width="1" style="border:none;"></td>
    <td width="51" style="border:none;"></td>
    <td width="7" style="border:none;"></td>
   </tr>
  </table>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <div style="margin:0in 0in .0001pt;"><hr size="1" width="25%" noshade color="black" align="left"></div>
  
  <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(1)&nbsp;Averages to $330 thousand per month from September 1, 2008,
  through December&nbsp;31, 2008.</font></p>
  
  <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(2)&nbsp;Averages to $340 thousand per month from January&nbsp;1, 2009,
  through January&nbsp;31, 2010.</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The conversion price for the debentures is currently
  $0.45 and the exercise price of these warrants is currently $0.60 per
  share.&#160; Assuming that we pay all future
  principal and interest payments in cash on their respective due dates, the
  total principal and interest payments for such debentures aggregate to $5.8
  million over their respective terms.&#160; We
  received net proceeds after expenses of $5.3 million from our January&nbsp;2008
  and April 2008 Private Placements.&#160; The
  ratio of (i)&nbsp;the total amount of payments over the term of the debentures
  to (ii)&nbsp;net proceeds is 109%.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Recent Accounting Pronouncements</font></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In June&nbsp;2006, the Financial Accounting Standards Board (FASB)
  issued FASB Interpretation (FIN) No.&nbsp;48,<i> Accounting
  for Uncertainty in Income Taxes</i>, which supplements Statement of
  Financial Accounting Standard No.&nbsp;109,<i> Accounting for Income
  Taxes</i>, by defining the confidence level that a tax position must
  meet in order to be recognized in the financial statements. FIN 48 requires the
  tax effect of a position to be recognized only if it is &#147;more-likely-than-not&#148;
  to be sustained based solely on its technical merits as of the reporting date.
  If a tax position is not considered more-likely-than-not to be sustained based
  solely on its technical merits, no benefits of the position are recognized. If
  the tax position is considered more likely than not to be sustained, the amount
  to record is measured at the largest amount of benefit that is grater than 50%
  likely of being realized upon ultimate settlement. This is a different standard
  for recognition than was previously required. The more-likely-than-not
  threshold must continue to be met in each reporting period to support continued
  recognition of a benefit. At adoption, companies must adjust their financial
  statements to reflect only those tax positions that are more-likely-than-not to
  be sustained as of the adoption date. Any necessary adjustment is recorded
  directly to opening retained earnings in the period of adoption and reported as
  a change in accounting principle. The Company adopted FIN 48 starting January&nbsp;1,
  2007. The adoption of FIN 48 did not have a material effect on the Company&#146;s
  financial statements.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In September&nbsp;2006, the Securities and Exchange Commission
  published Staff Accounting Bulletin No.&nbsp;108, &#147;<i>Considering
  the Effects of Prior Year Misstatements when Quantifying Misstatements in
  Current Year Financial Statements</i> &#147; (SAB 108). The interpretations
  in SAB 108 are being issued to address diversity in practice in quantifying
  financial statement misstatements and the potential under current practice to
  build up improper amounts on the balance sheet. This guidance applies to fiscal
  years ending after November&nbsp;15, 2006 and early application in interim
  periods is encouraged. The adoption of SAB 108 did not have an effect on the
  Company&#146;s financial statements.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In September&nbsp;2006, the FASB issued SFAS No.&nbsp;157 (&#147;FAS&nbsp;157&#148;),
  &#147;<i>Fair Value Measurements</i>,&#148; which defines
  fair value, establishes guidelines for measuring fair value and expands
  disclosures regarding fair value measurements. FAS&nbsp;157 does not require
  any new fair value measurements but rather eliminates inconsistencies in
  guidance found in various prior accounting pronouncements. FAS&nbsp;157 is
  effective for fiscal years beginning after November&nbsp;15, 2007. Earlier
  adoption is permitted, provided the company has not yet issued financial
  statements, including for interim periods, for that fiscal year. The Company
  are currently evaluating the impact of FAS&nbsp;157, but do not expect the
  adoption of FAS&nbsp;157 to have a material impact on the financial position,
  results of operations, or cash flows.</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">36</font></p>
  
  <div style="margin:0in 0in .0001pt;"><hr size="3" width="100%" noshade color="#010101" align="left"></div>
  
  </div>
  <!-- SEQ.=1,FOLIO='36',FILE='C:\JMS\brosent\08-10653-1\task2883422\10653-1-bg.htm',USER='brosent',CD='Apr 22 19:09 2008' -->
  
  
  <br clear="all" style="page-break-before:always;">
  
  
  <div style="font-family:Times New Roman;">
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In February&nbsp;2007, the FASB issued SFAS No.&nbsp;159,<i> &#147;The Fair Value Option for Financial Assets and Financial Liabilities</i>,&#148;
  which permits entities to choose to measure many financial assets and financial
  liabilities at fair value. Unrealized gains and losses on items for which the
  fair value option has been elected are reported in earnings. SFAS 159 is
  effective for fiscal years beginning after November&nbsp;15, 2007. The Company
  does not expect the adoption of FAS 159 to have a material impact.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Off-Balance Sheet Arrangements</font></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We did not have any off-balance sheet arrangements
  as of the year ended December&nbsp;31, 2007, nor do we have any as of April&nbsp;</font><font face="Symbol">22</font>, 2008.</p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT</font></b></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The following table sets forth certain information
  with respect to the beneficial ownership of our common stock as of April&nbsp;</font><font face="Symbol">22</font>, 2008 by (i)&nbsp;any person or group owning
  more than 5% of our common stock, (ii)&nbsp;each director, (iii)&nbsp;each
  executive officer named in the Summary Compensation Table and (iv)&nbsp;all
  executive officers and directors as a group.&#160;
  Immediately following the merger, we had 22,700,634 shares of common
  stock issued and outstanding.&#160; In
  determining the percent of common stock owned by a person, (a)&nbsp;the
  numerator is the number of shares of the class beneficially owned by such
  person, and (b)&nbsp;the denominator is the total shares of that class
  outstanding on April&nbsp;<font face="Symbol">22</font>, 2008. Unless otherwise stated, each beneficial owner has sole power
  to vote and dispose of the shares and the address of such person is c/o the
  Company, at Etelos,&nbsp;Inc., 1900 O&#146;Farrell St., Suite&nbsp;320, San Mateo,
  CA 94403.</p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <table border="0" cellspacing="0" cellpadding="0" width="100%" style="border-collapse:collapse;width:100.0%;">
   <tr>
    <td width="55%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:55.0%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Name&nbsp;and&nbsp;Address&nbsp;of&nbsp;Beneficial&nbsp;Owner</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.92%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="19%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:19.5%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Amount&nbsp;and&nbsp;Nature&nbsp;of<br>
    Beneficial&nbsp;Ownership</font></b></p>
    </td>
    <td width="5%" valign="bottom" style="padding:0in 0in 0in 0in;width:5.3%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="16%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:16.56%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Percentage&nbsp;of&nbsp;Class<br>
    Beneficially&nbsp;Owned</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.72%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="55%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:55.0%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Officers and Directors</font></b></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.92%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="19%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:19.5%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.3%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="16%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:16.56%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.72%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="55%" valign="top" style="padding:0in 0in 0in 0in;width:55.0%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Daniel J. A. Kolke</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.92%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="19%" valign="bottom" style="padding:0in 0in 0in 0in;width:19.5%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">5,107,547</font></p>
    </td>
    <td width="5%" valign="bottom" style="padding:0in 0in .7pt 0in;width:5.3%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(1)</font></p>
    </td>
    <td width="16%" valign="bottom" style="padding:0in 0in 0in 0in;width:16.56%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">7.4</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in .7pt 0in;width:1.72%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">%</font></p>
    </td>
   </tr>
   <tr>
    <td width="55%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:55.0%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Jeffrey L. Garon</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.92%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="19%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:19.5%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2,383,333</font></p>
    </td>
    <td width="5%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in .7pt 0in;width:5.3%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(2)</font></p>
    </td>
    <td width="16%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:16.56%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">10.5</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in .7pt 0in;width:1.72%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">%</font></p>
    </td>
   </tr>
   <tr>
    <td width="55%" valign="top" style="padding:0in 0in 0in 0in;width:55.0%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Ronald A. Rudy</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.92%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="19%" valign="bottom" style="padding:0in 0in 0in 0in;width:19.5%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">817,833</font></p>
    </td>
    <td width="5%" valign="bottom" style="padding:0in 0in .7pt 0in;width:5.3%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(3)</font></p>
    </td>
    <td width="16%" valign="bottom" style="padding:0in 0in 0in 0in;width:16.56%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">3.6</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in .7pt 0in;width:1.72%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">%</font></p>
    </td>
   </tr>
   <tr>
    <td width="55%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:55.0%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Gregory Ruff</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.92%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="19%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:19.5%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">51,000</font></p>
    </td>
    <td width="5%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in .7pt 0in;width:5.3%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(4)</font></p>
    </td>
    <td width="16%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:16.56%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0.2</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in .7pt 0in;width:1.72%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">%</font></p>
    </td>
   </tr>
   <tr>
    <td width="55%" valign="top" style="padding:0in 0in 0in 0in;width:55.0%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Ahmad Baitalmal</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.92%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="19%" valign="bottom" style="padding:0in 0in 0in 0in;width:19.5%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">240,654</font></p>
    </td>
    <td width="5%" valign="bottom" style="padding:0in 0in .7pt 0in;width:5.3%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(5)</font></p>
    </td>
    <td width="16%" valign="bottom" style="padding:0in 0in 0in 0in;width:16.56%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">1</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in .7pt 0in;width:1.72%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">%</font></p>
    </td>
   </tr>
   <tr>
    <td width="55%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:55.0%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Directors and Officers as a group </font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.92%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="19%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:19.5%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">8,600,367</font></p>
    </td>
    <td width="5%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.3%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="16%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:16.56%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">22.2</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in .7pt 0in;width:1.72%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">%</font></p>
    </td>
   </tr>
   <tr>
    <td width="55%" valign="top" style="padding:0in 0in 0in 0in;width:55.0%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">5% Stockholders (other than officers or
    directors)</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.92%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="19%" valign="bottom" style="padding:0in 0in 0in 0in;width:19.5%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" valign="bottom" style="padding:0in 0in 0in 0in;width:5.3%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="16%" valign="bottom" style="padding:0in 0in 0in 0in;width:16.56%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.72%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="55%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:55.0%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Enable Growth Partners LLP</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.92%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="19%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:19.5%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">5,868,364</font></p>
    </td>
    <td width="5%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.3%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(6)</font></p>
    </td>
    <td width="16%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:16.56%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">25.6</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in .7pt 0in;width:1.72%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">%</font></p>
    </td>
   </tr>
   <tr>
    <td width="55%" valign="top" style="padding:0in 0in 0in 0in;width:55.0%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Don Morissette</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.92%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="19%" valign="bottom" style="padding:0in 0in 0in 0in;width:19.5%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">8,174,020 </font></p>
    </td>
    <td width="5%" valign="bottom" style="padding:0in 0in .7pt 0in;width:5.3%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="16%" valign="bottom" style="padding:0in 0in 0in 0in;width:16.56%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">36.0</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.72%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">%</font></p>
    </td>
   </tr>
   <tr>
    <td width="55%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:55.0%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Hudson Bay Fund LP</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.92%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="19%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:19.5%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">1,363,636</font></p>
    </td>
    <td width="5%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in .7pt 0in;width:5.3%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(7)</font></p>
    </td>
    <td width="16%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:16.56%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">6.0</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.72%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">%</font></p>
    </td>
   </tr>
  </table>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <div style="margin:0in 0in .0001pt;"><hr size="1" width="25%" noshade color="black" align="left"></div>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(I) Consists of (i)1,600,629 shares of common stock, (ii) 3,433,333
  shares of common stock issuable upon exercise of options, (iii) 73,585 shares
  of common stock held by Mr. Kolke&#146;s spouse.</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(2) Mr. Garon&#146;s shares are under the terms of his employment agreement,
  subject to our right to repurchase the shares over a 36 month period from August
  2007.</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(3) Consists of (i) 807,833 shares of common stock, and (ii) 10,000
  shares of common stock issuable upon exercise of options.</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(4) Consists of (i) 41,000 shares of common stock, and (ii) 10,000
  shares of common stock issuable upon exercise of options.</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(5) Consists of (i) 211,321 shares of common stock and (ii) 29,333
  shares of common stock issuable upon exercise of options.</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(6) Does not include 3,407,407 shares of common stock acquirable upon
  the conversion of debentures and exercise of warrants held by the stockholder
  or its affiliates, all of which are subject to conversion or exercise caps.
  Pursuant to the terms of the debentures and warrants, the number of shares of
  common stock that may be acquired by the stockholder upon any conversion or
  exercise of such security is limited, to the extent necessary, to ensure that
  following such conversion or exercise, the number of shares of our common stock
  then beneficially owned by the stockholder and any other persons or entities
  whose beneficial ownership of common stock would be aggregated with the
  stockholder for purposes of the Exchange Act does not exceed 4.99% of the total
  number of shares of our common stock then outstanding.&#160; Such cap may be increased to 9.99% by the
  stockholder upon 61 days notice, but may not be increased or waived thereafter.</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(7) Does not include 1,277,778 shares of common stock acquirable upon
  the conversion of debentures and exercise of warrants held by the stockholder
  or its affiliates, all of which are subject to conversion or exercise caps.
  Pursuant to the terms of the debentures and warrants, the number of shares of
  common stock that may be acquired by the stockholder upon any conversion or
  exercise of such security is limited, to the extent necessary, to ensure that
  following such conversion or exercise, the number of shares of our common stock
  then beneficially owned by the stockholder and any other persons or entities
  whose beneficial ownership of common stock would be aggregated with the
  stockholder for purposes of the Exchange Act does not exceed 4.99% of the total
  number of shares of our common stock then outstanding.&#160; Such cap may be increased to 9.99% by the
  stockholder upon 61 days notice, but may not be increased or waived thereafter.</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">As a result of the closing of the merger, the former
  shareholders of Etelos now own 78% of the total outstanding shares of our
  capital stock.&#160; Reference is made to the
  disclosure set forth above under this Item 5.01 of this report, which
  disclosure is incorporated herein by reference.</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">37</font></p>
  
  <div style="margin:0in 0in .0001pt;"><hr size="3" width="100%" noshade color="#010101" align="left"></div>
  
  </div>
  <!-- SEQ.=1,FOLIO='37',FILE='C:\JMS\brosent\08-10653-1\task2883422\10653-1-bg.htm',USER='brosent',CD='Apr 22 19:09 2008' -->
  
  
  <br clear="all" style="page-break-before:always;">
  
  
  <div style="font-family:Times New Roman;">
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">DIRECTORS AND EXECUTIVE OFFICERS</font></b></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Immediately before the closing of the merger,
  Tripath had no directors or executive officers.&#160;
  Dr.&nbsp;Adya Tripathi, who served as Tripath&#146;s chairman and chief
  executive officer since its inception in 1995, resigned shortly after Tripath
  filed its voluntary petition for relief under Chapter 11 of the Bankruptcy Code
  with the United States Bankruptcy Court for the Northern District of California
  on February&nbsp;8, 2007.&#160; Since that
  time until the effective time of the merger, Mr.&nbsp;Gary Sawka served as the
  Designated Responsible Individual for Debtor in Possession for Tripath.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Set forth below is information regarding the
  directors and current executive officers immediately after the effective time
  of the merger.&#160; Executive officers are
  elected annually by our board of directors. Each executive officer holds his
  office until he resigns or is removed by our board of directors or his
  successor is elected then qualified.&#160;
  Directors are elected each year by our stockholders at the annual
  meeting. Each director holds his office until his successor is elected and qualified
  or resignation or removal.</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <table border="0" cellspacing="0" cellpadding="0" width="90%" style="border-collapse:collapse;width:90.0%;">
   <tr>
    <td width="17%" valign="top" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:17.12%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Name</font></b></p>
    </td>
    <td width="3%" valign="bottom" style="padding:0in 0in 0in 0in;width:3.6%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="70%" valign="top" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:70.76%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Position</font></b></p>
    </td>
    <td width="3%" valign="bottom" style="padding:0in 0in 0in 0in;width:3.18%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="5%" valign="top" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:5.34%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Age</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="17%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:17.12%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Daniel J. A.
    Kolke</font></p>
    </td>
    <td width="3%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:3.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="70%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:70.76%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Chairman and
    Vice President&nbsp;&amp; Chief Technology Officer</font></p>
    </td>
    <td width="3%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:3.18%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="5%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:5.34%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">37</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="17%" valign="top" style="padding:0in 0in 0in 0in;width:17.12%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Jeffrey L.
    Garon</font></p>
    </td>
    <td width="3%" valign="bottom" style="padding:0in 0in 0in 0in;width:3.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="70%" valign="top" style="padding:0in 0in 0in 0in;width:70.76%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Director and
    Chief Executive Officer</font></p>
    </td>
    <td width="3%" valign="bottom" style="padding:0in 0in 0in 0in;width:3.18%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="5%" valign="top" style="padding:0in 0in 0in 0in;width:5.34%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">47</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="17%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:17.12%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Ronald A.
    Rudy</font></p>
    </td>
    <td width="3%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:3.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="70%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:70.76%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Director</font></p>
    </td>
    <td width="3%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:3.18%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="5%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.34%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">66</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="17%" valign="top" style="padding:0in 0in 0in 0in;width:17.12%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Gregory Ruff</font></p>
    </td>
    <td width="3%" valign="bottom" style="padding:0in 0in 0in 0in;width:3.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="70%" valign="top" style="padding:0in 0in 0in 0in;width:70.76%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Director</font></p>
    </td>
    <td width="3%" valign="bottom" style="padding:0in 0in 0in 0in;width:3.18%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="5%" valign="top" style="padding:0in 0in 0in 0in;width:5.34%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">54</font></b></p>
    </td>
   </tr>
  </table>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Daniel J. A. Kolke</font></i></b>.</p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Mr.&nbsp;Kolke founded Etelos in May&nbsp;1999.&#160; It is his vision and energy as the key
  architect that has driven development of the Etelos Ecosystem.&#160; Currently, Mr.&nbsp;Kolke is a director and
  Vice President&nbsp;&amp; Chief Technology Officer of Etelos.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Jeffrey L. Garon</font></i></b>.</p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Jeffrey L. Garon joined Etelos in August&nbsp;2007
  and currently serves on the board of directors and as its president and chief
  executive officer.&#160; Before joining
  Etelos, from September&nbsp;2006 until August&nbsp;2007, Mr.&nbsp;Garon was
  Managing Director of investment banking responsible for all West Coast
  activities at Kaufman Bros., L.P.&#160; From February&nbsp;2005
  until October, 2006, Mr.&nbsp;Garon served as vice president and chief
  financial officer of Tripath.&#160; From March&nbsp;1998
  to March&nbsp;2004 he served as vice president of finance and administration
  and chief financial officer of, and subsequently as a consultant to, Silicon
  Storage Technology, Inc.; and from February&nbsp;1994 to March&nbsp;1998, as
  president of The Garon Financial Group,&nbsp;Inc., a Silicon Valley venture capital
  and venture consulting firm; and from March&nbsp;1993 to February&nbsp;1994 as
  vice president and chief financial officer of Monster Cable Products,&nbsp;Inc.
  He is a graduate of California State University, Northridge and has an MBA in
  International Finance from Loyola Marymount University.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Ronald A. Rudy</font></i></b>.</p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Ronald A. Rudy has been an independent investor and consultant to the mortgage
  industry since September, 2005; he has served on the board of directors since March&nbsp;1,
  2006. He founded Portland Mortgage Company in 1983 and served as its President
  and CEO until it was acquired in 1994. Portland Mortgage Company was the
  largest independent Mortgage Banking Company in Oregon and Southwest
  Washington.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Mr.&nbsp;Rudy served as President of the Oregon
  Mortgage Bankers Association in 1989 and as President of Oregon Executives in
  2003. Mr.&nbsp;Rudy served on the Board of Governors for The Mortgage Bankers
  Association from 1996-2003 and on the National Board of Directors of The
  Mortgage Bankers Association in 2003-2004. He also was president of the
  Portland Guadalajara Sisters Association in 2000 and a member of its board of
  directors from 1996-2001.</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">38</font></p>
  
  <div style="margin:0in 0in .0001pt;"><hr size="3" width="100%" noshade color="#010101" align="left"></div>
  
  </div>
  <!-- SEQ.=1,FOLIO='38',FILE='C:\JMS\brosent\08-10653-1\task2883422\10653-1-bg.htm',USER='brosent',CD='Apr 22 19:09 2008' -->
  
  
  <br clear="all" style="page-break-before:always;">
  
  
  <div style="font-family:Times New Roman;">
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Gregory Ruff</font></i></b>.</p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Gregory Ruff is the founder of White Space Strategy, a consulting firm
  founded in 2007 to focus on innovation and new market creation; his book, &#147;White
  Space&#148; will be published mid 2008. He has served on the board of directors
  since March&nbsp;1, 2006.&#160; From 1996
  until 2007, he was the principal of G.L. Ruff&nbsp;&amp; Company, a market
  change focused strategy-consulting firm based in San Francisco, CA and
  affiliated with Geoffrey Moore&#146;s Chasm Group.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Mr.&nbsp;Ruff has been consulting to high tech
  companies since 1987 when he joined Booz, Allen and Hamilton as an engagement
  manager following a 13-year career in sales, marketing and management at
  Hewlett Packard. At Booz Allen, Mr.&nbsp;Ruff consulted to industry leaders in
  companies ranging from American Express to IBM and led teams that restructured
  markets and companies. In 1990, Mr.&nbsp;Ruff joined Regis McKenna Inc. to
  develop a new Market Strategy Consulting Practice and later became managing
  partner at Regis McKenna Inc.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">There are no family relationships among our
  directors or executive officers. To our knowledge, none of our directors and
  executive officers has been involved in any of the following proceeding during
  the past five years: (i)&nbsp;any bankruptcy petition filed by or against any
  business of which such person was a general partner or executive officer either
  at the time of the bankruptcy or within two years prior to that time; (ii)&nbsp;any
  conviction in a crimina proceeding or being subject to a pending criminal
  proceeding (excluding traffic violations and other minor offenses); (iii)&nbsp;being
  subject to any order, judgment, or decree, not subsequently reversed, suspended
  or vacated, of any court of competent jurisdiction, permanently or temporarily
  enjoining, barring, suspending or otherwise limiting his involvement in any
  type of business, securities or banking activities; or (iv)&nbsp;being found by
  a court of competent jurisdiction (in a civil action), the SEC or the Commodity
  Futures Trading Commission to have violated a federal or state securities or
  commodities law, and the judgment has not been reversed, suspended or vacated.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">EXECUTIVE COMPENSATION</font></b></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The following table sets forth all compensation
  awarded to, earned by, or paid by Etelos to its named executive officers during
  the years ended December&nbsp;31, 2007 and 2006.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;page-break-after:auto;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Summary Compensation Table</font></b></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <table border="0" cellspacing="0" cellpadding="0" width="100%" style="border-collapse:collapse;width:100.0%;">
   <tr>
    <td width="27%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:27.4%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Name&nbsp;and&nbsp;Principal&nbsp;Position</font></b></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.32%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="7%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:7.42%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Year</font></b></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.32%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="7%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:7.42%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Salary<br>
    ($)</font></b></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.32%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="7%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:7.42%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Bonus<br>
    ($)</font></b></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.32%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="7%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:7.42%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Stock<br>
    Awards<br>
    (4)&nbsp;($)</font></b></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.32%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="7%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:7.42%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Option<br>
    Awards<br>
    (5)&nbsp;($)</font></b></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.32%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="11%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:11.0%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">All&nbsp;Other<br>
    Compensation<br>
    ($)</font></b></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.32%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="7%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:7.42%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Total<br>
    ($)</font></b></p>
    </td>
    <td width="0%" valign="bottom" style="padding:0in 0in 0in 0in;width:.82%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="27%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:27.4%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Jeffrey L. Garon (1)</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:7.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2007</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:7.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$67,813</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:7.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:7.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$121,550</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:7.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:11.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:7.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$189,363</font></p>
    </td>
    <td width="0%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:.82%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="27%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:27.4%;">
    <p style="margin:0in 0in .0001pt 20.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Chief Executive Officer</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:7.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2006</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:7.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:7.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:7.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:7.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:11.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:7.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0</font></p>
    </td>
    <td width="0%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:.82%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="27%" valign="top" style="padding:0in 0in 0in 0in;width:27.4%;">
    <p style="margin:0in 0in .0001pt 20.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" style="padding:0in 0in 0in 0in;width:7.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" style="padding:0in 0in 0in 0in;width:7.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" style="padding:0in 0in 0in 0in;width:7.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" style="padding:0in 0in 0in 0in;width:7.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" style="padding:0in 0in 0in 0in;width:7.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" valign="bottom" style="padding:0in 0in 0in 0in;width:11.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" style="padding:0in 0in 0in 0in;width:7.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="0%" valign="bottom" style="padding:0in 0in 0in 0in;width:.82%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="27%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:27.4%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Daniel J.A. Kolke (2)</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:7.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2007</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:7.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$127,158</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:7.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:7.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:7.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$182,100</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:11.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:7.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$309,256</font></p>
    </td>
    <td width="0%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:.82%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="27%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:27.4%;">
    <p style="margin:0in 0in .0001pt 20.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Chief Technology Officer</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:7.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2006</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:7.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$104,000</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:7.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:7.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:7.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:11.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:7.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$104,000</font></p>
    </td>
    <td width="0%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:.82%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="27%" valign="top" style="padding:0in 0in 0in 0in;width:27.4%;">
    <p style="margin:0in 0in .0001pt 20.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" style="padding:0in 0in 0in 0in;width:7.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" style="padding:0in 0in 0in 0in;width:7.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" style="padding:0in 0in 0in 0in;width:7.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" style="padding:0in 0in 0in 0in;width:7.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" style="padding:0in 0in 0in 0in;width:7.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" valign="bottom" style="padding:0in 0in 0in 0in;width:11.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" style="padding:0in 0in 0in 0in;width:7.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="0%" valign="bottom" style="padding:0in 0in 0in 0in;width:.82%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="27%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:27.4%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Ahmad Baitalmal (3)</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:7.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2007</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:7.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$138,065</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:7.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:7.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:7.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$1,879</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:11.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:7.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$139,944</font></p>
    </td>
    <td width="0%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:.82%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="27%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:27.4%;">
    <p style="margin:0in 0in .0001pt 20.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Chief Technology Officer</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:7.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2006</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:7.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$70,633</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:7.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:7.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:7.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:11.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.32%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:7.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$70,633</font></p>
    </td>
    <td width="0%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:.82%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
  </table>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <div style="margin:0in 0in .0001pt;"><hr size="1" width="25%" noshade color="black" align="left"></div>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(I) Mr. Garon was appointed as president
  of chief executive officer of Etelos in August 2007.</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(2) Mr. Kolke served as our
  chief executive officer until Mr. Garon took such office in August 2007, Mr.
  Kolke currently serves as vice president of chief technology officer of Etelos.</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(3) Mr. Baitalmal served as our
  chief technology officer until Mr. Kolke took such office in August 2007. Mr.
  Baitalmal currently serves as Chief Product Architect of Etelos.</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(4) This represents the fair
  market value, as determined by independent appraisal, of 7,150,000 shares
  issued to Mr. Garon pursuant to his employment agreement.</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(5) Represents the amount
  recognized for financial statement reporting purposes for 2007 in respect of
  outstanding option awards in accordance with SFAS 123(R).&#160; The assumptions made in valuing option awards
  reported in this column are discussed in &#147;Note 3.&#160; Summary of Significant Accounting Policies - Stock
  Based Compensation&#148; and &#147;Note 3.&#160; Summary
  of Significant Accounting Policies - Share-Based Compensation Information under
  SFAS No.123(R)&#148;and &#147;Note 6.&#160; Accounting
  for share-based compensation&#148; to our financial statements included in this
  report.</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Under the
  terms of the agreement between Etelos and Mr. Garon regarding his employment as
  chief executive officer of Etelos, Mr. Garon is entitled to receive base salary
  in the amount of $175,000 payable in accordance with the company&#146;s payroll
  policies. In addition, in connection with his employment, on August 11, 2007,
  Etelos issued Mr. Garon a restricted stock award of 7,150,000 shares of common
  stock, of which 1,787,500 shares vested upon grant, another 1,787,500 shares
  vest on August 11, 2008 and the balance vests ratably during the 24 month
  period following August 11, 2008. If Mr. Garon&#146;s employment with Etelos is
  terminated for any reason, the unvested portion of the restricted stock award
  is forfeited.</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">On August 11, 2007,
  Etelos granted Mr. Kolke an option to purchase up to 10,300,000 shares of
  common stock at an exercise price of $0.017 per share, of which 2,575,000
  options vested upon grant, 2,575,000 options vest on August 11, 2008, and the
  balance vest ratably during the 24 months following August 11, 2008. If not
  exercised, the option expires on August 11, 2017.</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">39</font></p>
  
  <div style="margin:0in 0in .0001pt;"><hr size="3" width="100%" noshade color="#010101" align="left"></div>
  
  </div>
  <!-- SEQ.=1,FOLIO='39',FILE='C:\JMS\brosent\08-10653-1\task2883422\10653-1-bg.htm',USER='brosent',CD='Apr 22 19:09 2008' -->
  
  
  
  <br clear="all" style="page-break-before:always;">
  <div style="font-family:Times New Roman;">
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Outstanding Equity Awards at Fiscal Year End</font></u></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The following table sets forth information
  concerning unexercised options, stock that has not vested and equity incentive
  plan awards for each named executive officer outstanding as of December 31,
  2007:</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;page-break-after:auto;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Outstanding Equity Awards at
  Fiscal Year-End</font></b></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <table border="0" cellspacing="0" cellpadding="0" width="100%" style="border-collapse:collapse;width:100.0%;">
   <tr>
    <td width="14%" valign="bottom" style="padding:0in 0in 0in 0in;width:14.0%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="47%" colspan="9" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:47.0%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Option Awards</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="36%" colspan="7" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:36.0%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Stock Awards</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="14%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:14.0%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Name</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="9%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:9.0%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Number&nbsp;of<br>
    Securities<br>
    Underlying<br>
    Unexercised<br>
    Options<br>
    (1)<br>
    exercisable</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="border:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:1.0%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="9%" valign="bottom" style="border-bottom:solid windowtext 1.0pt;border-left:none;border-right:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:9.0%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Number&nbsp;of<br>
    Securities<br>
    Underlying<br>
    Unexercised<br>
    Options<br>
    (2)<br>
    unexercisable</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="border:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:1.0%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="9%" valign="bottom" style="border-bottom:solid windowtext 1.0pt;border-left:none;border-right:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:9.0%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Equity<br>
    Incentive<br>
    Plan<br>
    Awards:<br>
    Number&nbsp;of<br>
    Securities<br>
    Underlying<br>
    Unexercised<br>
    Unearned<br>
    Opitions</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="border:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:1.0%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="7%" valign="bottom" style="border-bottom:solid windowtext 1.0pt;border-left:none;border-right:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:7.0%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Option<br>
    Exercise<br>
    Price<br>
    ($)</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="border:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:1.0%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="9%" valign="bottom" style="border-bottom:solid windowtext 1.0pt;border-left:none;border-right:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:9.0%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Option<br>
    Expiration<br>
    Date</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="8%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:8.0%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Number<br>
    of<br>
    Shares<br>
    or<br>
    Units&nbsp;of<br>
    Stock<br>
    That<br>
    Have&nbsp;Not<br>
    Vested<br>
    (3)</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="border:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:1.0%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="8%" valign="bottom" style="border-bottom:solid windowtext 1.0pt;border-left:none;border-right:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:8.0%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Market<br>
    Value&nbsp;of<br>
    Shares<br>
    or<br>
    Units&nbsp;of<br>
    Stock<br>
    That<br>
    Have&nbsp;Not<br>
    Vested<br>
    ($)</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="border:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:1.0%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="8%" valign="bottom" style="border-bottom:solid windowtext 1.0pt;border-left:none;border-right:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:8.5%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Equity<br>
    Incentive<br>
    Plan<br>
    Awards:<br>
    Number<br>
    of<br>
    Unearned<br>
    Shares,<br>
    Units<br>
    or&nbsp;Other<br>
    Rights<br>
    That<br>
    Have&nbsp;Not<br>
    Vested</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="border:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:1.0%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="8%" valign="bottom" style="border-bottom:solid windowtext 1.0pt;border-left:none;border-right:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:8.5%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Equity<br>
    Incentive<br>
    Plan<br>
    Awards:<br>
    Market<br>
    or<br>
    Payout<br>
    Value<br>
    of<br>
    Unearned<br>
    Shares,<br>
    Units<br>
    or&nbsp;Other<br>
    Rights<br>
    That<br>
    Have&nbsp;Not<br>
    Vested<br>
    ($)</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="14%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:14.0%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Jeffrey L. Garon</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="9%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:9.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="9%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:9.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="9%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:9.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:7.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="9%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:9.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="8%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:8.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">5,362,500</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="8%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:8.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">91,163</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="8%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:8.5%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="8%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:8.5%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="14%" valign="top" style="padding:0in 0in 0in 0in;width:14.0%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Daniel J.A.Kolke</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="9%" valign="bottom" style="padding:0in 0in 0in 0in;width:9.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">3,433,334</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="9%" valign="bottom" style="padding:0in 0in 0in 0in;width:9.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">6,866,666</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="9%" valign="bottom" style="padding:0in 0in 0in 0in;width:9.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" style="padding:0in 0in 0in 0in;width:7.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0.017</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="9%" valign="bottom" style="padding:0in 0in 0in 0in;width:9.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">08-11-2017</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="8%" valign="top" style="padding:0in 0in 0in 0in;width:8.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
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    <td width="1%" valign="top" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="8%" valign="top" style="padding:0in 0in 0in 0in;width:8.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="top" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="8%" valign="top" style="padding:0in 0in 0in 0in;width:8.5%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="top" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="8%" valign="top" style="padding:0in 0in 0in 0in;width:8.5%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="14%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:14.0%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Ahmad Baitalmal</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="9%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:9.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">333</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="9%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:9.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="9%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:9.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:7.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">10.50</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="9%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:9.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">09-27-2010</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="8%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:8.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="8%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:8.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="8%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:8.5%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="8%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:8.5%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="14%" valign="top" style="padding:0in 0in 0in 0in;width:14.0%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Ahmad Baitalmal</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="9%" valign="bottom" style="padding:0in 0in 0in 0in;width:9.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">633</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="9%" valign="bottom" style="padding:0in 0in 0in 0in;width:9.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="9%" valign="bottom" style="padding:0in 0in 0in 0in;width:9.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" style="padding:0in 0in 0in 0in;width:7.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">10.50</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="9%" valign="bottom" style="padding:0in 0in 0in 0in;width:9.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">05-01-2010</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="8%" valign="top" style="padding:0in 0in 0in 0in;width:8.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="top" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="8%" valign="top" style="padding:0in 0in 0in 0in;width:8.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="top" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="8%" valign="top" style="padding:0in 0in 0in 0in;width:8.5%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="top" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="8%" valign="top" style="padding:0in 0in 0in 0in;width:8.5%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="14%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:14.0%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Ahmad Baitalmal</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="9%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:9.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="9%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:9.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">35,000</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="9%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:9.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:7.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0.017</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="9%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:9.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">11-07-2017</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="8%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:8.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="8%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:8.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="8%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:8.5%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="8%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:8.5%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
  </table>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <div style="margin:0in 0in .0001pt;"><hr size="1" width="25%" noshade color="black" align="left"></div>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(1)&nbsp;Consists of (i) the vested portion of options granted to
  Mr.Kolke pursuant to his employment agreement, and (ii) fully-vested options
  issued to Mr. Baitalmal.</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(2)&nbsp;Consists of the unvested portion of (i) options issued to Mr.
  Kolke pursuant to his employment agreement, which vest over 36 months from
  August 2007, and (ii) options issued to Mr. Baitalmal which vest over 48 months
  from November 7, 2007.</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(3)&nbsp;Consists of shares issued to Mr. </font>Garon subject to repurchase by the Company
  pursuant to his employment agreement, which vest over 36 months from August,
  2007.</p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Director Compensation</font></u></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">During the fiscal year ended December&nbsp;31, 2007,
  directors (except for Jeffrey L. Garon, for the period of his service as a
  director from August&nbsp;2007 though December&nbsp;2007) were paid $1,000 per
  month for attending regular and special meetings of our board of
  directors.&#160; The table below sets forth
  the compensation the member of our board of directors received during the
  fiscal year ended December&nbsp;31, 2007.</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Director Compensation</font></b></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <table border="0" cellspacing="0" cellpadding="0" width="100%" style="border-collapse:collapse;width:100.0%;">
   <tr>
    <td width="40%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in .7pt 0in .7pt;width:40.02%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Name</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:1.98%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="14%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in .7pt 0in .7pt;width:14.02%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Fees <br>
    Earned or<br>
    Paid in<br>
    Cash ($)</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:1.5%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="14%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in .7pt 0in .7pt;width:14.0%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Option <br>
    Awards ($)</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:1.5%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="14%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in .7pt 0in .7pt;width:14.0%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">All Other <br>
    Compensation (1)</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:1.5%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="10%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in .7pt 0in .7pt;width:10.0%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Total ($)</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:1.48%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="40%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in .7pt 0in .7pt;width:40.02%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Jeffrey
    L. Garon</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in .7pt 0in .7pt;width:1.98%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="14%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in .7pt 0in .7pt;width:14.02%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in .7pt 0in .7pt;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="14%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in .7pt 0in .7pt;width:14.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in .7pt 0in .7pt;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="14%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in .7pt 0in .7pt;width:14.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in .7pt 0in .7pt;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="10%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in .7pt 0in .7pt;width:10.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in .7pt 0in .7pt;width:1.48%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="40%" valign="top" style="padding:0in .7pt 0in .7pt;width:40.02%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Daniel
    J.A. Kolke</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:1.98%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:1.1%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="12%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:12.92%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">12,000</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="14%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:14.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="14%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:14.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="10%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:10.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">12,000</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:1.48%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="40%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in .7pt 0in .7pt;width:40.02%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Ronald A. Rudy</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in .7pt 0in .7pt;width:1.98%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in .7pt 0in .7pt;width:1.1%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="12%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in .7pt 0in .7pt;width:12.92%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">12,000</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in .7pt 0in .7pt;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="14%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in .7pt 0in .7pt;width:14.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in .7pt 0in .7pt;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="14%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in .7pt 0in .7pt;width:14.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in .7pt 0in .7pt;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="10%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in .7pt 0in .7pt;width:10.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">12,000</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in .7pt 0in .7pt;width:1.48%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="40%" valign="top" style="padding:0in .7pt 0in .7pt;width:40.02%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Gregory Ruff</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:1.98%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:1.1%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="12%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:12.92%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">12,000</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="14%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:14.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="14%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:14.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">42,574</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="10%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:10.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">56,574</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:1.48%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="40%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in .7pt 0in .7pt;width:40.02%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Ahmad
    Baitalmal(2)</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in .7pt 0in .7pt;width:1.98%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in .7pt 0in .7pt;width:1.1%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="12%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in .7pt 0in .7pt;width:12.92%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">8,000</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in .7pt 0in .7pt;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="14%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in .7pt 0in .7pt;width:14.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in .7pt 0in .7pt;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="14%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in .7pt 0in .7pt;width:14.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in .7pt 0in .7pt;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="10%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in .7pt 0in .7pt;width:10.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">8,000</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in .7pt 0in .7pt;width:1.48%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="40%" valign="top" style="padding:0in .7pt 0in .7pt;width:40.02%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Michael
    Wise (3)</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:1.98%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:1.1%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="12%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:12.92%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">11,000</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="14%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:14.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="14%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:14.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="10%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:10.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">11,000</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:1.48%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
  </table>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <div style="margin:0in 0in .0001pt;"><hr size="1" width="25%" noshade color="black" align="left"></div>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(1)&nbsp;Payment
  for Consulting Services performed by Mr.&nbsp;Ruff for Etelos and related
  expenses.</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(2)&nbsp;Mr.&nbsp;Baitalmal
  resigned from the Board in August&nbsp;2007.</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(3)&nbsp;Mr.&nbsp;Wise
  resigned from the Board in December&nbsp;2007.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">On March&nbsp;5, 2008, our board of directors
  adopted a board compensation plan providing for (a)&nbsp;existing non-executive
  board members to receive options to acquire up to 10,000 split-adjusted shares
  of our common stock at an exercise price of $0.40 per share, which vest as to
  50% on the 12 month anniversary of the date of grant and the remaining 50% on
  the 24 month anniversary of the date of grant; (b)&nbsp;new non-executive board
  members to receive options to acquire up to 10,000 split-adjusted shares of our
  common stock at an exercise price equal to the fair market value of our common
  stock on the date of grant, which vest as to 50% on the 12 month anniversary of
  the date of grant and the remaining 50% on the 24 month anniversary of the date
  of grant; (c)&nbsp;all re-elected board members to receive, upon their
  re-election, options to acquire up to 10,000 split-adjusted shares of our
  common stock at an exercise price equal to the fair market value of our common
  stock on the date of grant, which vest as to 100% on the 12 month anniversary
  of the date of grant; and (d)&nbsp;a quarterly</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">40</font></p>
  
  <div style="margin:0in 0in .0001pt;text-indent:0in;"><hr size="3" width="100%" noshade color="#010101" align="left"></div>
  
  </div>
  <!-- SEQ.=1,FOLIO='40',FILE='C:\JMS\brosent\08-10653-1\task2883303\10653-1-bi.htm',USER='brosent',CD='Apr 22 18:47 2008' -->
  
  
  <br clear="all" style="page-break-before:always;">
  
  
  <div>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">payment of $1,500.00 to each
  non-executive member of the board for their expenses in connection with
  attendance at quarterly board meetings and periodic board committee meetings.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We plan to enter into indemnification agreements
  with each of our directors (and our executive officers) on terms that we
  believe are reasonable and customary and comparable to those entered into by
  other publicly traded companies in the United States.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
  INDEPENDENCE</font></b></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Related Transactions</font></u></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Etelos previously entered into a series of loan
  transactions (collectively, the &#147;<b>Kolke</b>  <b>Loans</b>&#148;) with the parents and two brothers of its chairman
  and chief technology officer , Mr.&nbsp;Daniel J.A. Kolke.&#160; In connection with settlement of the Kolke
  Loans, the Company entered into three unsecured promissory notes in the
  aggregate principal amount of $815,827.42 which will become secured by certain
  presently unidentified assets of Etelos if and when Mr.&nbsp;Daniel J.A. Kolke
  is no longer neither an employee nor member of the<b>  </b>board
  of directors of the company.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Parent Companies</font></u></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We do not have a parent company.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Director Independence</font></u></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our board of directors currently consists of four
  members, Daniel J. A. Kolke, Jeffrey L. Garon, Ronald A. Rudy and Gregory
  Ruff.&#160; Messrs. Rudy and Ruff are
  considered independent under the definition of independence established by the
  Nasdaq Stock Market.</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">DESCRIPTION OF SECURITIES</font></b></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our authorized capital stock consists of 360,000,000
  shares of common stock, no par value, and 240,000,000 shares of preferred
  stock, no par value. Our preferred stock may be issued from time to time in one
  or more series, each such series to consist of such number of shares and to
  have such terms, rights, powers and preferences as determined by our board of
  directors.&#160; Our board of directors is
  authorized to determine and alter the rights, preferences and privileges
  granted to and imposed upon any wholly unissued series of preferred stock, and
  to fix the number of shares of any series of preferred stock and the
  designation of any such series of preferred stock. Our board of directors,
  within the limits and restrictions stated in any resolutions of our board of
  directors originally fixing the number of shares constituting any series, may
  increase or decrease (but not below the number of shares of such series then
  outstanding) the number of shares of any series subsequent to the issue of
  shares of that series.&#160; The following
  summary is qualified in its entirety by reference to our amended and restated
  certificate of incorporation and bylaws, copies of which are filed as exhibits
  to our filings with the SEC and are incorporated herein by this reference.</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">41</font></p>
  
  <div style="margin:0in 0in .0001pt;text-indent:0in;"><hr size="3" width="100%" noshade color="#010101" align="left"></div>
  
  </div>
  <!-- SEQ.=1,FOLIO='41',FILE='C:\JMS\brosent\08-10653-1\task2883303\10653-1-bi.htm',USER='brosent',CD='Apr 22 18:47 2008' -->
  
  
  <br clear="all" style="page-break-before:always;">
  
  
  <div style="font-family:Times New Roman;">
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Common Stock</font></u></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">As of April&nbsp;22, 2008, there were 22,700,634
  shares of common stock outstanding that were held of record by approximately 145
  stockholders. Holders of our common stock are entitled to one vote per share on
  all matters to be voted upon by the stockholders. In the event of our
  liquidation, dissolution, or winding up, holders of common stock are entitled
  to share ratably in all assets remaining after payment of liabilities. Our
  common stock has no preemptive, conversion, or other rights to subscribe for
  additional securities. There are no redemption or sinking fund provisions
  applicable to our common stock. The rights, preferences, and privileges of
  holders of common stock are subject to, and may be adversely affected by, the
  rights of the holders of shares of any series of preferred stock that we may
  designate and issue from time to time in the future.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We have reserved 7,237,185 shares of common stock
  for issuance pursuant to the terms of our convertible debentures and warrants.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Preferred Stock</font></u></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">As of April&nbsp;22, 2008, we had no shares of
  preferred stock issued or outstanding.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT&#146;S <br>
  COMMON EQUITY AND RELATED STOCKHOLDER MATTERS</font></b></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Shares of Tripath common stock were quoted on the
  OTC Bulletin Board under the symbol &#147;TRPH&#148; from January&nbsp;2006 to February&nbsp;2007,
  at which time the common stock was de-listed from the OTC Bulletin Board.&#160; Since then, the common stock has been trading
  on the Pink Sheets.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In connection with the merger, a market maker has
  filed an application to have our common stock quoted on the OTC Bulletin Board,
  which is pending as of April&nbsp;22, 2008.&#160;
  The shares of Etelos, Incorporated have been privately held and never
  traded publicly. We cannot give any assurances as to when, if ever, our common
  stock will be quoted on the OTC Bulletin Board.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The OTC Bulletin Board is a regulated quotation
  service that displays real-time quotes, last-sale prices and volume information
  in over-the-counter equity securities.&#160;
  The OTC Bulletin Board securities are traded by a community of market
  makers that enter quotes and trade reports.&#160;
  This market is extremely limited and any prices quoted may not be a
  reliable indication of the value of our common stock.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Holders</font></u></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman"><font style="font-size:10.0pt;">Immediately following the issuance of our common
  stock in connection with the </font>merger,</font> there were 68,138,900<b>  </b>shares of common stock outstanding held by
  approximately 145 holders of record.</p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Dividends</font></u></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our board of directors has not declared a dividend
  on our common stock during the last two fiscal years or the subsequent interim
  period and we do not anticipate the payments of dividends in the near future as
  we intend to reinvest our profits to grow our business.</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">42</font></p>
  
  <div style="margin:0in 0in .0001pt;text-indent:0in;"><hr size="3" width="100%" noshade color="#010101" align="left"></div>
  
  </div>
  <!-- SEQ.=1,FOLIO='42',FILE='C:\JMS\brosent\08-10653-1\task2883303\10653-1-bi.htm',USER='brosent',CD='Apr 22 18:47 2008' -->
  
  
  <br clear="all" style="page-break-before:always;">
  
  
  <div>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Securities Authorized for Issuance under Equity
  Compensation Plans</font></u></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The table below sets forth information as of December&nbsp;31,
  2007, with respect to compensation plans under which Etelos common stock is
  authorized for issuance.&#160; The figures
  related to equity compensation plans approved by security holders relate to
  options granted under the 1999 Stock Option Plan and the 2007 Stock Incentive
  Plan.&#160; Etelos does not have any equity
  compensation plans not approved by its security holders.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <table border="0" cellspacing="0" cellpadding="0" width="100%" style="border-collapse:collapse;width:100.0%;">
   <tr>
    <td width="41%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in .7pt 0in .7pt;width:41.96%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Plan
    Category</font></b></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.04%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="17%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in .7pt 0in .7pt;width:17.16%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Number of securities<br>
    to be issued upon<br>
    exercise of <br>
    outstanding options,<br>
    warrants and rights <br>
    (a)</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:1.5%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="17%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in .7pt 0in .7pt;width:17.18%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Weighted-<br>
    average<br>
    exercise <br>
    price of<br>
    outstanding <br>
    options,<br>
    warrants and <br>
    rights<br>
    (b)</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:1.5%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="17%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in .7pt 0in .7pt;width:17.18%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Number of securities<br>
    remaining available for<br>
    future issuance under<br>
    equity compensation<br>
    plans (excluding <br>
    securities reflected in<br>
    column a)<br>
    (c)</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:1.5%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="41%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in .7pt 0in .7pt;width:41.96%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Equity compensation plans approved by
    security holders</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in .7pt 0in .7pt;width:2.04%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="17%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in .7pt 0in .7pt;width:17.16%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">27,256,373</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in .7pt 0in .7pt;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in .7pt 0in .7pt;width:1.1%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="16%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-top:solid windowtext 1.0pt;padding:0in .7pt 0in .7pt;width:16.08%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0.108</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in .7pt 0in .7pt;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="17%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in .7pt 0in .7pt;width:17.18%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">331,262</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in .7pt 0in .7pt;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr height="0">
    <td width="314" style="border:none;"></td>
    <td width="15" style="border:none;"></td>
    <td width="128" style="border:none;"></td>
    <td width="11" style="border:none;"></td>
    <td width="8" style="border:none;"></td>
    <td width="120" style="border:none;"></td>
    <td width="11" style="border:none;"></td>
    <td width="129" style="border:none;"></td>
    <td width="11" style="border:none;"></td>
   </tr>
  </table>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">LEGAL PROCEEDINGS</font></b></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In the course of business, the Company has been, and
  may continue to be, involved in various claims seeking monetary damages and
  other relief.&#160; The amount of the ultimate
  liability, if any, from such claims cannot be determined. However, in the
  opinion of the Company&#146;s management, the ultimate liability for any legal
  claims currently pending against the Company will not have a material adverse
  affect on the Company&#146;s financial position, results of operations or cash
  flows.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS</font></b></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">As reported in our Current Report on Form&nbsp;8-K
  filed on May&nbsp;18, 2007, on March&nbsp;2, 2007, Stonefield Josephson,&nbsp;Inc.,
  or Stonefield, Tripath&#146;s then independent registered public accounting firm, ceased
  its relationship with Tripath as a result of Tripath&#146;s failure to pay
  Stonefield&#146;s outstanding invoices.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The audit reports of Stonefield on Tripath&#146;s
  consolidated financial statements as of September&nbsp;30, 2007 and 2006 and
  for the period ended December&nbsp;31, 2007 and the related consolidated
  statements of operations, stockholders&#146; equity, and cash flows for the years
  ended September&nbsp;30, 2007 and 2006, and the three month period ended December&nbsp;31,
  2007, did not contain any adverse opinion or disclaimer of opinion, nor were
  they qualified or modified as to uncertainty, audit scope, or accounting
  principles.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">During the fiscal years ended September&nbsp;30,
  2007 and 2006 and from October&nbsp;1, 2006 to the date of Stonefield&#146;s
  cessation of its relationship with Tripath, there were no disagreements with
  Stonefield on any matter of accounting principles or practices, financial
  statement disclosure, or auditing scope or procedure, which if not resolved to
  Stonefield&#146;s satisfaction, would have caused it to make reference to the
  subject matter of the disagreement in connection with its reports. During the
  same period, there have been no reportable events, as that term is described in
  Item 304(a)(1)(iv)&nbsp;of Regulation S-K.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Etelos engaged Stonefield as its independent
  registered public accounting firm in February&nbsp;2008. In addition, Tripath
  engaged Stonefield as its independent registered public accounting firm in
  February 2008.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">RECENT SALES OF UNREGISTERED SECURITIES</font></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In April&nbsp;2008, we entered into a securities
  purchase agreement with two institutional investors for the sale of 6%
  convertible debentures and common stock purchase warrants.&#160; We issued in the aggregate $3.5 million face
  amount of debentures and warrants to purchase 1,166,667 shares of our common
  stock in exchange for net proceeds of $3.4 million after deducting fees and
  offering expenses.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In January&nbsp;2008, we entered into a securities
  purchase agreement with three institutional investors for the sale of 6%
  convertible debentures and common stock purchase warrants.&#160; We issued in the aggregate $2.0 million face
  amount of debentures and warrants to purchase 222,222 shares of our common
  stock in exchange for net proceeds of $1.9 million after deducting fees and
  offering expenses.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">43</font></p>
  
  <div style="margin:0in 0in .0001pt;text-indent:0in;"><hr size="3" width="100%" noshade color="#010101" align="left"></div>
  
  </div>
  <!-- SEQ.=1,FOLIO='43',FILE='C:\JMS\brosent\08-10653-1\task2883303\10653-1-bi.htm',USER='brosent',CD='Apr 22 18:47 2008' -->
  
  
  <br clear="all" style="page-break-before:always;">
  
  
  <div>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">During the period October&nbsp;2006 to June&nbsp;2007,
  we issued 20% convertible notes with a value of $850,000 (the &#147;20% Notes&#148;),
  together with warrants to purchase up to 850,000 shares of our common
  stock.&#160; The warrants have an exercise
  price of $0.03 and a three year term.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">During the period from October 2007 to December
  2007, we issued 600,000 shares of common stock upon exercise of the warrants we
  issued with the 20% Notes.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">During the period August&nbsp;2007 to October&nbsp;2007,
  we issued 6% convertible notes at an original issue discount of 10% with a face
  value of $3,326,400, along with warrants to purchase up to 3,024,000 shares of
  our common stock.&#160; The warrants have an
  exercise price of $0.40 and a five year term.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">During the period from October 2007 to December
  2007, we issued 1,929,000 shares of common stock upon exercise of the warrants
  we issued with the 6% Notes.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Each of the transactions described above was exempt
  from registration under the Securities Act pursuant to Section&nbsp;4(2)&nbsp;thereof
  and/or, with respect to the issuance of common stock upon exercise of warrants,
  Section&nbsp;3(a)(9)&nbsp;thereof.&#160; None
  of the transactions was conducted in connection with a public offering, and no
  public solicitation or advertisement was made or relied upon by the investor in
  connection with this offering, and, with respect to the issuance of common
  stock upon exercise of the warrants, shares of common stock were exchanged for
  outstanding warrants exclusively with the holder thereof and no commission or
  other remuneration was paid or given directly or indirectly for soliciting such
  exchange.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">INDEMNIFICATION OF DIRECTORS AND OFFICERS</font></b></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Pursuant to our articles of incorporation and
  bylaws, our officers and directors who may be made a party to any proceeding,
  including a law suit, because of his or her position, may be indemnified from
  personal liability. This indemnification includes payment of all costs, charges,
  and expenses, including amounts paid to settle an action or satisfy a judgment,
  actually and reasonably incurred in a civil, criminal or administrative
  proceeding. The indemnification is intended to be to the fullest extent
  permitted by law.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Insofar as indemnification for liabilities arising
  under the Securities Act of 1933, as amended, may be permitted to our directors
  or officers pursuant to the foregoing provisions, we have been informed that,
  in the opinion of the SEC, such indemnification is against public policy as
  expressed in the Securities Act, and is, therefore, unenforceable.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">WHERE YOU CAN FIND MORE INFORMATION</font></b></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We have filed with the SEC, located on 100 F Street
  NE, Washington, D.C. 20549, Current Reports on Form&nbsp;8-K, Quarterly Reports
  on Form&nbsp;10-QSB, Annual Reports on Form&nbsp;10-KSB, and other reports,
  statements and information as required under the Securities Exchange Act of
  1934, as amended.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The reports, statements, and other information that
  we have filed with the SEC may be read and copied at the SEC&#146;s Public Reference
  Room&nbsp;at 100 F Street NE, Washington, D.C. 20549. The public may obtain
  information on the operation of the Public Reference Room&nbsp;by calling the
  SEC at 1-800-SEC-0330.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The SEC maintains a web site (http://www.sec.gov.)
  that contains the registration statements, reports, proxy, and information
  statements and other information regarding registrants that file electronically
  with the SEC such as us. You may access our SEC filings electronically at this
  SEC website. These SEC filings are also available to the public from commercial
  document retrieval services.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">44</font></p>
  
  <div style="margin:0in 0in .0001pt;"><hr size="3" width="100%" noshade color="#010101" align="left"></div>
  
  </div>
  <!-- SEQ.=1,FOLIO='44',FILE='C:\JMS\brosent\08-10653-1\task2883303\10653-1-bi.htm',USER='brosent',CD='Apr 22 18:47 2008' -->
  
  
  <br clear="all" style="page-break-before:always;">
  
  
  <div style="font-family:Times New Roman;">
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;"><strong><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">ITEM 3.02&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; UNREGISTERED
  SALES OF EQUITY SECURITIES</font></b></strong></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Pursuant to the order issued by the bankruptcy court
  in connection with the approval of the Plan of Reorganization, as of the
  effective date of the merger, Tripath issued 5,000,000 shares in the aggregate
  of its common stock to its secured creditors and 10,000 shares in the aggregate
  to its unsecured creditors.&#160; The issuance
  of such shares of common stock was exempt from registration under the
  Securities Act of 1933 pursuant to Section&nbsp;3(a)(7)&nbsp;thereof.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In addition, in connection with the merger, Tripath
  issued 17,690,634 shares of its common stock in the aggregate to the holders of
  Etelos capital stock.&#160; The issuance of
  such shares of common stock was exempt from registration under the Securities
  Act of 1933 pursuant to Section&nbsp;4(2)&nbsp;thereof.&#160; Such shares of common stock are restricted
  shares, and the holders thereof may not sell, transfer or otherwise dispose of
  such shares without registration under the Securities Act of 1933 or an
  exemption therefrom.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Immediately following the closing of the merger,
  Tripath had 22,700,634 shares issued and outstanding, with the former
  stockholders of Etelos holding approximately 78% of such issued and outstanding
  shares.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt 1.0in;text-indent:-1.0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">ITEM 5.01</font></b><b><font size="1" style="font-size:3.0pt;font-weight:bold;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font></b><b>CHANGES IN CONTROL OF REGISTRANT</b></p>
  
  <p style="margin:0in 0in .0001pt 1.0in;text-indent:-1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Reference is made to the disclosure set forth under
  Items 2.01 and 3.02 of this report, which disclosure is incorporated herein by
  reference.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In connection with the merger, there was a change of
  control of Tripath as result of the issuance of 22,700,634 shares of Tripath
  common stock, which represented 78% of outstanding common stock immediately
  following such issuance.&#160; In addition,
  the following individuals were appointed to the Tripath board of directors
  effective as of April&nbsp;22, 2008, none of whom were on the Tripath board of
  directors immediately before the merger: Daniel J. A. Kolke, Jeffrey L. Garon,
  Ronald A. Rudy and Gregory Ruff.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt 1.0in;text-indent:-1.0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">ITEM 5.02</font></b><b><font size="1" style="font-size:3.0pt;font-weight:bold;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font></b><b>DEPARTURE OF DIRECTORS OR
  PRINCIPAL OFFICERS; ELECTION OF DIRECTORS; APPOINTMENT OF PRINCIPAL OFFICERS</b></p>
  
  <p style="margin:0in 0in .0001pt 1.0in;text-indent:-1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Reference is made to the disclosure set forth under
  Item 2.01 of this report, which disclosure is incorporated herein by reference.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Upon the closing of the merger, Gary Sawka, who had
  been serving as the Designated Responsible Individual for Debtor in Possession,
  resigned from such position effective April&nbsp;22, 2008.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Effective as of April&nbsp;22, 2008, we appointed (i)&nbsp;Jeffrey
  L. Garon as our President and Chief Executive Officer; (ii)&nbsp;Daniel J. A.
  Kolke as Vice President&nbsp;&amp; Chief Technology Officer, (iii) David S.G.
  MacKenzie as our Vice President&nbsp;&amp; Chief Financial Officer and Chief
  Accounting Officer, and (iv) Kennedy A. Brooks as Vice President&nbsp;&amp;
  General Counsel and Secretary.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Effective as of April&nbsp;22, 2008, in connection
  with the closing of the merger, Daniel J. A. Kolke, Jeffrey L. Garon, Ronald A.
  Rudy, and Gregory Ruff were each appointed to our board of directors.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">For certain biographical and other information
  regarding the newly appointed officers and directors, see the disclosure under
  Item 2.01 of this report, which disclosure is incorporated herein by reference.</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">45</font></p>
  
  <div style="margin:0in 0in .0001pt;text-indent:0in;"><hr size="3" width="100%" noshade color="#010101" align="left"></div>
  
  </div>
  <!-- SEQ.=1,FOLIO='45',FILE='C:\JMS\brosent\08-10653-1\task2883303\10653-1-bi.htm',USER='brosent',CD='Apr 22 18:47 2008' -->
  
  
  <br clear="all" style="page-break-before:always;">
  
  
  <div>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">ITEM 5.06&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; CHANGE IN
  SHELL COMPANY STATUS</font></b></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">As a result of our acquisition of Etelos, as
  described in Item 2.01, which description is in its entirety incorporated by reference
  in this Item 5.06, Tripath ceased being a shell company as such term is defined
  in Rule&nbsp;12b-2 under the Exchange Act.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">ITEM 9.01&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; FINANCIAL STATEMENTS AND EXHIBITS</font></b></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">(a)&nbsp;Financial Statements of Business Acquired</font></i></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Appended to this report are the audited financial
  statements of Etelos, Incorporated for the fiscal years ended December&nbsp;31,
  2006 and December&nbsp;31, 2007.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">(b)&nbsp;Pro Forma Financial Information</font></i></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Pro forma
  income statements are not presented in this filing because Tripath had no
  operating transactions during the previous year. All assets and liabilities of Tripath
  were transferred to a separate bankruptcy estate and were not part of the
  merger.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">(d)&nbsp;Exhibits</font></i></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <table border="0" cellspacing="0" cellpadding="0" width="100%" style="border-collapse:collapse;width:100.0%;">
   <tr>
    <td width="8%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in .7pt 0in .7pt;width:8.22%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Exhibit<br>
    No.</font></b></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.78%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="89%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in .7pt 0in .7pt;width:89.0%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Description</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="8%" valign="top" style="border:none;padding:0in .7pt 0in .7pt;width:8.22%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2.1</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.78%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="89%" valign="top" style="border:none;padding:0in .7pt 0in .7pt;width:89.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Plan
    Proponents&#146; Third Amended Plan of Reorganization for the Debtor dated
    December&nbsp;20, 2007</font></p>
    </td>
   </tr>
   <tr>
    <td width="8%" valign="top" style="padding:0in .7pt 0in .7pt;width:8.22%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2.2</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.78%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="89%" valign="top" style="padding:0in .7pt 0in .7pt;width:89.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Agreement
    and Plan of Merger dated April&nbsp;22, 2008 between Tripath Technology Inc.
    and Etelos, Incorporated</font></p>
    </td>
   </tr>
   <tr>
    <td width="8%" valign="top" style="padding:0in .7pt 0in .7pt;width:8.22%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">3.1</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.78%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="89%" valign="top" style="padding:0in .7pt 0in .7pt;width:89.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Amended
    and Restated Certificate of Incorporation of Tripath Technology Inc.</font></p>
    </td>
   </tr>
   <tr>
    <td width="8%" valign="top" style="padding:0in .7pt 0in .7pt;width:8.22%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">3.2</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.78%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="89%" valign="top" style="padding:0in .7pt 0in .7pt;width:89.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Bylaws
    of Etelos, Inc.</font></p>
    </td>
   </tr>
   <tr>
    <td width="8%" valign="top" style="padding:0in .7pt 0in .7pt;width:8.22%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">4.1</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.78%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="89%" valign="top" style="padding:0in .7pt 0in .7pt;width:89.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Form&nbsp;of
    common stock purchase warrant issued in connection with the January&nbsp;2008
    financing</font></p>
    </td>
   </tr>
   <tr>
    <td width="8%" valign="top" style="padding:0in .7pt 0in .7pt;width:8.22%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">4.2</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.78%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="89%" valign="top" style="padding:0in .7pt 0in .7pt;width:89.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Form&nbsp;of
    original issue discount 6.0% senior secured convertible debenture issued in
    connection with the January&nbsp;2008 financing</font></p>
    </td>
   </tr>
   <tr>
    <td width="8%" valign="top" style="padding:0in .7pt 0in .7pt;width:8.22%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">10.1</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.78%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="89%" valign="top" style="padding:0in .7pt 0in .7pt;width:89.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Loan
    and Security Agreement by and among Etelos, Incorporated and Bridge Bank,
    National Association dated October&nbsp;5, 2007</font></p>
    </td>
   </tr>
   <tr>
    <td width="8%" valign="top" style="padding:0in .7pt 0in .7pt;width:8.22%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">10.2</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.78%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="89%" valign="top" style="padding:0in .7pt 0in .7pt;width:89.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The
    anti-dilution agreement entered between Etelos, Incorporated and each of Don
    Morissette and Ronald A. Rudy, as amended, dated March&nbsp;6, 2008</font></p>
    </td>
   </tr>
   <tr>
    <td width="8%" valign="top" style="padding:0in .7pt 0in .7pt;width:8.22%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">10.3</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.78%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="89%" valign="top" style="padding:0in .7pt 0in .7pt;width:89.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Settlement
    Agreement and General Release of Claims dated December&nbsp;30, 2007, among
    (i)&nbsp;Etelos, Incorporated, (ii)&nbsp;Robyn and Daniel J.A. Kolke,
    (iii)&nbsp;Selma and Daniel A. Kolke, (iv)&nbsp;Kristin and Desmond D.
    Kolke,, and (v)&nbsp;Crystal and Raymond D. Kolke</font></p>
    </td>
   </tr>
   <tr>
    <td width="8%" valign="top" style="padding:0in .7pt 0in .7pt;width:8.22%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">10.4</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.78%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="89%" valign="top" style="padding:0in .7pt 0in .7pt;width:89.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Promissory
    Note dated December&nbsp;30, 2007 issued to Selma and Daniel A. Kolke</font></p>
    </td>
   </tr>
   <tr>
    <td width="8%" valign="top" style="padding:0in .7pt 0in .7pt;width:8.22%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">10.5</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.78%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="89%" valign="top" style="padding:0in .7pt 0in .7pt;width:89.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Promissory
    Note dated December&nbsp;30, 2007 issued to Daniel J.A. Kolke</font></p>
    </td>
   </tr>
   <tr>
    <td width="8%" valign="top" style="padding:0in .7pt 0in .7pt;width:8.22%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">10.6</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.78%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="89%" valign="top" style="padding:0in .7pt 0in .7pt;width:89.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Promissory
    Note dated December&nbsp;30, 2007 issued to Desmond D. Kolke</font></p>
    </td>
   </tr>
   <tr>
    <td width="8%" valign="top" style="padding:0in .7pt 0in .7pt;width:8.22%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">10.7</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.78%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="89%" valign="top" style="padding:0in .7pt 0in .7pt;width:89.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Securities
    Purchase Agreement by and among Etelos, Incorporated and the purchasers
    identified therein dated as of January&nbsp;31, 2008</font></p>
    </td>
   </tr>
   <tr>
    <td width="8%" valign="top" style="padding:0in .7pt 0in .7pt;width:8.22%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">10.8</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.78%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="89%" valign="top" style="padding:0in .7pt 0in .7pt;width:89.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Registration
    Rights Agreement by and among Etelos, Incorporated and the purchasers
    identified therein dated as of January&nbsp;31, 2008</font></p>
    </td>
   </tr>
   <tr>
    <td width="8%" valign="top" style="padding:0in .7pt 0in .7pt;width:8.22%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">10.9</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.78%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="89%" valign="top" style="padding:0in .7pt 0in .7pt;width:89.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Security
    Agreement dated as of January&nbsp;31, 2008 by and among Etelos, Incorporated
    and the holders of the original issue discount 6.0% senior secured
    convertible debentures issued in connection with the January&nbsp;2008
    financing</font></p>
    </td>
   </tr>
  </table>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">46</font></p>
  
  <div style="margin:0in 0in .0001pt;"><hr size="3" width="100%" noshade color="#010101" align="left"></div>
  
  </div>
  <!-- SEQ.=1,FOLIO='46',FILE='C:\JMS\brosent\08-10653-1\task2883303\10653-1-bi.htm',USER='brosent',CD='Apr 22 18:47 2008' -->
  
  
  <br clear="all" style="page-break-before:always;">
  
  
  <div>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">SIGNATURE</font></b></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Pursuant
  to the requirement of the Securities Exchange Act of 1934, the registrant has
  duly caused this report to be signed on its behalf by the undersigned there
  unto duly authorized.</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <table border="0" cellspacing="0" cellpadding="0" width="100%" style="border-collapse:collapse;width:100.0%;">
   <tr>
    <td width="58%" valign="top" style="padding:0in .7pt 0in .7pt;width:58.1%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="41%" colspan="2" valign="top" style="padding:0in .7pt 0in .7pt;width:41.9%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Etelos,&nbsp;Inc.</font></u></p>
    </td>
   </tr>
   <tr>
    <td width="58%" valign="top" style="padding:0in .7pt 0in .7pt;width:58.1%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="41%" colspan="2" valign="top" style="padding:0in .7pt 0in .7pt;width:41.9%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Registrant</font></p>
    </td>
   </tr>
   <tr>
    <td width="58%" valign="top" style="padding:0in .7pt 0in .7pt;width:58.1%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="41%" colspan="2" valign="top" style="padding:0in .7pt 0in .7pt;width:41.9%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="58%" valign="top" style="padding:0in .7pt 0in .7pt;width:58.1%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">April&nbsp;22,
    2008</font></p>
    </td>
    <td width="3%" valign="top" style="padding:0in .7pt 0in .7pt;width:3.1%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">By:</font></p>
    </td>
    <td width="38%" valign="top" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in .7pt 0in .7pt;width:38.8%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">/s/ Jeffrey L. Garon</font></p>
    </td>
   </tr>
   <tr>
    <td width="58%" valign="top" style="padding:0in .7pt 0in .7pt;width:58.1%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="41%" colspan="2" valign="top" style="padding:0in .7pt 0in .7pt;width:41.9%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Jeffrey L. Garon Chief Executive Officer</font></p>
    </td>
   </tr>
   <tr>
    <td width="58%" valign="top" style="padding:0in .7pt 0in .7pt;width:58.1%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="41%" colspan="2" valign="top" style="padding:0in .7pt 0in .7pt;width:41.9%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">As Principal Executive Officer</font></p>
    </td>
   </tr>
   <tr>
    <td width="58%" valign="top" style="padding:0in .7pt 0in .7pt;width:58.1%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="41%" colspan="2" valign="top" style="padding:0in .7pt 0in .7pt;width:41.9%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">and on behalf of Registrant</font></p>
    </td>
   </tr>
  </table>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">47</font></p>
  
  <div style="margin:0in 0in .0001pt;text-indent:0in;"><hr size="3" width="100%" noshade color="#010101" align="left"></div>
  
  </div>
  <!-- SEQ.=1,FOLIO='47',FILE='C:\JMS\brosent\08-10653-1\task2883303\10653-1-bi.htm',USER='brosent',CD='Apr 22 18:47 2008' -->
  
  
  <br clear="all" style="page-break-before:always;">
  
  
  <div>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">FINANCIAL
  STATEMENTS</font></b></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <table border="0" cellspacing="0" cellpadding="0" width="100%" style="border-collapse:collapse;width:100.0%;">
   <tr>
    <td width="91%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:91.0%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:1.78%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="7%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in .7pt 0in .7pt;width:7.22%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Page</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="91%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:91.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Accountants Report</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:1.78%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="7%" valign="bottom" style="border:none;padding:0in .7pt 0in .7pt;width:7.22%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">F-2</font></p>
    </td>
   </tr>
   <tr>
    <td width="91%" valign="top" style="padding:0in .7pt 0in .7pt;width:91.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;"><a href="#inThousands_130830" title="Click to goto ">Balance Sheet for the years
    ended December&nbsp;31, 2006 and 2007</a></font></p>
    </td>
    <td width="1%" valign="top" style="padding:0in .7pt 0in .7pt;width:1.78%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:7.22%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">F-3</font></p>
    </td>
   </tr>
   <tr>
    <td width="91%" valign="top" style="padding:0in .7pt 0in .7pt;width:91.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;"><a href="#inThousandsExceptPerShareData_130832" title="Click to goto ">Statement
    of Operations for the years ended December&nbsp;31, 2006 and 2007</a></font></p>
    </td>
    <td width="1%" valign="top" style="padding:0in .7pt 0in .7pt;width:1.78%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:7.22%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">F-4</font></p>
    </td>
   </tr>
   <tr>
    <td width="91%" valign="top" style="padding:0in .7pt 0in .7pt;width:91.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;"><a href="#StatementsOfStockholdersEquity_130535" title="Click to goto ">Statement of Stockholders&#146; Deficit for the years ended
    December&nbsp;31, 2006 and 2007</a></font></p>
    </td>
    <td width="1%" valign="top" style="padding:0in .7pt 0in .7pt;width:1.78%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:7.22%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">F-5</font></p>
    </td>
   </tr>
   <tr>
    <td width="91%" valign="top" style="padding:0in .7pt 0in .7pt;width:91.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;"><a href="#StatementsOfCashFlows_130511" title="Click to goto ">Statement
    of Cash Flows for the years ended December&nbsp;31, 2006 and 2007</a></font></p>
    </td>
    <td width="1%" valign="top" style="padding:0in .7pt 0in .7pt;width:1.78%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:7.22%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">F-6</font></p>
    </td>
   </tr>
   <tr>
    <td width="91%" valign="top" style="padding:0in .7pt 0in .7pt;width:91.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;"><a href="#NotesToFinancialStatements_130513" title="Click to goto ">Notes
    to Financial Statements for the years ended December&nbsp;31, 2006 and 2007</a></font></p>
    </td>
    <td width="1%" valign="top" style="padding:0in .7pt 0in .7pt;width:1.78%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="7%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:7.22%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">F-7</font></p>
    </td>
   </tr>
  </table>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">F-1</font></p>
  
  <div style="margin:0in 0in .0001pt;"><hr size="3" width="100%" noshade color="#010101" align="left"></div>
  
  </div>
  <!-- SEQ.=1,FOLIO='F-1',FILE='C:\JMS\brosent\08-10653-1\task2883303\10653-1-bi.htm',USER='brosent',CD='Apr 22 18:47 2008' -->
  
  
  <br clear="all" style="page-break-before:always;">
  
  
  <div style="font-family:Times New Roman;">
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Report of
  Independent Registered Public Accounting Firm<a name="ReportOfIndependentRegisteredPubl_125934"></a></font></b></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Board of Directors</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Etelos, Incorporated</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">San Mateo, California</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We have audited the accompanying balance sheets of Etelos, Incorporated
  (&#147;the Company&#148;) as of December&nbsp;31, 2007 and 2006, and the related
  statements of operations, stockholders&#146; deficit, and cash flows for each of the
  two years ended December 31, 2007. These financial statements are the
  responsibility of the Company&#146;s management. Our responsibility is to express an
  opinion on these financial statements based on our audits.</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We conducted our audits in accordance with the standards of the Public
  Company Accounting Oversight Board (United States). Those standards require
  that we plan and perform the audit to obtain reasonable assurance about whether
  the financial statements are free of material misstatement. We were not engaged
  to perform an audit of the Company&#146;s internal control over financial reporting.
  Our audit included consideration of internal control over financial reporting
  as a basis for designing audit procedures that are appropriate in the
  circumstances, but not for the purpose of expressing and opinion of the
  effectiveness of the Company&#146;s internal control over financial reporting.
  Accordingly, we express no such opinion. An audit also includes examining, on a
  test basis, evidence supporting the amounts and disclosures in the financial
  statements, assessing the accounting principles used and significant estimates
  made by management, as well as evaluating the overall financial statement
  presentation. We believe that our audits provide a reasonable basis for our
  opinion.</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In our opinion, the financial statements referred to above present
  fairly, in all material respects, the financial position of Etelos,
  Incorporated as of December&nbsp;31, 2007 and 2006, and the results of its
  operations and cash flows for each of the two years ended December 31, 2007 in
  conformity with accounting principles generally accepted in the United States
  of America.</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The accompanying financial statements have been prepared assuming that
  the Company will continue as a going concern. As discussed in Note 3 to the
  financial statements, the Company has experienced recurring losses, which raise
  substantial doubt about the Company&#146;s ability to continue as a going concern.
  Management&#146;s plans in regards to these matters are also discussed in Note 3.
  The financial statements do not include any adjustments relating to the
  recoverability and classification of asset carrying amounts or the amount and
  classification of liabilities that might arise should the Company be unable to
  continue as a going concern.</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">/s/ Stonefield </font>Josephson, Inc.</p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">San Francisco, California</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">April&nbsp;22, 2008</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">F-2</font></p>
  
  <div style="margin:0in 0in .0001pt;"><hr size="3" width="100%" noshade color="#010101" align="left"></div>
  
  </div>
  <!-- SEQ.=1,FOLIO='F-2',FILE='C:\JMS\brosent\08-10653-1\task2883303\10653-1-bi.htm',USER='brosent',CD='Apr 22 18:47 2008' -->
  
  
  <br clear="all" style="page-break-before:always;">
  
  
  <div>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">ETELOS, INCORPORATED</font></b></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">BALANCE SHEETS</font></b></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">(in
  thousands)<a name="inThousands_130830"></a></font></b></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&nbsp;</font></b></p>
  
  <table border="0" cellspacing="0" cellpadding="0" width="100%" style="border-collapse:collapse;width:100.0%;">
   <tr>
    <td width="72%" valign="bottom" style="padding:0in 0in 0in 0in;width:72.5%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.6%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="24%" colspan="5" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:24.32%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Years Ended December&nbsp;31,</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.58%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="72%" valign="bottom" style="padding:0in 0in 0in 0in;width:72.5%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.6%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:11.36%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">2007</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="border:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:1.6%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" style="border-bottom:solid windowtext 1.0pt;border-left:none;border-right:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:11.36%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">2006</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.58%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="72%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:72.5%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">ASSETS</font></b></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="72%" valign="top" style="padding:0in 0in 0in 0in;width:72.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Current assets:</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="72%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:72.5%;">
    <p style="margin:0in 0in .0001pt 40.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Cash and cash equivalents</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.1%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="10%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:10.26%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">928</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.1%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="10%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:10.26%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">15</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="72%" valign="top" style="padding:0in 0in 0in 0in;width:72.5%;">
    <p style="margin:0in 0in .0001pt 40.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Accounts receivable</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">11</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="72%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:72.5%;">
    <p style="margin:0in 0in .0001pt 40.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Prepaid expenses</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">21</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">70</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="72%" valign="top" style="padding:0in 0in 0in 0in;width:72.5%;">
    <p style="margin:0in 0in .0001pt 82.1pt;text-indent:-10.1pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Total current assets</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">949</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">96</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="72%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:72.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Property and equipment, net</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">50</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">24</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="72%" valign="top" style="padding:0in 0in 0in 0in;width:72.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Other assets</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">41</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="72%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:72.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="72%" valign="top" style="padding:0in 0in 0in 0in;width:72.5%;">
    <p style="margin:0in 0in .0001pt 82.1pt;text-indent:-10.1pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Total
    assets</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:1.1%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">$</font></b></p>
    </td>
    <td width="10%" valign="bottom" style="border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:10.26%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">1,040</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:1.1%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">$</font></b></p>
    </td>
    <td width="10%" valign="bottom" style="border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:10.26%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">120</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.58%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="72%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:72.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="72%" valign="top" style="padding:0in 0in 0in 0in;width:72.5%;">
    <p style="margin:0in 0in .0001pt 60.0pt;text-indent:-10.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">LIABILITIES
    AND STOCKHOLDERS&#146; DEFICIT</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="72%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:72.5%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Current liabilities:</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="72%" valign="top" style="padding:0in 0in 0in 0in;width:72.5%;">
    <p style="margin:0in 0in .0001pt 40.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Accounts payable</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.1%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="10%" valign="bottom" style="padding:0in 0in 0in 0in;width:10.26%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">249</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.1%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="10%" valign="bottom" style="padding:0in 0in 0in 0in;width:10.26%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">214</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="72%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:72.5%;">
    <p style="margin:0in 0in .0001pt 40.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Accounts payable related parties</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">56</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">9</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="72%" valign="top" style="padding:0in 0in 0in 0in;width:72.5%;">
    <p style="margin:0in 0in .0001pt 40.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Accrued payroll and related expenses</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">514</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">133</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="72%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:72.5%;">
    <p style="margin:0in 0in .0001pt 40.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Other accrued expenses</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">236</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">53</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="72%" valign="top" style="padding:0in 0in 0in 0in;width:72.5%;">
    <p style="margin:0in 0in .0001pt 40.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Deferred revenues</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">8</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">10</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="72%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:72.5%;">
    <p style="margin:0in 0in .0001pt 40.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Line of credit</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">450</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="72%" valign="top" style="padding:0in 0in 0in 0in;width:72.5%;">
    <p style="margin:0in 0in .0001pt 40.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Current portion notes payable, net of
    discounts</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">3,166</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">552</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="72%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:72.5%;">
    <p style="margin:0in 0in .0001pt 40.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Current portion notes payable to related
    parties</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">187</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">766</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="72%" valign="top" style="padding:0in 0in 0in 0in;width:72.5%;">
    <p style="margin:0in 0in .0001pt 40.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Current portion capital leases</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">16</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">8</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="72%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:72.5%;">
    <p style="margin:0in 0in .0001pt 82.1pt;text-indent:-10.1pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Total current liabilities</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">4,431</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2,195</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="72%" valign="top" style="padding:0in 0in 0in 0in;width:72.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Long-term notes payable, net of discounts</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">889</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="72%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:72.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Long-term notes payable to related parties</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">629</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="72%" valign="top" style="padding:0in 0in 0in 0in;width:72.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Long-term capital leases</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">36</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">16</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="72%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:72.5%;">
    <p style="margin:0in 0in .0001pt 82.1pt;text-indent:-10.1pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Total liabilities</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">5,985</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2,211</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="72%" valign="top" style="padding:0in 0in 0in 0in;width:72.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="72%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:72.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Commitments and contingencies</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="72%" valign="top" style="padding:0in 0in 0in 0in;width:72.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="72%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:72.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Stockholders&#146; deficit:</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="72%" valign="top" style="padding:0in 0in 0in 0in;width:72.5%;">
    <p style="margin:0in 0in .0001pt 20.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Preferred stock, $0.00&nbsp;par value:
    240,000,000&nbsp;shares authorized with liquidation preferences</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="72%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:72.5%;">
    <p style="margin:0in 0in .0001pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Series&nbsp;A: 12,500,000 shares authorized;
    66,500 shares issued and outstanding</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">665</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">665</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="72%" valign="top" style="padding:0in 0in 0in 0in;width:72.5%;">
    <p style="margin:0in 0in .0001pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Series&nbsp;B: 22,500,000 shares
    authorized; 120,000 shares issued and outstanding</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2,400</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2,400</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="72%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:72.5%;">
    <p style="margin:0in 0in .0001pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Series&nbsp;C: 60,000,000 shares
    authorized; 4,447,812 shares issued and outstanding</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">568</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">568</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="72%" valign="top" style="padding:0in 0in 0in 0in;width:72.5%;">
    <p style="margin:0in 0in .0001pt 20.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Common stock: $0.00&nbsp;par value,
    360,000,000&nbsp;shares authorized;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="72%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:72.5%;">
    <p style="margin:0in 0in .0001pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Issued and outstanding - 20,373,938 in 2007
    and 10,504,938 in 2006</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">1,758</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">754</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="72%" valign="top" style="padding:0in 0in 0in 0in;width:72.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Additional paid in capital</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">97</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="72%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:72.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Accumulated deficit</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(10,434</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0.375pt 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(6,478</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0.375pt 0in;width:1.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>
    </td>
   </tr>
   <tr>
    <td width="72%" valign="top" style="padding:0in 0in 0in 0in;width:72.5%;">
    <p style="margin:0in 0in .0001pt 82.1pt;text-indent:-10.1pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Total stockholders&#146; deficit</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(4,946</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(2,091</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>
    </td>
   </tr>
   <tr>
    <td width="72%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:72.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:11.36%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="72%" valign="top" style="padding:0in 0in 0in 0in;width:72.5%;">
    <p style="margin:0in 0in .0001pt 82.1pt;text-indent:-10.1pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Total
    liabilities and stockholders&#146; deficit</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:1.1%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">$</font></b></p>
    </td>
    <td width="10%" valign="bottom" style="border-bottom:double windowtext 1.5pt;border-left:none;border-right:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:10.26%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">1,040</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.6%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:1.1%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">$</font></b></p>
    </td>
    <td width="10%" valign="bottom" style="border-bottom:double windowtext 1.5pt;border-left:none;border-right:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:10.26%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">120</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.58%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
   </tr>
  </table>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The accompanying notes form an integral part
  of theses financial statements</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">F-3</font></p>
  
  <div style="margin:0in 0in .0001pt;text-indent:0in;"><hr size="3" width="100%" noshade color="#010101" align="left"></div>
  
  </div>
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  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">ETELOS, INCORPORATED</font></b></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">STATEMENTS OF OPERATIONS</font></b></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">(in thousands,
  except per share data)<a name="inThousandsExceptPerShareData_130832"></a></font></b></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <table border="0" cellspacing="0" cellpadding="0" width="100%" style="border-collapse:collapse;width:100.0%;">
   <tr>
    <td width="67%" valign="bottom" style="padding:0in 0in 0in 0in;width:67.52%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.5%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="29%" colspan="5" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:29.5%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Years Ended December&nbsp;31,</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.48%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="67%" valign="top" style="padding:0in 0in 0in 0in;width:67.52%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.5%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="14%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:14.0%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">2007</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="border:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:1.5%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="14%" colspan="2" valign="bottom" style="border-bottom:solid windowtext 1.0pt;border-left:none;border-right:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:14.0%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">2006</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.48%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="67%" valign="top" style="padding:0in 0in 0in 0in;width:67.52%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="14%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:14.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="14%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:14.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.48%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="67%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:67.52%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Revenues</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.1%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="12%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:12.9%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">304</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.1%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="12%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:12.9%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">316</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.48%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="67%" valign="top" style="padding:0in 0in 0in 0in;width:67.52%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Cost of goods sold</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="14%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:14.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">315</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="14%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:14.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">130</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.48%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="67%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:67.52%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Gross profit</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="14%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:14.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(11</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>
    </td>
    <td width="14%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:14.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">186</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.48%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="67%" valign="top" style="padding:0in 0in 0in 0in;width:67.52%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Operating expenses:</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="14%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:14.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="14%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:14.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.48%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="67%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:67.52%;">
    <p style="margin:0in 0in .0001pt 40.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Research and development</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="14%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:14.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">1,954</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="14%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:14.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">811</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.48%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="67%" valign="top" style="padding:0in 0in 0in 0in;width:67.52%;">
    <p style="margin:0in 0in .0001pt 40.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Sales and marketing</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="14%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:14.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">812</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="14%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:14.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">337</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.48%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="67%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:67.52%;">
    <p style="margin:0in 0in .0001pt 40.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">General and administrative</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="14%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:14.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">923</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="14%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:14.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">383</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.48%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="67%" valign="top" style="padding:0in 0in 0in 0in;width:67.52%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Total operating expenses</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="14%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:14.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">3,689</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="14%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:14.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">1,531</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.48%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="67%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:67.52%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Loss from operations</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="14%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:14.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(3,700</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>
    </td>
    <td width="14%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:14.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(1,345</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.48%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>
    </td>
   </tr>
   <tr>
    <td width="67%" valign="top" style="padding:0in 0in 0in 0in;width:67.52%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Interest expense, net</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="14%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:14.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">362</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="14%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:14.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">97</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.48%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="67%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:67.52%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Other expense / (Income)</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="14%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:14.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(106</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0.375pt 0in;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>
    </td>
    <td width="14%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:14.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">20</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.48%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="67%" valign="top" style="padding:0in 0in 0in 0in;width:67.52%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Loss before income tax benefit</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="14%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:14.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(3,956</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>
    </td>
    <td width="14%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:14.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(1,462</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.48%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>
    </td>
   </tr>
   <tr>
    <td width="67%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:67.52%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Income tax benefit</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="14%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:14.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="14%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:14.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.48%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="67%" valign="top" style="padding:0in 0in 0in 0in;width:67.52%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Net loss</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:1.1%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="12%" valign="bottom" style="border-bottom:double windowtext 1.5pt;border-left:none;border-right:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:12.9%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(3,956</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0.75pt 0in;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>
    </td>
    <td width="1%" valign="bottom" style="border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:1.1%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="12%" valign="bottom" style="border-bottom:double windowtext 1.5pt;border-left:none;border-right:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:12.9%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(1,514</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0.75pt 0in;width:1.48%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>
    </td>
   </tr>
   <tr>
    <td width="67%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:67.52%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="14%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:14.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="14%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:14.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.48%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="67%" valign="top" style="padding:0in 0in 0in 0in;width:67.52%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Basic and diluted net loss per share</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="14%" colspan="2" valign="bottom" style="border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:14.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(0.29</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0.75pt 0in;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>
    </td>
    <td width="14%" colspan="2" valign="bottom" style="border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:14.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(0.14</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0.75pt 0in;width:1.48%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>
    </td>
   </tr>
   <tr>
    <td width="67%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:67.52%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="14%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:14.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="14%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:14.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.48%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="67%" valign="top" style="padding:0in 0in 0in 0in;width:67.52%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Shares used in computing basic and diluted net loss per share</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="14%" colspan="2" valign="bottom" style="border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:14.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">13,721</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="14%" colspan="2" valign="bottom" style="border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:14.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">10,505</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.48%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
  </table>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The
  accompanying notes form an integral part of theses financial statements</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">F-4</font></p>
  
  <div style="margin:0in 0in .0001pt;"><hr size="3" width="100%" noshade color="#010101" align="left"></div>
  
  </div>
  <!-- SEQ.=1,FOLIO='F-4',FILE='C:\JMS\brosent\08-10653-1\task2883303\10653-1-bi.htm',USER='brosent',CD='Apr 22 18:47 2008' -->
  
  
  
  <br clear="all" style="page-break-before:always;">
  <div>
  <!-- COMMAND=ROTATED_TABLE WIDTH="150%" -->
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">ETELOS,
  INCORPORATED</font></b></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">STATEMENTS OF STOCKHOLDERS&#146; <a name="StatementsOfStockholdersEquity_130535"></a>DEFICIT</font></b></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">(in
  thousands, except share data)</font></b></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <table border="0" cellspacing="0" cellpadding="0" width="100%" style="border-collapse:collapse;width:100.0%;">
   <tr>
    <td width="24%" valign="bottom" style="padding:0in 0in 0in 0in;width:24.66%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="0%" valign="bottom" style="padding:0in 0in 0in 0in;width:.58%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="38%" colspan="14" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:38.46%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Preferred&nbsp;Stock</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="5%" valign="bottom" style="padding:0in 0in 0in 0in;width:5.42%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:5.44%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="8%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:8.24%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:5.44%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:5.44%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Total</font></b></p>
    </td>
    <td width="0%" valign="bottom" style="padding:0in 0in 0in 0in;width:.92%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="24%" valign="bottom" style="padding:0in 0in 0in 0in;width:24.66%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="0%" valign="bottom" style="padding:0in 0in 0in 0in;width:.58%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="12%" colspan="4" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:12.42%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Series&nbsp;A</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="11%" colspan="4" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:11.94%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Series&nbsp;B</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="11%" colspan="4" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:11.94%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Series&nbsp;C</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="11%" colspan="4" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:11.94%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Common&nbsp;Stock</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="8%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:8.24%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Additional Paid</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:5.44%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Accumulated</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:5.44%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Stockholders&#146;</font></b></p>
    </td>
    <td width="0%" valign="bottom" style="padding:0in 0in 0in 0in;width:.92%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="24%" valign="bottom" style="padding:0in 0in 0in 0in;width:24.66%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="0%" valign="bottom" style="padding:0in 0in 0in 0in;width:.58%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="5%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:5.42%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Shares</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" style="border-bottom:solid windowtext 1.0pt;border-left:none;border-right:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:5.92%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Amount</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="5%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:5.42%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Shares</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" style="border-bottom:solid windowtext 1.0pt;border-left:none;border-right:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:5.44%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Amount</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="5%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:5.42%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Shares</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" style="border-bottom:solid windowtext 1.0pt;border-left:none;border-right:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:5.44%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Amount</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="5%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:5.42%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Shares</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" style="border-bottom:solid windowtext 1.0pt;border-left:none;border-right:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:5.44%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Amount</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="8%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:8.24%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">in&nbsp;Capital</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:5.44%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Deficit</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:5.44%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Equity</font></b></p>
    </td>
    <td width="0%" valign="bottom" style="padding:0in 0in 0in 0in;width:.92%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="24%" valign="top" style="padding:0in 0in 0in 0in;width:24.66%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="0%" valign="bottom" style="padding:0in 0in 0in 0in;width:.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:5.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:5.92%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:5.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:5.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:5.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="8%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:8.24%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="0%" valign="bottom" style="padding:0in 0in 0in 0in;width:.92%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="24%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:24.66%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Balance at December&nbsp;31, 2005</font></b></p>
    </td>
    <td width="0%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:.58%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="5%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">66,500</font></b></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.92%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">665</font></b></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="5%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">120,000</font></b></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">2,400</font></b></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="5%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">4,447,812</font></b></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">568</font></b></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="5%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">10,504,938</font></b></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">754</font></b></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="8%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:8.24%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&#151;</font></b></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">(5,016</font></b></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">)</font></b></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">(629</font></b></p>
    </td>
    <td width="0%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:.92%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">)</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="24%" valign="top" style="padding:0in 0in 0in 0in;width:24.66%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="0%" valign="bottom" style="padding:0in 0in 0in 0in;width:.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" valign="bottom" style="padding:0in 0in 0in 0in;width:5.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:5.92%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" valign="bottom" style="padding:0in 0in 0in 0in;width:5.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" valign="bottom" style="padding:0in 0in 0in 0in;width:5.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" valign="bottom" style="padding:0in 0in 0in 0in;width:5.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="8%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:8.24%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="0%" valign="bottom" style="padding:0in 0in 0in 0in;width:.92%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="24%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:24.66%;">
    <p style="margin:0in 0in .0001pt 20.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Net loss</font></p>
    </td>
    <td width="0%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.92%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="8%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:8.24%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(1,462</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(1,462</font></p>
    </td>
    <td width="0%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:.92%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>
    </td>
   </tr>
   <tr>
    <td width="24%" valign="top" style="padding:0in 0in 0in 0in;width:24.66%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="0%" valign="bottom" style="padding:0in 0in 0in 0in;width:.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:5.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:5.92%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:5.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:5.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:5.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="8%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:8.24%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="0%" valign="bottom" style="padding:0in 0in 0in 0in;width:.92%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="24%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:24.66%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Balance at December&nbsp;31, 2006</font></b></p>
    </td>
    <td width="0%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:.58%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="5%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:5.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">66,500</font></b></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:5.92%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">665</font></b></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="5%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:5.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">120,000</font></b></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">2,400</font></b></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="5%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:5.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">4,447,812</font></b></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">568</font></b></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="5%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:5.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">10,504,938</font></b></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">754</font></b></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="8%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:8.24%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&#151;</font></b></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">(6,478</font></b></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">)</font></b></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">(2,091</font></b></p>
    </td>
    <td width="0%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:.92%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">)</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="24%" valign="top" style="padding:0in 0in 0in 0in;width:24.66%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="0%" valign="bottom" style="padding:0in 0in 0in 0in;width:.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" valign="bottom" style="padding:0in 0in 0in 0in;width:5.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:5.92%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" valign="bottom" style="padding:0in 0in 0in 0in;width:5.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" valign="bottom" style="padding:0in 0in 0in 0in;width:5.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" valign="bottom" style="padding:0in 0in 0in 0in;width:5.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="8%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:8.24%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="0%" valign="bottom" style="padding:0in 0in 0in 0in;width:.92%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="24%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:24.66%;">
    <p style="margin:0in 0in .0001pt 20.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Issuance of common stock for investment bank fees</font></p>
    </td>
    <td width="0%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.92%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">90,000</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">90</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="8%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:8.24%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">90</font></p>
    </td>
    <td width="0%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:.92%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="24%" valign="top" style="padding:0in 0in 0in 0in;width:24.66%;">
    <p style="margin:0in 0in .0001pt 20.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="0%" valign="bottom" style="padding:0in 0in 0in 0in;width:.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" valign="bottom" style="padding:0in 0in 0in 0in;width:5.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:5.92%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
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    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
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    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
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    <td width="5%" valign="bottom" style="padding:0in 0in 0in 0in;width:5.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
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    <td width="24%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:24.66%;">
    <p style="margin:0in 0in .0001pt 20.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Issuance of common stock for warrants exercised</font></p>
    </td>
    <td width="0%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.92%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
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    <td width="5%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2,629,000</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">793</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="8%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:8.24%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
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    <td width="5%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">793</font></p>
    </td>
    <td width="0%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:.92%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
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    <p style="margin:0in 0in .0001pt 20.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
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    <td width="8%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:8.24%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
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    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
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    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
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    <td width="0%" valign="bottom" style="padding:0in 0in 0in 0in;width:.92%;">
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    <td width="24%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:24.66%;">
    <p style="margin:0in 0in .0001pt 20.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Issuance of common stock for officer&#146;s service</font></p>
    </td>
    <td width="0%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.92%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">7,150,000</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.44%;">
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    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="8%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:8.24%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="0%" valign="bottom" style="padding:0in 0in 0in 0in;width:.92%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="24%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:24.66%;">
    <p style="margin:0in 0in .0001pt 20.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Net loss</font></p>
    </td>
    <td width="0%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.92%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="8%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:8.24%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(3,956</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(3,956</font></p>
    </td>
    <td width="0%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:.92%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>
    </td>
   </tr>
   <tr>
    <td width="24%" valign="top" style="padding:0in 0in 0in 0in;width:24.66%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="0%" valign="bottom" style="padding:0in 0in 0in 0in;width:.58%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:5.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:5.92%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:5.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:5.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:5.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="8%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:8.24%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="5%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:5.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="0%" valign="bottom" style="padding:0in 0in 0in 0in;width:.92%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="24%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:24.66%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Balance at December&nbsp;31, 2007</font></b></p>
    </td>
    <td width="0%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:.58%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="5%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:5.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">66,500</font></b></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="0%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:.66%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">$</font></b></p>
    </td>
    <td width="5%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border-bottom:double windowtext 1.5pt;border-left:none;border-right:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:5.26%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">665</font></b></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="5%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:5.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">120,000</font></b></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="0%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:.66%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">$</font></b></p>
    </td>
    <td width="4%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border-bottom:double windowtext 1.5pt;border-left:none;border-right:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:4.78%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">2,400</font></b></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="5%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:5.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">4,447,812</font></b></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="0%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:.66%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">$</font></b></p>
    </td>
    <td width="4%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border-bottom:double windowtext 1.5pt;border-left:none;border-right:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:4.78%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">568</font></b></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="5%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:5.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">20,373,938</font></b></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="0%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:.66%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">$</font></b></p>
    </td>
    <td width="4%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border-bottom:double windowtext 1.5pt;border-left:none;border-right:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:4.78%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">1,758</font></b></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="0%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:.66%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">$</font></b></p>
    </td>
    <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border-bottom:double windowtext 1.5pt;border-left:none;border-right:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:7.58%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">97</font></b></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="0%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:.66%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">$</font></b></p>
    </td>
    <td width="4%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border-bottom:double windowtext 1.5pt;border-left:none;border-right:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:4.78%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">(10,434</font></b></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0.75pt 0in;width:1.08%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">)</font></b></p>
    </td>
    <td width="0%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:.66%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">$</font></b></p>
    </td>
    <td width="4%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border-bottom:double windowtext 1.5pt;border-left:none;border-right:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:4.78%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">(4,946</font></b></p>
    </td>
    <td width="0%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0.75pt 0in;width:.92%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">)</font></b></p>
    </td>
   </tr>
   <tr height="0">
    <td width="138" style="border:none;"></td>
    <td width="1" style="border:none;"></td>
    <td width="38" style="border:none;"></td>
    <td width="3" style="border:none;"></td>
    <td width="7" style="border:none;"></td>
    <td width="37" style="border:none;"></td>
    <td width="3" style="border:none;"></td>
    <td width="45" style="border:none;"></td>
    <td width="3" style="border:none;"></td>
    <td width="7" style="border:none;"></td>
    <td width="37" style="border:none;"></td>
    <td width="3" style="border:none;"></td>
    <td width="55" style="border:none;"></td>
    <td width="3" style="border:none;"></td>
    <td width="7" style="border:none;"></td>
    <td width="37" style="border:none;"></td>
    <td width="3" style="border:none;"></td>
    <td width="62" style="border:none;"></td>
    <td width="3" style="border:none;"></td>
    <td width="7" style="border:none;"></td>
    <td width="37" style="border:none;"></td>
    <td width="3" style="border:none;"></td>
    <td width="7" style="border:none;"></td>
    <td width="51" style="border:none;"></td>
    <td width="3" style="border:none;"></td>
    <td width="8" style="border:none;"></td>
    <td width="60" style="border:none;"></td>
    <td width="4" style="border:none;"></td>
    <td width="9" style="border:none;"></td>
    <td width="63" style="border:none;"></td>
    <td width="4" style="border:none;"></td>
   </tr>
  </table>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The accompanying notes form
  an integral part of theses financial statements</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">F-5</font></p>
  
  <div style="margin:0in 0in .0001pt;text-indent:0in;"><hr size="3" width="100%" noshade color="#010101" align="left"></div>
  
  </div>
  <!-- SEQ.=1,FOLIO='F-5',FILE='C:\JMS\pselva\08-10653-1\task2875720\10653-1-bk.htm',USER='105344',CD='Apr 19 14:57 2008' -->
  
  
  
  <br clear="all" style="page-break-before:always;">
  <div>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">ETELOS,
  INCORPORATED</font></b></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">STATEMENTS OF CASH FLOWS<a name="StatementsOfCashFlows_130511"></a></font></b></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">(in
  thousands)</font></b><font size="2" style="font-size:10.0pt;"> </font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&nbsp;</font></p>
  
  <table border="0" cellspacing="0" cellpadding="0" width="100%" style="border-collapse:collapse;width:100.0%;">
   <tr>
    <td width="70%" valign="bottom" style="padding:0in 0in 0in 0in;width:70.0%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.5%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="26%" colspan="5" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:26.5%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Year&nbsp;Ended&nbsp;December&nbsp;31,</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="70%" valign="bottom" style="padding:0in 0in 0in 0in;width:70.0%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.5%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">2007</font></b></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.5%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">2006</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="70%" valign="top" style="padding:0in 0in 0in 0in;width:70.0%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="70%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:70.0%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Cash flows from operating activities:</font></b></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="70%" valign="top" style="padding:0in 0in 0in 0in;width:70.0%;">
    <p style="margin:0in 0in .0001pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Net loss</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.12%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="10%" valign="bottom" style="padding:0in 0in 0in 0in;width:10.88%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(3,956</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.12%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="10%" valign="bottom" style="padding:0in 0in 0in 0in;width:10.88%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(1,462</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>
    </td>
   </tr>
   <tr>
    <td width="70%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:70.0%;">
    <p style="margin:0in 0in .0001pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Adjustments to reconcile net loss to net cash provided by (used in)
    operating activities:</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="70%" valign="top" style="padding:0in 0in 0in 0in;width:70.0%;">
    <p style="margin:0in 0in .0001pt 50.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Depreciation and amortization</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">18</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">3</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="70%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:70.0%;">
    <p style="margin:0in 0in .0001pt 50.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Gain on settlement of debt</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(106</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="70%" valign="top" style="padding:0in 0in 0in 0in;width:70.0%;">
    <p style="margin:0in 0in .0001pt 50.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Issuance of stock for bank fees</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">90</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" colspan="2" valign="top" style="padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="70%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:70.0%;">
    <p style="margin:0in 0in .0001pt 50.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Amortization of notes discount</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">80</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" colspan="2" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="70%" valign="top" style="padding:0in 0in 0in 0in;width:70.0%;">
    <p style="margin:0in 0in .0001pt 50.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Issuance of warrants for financing agreement</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">5</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" colspan="2" valign="top" style="padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="70%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:70.0%;">
    <p style="margin:0in 0in .0001pt 50.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Stock based compensation</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">148</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="70%" valign="top" style="padding:0in 0in 0in 0in;width:70.0%;">
    <p style="margin:0in 0in .0001pt 50.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Changes in operating assets and liabilities:</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="70%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:70.0%;">
    <p style="margin:0in 0in .0001pt 60.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Accounts receivable, net</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">11</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">349</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="70%" valign="top" style="padding:0in 0in 0in 0in;width:70.0%;">
    <p style="margin:0in 0in .0001pt 60.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Prepaid expenses and other current assets</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">49</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(61</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>
    </td>
   </tr>
   <tr>
    <td width="70%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:70.0%;">
    <p style="margin:0in 0in .0001pt 60.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Other assets</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(41</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="70%" valign="top" style="padding:0in 0in 0in 0in;width:70.0%;">
    <p style="margin:0in 0in .0001pt 60.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Accounts payable</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">35</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">32</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="70%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:70.0%;">
    <p style="margin:0in 0in .0001pt 60.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Accrued payables related parties</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">47</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">9</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="70%" valign="top" style="padding:0in 0in 0in 0in;width:70.0%;">
    <p style="margin:0in 0in .0001pt 60.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Accrued payroll and related expenses</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">381</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">77</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="70%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:70.0%;">
    <p style="margin:0in 0in .0001pt 60.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Other accrued expenses</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">183</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">53</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="70%" valign="top" style="padding:0in 0in 0in 0in;width:70.0%;">
    <p style="margin:0in 0in .0001pt 60.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Deferred revenues</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(2</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0.375pt 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(2</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0.375pt 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>
    </td>
   </tr>
   <tr>
    <td width="70%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:70.0%;">
    <p style="margin:0in 0in .0001pt 60.0pt;text-indent:-10.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Net cash used in operating activities</font></b></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">(3,060</font></b></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0.375pt 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">)</font></b></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">(1,002</font></b></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0.375pt 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">)</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="70%" valign="top" style="padding:0in 0in 0in 0in;width:70.0%;">
    <p style="margin:0in 0in .0001pt 60.0pt;text-indent:-10.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="70%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:70.0%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Cash flows from financing activities:</font></b></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="70%" valign="top" style="padding:0in 0in 0in 0in;width:70.0%;">
    <p style="margin:0in 0in .0001pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Proceeds from notes payable</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">3,624</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">386</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="70%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:70.0%;">
    <p style="margin:0in 0in .0001pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Payment of notes payable</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(30</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="70%" valign="top" style="padding:0in 0in 0in 0in;width:70.0%;">
    <p style="margin:0in 0in .0001pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Proceeds from notes payable to related parties</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">50</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">182</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="70%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:70.0%;">
    <p style="margin:0in 0in .0001pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Payment on capital lease</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(14</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(3</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>
    </td>
   </tr>
   <tr>
    <td width="70%" valign="top" style="padding:0in 0in 0in 0in;width:70.0%;">
    <p style="margin:0in 0in .0001pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Net change in line of credit</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(450</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">450</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="70%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:70.0%;">
    <p style="margin:0in 0in .0001pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Proceeds from issuance of common stock</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">793</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="70%" valign="top" style="padding:0in 0in 0in 0in;width:70.0%;">
    <p style="margin:0in 0in .0001pt 60.0pt;text-indent:-10.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Net cash provided by financing activities</font></b></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">3,973</font></b></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">1,015</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="70%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:70.0%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="70%" valign="top" style="padding:0in 0in 0in 0in;width:70.0%;">
    <p style="margin:0in 0in .0001pt 60.0pt;text-indent:-10.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Net increase in cash and cash equivalents</font></b></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">913</font></b></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">13</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="70%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:70.0%;">
    <p style="margin:0in 0in .0001pt 60.0pt;text-indent:-10.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="70%" valign="top" style="padding:0in 0in 0in 0in;width:70.0%;">
    <p style="margin:0in 0in .0001pt 60.0pt;text-indent:-10.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Cash and cash equivalents at beginning of year</font></b></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">15</font></b></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">2</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="70%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:70.0%;">
    <p style="margin:0in 0in .0001pt 60.0pt;text-indent:-10.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="70%" valign="top" style="padding:0in 0in 0in 0in;width:70.0%;">
    <p style="margin:0in 0in .0001pt 60.0pt;text-indent:-10.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Cash and cash equivalents at end of year</font></b></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" style="border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">928</font></b></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" style="border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">15</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="70%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:70.0%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="70%" valign="top" style="padding:0in 0in 0in 0in;width:70.0%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Supplemental disclosures of cash flow
    information:</font></b></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="70%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:70.0%;">
    <p style="margin:0in 0in .0001pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Cash paid for income taxes</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="70%" valign="top" style="padding:0in 0in 0in 0in;width:70.0%;">
    <p style="margin:0in 0in .0001pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Cash paid for interest</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" style="border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" style="border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="70%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:70.0%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Supplemental disclosures of non-cash financing
    activities:</font></b></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="70%" valign="top" style="padding:0in 0in 0in 0in;width:70.0%;">
    <p style="margin:0in 0in .0001pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Acquisition of equipment under Capital Leases</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" style="border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">42</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" style="border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">27</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="70%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:70.0%;">
    <p style="margin:0in 0in .0001pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="70%" valign="top" style="padding:0in 0in 0in 0in;width:70.0%;">
    <p style="margin:0in 0in .0001pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Issuance of notes for a discount</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" style="border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">302</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" style="border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="70%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:70.0%;">
    <p style="margin:0in 0in .0001pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="70%" valign="top" style="padding:0in 0in 0in 0in;width:70.0%;">
    <p style="margin:0in 0in .0001pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Settlement of notes payable for warrants</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" style="border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">65</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" colspan="2" valign="bottom" style="border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:12.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr height="0">
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    <td width="8" style="border:none;"></td>
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  </table>
  
  <p style="font-weight:bold;margin:0in 0in .0001pt;page-break-after:auto;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:normal;">&nbsp;</font></b></p>
  
  <p style="font-weight:bold;margin:0in 0in .0001pt;page-break-after:auto;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:normal;">The accompanying notes form an integral part of theses
  financial statements</font></b></p>
  
  <p style="font-weight:bold;margin:0in 0in .0001pt;page-break-after:auto;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:normal;">&nbsp;</font></b></p>
  
  <p style="font-weight:bold;margin:0in 0in .0001pt;page-break-after:auto;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:normal;">F-6</font></b></p>
  
  <div align="left" style="font-weight:bold;margin:0in 0in .0001pt;page-break-after:auto;text-align:left;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:normal;">
  
  <hr size="3" width="100%" noshade color="#010101" align="left">
  
  </font></b></div>
  
  </div>
  <!-- SEQ.=1,FOLIO='F-6',FILE='C:\JMS\brosent\08-10653-1\task2883303\10653-1-bm.htm',USER='brosent',CD='Apr 22 18:52 2008' -->
  
  
  <br clear="all" style="page-break-before:always;">
  
  
  <div>
  
  <p style="font-weight:bold;margin:0in 0in .0001pt;page-break-after:auto;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></b></p>
  
  <p style="font-weight:bold;margin:0in 0in .0001pt;page-break-after:auto;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">Etelos, Incorporated</font></b></p>
  
  <p style="font-weight:bold;margin:0in 0in .0001pt;page-break-after:auto;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">Notes to Financial Statements <a name="NotesToFinancialStatements_130513"></a></font></b></p>
  
  <p style="font-weight:bold;margin:0in 0in .0001pt;page-break-after:auto;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">For the Fiscal Years Ended December&nbsp;31, 2006 and 2007</font></b></p>
  
  <p style="font-weight:bold;margin:0in 0in .0001pt;page-break-after:auto;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></b></p>
  
  <p style="font-weight:bold;margin:0in 0in .0001pt;page-break-after:auto;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">1. Organization</font></i></b></p>
  
  <p style="font-weight:bold;margin:0in 0in .0001pt;page-break-after:auto;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The Company was incorporated in the State of
  Washington on May&nbsp;6, 1999. Etelos is a leading provider of software
  productivity solutions that assist organizations to effectively use Web
  Applications.&#160; Etelos provides a
  revolutionary Software-as-a-Service ecosystem for building, distributing and
  using Web Applications, including a marketplace to deploy and support them;
  giving businesses choices in applications, hosting and support services to cost
  effectively accomplish their goals.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-weight:bold;margin:0in 0in .0001pt;page-break-after:auto;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">2. Basis of Presentation</font></i></b></p>
  
  <p style="font-weight:bold;margin:0in 0in .0001pt;page-break-after:auto;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The financial statements included herein have been
  prepared by Etelos, Incorporated (the &#147;Company&#148;), in accordance with accounting
  principles generally accepted in the United States and reflect all adjustments,
  consisting of normal recurring adjustments, which in the opinion of management
  are necessary to state fairly the Company&#146;s financial position, results of
  operations, and cash flows for the periods presented.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The preparation of financial statements in
  conformity with accounting principles generally accepted in the United States
  requires management to make estimates and assumptions that affect the reported
  amounts of assets and liabilities and disclosure of contingent assets and
  liabilities at the date of the financial statements and reported amounts of
  revenues and expenses during the reporting period. Actual results could differ
  from those estimates, and such differences could affect the results of
  operations reported in future periods and such differences could be material.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:0in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">3. Going Concern</font></i></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The
  financial statements have been prepared by Etelos, Incorporated assuming that
  the Company will continue as a going concern. The Company has experienced
  recurring losses, which raise substantial doubt the Company&#146;s ability to
  continue as a going concern. The financial statements do not include any
  adjustments relating to the recoverability and classification of asset carrying
  amounts or the amount and classification of liabilities that might arise should
  the Company be unable to continue as a going concern.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-weight:bold;margin:0in 0in .0001pt;page-break-after:auto;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">4. Summary of Significant Accounting Policies</font></i></b></p>
  
  <p style="font-weight:bold;margin:0in 0in .0001pt;page-break-after:auto;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Cash and Cash Equivalents</font></i></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Investment securities with maturity of ninety days
  or less at the time of purchase are considered cash equivalents.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Accounts Receivable</font></i></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Accounts receivable are recorded at the invoiced
  amount and generally do not bear interest. Amounts collected on trade accounts
  receivable are included in net cash provided by operating activities in the
  statements of cash flows.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Allowance
  for Doubtful Accounts</font></i></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The Company provides, when appropriate, an allowance
  for doubtful accounts to ensure trade receivables are not overstated due to
  un-collectibility. The collectibility of the Company&#146;s receivables is evaluated
  based on a variety of factors, including the length of time receivables are
  past due, indication of the customer&#146;s willingness to pay, significant one-time
  events, and historical experience. As of December&nbsp;31, 2007 and 2006 there
  was no allowance for doubtful accounts.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Deferred Revenue</font></i></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Deferred revenue represents money received or
  promised but not recognized as revenue because the work has not been completed
  or the software subscription has been fully delivered, and therefore is
  deferred until the work is completed or the software subscription is fully
  delivered when it is then transferred to the appropriate revenue account.&nbsp;&#160; The Company does not have a concentration of
  risk in any one account as subscriptions tend to be subscribed to by many
  individual subscribers as compared to a small number of large enterprises.</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">F-7</font></p>
  
  <div style="margin:0in 0in .0001pt;text-indent:0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">
  
  <hr size="3" width="100%" noshade color="#010101" align="left">
  
  </font></b></div>
  
  </div>
  <!-- SEQ.=1,FOLIO='F-7',FILE='C:\JMS\brosent\08-10653-1\task2883303\10653-1-bm.htm',USER='brosent',CD='Apr 22 18:52 2008' -->
  
  
  <br clear="all" style="page-break-before:always;">
  
  
  <div>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Property and Equipment</font></i></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Property, furniture, equipment, and leasehold
  improvements are stated at historical cost less accumulated depreciation and
  amortization. Depreciation and amortization are computed on a straight-line
  basis over the estimated useful lives of the assets, which the Company
  currently believes are three to five years. Fixed assets is composed of
  computer equipment with accumulated depreciation of approximately $3 thousand
  and $20 thousand as of December&nbsp;31, 2006 and 2007, respectively.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Fair Value of Financial Instruments</font></i></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The Company&#146;s balance sheet includes the following
  financial instruments: cash, accounts receivable, accounts payable, and accrued
  liabilities. The Company considers the carrying amount of working capital items
  to approximate the fair value for these financial instruments because of the
  relatively short period of time between origination of the instruments and
  their expected realization.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Internal Use Software</font></i></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The Company capitalizes internally developed
  software costs in accordance with the Statement of Position 98-1, &#147;<i>Accounting for Costs of Computer Software Developed or Obtained for
  Internal Use</i>&#148; (&#147;SOP 98-1&#148;).&#160;
  The Company also capitalizes software development costs in accordance
  with SFAS NO. 86, &#147;<i>Accounting for Costs of
  Computer Software to be Sold, Leased or Otherwise Marketed</i>&#148; under
  which certain software development costs incurred subsequent to the
  establishment of the technological feasibility may be capitalized and amortized
  over the estimated useful lie of the related products.&#160;&#160; The intangible asset costs, if any, are
  amortized on a straight-line basis over the estimated useful life of the
  software, once it is a variable for its intended use.&#160; The Company had fully amortized all
  internally developed software costs as of December&nbsp;31, 2005. No
  expenditures during the years ending December&nbsp;31, 2006 and 2007 qualified
  for capitalization.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Revenue Recognition</font></i></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Revenues
  are recognized on licensing transactions and product sales using the criteria
  in Securities and Exchange Commission Staff Accounting Bulletin 104, &#147;<i>Revenue Recognition in Financial Statements</i>&#148; (SAB 104).&#160; For revenue transactions that involve
  software or software related products, we recognize revenue under the guidance
  established by Statement of Position No. 97-2, <i>Software
  Revenue Recognition</i> (SOP 97-2).&#160;
  Both SAB 104 and SOP 97-2 state that revenue must be recognized when
  persuasive evidence of an arrangement exists, delivery of the product or
  performance of the service has occurred, no significant company obligations
  with regard to implementation or integration exist, the fee is fixed or
  determinable and collectability is reasonably assured.&#160; Arrangements for which the fees are not
  deemed reasonably assured for collection are recognized upon cash collection.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The Company provides Web Applications as a
  subscription service using the Software-as-a-Service (SaaS) or
  software-on-demand business model.&#160;
  Revenues from subscriptions are generally collected and recognized in
  the period invoiced.&#160; However, should the
  subscription collected upon be for more than one period in advance, the revenue
  is deferred and recognized ratably over the number of excess periods reflected
  by the advance payment.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Research and Development</font></i></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Research and development expenses consist primarily
  of salaries, payroll taxes, benefits, and related expenditures for technology,
  software development, project management, and support personnel. Costs related
  to the development of new products and enhancements to existing products are
  expensed as incurred.</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">F-8</font></p>
  
  <div style="margin:0in 0in .0001pt;text-indent:0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">
  
  <hr size="3" width="100%" noshade color="#010101" align="left">
  
  </font></b></div>
  
  </div>
  <!-- SEQ.=1,FOLIO='F-8',FILE='C:\JMS\brosent\08-10653-1\task2883303\10653-1-bm.htm',USER='brosent',CD='Apr 22 18:52 2008' -->
  
  
  <br clear="all" style="page-break-before:always;">
  
  
  <div>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Stock Based Compensation</font></i></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">On January&nbsp;1, 2006, the Company adopted
  SFAS&nbsp;No.&nbsp;123 (revised 2004), &#147;<i>Share-Based Payment</i>&#148;
  (&#147;FAS&nbsp;123R&#148;), that addresses the accounting for share-based payment
  transactions in which an enterprise receives employee services in exchange for
  equity instruments of the enterprise. The statement eliminates the ability to
  account for share-based compensation transactions, as the Company formerly did,
  using the intrinsic value method as prescribed by Accounting Principles Board
  (&#147;APB&#148;) Opinion No.&nbsp;25,&#160; &#147;<i>Accounting for Stock Issued to Employees,</i>&#148; and generally
  requires that such transactions be accounted for using a fair-value-based
  method and recognized as expense in its consolidated statements of operations.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Under SFAS 123(R), the Company is required to select
  a valuation technique or option-pricing model that meets the criteria as stated
  in the standard, which includes a lattice model and the Black-Scholes Merton
  model. For all new stock based compensation awards granted starting January&nbsp;1,
  2006, and for any modification, cancellation, or repurchase of awards granted
  prior to January&nbsp;1, 2006, the Company recorded compensation cost in the
  statement of operations based on the fair value of the award for the requisite
  service period. The Company adopted the Black-Scholes Merton model. The
  adoption of SFAS 123(R), applying the &#147;modified prospective method,&#148; as elected
  by the Company, requires the Company to value stock options as of January&nbsp;1,
  2006, the first day of the Company&#146;s fiscal year 2006. SFAS 123(R)&nbsp;requires
  the Company to estimate forfeitures in calculating the expense relating to
  share-based compensation as opposed to only recognizing these forfeitures and
  the corresponding reduction in expense as they occur. This resulted in the
  Company expensing $27 thousand in fiscal 2007 and a total of $0 for fiscal
  2006. As of December&nbsp;31, 2007, total unrecognized compensation costs
  related to unvested stock options was $633 thousand, which is expected to be
  recognized as an expense over a weighted average period of approximately 7
  years. The Company adjusted for this cumulative effect and recognized an
  increase in stock-based compensation, which was recorded within the research&nbsp;&amp;
  development; sales and marketing; and general and administrative expense on the
  Company&#146;s statements of operations.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">SFAS 123(R)&nbsp;requires the cash flows resulting
  from the tax benefits resulting from tax deductions in excess of the
  compensation cost recognized for those options to be classified as financing
  cash flows. Due to the Company&#146;s loss position, there were no such tax benefits
  during the years ended December&nbsp;31, 2007 and 2006. Prior to the adoption
  of SFAS 123(R), those benefits would have been reported as operating cash flows
  had the Company received any tax benefits related to stock option exercises.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Share-Based Compensation Information under SFAS No.&nbsp;123(R)</font></i></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The weighted-average fair value of stock-based
  compensation is based on the single option valuation approach and is estimated
  on the date of grant using a Black Scholes Merton based option valuation model.
  The fair value of forfeitures is an estimate and no dividends have been
  declared. The fair value of options granted during the year ended December&nbsp;31,
  2007, were calculated based on the following assumptions (annualized
  percentages):</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <table border="0" cellspacing="0" cellpadding="0" width="86%" style="border-collapse:collapse;margin-left:.5in;width:86.66%;">
   <tr>
    <td width="82%" valign="bottom" style="padding:0in 0in 0in 0in;width:82.12%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.88%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="12%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:12.44%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Year&nbsp;Ended<br>
    December&nbsp;31,<br>
    2007</font></b></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.56%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="82%" valign="bottom" style="padding:0in 0in 0in 0in;width:82.12%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.88%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="12%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:12.44%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.56%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="82%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:82.12%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Estimated fair value</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:12.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0.017</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.56%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="82%" valign="top" style="padding:0in 0in 0in 0in;width:82.12%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" valign="bottom" style="padding:0in 0in 0in 0in;width:12.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.56%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="82%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:82.12%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Expected lives (in years)</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:12.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">7</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.56%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="82%" valign="top" style="padding:0in 0in 0in 0in;width:82.12%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" valign="bottom" style="padding:0in 0in 0in 0in;width:12.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.56%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="82%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:82.12%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Volatility</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:12.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">55</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.56%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">%</font></p>
    </td>
   </tr>
   <tr>
    <td width="82%" valign="top" style="padding:0in 0in 0in 0in;width:82.12%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" valign="bottom" style="padding:0in 0in 0in 0in;width:12.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.56%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="82%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:82.12%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Risk-free interest rate </font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:12.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">4.2
    </font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.56%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">%</font></p>
    </td>
   </tr>
   <tr>
    <td width="82%" valign="top" style="padding:0in 0in 0in 0in;width:82.12%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" valign="bottom" style="padding:0in 0in 0in 0in;width:12.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.56%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="82%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:82.12%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Dividend yield</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="12%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:12.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.56%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">%</font></p>
    </td>
   </tr>
  </table>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">F-9</font></p>
  
  <div style="margin:0in 0in .0001pt;text-indent:0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">
  
  <hr size="3" width="100%" noshade color="#010101" align="left">
  
  </font></b></div>
  
  </div>
  <!-- SEQ.=1,FOLIO='F-9',FILE='C:\JMS\brosent\08-10653-1\task2883303\10653-1-bm.htm',USER='brosent',CD='Apr 22 18:52 2008' -->
  
  
  <br clear="all" style="page-break-before:always;">
  
  
  <div>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The Company used implied volatility of market-traded
  options for the expected volatility assumption input to the Black- Scholes
  Merton model. The risk-free interest rate assumption is based upon the US
  Treasury yield curve in effect at the time of the grant. The Company historically
  has not declared dividends and therefore the dividend yield was assumed to be
  zero in the model.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Income Taxes</font></i></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The Company accounts for income taxes in accordance
  with SFAS No.&nbsp;109, &#147;<i>Accounting for Income
  Taxes</i>&#148; which utilizes the liability method of accounting for income
  taxes. Deferred tax assets and liabilities are recognized for the future tax
  consequences attributable to differences between the financial statement
  carrying amount of existing assets and liabilities and their respective tax bases.
  Deferred tax assets and liabilities are measured using enacted tax rates
  expected to apply to taxable income in the years in which those temporary
  differences are expected to be recovered or settled. Valuation allowances are
  established when necessary to reduce deferred tax assets to the amounts
  expected to be realized.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Net Loss per Share</font></i></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Basic net loss per share is computed by dividing the
  net loss available to common stockholders for the period by the weighted
  average number of common stock outstanding during the period. Diluted net loss
  per share is computed based on the weighted average number of common stock and
  dilutive potential common stock outstanding. The calculation of diluted net
  loss per share excludes potential common stock if the effect is anti-dilutive.
  Potential common stock consists of incremental common stock issuable upon the
  exercise of stock options, shares issuable upon conversion of convertible
  preferred stock, common stock issuable upon the exercise of common stock
  warrants, and common stock issuable upon the conversion of convertible
  debentures.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The following table sets forth the computation of
  basic and diluted net loss per share for the periods presented (in thousands,
  except per share amounts):</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <table border="0" cellspacing="0" cellpadding="0" width="86%" style="border-collapse:collapse;margin-left:.5in;width:86.66%;">
   <tr>
    <td width="65%" valign="bottom" style="padding:0in 0in 0in 0in;width:65.38%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.88%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="30%" colspan="5" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:30.58%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">For&nbsp;the&nbsp;fiscal&nbsp;year&nbsp;ended<br>
    December&nbsp;31,</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.16%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="65%" valign="top" style="padding:0in 0in 0in 0in;width:65.38%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" colspan="2" valign="top" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:13.84%;">
    <p align="center" style="margin:0in 0in .0001pt 10.0pt;text-align:center;text-indent:-10.0pt;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">2007</font></b></p>
    </td>
    <td width="2%" valign="bottom" style="border:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:2.88%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="13%" colspan="2" valign="bottom" style="border-bottom:solid windowtext 1.0pt;border-left:none;border-right:none;border-top:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:13.84%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">2006</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.16%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="65%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:65.38%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Numerator:</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:13.84%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:13.84%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.16%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="65%" valign="top" style="padding:0in 0in 0in 0in;width:65.38%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:13.84%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:13.84%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.16%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="65%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:65.38%;">
    <p style="margin:0in 0in .0001pt 20.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Net loss</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:1.3%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="12%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:12.56%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(3,956</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0.75pt 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:1.3%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="12%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:12.56%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(1,462</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0.75pt 0in;width:1.16%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>
    </td>
   </tr>
   <tr>
    <td width="65%" valign="top" style="padding:0in 0in 0in 0in;width:65.38%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:13.84%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:13.84%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.16%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="65%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:65.38%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Denominator:</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:13.84%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:13.84%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.16%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="65%" valign="top" style="padding:0in 0in 0in 0in;width:65.38%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:13.84%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:13.84%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.16%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="65%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:65.38%;">
    <p style="margin:0in 0in .0001pt 20.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Weighted average common stock</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:13.84%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">13,721</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:13.84%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">10,505</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.16%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="65%" valign="top" style="padding:0in 0in 0in 0in;width:65.38%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:13.84%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:13.84%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.16%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="65%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:65.38%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Net loss per share:</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:13.84%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:13.84%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.16%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="65%" valign="top" style="padding:0in 0in 0in 0in;width:65.38%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:13.84%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:13.84%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.16%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="65%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:65.38%;">
    <p style="margin:0in 0in .0001pt 20.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Basic and diluted</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:1.3%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="12%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:12.56%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(0.29</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 1.5pt 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:1.3%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="12%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:12.56%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(0.14</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 1.5pt 0in;width:1.16%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>
    </td>
   </tr>
  </table>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Use of Estimates</font></i></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The preparation of the financial statements in
  conformity with accounting principles generally accepted in the United States
  requires management to make estimates and assumptions that affect the reported
  amounts of assets and liabilities, the disclosure of contingent assets and
  liabilities at the date of the financial statements and the reported amounts of
  revenues and expenses during the reporting period. Actual results could differ
  from those estimates.</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">F-10</font></p>
  
  <div style="margin:0in 0in .0001pt;text-indent:0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">
  
  <hr size="3" width="100%" noshade color="#010101" align="left">
  
  </font></b></div>
  
  </div>
  <!-- SEQ.=1,FOLIO='F-10',FILE='C:\JMS\brosent\08-10653-1\task2883303\10653-1-bm.htm',USER='brosent',CD='Apr 22 18:52 2008' -->
  
  
  <br clear="all" style="page-break-before:always;">
  
  
  <div>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Segment Reporting</font></i></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The Company has one operating segment because the
  Company is not organized into multiple segments for the purpose of making
  operating decisions or for assessing performance. The chief operating decision
  maker evaluates performance, makes operating decisions, and allocates resources
  based on financial data consistent with the presentation in the accompanying
  financial statements.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-weight:bold;margin:0in 0in .0001pt;page-break-after:auto;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">5. Recently Issued Accounting Standards</font></i></b></p>
  
  <p style="font-weight:bold;margin:0in 0in .0001pt;page-break-after:auto;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In June&nbsp;2006, the Financial Accounting Standards
  Board (FASB) issued FASB Interpretation (FIN) No.&nbsp;48, &#147;<i>Accounting for Uncertainty in Income Taxes,</i>&#148; which
  supplements Statement of Financial Accounting Standard No.&nbsp;109, &#147;<i>Accounting for Income Taxes,</i>&#148; by defining the confidence
  level that a tax position must meet in order to be recognized in the financial
  statements. FIN 48 requires the tax effect of a position to be recognized only
  if it is &#147;more-likely-than-not&#148; to be sustained based solely on its technical
  merits as of the reporting date. If a tax position is not considered
  more-likely-than-not to be sustained based solely on its technical merits, then
  no benefits of the position are recognized. If the tax position is considered
  more likely than not to be sustained, then the amount to record is measured at
  the largest amount of benefit that is grater than 50% likely of being realized
  upon ultimate settlement. This is a different standard for recognition than was
  previously required. The more-likely-than-not threshold must continue to be met
  in each reporting period to support continued recognition of a benefit. At
  adoption, companies must adjust their financial statements to reflect only
  those tax positions that are more-likely-than-not to be sustained as of the
  adoption date. Any necessary adjustment is recorded directly to opening
  retained earnings in the period of adoption and reported as a change in
  accounting principle. The Company has not yet adopted FIN 48 but does not expect
  it to have a material impact.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In September&nbsp;2006, the Securities and Exchange
  Commission published Staff Accounting Bulletin No.&nbsp;108, &#147;<i>Considering the Effects of Prior Year Misstatements when Quantifying
  Misstatements in Current Year Financial Statements</i>&#148; (SAB 108). The
  interpretations in SAB 108 are being issued to address diversity in practice in
  quantifying financial statement misstatements and the potential under current
  practice to build up improper amounts on the balance sheet. This guidance
  applies to fiscal years ending after November&nbsp;15, 2006 and early
  application in interim periods is encouraged. The adoption of SAB 108 did not
  have an effect on the Company&#146;s financial statements.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In September&nbsp;2006, the FASB issued SFAS No.&nbsp;157
  (&#147;FAS&nbsp;157&#148;), &#147;<i>Fair Value Measurements,</i>&#148;
  which defines fair value, establishes guidelines for measuring fair value, and
  expands disclosures regarding fair value measurements. FAS&nbsp;157 does not
  require any new fair value measurements but rather eliminates inconsistencies
  in guidance found in various prior accounting pronouncements. FAS&nbsp;157 is
  effective for fiscal years beginning after November&nbsp;15, 2007. Earlier
  adoption is permitted, provided the company has not yet issued financial
  statements, including for interim periods, for that fiscal year. The Company
  are currently evaluating the impact of FAS&nbsp;157, but do not expect the
  adoption of FAS&nbsp;157 to have a material impact on the financial position,
  results of operations, or cash flows.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In February&nbsp;2007, the FASB issued SFAS No.&nbsp;159,
  &#147;<i>The Fair Value Option for Financial Assets and
  Financial Liabilities,</i>&#148; which permits entities to choose to measure
  many financial assets and financial liabilities at fair value. Unrealized gains
  and losses on items for which the fair value option has been elected are
  reported in earnings. SFAS 159 is effective for fiscal years beginning after November&nbsp;15,
  2007. The Company does not expect the adoption of FAS 159 to have a material
  impact.</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">F-11</font></p>
  
  <div style="margin:0in 0in .0001pt;text-indent:0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">
  
  <hr size="3" width="100%" noshade color="#010101" align="left">
  
  </font></b></div>
  
  </div>
  <!-- SEQ.=1,FOLIO='F-11',FILE='C:\JMS\brosent\08-10653-1\task2883303\10653-1-bm.htm',USER='brosent',CD='Apr 22 18:52 2008' -->
  
  
  <br clear="all" style="page-break-before:always;">
  
  
  <div>
  
  <p style="font-weight:bold;margin:0in 0in .0001pt;page-break-after:auto;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></b></p>
  
  <p style="font-weight:bold;margin:0in 0in .0001pt;page-break-after:auto;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">6. Stock Option Plans</font></i></b></p>
  
  <p style="font-weight:bold;margin:0in 0in .0001pt;page-break-after:auto;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">On November&nbsp;1, 1999, the Company adopted the
  1999 Stock Option Plan (the &#147;1999 Plan&#148;) and on November&nbsp;11, 2007, adopted
  the 2007 Stock Incentive Plan (the &#147;2007 Plan&#148;).&#160; Both are incentive plans for employees,
  directors, consultants, agents, and independent contractors and are
  administered by the Board of Directors, which was authorized to grant incentive
  stock options (&#147;ISOs&#148;) and non-statutory stock options (&#147;NSOs&#148;) to employees,
  directors, and consultants for up to 5,000,000 shares of common stock under the
  1999 Plan and 4,843,250 under the 2007 Plan.&#160;
  ISOs may be granted only to employees of the Company (including officers
  and directors who are also employees). NSOs may be granted to employees,
  non-employee directors, and consultants of the Company.&#160; Under the 2007 Plan, upon the first date that
  the Company is publicly held, no employee of the Company will be eligible to be
  granted options covering more than 500,000 shares of common stock during any
  calendar year.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Upon adoption of the 2007 Plan, 165,000 options
  which had been granted under the 1999 Plan and shares reserved for issuance
  under the 1999 Stock Option Plan relating to un-granted options were
  cancelled.&#160; Under the 2007 Plan, ISOs and
  NSOs are granted at a price that is not to be less than 100 percent of the fair
  market value of the common stock on the date of grant, as determined by the
  Board of Directors. Generally, the options granted to new employees under the
  2007 Plan vest over a period of 4 years with 25 percent vesting on the first
  anniversary date from the date of grant and then monthly thereafter over the
  remaining 36 months. Subsequent discretionary stock options, generally vest
  equally each month over 48 months. Options granted to shareholders who own more
  than 10 percent of the outstanding stock of the Company at the time of grant
  must be issued at prices not less than 110 percent of the estimated fair value
  of the stock on the date of grant. Options under the 2007 Plan may be granted
  for exercise periods up to 10 years.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-weight:bold;margin:0in 0in .0001pt;page-break-after:auto;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">7. Accounting for share-based compensation</font></i></b></p>
  
  <p style="font-weight:bold;margin:0in 0in .0001pt;page-break-after:auto;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The following table summarizes stock option activity
  under the Company&#146;s stock option plans (in thousands, except per share data):</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&nbsp;</font></p>
  
  <table border="0" cellspacing="0" cellpadding="0" width="100%" style="border-collapse:collapse;width:100.0%;">
   <tr>
    <td width="39%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:39.0%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Options</font></b></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.0%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="9%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:9.0%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Shares</font></b></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="15%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:15.0%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Weighted&nbsp;Average<br>
    Exercise Price Per<br>
    Share</font></b></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.0%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="15%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:15.0%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Weighted&nbsp;Average<br>
    Remaining<br>
    Contractual Life</font></b></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.0%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="13%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:13.0%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Aggregate<br>
    Intrinsic&nbsp;Value</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="39%" valign="top" style="border:none;padding:0in 0in 0in 0in;width:39.0%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="9%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:9.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="15%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:15.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="15%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:15.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:13.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="39%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:39.0%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Outstanding at December&nbsp;31, 2006</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="9%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:9.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">204,000</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:1.12%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="13%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:13.88%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0.30</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="15%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:15.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">8.0</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:1.12%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="11%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:11.88%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">60.4</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="39%" valign="top" style="padding:0in 0in 0in 0in;width:39.0%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="9%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:9.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="15%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:15.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="15%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:15.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:13.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="39%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:39.0%;">
    <p style="margin:0in 0in .0001pt 20.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Granted</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="9%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:9.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">16,321,261</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.12%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="13%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:13.88%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0.34</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="15%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:15.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:13.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="39%" valign="top" style="padding:0in 0in 0in 0in;width:39.0%;">
    <p style="margin:0in 0in .0001pt 20.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="9%" valign="bottom" style="padding:0in 0in 0in 0in;width:9.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.12%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" valign="bottom" style="padding:0in 0in 0in 0in;width:13.88%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="15%" valign="bottom" style="padding:0in 0in 0in 0in;width:15.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:13.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="39%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:39.0%;">
    <p style="margin:0in 0in .0001pt 20.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Exercised</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="9%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:9.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(15</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.12%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="13%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:13.88%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0.38</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="15%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:15.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:13.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="39%" valign="top" style="padding:0in 0in 0in 0in;width:39.0%;">
    <p style="margin:0in 0in .0001pt 20.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="9%" valign="bottom" style="padding:0in 0in 0in 0in;width:9.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.12%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" valign="bottom" style="padding:0in 0in 0in 0in;width:13.88%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="15%" valign="bottom" style="padding:0in 0in 0in 0in;width:15.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:13.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="39%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:39.0%;">
    <p style="margin:0in 0in .0001pt 20.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Canceled</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="9%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:9.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(433</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.12%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="13%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:13.88%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0.37</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="15%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:15.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:13.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="39%" valign="top" style="padding:0in 0in 0in 0in;width:39.0%;">
    <p style="margin:0in 0in .0001pt 20.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="9%" valign="bottom" style="padding:0in 0in 0in 0in;width:9.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.12%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" valign="bottom" style="padding:0in 0in 0in 0in;width:13.88%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="15%" valign="bottom" style="padding:0in 0in 0in 0in;width:15.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:13.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="39%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:39.0%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Vested and expected to vest at December&nbsp;31, 2007</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="9%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:9.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">10,435,000</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:1.12%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="13%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:13.88%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0.38</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="15%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:15.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">9.5</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:1.12%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="11%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:11.88%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">3,970,700</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="39%" valign="top" style="padding:0in 0in 0in 0in;width:39.0%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="9%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:9.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="15%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:15.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="15%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:15.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:13.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="39%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:39.0%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Exercisable at December&nbsp;31, 2007</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="9%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:9.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">10,435,000</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:1.12%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="13%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:13.88%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0.38</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="15%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:15.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">9.3</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:1.12%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="11%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:11.88%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">3,970,700</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.0%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
  </table>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">F-12</font></p>
  
  <div style="margin:0in 0in .0001pt;text-indent:0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">
  
  <hr size="3" width="100%" noshade color="#010101" align="left">
  
  </font></b></div>
  
  </div>
  <!-- SEQ.=1,FOLIO='F-12',FILE='C:\JMS\brosent\08-10653-1\task2883303\10653-1-bm.htm',USER='brosent',CD='Apr 22 18:52 2008' -->
  
  
  <br clear="all" style="page-break-before:always;">
  
  
  <div>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Share based compensation expense attributable to
  individuals that worked in the following functions is as follows (in
  thousands):</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <table border="0" cellspacing="0" cellpadding="0" width="93%" style="border-collapse:collapse;margin-left:.25in;width:93.34%;">
   <tr>
    <td width="58%" valign="bottom" style="padding:0in 0in 0in 0in;width:58.76%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.68%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="17%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:17.2%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Fiscal&nbsp;Year<br>
    Ended&nbsp;December&nbsp;31,<br>
    2007</font></b></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.68%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="17%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:17.16%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Fiscal&nbsp;Year<br>
    Ended&nbsp;December&nbsp;31,<br>
    2006</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.52%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="58%" valign="bottom" style="padding:0in 0in 0in 0in;width:58.76%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.68%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="17%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:17.2%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.68%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="17%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:17.16%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.52%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="58%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:58.76%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Research&nbsp;and&nbsp;development</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.68%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.2%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="16%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:16.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;50</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.68%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.2%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="15%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:15.96%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.52%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="58%" valign="bottom" style="padding:0in 0in 0in 0in;width:58.76%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.68%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="17%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:17.2%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.68%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="17%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:17.16%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.52%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="58%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:58.76%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Selling and marketing</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.68%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="17%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:17.2%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">22</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.68%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="17%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:17.16%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.52%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="58%" valign="top" style="padding:0in 0in 0in 0in;width:58.76%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.68%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="17%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:17.2%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.68%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="17%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:17.16%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.52%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="58%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:58.76%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">General and administrative</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.68%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="17%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:17.2%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">25</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.68%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="17%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:17.16%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.52%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="58%" valign="top" style="padding:0in 0in 0in 0in;width:58.76%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.68%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="17%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:17.2%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.68%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="17%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:17.16%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.52%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="58%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:58.76%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Total share-based compensation</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.68%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:1.2%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="16%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:16.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">97</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.68%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:1.2%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="15%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:15.98%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.52%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
  </table>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Total cash received as a result of options exercised
  during the fiscal year ended December&nbsp;31, 2007 was $0.00. There were no
  equity instruments granted under share-based payment arrangements and therefore
  there was no cash used to settle any equity instrument. The Company does not
  plan to repurchase any shares during the upcoming annual period.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-weight:bold;margin:0in 0in .0001pt;page-break-after:auto;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">8. Convertible Debt and Warrant Liability</font></i></b></p>
  
  <p style="font-weight:bold;margin:0in 0in .0001pt;page-break-after:auto;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">During the period October&nbsp;2006 to June&nbsp;2007,
  the Company issued 20% convertible notes with detachable warrants with a value
  of $850,000. The notes mature on June&nbsp;1, 2008, with interest due and
  payable on October&nbsp;1, 2007, and the last day of each calendar quarter
  thereafter, through the maturity date. At the Company&#146;s option, upon the
  closing of a Series&nbsp;D preferred stock offering having aggregate gross
  proceeds not less than $7 million, excluding the proceeds collected in
  connection with this financing, note holders may elect to convert the
  outstanding principal and the accrued and unpaid interest into Series&nbsp;E
  preferred stock at the purchase price per Series&nbsp;E preferred stock.&#160; In addition, a mandatory conversion provision
  would be triggered by the closing of a public offering at a conversion price
  equal to or greater than the note conversion price.&#160; There is a provision for a conversion price
  adjustment which would be triggered upon a stock slit, reverse stock split, or
  issuance of stock dividends, whereby the conversion price would be adjusted to
  ensure that the holder would be receiving the same number of shares, as though
  the conversion right had been exercised prior to the triggering event.&#160; To support this, the Company is required to
  reserve, at all the times, the number of authorized unissued shares such that
  the Company has enough shares to issue in the event that the conversion right
  would be exercised.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In addition to the notes, the investors received
  warrants to purchase up to 850,000 shares of the Company&#146;s common stock.&#160; The warrants carry an exercise price of
  $0.03, and terminate upon the earlier of (i)&nbsp;3 years from the date of
  issuance; (ii)&nbsp;a public offering; or (iii)&nbsp;the closing of an
  acquisition of the Company.&#160; As of December&nbsp;31,
  2007, 700,000 of the warrants had been exercised. The warrants had <i>de minimus</i> value at the issuance date per an independent
  valuation.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">During the period August&nbsp;2007 to October&nbsp;2007,
  the Company issued 6% convertible notes at an original issue discount of 10%
  notes with detachable warrants with a face value of $3,326,400. These notes
  mature on March&nbsp;31, 2009, with interest due and payable on February&nbsp;1,
  2008, and on the last day of each calendar quarter thereafter. The Company is
  required to make payments on the outstanding principal balance beginning September&nbsp;1,
  2008 and on the 1st day of each calendar quarter thereafter.&#160; The default interest rate is 8%. There are
  3,024,000 detachable warrants, each of which carry an exercise price of $0.40
  and a term of 5 years.&#160; At 12/31/2007 1,929,000
  of the warrants have been exercised. The warrants had <i>de minimus</i>
  value at the issuance date per an independent valuation. The notes have the
  following conversion features into the Company&#146;s capital stock: (i)&nbsp;at the
  Company&#146;s option upon the closing of a referred Series&nbsp;D round at $0.25
  per share; (ii)&nbsp;mandatory conversion upon: (a)&nbsp;closing of a Series&nbsp;E
  Preferred Stock offering, no later than January&nbsp;31, 2008, having aggregate
  gross proceeds to the Company of not less than $5, (b)&nbsp;closing of public
  offering at a conversion rate of $0.25 per preferred share, and (c)&nbsp;a
  change of 40% of the control, at a conversion rate of $0.25 per preferred
  share.&#160; The conversion price on these
  notes has an anti-dilution provision and adjustments for stock splits, or stock
  dividends. The Company is obligated to reserve, at all the times, a sufficient
  number of authorized unissued conversion shares.</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">F-13</font></p>
  
  <div style="margin:0in 0in .0001pt;text-indent:0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">
  
  <hr size="3" width="100%" noshade color="#010101" align="left">
  
  </font></b></div>
  
  </div>
  <!-- SEQ.=1,FOLIO='F-13',FILE='C:\JMS\brosent\08-10653-1\task2883303\10653-1-bm.htm',USER='brosent',CD='Apr 22 18:52 2008' -->
  
  
  <br clear="all" style="page-break-before:always;">
  
  
  <div>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In addition the investors received 3,024,000
  warrants at an exercise price of $0.40 and termination at the earlier of: (i)&nbsp;5
  years, or automatically terminated upon the Company, (ii)&nbsp;public offering,
  (iii)&nbsp;sale of the Company, or (v)&nbsp;change in control.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">These notes and warrants also have demand and
  piggyback registration rights. The valuation of the conversion features for
  both conversion features for both convertible notes per our independent
  valuation was under $1,000, which we considered to be <i>de minimus</i>.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The conversion features for both convertible notes
  have been evaluated under FAS 155, FAS 133, and EITF 00-19 and are deemed not
  to be an imbedded derivative and any value attributable to these features would
  be classified as equity.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-weight:bold;margin:0in 0in .0001pt;page-break-after:auto;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">9. Notes Payable Related Parties</font></i></b></p>
  
  <p style="font-weight:bold;margin:0in 0in .0001pt;page-break-after:auto;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The Company previously entered into a series of
  unsecured loan transactions with relatives of the Company&#146;s executive chairman
  and chief technology officer (collectively, the &#147;Kolke Loans&#148;).&#160; On December&nbsp;30, 2007, in connection with
  settlement of the Kolke Loans, the Company entered into three unsecured
  promissory notes with (i)&nbsp;Daniel J.A. Kolke, the Company&#146;s current
  executive chairman and chief technology officer, in the original principal
  amount of $120,000, (ii)&nbsp;Selma&nbsp;&amp; Daniel A. Kolke, the parents of
  Daniel J.A. Kolke, in the original principal amount of $644,000, and (iii)&nbsp;Desmond
  D. Kolke, a brother of Daniel J.A. Kolke and associate corporate counsel of the
  Company, in the original principal amount of $51,827.42.&#160; The aggregate original principal amount of
  the foregoing notes is $815,827.42, each of which will become secured by
  certain presently unidentified assets of the Company if and when Daniel J.A.
  Kolke is no longer neither an employee nor a member of the board of directors
  of the Company.&#160; Such security interest,
  if granted, would be subordinated to any and all bank debt or convertible
  corporate debt of the Company.&#160; These
  three notes are outstanding in the aggregate balance of $815,827 and $766,425
  as of December&nbsp;31, 2006 and 2007 respectively.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-weight:bold;margin:0in 0in .0001pt;page-break-after:auto;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">10. Credit Facility</font></i></b></p>
  
  <p style="font-weight:bold;margin:0in 0in .0001pt;page-break-after:auto;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In October&nbsp;2007, the Company entered into a one
  year credit facility with Bridge Bank which provides for borrowing of up to
  $250,000 at an annual interest rate equal to the bank&#146;s prime rate plus two and
  one half percent. The credit facility is collateralized by substantially all of
  the Company&#146;s assets and expires in October&nbsp;2008.&#160; The credit facility contains financial and
  reporting covenants that require the Company to maintain certain financial
  ratios only when the Company has an outstanding balance. There were no
  outstanding borrowings as of December&nbsp;31, 2007.&#160; The facility has monthly repayment terms of
  both interest and principal amortized over an imputed 12 month period.&#160; In addition, warrants to purchase up to
  31,250 shares of the Company&#146;s common stock were issued to Bridge Bank in conjunction
  with this facility.&#160; The warrants were
  valued at $0.40 per share using 55% volatility, 4.06% risk free interest rate
  and $0.40 per the independent valuation.&#160;
  In addition, as there has been no borrowing against the line, there has
  been zero interest expense during 2007.</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">F-14</font></p>
  
  <div style="margin:0in 0in .0001pt;text-indent:0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">
  
  <hr size="3" width="100%" noshade color="#010101" align="left">
  
  </font></b></div>
  
  </div>
  <!-- SEQ.=1,FOLIO='F-14',FILE='C:\JMS\brosent\08-10653-1\task2883303\10653-1-bm.htm',USER='brosent',CD='Apr 22 18:52 2008' -->
  
  
  <br clear="all" style="page-break-before:always;">
  
  
  <div>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-weight:bold;margin:0in 0in .0001pt;page-break-after:auto;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">11. Income Taxes</font></i></b></p>
  
  <p style="font-weight:bold;margin:0in 0in .0001pt;page-break-after:auto;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The
  components of the income tax benefit for the years ended December&nbsp;31, 2007
  and 2006 are as follows, (in thousands):</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <table border="0" cellspacing="0" cellpadding="0" width="86%" style="border-collapse:collapse;width:86.66%;">
   <tr>
    <td width="65%" valign="bottom" style="padding:0in 0in 0in 0in;width:65.4%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.88%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="13%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:13.84%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">December&nbsp;31,<br>
    2007</font></b></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.88%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="13%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:13.74%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">December&nbsp;31,<br>
    2006</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.28%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="65%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:65.4%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Federal (expense) benefit:</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:13.84%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:13.74%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.28%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="65%" valign="top" style="padding:0in 0in 0in 0in;width:65.4%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Current</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" valign="bottom" style="padding:0in 0in 0in 0in;width:13.84%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" valign="bottom" style="padding:0in 0in 0in 0in;width:13.74%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.28%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="65%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:65.4%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Deferred</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:13.84%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">1,316</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:13.74%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">515</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.28%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="65%" valign="top" style="padding:0in 0in 0in 0in;width:65.4%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Valuation allowance</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" valign="bottom" style="padding:0in 0in 0in 0in;width:13.84%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(1,316</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>
    </td>
    <td width="13%" valign="bottom" style="padding:0in 0in 0in 0in;width:13.74%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(515</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.28%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>
    </td>
   </tr>
   <tr>
    <td width="65%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:65.4%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">State (expense) benefit:</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:13.84%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:13.74%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.28%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="65%" valign="top" style="padding:0in 0in 0in 0in;width:65.4%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Current</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" valign="bottom" style="padding:0in 0in 0in 0in;width:13.84%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" valign="bottom" style="padding:0in 0in 0in 0in;width:13.74%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.28%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="65%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:65.4%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Deferred</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:13.84%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:13.74%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.28%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="65%" valign="top" style="padding:0in 0in 0in 0in;width:65.4%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Valuation allowance</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" valign="bottom" style="padding:0in 0in 0in 0in;width:13.84%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" valign="bottom" style="padding:0in 0in 0in 0in;width:13.74%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.28%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="65%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:65.4%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:13.84%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:13.74%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.28%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="65%" valign="top" style="padding:0in 0in 0in 0in;width:65.4%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Total income tax (expense) benefit</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" valign="bottom" style="border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:13.84%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" valign="bottom" style="border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:13.74%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.28%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
  </table>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The income tax (expense) benefit differs from the
  federal statutory rate because of the effects of the following items for the
  fiscal years ended December&nbsp;31, 2007 and 2006.</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <table border="0" cellspacing="0" cellpadding="0" width="86%" style="border-collapse:collapse;width:86.66%;">
   <tr>
    <td width="65%" valign="bottom" style="padding:0in 0in 0in 0in;width:65.4%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.88%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="13%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:13.84%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">December&nbsp;31,<br>
    2007</font></b></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.88%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="13%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:13.74%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">December&nbsp;31,<br>
    2006</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.28%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="65%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:65.4%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Statutory rate</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:13.84%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">34.0</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">%</font></p>
    </td>
    <td width="13%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:13.74%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">34.0</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.28%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">%</font></p>
    </td>
   </tr>
   <tr>
    <td width="65%" valign="top" style="padding:0in 0in 0in 0in;width:65.4%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">State income taxes, net of federal benefit</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" valign="bottom" style="padding:0in 0in 0in 0in;width:13.84%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0.0</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">%</font></p>
    </td>
    <td width="13%" valign="bottom" style="padding:0in 0in 0in 0in;width:13.74%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0.0</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.28%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">%</font></p>
    </td>
   </tr>
   <tr>
    <td width="65%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:65.4%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Change in valuation allowance</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:13.84%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">-34.0</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">%</font></p>
    </td>
    <td width="13%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:13.74%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">-34.0</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.28%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">%</font></p>
    </td>
   </tr>
   <tr>
    <td width="65%" valign="top" style="padding:0in 0in 0in 0in;width:65.4%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:13.84%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:13.74%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.28%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="65%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:65.4%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Effective tax (expense) benefit rate</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:13.84%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0.0</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 1.5pt 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">%</font></p>
    </td>
    <td width="13%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:13.74%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0.0</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 1.5pt 0in;width:1.28%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">%</font></p>
    </td>
   </tr>
  </table>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Deferred income taxes are provided to reflect
  temporary differences in the basis of net assets for income tax and financial
  reporting purposes, as well as available net operating losses. The tax-effected
  temporary differences comprising the Company&#146;s deferred income taxes as of December&nbsp;31,
  2007 and 2006, all non-current, are as follows:</font></p>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <table border="0" cellspacing="0" cellpadding="0" width="86%" style="border-collapse:collapse;width:86.66%;">
   <tr>
    <td width="65%" valign="bottom" style="padding:0in 0in 0in 0in;width:65.4%;">
    <p style="margin:0in 0in .0001pt;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.88%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="13%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:13.84%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">December&nbsp;31,<br>
    2007</font></b></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.88%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
    <td width="13%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:13.74%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">December&nbsp;31,<br>
    2006</font></b></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.26%;">
    <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
    </td>
   </tr>
   <tr>
    <td width="65%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:65.4%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Net operating losses</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:13.84%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">3,506 </font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:13.74%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2,190 </font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.26%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="65%" valign="bottom" style="padding:0in 0in 0in 0in;width:65.4%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Valuation allowance</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" valign="bottom" style="padding:0in 0in 0in 0in;width:13.84%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(3,506</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>
    </td>
    <td width="13%" valign="bottom" style="padding:0in 0in 0in 0in;width:13.74%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(2,190</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.26%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>
    </td>
   </tr>
   <tr>
    <td width="65%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:65.4%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:13.84%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:13.74%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.26%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="65%" valign="bottom" style="padding:0in 0in 0in 0in;width:65.4%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Net deferred income tax
    asset</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" valign="bottom" style="border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:13.84%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0 </font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="13%" valign="bottom" style="border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:13.74%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">0 </font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.26%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
  </table>
  
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The Company has recorded a valuation allowance in
  the amount set forth above for deferred tax assets where it is more likely than
  not the Company will not realize future tax benefits related to these items.
  The net change in the valuation allowance for the year ended December&nbsp;31,
  2007 was $1.3 million.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">As of December&nbsp;31, 2007, the Company has
  federal net operating loss carry-forwards available to offset future taxable
  income of approximately $10.3 million. The federal net operating loss since the
  Company has operated since inception primarily in the state of Washington,
  which has no corporate income tax. The Company has not yet filed income tax
  returns to report the net operating losses.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The Tax Reform Act of 1986 imposed substantial
  restrictions on the utilization of NOLs in the event of an &#147;ownership change&#148;
  of a corporation (as defined in the Internal Revenue Code). Utilization of the
  Company&#146;s net operating losses may be limited by these restrictions.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-weight:bold;margin:0in 0in .0001pt;page-break-after:auto;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">12. Capital Stock Footnote</font></i></b></p>
  
  <p style="font-weight:bold;margin:0in 0in .0001pt;page-break-after:auto;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Common
  Stock</font></i></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The
  Company has issued 20,373,938 shares of common stock pre-split from a total of
  360,000,000 authorized shares without par value.</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">F-15</font></p>
  
  <div style="margin:0in 0in .0001pt;"><hr size="3" width="100%" noshade color="#010101" align="left"></div>
  
  </div>
  <!-- SEQ.=1,FOLIO='F-15',FILE='C:\JMS\brosent\08-10653-1\task2883303\10653-1-bm.htm',USER='brosent',CD='Apr 22 18:52 2008' -->
  
  
  
  <br clear="all" style="page-break-before:always;">
  <div style="font-family:Times New Roman;">
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Preferred
  Stock</font></i></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The
  Company has issued 4,634,312 shares of preferred stock from a total of
  240,000,000 authorized shares without par value.&#160; In connection with the merger with and into
  Tripath Technology&nbsp;Inc., all issued and outstanding shares of preferred
  stock were immediately converted into shares of common stock on a one-for-one
  basis.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Series&nbsp;A</font></u></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">On
  November&nbsp;2, 1999, the Company authorized and issued 665,000 shares of Series&nbsp;A
  Preferred Stock from a total of 12,500,000 shares designated as Series&nbsp;A
  Preferred Stock.&#160; In connection with the
  authorization and issuance of the Series&nbsp;C Preferred Stock, the Company
  and the shareholders of the Company authorized a 10:1 reverse split of all then
  issued and outstanding shares of common stock and preferred stock.&#160; As a result, the number of issued and
  outstanding shares of Series&nbsp;A Preferred Stock is 66,500.&#160; The rights, preferences, and privileges of
  the Series&nbsp;A Preferred stock are as follows:</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Dividends.&#160; </font></i><font size="2" style="font-size:10.0pt;">Holders of Series&nbsp;A
  Preferred Stock are entitled to receive dividends at a rate of $0.05 per share,
  per annum, when and if declared by the Board of Directors.&#160; The rights to such dividends are not
  cumulative and no rights accrue to holders of Series&nbsp;A Preferred Stock by
  reason of the fact that dividends are not declared or paid in any prior
  year.&#160; No dividend shall be paid or
  declared and set apart for shares of Series&nbsp;A Preferred Stock for any
  period unless at the same time a like proportionate dividend for the same
  dividend period, ratably in proportion to the respective annual dividend rates
  fixed therefor, shall be paid on or declared and set apart for the shares of
  all other series of preferred stock of the Company.&#160; Although no dividends have been declared or
  paid to date, the cumulative dividends in arrears would be $26.6 thousand or
  $0.40 per share.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Voting
  Rights.&#160; </font></i><font size="2" style="font-size:10.0pt;">Holders of Series&nbsp;A
  Preferred Stock and common stock vote as a single class upon any matter
  submitted to the stockholders for a vote and the holder of each share of Series&nbsp;A
  Preferred Stock has the right to one vote for each share of common stock into
  which such share of Series&nbsp;A Preferred Stock could then be converted.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Liquidation.&#160; </font></i><font size="2" style="font-size:10.0pt;">Holders of Series&nbsp;A
  Preferred Stock are entitled to a liquidation preference to the holders of
  common stock, on a pro rata basis, of $1.00 per share, plus any declared but
  unpaid dividends on the Series&nbsp;A Preferred Stock.&#160; All remaining assets of the Company, if any,
  shall be distributed to the holders of common stock.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Conversion.&#160; </font></i><font size="2" style="font-size:10.0pt;">Each share of Series&nbsp;A
  Preferred Stock is convertible, at the option of the holder of such share, into
  the number of fully paid and nonassessable shares of common stock determined by
  dividing $1.00 by the then applicable conversion price.&#160; Conversion into one share of common stock
  will be automatic upon the closing of a firm commitment underwritten public
  offering at a price per share of not less than $3.00 with gross proceeds to the
  Company of not less than $11,250,000.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Registration
  Rights.&#160; </font></i><font size="2" style="font-size:10.0pt;">Holders of Series&nbsp;A
  Preferred Stock have no registration rights.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Series&nbsp;B</font></u></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">On
  March&nbsp;30, 2000, the Company authorized and issued 120,000 shares of Series&nbsp;B
  Preferred Stock from a total of 22,500,000 shares designated as Series&nbsp;B
  Preferred Stock.&#160; In connection with the
  authorization and issuance of the Series&nbsp;C Preferred Stock, the Company
  and the shareholders of the Company authorized a 10:1 reverse split of all then
  issued and outstanding shares of common stock and preferred stock.&#160; As a result, the number of issued and
  outstanding shares of Series&nbsp;B Preferred Stock is 120,000.&#160; The rights, preferences, and privileges of
  the Series&nbsp;B Preferred stock are identical to the Series&nbsp;A Preferred
  Stock are as follows:</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">F-16</font></p>
  
  <div style="margin:0in 0in .0001pt;text-indent:0in;"><hr size="3" width="100%" noshade color="#010101" align="left"></div>
  
  </div>
  <!-- SEQ.=1,FOLIO='F-16',FILE='C:\JMS\brosent\08-10653-1\task2883303\10653-1-bn.htm',USER='brosent',CD='Apr 22 18:54 2008' -->
  
  
  <br clear="all" style="page-break-before:always;">
  
  
  <div style="font-family:Times New Roman;">
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Dividends.&#160; </font></i><font size="2" style="font-size:10.0pt;">Holders of Series&nbsp;B Preferred
  Stock are entitled to receive dividends at a rate of $0.16 per share, per
  annum, in preference and priority to any dividend on common stock, when and if
  declared by the Board of Directors.&#160; The
  rights to such dividends are not cumulative and no rights accrue to holders of Series&nbsp;B
  Preferred Stock by reason of the fact that dividends are not declared or paid
  in any prior year.&#160; No dividend shall be
  paid or declared and set apart for shares of Series&nbsp;B Preferred Stock for
  any period unless at the same time a like proportionate dividend for the same
  dividend period, ratably in proportion to the respective annual dividend rates
  fixed therefor, shall be paid on or declared and set apart for the shares of
  all other series of preferred stock of the Company.&#160; Although no dividends have been declared or
  paid to date, the cumulative dividends in arrears would be $134.4 thousand or
  $1.12 per share.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Voting
  Rights.&#160; </font></i><font size="2" style="font-size:10.0pt;">Holders of Series&nbsp;B
  Preferred Stock and common stock vote as a single class upon any matter submitted
  to the stockholders for a vote and the holder of each share of Series&nbsp;B
  Preferred Stock has the right to one vote for each share of Common Stock into
  which such share of Series&nbsp;B Preferred Stock could then be converted.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Liquidation.&#160; </font></i><font size="2" style="font-size:10.0pt;">Holders of Series&nbsp;B
  Preferred Stock are entitled to a liquidation preference to the holders of
  common stock, on a pro rata basis, of $2.00 per share, plus any declared but
  unpaid dividends on the Series&nbsp;B Preferred Stock.&#160; Series&nbsp;B Preferred Stock and Series&nbsp;A
  Preferred Stock rank in parity with respect to liquidation rights but may be
  paid ratably with any series of stock that is senior to Series&nbsp;B Preferred
  Stock.&#160; After payment of the preferential
  amounts to holders of (i)&nbsp;any series that is senior to Series&nbsp;B
  Preferred Stock, (ii)&nbsp;Series&nbsp;B Preferred Stock and (iii)&nbsp;Series&nbsp;A
  Preferred Stock, the remaining assets of the Company, if any, shall be
  distributed pro rata to the holders of (a)&nbsp;any series that is senior to Series&nbsp;B
  Preferred Stock, (b)&nbsp;Series&nbsp;B Preferred Stock, (c)&nbsp;Series&nbsp;A
  Preferred Stock, and (d)&nbsp;common stock based upon the number of shares of
  common stock held by each, assuming full conversion at the then-applicable
  conversion rate.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Conversion.&#160; </font></i><font size="2" style="font-size:10.0pt;">Each share of Series&nbsp;B
  Preferred Stock is convertible, at the option of the holder of such share, into
  the number of fully paid and nonassessable shares of Common Stock determined by
  dividing $2.00 by the then applicable conversion price.&#160; Conversion will be automatic upon the closing
  of a firm commitment underwritten public offering at a price per share of not
  less than $3.00 with gross proceeds to the Company of not less than
  $11,250,000.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Registration
  Rights.&#160; </font></i><font size="2" style="font-size:10.0pt;">Holders of Series&nbsp;B
  Preferred Stock have no registration rights.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Series&nbsp;C</font></u></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">On
  March&nbsp;5, 2002, the Company issued 4,447,812 shares of Series&nbsp;C
  Preferred Stock from a total of 60,000,000 shares designated as Series&nbsp;C
  Preferred Stock.&#160; In connection with the
  authorization and issuance of the Series&nbsp;C Preferred Stock, the Company
  and the shareholders of the Company authorized a 10:1 reverse split of all then
  issued and outstanding shares of common stock and preferred stock.&#160; The rights, preferences, and privileges of
  the Series&nbsp;C Preferred stockholders are as follows:</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Dividends.&#160; </font></i><font size="2" style="font-size:10.0pt;">Holders of Series&nbsp;C
  Preferred Stock are entitled to receive dividends at a rate of $0.000625 per
  share, per annum, in preference and priority to any dividend on Common Stock,
  when and if declared by the Board of Directors.&#160;
  The rights to such dividends are not cumulative and no rights accrue to
  holders of Series&nbsp;C Preferred Stock by reason of the fact that dividends
  are not declared or paid in any prior year.&#160;
  No dividend shall be paid or declared and set apart for shares of Series&nbsp;C
  Preferred Stock for any period unless at the same time a like proportionate
  dividend for the same dividend period, ratably in proportion to the respective
  annual dividend rates fixed therefor, shall be paid on or declared and set
  apart for the shares of all other series of preferred stock of the Company. Although
  no dividends have been declared or paid to date, the cumulative dividends in
  arrears would be $16.7 thousand, or $0.0375 per share.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Voting
  Rights.&#160; </font></i><font size="2" style="font-size:10.0pt;">Holders of Series&nbsp;C
  Preferred Stock and common stock vote as a single class upon any matter
  submitted to the stockholders for a vote and the holder of each share of Series&nbsp;C
  Preferred Stock has the right to one vote for each share of common stock into
  which such share of Series&nbsp;C Preferred Stock could then be converted.</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">F-17</font></p>
  
  <div style="margin:0in 0in .0001pt;text-indent:0in;"><hr size="3" width="100%" noshade color="#010101" align="left"></div>
  
  </div>
  <!-- SEQ.=1,FOLIO='F-17',FILE='C:\JMS\brosent\08-10653-1\task2883303\10653-1-bn.htm',USER='brosent',CD='Apr 22 18:54 2008' -->
  
  
  <br clear="all" style="page-break-before:always;">
  
  
  <div style="font-family:Times New Roman;">
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Liquidation.&#160; </font></i><font size="2" style="font-size:10.0pt;">Holders of Series&nbsp;C
  Preferred Stock are entitled to a liquidation preference to the holders of
  common stock, on a pro rata basis, of $0.0125 per share, plus any declared but
  unpaid dividends on the Series&nbsp;C Preferred Stock.&#160; Series&nbsp;C Preferred Stock, Series&nbsp;B
  Preferred Stock, and Series&nbsp;A Preferred Stock rank in parity with respect
  to liquidation rights but may be paid ratably with any series of stock that is
  senior to Series&nbsp;C Preferred Stock.&#160;
  After payment of the preferential amounts to holders of (i)&nbsp;any
  series that is senior to Series&nbsp;C Preferred Stock, (ii)&nbsp;Series&nbsp;C
  Preferred Stock, (iii)&nbsp;Series&nbsp;B Preferred Stock and (iv)&nbsp;Series&nbsp;A
  Preferred Stock, the remaining assets of the Company, if any, shall be
  distributed pro rata to the holders of (a)&nbsp;any series that is senior to Series&nbsp;C
  Preferred Stock, (b)&nbsp;Series&nbsp;C Preferred Stock, (c)&nbsp;Series&nbsp;B
  Preferred Stock, (d)&nbsp;Series&nbsp;A Preferred Stock, and (e)&nbsp;common
  stock based upon the number of shares of common stock held by each, assuming
  full conversion at the then-applicable conversion rate.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Conversion.&#160; </font></i><font size="2" style="font-size:10.0pt;">Each share of Series&nbsp;C
  Preferred Stock is convertible, at the option of the holder of such share, into
  the number of fully paid and nonassessable shares of common stock determined by
  dividing $0.0125 by the then applicable conversion price.&#160; Conversion will be automatic upon the closing
  of a firm commitment underwritten public offering at a price per share of not
  less than $3.00 with gross proceeds to the Company of not less than $11,250,000.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Registration
  Rights.&#160; </font></i><font size="2" style="font-size:10.0pt;">Holders of Series&nbsp;C
  Preferred Stock have no registration rights.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Warrants</font></i></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">As of December 31, 2007,
  warrants representing 666,667 shares of our common stock were exercisable at a
  strike price of $0.60 per share. These warrants expire in 2010.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Shares
  reserved</font></i></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">As of December 31, 2007,
  the Company has the following shares reserved:</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <table border="0" cellspacing="0" cellpadding="0" width="53%" style="border-collapse:collapse;margin-left:.5in;width:53.34%;">
   <tr>
    <td width="70%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:70.94%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Options Issued</font></p>
    </td>
    <td width="4%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:4.68%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="22%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:22.5%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">14,158,000</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="70%" valign="top" style="padding:0in 0in 0in 0in;width:70.94%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Option Plan Available</font></p>
    </td>
    <td width="4%" valign="bottom" style="padding:0in 0in 0in 0in;width:4.68%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="22%" valign="bottom" style="padding:0in 0in 0in 0in;width:22.5%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">331,262</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="70%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:70.94%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Debenture Conversion(s)</font></p>
    </td>
    <td width="4%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:4.68%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="22%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:22.5%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">12,100,444</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="70%" valign="top" style="padding:0in 0in 0in 0in;width:70.94%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Warrant Exercises</font></p>
    </td>
    <td width="4%" valign="bottom" style="padding:0in 0in 0in 0in;width:4.68%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="22%" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:22.5%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">666,667</font></p>
    </td>
    <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="70%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:70.94%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Total</font></p>
    </td>
    <td width="4%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:4.68%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="22%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:22.5%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">27,256,373</font></p>
    </td>
    <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.88%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
  </table>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-weight:bold;margin:0in 0in .0001pt;page-break-after:auto;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">13. Settlement Agreement</font></i></b></p>
  
  <p style="font-weight:bold;margin:0in 0in .0001pt;page-break-after:auto;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In December&nbsp;2007, the Company entered into a
  settlement agreement with Better Business Concepts, LLC, in connection with
  certain factoring transactions and a lease guarantee by the Company.&#160;&#160; In the aggregate, these liabilities were
  $278,403.38.&#160; Pursuant to the settlement
  agreement, the Company paid $7,352.48 in cash, and delivered a promissory note
  in the principal amount of $100,000.00, and a warrant to purchase 171,051
  shares of common stock of the Company, which was exercised contemporaneously
  with the execution of the settlement agreement with a payment of $5,313.53 to
  the Company.&#160; The promissory note bears
  simple interest at 6% per annum and is payable monthly in the amount of $3,000.00,
  in accordance with an amortization schedule.&#160;
  The promissory note may be prepaid at any time without penalty.&#160; The promissory note is guaranteed by Daniel J.
  A. Kolke, the Company&#146;s Chairman, Founder and Chief Technology Officer.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-weight:bold;margin:0in 0in .0001pt;page-break-after:auto;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">14. Commitments and contingencies</font></i></b></p>
  
  <p style="font-weight:bold;margin:0in 0in .0001pt;page-break-after:auto;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Lease commitments</font></i><font size="2" style="font-size:10.0pt;">: The Company leases office space in San
  Mateo, California, under a non-cancelable lease dated October&nbsp;22,
  2007.&#160; The Company also leases office
  space in Renton, Washington, under a sublease dated September&nbsp;19, 2006,
  which expires on June&nbsp;30, 2010.&#160; The
  Company recognizes rent on a straight-line basis over the lease term.&#160; Rent expense under the Company&#146;s operating
  leases in 2007 and in 2006 were $146.7 thousand, and $44.3, thousand,
  respectively.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Rent expense future minimum payments under the
  operating lease agreements are as follows:</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Year Ending December&nbsp;31, 2007:</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:24.5pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <table border="0" cellspacing="0" cellpadding="0" width="35%" style="border-collapse:collapse;margin-left:1.0in;width:35.0%;">
   <tr>
    <td width="33%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:33.46%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2008</font></p>
    </td>
    <td width="11%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:11.12%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="3%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:3.7%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="23%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:23.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">269
    </font></p>
    </td>
    <td width="23%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:23.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">thousand</font></p>
    </td>
    <td width="4%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:4.86%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="33%" valign="top" style="padding:0in 0in 0in 0in;width:33.46%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" valign="bottom" style="padding:0in 0in 0in 0in;width:11.12%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="25%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:25.26%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="25%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:25.3%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="4%" valign="bottom" style="padding:0in 0in 0in 0in;width:4.86%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="33%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:33.46%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2009</font></p>
    </td>
    <td width="11%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:11.12%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="3%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:3.7%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="23%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:23.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">269
    </font></p>
    </td>
    <td width="23%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:23.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">thousand</font></p>
    </td>
    <td width="4%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:4.86%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="33%" valign="top" style="padding:0in 0in 0in 0in;width:33.46%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" valign="bottom" style="padding:0in 0in 0in 0in;width:11.12%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="25%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:25.26%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="25%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:25.3%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="4%" valign="bottom" style="padding:0in 0in 0in 0in;width:4.86%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="33%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:33.46%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2010</font></p>
    </td>
    <td width="11%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:11.12%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="3%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:3.7%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
    </td>
    <td width="23%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:23.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">97</font></p>
    </td>
    <td width="23%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:23.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">thousand</font></p>
    </td>
    <td width="4%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:4.86%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="33%" valign="top" style="padding:0in 0in 0in 0in;width:33.46%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="11%" valign="bottom" style="padding:0in 0in 0in 0in;width:11.12%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="3%" valign="bottom" style="padding:0in 0in 0in 0in;width:3.7%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="23%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:23.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="23%" valign="bottom" style="padding:0in 0in 0in 0in;width:23.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
    <td width="4%" valign="bottom" style="padding:0in 0in 0in 0in;width:4.86%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="33%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:33.46%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Total</font></p>
    </td>
    <td width="11%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:11.12%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="3%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:3.7%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="23%" colspan="2" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:23.42%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">635</font></p>
    </td>
    <td width="23%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0.75pt 0in;width:23.44%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">thousand</font></p>
    </td>
    <td width="4%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:4.86%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr height="0">
    <td width="88" style="border:none;"></td>
    <td width="29" style="border:none;"></td>
    <td width="10" style="border:none;"></td>
    <td width="56" style="border:none;"></td>
    <td width="5" style="border:none;"></td>
    <td width="61" style="border:none;"></td>
    <td width="13" style="border:none;"></td>
   </tr>
  </table>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">F-18</font></p>
  
  <div style="margin:0in 0in .0001pt;"><hr size="3" width="100%" noshade color="#010101" align="left"></div>
  
  </div>
  <!-- SEQ.=1,FOLIO='F-18',FILE='C:\JMS\brosent\08-10653-1\task2883303\10653-1-bn.htm',USER='brosent',CD='Apr 22 18:54 2008' -->
  
  
  <br clear="all" style="page-break-before:always;">
  
  
  <div style="font-family:Times New Roman;">
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="font-weight:bold;margin:0in 0in .0001pt;page-break-after:auto;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">15. Subsequent Events</font></i></b></p>
  
  <p style="font-weight:bold;margin:0in 0in .0001pt;page-break-after:auto;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></b></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">January&nbsp;2008 Private Placement</font></u></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">During
  January&nbsp;2008, the Company issued 6% convertible debentures with a face
  value of $2,000,000 and warrants to purchase up to 666,667 shares of common
  stock.&#160; These notes mature on January&nbsp;31,
  2010, with interest due and payable on January&nbsp;1 and July&nbsp;1 of each
  year through maturity. The default interest rate is 130%. The notes convert
  into the Company&#146;s common stock under the following situation: (i)&nbsp;at the
  Company&#146;s option, and under certain conditions, when the price per share of
  common stock exceeds $1.13, subject to adjustments for splits and dividends;
  and (ii)&nbsp;mandatory conversion upon a change of 60% of the control of
  Company.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In addition, the conversion price of $0.45 per share
  has anti-dilution provisions and adjustments for stock splits or stock
  dividends.&#160; The Company is obligated to
  reserve, at all the times, a sufficient number of authorized unissued shares of
  common stock to issue upon conversion.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The warrants issued to the investors have an
  exercise price of $0.60 and terminate at the earlier of: (i)&nbsp;three years,
  or automatically terminated upon the Company, (ii)&nbsp;sale of all or
  substantially all of the assets of, or change in control of, the Company.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">These notes and warrants also have demand and
  piggyback registration rights.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">April
  2008 </font></u><u><font size="2" style="font-size:10.0pt;">Private Placement</font></u></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">During
  April&nbsp;2008, the Company issued 6% convertible debentures with a face value
  of $3,500,000 and warrants to purchase up to 1,166,667 shares of common
  stock.&#160; These notes mature on April&nbsp;30,
  2010, with interest due and payable on October&nbsp;1 and April&nbsp;1 of each
  year through maturity. The default interest rate is 130%. The notes convert
  into the Company&#146;s common stock under the following situation: (i)&nbsp;at the
  Company&#146;s option, and under certain conditions, when the price per share of
  common stock exceeds $1.13, subject to adjustments for splits and dividends;
  and (ii)&nbsp;mandatory conversion upon a change of 60% of the control of
  Company.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In addition, the conversion price of $0.45 per share
  has anti-dilution provisions and adjustments for stock splits or stock
  dividends.&#160; The Company is obligated to
  reserve, at all the times, a sufficient number of authorized unissued shares of
  common stock to issue upon conversion.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The warrants issued to the investors have an exercise
  price of $0.60 and terminate at the earlier of: (i)&nbsp;three years, or
  automatically terminated upon the Company, (ii)&nbsp;sale of all or
  substantially all of the assets of, or change in control of, the Company.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">These notes and warrants also have demand and
  piggyback registration rights.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Equity Transactions</font></u></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In
  April, 2008 the Company converted $750,000 of 20% Convertible debt into
  3,000,000 shares of common stock at a conversion price of $0.25 per share and
  $1,540,911 of 6% convertible debt into 6,163,644 shares of common stock at
  $0.25 per share.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In
  January-March, 2008, the Company also issued 150,000 shares of common stock
  from the exercise of warrants issued in connection with the 20% convertible
  debt and 995,000 shares of common stock from the exercise of warrants issued in
  connection with the 6% convertible debt.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">On
  April 22, 2008, 66,500 shares of Series A Preferred, 120,000 shares of Series B
  Preferred and 4,447,812 shares of Series C Preferred were converted into common
  stock as follows:</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <table border="0" cellspacing="0" cellpadding="0" width="40%" style="border-collapse:collapse;margin-left:.5in;width:40.0%;">
   <tr>
    <td width="61%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:61.24%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Series A</font></p>
    </td>
    <td width="6%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:6.28%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="30%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:30.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">66,500</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="61%" valign="top" style="padding:0in 0in 0in 0in;width:61.24%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Series B</font></p>
    </td>
    <td width="6%" valign="bottom" style="padding:0in 0in 0in 0in;width:6.28%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="30%" valign="bottom" style="padding:0in 0in 0in 0in;width:30.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">120,000</font></p>
    </td>
    <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
   <tr>
    <td width="61%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:61.24%;">
    <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Series C</font></p>
    </td>
    <td width="6%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:6.28%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
    <td width="30%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:30.0%;">
    <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">4,447,812</font></p>
    </td>
    <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.5%;">
    <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
    </td>
   </tr>
  </table>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Reverse Merger Transaction</font></u></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In
  March&nbsp;of 2008 Etelos voted to merge with Tripath Technology&nbsp;Inc. The
  merger will be a reverse merger with the Company being the surviving entity and
  the name of the surviving company will be Etelos,&nbsp;Inc.</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Immediately prior to the effective time of the
  reverse merger, all issued and outstanding shares of the Company&#146;s preferred
  stock and all of the notes and warrants issued by the Company between October&nbsp;2006
  and October&nbsp;2007 (as discussed in &#147;Note 7. Convertible Debt and Warrant
  Liability,&#148; above) were converted or exercised, as the case may be, into shares
  of common stock of the Company.</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">F-19</font></p>
  
  <div style="margin:0in 0in .0001pt;text-indent:0in;"><hr size="3" width="100%" noshade color="#010101" align="left"></div>
  
  </div>
  <!-- SEQ.=1,FOLIO='F-19',FILE='C:\JMS\brosent\08-10653-1\task2883303\10653-1-bn.htm',USER='brosent',CD='Apr 22 18:54 2008' -->
  
  
  </body>
  
  </html>
metadata_documents: [{"type": "8-K", "sequence": "1", "filename": "a08-10653_18k.htm", "description": "8-K", "secsgml_size_bytes": 1185029}]
metadata_filer: {"company-data": {"conformed-name": "TRIPATH TECHNOLOGY INC", "cik": "0001045739", "assigned-sic": "3674", "irs-number": "770407364", "fiscal-year-end": "0930"}, "filing-values": {"form-type": "8-K", "act": "34", "file-number": "000-31081", "film-number": "08770439"}, "business-address": {"street1": "2560 ORCHARD PARKWAY", "city": "SAN JOSE", "state": "CA", "zip": "95131", "phone": "408-750-3000"}, "mail-address": {"street1": "2560 ORCHARD PARKWAY", "city": "SAN JOSE", "state": "CA", "zip": "95131"}}
text: UNITED STATES
  SECURITIES AND EXCHANGE COMMISSION
  WASHINGTON, D.C. 20549
  FORM 8-K
  CURRENT REPORT
  Pursuant to Section 13 or 15(d) of the
  Securities Exchange Act of 1934
  Date of Report (Date
  of earliest event reported):
  April 22, 2008
  Tripath Technology Inc.
  (Exact name of
    registrant as specified in its charter)
  Delaware
  000-31081
  77-0407364
  (State or Other
    Jurisdiction of Incorporation)
  (Commission File
    Number)
  (I.R.S. Employer
    Identification No.)
  1900 O'Farrell St.,
    Suite 320, San Mateo, California
  94403
  (Address of principal
    executive offices)
  (Zip Code)
  Registrant's
  telephone number, including area code:
  425-458-4510
  Check the appropriate box
  below if the Form 8-K filing is intended to simultaneously satisfy the
  filing obligation of the registrant under any of the following provisions:
  o
  Written communications pursuant to Rule 425
  under the Securities Act (17 CFR 230.425)
  o
  Soliciting material pursuant to Rule 14a-12
  under the Exchange Act (17 CFR 240.14a-12)
  o
  Pre-commencement
  communications pursuant to Rule 14d-2(b) under the Exchange Act (17
  CFR 240.14d-2(b))
  o
  Pre-commencement
  communications pursuant to Rule 13e-4(c) under the Exchange Act (17
  CFR 240.13e-4(c))
  CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
  Our disclosure and analysis in this report contains
  some forward-looking statements. Certain of the matters discussed concerning
  our operations, cash flows, financial position, economic performance and
  financial condition, including, in particular, future sales, product demand,
  the market for our products, competition and the effect of economic conditions
  include forward-looking statements.
  Statements that are predictive in nature, that
  depend upon or refer to future events or conditions or that include words such
  as "expects," "anticipates," "intends," "plans," "believes," "estimates," and
  similar expressions are forward-looking statements. Although we believe that
  these statements are based upon reasonable assumptions, including projections
  of orders, sales, operating margins, earnings, cash flow, research and
  development costs, working capital, capital expenditures, and other
  projections, they are subject to several risks and uncertainties, and
  therefore, we can give no assurance that these statements will be achieved.
  Investors are cautioned that our forward-looking
  statements are not guarantees of future performance and the actual results or
  developments may differ materially from the expectations expressed in the
  forward-looking statements.
  As for the forward-looking statements that relate to
  future financial results and other projections, actual results will be
  different due to the inherent uncertainty of estimates, forecasts and
  projections may be better or worse than projected. Given these uncertainties,
  you should not place any reliance on these forward-looking statements. These
  forward-looking statements also represent our estimates and assumptions only as
  of the date that they were made. We expressly disclaim a duty to provide
  updates to these forward-looking statements, and the estimates and assumptions
  associated with them, after the date of this filing to reflect events or
  changes in circumstances or changes in expectations or the occurrence of
  anticipated events.
  We undertake no obligation to publicly update any
  forward-looking statement, whether as a result of new information, future
  events or otherwise. You are advised, however, to consult any additional
  disclosures we make in our annual, quarterly and current reports. We also note
  that we have provided a cautionary discussion of risks and uncertainties under
  the caption "Risk Factors" in this report. These are factors that we think
  could cause our actual results to differ materially from expected results.
  Other factors besides those listed here could also adversely affect us.
  Information regarding market and industry statistics
  contained in this report is included based on information available to us,
  which we believe is accurate. We have not reviewed or included data from all
  sources, and cannot assure stockholders of the accuracy or completeness of the
  data included in this report. Forecasts and other forward-looking information
  obtained from these sources are subject to the same qualifications and the
  additional uncertainties accompanying any estimates of future market size,
  revenue and market acceptance of products and services.
  2
  Item 2.01 Completion of Acquisition or Disposition of Assets.
  This report is being filed by
  Tripath
  Technology Inc.,
  a Delaware
  corporation ("
  Tripath
  "
  or the "
  Company
  "), in connection with the
  merger of Etelos, Incorporated, a Washington corporation ("
  Etelos
  "),
  with and into Tripath.  Tripath changed
  its name to Etelos, Inc.
  As discussed in more detail in Item 5.06 of this report,
  as a result of the
  merger
  ,
  Tripath ceased being a shell company as such term is defined in Rule 12b-2
  under the Securities Exchange Act of 1934, as amended (the "
  Exchange Act
  ").
  FORM 10-SB DISCLOSURE
  As disclosed elsewhere in this report, on April
  22
  , 2008, Etelos
  merged
  with and into Tripath in a reverse
  merger transaction. Item 2.01(f) of Form 8-K states that if the
  registrant was a shell company, like Tripath was immediately before the merger, then the registrant must disclose the
  information that would be required if the registrant were filing a general form
  for registration of securities on Form 10-SB.
  Accordingly, Tripath is providing below the
  information that would be included in a Form 10-SB if Tripath were to file
  a Form 10-SB.  Note that the
  information provided below generally relates to the business enterprise after
  the merger, except that information relating to periods prior to the effective
  time of the merger only relates to
  Tripath
  unless the context suggests otherwise.  In this report the terms "we," "us," "our,"
  and other similar terms refer to the surviving corporation after the merger.
  In this report, we rely on and refer to information
  and statistics regarding our industry that we have obtained from a variety of
  sources. This information is publicly available for free and has not been
  specifically prepared for us for use in this report or otherwise. Although we
  believe that this information is generally reliable, we cannot guarantee, nor
  have we independently verified, the accuracy and completeness of this
  information.
  DESCRIPTION OF BUSINESS
  Tripath History
  On April
  22
  , 2008, Etelos merged with and into Tripath,
  and the surviving corporation changed its name to Etelos, Inc., a Delaware
  corporation.
  Before the effective date of the merger, and since
  February 8,
  2007, Tripath
  was in a Chapter
  11 bankruptcy proceeding in the United States Bankruptcy Court for the Northern
  District of California, Case No. 07-50358. 
  As a "debtor in possession," Tripath remained in possession of its
  assets and properties and continued to operate its business pursuant to Section 1107(a) and
  1108 of the Bankruptcy Code. On December 20, 2007, Tripath and Enable
  Growth Partners LP filed with the bankruptcy court the Third Amended Disclosure
  Statement Accompanying Third Amended Plan of Reorganization dated December 20,
  2007 Proposed by Tripath Technology Inc. and Enable Growth Partners LP,
  for itself and as agent for the Secured Parties (the "
  Plan of
  Reorganization
  "), which contemplated the merger of Etelos with and
  into Tripath.  On February 1, 2008,
  the bankruptcy court issued an order confirming approval of the Plan of
  Reorganization, including the merger and the transfer of all of Tripath's
  existing assets into a separate bankruptcy estate and the discharge of all of
  Tripath's liabilities.  As a result of
  the foregoing, on April •, 2008, Tripath entered into an agreement
  and plan of merger with Etelos (the "
  Merger Agreement
  "),
  pursuant to which Etelos merged with and into Tripath, at which time the separate
  corporate existence of Etelos ceased and Tripath continued after the merger as
  the surviving corporation and changed its name to Etelos, Inc.  The surviving corporation will conduct the
  business that was previously conducted by Etelos.
  3
  Until Tripath ceased operations, Tripath was a
  fabless semiconductor company that focused on developing highly efficient power
  amplification to the digital media and electronics markets.
  History of Etelos
  Overview
  Etelos is a leading provider of software solutions
  that assist organizations to effectively use Web Applications to accomplish
  their goals.  Etelos provides
  a
  revolutionary Software as a Service (SaaS) ecosystem for building, distributing,
  and using Web Applications, including a marketplace to deploy and support them;
  giving businesses choices in Web Applications, hosting, and support services to
  cost effectively accomplish their goals.
  Etelos has developed products for Web Applications, which include open standards-based
  tools for Web developers, businesses and individual users such as the Etelos
  Application Server
  Ô
  (EAS
  Ô
  ) and the Etelos Development Environment
  Ô
  (EDE
  Ô
  ).  EAS and
  EDE support many common programming languages and also support the English Application
  Scripting Engine (EASE
  Ô
  ), a simple-to-use
  open standards-based scripting language developed by Etelos.  In order to support broader adoption of
  Etelos
  Ô
  products, EASE and other components of the EDE
  are provided to developers and users at market appropriate pricing.  This is done to support the development of
  new Web Applications and the migration of existing Web Applications into the
  Etelos™ ecosystem where there are tools and other support mechanisms for the
  marketing, distribution, sales and support of these applications.  Etelos generally receives a transaction fee or
  a license fee in exchange transactions that occur within the Etelos ecosystem
  via the Etelos Marketplace
  Ô
  .
  The Etelos Marketplace supports and encourages communities of
  developers, distributors, and consumers to expand their offerings, collaborate
  on new ideas and improvements, and provide scalable solutions using Web
  Applications available to others.
  For the year ended December 31, 2007, Etelos
  had revenue of $304 thousand, a decrease of $12 thousand from the year ended
  December 31, 2006. As of December 31, 2007, Etelos had over 5,000 active
  free and paying customers.  Etelos,
  headquartered in San Mateo, California, with offices in Renton, Washington, was
  founded in May 1999.
  Industry Background
  The 1990s saw the widespread adoption among large
  enterprises of packaged business management applications that automated a
  variety of departmental functions, such as accounting, finance, order and
  inventory management, human resources, sales, and customer support. These
  sophisticated applications required significant cash outlays for the initial
  purchase and for ongoing maintenance and support. In addition, these
  applications were internally managed and maintained by enterprise customers, requiring
  increasingly large staffs to support complex information technology
  infrastructures. Most importantly, the applications generally were provided by
  multiple vendors, with each application providing only a departmental view of
  the enterprise. To gain an enterprise-wide view, organizations attempted to tie
  together their various incompatible packaged applications through long, complex,
  and costly integration efforts. Many of these attempts failed, in whole or in
  part, often after significant delay and expense. As a consequence, many large
  enterprises have transitioned from multiple point products to comprehensive,
  integrated business management suites, such as those offered by Oracle and SAP,
  as their core business management platforms.
  4
  Small-to-Medium sized Businesses (SMBs), which we
  define as businesses with up to 1,000 employees, have application software
  requirements that are similar, in many respects, to large enterprises because
  their core business processes are substantially the same. These requirements
  include the integration of back-office activities, such as managing payroll and
  tracking inventory; front-office activities, including order management and
  customer support; and, increasingly, sophisticated e-commerce capabilities.
  According to a 2006 forecast for the CRM market and 2007 forecasts for the ERP
  and supply chain management, or SCM, markets from Gartner, Inc., companies
  in North America spent approximately $13.7 billion on ERP, CRM, and SCM
  software applications in 2006, of which SMBs accounted for $4.4 billion, or
  32%. Gartner projects that SMB spending on these applications will grow 8.7%
  annually from 2006 to 2010, compared to 5.7% for large businesses.
  SMBs are generally less capable than large
  enterprises of performing the costly, complex, and time-consuming integration
  of multiple point products from one or more vendors. As a result, SMBs can
  frequently derive greater benefits from a comprehensive business suite. Suites
  designed for, and broadly adopted by, large enterprises to provide a
  comprehensive, integrated platform for managing these core business processes,
  generally are not well suited to SMBs due to the complexity and cost of such
  applications.
  Recently, SMBs have begun to benefit from the
  development of the on-demand SaaS model. SaaS uses the Internet to deliver
  access to software applications from a centrally hosted computing facility by
  users through a web browser. SaaS eliminates the costs associated with
  installing and maintaining applications within the customer's information
  technology infrastructure. On-demand applications are generally licensed for a
  monthly, quarterly or annual subscription fee, as opposed to on-premise
  enterprise applications that typically require the payment of a much larger,
  upfront license fee. As a result, on-demand applications require substantially
  less initial and ongoing investment in software, hardware and implementation
  services and lower ongoing support and maintenance, making them more affordable
  for SMBs.
  To date, the on-demand software model has been
  applied to a variety of types of business software applications, including CRM,
  security, accounting, human resources management, messaging, and others, and it
  has been broadly adopted by a wide variety of businesses. IDC estimates
  worldwide on-demand enterprise software vendor revenues were approximately $3.7
  billion in 2006 and that they will grow 32% annually through 2011 to $14.8
  billion.
  While SaaS applications have enabled SMBs to benefit
  from enterprise-class capabilities, most are still products that require
  extensive, costly, and time-consuming integration to work with other
  applications. SMBs generally have been unable to implement a comprehensive set
  of business management products at an affordable level of cost that will enable
  them to run their businesses using a single system of records, provide
  real-time views of their operations, and be readily customizable and rapidly
  deployed and implemented, especially in a geographically dispersed
  organization.
  Etelos™ Products and Services
  Etelos has developed and offers a range of products and services for
  developers and for consumers of Web Applications.
  Etelos development products for Web Applications include open
  standards-based tools for Web developers, business and individual users such as
  the Etelos Application Server
  Ô
  (EAS
  Ô
  ) and the Etelos Development Environment
  Ô
  (EDE
  Ô
  ).  EAS and
  EDE support many common application languages and also support the English
  Application Scripting Engine (EASE
  Ô
  ), a simple-to-use
  open standards scripting language developed by Etelos.  In order to support broader adoption of
  Etelos-based products, EASE and other components of the Etelos platform are
  provided to developers and users at market appropriate pricing.  This is done to support the development of
  new Web Applications and the migration of existing Web Applications into the
  Etelos ecosystem where there are tools and other support mechanisms for the marketing,
  distribution, sales and support of these applications.  Etelos generally receives a transaction fee,
  a subscription fee or a license fee in exchange transactions that occur within
  the Etelos ecosystem via the Etelos Marketplace
  Ô
  .
  5
  Web
  Applications built with or brought to the Etelos ecosystem are made available
  for distribution in the Etelos Marketplace
  as a subscription service using the
  Software-as-a-Service (SaaS) or software-on-demand business model. The
  Etelos Marketplace gives developers of Web Applications, including Etelos, an
  easy place to distribute and support Web Applications.  Web Applications delivered through the Etelos
  Marketplace can be easily and conveniently billed, distributed and configured
  to provide updates and support to users exactly in accordance with the
  developer's desires, without requiring the developer to perform development
  unrelated to the underlying Web Application or to operate a robust licensing
  and delivery infrastructure.  The Etelos
  Marketplace relieves the burdens to developers of delivery and support to the
  users of their Web Applications.  Etelos
  also provides additional paid professional services and support on behalf of
  our development partners.
  Etelos
  also offers Etelos Ad Serve
  Ô
  ,
  an on-demand system for purchasing or publishing advertising in the Etelos
  ecosystem. Etelos Ad Serve allows a customer to purchase ads to be displayed in
  Etelos applications (i.e. in Etelos CRM
  Ô
  or Etelos Projects
  Ô
  ), or in the Etelos Marketplace. Etelos Ad Serve
  also allows Etelos partners to become advertising publishers in their own web
  site or on their applications hosted in the Etelos Marketplace.  Etelos Ad Serve is an important tool for
  Etelos and development partners to receive revenue while delivering trial or "free"
  ad-supported subscriptions to applications in the Etelos Marketplace.  In addition to the benefits of revenue, this
  tool enables wider adoption of Web Applications through reduced or no-cost
  subscriptions, which serves important viral marketing goals.
  The Etelos Marketplace enables rapid adoption of Web
  Applications by
  giving customers freedom of choice to select from a wide
  array of fully customizable, on-demand business applications.  These applications may be deployed in the
  hosting environment of the customer's choice, including hosting services
  provided through Etelos.
  Web
  Applications built on the Etelos platform may be integrated with other Web
  Applications through the use of Etelos App Sync
  Ô
  , hosted anywhere, and customized to create
  highly flexible business solutions. 
  Not only can businesses easily
  choose from a range of Web Applications, but they can instantly "try or buy"
  them. The flexibility of the Etelos ecosystem enables businesses to assemble a
  Web Applications suite.  The
  Build-a-Suite
  Ô
  concept is ideally tailored for particular business
  needs and building scalable solutions.
  The advantages of Etelos products and services are:
  Open Standards
  . 
  Products delivered in the Etelos Marketplace are developed on open
  standards.  This foundation makes the
  products easy to develop, easy to adopt and integrate with other Web
  Applications, and easy to swap or modify to meet specific customer needs.  The use of open standards for business
  applications distinguishes the products in the Etelos Marketplace not only from
  comprehensive product suites from such vendors of proprietary software as
  Microsoft, Oracle, and SAP, but also from products other SaaS vendors such as
  salesforce.com or NetSuite, that require developers of Web Applications to
  adopt a high-cost proprietary foundation for their products, resulting in
  higher costs to both developers and their customers.
  On-Demand Delivery Model
  . Etelos delivers its products over the
  Internet as a license based or subscription based service using a SaaS model,
  making adoption easy and scalability simple. 
  The SaaS delivery model also eliminates the need for customers to buy
  and maintain on-premise hardware and software. Etelos products are designed to
  be reliable, scalable and secure. The Etelos architecture enables businesses to
  maintain very high levels of availability, scale easily as their business and
  customers grow while providing a safe and secure environment for
  business-critical data and applications.
  6
  Low Total Cost of Ownership
  . the Etelos SaaS delivery model and each
  different Web Application's ease of use and configurability aids in helping to
  significantly reduce implementation and maintenance costs of hardware, software
  and services. The Etelos
  Ô
  model virtually eliminates the need for
  dedicated software development or information technology support personnel.
  Customers subscribe to products through the Etelos Marketplace for a monthly
  fee based on the number of users and the products they select.  Subscription fees paid to Etelos
  periodically, typically monthly, tend to be significantly less than typical
  upfront costs paid by businesses to purchase product licenses from other
  providers. The Etelos on-demand delivery model virtually eliminates ongoing
  maintenance and upgrade costs associated with a typical distributed
  infrastructure. Because Web Applications in the Etelos Marketplace are
  developed on open standards and delivered over the Internet, any desired
  customization can be highly targeted, and therefore usually performed at lower
  cost to the business customer.
  Rapid Implementation
  . The Internet-based on-demand delivery model
  implemented by the Etelos Marketplace enables remote deployment and eliminates
  many of the steps and costs typically associated with on-premise installations.
  Developers and their customers can implement Etelos offerings themselves, or
  work with Etelos development partners or the Etelos professional services
  organization to meet their specific needs.
  Security, Control and Choice
  .  The
  combination of open standards and Internet-based on-demand delivery and support
  enabled using the Etelos Marketplace provides customers with security for their
  important business data, control over the use and portability of that data, and
  flexibility and freedom of choice in Web Applications that provide built-in
  quality and scalability as solutions to specific business needs.
  Business Strategy
  The key elements of the Etelos strategy include:
  Expanding Leadership in Open Standards-based Web
  Applications for Business
  . We are leaders in the development of open standards Web Applications
  for business.  We provide a comprehensive
  solution for developers of Web Applications to develop, deliver, support, and
  sell their products to customers.  We
  intend to continue to build on our leadership position by continuing to promote
  the development of high quality open standards Web Applications for business
  and to expand the range of high quality open standards Web Applications offered
  in the Etelos Marketplace.
  Growing Our Customer Base
  . We intend to expand the range of products
  offered in the Etelos ecosystem and through the Etelos Marketplace and to
  continue to expand our direct and indirect sales efforts to generate revenue by
  providing an environment for the development, distribution, and support of Web
  Applications.
  Fostering the Continued Development of the Etelos
  ecosystem
  . We provide
  a dynamic development, distribution, and consumption environment for scaling
  and providing business solutions to common business problems.  Our ecosystem is being expanded to contain
  the tools and support programs that help foster continued development of a
  network of value added development and distribution partners. We also provide
  programs that enable our development and distribution partners to resell Web
  Applications we have developed, along with their own products. By using the
  programming language developers choose, including our own EASE language, and by
  hosting Web Applications wherever users want, utilizing the Etelos Application
  Server, the Etelos Development Environment allows our partners to extend
  solutions using the Etelos platform. We encourage development and sales of Web
  Applications both separately and as bundled solutions.  Scalable business solutions are more simply
  achieved at a lower cost through the Build-a-Suite concept, which
  incorporates the benefits of App Sync and Apps on a Plane
  Ô
  to enable customers to achieve scalable
  business solutions.
  7
  Adding new developers, distributors and consumers to
  the Etelos Marketplace
  .
  SMBs are increasingly seeking global business opportunities, supported in large
  part by leveraging Web Applications. We believe that there is significant
  opportunity to address this opportunity and directly provide cost effective
  scalable solutions to the needs of SMBs globally. In the future, we expect to
  offer localized versions of products in the Etelos Marketplace for a number of
  countries and languages.
  Etelos Offerings
  Etelos Ecosystem
  . We provide a dynamic development,
  distribution, and consumption environment for scaling applications and
  providing business solutions to common business problems.  Our ecosystem is constantly being improved
  and expanded to contain the tools and support programs that help foster
  continued development of a network of added value development and distribution
  partners.  These include:
  Etelos Developed Web Applications
  . We provide programs that enable our
  development and distribution partners to resell Web Applications we have developed,
  along with their own products.
  Customer Developed Web Applications
  . We encourage development and sales of Web
  Applications both separately and as bundled solutions.
  Etelos Web Application Hosting
  . By using almost any programming language a
  developer chooses, including our own EASE language, and by hosting Web
  Applications wherever users want, utilizing our Etelos Application Server, the
  Etelos Development Environment allows our partners to extend solutions using
  our platform.
  Programming, Marketing and Distribution Services and
  Support
  . Scalable
  business solutions are more simply achieved at a lower cost through the
  Build-a-Suite concept.  Build-a-Suite incorporates
  the benefits of App Sync and Apps on a Plane, together with our professional services
  offerings, to provide developers, distributors, and business customers the
  means to deliver and use scalable business solutions.
  Sales and Marketing
  Sales
  .  We generate sales through both
  indirect and direct approaches. Most selling of Web Applications and Hosting is
  done over the Internet.  Sales of custom
  products and Professional Services tend to be direct. Our direct sales team
  consists of professionals in various locations in the United States, with additional
  development, distribution, and business relationships being developed in North
  America, South America, Europe, and the Asia-Pacific region.
  Our Web Applications and Hosting sales generally are
  the result of word of mouth, marketing programs, or user referrals.  As leads self qualify and most often use
  credit cards for payment, our sales and support personnel provide web based
  seminars, forums, and direct support services to ensure continued subscription
  sales.  The sales cycle typically ranges
  from days to months, and can vary based on the Web Application, the scope of
  any customization desired, and the scope of any Professional Services required
  to meet specific customer requirements.
  Our sales process for Custom Products and
  Professional Services typically begins with the generation of a sales lead from
  a marketing program or customer referral. After the lead is qualified, our
  sales personnel conduct focused web-based demonstrations along with initial
  price discussions. Members of our professional services team are engaged, as
  needed, to offer insight around aspects of the implementation. Our sales cycle
  typically ranges from days to months, but can vary based on the specific
  application, the size and complexity of the potential customer's information
  technology environment, and many other factors.
  8
  Marketing
  .  We tailor our marketing
  efforts around relevant application categories, customer sizes, and customer
  industries. As part of our marketing strategy, we have established a number of
  key programs and initiatives including online and search engine advertising,
  email campaigns, web based seminars, product launch events, trade show and
  industry event sponsorship and participation, and marketing support for
  development and distribution partners.
  Service and Support
  Professional Services
  . We are developing repeatable,
  cost-effective consulting and implementation services to assist our customers
  with integrating Web Applications, using them on and off-line and importing
  data from other systems. We provide support services to aid in changing their
  business processes to take advantage of the enhanced flexibility enabled by our
  Build-a-Suite concept. Build-a-Suite enables our customers to implement cost
  reducing, scalable business processes within their organization and
  identifying, configuring, and customizing our products and those of our
  partners for each unique business process and requirement, with a goal of
  entering data once and using it across the organization and across the
  applications used by the business.
  Our consulting and implementation methodology
  leverages the nature of our on-demand Web Application software architecture,
  the industry-specific expertise of our professional services employees, and the
  design of the Etelos ecosystem and the Etelos Marketplace. They are used to
  simplify, reduce costs and expedite the implementation of scalable Web
  Applications to aid in better business operations. We generally employ a joint
  staffing model for implementation projects in which we involve the customer
  more actively in the implementation process than traditional software
  companies. We believe this better prepares our customers to support their own application
  set.  In addition, because our Web
  Applications are on-demand, our Professional Services employees can remotely
  configure many applications for most situations. Our consulting and
  implementation services are generally offered on a fixed price basis. Our
  network of partners also provides professional services to our customers.
  Client Support and Management
  . Our technical support organization, with
  personnel in the United States, offers support via the Web 24 hours a day,
  seven days a week. Our system allows for skills-based and time zone-based
  routing to address general and technical inquiries across all aspects of our
  services. For our direct customers and development partners, we offer tiered
  customer support programs depending upon the service needs of both our and
  their customers' Web Applications. Support contracts typically have a one-year
  term. For customers who purchase Web Applications through distribution
  partners, we attempt to assure a quality customer experience by providing
  primary product support, instead of permitting the distribution partner to
  provide that support.
  Operations, Technology, and
  Development
  Our customers rely on our products and the products
  of our partners to run their businesses, and, as a result, it is our
  responsibility to ensure the availability of our service. We continue to
  improve our infrastructure with the goal of maximizing the availability of our
  Web Applications and those of our developers, distributors and users.  We host on a highly-scalable network located
  in a two, secured third-party facilities. 
  We have facility space, power, and Internet connectivity provided by
  Network OS and ServePath. In anticipation of future growth, we may engage
  additional providers and/or expand the number of data centers utilized with
  existing vendors. Our hosting operations incorporate industry-standard hardware
  and our EAS operating system and databases and application servers provide a
  flexible, scalable architecture. Elements of our products' infrastructure can
  be replaced or added with no interruption in service, helping to ensure that
  the failure of any single device will not cause a broad service outage.
  9
  Our multi-tenant individual account package
  architecture allows us to provide our customers with enterprise-class
  capabilities, high quality of service, security and scalability, all at costs
  that scale as their use of Web Applications scales. Our architecture enables us
  to host multiple smaller customers on a single server while preserving the
  ability to migrate any customer to its own server without interruption or
  alteration when the customers' growth and business needs dictate it. In
  addition to the enhanced flexibility and scalability that our architecture
  provides, it also is designed to work on inexpensive, industry-standard
  hardware, thereby providing us a significant cost savings that is reflected in
  the pricing we are able to offer our customers.
  Unlike other SaaS companies that deploy major new
  releases to all customers at once, or roll out all major releases and many
  upgrades of their products to a portion of their customer base at any one time,
  we allow our development partners to choose between an "all at once" approach
  or a "phased release" approach, depending upon the needs and desires of their
  customers and the nature of their Web Applications.
  In developing our service offerings, we rely on
  customer feedback and are spending significantly more time with our customers
  in user testing sessions as well as informal "ride-alongs" and customer forums.
  We use the Etelos Idea Network together with forums, email, and blogs to track
  customer interest in service enhancements and actual results of these
  enhancements. We develop our offerings using EASE, which is a high performance,
  robust and easy to use programming language. Finally, we expose many of our
  internal development tools to third party developers via the Etelos ecosystem
  to allow extensions to the service that allow any LAMP (Linux, Apache, MySQL
  and PHP) or LAPP (Linux, Apache, PostGres and PHP) stack application take
  advantage of the capabilities we develop internally including App Sync and AOP.
  Customers
  As of December 31, 2007, Etelos served over 5,000
  active customers of diverse sizes and types across a wide variety of
  industries, with a focus on SMBs, which Etelos defines as businesses with fewer
  than 1,000 employees, and divisions of larger companies. No single customer
  accounted for more than 10% percent of Etelos' revenue in 2006 or 2007.  Customers of all types use Etelos products to
  achieve a wide variety of business objectives.
  Competition
  Etelos competes with a broad array of Enterprise
  Software, On-line Advertising and SaaS companies. These markets are highly
  competitive, fragmented, and subject to rapid changes in technology. Many of
  our potential customers are seeking their first business Web Application and,
  as such, evaluate a wide range of alternatives during their purchase process.
  Etelos faces significant competition within each of its markets from companies
  with broad product suites and greater name recognition and resources than
  Etelos.  We also face competition from
  smaller companies focused on specialized solutions. To a lesser extent, Etelos
  competes with internally developed and maintained solutions.  Current competitors include NetSuite,Inc.,
  Epicor Software Corporation, Intuit Inc., Microsoft Corporation, SAP, The Sage
  Group plc, Amazon, salesforce.com, inc., and others not listed here, both
  public and private.
  Etelos
  believes
  that the
  principal competitive factors in its markets include:
  ·
  Freedom of
  choice in Web Applications
  ·
  Service breadth and functionality;
  ·
  Performance, security, and reliability;
  ·
  "Try and Buy": the ability to tailor and customize
  services for a specific company, vertical or industry;
  ·
  Ease of use and replacement;
  10
  ·
  Speed
  and ease of deployment, integration and configuration;
  ·
  Total
  cost of ownership, including subscription, implementation and support costs;
  ·
  Sales
  and marketing approach; and
  ·
  Financial
  resources and reputation.
  We believe that Etelos competes favorably with most
  of its competitors on the basis of each of the factors listed above and many
  others.  We further note however, that
  certain of our competitors have greater sales, marketing, and financial
  resources, more extensive geographic presence, and greater name recognition
  than Etelos. In addition, although Etelos has extended the number of
  applications it has introduced for specific vertical markets, Etelos may be at
  a disadvantage in certain other vertical markets compared to certain of its competitors.
  Etelos may face future competition in its markets from other large, established
  companies, as well as from emerging companies. In addition, we expect that
  there is likely to be continued consolidation in the industry that could lead
  to increased technology, price, and other forms of competition.
  Intellectual Property
  Our success depends upon our ability to protect our
  core technology and intellectual property. To accomplish this, we rely on a
  combination of intellectual property rights, including trade secrets, patents,
  copyrights and trademarks, as well as customary contractual protections. We
  view our patents, trade secrets, and know-how as a significant component of our
  intellectual property assets, as we have spent years designing and developing
  our products, which we believe differentiates us from our competitors.
  As of April
  22
  2008, we had four U.S. and no foreign patent applications pending. We
  plan to file additional patent applications in the United States, but since the
  filing of some of these applications may have been, or will be, made after the
  date of first sale or disclosure of the subject inventions, patent protection
  may not be available for some of these inventions outside the United
  States.  We do not know whether our
  pending or future patent applications will result in the issuance in of patents
  in the United States or elsewhere, or whether the examination process will
  require us to narrow our claims. Even if granted, there can be no assurance
  that the pending patent applications will provide us with protection.
  We have a number of unregistered trademarks.  We have not registered any trademarks or
  service marks.  We maintain a policy
  requiring our employees, consultants and other third parties to enter into
  confidentiality and proprietary rights agreements and to control access to
  software, documentation and other proprietary information.
  We have not maintained operating controls or logs,
  or initiated or conducted any forensic, code history, 'genealogy' or other form
  of audit, analysis, processes, training, or code review of software code
  incorporated into any Etelos product or in other products offered by others in
  the Etelos Marketplace.  These products
  may include code subject to various forms of 'open source', 'copyleft' or
  similar licenses that require as a condition of modification or distribution of
  software subject to such license(s) that [a] such software or other
  software combined or distributed with such software be disclosed or distributed
  in source code form, or [b] such software or other software combined or
  distributed with such software, and any related intellectual property,  be licensed on a royalty-free basis,
  including for the purposes of making additional copies or derivative works of
  such software.  This may adversely affect
  our ability to patent certain inventions or to license or distribute certain
  products – whether by open source license or other form of license or right –
  and may result in liability to unknown parties for infringement of their
  patents or other intellectual property rights.
  In addition, we license third-party technologies that
  are incorporated into some elements of our services. Licenses of third-party
  technologies may not continue to be available to us at a reasonable cost, or at
  all.
  11
  The steps we have taken to protect our intellectual
  property rights may not be adequate. Third parties may infringe or
  misappropriate our proprietary rights. Competitors may also independently
  develop technologies that are substantially equivalent or superior to the
  technologies we employ in our services. Failure to protect our proprietary
  rights adequately could significantly harm our competitive position and
  operating results.
  The software and technology industries are
  characterized by the existence of a large number of patents, copyrights,
  trademarks, and trade secrets and by frequent litigation based on allegations
  of infringement or other violations of intellectual property rights. As we face
  increasing competition, the possibility of intellectual property rights claims
  against us grows. Many of our partnership agreements require us to indemnify
  our customers for third-party intellectual property infringement claims, which
  would increase our costs as a result of defending those claims and might
  require that we pay damages if there were an adverse ruling in any such claims.
  With respect to any intellectual property rights
  claim against us or our customers, we may have to pay damages or stop using
  technology found to be in violation of a third party's rights. We may have to
  seek a license for the technology, which may not be available on reasonable
  terms, may significantly increase our operating expenses, or may require us to
  restrict our business activities in one or more respects. The technology also
  may not be available for license to us at all. As a result, we may be required
  to develop alternative non-infringing technology, which could require
  significant effort and expense.
  Research and Development
  During the fiscal years ended December 31, 2006
  and December 31, 2007, research and development expenses were $839
  thousand and $1.9 million, respectively, and consisted primarily of employee
  and employee related expenses.
  Employees
  As of December 31, 2007, we had approximately 34
  full-time employees and 1 part-time employee. We consider our employee
  relationships to be satisfactory.  From
  time to time, we also engage temporary employees and consultants. None of our
  employees are represented by a labor union with respect to his or her
  employment with us.
  12
  RISK FACTORS
  An investment in our common stock involves a high
  degree of risk. You should carefully consider the risks described below and the
  other information contained in this report before deciding to invest in our
  common stock.
  Risks Related to our Business
  We have a limited operating
  history, have experienced significant expenditures related to funding our
  initial product development, and are currently carrying a net loss.  If our business model is not successful, or if
  we are unable to generate sufficient revenue to offset our start-up
  expenditures, then we may not become profitable, and the value of your
  investment may decline.
  Etelos began its operations in 1999 but it did not
  adopt the SaaS on-demand Web Application delivery model until 2005. As such,
  Etelos has a limited operating history in the SaaS industry from which to
  evaluate its business and prospects. 
  Etelos incurred a net loss of $3.9 million for the year ended December 31,
  2007, and has an accumulated deficit of $10.4 million at December 31,
  2007.  We cannot assure you that our
  future planned operations will be implemented successfully or that we will ever
  have profits.  Furthermore, we are
  experiencing the initial costs and uncertainties of a young operating company,
  including start-up expenditures, unforeseen costs and difficulties,
  complications, and delays, all of which must be resolved and/or paid without
  the benefit of a predictable revenue stream. 
  We cannot be sure that we will be successful in meeting these challenges
  and addressing these risks and uncertainties. 
  If we are unable to do so, then our business will not be successful.
  Our limited operating history may
  not serve as an adequate basis to judge our future prospects and results of
  operations.
  Etelos began its operations in 1999 but we did not
  adopt the SaaS on-demand Web Application delivery model until 2005. Our limited
  operating history in the SaaS industry may not provide a meaningful basis on
  which to evaluate our business. Since our inception our revenues have not
  always grown from year to year.  We
  cannot assure you that we will achieve our growth targets, or that we will
  achieve positive cash-flow or profitability, or that we will not incur negative
  cash flow or net losses in the future. We expect that our operating expenses
  will increase as we expand. Any significant failure to realize anticipated
  revenue growth could result in significant operating losses beyond our
  forecasts. We will continue to encounter risks and difficulties frequently experienced
  by companies at a similar stage of development, including our potential failure
  to:
  ·
  maintain our technology;
  ·
  expand our product offerings and maintain the
  high quality of our products;
  ·
  manage our expanding operations, including
  the integration of any future acquisitions;
  ·
  obtain sufficient working capital to support
  our expansion and to fill customers' orders in time;
  ·
  maintain adequate control of our expenses;
  ·
  implement our product development, marketing,
  sales, and acquisition strategies and adapt and modify them as needed; and/or
  ·
  anticipate and adapt to changing conditions
  in the markets in which we operate as well as the impact of any changes in
  government regulation, mergers and acquisitions involving our competitors,
  technological developments and other significant competitive and market
  dynamics.
  If we are not successful in addressing any or all of
  these risks, then our business may be materially and adversely affected.
  13
  We may encounter substantial
  competition in our business and our failure to compete effectively may
  adversely affect our ability to generate revenue.
  We believe that existing and new competitors will
  continue to improve the design and performance of their products and to
  introduce new products with competitive price and performance characteristics.
  We expect that we will be required to continue to invest in product development
  and productivity improvements to compete effectively in our markets. Our
  competitors could develop better technology or more efficient products or
  undertake more aggressive and costly marketing campaigns than ours, which may
  adversely affect our marketing strategies and could have a material adverse
  effect on our business, results of operations, and financial condition.
  Our major competitors may be better able than we to
  successfully endure downturns in our markets. In periods of reduced demand for
  our products, we can either choose to maintain market share by reducing our
  selling prices to meet competition or maintain selling prices, which would
  likely sacrifice market share. Sales and overall profitability would be reduced
  and sustained losses may continue in either case. In addition, we cannot assure
  you that additional competitors will not enter our existing markets, or that we
  will be able to compete successfully against existing or new competition.
  Our inability to fund our capital
  to meet our expenditure requirements may adversely affect our growth and
  profitability.
  Our continued growth is dependent upon our ability
  to raise capital from outside sources. Our ability to obtain financing will
  depend upon a number of factors, including our financial condition and results
  of operations, the condition of the economy, and conditions in relevant
  financial markets.  If we are unable to
  obtain financing, as needed, on a timely basis and on acceptable terms, our
  financial position, competitive position, growth, and profitability may be
  adversely affected.
  We may not be able to effectively
  control and manage our growth.
  If our business and markets grow and develop, it
  will be necessary for us to finance and manage expansion in an orderly fashion.
  In addition, we may face challenges in managing expanding product offerings and
  in integrating acquired businesses with our own. Such eventualities will
  increase demands on our existing management, workforce, and facilities. Failure
  to satisfy such increased demands could interrupt or adversely affect our
  operations and cause longer product development time frames and administrative
  inefficiencies.
  We depend on a large number of
  customers.
  Our revenue is dependent, in large part, on many
  orders from a large number of customers. Sales to our five largest customers were
  de minimus
  during the years ended December 31,
  2007 and 2006, respectively. We believe that revenue derived from the current
  and future large number of customers will continue to represent a significant
  portion of our total revenue.
  Our inability to secure and maintain a sufficient
  number of large customers would also have a material adverse effect on our
  business, operating results, and financial condition. Moreover, our success
  will depend in part upon our ability to obtain orders from new customers, as
  well as the financial condition and success of our customers and general
  economic conditions.
  14
  Any significant fluctuation in
  price of servers or related support may have a material adverse effect on the
  cost of our products and services.
  The prices of servers and related support are
  subject to market conditions and generally we do not, and do not expect to,
  have long-term contracts with our suppliers for those items. While these items
  are generally available and we have not experienced any shortage in the past,
  we cannot assure you that the necessary servers or support will continue to be
  available to us at prices currently in effect or acceptable to us. The prices
  for these items have varied significantly in the past and may vary significantly
  in the future. Numerous factors, most of which are beyond our control,
  influence prices of servers and related support. These factors include general
  economic conditions, industry capacity utilization, vendor backlogs and delays
  and other uncertainties.
  We may not be able to adjust our product prices,
  especially in the short-term, to recover cost increases in these items. Our
  future profitability may be adversely affected to the extent we are unable to
  pass on higher server and support related costs to our customers.
  We may not be able to prevent
  others from unauthorized use of our patents and other intellectual property,
  which could harm our business and competitive position.
  Our success depends, in part, on our ability to
  protect our proprietary technologies. We own four United States patent applications
  covering our technology and we expect to file more patents applications in the
  near future. The process of seeking patent protection can be lengthy and
  expensive and we cannot assure you that our patent applications will result in
  patents being issued, or that our existing or future issued patents will be
  sufficient to provide us with meaningful protection or commercial advantages.
  We also cannot assure you that our current or
  potential competitors do not have, and will not obtain, patents that will
  prevent, limit or interfere with our ability to make, use or sell our products.
  We do not have key man insurance
  on our key officers, on whom we rely for the management of our business.
  We depend, to a large extent, on the abilities and
  participation of our current management team, but have a particular reliance
  upon Daniel J. A. Kolke, our Chief Technology Officer and Chairman of the
  Board, and Jeffrey L. Garon, our President and Chief Executive Officer. The
  loss of the services of either or both of Messrs. Kolke or Garon for any
  reason may have a material adverse effect on our business and prospects. We
  cannot assure you that the services of either Messrs. Kolke or Garon will
  continue to be available to us, or that we will be able to find a suitable
  replacement for either of them. We do not carry key man life insurance for any
  key personnel.
  We may not be able to hire and
  retain qualified personnel to support our growth and if we are unable to retain
  or hire such personnel in the future, our ability to improve our products and
  implement our business objectives could be adversely affected.
  If one or more of our senior executives or other key
  personnel are unable or unwilling to continue in their present positions, we
  may not be able to replace them easily or at all, and our business may be
  disrupted and our financial condition and results of operations may be
  materially and adversely affected. Although both Messrs. Kolke and Garon
  are under employment agreements, their continued employment cannot be
  assured.  In addition, competition for
  senior management and senior technology personnel is intense, the pool of
  qualified candidates is very limited, and we may not be able to retain the
  services of our senior executives or senior technology personnel, or attract
  and retain high-quality senior executives or senior technology personnel in the
  future. Such failure could materially and adversely affect our future growth
  and financial condition.
  15
  We have a history of losses and
  we may not achieve profitability in the future.
  We have not been profitable on a quarterly or annual
  basis since our formation. Our operations resulted in a net loss of $3.9
  million for 2007 and $ 1.5 million for 2006. 
  As of December 31, 2007, our accumulated deficit was $10.4 million.
  We expect to make significant future expenditures related to the development
  and expansion of our business. In addition, as a public company, we will incur
  significant legal, accounting, and other expenses that we did not incur as a
  private company. As a result of these increased expenditures, we will have to
  generate and sustain increased revenue to achieve and maintain future
  profitability. While our revenue has grown somewhat in recent periods, revenue
  growth may not be sustainable and we may not achieve sufficient revenue to
  achieve or maintain profitability. We may incur significant losses in the
  future for a number of reasons, including due to the other risks described in
  this report, and we may encounter unforeseen expenses, difficulties,
  complications, delays, and other unknown factors. Accordingly, we may not be
  able to achieve or maintain profitability and we may continue to incur
  significant losses for the foreseeable future.
  The market for on-demand Web
  Applications may develop more slowly than we expect.
  Our success will depend, to a large extent, on the
  willingness of SMBs to accept on-demand services for Web Applications that they
  view as critical to the success of their business. Many companies have invested
  substantial effort and financial resources to integrate traditional enterprise
  software into their businesses and may be reluctant or unwilling to switch to a
  different application or to migrate these applications to on-demand Web
  Applications.
  Other factors that may affect market acceptance of
  our Web Applications include our ability to:
  ·
  minimize the time and resources required to
  implement products from the Etelos Marketplace;
  ·
  maintain high levels of customer
  satisfaction;
  ·
  implement upgrades and other changes to our
  products without disrupting our service; and/or
  ·
  provide rapid response time during periods of
  intense activity on customer websites.
  In addition, market acceptance of our Web
  Applications may be affected by:
  ·
  the security capabilities, reliability, and
  availability of on-demand services;
  ·
  customer concerns with entrusting a third
  party to store and manage their data, especially confidential or sensitive
  data;
  ·
  the level of customization or configuration
  we offer; and/or
  ·
  the price, performance, and availability of
  competing products and services.
  The market for our products may not develop further,
  or it may develop more slowly than we expect, either of which would harm our
  business.
  Our customers are small and
  medium-sized businesses and divisions of large companies, which may increase
  our costs to reach, acquire and retain customers.
  We market and sell our products to SMBs and
  divisions of large companies. To grow our revenue quickly, we must add new
  customers, sell additional services to existing customers, and encourage
  existing customers to renew their subscriptions. However, selling to and
  retaining SMBs can be more difficult than selling to and retaining large
  enterprises because SMB customers tend to be more price sensitive and more
  difficult to reach with broad marketing campaigns.  In addition, SMBs have high churn rates in
  part because of the nature of their businesses and often lack the staffing to
  benefit fully from our products. 
  Further, SMBs often require higher sales, marketing and support
  expenditures by vendors that sell to them per revenue dollar generated for
  those vendors.
  16
  If we are unable to cost-effectively market and sell
  our products to our target customers, then our ability to grow our revenue
  quickly and become profitable will be harmed.
  Our quarterly operating results
  may fluctuate in the future. As a result, we may fail to meet or exceed the
  expectations of research analysts or investors, which could cause our stock
  price to decline.
  Our quarterly operating results may fluctuate as a result
  of a variety of factors, many of which are outside of our control. Fluctuations
  in our quarterly operating results may be due to a number of factors, including
  the risks and uncertainties discussed elsewhere in this report. Fluctuations in
  our quarterly operating results could cause our stock price to decline rapidly,
  may lead analysts to change their long-term model for valuing our common stock,
  could cause us to face short-term liquidity issues, may impact our ability to
  retain or attract key personnel, or cause other unanticipated issues. If our
  quarterly operating results or guidance fall below the expectations of research
  analysts or investors, then the price of our common stock could decline
  substantially.
  We believe that our quarterly revenue and operating
  results may vary significantly in the future and that period-to-period
  comparisons of our operating results may not be meaningful. You should not rely
  on the results of one quarter as an indication of future performance.
  Our limited operating history
  makes it difficult to evaluate our current business and future prospects, and
  may increase the risk of your investment.
  Our limited operating history may make it difficult
  to evaluate our current business and our future prospects. We have encountered
  and will continue to encounter risks and difficulties frequently experienced by
  growing companies in rapidly changing industries. If we do not address these
  risks successfully, then our business will be harmed.
  We use third-party data centers
  to support our services. Any disruption of service at these facilities could
  interrupt or delay our ability to deliver our service to our customers.
  We host many of our services and serve a significant
  number of our customers from either of two third-party data center facilities
  with Network OS and with ServePath both located in the greater Seattle
  Washington area. We do not control the operation of these facilities. These
  facilities may be vulnerable to damage or interruption from earthquakes,
  hurricanes, floods, fires, terrorist attacks, power losses, telecommunications
  failures, and similar events. These facilities also could be subject to
  break-ins, computer viruses, sabotage, intentional acts of vandalism and other
  misconduct. The occurrence of a natural disaster or an act of terrorism, a
  decision to close the facilities without adequate notice, or other
  unanticipated problems could result in lengthy interruptions in our services.
  Our data center facility providers have no
  obligation to renew their agreements with us on commercially reasonable terms,
  or at all. If we are unable to renew our agreements with any facility provider
  on commercially reasonable terms, then we may experience increased costs or
  downtime in connection with the transfer to a new data center facility.
  Any errors, defects, disruptions, or other
  performance problems with our services could harm our reputation and may damage
  our customers' businesses. Interruptions in our services might reduce our
  revenue, cause us to issue credits to customers, subject us to potential
  liability, cause customers to terminate their subscriptions, and harm our
  renewal rates.
  17
  We may become liable to our
  customers and lose customers if we have defects or disruptions in our service
  or if we provide poor service.
  Because we deliver our products as a service, errors
  or defects in the Web Applications underlying our service, or a failure of our
  hosting infrastructure may make our service unavailable to our customers.
  Because our customers use our products to manage critical aspects of their
  business, any errors, defects, disruptions in service, or other performance
  problems with our products, whether in connection with the day-to-day operation
  of our products, upgrades or otherwise, could damage our customers' businesses.
  If we have any errors, defects, disruptions in service, or other performance
  problems with our products, then customers could elect not to renew, or delay
  or withhold payment to us. As a result, we could lose future sales or customers
  may make warranty claims against us, which could result in an increase in our
  provision for doubtful accounts, an increase in collection cycles for accounts
  receivable, or costly litigation.
  Our business depends substantially
  on customers renewing, upgrading, and expanding their subscriptions for our
  products.
  We sell our products pursuant to agreements of
  varying subscription periods. Our customers have no obligation to renew their
  subscriptions after their subscription period expires, and these subscriptions
  may not be renewed at the same or higher levels. Moreover, under specific
  circumstances, our customers may have the right to cancel their agreements
  before they expire. We have limited historical data with respect to rates of
  customer subscription renewals, upgrades, and expansions so we may not
  accurately predict future trends in customer renewals. Our customers' renewal
  rates may decline or fluctuate because of several factors, including their
  satisfaction or dissatisfaction with our products, the prices of our service,
  the prices of services offered by our competitors, or reductions in our
  customers' spending levels. If our customers do not renew their subscriptions,
  renew on less favorable terms, or do not purchase additional functionality or
  subscriptions, then our revenue may grow more slowly than expected or decline
  and our profitability and gross margins may be harmed.
  If our security measures are
  breached and unauthorized access is obtained to a customer's data, then we may
  incur significant liabilities, our service may be perceived as not being
  secure, and customers may curtail or stop using our products.
  The service we offer involve the storage of large
  amounts of our customers' sensitive and proprietary business information. If
  our security measures are breached as a result of third-party action, employee
  error, malfeasance, or otherwise, and someone obtains unauthorized access to
  our customers' data, then we could incur significant liability to our customers
  and to individuals or businesses whose information was being stored by our
  customers, our business may suffer, and our reputation will be damaged. Because
  techniques used to obtain unauthorized access to, or to sabotage, systems
  change frequently and generally are not recognized until launched against a
  target, we may be unable to anticipate these techniques or to implement
  adequate preventive measures. If an actual or perceived breach of our security
  occurs, then the market perception of the effectiveness of our security
  measures could be harmed and we could lose sales and customers.
  We have experienced rapid growth
  in recent periods. If we fail to manage our growth effectively, then we may be
  unable to execute our business plan, maintain high levels of service, or
  address competitive challenges adequately.
  We have increased our number of full-time employees
  to 34 at December 31, 2007 from 16 at December 31, 2006 and have
  experienced a drop in our revenue to $304 thousand in 2007 from $316 thousand in
  2006. Our operating plan has placed, and our anticipated growth plan is
  expected to continue to place, a significant strain on our managerial,
  administrative, operational, financial, and other resources. We intend to
  further expand our overall business, customer base, headcount, and operations.
  We will be required to continue to improve our operational, financial, and
  management controls and our reporting procedures and we may not be able to do
  so effectively. As such, we may be unable to manage our expenses effectively in
  the future, which may negatively impact our gross margins or operating expenses
  in any particular quarter.
  18
  The market in which we
  participate is intensely competitive, and if we do not compete effectively, then
  our operating results may be harmed.
  The market for Web Applications for business is
  highly competitive and rapidly changing with relatively low barriers to entry.
  With the introduction of new technologies and market entrants, we expect
  competition to intensify in the future. In addition, pricing pressures and
  increased competition generally could result in reduced sales, reduced margins,
  or the failure of our products to achieve or maintain more widespread market
  acceptance. Often we compete to sell our products against existing systems that
  our potential customers have already made significant expenditures to install.
  Competition in our market is based principally upon service breadth and
  functionality; service performance, security and reliability; ability to tailor
  and customize services for a specific company, vertical or industry; ease of
  use of the service; speed and ease of deployment, integration and
  configuration; total cost of ownership, including price and implementation and
  support costs; professional services implementation; and financial resources of
  the vendor.
  We face competition from both traditional software
  vendors and SaaS providers. Many of our actual and potential competitors enjoy
  substantial competitive advantages over us, such as greater name recognition,
  longer operating histories, more varied products and services, and larger
  marketing budgets, as well as substantially greater financial, technical, and
  other resources. In addition, many of our competitors have established
  marketing relationships and access to larger customer bases, and have major
  distribution agreements with consultants, system integrators, and resellers. If
  we are not able to compete effectively, then our operating results will be
  harmed.
  Many of our customers are price
  sensitive, and if the prices we charge for our products are unacceptable to our
  customers, then our operating results will be harmed.
  Many of our customers are price sensitive, and we
  have limited experience with respect to determining the appropriate prices for
  our products. As the market for our products matures, or as new competitors
  introduce new products or services that compete with ours, we may be unable to
  renew our agreements with existing customers or attract new customers at the
  same price or based on the same pricing model as previously used. As a result,
  it is possible that competitive dynamics in our market may require us to change
  our pricing model or reduce our prices, which could harm our revenue, gross margin,
  and operating results.
  If we do not effectively expand
  and train our sales force and our services and support teams, then we may be
  unable to add new customers and retain existing customers.
  We plan to continue to expand our sales force and
  our services and support teams to increase our customer base and revenue. We
  believe that there is significant competition for sales, service, and support
  personnel with the skills and technical knowledge that we require. Our ability
  to achieve significant revenue growth will depend, in large part, on our
  success in recruiting, training, and retaining sufficient numbers of personnel
  to support our growth. New hires require significant training and, in most
  cases, take significant time before they achieve full productivity. Our recent
  hires and planned hires may not become as productive as we expect and we may be
  unable to hire or retain sufficient numbers of qualified individuals in the
  markets where we do business. If these expansion efforts are not successful or
  do not generate a corresponding increase in revenue, then our business will be
  harmed.
  19
  If we are unable to develop new
  products or sell our products into new markets, then our revenue growth will be
  harmed and we may not be able to achieve profitability.
  Our ability to attract new customers and increase
  revenue from existing customers will depend in large part on our ability to
  enhance and improve our existing products and to introduce new products and services
  and sell into new markets. The success of any enhancement or new product or
  service depends on several factors, including the timely completion,
  introduction, and market acceptance of the enhancement, product or service. Any
  new product or service we develop or acquire may not be introduced in a timely
  or cost-effective manner and may not achieve the broad market acceptance
  necessary to generate significant revenue. Any new markets into which we
  attempt to sell our products may not be receptive. If we are unable to
  successfully develop or acquire new products or services, enhance our existing
  products and services to meet customer requirements, or sell our products and
  services into new markets, then our revenue will not grow as expected and we
  may not be able to achieve profitability.
  Assertions by third parties that
  we infringe their intellectual property, whether successful or not, could
  subject us to costly and time-consuming litigation or expensive licenses.
  The software and technology industries are
  characterized by the existence of a large number of patents, copyrights,
  trademarks, and trade secrets and by frequent litigation based on allegations
  of infringement or other violations of intellectual property rights. As we face
  increasing competition, the possibility of intellectual property rights claims
  against us may grow; the costs of defending against such claims can be very
  large. Our technologies may not be able to withstand any third-party claims or
  rights against their use. Additionally, many of our partner and product
  agreements require us to indemnify our customers for certain third-party
  intellectual property infringement claims, which could increase our costs as a
  result of defending such claims and may require that we pay damages or purchase
  expensive licenses, if there were an adverse ruling related to any such claims.
  These types of claims could harm our relationships with our customers, may
  deter future customers from subscribing to our services, or could expose us to
  litigation for these claims. Even if we are not a party to any litigation
  between a customer and a third party, an adverse outcome in any such litigation
  could make it more difficult for us to defend our intellectual property in any
  subsequent litigation in which we are a named party.
  Any intellectual property rights
  claim against us or our customers, with or without merit, could be
  time-consuming, expensive to litigate or settle, and could divert management
  attention and financial resources. An adverse determination also could prevent
  us from offering our products to our customers and may require that we procure
  or develop substitute services that do not infringe.
  For any intellectual property rights claim against
  us or against our customers, we may have substantial direct and indirect
  costs.  Direct costs can include a
  requirement to pay damages or stop using technology found to be in violation of
  a third party's rights. We may have to purchase a license for the technology,
  which may not be available on reasonable terms, if at all, may significantly
  increase our operating expenses, or may require us to restrict our business
  activities in one or more respects. As a result, we may also be required to
  develop alternative non-infringing technology, which could require significant
  effort and expense.  Substantial indirect
  costs also may be expected in the form of diversion of development and
  management resources in strategic planning for legal, technology, and business
  defenses to such claims.
  Our success depends in large part
  on our ability to protect and enforce our intellectual property rights.
  We rely on a combination of patent, copyright,
  service mark, trademark, and trade secret laws, as well as confidentiality
  procedures and contractual restrictions, to establish and protect our
  proprietary rights on a global basis, all of which provide only limited
  protection. We cannot assure you that any patent will issue from our currently
  pending patent applications in a manner that gives us the protection that we
  seek, if at all, or that any future patents issued to us will not be
  challenged, invalidated, or circumvented. Since the filing of some of these
  patent applications may have been, or will be, made after the date of first
  sale or disclosure of the subject inventions, patent protection may not be
  available for these inventions outside the United States.  Any patents that may issue in the future may
  not provide sufficiently broad protection or they may not prove to be
  enforceable in actions against alleged infringers. Also, we cannot assure you
  that any future service mark or trademark registrations will be issued for
  pending or future applications or that any registered service marks or
  trademarks will be enforceable or provide adequate protection of our domestic
  and foreign proprietary rights.
  20
  We have not maintained operating controls or logs,
  or initiated or conducted any forensic, code history, 'genealogy' or other form
  of audit, analysis, processes, training, or code review of software code
  incorporated into any Etelos product or in other products offered by others in
  the Etelos Marketplace.  These products
  may include code subject to various forms of 'open source', 'copyleft', or
  similar licenses that require as a condition of modification or distribution of
  software subject to such license(s) that [a] such software or other
  software combined or distributed with such software be disclosed or distributed
  in source code form, or [b] such software or other software combined or
  distributed with such software, and any related intellectual property,  be licensed on a royalty-free basis,
  including for the purposes of making additional copies or derivative works of
  such software.  This may adversely affect
  our ability to patent certain inventions or to license or distribute certain
  products — whether by open source license or other form of license or right –
  and may result in liability to unknown parties for infringement of their
  patents or other intellectual property rights.
  We endeavor to enter into agreements with our
  employees and contractors and agreements with parties with whom we do business
  to limit access to and disclosure of our proprietary information. The steps we
  have taken, however, may not prevent unauthorized use or the reverse
  engineering of our technology. Moreover, others may independently develop
  technologies that are competitive to ours or infringe our intellectual
  property. Enforcement of our intellectual property rights also depends on our
  successful legal actions against these infringers, but these actions may not be
  successful, even when our rights have been infringed.  In addition, the legal standards relating to
  the validity, enforceability, and scope of protection of intellectual property
  rights in Internet-related industries are uncertain and still evolving.
  When we become subject to Section
  404 of the Sarbanes-Oxley Act of 2002, if we fail to maintain proper and
  effective internal controls or are unable to remediate the material weakness in
  our internal controls, then our ability to produce accurate and timely
  financial statements could be impaired and investors' views of us could be
  harmed.
  Ensuring that we have adequate internal financial
  and accounting controls and procedures in place so that we can produce accurate
  financial statements on a timely basis is a costly and time-consuming effort
  that needs to be re-evaluated frequently. Our internal control over financial
  reporting is a process designed to provide reasonable assurance regarding the
  reliability of financial reporting and the preparation of financial statements in
  accordance with generally accepted accounting principles. We are in the process
  of documenting, reviewing, and improving our internal controls and procedures
  for compliance with Section 404 of the Sarbanes-Oxley Act of 2002, or the
  Sarbanes-Oxley Act, which requires annual management assessment of the
  effectiveness of our internal control over financial reporting and a report by
  our independent auditors addressing this assessment. Both we and our
  independent auditors will be testing our internal controls in connection with
  the audit of our internal controls for the year ending December 31, 2008
  and, as part of that documentation and testing, identifying areas for further
  attention and improvement.
  During our review for the year ended December 31,
  2007, we identified material weakness in our internal controls. The material
  weakness relates to the need for accounting personnel who possess the skill
  sets necessary to operate and report as a public company, and specifically the
  skills necessary to ensure that adequate review of critical account
  reconciliations is performed and that supporting documentation is complete,
  accurate, and in accordance with generally accepted accounting principles. We
  have recruited and are continuing to recruit additional finance and accounting
  personnel to address this observation. We believe we have made progress in
  addressing this material weakness and expect to complete the remediation in the
  next six to nine months. If our remediation efforts are insufficient to address
  the material weakness or take longer than we expect, or if additional material
  weaknesses in our internal controls are discovered in the future, then we may
  fail to meet our future reporting obligations, our financial statements may
  contain material misstatements and the price of our common stock may decline.
  21
  Implementing any appropriate changes to our internal
  controls may distract our officers and employees, entail substantial costs to
  modify our existing processes, and add personnel and take significant time to
  complete. These changes may not, however, be effective in maintaining the
  adequacy of our internal controls, and any failure to maintain that adequacy,
  or consequent inability to produce accurate financial statements on a timely
  basis, could increase our operating costs and harm our business. In addition,
  investors' perceptions that our internal controls are inadequate or that we are
  unable to produce accurate financial statements on a timely basis may harm our
  stock price and make it more difficult for us to effectively market and sell
  our service to new and existing customers.
  Because we recognize subscription
  revenue over the term of the applicable agreement, the lack of subscription
  renewals or new service agreements may not be reflected immediately in our
  operating results.
  The majority of our quarterly revenue is
  attributable to subscription agreements entered into during the current and
  previous quarters. A decline in new or renewed service agreements in any one
  quarter may not be fully reflected in our revenue in that quarter but will harm
  our revenue in future quarters. As a result, the effect of significant
  downturns in sales and market acceptance of our products and services in a
  particular quarter may not be fully reflected in our operating results until
  future periods. Our subscription model also can make it difficult for us to
  rapidly increase our revenue through additional sales in any period, because
  revenue from new customers must be recognized over the applicable subscription
  term.
  Material defects or errors in the
  software we use to deliver our services could harm our reputation, result in
  significant costs to us, and impair our ability to sell our services.
  The Web Applications underlying our services are
  inherently complex and may contain material defects or errors, particularly
  when first introduced or when new versions or enhancements are released. We
  have, from time to time, found defects in our software and services, and new errors
  in our existing software and services may be detected in the future. Any
  defects that cause interruptions to the availability of our services could
  result in:
  ·
  a reduction in sales or delay in market
  acceptance of our services;
  ·
  sales credits or refunds to our customers;
  ·
  loss of existing customers and difficulty in
  attracting new customers;
  ·
  diversion of development resources;
  ·
  harm to our reputation; and/or
  ·
  increased warranty and insurance costs.
  After the release of our services, defects or errors
  may also be identified from time to time by our internal team and by our
  customers. The costs incurred in correcting any material defects or errors in
  our services may be substantial and could harm our operating results.
  Government regulation of the
  Internet and e-commerce is evolving, and unfavorable changes or our failure to
  comply with regulations could harm our operating results.
  As Internet commerce continues to evolve, increasing
  regulation by super-national, federal, state or local government agencies
  becomes more likely. Increased regulation in the area of data privacy, and laws
  and regulations applying to the solicitation, collection, processing, or use of
  personal or consumer information could affect our customers' ability to use and
  share data, potentially reducing demand for Web-based applications and
  restricting our ability to store, process, and share our customers' data. In
  addition, taxation of services provided over the Internet or other charges
  imposed by government agencies or by private organizations for accessing the
  Internet may also be imposed. Any regulation imposing greater fees for Internet
  access or use or restricting information exchange over the Internet could
  result in a decline in the use of the Internet and the viability of Web-based
  services, which could harm our business and operating results.
  22
  Privacy concerns and laws or other
  regulations may reduce the effectiveness of our products and services and harm
  our business.
  Our customers can use our services to store personal
  or identifying information regarding their customers and contacts.
  Super-national, federal, state and other government bodies and agencies have
  adopted or are considering adoption of laws and regulations regarding the
  collection, use, and disclosure of personal information obtained from consumers
  and other individuals. The costs of compliance with, and other burdens imposed
  by, such laws and regulations that are applicable to the businesses of our
  customers may limit the use and adoption of our products and services and
  reduce overall demand.
  In addition to government activity, privacy advocacy
  groups and the technology and other industries are considering various new,
  additional, or different self-regulatory standards that may place additional
  burdens on us. If the gathering of personal information were to be curtailed, then
  Web-based applications would be less effective, which may reduce demand for our
  products and services and harm our business.
  Our operating results may be
  harmed if we are required to collect taxes for our subscription services in
  jurisdictions where we have not historically done so.
  We have not collected any sales or other taxes from
  our customers or remitted any such taxes to any taxing jurisdiction where we
  may be required to do so. We have begun an analysis of this issue but to date
  have not made any accrual for any potential liability.  In addition, additional taxing jurisdictions
  at various local, national and super-national levels may seek to impose sales
  or other tax collection obligations on us. 
  We have not recorded sales or other tax liabilities for the years ended December 31,
  2007 or 2006, in respect of sales or other tax liabilities in any jurisdiction.
  A successful assertion that we should be collecting sales or other taxes on our
  service could result in substantial tax liabilities for past sales, discourage
  customers from purchasing our products, or otherwise harm our business and
  operating results.
  Our future operating expenses may
  be adversely affected by changes in our stock price.
  Some of our outstanding stock options are subject to
  variable accounting. Under variable accounting, we are required to remeasure
  the value of the options, and the corresponding compensation expense, on the
  basis of the value of our common stock at the end of each reporting period
  until the options are exercised and vested, cancelled, modified, or expire
  unexercised. As a result, the stock-based compensation expense we recognize in
  any given period can vary substantially due to changes in the market value of
  our common stock.
  Changes in our stock price will result in a decrease
  in stock-based compensation expense when our stock price declines relative to
  the previous period and an increase in stock-based compensation expense when
  our stock price increases relative to the previous period. We are unable to
  predict the future market value of our common stock and, therefore, are unable
  to predict the compensation expense that we will record in future periods.
  23
  Changes in financial accounting
  standards or practices may cause adverse, unexpected financial reporting
  fluctuations, and harm our operating results.
  A change in accounting standards or practices could
  harm our operating results and may even affect our reporting of transactions
  completed before the change is effective. New accounting pronouncements and
  varying interpretations of accounting pronouncements have occurred and may
  occur in the future. Changes to existing rules or the questioning of
  current practices may harm our operating results or the way we
  conduct our business. For example, on December 16,
  2004, the Financial Accounting Standards Board, or FASB, issued Statement of
  Financial Accounting Standards 123(R) (revised 2004), "
  Share-Based
  Payment
  ," or SFAS No. 123(R). SFAS No. 123(R), which
  became effective for fiscal periods beginning after June 15, 2005,
  requires that employee stock-based compensation be measured based on its
  fair-value on the grant date and treated as an expense that is reflected in the
  financial statements over the related service period.
  We may expand by acquiring or investing
  in other companies, which may divert management's attention, result in
  additional dilution to our stockholders, and consume resources that are
  necessary to operate and sustain our business.
  Although we have no ongoing negotiations or current
  agreements or commitments for any acquisitions, our business strategy may
  include acquiring complementary services, technologies, or businesses. We also
  may enter into relationships with other businesses to expand our product or
  service offerings or our ability to provide service in foreign jurisdictions,
  which could involve preferred or exclusive licenses, additional channels of
  distribution, discount pricing, investments in other companies, or other
  strategies. Negotiating these transactions can be time-consuming, difficult,
  and expensive, and our ability to close these transactions may often be subject
  to approvals that are beyond our control. Consequently, these transactions,
  even if undertaken and announced, may not close.
  An acquisition, investment, or business relationship
  may result in unforeseen operating difficulties and expenditures. In
  particular, we may encounter difficulties assimilating or integrating the
  businesses, technologies, products, personnel, or operations of the acquired
  companies, particularly if the key personnel of the acquired company choose not
  to work for us, the target's software is not easily adapted to work with ours,
  or we are unable to retain the customers of any acquired business due to
  changes in management or otherwise. Acquisitions may also disrupt our business,
  divert our resources, and require significant management attention that would
  otherwise be available for operation and development of our business. Moreover,
  the anticipated benefits of any acquisition, investment, or business
  relationship may not be realized or we may be exposed to unknown liabilities.
  For one or more of those transactions, we may:
  ·
  issue additional equity securities that would
  dilute our stockholders;
  ·
  use cash that we may need in the future to
  operate our business;
  ·
  incur debt on terms unfavorable to us or that
  we are unable to repay;
  ·
  incur large charges or substantial liabilities;
  ·
  encounter difficulties retaining key
  employees of the acquired company or integrating diverse software codes or
  business cultures; and/or
  ·
  become subject to adverse tax consequences,
  substantial depreciation, or deferred compensation charges.
  Any of these risks could harm our business and
  operating results.
  We rely on our management team
  and need additional personnel to grow our business, and the loss of one or more
  key employees or our inability to attract and retain qualified personnel could
  harm our business.
  Our success and future growth depends to a
  significant degree on the skills and continued services of our management team,
  especially Daniel J.A. Kolke, our Chief Technology Officer and Chairman of the
  Board, and Jeffrey L. Garon, our President and Chief Executive Officer. We do
  not maintain key man insurance on any members of our management team, including
  Messrs. Garon and Kolke. Our future success also depends on our ability to
  attract, retain and motivate highly skilled technical, managerial, sales,
  marketing and service and support personnel, including members of our
  management team. Competition for sales, marketing, and technology development
  personnel is particularly intense in the software and technology industries. As
  a result, we may be unable to successfully attract or retain qualified
  personnel. Our inability to attract and retain the necessary personnel could
  harm our business.
  24
  Risks Related to an Investment in our Common Stock.
  Our officers, directors, and
  affiliates control us through their positions and stock ownership and their
  interests may differ from other stockholders.
  Our officers, directors, and affiliates beneficially
  own approximately 40.4% of our common stock. As a result, they are able to
  influence the outcome of stockholder votes on various matters, including the
  election of directors and extraordinary corporate transactions, including
  business combinations. The interests of our officers, directors, and affiliates
  may differ from other stockholders. Furthermore, the current ratios of
  ownership of our common stock reduce the public float and liquidity of our
  common stock which can in turn affect the market price of our common stock.
  We are responsible for the indemnification
  of our officers and directors.
  Our articles of incorporation and bylaws provide for
  the indemnification of our directors, officers, employees, and agents, and, under
  certain circumstances, against costs and expenses incurred by them in any litigation
  to which they become a party arising from their association with or activities
  on our behalf. Consequently, we may be required to expend substantial funds to
  satisfy these indemnity obligations.
  The sale of the shares of our
  common stock acquired in private placements could cause the price of our common
  stock to decline.
  Under the terms of the securities purchase agreement
  dated January 31, 2008, pursuant to which we issued $2.0 million in
  principal amount of 6% secured convertible debentures and warrants to purchase
  666,667 shares of our common stock, the purchasers thereof may rely on the
  provisions of Rule 144 to effect sales and may resell the shares of our
  common stock acquired upon the conversion of the debentures and exercise of the
  warrants.  We have no way of knowing
  whether or when such shares may be sold. 
  Depending upon market liquidity at the time, a sale of shares by such
  investors at any given time could cause the trading price of our common stock
  to decline.  The sale of a substantial
  number of shares of our common stock, or anticipation of such sales, could make
  it more difficult for us to sell equity or equity-related securities in the
  future at a time and at a price that we might otherwise wish to effect sales.
  Anti-takeover provisions
  contained in our amended and restated certificate of incorporation and amended
  and restated bylaws, as well as provisions of Delaware law, could impair a
  takeover attempt.
  Our amended and restated certificate of
  incorporation, amended and restated bylaws and Delaware law contain provisions
  that could have the effect of rendering more difficult or discouraging an
  acquisition deemed undesirable by our board of directors. Our corporate
  governance documents include provisions:
  ·
  authorizing blank check preferred stock,
  which could be issued with voting, liquidation, dividend, and other rights
  superior to our common stock;
  ·
  limiting the liability of, and providing
  indemnification to, our directors and officers;
  ·
  limiting the ability of our stockholders to
  call and bring business before special meetings;
  ·
  requiring advance notice of stockholder
  proposals for business to be conducted at meetings of our stockholders and for
  nominations of candidates for election to our board of directors;
  ·
  controlling the procedures for the conduct
  and scheduling of board and stockholder meetings; and
  ·
  limiting, generally, the filling of vacancies
  or newly created seats on the board to our board of directors then in office.
  25
  These provisions, alone or together, could delay
  hostile takeovers and changes in control or changes in our management.
  Any provision of our amended and restated
  certificate of incorporation or bylaws or Delaware law that has the effect of
  delaying or deterring a change in control could limit the opportunity for our
  stockholders to receive a premium for their shares of our common stock, and
  could also affect the price that some investors are willing to pay for our
  common stock.
  Significant amounts of our
  outstanding common stock will be available for resale into the market, which
  could potentially cause the market price of our common stock to drop
  significantly, even if our business is doing well.
  As of April
  22
  , 2008, we had 22,700,634 split adjusted
  shares of common stock issued and outstanding held by approximately 145
  shareholders of record, including 5,010,000 shares approved for issue under our
  Plan of Reorganization.  The shares
  issued under our Plan of Reorganization will be freely trading securities.  The market price of our common stock could
  drop significantly if the holders of these shares sell them or are perceived by
  the market as intending to sell them in an excessive amount relative to the
  market demand for our shares. An excessive sale of our shares may result in a
  substantial decline in the price of our common stock and limit our ability to
  raise capital, even if our business is doing well.
  We may issue additional shares of
  our capital stock, including through convertible debt securities, to finance
  future operations or complete a business combination, which would reduce the
  equity interest of our stockholders and could cause a change in control of our
  ownership.
  Although we have no commitments as of the date of
  this report to issue any additional securities, we may issue a substantial
  number of additional shares of our common stock or preferred stock, or a
  combination of both, including through convertible debt securities, to finance
  future operations.  We may not be able to
  obtain additional debt or equity financing on favorable terms, if at all.  If we engage in debt financing, then we may
  be required to accept terms that restrict our ability to incur additional
  indebtedness and force us to maintain specified liquidity or other ratios.
  Further, the issuance of additional shares of our
  common stock or any number of shares of preferred stock, including upon
  conversion of any debt securities, may:
  ·
  significantly reduce the equity interest of
  our current stockholders;
  ·
  cause a change in control if a substantial
  number of our shares of common stock or voting preferred stock are issued,
  which may affect, among other things, our ability to use our net operating loss
  carry-forwards, if any, and could also result in a change in management; and/or
  ·
  adversely affect prevailing market prices for
  our common stock.
  If we need additional capital and cannot raise it on
  acceptable terms, we may not be able to, among other things:
  ·
  develop or enhance our products and services;
  ·
  continue to expand our development, sales and
  marketing organizations;
  ·
  acquire complementary technologies, products
  or businesses;
  ·
  expand operations;
  ·
  hire, train and retain employees; and/or
  ·
  respond to competitive pressures or
  unanticipated working capital requirements.
  26
  We may issue additional shares of
  our capital stock, including through convertible debt securities, to finance
  future operations or complete a business combination, which would reduce the
  equity interest of our stockholders and likely cause a change in control of our
  ownership.
  Although we have no commitments as of the date of
  this report to issue any additional securities, we may issue a substantial
  number of additional shares of our common stock or preferred stock, or a
  combination of both, including through convertible debt securities, to finance
  future operations or complete a business combination.  The issuance of additional shares of our
  common stock or any number of shares of preferred stock, including upon
  conversion of any debt securities:
  ·
  may significantly reduce the equity interest
  of our current stockholders;
  ·
  will likely cause a change in control if a
  substantial number of our shares of common stock or voting preferred stock are
  issued and could also result in a change in management; and/or
  ·
  may adversely affect prevailing market prices
  for our common stock.
  A limited number of stockholders
  own substantially all of our stock and may act, or prevent certain types of
  corporate actions, to the detriment of other stockholders.
  As of April
  22
  , 2008, our directors, officers and greater
  than 5% stockholders own substantially all of our issued and outstanding common
  stock.  Accordingly, these stockholders
  may, if they act together, exercise significant influence over all matters
  requiring stockholder approval, including the election of a majority of the
  directors and the determination of significant corporate actions.  This concentration could also have the effect
  of delaying or preventing a change in control that could otherwise be
  beneficial to our stockholders.
  The 2007 Stock Incentive Plan and
  all options issued under the 2007 Stock Incentive Plan contain provisions for
  acceleration of all unvested options in the event of a change of control, which
  might be a disincentive to acquisition of the Company as a liquidation
  strategy.
  The 2007 Stock Incentive Plan and all options
  currently issued thereunder and options granted outside such plan provides for
  accelerated vesting of all unvested options in the event of a change of
  control,which is defined as an acquisition by a single person of more than 50%
  of the total combined voting power of all outstanding securities of the
  Company. This may be regarded as a barrier to retention of key employees
  following a change-of-control acquisition and therefore make such an
  acquisition more costly or difficult, and therefore an unattractive strategic
  option, for a prospective acquiror.
  We have never paid dividends on
  our capital stock and we do not anticipate paying any cash dividends in the
  foreseeable future.
  We have paid no cash dividends on any of our classes
  of capital stock to date and we currently intend to retain our future earnings,
  if any, to fund the development and growth of our business.  In addition, the terms of the Notes prohibit
  us from making any dividend payment or distribution to holders of our common
  stock while any portion of the Notes remain outstanding.  As a result, capital appreciation, if any, of
  our common stock will be your sole source of gain for the foreseeable future.
  Our securities may be thinly
  traded on the Over-the-Counter Pink Sheets, which may not provide liquidity for
  our investors.
  Our common stock is quoted on the Over-the-Counter
  Pink Sheets. The Over-the-Counter Pink Sheets is an inter-dealer,
  over-the-counter market that provides significantly less liquidity than the
  NASDAQ Stock Market or national or regional exchanges. Securities traded on the
  Over-the-Counter Pink Sheets are usually thinly traded, highly volatile, have
  fewer market makers, and are not followed by analysts.
  27
  The Securities and Exchange
  Commission's ("
  SEC
  ") order handling rules, which
  apply to NASDAQ-listed securities, do not apply to securities quoted on the
  Over-the-Counter Pink Sheets. Quotes for stocks included on the
  Over-the-Counter Pink Sheets are not listed in newspapers. Therefore, prices
  for securities traded solely on the Over-the-Counter Pink Sheets may be
  difficult to obtain and holders of our securities may be unable to resell their
  securities at or near their original acquisition price, or at any price.
  Investors must contact a
  broker-dealer to trade Over-the-Counter Pink Sheets securities. As a result,
  you may not be able to buy or sell our common stock at the times that you may
  wish.
  Even though our common stock is quoted on the
  Over-the-Counter Pink Sheets, the Over-the-Counter Pink Sheets may not permit
  our investors to sell securities when and in the manner that they wish. Because
  there are no automated systems for negotiating trades on the Over-the-Counter
  Pink Sheets, they are conducted via telephone. In times of heavy market volume,
  the limitations of this process may result in a significant increase in the
  time it takes to execute investor orders. Therefore, when investors place
  market orders to buy or sell a specific number of shares at the current market
  price it is possible for the price of a stock to go up or down significantly
  during the lapse of time between placing a market order and its execution.
  Our stock price may be volatile
  and you may not be able to sell your shares for more than what you paid.
  Our stock price is likely to be subject to
  significant volatility and you may not be able to sell shares of common stock
  at or above the price you paid for them. The market price of the common stock
  could continue to fluctuate in the future in response to various factors
  including, but not limited to: quarterly variations in operating results; our
  ability to control costs and improve cash flow; announcements of technological
  innovations or new products by us or our competitors; changes in investor
  perceptions; and new products or produce enhancements by us or our competitors.
  The stock market in general has continued to experience volatility, which may
  further affect our stock price. As such, you may not be able to resell your
  shares of common stock at or above the price you paid for them.
  Our common stock is likely to be
  subject to penny stock rules.
  Our common stock is subject to Rule 15g-1
  through 15g-9 under the Securities Exchange Act of 1934, as amended (the "
  Exchange Act
  "), which imposes certain sales practice
  requirements on broker-dealers which sell our common stock to persons other
  than established customers and "accredited investors" (generally, individuals
  with net worths in excess of $1 million or annual incomes exceeding $200,000
  (or $300,000 together with their spouses)). 
  For transactions covered by this rule, a broker-dealer must make a
  special suitability determination for the purchaser and have received the
  purchaser's written consent to the transaction prior to the sale.  This rule adversely affects the ability
  of broker-dealers to sell our common stock and purchasers of our common stock
  to sell their shares of such common stock. 
  Additionally, our common stock is likely to be subject to the SEC
  regulations for "penny stock."  Penny
  stock includes any equity security that is not listed on a national exchange
  and has a market price of less than $5.00 per share, subject to certain
  exceptions.  The regulations require that
  prior to any non-exempt buy/sell transaction in a penny stock, a disclosure
  schedule set forth by the SEC relating to the penny stock market must be
  delivered to the purchaser of such penny stock. 
  This disclosure must include the amount of commissions payable to both
  the broker-dealer and the registered representative and current price
  quotations for the common stock.  The
  regulations also require that monthly statements be sent to holders of penny
  stock which disclose recent price information for the penny stock and
  information of the limited market for penny stocks.  These requirements adversely affect the
  market liquidity of our common stock.
  28
  We will incur increased costs and
  demands upon management as a result of complying with the laws and regulations
  affecting public companies, which could harm our operating results.
  As a public company, we will incur significant
  legal, accounting, and other expenses that we did not incur as a private
  company, including costs associated with public company reporting requirements.
  We also have incurred and will incur costs associated with current corporate
  governance requirements, including requirements under Section 404 and
  other provisions of the Sarbanes-Oxley Act, as well as rules implemented
  by the Securities and Exchange Commission, or SEC. The expenses incurred by
  public companies for reporting and corporate governance purposes have increased
  dramatically. We expect these rules and regulations to substantially
  increase our legal and financial compliance costs and to make some activities
  more time-consuming and costly. We are unable to currently estimate these costs
  with any degree of certainty. We also expect these new rules and
  regulations may make it more difficult and more expensive for us to obtain
  director and officer liability insurance, and we may be required to accept
  reduced policy limits and coverage or incur substantially higher costs to
  obtain the same or similar coverage than used to be available. As a result, it
  may be more difficult for us to attract and retain qualified individuals to
  serve on our board of directors or as our executive officers.
  DESCRIPTION OF PROPERTY
  Our corporate headquarters are located in San Mateo,
  California and comprise approximately 4,500 hundred square feet of space leased
  through October 2009.   In addition,
  we maintain an office in Renton, Washington that comprises approximately 6,000
  square feet of space leased through June 2010.  We believe that our existing properties are
  in good condition and are sufficient and suitable for the conduct of our
  business. As our existing leases expire and as we continue to expand our
  operations, we believe that suitable space will be available to us on
  commercially reasonable terms.
  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
  The following discussion and analysis of the
  consolidated financial condition and results of operations should be read with
  our consolidated financial statements and related notes appearing elsewhere in
  this report. This discussion and analysis contains forward-looking statements
  that involve risks, uncertainties and assumptions. The actual results may
  differ materially from those anticipated in these forward-looking statements as
  a result of certain factors, including, but not limited to, those set forth
  under "Risk Factors" and elsewhere in this report. See "Forward-Looking
  Statements," above.
  Overview
  Business
  Etelos is a leading provider of software solutions
  that assist organizations to effectively use Web Applications to accomplish
  their goals.  Etelos provides
  a
  revolutionary SaaS ecosystem for building, distributing, and using Web
  Applications, including a marketplace to deploy and support them; giving
  businesses choices in applications, hosting and support services to cost
  effectively accomplish their goals.
  The Etelos Marketplace supports and encourages communities of
  developers, distributors, and consumers to expand their offerings, collaborate
  on new ideas and improvements, and provide scalable solutions using Web
  Applications available to others.
  Etelos revenue has fallen from $316 thousand in 2006
  to $304 thousand in 2007, while the cost of goods sold increased from $130
  thousand in 2006 to $315 thousand in 2007. As of December 31, 2007, Etelos
  had over 5,000 active free and paying customers.
  29
  Recent Financings
  January 2008
  Private Placement
  On January 31, 2008, we entered into a
  securities purchase agreement with three unaffiliated institutional investors
  for the sale of original issue discount 6% convertible debentures and common
  stock purchase warrants.  We refer to
  this transaction as our January 2008 Private Placement.  In this transaction we issued an aggregate of
  $2.0 million principal amount of debentures and warrants to purchase an
  aggregate of up to 666,667 shares of our common stock.  The warrants have a term of five years and an
  exercise price of $0.60 per share, subject to adjustment, including
  full-ratchet anti-dilution protection. 
  This transaction resulted in net proceeds to us of $1.9 million.
  In this report we may refer to the debentures we
  issued in our January 2008 Private Placement as our January debentures.  The following summarizes the terms of our January debentures
  and is qualified by reference to a copy of the debenture which is filed as an
  exhibit to this report:
  ·
  Term
  . The debentures are due and payable on
    January 31, 2010.
  ·
  Interest
  . Interest accrues at the rate of 6% per
    annum and is payable semiannually on January 1 and July 1,
    commencing on July 1, 2008.
  ·
  Monthly
    Principal Payments
  .
    Monthly principal payments equal to 1/18th of the principal amount due under
    each debenture begin on September 1, 2008.
  ·
  Payments
    of Principal and Interest
  . We have the right to pay interest and monthly principal payments in
    cash, or upon notice to the holders and compliance with certain equity
    conditions, we can pay all or a portion of any such payment in common stock
    valued at a price equal to the lesser of the then effective conversion price
    (initially $0.45) or 85% of the average of the volume weighted average price,
    or VWAP, per share as reported on Bloomberg for our common stock for the 10
    consecutive trading days immediately prior to the applicable payment date.
  ·
  Early
    Redemption
  . We have
    the option to redeem the debentures before their maturity by payment in cash
    of 120% of the then outstanding principal amount plus accrued interest and
    other charges. To redeem the debentures we must meet certain equity conditions,
    including having an effective registration statement covering the sale by the
    investors of the shares of our common stock issued upon conversion of the
    debentures. The payment of the debentures would occur on the 10th day
    following the date we gave the holders notice of our intent to redeem the
    debentures. We agreed to honor any notices of conversion that we receive from
    a holder before the date we pay off the debentures.
  ·
  Voluntary
    Conversion by Holder
  .
    The debentures are convertible at anytime at the discretion of the holder at
    a conversion price per share of $0.45, subject to adjustment including
    full-ratchet, anti-dilution protection, and subject to a cap on the beneficial
    ownership of our shares of common stock by the holder and its affiliates
    following such conversion. See
  "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT," below, for
    more information regarding the beneficial ownership caps.
  ·
  Forced
    Conversion
  . Subject
    to compliance with certain equity conditions, including having an effective
    registration statement covering the sale by the investors of the shares of
    our common stock issued upon conversion of the debentures, and subject to the
    applicable cap on the beneficial ownership of our shares of common stock by
    the holder and its affiliates following such conversion, we also have the
    right to force conversion if the average of the VWAP for our common stock
    exceeds $1.13 for 20 trading days out of a consecutive 30 trading day period.
  ·
  Security
  . The debentures are secured by all of our
    assets under the terms of a security agreement we entered into with the
    investors.
  April 2008
  Private Placement
  On April 22, 2008, we entered into a securities
  purchase agreement with two unaffiliated institutional investors for the sale
  of original issue discount 6% convertible debentures and common stock purchase
  warrants.  We refer to this transaction
  as our April 2008 Private Placement. 
  In this transaction we issued an aggregate of $3.5 million principal
  amount of debentures and warrants to purchase an aggregate of up to 1,166,667
  shares of our common stock.  The warrants
  have a term of five years and an exercise price of $0.60 per share, subject to
  adjustment, including full-ratchet anti-dilution protection.  This transaction resulted in net proceeds to
  us of $3.4 million.
  In this report we may refer to the debentures we
  issued in our April 2008 Private Placement as our April debentures.  The following summarizes the terms of our April debentures
  and is qualified by reference to a copy of the debenture which is filed as an
  exhibit to this report:
  ·
  Term
  . The debentures are due and payable on April 30,
    2010.
  ·
  Interest
  . Interest accrues at the rate of 6% per
    annum and is payable semiannually on January 1 and July 1,
    commencing on July 1, 2008.
  ·
  Monthly
    Principal Payments
  .
    Monthly principal payments equal to 1/18th of the principal amount due under
    each debenture begin on September 1, 2008.
  ·
  Payments
    of Principal and Interest
  . We have the right to pay interest and monthly principal payments in
    cash, or upon notice to the holders and compliance with certain equity
    conditions, we can pay all or a portion of any such payment in common stock
    valued at a price equal to the lesser of the then effective conversion price
    (initially $0.45) or 85% of the average of the volume weighted average price,
    or VWAP, per share as reported on Bloomberg for our common stock for the 10
    consecutive trading days immediately prior to the applicable payment date.
  ·
  Early
    Redemption
  . We have
    the option to redeem the debentures before their maturity by payment in cash
    of 120% of the then outstanding principal amount plus accrued interest and
    other charges. To redeem the debentures we must meet certain equity conditions,
    including having an effective registration statement covering the sale by the
    investors of the shares of our common stock issued upon conversion of the
    debentures. The payment of the debentures would occur on the 10th day
    following the date we gave the holders notice of our intent to redeem the
    debentures. We agreed to honor any notices of conversion that we receive from
    a holder before the date we pay off the debentures.
  ·
  Voluntary
    Conversion by Holder
  .
    The debentures are convertible at anytime at the discretion of the holder at
    a conversion price per share of $0.45, subject to adjustment including
    full-ratchet, anti-dilution protection, and subject to a cap on the beneficial
    ownership of our shares of common stock by the holder and its affiliates
    following such conversion. See
  "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT," below, for
    more information regarding the beneficial ownership caps.
  ·
  Forced
    Conversion
  . Subject
    to compliance with certain equity conditions, including having an effective
    registration statement covering the sale by the investors of the shares of
    our common stock issued upon conversion of the debentures, and subject to the
    applicable cap on the beneficial ownership of our shares of common stock by
    the holder and its affiliates following such conversion, we also have the
    right to force conversion if the average of the VWAP for our common stock
    exceeds $1.13 for 20 trading days out of a consecutive 30 trading day period.
  ·
  Security
  . The debentures are secured by all of our
    assets under the terms of a security agreement we entered into with the
    investors.
  30
  The debentures impose certain covenants on us,
  including restrictions against incurring additional indebtedness, creating any
  liens on our property, amending our certificate of incorporation or bylaws,
  redeeming or paying dividends on shares of our outstanding common stock, and
  entering into certain related party transactions.  The debentures define certain events of
  default, including without limitation failure to make a payment obligation,
  failure to observe other covenants of the debenture or related agreements
  (subject to applicable cure periods), breach of representation or warranty,
  bankruptcy, default under another significant contract or credit obligation,
  delisting of our common stock, a change in control, failure to secure and
  maintain an effective registration statement covering the resale of the common
  stock underlying the debentures and the warrants, or failure to deliver share
  certificates in a timely manner.  In the
  event of default, the holders of the debentures have the right to accelerate all
  amounts outstanding under the debenture and demand payment of a mandatory
  default amount equal to 130% of the amount outstanding plus accrued interest
  and expenses.
  As further discussed under "Liquidity and Capital
  Resources," below, we believe our cash balance at December 31, 2007, plus
  the net proceeds from our January 2008 and April 2008 Private Placements,
  is sufficient to fund our operations through at least December 2008.  If cash reserves are not sufficient to
  sustain operations, we plan to raise additional capital by selling shares of
  capital stock or other debt or equity securities.  However, there are no commitments or
  arrangements for future financings in place at this time, and there can be no
  assurance that such capital will be available on favorable terms to us or at
  all.
  Going Concern Issue
  We remain dependent on outside sources of funding
  until our results of operations provide positive cash flows.  Our
  independent auditors issued a going concern qualification in their report dated
  April
  22
  , 2008, with our current level of funding substantial doubt about our
  ability to continue as a going concern is a reasonable conclusion.
  During the years ended December 31, 2007 and
  2006, we have been unable to generate cash flows sufficient to support our
  operations and have been dependent on debt and equity raised from qualified
  individual investors.  We experienced negative financial results as
  follows (in thousands):
  2007
  2006
  Net loss attributable to common
    shareholders
  $
  (3,956
  )
  $
  (1,462
  )
  Negative cash flow from operations
  (3,060
  )
  (1,022
  )
  Working capital
  (3,391
  )
  (2,038
  )
  Stockholders' deficit
  (4,946
  )
  (2,054
  )
  These factors raise substantial doubt about our
  ability to continue as a going concern.  The financial statements
  contained herein do not include any adjustments relating to the recoverability
  and classification of recorded asset amounts or amounts and classification of
  liabilities that might be necessary should we be unable to continue in
  existence.  Our ability to continue as a going concern is dependent
  upon our ability to generate sufficient cash flows to meet our obligations on a
  timely basis, to obtain additional financing as may be required, and ultimately
  to attain profitable operations. 
  However, there is no assurance that profitable operations or sufficient
  cash flows will occur in the future.
  We have supported current operations by raising
  additional operating cash through the private sale of our convertible
  debentures.  This has provided us with
  the cash flows to continue our business plan, but have not resulted in
  significant improvement in our financial position. We are considering
  alternatives to address our cash flow situation that include: (1) raising
  capital through additional sale of our common stock and/or debentures and (2) reducing
  cash operating expenses to levels that are in line with current revenues.
  31
  The first alternative could result in substantial
  dilution of existing stockholders. There can be no assurance that our current
  financial position can be improved, that we can raise additional working
  capital, or that we can achieve positive cash flows from operations. Our
  long-term viability as a going concern is dependent upon our ability to (i) locate
  sources of debt or equity funding to meet current commitments and near-term
  future requirements and (ii) achieve profitability and ultimately generate
  sufficient cash flow from operations to sustain our continuing operations.
  Critical Accounting Policies
  Involving Management Estimates and Assumptions
  Our discussion and analysis of our financial
  condition and results of operations is based on our financial statements.  In preparing our financial statements in
  conformity with accounting principles generally accepted in the United States,
  we must make a variety of estimates that affect the reported amounts and
  related disclosures.  We have identified
  the following accounting policies that we believe require application of
  management's most subjective judgments, often requiring the need to make
  estimates about the effect of matters that are inherently uncertain and may
  change in subsequent periods.
  Allowance
  for Doubtful Accounts
  The Company provides, when appropriate, an allowance
  for doubtful accounts to ensure trade receivables are not overstated due to
  un-collectibility. The collectibility of the Company's receivables is evaluated
  based on a variety of factors, including the length of time receivables are
  past due, indication of the customer's willingness to pay, significant one-time
  events and historical experience. As of December 31, 2007 and 2006 there
  was no allowance for doubtful accounts.
  Revenue Recognition
  The Company recognizes revenue in accordance with
  Securities and Exchange Commission Staff Accounting Bulletin No. 104, or
  SAB 104, "
  Revenue Recognition in Financial Statements
  ".
  The Company recognizes revenue when all of the following criteria are met:
  1) there is persuasive evidence that an arrangement exists,
  2) delivery of goods has occurred, 3) the sales price is fixed or
  determinable, and 4) collectibility is reasonably assured.
  Our significant accounting policies are described in
  more detail in the notes to consolidated financial statements included
  elsewhere in this filing.  If actual
  results differ significantly from our estimates and projections, then there
  could be a material effect on our financial statements.  Please see "Note 3. Summary of Significant
  Accounting Policies" to our financial statements included in this report.
  Results of Operations
  Fluctuations in Operating Results
  We are in the early stages of our operations. Our
  results of operations are likely to fluctuate from period to period.  We anticipate that our quarterly and annual
  results of operations will be impacted for the foreseeable future by several
  factors, including the timing and volume of sales of our products.  Due to these factors, each of which will have
  a substantial impact on our future operations, we believe that the
  period-to-period comparisons of our operating results are not a good indication
  of our future performance.
  Year Ended December 31, 2007
  Compared with Year Ended December 31, 2006
  Revenues
  Revenues were $304 thousand and $316 thousand for
  fiscal 2007 and 2006, respectively. Revenues decreased by $12 thousand, or
  3.8%, in fiscal 2007 compared to fiscal 2006. The decrease in fiscal 2007
  revenue is due in part to our focus on fewer key products and the timing of
  release of those products.
  Cost of Good Sold
  Cost of good sold includes our costs of hardware,
  software and other resources used in delivery of our products and services.
  Cost of good sold were $315 thousand and $130 thousand for fiscal year 2007 and
  2006, respectively. Cost of good sold for 2007 increased by $185 thousand, or
  by 142.3%.  The increase in cost of good
  sold from 2006 to 2007 was primarily attributable to the increased costs of
  hosting and Internet band-width associated with the deployment of our products
  and services. Stated as a percentage of revenues, cost of good sold for the
  corresponding periods was 103.6% and 41.1%, respectively.
  Operating Expenses
  Research and Development.
  Research and development expenses include
  primarily employee and employee related expenses. Research and development
  expenses were $1,856 thousand and $839 thousand for fiscal year 2007 and 2006,
  respectively. Stated as a percentage of revenues, research and development
  expense for the corresponding periods was 610.5% and 265.5%, respectively.  Research and development expenses increased
  by $1,017 thousand, or by 121.2%, in fiscal 2007 compared to fiscal 2006.  This increase was primarily due to increased
  hiring of engineers for research and development.
  32
  Sales and Marketing Expenses.
  Sales and marketing expenses include payroll,
  employee benefits, and other headcount-related costs associated with sales and
  marketing personnel and travel, advertising, promotions, trade shows, seminars,
  and other programs. Sales and marketing expenses were $771 thousand and $348
  thousand for fiscal year 2007 and 2006, respectively. The $423 thousand, or
  121.6%, increase in sales and marketing expense was due to increased hiring of
  sales and marketing personnel and greater focus on sales and marketing
  activities. Stated as a percentage of revenues, sales and marketing expense for
  the corresponding periods was 253.6% and 110.2%, respectively.
  General and Administrative.
  General and administrative expenses include
  payroll and related employee benefits, and other headcount-related costs
  associated with finance, facilities, and legal and other administrative fees.
  General and administrative expenses were $876 thousand and $396 thousand for
  fiscal year 2007 and 2006, respectively. The $480 thousand, or 121.2%, increase
  in general and administrative expense was primarily attributable to increased
  hiring of accounting, administrative, legal and compliance personnel and
  greater use of consultants and temporary personnel.  Stated as a percentage of revenues, general
  and administrative expense for the corresponding periods was 288.2% and 125.2%,
  respectively.
  Other Income (Expense)
  Interest Expense
  .
  Net interest expense was $362 thousand for 2007 compared to $97 thousand for
  2006. The increase in interest expense was primarily due to multiple rounds of
  convertible debt financing during 2007.
  Net Loss
  Our net loss was $3.9 million and $1.5 million for
  fiscal year 2007 and 2006, respectively, an increase of $2.4 million, or 270.5%.  The percentage change in the net loss from
  2006 to 2007 was primarily due to increased hiring and employee-related costs
  and decreased revenues in a period of transition for Etelos.
  Liquidity and Capital Resources
  On December 31, 2007, we had $928 thousand in
  cash and cash equivalents, and prepaid expenses of $21 thousand. Our working
  capital deficit at December 31, 2007 was $3.4 million, compared to a
  deficit of $2.0 million at December 31, 2006.
  Net cash used by operating activities during the
  year ended December 31, 2007 was $3.1 million, compared to $979 thousand
  during the year ended December 31, 2006. The primary use of cash from
  operating activities in 2007 was research and development expenses of $1.9
  million.
  Net cash provided by financing activities for 2007
  was $4 million, primarily from the issuance of notes.  During the year ended December 31, 2007,
  we issued 6% convertible notes at an original issue discount of 10% with a face
  value of $3.3 million.  These notes
  mature on March 31, 2009, with interest due and payable on February 1,
  2008, and on the last day of each calendar quarter thereafter. We are required
  to make payments on the outstanding principal balance beginning September 1,
  2008 and on the 1st day of each calendar quarter thereafter.
  In connection with the issuance of these notes, we
  issued warrants to purchase up to 3,174,000 shares of our common stock at an
  exercise price of $0.40 and a term of 5 years. 
  At December 31, 2007, warrants to purchase 1,929,000 shares have
  been exercised.
  33
  We believe our cash balance, including the net
  proceeds from our January 2008 and April 2008 Private Placements, is
  sufficient to fund our operations through at least December 2008.  If cash reserves and our credit facility are
  not sufficient to sustain operations, then we plan to raise additional capital
  by selling shares of capital stock or other securities.  However, there
  are no commitments or arrangements for future financings in place at this time
  and we can give no assurance that such capital will be available on favorable
  terms or at all.  We may need additional
  financing thereafter until we can achieve profitability.  If we cannot, then
  we will be forced to curtail our operations or possibly be forced to evaluate a
  sale or liquidation of our assets.  Even if we are successful in raising
  additional funds, there is no assurance regarding the terms of any additional
  investment.  Any future financing may involve substantial dilution to
  existing investors.
  Commitments and Contingencies
  January Debentures
  In January 2008, we issued our January debentures
  with an aggregate principal amount of $2.0 million. Under the terms of these
  debentures, we are to begin making monthly redemption payments upon the earlier
  of the effective date of the registration statement we are required to file to
  register for resale of the shares of common stock issuable upon conversion of
  these debentures or November 1, 2008. 
  The maturity date of these debentures is January 31, 2010.  The aggregate face value of our outstanding
  debentures is $2.0 million at April 22, 2008.  The total monthly principal payment amounts
  on our January debentures are scheduled to be paid as follows, Under assuming
  such payments begin on September 1, 2008:
  Monthly Principal Payment Amount
  Date
  January
  Debentures
  9/1/2008
  $
  111,111.12
  10/1/2008
  $
  111,111.12
  11/1/2008
  $
  111,111.12
  12/1/2008
  $
  111,111.12
  1/1/2009
  $
  111,111.12
  2/1/2009
  $
  111,111.12
  3/1/2009
  $
  111,111.12
  4/1/2009
  $
  111,111.12
  5/1/2009
  $
  111,111.12
  6/1/2009
  $
  111,111.12
  7/1/2009
  $
  111,111.12
  8/1/2009
  $
  111,111.12
  9/1/2009
  $
  111,111.12
  10/1/2009
  $
  111,111.12
  11/1/2009
  $
  111,111.12
  12/1/09
  $
  111,111.12
  1/1/2010
  $
  111,111.12
  1/31/2010
  $
  111,111.12
  $
  2,000,000
  Assuming monthly principal payments are made in
  accordance with the schedule set forth above, the amount of interest to be paid
  through the January 31, 2010 maturity date is $240 thousand with respect
  to our January debentures, or on average, $13.3 thousand per month.
  April Debentures
  In April 2008, we issued our April debentures
  with an aggregate principal amount of $3.5 million. Under the terms of these
  debentures, we are to begin making monthly redemption payments upon the earlier
  of the effective date of the registration statement we are required to file to
  register for resale of the shares of common stock issuable upon conversion of
  these debentures or November 1, 2008. 
  The maturity date of these debentures is April 30, 2010.  The aggregate face value of our outstanding
  debentures is $3.5 million at April
  22
  , 2008. 
  The total monthly principal payment amounts on our April debentures
  are scheduled to be paid as follows, Under assuming such payments begin on
  September 1, 2008 (dollar amounts in thousands):
  Monthly Principal Payment Amount
  Date
  April
  Debentures
  9/1/2008
  $
  194,400.00
  10/1/2008
  $
  194,400.00
  11/1/2008
  $
  194,400.00
  12/1/2008
  $
  194,400.00
  1/1/2009
  $
  194,400.00
  2/1/2009
  $
  194,400.00
  3/1/2009
  $
  194,400.00
  4/1/2009
  $
  194,400.00
  5/1/2009
  $
  194,400.00
  6/1/2009
  $
  194,400.00
  7/1/2009
  $
  194,400.00
  8/1/2009
  $
  194,400.00
  9/1/2009
  $
  194,400.00
  10/1/2009
  $
  194,400.00
  11/1/2009
  $
  194,400.00
  12/1/09
  $
  194,400.00
  1/1/2010
  $
  194,400.00
  1/31/2010
  $
  194,400.00
  $
  3,500,000
  Assuming monthly principal
  payments are made in accordance with the schedule set forth above, the amount
  of interest to be paid through the April 30, 2010, maturity date is $420
  thousand with respect to our April debentures, or on average, $23.3
  thousand per month.
  34
  We have the right to pay interest and monthly
  principal payments due in respect of our January and April debentures in
  cash, or upon notice to the holders and compliance with certain equity
  conditions, we can pay all or a portion of any such payment in common stock
  valued at a price equal to the lesser of the then effective conversion price
  (currently $0.45) or 85% of the average of the VWAP per share as reported on Bloomberg
  for our common stock for the 10 consecutive trading days immediately prior to
  the applicable payment date.  On the
  other hand, if the holders voluntarily elect to convert all or a portion of the
  debentures into common stock, then the conversion price will be the then-effective
  conversion price.  The conversion of
  these debentures could result in substantial dilution to our existing
  stockholders.
  Subject to compliance with certain equity
  conditions, and subject also to the applicable cap on the beneficial ownership
  of our shares of common stock by the holder and its affiliates following such
  conversion, we have the right to force conversion of the entire amount of
  principal and accrued interest of the debentures if the average of the VWAP for
  our common stock exceeds $1.13 for 20 trading days out of a consecutive 30
  trading day period.  If the price of our
  common stock is below $1.13 per share but is substantially above $0.45 per
  share, then we anticipate that the holders of these debentures will elect to
  convert monthly payments of interest and principal into shares of common stock
  rather than receive cash.  If the price of our common stock is below
  $0.45, the current conversion price, then we intend to make principal and
  interest payments in cash to the extent that our cash flows from operations
  provide sufficient ability to do so.
  If our cash flows from operations are not sufficient
  to make principal and interest payments in cash, then we will evaluate other
  equity financing opportunities, the proceeds of which could be used to repay
  the debentures.  If we are unable to pay the principal and interest in
  cash, or elect not to do so to preserve working capital, then we will make the
  payments with our common stock pursuant to the terms of the agreements
  including a conversion price based on the lower of the then effective
  conversion price or 85% of the average of the VWAP per share as reported on
  Bloomberg for our common stock for the 10 consecutive trading days immediately
  prior to the applicable payment date.
  Operating and Capital Leases
  We have non-cancelable leases for corporate
  facilities and equipment.  Rent expense
  under the leases totaled $146.7 thousand and $44.3 thousand for the years ended
  December 31, 2007 and 2006, respectively. 
  Future minimum rental payments required under non-cancelable leases are
  as follows for the years ending December 31:
  Operating
  Leases
  Capital
  Leases
  2008
  $
  269
  $
  25,895
  2009
  269
  20,570
  2010
  97
  13,286
  2011
  —
  13,286
  2012
  —
  2,214
  Thereafter
  —
  —
  Total
    minimum lease payments
  $
  635
  $
  75,251
  Less
    amount representing interest
  22,841
  Present
    value of minimum lease payments
  52,410
  Less
    current portion
  16,179
  Total
    long term portion
  $
  36,231
  35
  Recent Financings
  January and April  2008
  Private Placements
  The
  following table sets forth the (i) gross proceeds we received from each
  investor in our January and April 2008 Private Placement and (ii) amount
  of payments that we may be required to make under the terms of our January and
  April debentures assuming all such payments are made in cash when due and
  monthly redemption payments begin September 1, 2008 (dollar amounts in
  thousands).
  (In Thousands)
  Gross
  Payments through December 31, 2008
  Payments from January 1, 2009 through
  January 31, 2010
  Investor Name
  Proceeds
  Principal
  Interest
  Total (1)
  Principal
  Interest
  Total (2)
  Enable Growth Partners LP
  $
  4,000
  $
  889
  $
  73
  $
  962
  $
  3,111
  $
  117
  $
  3,228
  Hudson Bay Fund LP
  $
  970
  $
  216
  $
  18
  $
  234
  $
  754
  $
  14
  $
  768
  Hudson Bay Overseas Fund LTD
  $
  530
  $
  118
  $
  10
  $
  128
  $
  412
  $
  15
  $
  427
  $
  5,500
  $
  1,222
  $
  101
  $
  1,323
  $
  4,278
  $
  146
  $
  4,423
  (1) Averages to $330 thousand per month from September 1, 2008,
  through December 31, 2008.
  (2) Averages to $340 thousand per month from January 1, 2009,
  through January 31, 2010.
  The conversion price for the debentures is currently
  $0.45 and the exercise price of these warrants is currently $0.60 per
  share.  Assuming that we pay all future
  principal and interest payments in cash on their respective due dates, the
  total principal and interest payments for such debentures aggregate to $5.8
  million over their respective terms.  We
  received net proceeds after expenses of $5.3 million from our January 2008
  and April 2008 Private Placements.  The
  ratio of (i) the total amount of payments over the term of the debentures
  to (ii) net proceeds is 109%.
  Recent Accounting Pronouncements
  In June 2006, the Financial Accounting Standards Board (FASB)
  issued FASB Interpretation (FIN) No. 48,
  Accounting
  for Uncertainty in Income Taxes
  , which supplements Statement of
  Financial Accounting Standard No. 109,
  Accounting for Income
  Taxes
  , by defining the confidence level that a tax position must
  meet in order to be recognized in the financial statements. FIN 48 requires the
  tax effect of a position to be recognized only if it is "more-likely-than-not"
  to be sustained based solely on its technical merits as of the reporting date.
  If a tax position is not considered more-likely-than-not to be sustained based
  solely on its technical merits, no benefits of the position are recognized. If
  the tax position is considered more likely than not to be sustained, the amount
  to record is measured at the largest amount of benefit that is grater than 50%
  likely of being realized upon ultimate settlement. This is a different standard
  for recognition than was previously required. The more-likely-than-not
  threshold must continue to be met in each reporting period to support continued
  recognition of a benefit. At adoption, companies must adjust their financial
  statements to reflect only those tax positions that are more-likely-than-not to
  be sustained as of the adoption date. Any necessary adjustment is recorded
  directly to opening retained earnings in the period of adoption and reported as
  a change in accounting principle. The Company adopted FIN 48 starting January 1,
  2007. The adoption of FIN 48 did not have a material effect on the Company's
  financial statements.
  In September 2006, the Securities and Exchange Commission
  published Staff Accounting Bulletin No. 108, "
  Considering
  the Effects of Prior Year Misstatements when Quantifying Misstatements in
  Current Year Financial Statements
  " (SAB 108). The interpretations
  in SAB 108 are being issued to address diversity in practice in quantifying
  financial statement misstatements and the potential under current practice to
  build up improper amounts on the balance sheet. This guidance applies to fiscal
  years ending after November 15, 2006 and early application in interim
  periods is encouraged. The adoption of SAB 108 did not have an effect on the
  Company's financial statements.
  In September 2006, the FASB issued SFAS No. 157 ("FAS 157"),
  "
  Fair Value Measurements
  ," which defines
  fair value, establishes guidelines for measuring fair value and expands
  disclosures regarding fair value measurements. FAS 157 does not require
  any new fair value measurements but rather eliminates inconsistencies in
  guidance found in various prior accounting pronouncements. FAS 157 is
  effective for fiscal years beginning after November 15, 2007. Earlier
  adoption is permitted, provided the company has not yet issued financial
  statements, including for interim periods, for that fiscal year. The Company
  are currently evaluating the impact of FAS 157, but do not expect the
  adoption of FAS 157 to have a material impact on the financial position,
  results of operations, or cash flows.
  36
  In February 2007, the FASB issued SFAS No. 159,
  "The Fair Value Option for Financial Assets and Financial Liabilities
  ,"
  which permits entities to choose to measure many financial assets and financial
  liabilities at fair value. Unrealized gains and losses on items for which the
  fair value option has been elected are reported in earnings. SFAS 159 is
  effective for fiscal years beginning after November 15, 2007. The Company
  does not expect the adoption of FAS 159 to have a material impact.
  Off-Balance Sheet Arrangements
  We did not have any off-balance sheet arrangements
  as of the year ended December 31, 2007, nor do we have any as of April
  22
  , 2008.
  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
  The following table sets forth certain information
  with respect to the beneficial ownership of our common stock as of April
  22
  , 2008 by (i) any person or group owning
  more than 5% of our common stock, (ii) each director, (iii) each
  executive officer named in the Summary Compensation Table and (iv) all
  executive officers and directors as a group. 
  Immediately following the merger, we had 22,700,634 shares of common
  stock issued and outstanding.  In
  determining the percent of common stock owned by a person, (a) the
  numerator is the number of shares of the class beneficially owned by such
  person, and (b) the denominator is the total shares of that class
  outstanding on April
  22
  , 2008. Unless otherwise stated, each beneficial owner has sole power
  to vote and dispose of the shares and the address of such person is c/o the
  Company, at Etelos, Inc., 1900 O'Farrell St., Suite 320, San Mateo,
  CA 94403.
  Name and Address of Beneficial Owner
  Amount and Nature of
  Beneficial Ownership
  Percentage of Class
  Beneficially Owned
  Officers and Directors
  Daniel J. A. Kolke
  5,107,547
  (1)
  7.4
  %
  Jeffrey L. Garon
  2,383,333
  (2)
  10.5
  %
  Ronald A. Rudy
  817,833
  (3)
  3.6
  %
  Gregory Ruff
  51,000
  (4)
  0.2
  %
  Ahmad Baitalmal
  240,654
  (5)
  1
  %
  Directors and Officers as a group
  8,600,367
  22.2
  %
  5% Stockholders (other than officers or
    directors)
  Enable Growth Partners LLP
  5,868,364
  (6)
  25.6
  %
  Don Morissette
  8,174,020
  36.0
  %
  Hudson Bay Fund LP
  1,363,636
  (7)
  6.0
  %
  (I) Consists of (i)1,600,629 shares of common stock, (ii) 3,433,333
  shares of common stock issuable upon exercise of options, (iii) 73,585 shares
  of common stock held by Mr. Kolke's spouse.
  (2) Mr. Garon's shares are under the terms of his employment agreement,
  subject to our right to repurchase the shares over a 36 month period from August
  2007.
  (3) Consists of (i) 807,833 shares of common stock, and (ii) 10,000
  shares of common stock issuable upon exercise of options.
  (4) Consists of (i) 41,000 shares of common stock, and (ii) 10,000
  shares of common stock issuable upon exercise of options.
  (5) Consists of (i) 211,321 shares of common stock and (ii) 29,333
  shares of common stock issuable upon exercise of options.
  (6) Does not include 3,407,407 shares of common stock acquirable upon
  the conversion of debentures and exercise of warrants held by the stockholder
  or its affiliates, all of which are subject to conversion or exercise caps.
  Pursuant to the terms of the debentures and warrants, the number of shares of
  common stock that may be acquired by the stockholder upon any conversion or
  exercise of such security is limited, to the extent necessary, to ensure that
  following such conversion or exercise, the number of shares of our common stock
  then beneficially owned by the stockholder and any other persons or entities
  whose beneficial ownership of common stock would be aggregated with the
  stockholder for purposes of the Exchange Act does not exceed 4.99% of the total
  number of shares of our common stock then outstanding.  Such cap may be increased to 9.99% by the
  stockholder upon 61 days notice, but may not be increased or waived thereafter.
  (7) Does not include 1,277,778 shares of common stock acquirable upon
  the conversion of debentures and exercise of warrants held by the stockholder
  or its affiliates, all of which are subject to conversion or exercise caps.
  Pursuant to the terms of the debentures and warrants, the number of shares of
  common stock that may be acquired by the stockholder upon any conversion or
  exercise of such security is limited, to the extent necessary, to ensure that
  following such conversion or exercise, the number of shares of our common stock
  then beneficially owned by the stockholder and any other persons or entities
  whose beneficial ownership of common stock would be aggregated with the
  stockholder for purposes of the Exchange Act does not exceed 4.99% of the total
  number of shares of our common stock then outstanding.  Such cap may be increased to 9.99% by the
  stockholder upon 61 days notice, but may not be increased or waived thereafter.
  As a result of the closing of the merger, the former
  shareholders of Etelos now own 78% of the total outstanding shares of our
  capital stock.  Reference is made to the
  disclosure set forth above under this Item 5.01 of this report, which
  disclosure is incorporated herein by reference.
  37
  DIRECTORS AND EXECUTIVE OFFICERS
  Immediately before the closing of the merger,
  Tripath had no directors or executive officers. 
  Dr. Adya Tripathi, who served as Tripath's chairman and chief
  executive officer since its inception in 1995, resigned shortly after Tripath
  filed its voluntary petition for relief under Chapter 11 of the Bankruptcy Code
  with the United States Bankruptcy Court for the Northern District of California
  on February 8, 2007.  Since that
  time until the effective time of the merger, Mr. Gary Sawka served as the
  Designated Responsible Individual for Debtor in Possession for Tripath.
  Set forth below is information regarding the
  directors and current executive officers immediately after the effective time
  of the merger.  Executive officers are
  elected annually by our board of directors. Each executive officer holds his
  office until he resigns or is removed by our board of directors or his
  successor is elected then qualified. 
  Directors are elected each year by our stockholders at the annual
  meeting. Each director holds his office until his successor is elected and qualified
  or resignation or removal.
  Name
  Position
  Age
  Daniel J. A.
    Kolke
  Chairman and
    Vice President & Chief Technology Officer
  37
  Jeffrey L.
    Garon
  Director and
    Chief Executive Officer
  47
  Ronald A.
    Rudy
  Director
  66
  Gregory Ruff
  Director
  54
  Daniel J. A. Kolke
  .
  Mr. Kolke founded Etelos in May 1999.  It is his vision and energy as the key
  architect that has driven development of the Etelos Ecosystem.  Currently, Mr. Kolke is a director and
  Vice President & Chief Technology Officer of Etelos.
  Jeffrey L. Garon
  .
  Jeffrey L. Garon joined Etelos in August 2007
  and currently serves on the board of directors and as its president and chief
  executive officer.  Before joining
  Etelos, from September 2006 until August 2007, Mr. Garon was
  Managing Director of investment banking responsible for all West Coast
  activities at Kaufman Bros., L.P.  From February 2005
  until October, 2006, Mr. Garon served as vice president and chief
  financial officer of Tripath.  From March 1998
  to March 2004 he served as vice president of finance and administration
  and chief financial officer of, and subsequently as a consultant to, Silicon
  Storage Technology, Inc.; and from February 1994 to March 1998, as
  president of The Garon Financial Group, Inc., a Silicon Valley venture capital
  and venture consulting firm; and from March 1993 to February 1994 as
  vice president and chief financial officer of Monster Cable Products, Inc.
  He is a graduate of California State University, Northridge and has an MBA in
  International Finance from Loyola Marymount University.
  Ronald A. Rudy
  .
  Ronald A. Rudy has been an independent investor and consultant to the mortgage
  industry since September, 2005; he has served on the board of directors since March 1,
  2006. He founded Portland Mortgage Company in 1983 and served as its President
  and CEO until it was acquired in 1994. Portland Mortgage Company was the
  largest independent Mortgage Banking Company in Oregon and Southwest
  Washington.
  Mr. Rudy served as President of the Oregon
  Mortgage Bankers Association in 1989 and as President of Oregon Executives in
  2003. Mr. Rudy served on the Board of Governors for The Mortgage Bankers
  Association from 1996-2003 and on the National Board of Directors of The
  Mortgage Bankers Association in 2003-2004. He also was president of the
  Portland Guadalajara Sisters Association in 2000 and a member of its board of
  directors from 1996-2001.
  38
  Gregory Ruff
  .
  Gregory Ruff is the founder of White Space Strategy, a consulting firm
  founded in 2007 to focus on innovation and new market creation; his book, "White
  Space" will be published mid 2008. He has served on the board of directors
  since March 1, 2006.  From 1996
  until 2007, he was the principal of G.L. Ruff & Company, a market
  change focused strategy-consulting firm based in San Francisco, CA and
  affiliated with Geoffrey Moore's Chasm Group.
  Mr. Ruff has been consulting to high tech
  companies since 1987 when he joined Booz, Allen and Hamilton as an engagement
  manager following a 13-year career in sales, marketing and management at
  Hewlett Packard. At Booz Allen, Mr. Ruff consulted to industry leaders in
  companies ranging from American Express to IBM and led teams that restructured
  markets and companies. In 1990, Mr. Ruff joined Regis McKenna Inc. to
  develop a new Market Strategy Consulting Practice and later became managing
  partner at Regis McKenna Inc.
  There are no family relationships among our
  directors or executive officers. To our knowledge, none of our directors and
  executive officers has been involved in any of the following proceeding during
  the past five years: (i) any bankruptcy petition filed by or against any
  business of which such person was a general partner or executive officer either
  at the time of the bankruptcy or within two years prior to that time; (ii) any
  conviction in a crimina proceeding or being subject to a pending criminal
  proceeding (excluding traffic violations and other minor offenses); (iii) being
  subject to any order, judgment, or decree, not subsequently reversed, suspended
  or vacated, of any court of competent jurisdiction, permanently or temporarily
  enjoining, barring, suspending or otherwise limiting his involvement in any
  type of business, securities or banking activities; or (iv) being found by
  a court of competent jurisdiction (in a civil action), the SEC or the Commodity
  Futures Trading Commission to have violated a federal or state securities or
  commodities law, and the judgment has not been reversed, suspended or vacated.
  EXECUTIVE COMPENSATION
  The following table sets forth all compensation
  awarded to, earned by, or paid by Etelos to its named executive officers during
  the years ended December 31, 2007 and 2006.
  Summary Compensation Table
  Name and Principal Position
  Year
  Salary
  ($)
  Bonus
  ($)
  Stock
  Awards
  (4) ($)
  Option
  Awards
  (5) ($)
  All Other
  Compensation
  ($)
  Total
  ($)
  Jeffrey L. Garon (1)
  2007
  $67,813
  0
  $121,550
  0
  0
  $189,363
  Chief Executive Officer
  2006
  0
  0
  0
  0
  0
  0
  Daniel J.A. Kolke (2)
  2007
  $127,158
  0
  0
  $182,100
  0
  $309,256
  Chief Technology Officer
  2006
  $104,000
  0
  0
  0
  0
  $104,000
  Ahmad Baitalmal (3)
  2007
  $138,065
  0
  0
  $1,879
  0
  $139,944
  Chief Technology Officer
  2006
  $70,633
  0
  0
  0
  0
  $70,633
  (I) Mr. Garon was appointed as president
  of chief executive officer of Etelos in August 2007.
  (2) Mr. Kolke served as our
  chief executive officer until Mr. Garon took such office in August 2007, Mr.
  Kolke currently serves as vice president of chief technology officer of Etelos.
  (3) Mr. Baitalmal served as our
  chief technology officer until Mr. Kolke took such office in August 2007. Mr.
  Baitalmal currently serves as Chief Product Architect of Etelos.
  (4) This represents the fair
  market value, as determined by independent appraisal, of 7,150,000 shares
  issued to Mr. Garon pursuant to his employment agreement.
  (5) Represents the amount
  recognized for financial statement reporting purposes for 2007 in respect of
  outstanding option awards in accordance with SFAS 123(R).  The assumptions made in valuing option awards
  reported in this column are discussed in "Note 3.  Summary of Significant Accounting Policies - Stock
  Based Compensation" and "Note 3.  Summary
  of Significant Accounting Policies - Share-Based Compensation Information under
  SFAS No.123(R)"and "Note 6.  Accounting
  for share-based compensation" to our financial statements included in this
  report.
  Under the
  terms of the agreement between Etelos and Mr. Garon regarding his employment as
  chief executive officer of Etelos, Mr. Garon is entitled to receive base salary
  in the amount of $175,000 payable in accordance with the company's payroll
  policies. In addition, in connection with his employment, on August 11, 2007,
  Etelos issued Mr. Garon a restricted stock award of 7,150,000 shares of common
  stock, of which 1,787,500 shares vested upon grant, another 1,787,500 shares
  vest on August 11, 2008 and the balance vests ratably during the 24 month
  period following August 11, 2008. If Mr. Garon's employment with Etelos is
  terminated for any reason, the unvested portion of the restricted stock award
  is forfeited.
  On August 11, 2007,
  Etelos granted Mr. Kolke an option to purchase up to 10,300,000 shares of
  common stock at an exercise price of $0.017 per share, of which 2,575,000
  options vested upon grant, 2,575,000 options vest on August 11, 2008, and the
  balance vest ratably during the 24 months following August 11, 2008. If not
  exercised, the option expires on August 11, 2017.
  39
  Outstanding Equity Awards at Fiscal Year End
  The following table sets forth information
  concerning unexercised options, stock that has not vested and equity incentive
  plan awards for each named executive officer outstanding as of December 31,
  2007:
  Outstanding Equity Awards at
  Fiscal Year-End
  Option Awards
  Stock Awards
  Name
  Number of
  Securities
  Underlying
  Unexercised
  Options
  (1)
  exercisable
  Number of
  Securities
  Underlying
  Unexercised
  Options
  (2)
  unexercisable
  Equity
  Incentive
  Plan
  Awards:
  Number of
  Securities
  Underlying
  Unexercised
  Unearned
  Opitions
  Option
  Exercise
  Price
  ($)
  Option
  Expiration
  Date
  Number
  of
  Shares
  or
  Units of
  Stock
  That
  Have Not
  Vested
  (3)
  Market
  Value of
  Shares
  or
  Units of
  Stock
  That
  Have Not
  Vested
  ($)
  Equity
  Incentive
  Plan
  Awards:
  Number
  of
  Unearned
  Shares,
  Units
  or Other
  Rights
  That
  Have Not
  Vested
  Equity
  Incentive
  Plan
  Awards:
  Market
  or
  Payout
  Value
  of
  Unearned
  Shares,
  Units
  or Other
  Rights
  That
  Have Not
  Vested
  ($)
  Jeffrey L. Garon
  —
  —
  —
  —
  —
  5,362,500
  91,163
  —
  —
  Daniel J.A.Kolke
  3,433,334
  6,866,666
  —
  0.017
  08-11-2017
  —
  —
  —
  —
  Ahmad Baitalmal
  333
  —
  —
  10.50
  09-27-2010
  —
  —
  —
  —
  Ahmad Baitalmal
  633
  —
  —
  10.50
  05-01-2010
  —
  —
  —
  —
  Ahmad Baitalmal
  —
  35,000
  —
  0.017
  11-07-2017
  —
  —
  —
  —
  (1) Consists of (i) the vested portion of options granted to
  Mr.Kolke pursuant to his employment agreement, and (ii) fully-vested options
  issued to Mr. Baitalmal.
  (2) Consists of the unvested portion of (i) options issued to Mr.
  Kolke pursuant to his employment agreement, which vest over 36 months from
  August 2007, and (ii) options issued to Mr. Baitalmal which vest over 48 months
  from November 7, 2007.
  (3) Consists of shares issued to Mr.
  Garon subject to repurchase by the Company
  pursuant to his employment agreement, which vest over 36 months from August,
  2007.
  Director Compensation
  During the fiscal year ended December 31, 2007,
  directors (except for Jeffrey L. Garon, for the period of his service as a
  director from August 2007 though December 2007) were paid $1,000 per
  month for attending regular and special meetings of our board of
  directors.  The table below sets forth
  the compensation the member of our board of directors received during the
  fiscal year ended December 31, 2007.
  Director Compensation
  Name
  Fees
  Earned or
  Paid in
  Cash ($)
  Option
  Awards ($)
  All Other
  Compensation (1)
  Total ($)
  Jeffrey
    L. Garon
  0
  0
  0
  0
  Daniel
    J.A. Kolke
  $
  12,000
  0
  0
  12,000
  Ronald A. Rudy
  $
  12,000
  0
  0
  12,000
  Gregory Ruff
  $
  12,000
  0
  42,574
  56,574
  Ahmad
    Baitalmal(2)
  $
  8,000
  0
  0
  8,000
  Michael
    Wise (3)
  $
  11,000
  0
  0
  11,000
  (1) Payment
  for Consulting Services performed by Mr. Ruff for Etelos and related
  expenses.
  (2) Mr. Baitalmal
  resigned from the Board in August 2007.
  (3) Mr. Wise
  resigned from the Board in December 2007.
  On March 5, 2008, our board of directors
  adopted a board compensation plan providing for (a) existing non-executive
  board members to receive options to acquire up to 10,000 split-adjusted shares
  of our common stock at an exercise price of $0.40 per share, which vest as to
  50% on the 12 month anniversary of the date of grant and the remaining 50% on
  the 24 month anniversary of the date of grant; (b) new non-executive board
  members to receive options to acquire up to 10,000 split-adjusted shares of our
  common stock at an exercise price equal to the fair market value of our common
  stock on the date of grant, which vest as to 50% on the 12 month anniversary of
  the date of grant and the remaining 50% on the 24 month anniversary of the date
  of grant; (c) all re-elected board members to receive, upon their
  re-election, options to acquire up to 10,000 split-adjusted shares of our
  common stock at an exercise price equal to the fair market value of our common
  stock on the date of grant, which vest as to 100% on the 12 month anniversary
  of the date of grant; and (d) a quarterly
  40
  payment of $1,500.00 to each
  non-executive member of the board for their expenses in connection with
  attendance at quarterly board meetings and periodic board committee meetings.
  We plan to enter into indemnification agreements
  with each of our directors (and our executive officers) on terms that we
  believe are reasonable and customary and comparable to those entered into by
  other publicly traded companies in the United States.
  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
  INDEPENDENCE
  Related Transactions
  Etelos previously entered into a series of loan
  transactions (collectively, the "
  Kolke
  Loans
  ") with the parents and two brothers of its chairman
  and chief technology officer , Mr. Daniel J.A. Kolke.  In connection with settlement of the Kolke
  Loans, the Company entered into three unsecured promissory notes in the
  aggregate principal amount of $815,827.42 which will become secured by certain
  presently unidentified assets of Etelos if and when Mr. Daniel J.A. Kolke
  is no longer neither an employee nor member of the
  board
  of directors of the company.
  Parent Companies
  We do not have a parent company.
  Director Independence
  Our board of directors currently consists of four
  members, Daniel J. A. Kolke, Jeffrey L. Garon, Ronald A. Rudy and Gregory
  Ruff.  Messrs. Rudy and Ruff are
  considered independent under the definition of independence established by the
  Nasdaq Stock Market.
  DESCRIPTION OF SECURITIES
  Our authorized capital stock consists of 360,000,000
  shares of common stock, no par value, and 240,000,000 shares of preferred
  stock, no par value. Our preferred stock may be issued from time to time in one
  or more series, each such series to consist of such number of shares and to
  have such terms, rights, powers and preferences as determined by our board of
  directors.  Our board of directors is
  authorized to determine and alter the rights, preferences and privileges
  granted to and imposed upon any wholly unissued series of preferred stock, and
  to fix the number of shares of any series of preferred stock and the
  designation of any such series of preferred stock. Our board of directors,
  within the limits and restrictions stated in any resolutions of our board of
  directors originally fixing the number of shares constituting any series, may
  increase or decrease (but not below the number of shares of such series then
  outstanding) the number of shares of any series subsequent to the issue of
  shares of that series.  The following
  summary is qualified in its entirety by reference to our amended and restated
  certificate of incorporation and bylaws, copies of which are filed as exhibits
  to our filings with the SEC and are incorporated herein by this reference.
  41
  Common Stock
  As of April 22, 2008, there were 22,700,634
  shares of common stock outstanding that were held of record by approximately 145
  stockholders. Holders of our common stock are entitled to one vote per share on
  all matters to be voted upon by the stockholders. In the event of our
  liquidation, dissolution, or winding up, holders of common stock are entitled
  to share ratably in all assets remaining after payment of liabilities. Our
  common stock has no preemptive, conversion, or other rights to subscribe for
  additional securities. There are no redemption or sinking fund provisions
  applicable to our common stock. The rights, preferences, and privileges of
  holders of common stock are subject to, and may be adversely affected by, the
  rights of the holders of shares of any series of preferred stock that we may
  designate and issue from time to time in the future.
  We have reserved 7,237,185 shares of common stock
  for issuance pursuant to the terms of our convertible debentures and warrants.
  Preferred Stock
  As of April 22, 2008, we had no shares of
  preferred stock issued or outstanding.
  MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
  COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
  Shares of Tripath common stock were quoted on the
  OTC Bulletin Board under the symbol "TRPH" from January 2006 to February 2007,
  at which time the common stock was de-listed from the OTC Bulletin Board.  Since then, the common stock has been trading
  on the Pink Sheets.
  In connection with the merger, a market maker has
  filed an application to have our common stock quoted on the OTC Bulletin Board,
  which is pending as of April 22, 2008. 
  The shares of Etelos, Incorporated have been privately held and never
  traded publicly. We cannot give any assurances as to when, if ever, our common
  stock will be quoted on the OTC Bulletin Board.
  The OTC Bulletin Board is a regulated quotation
  service that displays real-time quotes, last-sale prices and volume information
  in over-the-counter equity securities. 
  The OTC Bulletin Board securities are traded by a community of market
  makers that enter quotes and trade reports. 
  This market is extremely limited and any prices quoted may not be a
  reliable indication of the value of our common stock.
  Holders
  Immediately following the issuance of our common
  stock in connection with the
  merger,
  there were 68,138,900
  shares of common stock outstanding held by
  approximately 145 holders of record.
  Dividends
  Our board of directors has not declared a dividend
  on our common stock during the last two fiscal years or the subsequent interim
  period and we do not anticipate the payments of dividends in the near future as
  we intend to reinvest our profits to grow our business.
  42
  Securities Authorized for Issuance under Equity
  Compensation Plans
  The table below sets forth information as of December 31,
  2007, with respect to compensation plans under which Etelos common stock is
  authorized for issuance.  The figures
  related to equity compensation plans approved by security holders relate to
  options granted under the 1999 Stock Option Plan and the 2007 Stock Incentive
  Plan.  Etelos does not have any equity
  compensation plans not approved by its security holders.
  Plan
    Category
  Number of securities
  to be issued upon
  exercise of
  outstanding options,
  warrants and rights
  (a)
  Weighted-
  average
  exercise
  price of
  outstanding
  options,
  warrants and
  rights
  (b)
  Number of securities
  remaining available for
  future issuance under
  equity compensation
  plans (excluding
  securities reflected in
  column a)
  (c)
  Equity compensation plans approved by
    security holders
  27,256,373
  $
  0.108
  331,262
  LEGAL PROCEEDINGS
  In the course of business, the Company has been, and
  may continue to be, involved in various claims seeking monetary damages and
  other relief.  The amount of the ultimate
  liability, if any, from such claims cannot be determined. However, in the
  opinion of the Company's management, the ultimate liability for any legal
  claims currently pending against the Company will not have a material adverse
  affect on the Company's financial position, results of operations or cash
  flows.
  CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS
  As reported in our Current Report on Form 8-K
  filed on May 18, 2007, on March 2, 2007, Stonefield Josephson, Inc.,
  or Stonefield, Tripath's then independent registered public accounting firm, ceased
  its relationship with Tripath as a result of Tripath's failure to pay
  Stonefield's outstanding invoices.
  The audit reports of Stonefield on Tripath's
  consolidated financial statements as of September 30, 2007 and 2006 and
  for the period ended December 31, 2007 and the related consolidated
  statements of operations, stockholders' equity, and cash flows for the years
  ended September 30, 2007 and 2006, and the three month period ended December 31,
  2007, did not contain any adverse opinion or disclaimer of opinion, nor were
  they qualified or modified as to uncertainty, audit scope, or accounting
  principles.
  During the fiscal years ended September 30,
  2007 and 2006 and from October 1, 2006 to the date of Stonefield's
  cessation of its relationship with Tripath, there were no disagreements with
  Stonefield on any matter of accounting principles or practices, financial
  statement disclosure, or auditing scope or procedure, which if not resolved to
  Stonefield's satisfaction, would have caused it to make reference to the
  subject matter of the disagreement in connection with its reports. During the
  same period, there have been no reportable events, as that term is described in
  Item 304(a)(1)(iv) of Regulation S-K.
  Etelos engaged Stonefield as its independent
  registered public accounting firm in February 2008. In addition, Tripath
  engaged Stonefield as its independent registered public accounting firm in
  February 2008.
  RECENT SALES OF UNREGISTERED SECURITIES
  In April 2008, we entered into a securities
  purchase agreement with two institutional investors for the sale of 6%
  convertible debentures and common stock purchase warrants.  We issued in the aggregate $3.5 million face
  amount of debentures and warrants to purchase 1,166,667 shares of our common
  stock in exchange for net proceeds of $3.4 million after deducting fees and
  offering expenses.
  In January 2008, we entered into a securities
  purchase agreement with three institutional investors for the sale of 6%
  convertible debentures and common stock purchase warrants.  We issued in the aggregate $2.0 million face
  amount of debentures and warrants to purchase 222,222 shares of our common
  stock in exchange for net proceeds of $1.9 million after deducting fees and
  offering expenses.
  43
  During the period October 2006 to June 2007,
  we issued 20% convertible notes with a value of $850,000 (the "20% Notes"),
  together with warrants to purchase up to 850,000 shares of our common
  stock.  The warrants have an exercise
  price of $0.03 and a three year term.
  During the period from October 2007 to December
  2007, we issued 600,000 shares of common stock upon exercise of the warrants we
  issued with the 20% Notes.
  During the period August 2007 to October 2007,
  we issued 6% convertible notes at an original issue discount of 10% with a face
  value of $3,326,400, along with warrants to purchase up to 3,024,000 shares of
  our common stock.  The warrants have an
  exercise price of $0.40 and a five year term.
  During the period from October 2007 to December
  2007, we issued 1,929,000 shares of common stock upon exercise of the warrants
  we issued with the 6% Notes.
  Each of the transactions described above was exempt
  from registration under the Securities Act pursuant to Section 4(2) thereof
  and/or, with respect to the issuance of common stock upon exercise of warrants,
  Section 3(a)(9) thereof.  None
  of the transactions was conducted in connection with a public offering, and no
  public solicitation or advertisement was made or relied upon by the investor in
  connection with this offering, and, with respect to the issuance of common
  stock upon exercise of the warrants, shares of common stock were exchanged for
  outstanding warrants exclusively with the holder thereof and no commission or
  other remuneration was paid or given directly or indirectly for soliciting such
  exchange.
  INDEMNIFICATION OF DIRECTORS AND OFFICERS
  Pursuant to our articles of incorporation and
  bylaws, our officers and directors who may be made a party to any proceeding,
  including a law suit, because of his or her position, may be indemnified from
  personal liability. This indemnification includes payment of all costs, charges,
  and expenses, including amounts paid to settle an action or satisfy a judgment,
  actually and reasonably incurred in a civil, criminal or administrative
  proceeding. The indemnification is intended to be to the fullest extent
  permitted by law.
  Insofar as indemnification for liabilities arising
  under the Securities Act of 1933, as amended, may be permitted to our directors
  or officers pursuant to the foregoing provisions, we have been informed that,
  in the opinion of the SEC, such indemnification is against public policy as
  expressed in the Securities Act, and is, therefore, unenforceable.
  WHERE YOU CAN FIND MORE INFORMATION
  We have filed with the SEC, located on 100 F Street
  NE, Washington, D.C. 20549, Current Reports on Form 8-K, Quarterly Reports
  on Form 10-QSB, Annual Reports on Form 10-KSB, and other reports,
  statements and information as required under the Securities Exchange Act of
  1934, as amended.
  The reports, statements, and other information that
  we have filed with the SEC may be read and copied at the SEC's Public Reference
  Room at 100 F Street NE, Washington, D.C. 20549. The public may obtain
  information on the operation of the Public Reference Room by calling the
  SEC at 1-800-SEC-0330.
  The SEC maintains a web site (http://www.sec.gov.)
  that contains the registration statements, reports, proxy, and information
  statements and other information regarding registrants that file electronically
  with the SEC such as us. You may access our SEC filings electronically at this
  SEC website. These SEC filings are also available to the public from commercial
  document retrieval services.
  44
  ITEM 3.02             UNREGISTERED
  SALES OF EQUITY SECURITIES
  Pursuant to the order issued by the bankruptcy court
  in connection with the approval of the Plan of Reorganization, as of the
  effective date of the merger, Tripath issued 5,000,000 shares in the aggregate
  of its common stock to its secured creditors and 10,000 shares in the aggregate
  to its unsecured creditors.  The issuance
  of such shares of common stock was exempt from registration under the
  Securities Act of 1933 pursuant to Section 3(a)(7) thereof.
  In addition, in connection with the merger, Tripath
  issued 17,690,634 shares of its common stock in the aggregate to the holders of
  Etelos capital stock.  The issuance of
  such shares of common stock was exempt from registration under the Securities
  Act of 1933 pursuant to Section 4(2) thereof.  Such shares of common stock are restricted
  shares, and the holders thereof may not sell, transfer or otherwise dispose of
  such shares without registration under the Securities Act of 1933 or an
  exemption therefrom.
  Immediately following the closing of the merger,
  Tripath had 22,700,634 shares issued and outstanding, with the former
  stockholders of Etelos holding approximately 78% of such issued and outstanding
  shares.
  ITEM 5.01
  CHANGES IN CONTROL OF REGISTRANT
  Reference is made to the disclosure set forth under
  Items 2.01 and 3.02 of this report, which disclosure is incorporated herein by
  reference.
  In connection with the merger, there was a change of
  control of Tripath as result of the issuance of 22,700,634 shares of Tripath
  common stock, which represented 78% of outstanding common stock immediately
  following such issuance.  In addition,
  the following individuals were appointed to the Tripath board of directors
  effective as of April 22, 2008, none of whom were on the Tripath board of
  directors immediately before the merger: Daniel J. A. Kolke, Jeffrey L. Garon,
  Ronald A. Rudy and Gregory Ruff.
  ITEM 5.02
  DEPARTURE OF DIRECTORS OR
  PRINCIPAL OFFICERS; ELECTION OF DIRECTORS; APPOINTMENT OF PRINCIPAL OFFICERS
  Reference is made to the disclosure set forth under
  Item 2.01 of this report, which disclosure is incorporated herein by reference.
  Upon the closing of the merger, Gary Sawka, who had
  been serving as the Designated Responsible Individual for Debtor in Possession,
  resigned from such position effective April 22, 2008.
  Effective as of April 22, 2008, we appointed (i) Jeffrey
  L. Garon as our President and Chief Executive Officer; (ii) Daniel J. A.
  Kolke as Vice President & Chief Technology Officer, (iii) David S.G.
  MacKenzie as our Vice President & Chief Financial Officer and Chief
  Accounting Officer, and (iv) Kennedy A. Brooks as Vice President &
  General Counsel and Secretary.
  Effective as of April 22, 2008, in connection
  with the closing of the merger, Daniel J. A. Kolke, Jeffrey L. Garon, Ronald A.
  Rudy, and Gregory Ruff were each appointed to our board of directors.
  For certain biographical and other information
  regarding the newly appointed officers and directors, see the disclosure under
  Item 2.01 of this report, which disclosure is incorporated herein by reference.
  45
  ITEM 5.06             CHANGE IN
  SHELL COMPANY STATUS
  As a result of our acquisition of Etelos, as
  described in Item 2.01, which description is in its entirety incorporated by reference
  in this Item 5.06, Tripath ceased being a shell company as such term is defined
  in Rule 12b-2 under the Exchange Act.
  ITEM 9.01             FINANCIAL STATEMENTS AND EXHIBITS
  (a) Financial Statements of Business Acquired
  Appended to this report are the audited financial
  statements of Etelos, Incorporated for the fiscal years ended December 31,
  2006 and December 31, 2007.
  (b) Pro Forma Financial Information
  Pro forma
  income statements are not presented in this filing because Tripath had no
  operating transactions during the previous year. All assets and liabilities of Tripath
  were transferred to a separate bankruptcy estate and were not part of the
  merger.
  (d) Exhibits
  Exhibit
  No.
  Description
  2.1
  Plan
    Proponents' Third Amended Plan of Reorganization for the Debtor dated
    December 20, 2007
  2.2
  Agreement
    and Plan of Merger dated April 22, 2008 between Tripath Technology Inc.
    and Etelos, Incorporated
  3.1
  Amended
    and Restated Certificate of Incorporation of Tripath Technology Inc.
  3.2
  Bylaws
    of Etelos, Inc.
  4.1
  Form of
    common stock purchase warrant issued in connection with the January 2008
    financing
  4.2
  Form of
    original issue discount 6.0% senior secured convertible debenture issued in
    connection with the January 2008 financing
  10.1
  Loan
    and Security Agreement by and among Etelos, Incorporated and Bridge Bank,
    National Association dated October 5, 2007
  10.2
  The
    anti-dilution agreement entered between Etelos, Incorporated and each of Don
    Morissette and Ronald A. Rudy, as amended, dated March 6, 2008
  10.3
  Settlement
    Agreement and General Release of Claims dated December 30, 2007, among
    (i) Etelos, Incorporated, (ii) Robyn and Daniel J.A. Kolke,
    (iii) Selma and Daniel A. Kolke, (iv) Kristin and Desmond D.
    Kolke,, and (v) Crystal and Raymond D. Kolke
  10.4
  Promissory
    Note dated December 30, 2007 issued to Selma and Daniel A. Kolke
  10.5
  Promissory
    Note dated December 30, 2007 issued to Daniel J.A. Kolke
  10.6
  Promissory
    Note dated December 30, 2007 issued to Desmond D. Kolke
  10.7
  Securities
    Purchase Agreement by and among Etelos, Incorporated and the purchasers
    identified therein dated as of January 31, 2008
  10.8
  Registration
    Rights Agreement by and among Etelos, Incorporated and the purchasers
    identified therein dated as of January 31, 2008
  10.9
  Security
    Agreement dated as of January 31, 2008 by and among Etelos, Incorporated
    and the holders of the original issue discount 6.0% senior secured
    convertible debentures issued in connection with the January 2008
    financing
  46
  SIGNATURE
  Pursuant
  to the requirement of the Securities Exchange Act of 1934, the registrant has
  duly caused this report to be signed on its behalf by the undersigned there
  unto duly authorized.
  Etelos, Inc.
  Registrant
  April 22,
    2008
  By:
  /s/ Jeffrey L. Garon
  Jeffrey L. Garon Chief Executive Officer
  As Principal Executive Officer
  and on behalf of Registrant
  47
  FINANCIAL
  STATEMENTS
  Page
  Accountants Report
  F-2
  Balance Sheet for the years
    ended December 31, 2006 and 2007
  F-3
  Statement
    of Operations for the years ended December 31, 2006 and 2007
  F-4
  Statement of Stockholders' Deficit for the years ended
    December 31, 2006 and 2007
  F-5
  Statement
    of Cash Flows for the years ended December 31, 2006 and 2007
  F-6
  Notes
    to Financial Statements for the years ended December 31, 2006 and 2007
  F-7
  F-1
  Report of
  Independent Registered Public Accounting Firm
  Board of Directors
  Etelos, Incorporated
  San Mateo, California
  We have audited the accompanying balance sheets of Etelos, Incorporated
  ("the Company") as of December 31, 2007 and 2006, and the related
  statements of operations, stockholders' deficit, and cash flows for each of the
  two years ended December 31, 2007. These financial statements are the
  responsibility of the Company's management. Our responsibility is to express an
  opinion on these financial statements based on our audits.
  We conducted our audits in accordance with the standards of the Public
  Company Accounting Oversight Board (United States). Those standards require
  that we plan and perform the audit to obtain reasonable assurance about whether
  the financial statements are free of material misstatement. We were not engaged
  to perform an audit of the Company's internal control over financial reporting.
  Our audit included consideration of internal control over financial reporting
  as a basis for designing audit procedures that are appropriate in the
  circumstances, but not for the purpose of expressing and opinion of the
  effectiveness of the Company's internal control over financial reporting.
  Accordingly, we express no such opinion. An audit also includes examining, on a
  test basis, evidence supporting the amounts and disclosures in the financial
  statements, assessing the accounting principles used and significant estimates
  made by management, as well as evaluating the overall financial statement
  presentation. We believe that our audits provide a reasonable basis for our
  opinion.
  In our opinion, the financial statements referred to above present
  fairly, in all material respects, the financial position of Etelos,
  Incorporated as of December 31, 2007 and 2006, and the results of its
  operations and cash flows for each of the two years ended December 31, 2007 in
  conformity with accounting principles generally accepted in the United States
  of America.
  The accompanying financial statements have been prepared assuming that
  the Company will continue as a going concern. As discussed in Note 3 to the
  financial statements, the Company has experienced recurring losses, which raise
  substantial doubt about the Company's ability to continue as a going concern.
  Management's plans in regards to these matters are also discussed in Note 3.
  The financial statements do not include any adjustments relating to the
  recoverability and classification of asset carrying amounts or the amount and
  classification of liabilities that might arise should the Company be unable to
  continue as a going concern.
  /s/ Stonefield
  Josephson, Inc.
  San Francisco, California
  April 22, 2008
  F-2
  ETELOS, INCORPORATED
  BALANCE SHEETS
  (in
  thousands)
  Years Ended December 31,
  2007
  2006
  ASSETS
  Current assets:
  Cash and cash equivalents
  $
  928
  $
  15
  Accounts receivable
  —
  11
  Prepaid expenses
  21
  70
  Total current assets
  949
  96
  Property and equipment, net
  50
  24
  Other assets
  41
  —
  Total
    assets
  $
  1,040
  $
  120
  LIABILITIES
    AND STOCKHOLDERS' DEFICIT
  Current liabilities:
  Accounts payable
  $
  249
  $
  214
  Accounts payable related parties
  56
  9
  Accrued payroll and related expenses
  514
  133
  Other accrued expenses
  236
  53
  Deferred revenues
  8
  10
  Line of credit
  —
  450
  Current portion notes payable, net of
    discounts
  3,166
  552
  Current portion notes payable to related
    parties
  187
  766
  Current portion capital leases
  16
  8
  Total current liabilities
  4,431
  2,195
  Long-term notes payable, net of discounts
  889
  —
  Long-term notes payable to related parties
  629
  —
  Long-term capital leases
  36
  16
  Total liabilities
  5,985
  2,211
  Commitments and contingencies
  Stockholders' deficit:
  Preferred stock, $0.00 par value:
    240,000,000 shares authorized with liquidation preferences
  Series A: 12,500,000 shares authorized;
    66,500 shares issued and outstanding
  665
  665
  Series B: 22,500,000 shares
    authorized; 120,000 shares issued and outstanding
  2,400
  2,400
  Series C: 60,000,000 shares
    authorized; 4,447,812 shares issued and outstanding
  568
  568
  Common stock: $0.00 par value,
    360,000,000 shares authorized;
  Issued and outstanding - 20,373,938 in 2007
    and 10,504,938 in 2006
  1,758
  754
  Additional paid in capital
  97
  —
  Accumulated deficit
  (10,434
  )
  (6,478
  )
  Total stockholders' deficit
  (4,946
  )
  (2,091
  )
  Total
    liabilities and stockholders' deficit
  $
  1,040
  $
  120
  The accompanying notes form an integral part
  of theses financial statements
  F-3
  ETELOS, INCORPORATED
  STATEMENTS OF OPERATIONS
  (in thousands,
  except per share data)
  Years Ended December 31,
  2007
  2006
  Revenues
  $
  304
  $
  316
  Cost of goods sold
  315
  130
  Gross profit
  (11
  )
  186
  Operating expenses:
  Research and development
  1,954
  811
  Sales and marketing
  812
  337
  General and administrative
  923
  383
  Total operating expenses
  3,689
  1,531
  Loss from operations
  (3,700
  )
  (1,345
  )
  Interest expense, net
  362
  97
  Other expense / (Income)
  (106
  )
  20
  Loss before income tax benefit
  (3,956
  )
  (1,462
  )
  Income tax benefit
  —
  —
  Net loss
  $
  (3,956
  )
  $
  (1,514
  )
  Basic and diluted net loss per share
  (0.29
  )
  (0.14
  )
  Shares used in computing basic and diluted net loss per share
  13,721
  10,505
  The
  accompanying notes form an integral part of theses financial statements
  F-4
  ETELOS,
  INCORPORATED
  STATEMENTS OF STOCKHOLDERS'
  DEFICIT
  (in
  thousands, except share data)
  Preferred Stock
  Total
  Series A
  Series B
  Series C
  Common Stock
  Additional Paid
  Accumulated
  Stockholders'
  Shares
  Amount
  Shares
  Amount
  Shares
  Amount
  Shares
  Amount
  in Capital
  Deficit
  Equity
  Balance at December 31, 2005
  66,500
  665
  120,000
  2,400
  4,447,812
  568
  10,504,938
  754
  —
  (5,016
  )
  (629
  )
  Net loss
  —
  —
  —
  —
  —
  —
  —
  —
  —
  (1,462
  )
  (1,462
  )
  Balance at December 31, 2006
  66,500
  665
  120,000
  2,400
  4,447,812
  568
  10,504,938
  754
  —
  (6,478
  )
  (2,091
  )
  Issuance of common stock for investment bank fees
  —
  —
  —
  —
  —
  —
  90,000
  90
  —
  —
  90
  Issuance of common stock for warrants exercised
  —
  —
  —
  —
  —
  —
  2,629,000
  793
  —
  —
  793
  Issuance of common stock for officer's service
  —
  —
  —
  —
  —
  —
  7,150,000
  121
  —
  —
  121
  Stock based compensation
  —
  —
  —
  —
  —
  —
  —
  —
  27
  —
  27
  Issurance of options for note settlement
  —
  —
  —
  —
  —
  —
  —
  —
  65
  —
  65
  Issurance of warrants for financing agreement
  —
  —
  —
  —
  —
  —
  —
  —
  5
  —
  5
  Net loss
  —
  —
  —
  —
  —
  —
  —
  —
  —
  (3,956
  )
  (3,956
  )
  Balance at December 31, 2007
  66,500
  $
  665
  120,000
  $
  2,400
  4,447,812
  $
  568
  20,373,938
  $
  1,758
  $
  97
  $
  (10,434
  )
  $
  (4,946
  )
  The accompanying notes form
  an integral part of theses financial statements
  F-5
  ETELOS,
  INCORPORATED
  STATEMENTS OF CASH FLOWS
  (in
  thousands)
  Year Ended December 31,
  2007
  2006
  Cash flows from operating activities:
  Net loss
  $
  (3,956
  )
  $
  (1,462
  )
  Adjustments to reconcile net loss to net cash provided by (used in)
    operating activities:
  Depreciation and amortization
  18
  3
  Gain on settlement of debt
  (106
  )
  —
  Issuance of stock for bank fees
  90
  —
  Amortization of notes discount
  80
  —
  Issuance of warrants for financing agreement
  5
  —
  Stock based compensation
  148
  —
  Changes in operating assets and liabilities:
  Accounts receivable, net
  11
  349
  Prepaid expenses and other current assets
  49
  (61
  )
  Other assets
  (41
  )
  —
  Accounts payable
  35
  32
  Accrued payables related parties
  47
  9
  Accrued payroll and related expenses
  381
  77
  Other accrued expenses
  183
  53
  Deferred revenues
  (2
  )
  (2
  )
  Net cash used in operating activities
  (3,060
  )
  (1,002
  )
  Cash flows from financing activities:
  Proceeds from notes payable
  3,624
  386
  Payment of notes payable
  (30
  )
  —
  Proceeds from notes payable to related parties
  50
  182
  Payment on capital lease
  (14
  )
  (3
  )
  Net change in line of credit
  (450
  )
  450
  Proceeds from issuance of common stock
  793
  —
  Net cash provided by financing activities
  3,973
  1,015
  Net increase in cash and cash equivalents
  913
  13
  Cash and cash equivalents at beginning of year
  15
  2
  Cash and cash equivalents at end of year
  928
  15
  Supplemental disclosures of cash flow
    information:
  Cash paid for income taxes
  —
  —
  Cash paid for interest
  —
  —
  Supplemental disclosures of non-cash financing
    activities:
  Acquisition of equipment under Capital Leases
  42
  27
  Issuance of notes for a discount
  302
  —
  Settlement of notes payable for warrants
  65
  —
  The accompanying notes form an integral part of theses
  financial statements
  F-6
  Etelos, Incorporated
  Notes to Financial Statements
  For the Fiscal Years Ended December 31, 2006 and 2007
  1. Organization
  The Company was incorporated in the State of
  Washington on May 6, 1999. Etelos is a leading provider of software
  productivity solutions that assist organizations to effectively use Web
  Applications.  Etelos provides a
  revolutionary Software-as-a-Service ecosystem for building, distributing and
  using Web Applications, including a marketplace to deploy and support them;
  giving businesses choices in applications, hosting and support services to cost
  effectively accomplish their goals.
  2. Basis of Presentation
  The financial statements included herein have been
  prepared by Etelos, Incorporated (the "Company"), in accordance with accounting
  principles generally accepted in the United States and reflect all adjustments,
  consisting of normal recurring adjustments, which in the opinion of management
  are necessary to state fairly the Company's financial position, results of
  operations, and cash flows for the periods presented.
  The preparation of financial statements in
  conformity with accounting principles generally accepted in the United States
  requires management to make estimates and assumptions that affect the reported
  amounts of assets and liabilities and disclosure of contingent assets and
  liabilities at the date of the financial statements and reported amounts of
  revenues and expenses during the reporting period. Actual results could differ
  from those estimates, and such differences could affect the results of
  operations reported in future periods and such differences could be material.
  3. Going Concern
  The
  financial statements have been prepared by Etelos, Incorporated assuming that
  the Company will continue as a going concern. The Company has experienced
  recurring losses, which raise substantial doubt the Company's ability to
  continue as a going concern. The financial statements do not include any
  adjustments relating to the recoverability and classification of asset carrying
  amounts or the amount and classification of liabilities that might arise should
  the Company be unable to continue as a going concern.
  4. Summary of Significant Accounting Policies
  Cash and Cash Equivalents
  Investment securities with maturity of ninety days
  or less at the time of purchase are considered cash equivalents.
  Accounts Receivable
  Accounts receivable are recorded at the invoiced
  amount and generally do not bear interest. Amounts collected on trade accounts
  receivable are included in net cash provided by operating activities in the
  statements of cash flows.
  Allowance
  for Doubtful Accounts
  The Company provides, when appropriate, an allowance
  for doubtful accounts to ensure trade receivables are not overstated due to
  un-collectibility. The collectibility of the Company's receivables is evaluated
  based on a variety of factors, including the length of time receivables are
  past due, indication of the customer's willingness to pay, significant one-time
  events, and historical experience. As of December 31, 2007 and 2006 there
  was no allowance for doubtful accounts.
  Deferred Revenue
  Deferred revenue represents money received or
  promised but not recognized as revenue because the work has not been completed
  or the software subscription has been fully delivered, and therefore is
  deferred until the work is completed or the software subscription is fully
  delivered when it is then transferred to the appropriate revenue account.   The Company does not have a concentration of
  risk in any one account as subscriptions tend to be subscribed to by many
  individual subscribers as compared to a small number of large enterprises.
  F-7
  Property and Equipment
  Property, furniture, equipment, and leasehold
  improvements are stated at historical cost less accumulated depreciation and
  amortization. Depreciation and amortization are computed on a straight-line
  basis over the estimated useful lives of the assets, which the Company
  currently believes are three to five years. Fixed assets is composed of
  computer equipment with accumulated depreciation of approximately $3 thousand
  and $20 thousand as of December 31, 2006 and 2007, respectively.
  Fair Value of Financial Instruments
  The Company's balance sheet includes the following
  financial instruments: cash, accounts receivable, accounts payable, and accrued
  liabilities. The Company considers the carrying amount of working capital items
  to approximate the fair value for these financial instruments because of the
  relatively short period of time between origination of the instruments and
  their expected realization.
  Internal Use Software
  The Company capitalizes internally developed
  software costs in accordance with the Statement of Position 98-1, "
  Accounting for Costs of Computer Software Developed or Obtained for
  Internal Use
  " ("SOP 98-1"). 
  The Company also capitalizes software development costs in accordance
  with SFAS NO. 86, "
  Accounting for Costs of
  Computer Software to be Sold, Leased or Otherwise Marketed
  " under
  which certain software development costs incurred subsequent to the
  establishment of the technological feasibility may be capitalized and amortized
  over the estimated useful lie of the related products.   The intangible asset costs, if any, are
  amortized on a straight-line basis over the estimated useful life of the
  software, once it is a variable for its intended use.  The Company had fully amortized all
  internally developed software costs as of December 31, 2005. No
  expenditures during the years ending December 31, 2006 and 2007 qualified
  for capitalization.
  Revenue Recognition
  Revenues
  are recognized on licensing transactions and product sales using the criteria
  in Securities and Exchange Commission Staff Accounting Bulletin 104, "
  Revenue Recognition in Financial Statements
  " (SAB 104).  For revenue transactions that involve
  software or software related products, we recognize revenue under the guidance
  established by Statement of Position No. 97-2,
  Software
  Revenue Recognition
  (SOP 97-2). 
  Both SAB 104 and SOP 97-2 state that revenue must be recognized when
  persuasive evidence of an arrangement exists, delivery of the product or
  performance of the service has occurred, no significant company obligations
  with regard to implementation or integration exist, the fee is fixed or
  determinable and collectability is reasonably assured.  Arrangements for which the fees are not
  deemed reasonably assured for collection are recognized upon cash collection.
  The Company provides Web Applications as a
  subscription service using the Software-as-a-Service (SaaS) or
  software-on-demand business model. 
  Revenues from subscriptions are generally collected and recognized in
  the period invoiced.  However, should the
  subscription collected upon be for more than one period in advance, the revenue
  is deferred and recognized ratably over the number of excess periods reflected
  by the advance payment.
  Research and Development
  Research and development expenses consist primarily
  of salaries, payroll taxes, benefits, and related expenditures for technology,
  software development, project management, and support personnel. Costs related
  to the development of new products and enhancements to existing products are
  expensed as incurred.
  F-8
  Stock Based Compensation
  On January 1, 2006, the Company adopted
  SFAS No. 123 (revised 2004), "
  Share-Based Payment
  "
  ("FAS 123R"), that addresses the accounting for share-based payment
  transactions in which an enterprise receives employee services in exchange for
  equity instruments of the enterprise. The statement eliminates the ability to
  account for share-based compensation transactions, as the Company formerly did,
  using the intrinsic value method as prescribed by Accounting Principles Board
  ("APB") Opinion No. 25,  "
  Accounting for Stock Issued to Employees,
  " and generally
  requires that such transactions be accounted for using a fair-value-based
  method and recognized as expense in its consolidated statements of operations.
  Under SFAS 123(R), the Company is required to select
  a valuation technique or option-pricing model that meets the criteria as stated
  in the standard, which includes a lattice model and the Black-Scholes Merton
  model. For all new stock based compensation awards granted starting January 1,
  2006, and for any modification, cancellation, or repurchase of awards granted
  prior to January 1, 2006, the Company recorded compensation cost in the
  statement of operations based on the fair value of the award for the requisite
  service period. The Company adopted the Black-Scholes Merton model. The
  adoption of SFAS 123(R), applying the "modified prospective method," as elected
  by the Company, requires the Company to value stock options as of January 1,
  2006, the first day of the Company's fiscal year 2006. SFAS 123(R) requires
  the Company to estimate forfeitures in calculating the expense relating to
  share-based compensation as opposed to only recognizing these forfeitures and
  the corresponding reduction in expense as they occur. This resulted in the
  Company expensing $27 thousand in fiscal 2007 and a total of $0 for fiscal
  2006. As of December 31, 2007, total unrecognized compensation costs
  related to unvested stock options was $633 thousand, which is expected to be
  recognized as an expense over a weighted average period of approximately 7
  years. The Company adjusted for this cumulative effect and recognized an
  increase in stock-based compensation, which was recorded within the research &
  development; sales and marketing; and general and administrative expense on the
  Company's statements of operations.
  SFAS 123(R) requires the cash flows resulting
  from the tax benefits resulting from tax deductions in excess of the
  compensation cost recognized for those options to be classified as financing
  cash flows. Due to the Company's loss position, there were no such tax benefits
  during the years ended December 31, 2007 and 2006. Prior to the adoption
  of SFAS 123(R), those benefits would have been reported as operating cash flows
  had the Company received any tax benefits related to stock option exercises.
  Share-Based Compensation Information under SFAS No. 123(R)
  The weighted-average fair value of stock-based
  compensation is based on the single option valuation approach and is estimated
  on the date of grant using a Black Scholes Merton based option valuation model.
  The fair value of forfeitures is an estimate and no dividends have been
  declared. The fair value of options granted during the year ended December 31,
  2007, were calculated based on the following assumptions (annualized
  percentages):
  Year Ended
  December 31,
  2007
  Estimated fair value
  0.017
  Expected lives (in years)
  7
  Volatility
  55
  %
  Risk-free interest rate
  4.2
  %
  Dividend yield
  0
  %
  F-9
  The Company used implied volatility of market-traded
  options for the expected volatility assumption input to the Black- Scholes
  Merton model. The risk-free interest rate assumption is based upon the US
  Treasury yield curve in effect at the time of the grant. The Company historically
  has not declared dividends and therefore the dividend yield was assumed to be
  zero in the model.
  Income Taxes
  The Company accounts for income taxes in accordance
  with SFAS No. 109, "
  Accounting for Income
  Taxes
  " which utilizes the liability method of accounting for income
  taxes. Deferred tax assets and liabilities are recognized for the future tax
  consequences attributable to differences between the financial statement
  carrying amount of existing assets and liabilities and their respective tax bases.
  Deferred tax assets and liabilities are measured using enacted tax rates
  expected to apply to taxable income in the years in which those temporary
  differences are expected to be recovered or settled. Valuation allowances are
  established when necessary to reduce deferred tax assets to the amounts
  expected to be realized.
  Net Loss per Share
  Basic net loss per share is computed by dividing the
  net loss available to common stockholders for the period by the weighted
  average number of common stock outstanding during the period. Diluted net loss
  per share is computed based on the weighted average number of common stock and
  dilutive potential common stock outstanding. The calculation of diluted net
  loss per share excludes potential common stock if the effect is anti-dilutive.
  Potential common stock consists of incremental common stock issuable upon the
  exercise of stock options, shares issuable upon conversion of convertible
  preferred stock, common stock issuable upon the exercise of common stock
  warrants, and common stock issuable upon the conversion of convertible
  debentures.
  The following table sets forth the computation of
  basic and diluted net loss per share for the periods presented (in thousands,
  except per share amounts):
  For the fiscal year ended
  December 31,
  2007
  2006
  Numerator:
  Net loss
  $
  (3,956
  )
  $
  (1,462
  )
  Denominator:
  Weighted average common stock
  13,721
  10,505
  Net loss per share:
  Basic and diluted
  $
  (0.29
  )
  $
  (0.14
  )
  Use of Estimates
  The preparation of the financial statements in
  conformity with accounting principles generally accepted in the United States
  requires management to make estimates and assumptions that affect the reported
  amounts of assets and liabilities, the disclosure of contingent assets and
  liabilities at the date of the financial statements and the reported amounts of
  revenues and expenses during the reporting period. Actual results could differ
  from those estimates.
  F-10
  Segment Reporting
  The Company has one operating segment because the
  Company is not organized into multiple segments for the purpose of making
  operating decisions or for assessing performance. The chief operating decision
  maker evaluates performance, makes operating decisions, and allocates resources
  based on financial data consistent with the presentation in the accompanying
  financial statements.
  5. Recently Issued Accounting Standards
  In June 2006, the Financial Accounting Standards
  Board (FASB) issued FASB Interpretation (FIN) No. 48, "
  Accounting for Uncertainty in Income Taxes,
  " which
  supplements Statement of Financial Accounting Standard No. 109, "
  Accounting for Income Taxes,
  " by defining the confidence
  level that a tax position must meet in order to be recognized in the financial
  statements. FIN 48 requires the tax effect of a position to be recognized only
  if it is "more-likely-than-not" to be sustained based solely on its technical
  merits as of the reporting date. If a tax position is not considered
  more-likely-than-not to be sustained based solely on its technical merits, then
  no benefits of the position are recognized. If the tax position is considered
  more likely than not to be sustained, then the amount to record is measured at
  the largest amount of benefit that is grater than 50% likely of being realized
  upon ultimate settlement. This is a different standard for recognition than was
  previously required. The more-likely-than-not threshold must continue to be met
  in each reporting period to support continued recognition of a benefit. At
  adoption, companies must adjust their financial statements to reflect only
  those tax positions that are more-likely-than-not to be sustained as of the
  adoption date. Any necessary adjustment is recorded directly to opening
  retained earnings in the period of adoption and reported as a change in
  accounting principle. The Company has not yet adopted FIN 48 but does not expect
  it to have a material impact.
  In September 2006, the Securities and Exchange
  Commission published Staff Accounting Bulletin No. 108, "
  Considering the Effects of Prior Year Misstatements when Quantifying
  Misstatements in Current Year Financial Statements
  " (SAB 108). The
  interpretations in SAB 108 are being issued to address diversity in practice in
  quantifying financial statement misstatements and the potential under current
  practice to build up improper amounts on the balance sheet. This guidance
  applies to fiscal years ending after November 15, 2006 and early
  application in interim periods is encouraged. The adoption of SAB 108 did not
  have an effect on the Company's financial statements.
  In September 2006, the FASB issued SFAS No. 157
  ("FAS 157"), "
  Fair Value Measurements,
  "
  which defines fair value, establishes guidelines for measuring fair value, and
  expands disclosures regarding fair value measurements. FAS 157 does not
  require any new fair value measurements but rather eliminates inconsistencies
  in guidance found in various prior accounting pronouncements. FAS 157 is
  effective for fiscal years beginning after November 15, 2007. Earlier
  adoption is permitted, provided the company has not yet issued financial
  statements, including for interim periods, for that fiscal year. The Company
  are currently evaluating the impact of FAS 157, but do not expect the
  adoption of FAS 157 to have a material impact on the financial position,
  results of operations, or cash flows.
  In February 2007, the FASB issued SFAS No. 159,
  "
  The Fair Value Option for Financial Assets and
  Financial Liabilities,
  " which permits entities to choose to measure
  many financial assets and financial liabilities at fair value. Unrealized gains
  and losses on items for which the fair value option has been elected are
  reported in earnings. SFAS 159 is effective for fiscal years beginning after November 15,
  2007. The Company does not expect the adoption of FAS 159 to have a material
  impact.
  F-11
  6. Stock Option Plans
  On November 1, 1999, the Company adopted the
  1999 Stock Option Plan (the "1999 Plan") and on November 11, 2007, adopted
  the 2007 Stock Incentive Plan (the "2007 Plan").  Both are incentive plans for employees,
  directors, consultants, agents, and independent contractors and are
  administered by the Board of Directors, which was authorized to grant incentive
  stock options ("ISOs") and non-statutory stock options ("NSOs") to employees,
  directors, and consultants for up to 5,000,000 shares of common stock under the
  1999 Plan and 4,843,250 under the 2007 Plan. 
  ISOs may be granted only to employees of the Company (including officers
  and directors who are also employees). NSOs may be granted to employees,
  non-employee directors, and consultants of the Company.  Under the 2007 Plan, upon the first date that
  the Company is publicly held, no employee of the Company will be eligible to be
  granted options covering more than 500,000 shares of common stock during any
  calendar year.
  Upon adoption of the 2007 Plan, 165,000 options
  which had been granted under the 1999 Plan and shares reserved for issuance
  under the 1999 Stock Option Plan relating to un-granted options were
  cancelled.  Under the 2007 Plan, ISOs and
  NSOs are granted at a price that is not to be less than 100 percent of the fair
  market value of the common stock on the date of grant, as determined by the
  Board of Directors. Generally, the options granted to new employees under the
  2007 Plan vest over a period of 4 years with 25 percent vesting on the first
  anniversary date from the date of grant and then monthly thereafter over the
  remaining 36 months. Subsequent discretionary stock options, generally vest
  equally each month over 48 months. Options granted to shareholders who own more
  than 10 percent of the outstanding stock of the Company at the time of grant
  must be issued at prices not less than 110 percent of the estimated fair value
  of the stock on the date of grant. Options under the 2007 Plan may be granted
  for exercise periods up to 10 years.
  7. Accounting for share-based compensation
  The following table summarizes stock option activity
  under the Company's stock option plans (in thousands, except per share data):
  Options
  Shares
  Weighted Average
  Exercise Price Per
  Share
  Weighted Average
  Remaining
  Contractual Life
  Aggregate
  Intrinsic Value
  Outstanding at December 31, 2006
  204,000
  $
  0.30
  8.0
  $
  60.4
  Granted
  16,321,261
  $
  0.34
  Exercised
  (15
  )
  $
  0.38
  Canceled
  (433
  )
  $
  0.37
  Vested and expected to vest at December 31, 2007
  10,435,000
  $
  0.38
  9.5
  $
  3,970,700
  Exercisable at December 31, 2007
  10,435,000
  $
  0.38
  9.3
  $
  3,970,700
  F-12
  Share based compensation expense attributable to
  individuals that worked in the following functions is as follows (in
  thousands):
  Fiscal Year
  Ended December 31,
  2007
  Fiscal Year
  Ended December 31,
  2006
  Research and development
  $
  50
  $
  —
  Selling and marketing
  22
  —
  General and administrative
  25
  —
  Total share-based compensation
  $
  97
  $
  —
  Total cash received as a result of options exercised
  during the fiscal year ended December 31, 2007 was $0.00. There were no
  equity instruments granted under share-based payment arrangements and therefore
  there was no cash used to settle any equity instrument. The Company does not
  plan to repurchase any shares during the upcoming annual period.
  8. Convertible Debt and Warrant Liability
  During the period October 2006 to June 2007,
  the Company issued 20% convertible notes with detachable warrants with a value
  of $850,000. The notes mature on June 1, 2008, with interest due and
  payable on October 1, 2007, and the last day of each calendar quarter
  thereafter, through the maturity date. At the Company's option, upon the
  closing of a Series D preferred stock offering having aggregate gross
  proceeds not less than $7 million, excluding the proceeds collected in
  connection with this financing, note holders may elect to convert the
  outstanding principal and the accrued and unpaid interest into Series E
  preferred stock at the purchase price per Series E preferred stock.  In addition, a mandatory conversion provision
  would be triggered by the closing of a public offering at a conversion price
  equal to or greater than the note conversion price.  There is a provision for a conversion price
  adjustment which would be triggered upon a stock slit, reverse stock split, or
  issuance of stock dividends, whereby the conversion price would be adjusted to
  ensure that the holder would be receiving the same number of shares, as though
  the conversion right had been exercised prior to the triggering event.  To support this, the Company is required to
  reserve, at all the times, the number of authorized unissued shares such that
  the Company has enough shares to issue in the event that the conversion right
  would be exercised.
  In addition to the notes, the investors received
  warrants to purchase up to 850,000 shares of the Company's common stock.  The warrants carry an exercise price of
  $0.03, and terminate upon the earlier of (i) 3 years from the date of
  issuance; (ii) a public offering; or (iii) the closing of an
  acquisition of the Company.  As of December 31,
  2007, 700,000 of the warrants had been exercised. The warrants had
  de minimus
  value at the issuance date per an independent
  valuation.
  During the period August 2007 to October 2007,
  the Company issued 6% convertible notes at an original issue discount of 10%
  notes with detachable warrants with a face value of $3,326,400. These notes
  mature on March 31, 2009, with interest due and payable on February 1,
  2008, and on the last day of each calendar quarter thereafter. The Company is
  required to make payments on the outstanding principal balance beginning September 1,
  2008 and on the 1st day of each calendar quarter thereafter.  The default interest rate is 8%. There are
  3,024,000 detachable warrants, each of which carry an exercise price of $0.40
  and a term of 5 years.  At 12/31/2007 1,929,000
  of the warrants have been exercised. The warrants had
  de minimus
  value at the issuance date per an independent valuation. The notes have the
  following conversion features into the Company's capital stock: (i) at the
  Company's option upon the closing of a referred Series D round at $0.25
  per share; (ii) mandatory conversion upon: (a) closing of a Series E
  Preferred Stock offering, no later than January 31, 2008, having aggregate
  gross proceeds to the Company of not less than $5, (b) closing of public
  offering at a conversion rate of $0.25 per preferred share, and (c) a
  change of 40% of the control, at a conversion rate of $0.25 per preferred
  share.  The conversion price on these
  notes has an anti-dilution provision and adjustments for stock splits, or stock
  dividends. The Company is obligated to reserve, at all the times, a sufficient
  number of authorized unissued conversion shares.
  F-13
  In addition the investors received 3,024,000
  warrants at an exercise price of $0.40 and termination at the earlier of: (i) 5
  years, or automatically terminated upon the Company, (ii) public offering,
  (iii) sale of the Company, or (v) change in control.
  These notes and warrants also have demand and
  piggyback registration rights. The valuation of the conversion features for
  both conversion features for both convertible notes per our independent
  valuation was under $1,000, which we considered to be
  de minimus
  .
  The conversion features for both convertible notes
  have been evaluated under FAS 155, FAS 133, and EITF 00-19 and are deemed not
  to be an imbedded derivative and any value attributable to these features would
  be classified as equity.
  9. Notes Payable Related Parties
  The Company previously entered into a series of
  unsecured loan transactions with relatives of the Company's executive chairman
  and chief technology officer (collectively, the "Kolke Loans").  On December 30, 2007, in connection with
  settlement of the Kolke Loans, the Company entered into three unsecured
  promissory notes with (i) Daniel J.A. Kolke, the Company's current
  executive chairman and chief technology officer, in the original principal
  amount of $120,000, (ii) Selma & Daniel A. Kolke, the parents of
  Daniel J.A. Kolke, in the original principal amount of $644,000, and (iii) Desmond
  D. Kolke, a brother of Daniel J.A. Kolke and associate corporate counsel of the
  Company, in the original principal amount of $51,827.42.  The aggregate original principal amount of
  the foregoing notes is $815,827.42, each of which will become secured by
  certain presently unidentified assets of the Company if and when Daniel J.A.
  Kolke is no longer neither an employee nor a member of the board of directors
  of the Company.  Such security interest,
  if granted, would be subordinated to any and all bank debt or convertible
  corporate debt of the Company.  These
  three notes are outstanding in the aggregate balance of $815,827 and $766,425
  as of December 31, 2006 and 2007 respectively.
  10. Credit Facility
  In October 2007, the Company entered into a one
  year credit facility with Bridge Bank which provides for borrowing of up to
  $250,000 at an annual interest rate equal to the bank's prime rate plus two and
  one half percent. The credit facility is collateralized by substantially all of
  the Company's assets and expires in October 2008.  The credit facility contains financial and
  reporting covenants that require the Company to maintain certain financial
  ratios only when the Company has an outstanding balance. There were no
  outstanding borrowings as of December 31, 2007.  The facility has monthly repayment terms of
  both interest and principal amortized over an imputed 12 month period.  In addition, warrants to purchase up to
  31,250 shares of the Company's common stock were issued to Bridge Bank in conjunction
  with this facility.  The warrants were
  valued at $0.40 per share using 55% volatility, 4.06% risk free interest rate
  and $0.40 per the independent valuation. 
  In addition, as there has been no borrowing against the line, there has
  been zero interest expense during 2007.
  F-14
  11. Income Taxes
  The
  components of the income tax benefit for the years ended December 31, 2007
  and 2006 are as follows, (in thousands):
  December 31,
  2007
  December 31,
  2006
  Federal (expense) benefit:
  Current
  0
  0
  Deferred
  1,316
  515
  Valuation allowance
  (1,316
  )
  (515
  )
  State (expense) benefit:
  Current
  0
  0
  Deferred
  0
  0
  Valuation allowance
  0
  0
  Total income tax (expense) benefit
  0
  0
  The income tax (expense) benefit differs from the
  federal statutory rate because of the effects of the following items for the
  fiscal years ended December 31, 2007 and 2006.
  December 31,
  2007
  December 31,
  2006
  Statutory rate
  34.0
  %
  34.0
  %
  State income taxes, net of federal benefit
  0.0
  %
  0.0
  %
  Change in valuation allowance
  -34.0
  %
  -34.0
  %
  Effective tax (expense) benefit rate
  0.0
  %
  0.0
  %
  Deferred income taxes are provided to reflect
  temporary differences in the basis of net assets for income tax and financial
  reporting purposes, as well as available net operating losses. The tax-effected
  temporary differences comprising the Company's deferred income taxes as of December 31,
  2007 and 2006, all non-current, are as follows:
  December 31,
  2007
  December 31,
  2006
  Net operating losses
  3,506
  2,190
  Valuation allowance
  (3,506
  )
  (2,190
  )
  Net deferred income tax
    asset
  0
  0
  The Company has recorded a valuation allowance in
  the amount set forth above for deferred tax assets where it is more likely than
  not the Company will not realize future tax benefits related to these items.
  The net change in the valuation allowance for the year ended December 31,
  2007 was $1.3 million.
  As of December 31, 2007, the Company has
  federal net operating loss carry-forwards available to offset future taxable
  income of approximately $10.3 million. The federal net operating loss since the
  Company has operated since inception primarily in the state of Washington,
  which has no corporate income tax. The Company has not yet filed income tax
  returns to report the net operating losses.
  The Tax Reform Act of 1986 imposed substantial
  restrictions on the utilization of NOLs in the event of an "ownership change"
  of a corporation (as defined in the Internal Revenue Code). Utilization of the
  Company's net operating losses may be limited by these restrictions.
  12. Capital Stock Footnote
  Common
  Stock
  The
  Company has issued 20,373,938 shares of common stock pre-split from a total of
  360,000,000 authorized shares without par value.
  F-15
  Preferred
  Stock
  The
  Company has issued 4,634,312 shares of preferred stock from a total of
  240,000,000 authorized shares without par value.  In connection with the merger with and into
  Tripath Technology Inc., all issued and outstanding shares of preferred
  stock were immediately converted into shares of common stock on a one-for-one
  basis.
  Series A
  On
  November 2, 1999, the Company authorized and issued 665,000 shares of Series A
  Preferred Stock from a total of 12,500,000 shares designated as Series A
  Preferred Stock.  In connection with the
  authorization and issuance of the Series C Preferred Stock, the Company
  and the shareholders of the Company authorized a 10:1 reverse split of all then
  issued and outstanding shares of common stock and preferred stock.  As a result, the number of issued and
  outstanding shares of Series A Preferred Stock is 66,500.  The rights, preferences, and privileges of
  the Series A Preferred stock are as follows:
  Dividends.
  Holders of Series A
  Preferred Stock are entitled to receive dividends at a rate of $0.05 per share,
  per annum, when and if declared by the Board of Directors.  The rights to such dividends are not
  cumulative and no rights accrue to holders of Series A Preferred Stock by
  reason of the fact that dividends are not declared or paid in any prior
  year.  No dividend shall be paid or
  declared and set apart for shares of Series A Preferred Stock for any
  period unless at the same time a like proportionate dividend for the same
  dividend period, ratably in proportion to the respective annual dividend rates
  fixed therefor, shall be paid on or declared and set apart for the shares of
  all other series of preferred stock of the Company.  Although no dividends have been declared or
  paid to date, the cumulative dividends in arrears would be $26.6 thousand or
  $0.40 per share.
  Voting
  Rights.
  Holders of Series A
  Preferred Stock and common stock vote as a single class upon any matter
  submitted to the stockholders for a vote and the holder of each share of Series A
  Preferred Stock has the right to one vote for each share of common stock into
  which such share of Series A Preferred Stock could then be converted.
  Liquidation.
  Holders of Series A
  Preferred Stock are entitled to a liquidation preference to the holders of
  common stock, on a pro rata basis, of $1.00 per share, plus any declared but
  unpaid dividends on the Series A Preferred Stock.  All remaining assets of the Company, if any,
  shall be distributed to the holders of common stock.
  Conversion.
  Each share of Series A
  Preferred Stock is convertible, at the option of the holder of such share, into
  the number of fully paid and nonassessable shares of common stock determined by
  dividing $1.00 by the then applicable conversion price.  Conversion into one share of common stock
  will be automatic upon the closing of a firm commitment underwritten public
  offering at a price per share of not less than $3.00 with gross proceeds to the
  Company of not less than $11,250,000.
  Registration
  Rights.
  Holders of Series A
  Preferred Stock have no registration rights.
  Series B
  On
  March 30, 2000, the Company authorized and issued 120,000 shares of Series B
  Preferred Stock from a total of 22,500,000 shares designated as Series B
  Preferred Stock.  In connection with the
  authorization and issuance of the Series C Preferred Stock, the Company
  and the shareholders of the Company authorized a 10:1 reverse split of all then
  issued and outstanding shares of common stock and preferred stock.  As a result, the number of issued and
  outstanding shares of Series B Preferred Stock is 120,000.  The rights, preferences, and privileges of
  the Series B Preferred stock are identical to the Series A Preferred
  Stock are as follows:
  F-16
  Dividends.
  Holders of Series B Preferred
  Stock are entitled to receive dividends at a rate of $0.16 per share, per
  annum, in preference and priority to any dividend on common stock, when and if
  declared by the Board of Directors.  The
  rights to such dividends are not cumulative and no rights accrue to holders of Series B
  Preferred Stock by reason of the fact that dividends are not declared or paid
  in any prior year.  No dividend shall be
  paid or declared and set apart for shares of Series B Preferred Stock for
  any period unless at the same time a like proportionate dividend for the same
  dividend period, ratably in proportion to the respective annual dividend rates
  fixed therefor, shall be paid on or declared and set apart for the shares of
  all other series of preferred stock of the Company.  Although no dividends have been declared or
  paid to date, the cumulative dividends in arrears would be $134.4 thousand or
  $1.12 per share.
  Voting
  Rights.
  Holders of Series B
  Preferred Stock and common stock vote as a single class upon any matter submitted
  to the stockholders for a vote and the holder of each share of Series B
  Preferred Stock has the right to one vote for each share of Common Stock into
  which such share of Series B Preferred Stock could then be converted.
  Liquidation.
  Holders of Series B
  Preferred Stock are entitled to a liquidation preference to the holders of
  common stock, on a pro rata basis, of $2.00 per share, plus any declared but
  unpaid dividends on the Series B Preferred Stock.  Series B Preferred Stock and Series A
  Preferred Stock rank in parity with respect to liquidation rights but may be
  paid ratably with any series of stock that is senior to Series B Preferred
  Stock.  After payment of the preferential
  amounts to holders of (i) any series that is senior to Series B
  Preferred Stock, (ii) Series B Preferred Stock and (iii) Series A
  Preferred Stock, the remaining assets of the Company, if any, shall be
  distributed pro rata to the holders of (a) any series that is senior to Series B
  Preferred Stock, (b) Series B Preferred Stock, (c) Series A
  Preferred Stock, and (d) common stock based upon the number of shares of
  common stock held by each, assuming full conversion at the then-applicable
  conversion rate.
  Conversion.
  Each share of Series B
  Preferred Stock is convertible, at the option of the holder of such share, into
  the number of fully paid and nonassessable shares of Common Stock determined by
  dividing $2.00 by the then applicable conversion price.  Conversion will be automatic upon the closing
  of a firm commitment underwritten public offering at a price per share of not
  less than $3.00 with gross proceeds to the Company of not less than
  $11,250,000.
  Registration
  Rights.
  Holders of Series B
  Preferred Stock have no registration rights.
  Series C
  On
  March 5, 2002, the Company issued 4,447,812 shares of Series C
  Preferred Stock from a total of 60,000,000 shares designated as Series C
  Preferred Stock.  In connection with the
  authorization and issuance of the Series C Preferred Stock, the Company
  and the shareholders of the Company authorized a 10:1 reverse split of all then
  issued and outstanding shares of common stock and preferred stock.  The rights, preferences, and privileges of
  the Series C Preferred stockholders are as follows:
  Dividends.
  Holders of Series C
  Preferred Stock are entitled to receive dividends at a rate of $0.000625 per
  share, per annum, in preference and priority to any dividend on Common Stock,
  when and if declared by the Board of Directors. 
  The rights to such dividends are not cumulative and no rights accrue to
  holders of Series C Preferred Stock by reason of the fact that dividends
  are not declared or paid in any prior year. 
  No dividend shall be paid or declared and set apart for shares of Series C
  Preferred Stock for any period unless at the same time a like proportionate
  dividend for the same dividend period, ratably in proportion to the respective
  annual dividend rates fixed therefor, shall be paid on or declared and set
  apart for the shares of all other series of preferred stock of the Company. Although
  no dividends have been declared or paid to date, the cumulative dividends in
  arrears would be $16.7 thousand, or $0.0375 per share.
  Voting
  Rights.
  Holders of Series C
  Preferred Stock and common stock vote as a single class upon any matter
  submitted to the stockholders for a vote and the holder of each share of Series C
  Preferred Stock has the right to one vote for each share of common stock into
  which such share of Series C Preferred Stock could then be converted.
  F-17
  Liquidation.
  Holders of Series C
  Preferred Stock are entitled to a liquidation preference to the holders of
  common stock, on a pro rata basis, of $0.0125 per share, plus any declared but
  unpaid dividends on the Series C Preferred Stock.  Series C Preferred Stock, Series B
  Preferred Stock, and Series A Preferred Stock rank in parity with respect
  to liquidation rights but may be paid ratably with any series of stock that is
  senior to Series C Preferred Stock. 
  After payment of the preferential amounts to holders of (i) any
  series that is senior to Series C Preferred Stock, (ii) Series C
  Preferred Stock, (iii) Series B Preferred Stock and (iv) Series A
  Preferred Stock, the remaining assets of the Company, if any, shall be
  distributed pro rata to the holders of (a) any series that is senior to Series C
  Preferred Stock, (b) Series C Preferred Stock, (c) Series B
  Preferred Stock, (d) Series A Preferred Stock, and (e) common
  stock based upon the number of shares of common stock held by each, assuming
  full conversion at the then-applicable conversion rate.
  Conversion.
  Each share of Series C
  Preferred Stock is convertible, at the option of the holder of such share, into
  the number of fully paid and nonassessable shares of common stock determined by
  dividing $0.0125 by the then applicable conversion price.  Conversion will be automatic upon the closing
  of a firm commitment underwritten public offering at a price per share of not
  less than $3.00 with gross proceeds to the Company of not less than $11,250,000.
  Registration
  Rights.
  Holders of Series C
  Preferred Stock have no registration rights.
  Warrants
  As of December 31, 2007,
  warrants representing 666,667 shares of our common stock were exercisable at a
  strike price of $0.60 per share. These warrants expire in 2010.
  Shares
  reserved
  As of December 31, 2007,
  the Company has the following shares reserved:
  Options Issued
  14,158,000
  Option Plan Available
  331,262
  Debenture Conversion(s)
  12,100,444
  Warrant Exercises
  666,667
  Total
  27,256,373
  13. Settlement Agreement
  In December 2007, the Company entered into a
  settlement agreement with Better Business Concepts, LLC, in connection with
  certain factoring transactions and a lease guarantee by the Company.   In the aggregate, these liabilities were
  $278,403.38.  Pursuant to the settlement
  agreement, the Company paid $7,352.48 in cash, and delivered a promissory note
  in the principal amount of $100,000.00, and a warrant to purchase 171,051
  shares of common stock of the Company, which was exercised contemporaneously
  with the execution of the settlement agreement with a payment of $5,313.53 to
  the Company.  The promissory note bears
  simple interest at 6% per annum and is payable monthly in the amount of $3,000.00,
  in accordance with an amortization schedule. 
  The promissory note may be prepaid at any time without penalty.  The promissory note is guaranteed by Daniel J.
  A. Kolke, the Company's Chairman, Founder and Chief Technology Officer.
  14. Commitments and contingencies
  Lease commitments
  : The Company leases office space in San
  Mateo, California, under a non-cancelable lease dated October 22,
  2007.  The Company also leases office
  space in Renton, Washington, under a sublease dated September 19, 2006,
  which expires on June 30, 2010.  The
  Company recognizes rent on a straight-line basis over the lease term.  Rent expense under the Company's operating
  leases in 2007 and in 2006 were $146.7 thousand, and $44.3, thousand,
  respectively.
  Rent expense future minimum payments under the
  operating lease agreements are as follows:
  Year Ending December 31, 2007:
  2008
  $
  269
  thousand
  2009
  $
  269
  thousand
  2010
  $
  97
  thousand
  Total
  635
  thousand
  F-18
  15. Subsequent Events
  January 2008 Private Placement
  During
  January 2008, the Company issued 6% convertible debentures with a face
  value of $2,000,000 and warrants to purchase up to 666,667 shares of common
  stock.  These notes mature on January 31,
  2010, with interest due and payable on January 1 and July 1 of each
  year through maturity. The default interest rate is 130%. The notes convert
  into the Company's common stock under the following situation: (i) at the
  Company's option, and under certain conditions, when the price per share of
  common stock exceeds $1.13, subject to adjustments for splits and dividends;
  and (ii) mandatory conversion upon a change of 60% of the control of
  Company.
  In addition, the conversion price of $0.45 per share
  has anti-dilution provisions and adjustments for stock splits or stock
  dividends.  The Company is obligated to
  reserve, at all the times, a sufficient number of authorized unissued shares of
  common stock to issue upon conversion.
  The warrants issued to the investors have an
  exercise price of $0.60 and terminate at the earlier of: (i) three years,
  or automatically terminated upon the Company, (ii) sale of all or
  substantially all of the assets of, or change in control of, the Company.
  These notes and warrants also have demand and
  piggyback registration rights.
  April
  2008
  Private Placement
  During
  April 2008, the Company issued 6% convertible debentures with a face value
  of $3,500,000 and warrants to purchase up to 1,166,667 shares of common
  stock.  These notes mature on April 30,
  2010, with interest due and payable on October 1 and April 1 of each
  year through maturity. The default interest rate is 130%. The notes convert
  into the Company's common stock under the following situation: (i) at the
  Company's option, and under certain conditions, when the price per share of
  common stock exceeds $1.13, subject to adjustments for splits and dividends;
  and (ii) mandatory conversion upon a change of 60% of the control of
  Company.
  In addition, the conversion price of $0.45 per share
  has anti-dilution provisions and adjustments for stock splits or stock
  dividends.  The Company is obligated to
  reserve, at all the times, a sufficient number of authorized unissued shares of
  common stock to issue upon conversion.
  The warrants issued to the investors have an exercise
  price of $0.60 and terminate at the earlier of: (i) three years, or
  automatically terminated upon the Company, (ii) sale of all or
  substantially all of the assets of, or change in control of, the Company.
  These notes and warrants also have demand and
  piggyback registration rights.
  Equity Transactions
  In
  April, 2008 the Company converted $750,000 of 20% Convertible debt into
  3,000,000 shares of common stock at a conversion price of $0.25 per share and
  $1,540,911 of 6% convertible debt into 6,163,644 shares of common stock at
  $0.25 per share.
  In
  January-March, 2008, the Company also issued 150,000 shares of common stock
  from the exercise of warrants issued in connection with the 20% convertible
  debt and 995,000 shares of common stock from the exercise of warrants issued in
  connection with the 6% convertible debt.
  On
  April 22, 2008, 66,500 shares of Series A Preferred, 120,000 shares of Series B
  Preferred and 4,447,812 shares of Series C Preferred were converted into common
  stock as follows:
  Series A
  66,500
  Series B
  120,000
  Series C
  4,447,812
  Reverse Merger Transaction
  In
  March of 2008 Etelos voted to merge with Tripath Technology Inc. The
  merger will be a reverse merger with the Company being the surviving entity and
  the name of the surviving company will be Etelos, Inc.
  Immediately prior to the effective time of the
  reverse merger, all issued and outstanding shares of the Company's preferred
  stock and all of the notes and warrants issued by the Company between October 2006
  and October 2007 (as discussed in "Note 7. Convertible Debt and Warrant
  Liability," above) were converted or exercised, as the case may be, into shares
  of common stock of the Company.
  F-19