Edgar Filing: THINKENGINE NETWORKS, INC.

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended December 31, 2007
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to ______

Commission file number 1-8496

THINKENGINE NETWORKS, INC.
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(Exact name of registrant as specified in its charter)

Delaware 20-8058881
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

100 Nickerson Road, Marlborough, MA 01752
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(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code (508) 624-7600
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Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common stock, par
value $0.001 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Act.
Yes No X
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Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act.
Yes No X
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---

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

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer", "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ___ Accelerated filer ___ Non-Accelerated filer ___
Smaller Reporting Company X
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Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes No X
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As of June 30, 2007, which is the last business day of the registrant's most
recently completed second fiscal quarter, the aggregate market value of the
registrant's common stock held by non-affiliates of the registrant was
$11,408,000 based on the closing price as reported on AMEX. This calculation
does not reflect a determination that persons are affiliates for any other
purpose.

As of March 14, 2008, there were 6,857,292 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None.

TABLE OF CONTENTS

PART I

Item Page
---- ----

1. Business.................................................................................................... 4
1A. Risk Factors................................................................................................ 7
1B. Unresolved Staff Comments................................................................................... 12
2. Properties................................................................................................. 12
3. Legal Proceedings........................................................................................... 12
4. Submission of Matters to a Vote of Security Holders......................................................... 13

PART II

5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities........................................................................................ 13
6. Selected Financial Data..................................................................................... 13
7. Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 14
7A. Quantitative and Qualitative Disclosures about Market Risk.................................................. 17
8. Financial Statements and Supplementary Data................................................................. 18
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........................ 40
9A(T) Controls and Procedures..................................................................................... 40
9B. Other Information........................................................................................... 41

PART III

10. Directors, Executive Officers and Corporate Governance...................................................... 42
11. Executive Compensation...................................................................................... 44
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.............. 48
13. Certain Relationships and Related Transactions, and Director Independence................................... 51
14. Principal Accounting Fees and Services...................................................................... 51

PART IV

15. Exhibits, Financial Statement Schedules..................................................................... 52

PART I

FORWARD LOOKING STATEMENTS
FORWARD LOOKING STATEMENTS - CAUTIONARY STATEMENTS

Certain statements in this Form 10-K, other than purely historical information,
including estimates, projections, statements relating to the Company's business
plans, objectives and expected operating results, and the assumptions upon which
those statements are based, are "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995, Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934
(the "Exchange Act"). These forward-looking statements generally are identified
by the words "believe," "project," "expect," "anticipate," "estimate," "intend,"
"strategy," "plan," "may," "should," "will," "would," "will be," "will
continue," "will likely result," and similar expressions. Forward-looking
statements are based on current expectations and assumptions that are subject to
risks and uncertainties which may cause actual results to differ materially from
the forward-looking statements. A detailed discussion of these and other risks
and uncertainties that could cause actual results and events to differ
materially from such forward-looking statements is included in the section
entitled "Risk Factors" (refer to Item 1A). ThinkEngine Networks, Inc.
undertakes no obligation to update or revise publicly any forward-looking
statements, whether as a result of new information, future events or otherwise.

For purposes of the following, the terms "ThinkEngine" and the "Company" refer
to ThinkEngine Networks, Inc.

Item 1. Business
-----------------

ThinkEngine Networks, Inc. designs, manufactures and sells voice processing
systems, consisting of media servers and application servers, for use in
telephone networks, audio call conferencing networks, and cable and non-cable
VoIP networks. The Company's products are utilized in order to implement network
announcements, interactive voice response, intelligent peripherals, audio
conferencing, intelligent call routing, pre/post-paid calling cards and
automatic speech recognition.

BACKGROUND OF THE BUSINESS

The Company was incorporated in December 2006 under the laws of the State of
Delaware. It was formerly known as Cognitronics Corporation, a New York state
chartered corporation incorporated in January 1962, which was reincorporated in
Delaware, and in December 2006 changed its name pursuant to a merger with and
into the newly created corporation.

On November 18, 2005, the Company, then Cognitronics Corporation, acquired
ThinkEngine Networks, Inc. for consideration consisting of 1,149,705 shares of
the Company's common stock, $1.25 million in cash, and notes in the aggregate
amount of $0.3 million. In 2006 the acquired ThinkEngine Networks, Inc.
subsidiary was renamed TE Networks, Inc. ("TE Networks"). TE Networks was a
provider of time division multiplexer ("TDM") and Internet Protocol ("IP")
capable conferencing bridges and media servers to the telecommunications
industry.

On January 8, 2007, at the direction of its Board of Directors, the Company
merged its wholly-owned subsidiary, TE Networks, Inc., with and into ThinkEngine
Networks, Inc. The purpose of the merger was to combine the operating entities
of the Company into one organization. On March 14, 2007, at the direction of its
Board of Directors, the Company merged three inactive wholly-owned subsidiaries,
American Computer Corporation, a New York corporation, Reed Printing, Inc., a
New York corporation, and Stamford Crescent Corp., a Connecticut corporation,
with and into ThinkEngine Networks, Inc., thereby extinguishing the outstanding
common shares of the wholly-owned subsidiaries and transferring the assets and
liabilities of the subsidiaries to ThinkEngine Networks, Inc. The purpose of
these mergers was to extinguish the inactive wholly-owned subsidiaries. The
effect of the mergers was not material to the financial position or results of
operations for the periods presented and had no effect on previously reported
net income, other comprehensive income or related earnings-per-share
information.

PRINCIPAL PRODUCTS AND SERVICES

The Company's two primary products are the VSR1000, a multi-function voice
services router, and the CX4000 network media server.

The VSR1000 is an advanced call processing platform with highly integrated call
treatment capabilities. The VSR1000 can provide speech recognition, advanced
call routing, and conferencing service to 968 simultaneous VoIP or TDM channels.
The VSR1000 was designed specifically for carrier class networks. The VSR1000
adheres to RoHS and NEBS standards and includes features such as a dedicated
management coprocessor, -48v DC power, and standard Telco style alarms. When
deployed in redundant configurations the VSR1000 can provide 99.999% service
availability. The system's solid state design (no spinning media within the
platform) contributes to its high reliability and ease of management. System
management, including rolling upgrades, can be performed remotely.

The CX4000 network media server is capable of simultaneous operations in
traditional TDM networks and advanced intelligent networks, and the most
advanced VoIP networks, as well as in hybrid network environments. In an
economical package, the CX4000 holds up to 6 media server boards, each with its
own stand alone onboard processing capabilities. The CX4000 adheres to NEBS
standards, and is built to the highest level of reliability utilizing redundant
hot swappable components, and a redundant systems architecture to avoid
downtime.

In addition to the VSR1000 and CX hardware based products, the Company also
develops software solutions. ThinkEngine's reservation-less conferencing
solution utilizes the VSR1000 platform to implement audio conferencing services
widely deployed by service providers. The system is capable of scaling from
hundreds of participants to tens of thousands of participants. The Company also
introduced a managed conferencing solution during 2007 that includes operator
features and a moderator web conferencing solution.

In order to ease development burden and speed time-to-service deployment,
ThinkEngine provides two powerful tools. The ThinkEngine Remote Control Toolkit
eases the burden of Session Initiation Protocol ("SIP") application development
by abstracting complicated call state models into an easy to use SIP application
server toolkit. This toolkit is tightly integrated with the VSR1000 and allows
non-experts to build both PSTN and VoIP applications. The ThinkEngine Call Flow
Designer suite takes the level of abstraction one step further by allowing
programmers to utilize a graphical "drag and drop" programming model. Both of
these tools have been instrumental in lowering the barrier of entry when
customers are contemplating new service development and deployment.

FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS, EXPORT SALES AND DOMESTIC AND
FOREIGN OPERATIONS

The Company operates in one segment - voice processing. The Company designs,
manufactures and sells equipment for use in telecommunication and cable
broadband networks.

The discussion of liquidity and sources of capital set forth in Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in Item 7 of this Annual Report on Form 10-K is incorporated herein by
reference.

Sales to foreign customers primarily represent export-type sales of
approximately $0.5 million in 2007 and $0.9 million in 2006. Selling prices and
gross profit margins on export sales are comparable to sales to domestic
customers.

CUSTOMERS

The Company's customers are telecommunications service providers, cable
broadband service providers, and audio call conferencing service providers. In
2007, revenues included $2.2 million to Comcast Corporation, $1.4 million to
Verizon Communications, Inc., and $0.7 million to COX Communications, Inc. In
2006, revenues included $3.3 million to Verizon Communications, Inc., $2.0
million to Comcast Corporation, and $1.1 million to Free Conferencing
Corporation of America. Over the past several years, a major portion of revenues
has come from a few large customers. Accordingly, the loss of any of these
customers could have a material adverse impact on the Company's results of
operations.

SALES AND SUPPORT

The Company sells and markets its products through its direct sales force, and
also through a small number of resellers. The Company believes that a broad
range of support services is critical to the successful installation and ongoing
support of its products, the development of long-term relationships with
customers, and the generation of additional sales of its products. The Company
provides its customers with service and support primarily through our internal
support organization. The Company offers a complete range of technical and
operational support services to support its customers throughout the product
lifecycle ranging from basic customer service and support, to planning, design
and installation services.

COMPETITION

The Company competes, and expects to compete, in fields noted for rapid
technological advances and the frequent introduction of new products and
services. The Company's products are similar to those manufactured, or capable
of being manufactured, by a number of companies, most of which are
well-established corporations with financial, personnel and technical resources
substantially larger than those of the Company. The Company's ability to compete
in the future depends on its ability to maintain the technological and
performance advantages of its current products and to introduce new products and
applications that achieve market acceptance. There can be no assurance that the
Company will be able to successfully develop and market new products and
applications. The Company also believes that the key competitive differentiators
in these markets include product quality and functionality, ease-of-use,
integration capabilities, price and performance, cost of ownership, speed of
deployment and installation, and technical support and service. Current
significant competitors in the markets in which the Company sells its products
include Avaya, Inc., Compunetix, Inc., and PolyCom, Inc., among others.

INTELLECTUAL PROPERTY

The Company relies on technological expertise, responsiveness to users' needs,
and innovations, and believes that these are of greater significance in its
industry than patent protection. There can be no assurance that patents owned or
controlled by others will not be encountered and asserted against the Company's
voice processing products, or that licenses or other rights under such patents
would be available, if needed. The Company has patents, trademarks and trade
names which it considers important in promoting the business of the Company and
its products.

MANUFACTURING

The Company has outsourced the production of certain subassemblies and finished
goods to contract manufacturers. It performs final assembly, integration and
test functions for its products at its facilities in Connecticut and
Massachusetts.

RAW MATERIALS AND SUPPLIERS

The Company believes it has adequate sources for obtaining raw materials,
components and supplies to meet production requirements, consisting primarily of
electronic components and subassemblies, and did not experience difficulty
during 2007 in obtaining such materials, supplies and components. Due to the age
of certain products, the Company may experience difficulty in the future in
obtaining parts and components on a timely and/or cost effective basis.

SEASONALITY

The Company does not believe that there is any significant impact of seasonality
on its business.

RESEARCH AND DEVELOPMENT

Expenditures for research and development activities, as determined in
accordance with U. S. generally accepted accounting principles, amounted to $7.4
million (including charges of $3.0 million related to the amortization and write
down of intangible assets) in 2007, and $5.2 million in 2006.

BACKLOG

The amount of orders in backlog believed by the Company to be firm as of
December 31, 2007 and 2006, amounted to $0.6 million and $0.4 million,
respectively. All of the orders in backlog as of December 31, 2007 can
reasonably be expected to be filled during 2008. The Company does not believe
that its backlog, as of any particular date, is necessarily predictive of
revenue for any future period.

EMPLOYEES

At December 31, 2007, the Company employed 36 people, all of whom are located in
the United States. None of the Company's employees are represented by a labor
union.

ENVIRONMENTAL MATTERS

The Company may from time to time be subject to various state, federal and
international laws and regulations governing the environment, including those
restricting the presence of certain substances in electronic products and making
manufacturers of those products financially responsible for the collection,
treatment, recycling and disposal of certain products. For example, the European
Union ("EU") has adopted the Restriction of Hazardous Substances Directive
("RoHS") and the Waste Electrical and Electronic Equipment Directive ("WEEE").
RoHS prohibits the use of certain substances, including mercury and lead, in
certain products placed on the market after July 1, 2006. The WEEE directive
obligates parties that place electrical and electronic equipment onto the market
in the EU to put a clearly identifiable mark on the equipment, register with and
report to EU member countries regarding distribution of the equipment, and
provide a mechanism to take back and properly dispose of the equipment. Each EU
member country has enacted, or is expected soon to enact, legislation clarifying
what is and what is not covered by the WEEE directive in that country. The
Company continues to investigate what further actions may be necessary on its
part in order to meet the requirements of the WEEE directives. Similar laws and
regulations have been or may be enacted in other regions. The Company introduced
a RoHS compliant version of its VSR1000 product in the first quarter of 2008.

Item 1A. Risk Factors
----------------------

The Company operates in a rapidly changing economic and technological
environment that presents numerous risks, many of which are driven by factors
that the Company cannot control or predict. The following discussion, as well as
the "Critical Accounting Policies and Estimates" discussion in Item 7 of this
Annual Report on Form 10-K highlights some of these risks.

You should carefully consider the risks described below before buying shares of
the Company's common stock, as well as other information provided to you in this
document, including information in the section of this document entitled
"Forward Looking Statements". An investment in the Company's common stock is
highly speculative. The risks and uncertainties described below are not the only
risks the Company faces. Additional risks and uncertainties not currently known
to the Company, or that the Company currently deems immaterial, may impair the
Company's business operations. If any of the adverse events described in this
Item 1A actually occur, the Company's business, results of operations and
financial condition could be materially adversely affected, the trading price of
the Company's common stock could decline, and you might lose all or part of your
investment.

THE COMPANY HAS A HISTORY OF OPERATING LOSSES, AND IF THE COMPANY CONTINUES TO
INCUR OPERATING LOSSES, IT MAY BE UNABLE TO CONTINUE OPERATIONS.

The Company had net losses of $7,540,000, and $5,595,000 for the years ended
December 31, 2007 and 2006, respectively. The Company had an accumulated deficit
of $14,416,000, and a net stockholders' deficit of $383,000 and has limited
working capital as of December 31, 2007, and the Company may never be
profitable. The Company has incurred losses in each of its seven most recent
fiscal years. If the Company continues to incur operating losses and fails to
become a profitable company, it may be unable to continue its operations. The
extent of the Company's future losses and the timing of its potential
profitability are highly uncertain. The Company's future growth and
profitability depends solely on its ability to successfully market the VSR1000
product. The Company must continue to enhance the features and functionality of
its products to meet customer requirements and competitive demands. In addition,
the failure of future product enhancements to operate as expected could delay or
prevent future sales of its products. If future customers do not adopt, purchase
and

successfully deploy the Company's products and its planned product enhancements,
the Company's revenues could be adversely impacted.

OUR AUDITORS HAVE SUBSTANTIAL DOUBT ABOUT THE COMPANY'S ABILITY TO CONTINUE AS A
GOING CONCERN, AND IF THE COMPANY IS UNABLE TO GENERATE INCREASED BUSINESS
VOLUME OR OBTAIN ADDITIONAL FINANCING, THE COMPANY MAY BE REQUIRED TO CEASE OR
CURTAIL ITS OPERATIONS.

In their report prepared in conjunction with the Company's December 31, 2007
financial statements, the Company's auditors included an explanatory paragraph
stating that, because the Company has incurred recurring net losses, has an
accumulated deficit and has minimal working capital as of December 31, 2007,
there is substantial doubt about the Company's ability to continue as a going
concern.

THE COMPANY'S OPERATING RESULTS FLUCTUATE AND ARE DIFFICULT TO PREDICT, WHICH
COULD CAUSE OUR STOCK PRICE TO DECLINE.

The Company's revenues in any particular period may be lower than revenues in a
preceding or comparable period. Factors contributing to fluctuations, some of
which are beyond the Company's control, include:

o fluctuations in its customers' businesses;

o customers' budgets and the related procurement cycles;

o timing and market acceptance of new products or enhancements introduced
by the Company or its competitors;

o availability of components from suppliers and the manufacturing capacity
of the Company's subcontractors;

o timing and level of expenditures for sales, marketing and product
development;

o changes in the prices of the Company's or its competitors' products; and

o general industry trends.

In addition, the Company has historically operated with no significant backlog.
Any significant deferral of orders for its products would cause a shortfall in
revenues for any given fiscal period. The Company may receive one or more large
orders in one quarter from a customer and then receive no orders from that
customer in the succeeding quarters. As a result, the Company's revenues may
vary significantly from quarter to quarter. If the Company's quarterly revenue
or operating results fall below the expectations of investors or public market,
its stock price could be adversely impacted.

THE COMPANY MAY BE UNABLE TO OBTAIN THE CAPITAL NECESSARY TO FUND ITS
OPERATIONS.

The Company may need to raise additional capital through debt or equity
financing to fund operations. As of December 31, 2007, the Company had $0.4
million in cash available to fund its operations, and had working capital of
$0.3 million. In 2008, it will need to raise additional capital or obtain
additional debt financing in order to be able to fund its operations. The
Company may not get funding when it needs it or on favorable terms. In addition,
the amount of capital that a firm such as the Company is able to raise often
depends on variables that are beyond its control, such as the share price of its
stock and its trading volume. As a result, the Company may not be able to secure
financing on terms attractive to it, or at all. If the Company is able to
consummate a financing arrangement, the amount raised may not be sufficient to
meet its future needs and may be highly dilutive. If the Company cannot raise
adequate funds to satisfy its capital requirements, it may have to scale-back or
eliminate operations.

A SMALL NUMBER OF THE COMPANY'S CUSTOMERS ACCOUNT FOR A SUBSTANTIAL PORTION OF
ITS REVENUES, AND MOST OF ITS RECEIVABLES. THE LOSS OF A MAJOR CUSTOMER OR
REDUCED SPENDING BY SUCH CUSTOMERS COULD SIGNIFICANTLY REDUCE THE COMPANY'S
REVENUES, PROFITABILITY AND CASH FLOW.

A few large telecommunications, audio conferencing and cable service providers
account for a substantial portion of the Company's revenues. These industries
have recently experienced consolidation due to mergers and acquisitions. As
service providers increase in size, it is possible that an even greater
percentage of the Company's revenues will be attributable to a smaller number of
customers going forward.

THE COMPANY HAS A HISTORY OF LOSSES, AND SUCH LOSSES MAY CONTINUE IN THE FUTURE
IF THE COMPANY IS UNABLE TO SECURE SUFFICIENT BUSINESS TO COVER ITS OVERHEAD AND
OPERATING EXPENSES.

The Company has not been profitable since fiscal year 2000, and will continue to
generate losses, and potentially require additional external funding, until
sales of its VSR1000 products can be increased to sufficient levels for the
Company to generate a profit and positive cash flow, of which there can be no
assurance that such levels can be attained.

THE COMPANY HAS BEEN DE-LISTED FROM THE AMERICAN STOCK EXCHANGE, WHICH COULD
REDUCE OUR ABILITY TO RAISE FUNDS.

On March 18, 2008 the Company was delisted from the American Stock Exchange (the
"Exchange" or "AMEX") as the Company no longer complied with the Exchange's
continuing listing standards due to the Company's history of losses and the
Company's inability to achieve the minimum stockholders' equity requirements.

Following delisting, trading of the Company's common stock will be limited to
the OTC Bulletin Board, the Pink Sheets or similar quotation systems. Inclusion
of the Company's common stock on these quotation systems could adversely affect
the liquidity and price of our common stock and make it more difficult for us to
raise additional capital on favorable terms, if at all. In addition, this
de-listing by the AMEX may negatively impact the Company's reputation and, as a
consequence, its business. Furthermore, the Pink Sheets and OTC Bulletin Board
are viewed by most investors as a less desirable, and less liquid, marketplace.
As a result, an investor may find it more difficult to purchase, dispose of or
obtain accurate quotations as to the value of ThinkEngine common stock.

ThinkEngine common stock may in the future become subject to Rules 15g-1 through
15g-9 under the Exchange Act, which imposes certain sales practice requirements
on broker-dealers who sell "penny stock" to persons other than established
customers and "accredited investors" (as defined in Rule 501(c) of the
Securities Act). For transactions covered by this rule, a broker-dealer must
make a special suitability determination of the purchaser and have received the
purchaser's written consent to the transaction prior to the sale. This rule
would adversely affect the ability of broker-dealers to sell the Company's
common stock and purchasers of the Company's common stock to sell their shares
of the Company's common stock. Penny stock includes any non-NASDAQ equity
security that 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 proscribed by the
SEC relating to the penny stock market must be delivered by a broker-dealer 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 Company's common stock. The regulations
also require that monthly statements be sent to holders of penny stock that
disclose recent price information for the penny stock and information of the
limited market for penny stocks. If the Company were to become subject to these
requirements, they would adversely affect the market liquidity of the Company's
common stock.

THE COMPANY OPERATES IN HIGHLY COMPETITIVE INDUSTRIES WITH MANY PARTICIPANTS.

The Company operates in a highly competitive environment, competing on the basis
of product offerings, technical capabilities, quality, service and pricing.
Competition for next generation service providers as well as for new
infrastructure deployments is particularly intense. The Company has a number of
existing competitors, some of which are very large, with significantly greater
technological and financial resources, brand recognition, and established
relationships with the major customers in each market. In addition, new
competitors may enter the industry as a result of shifts in technology. The
Company does not offer any assurances that it will be able to compete
successfully against existing or future competitors.

TECHNOLOGY DRIVES THE COMPANY'S PRODUCTS AND SERVICES. IF THE COMPANY FAILS TO
KEEP PACE WITH TECHNOLOGICAL ADVANCES IN ITS INDUSTRY, OR IF IT PURSUES
TECHNOLOGIES THAT DO NOT BECOME COMMERCIALLY ACCEPTED, CUSTOMERS MAY NOT BUY ITS
PRODUCTS OR USE ITS SERVICES.

The telecommunications, conferencing and cable industries use numerous and
varied technologies and large service providers often invest in several and,
sometimes, incompatible technologies. These industries also demand frequent and,
at times, significant technology upgrades. The Company does not have the
resources to invest in all of these existing and potential technologies. As a
result, the Company concentrates its resources on those technologies it believes
have or will achieve substantial customer acceptance and in which it has
appropriate technical expertise. However, existing products often have short
product life cycles. In addition, the Company's choices for developing
technologies may prove incorrect if customers do not adopt the products it
develops or if those technologies ultimately prove to be unviable. The Company's
operating results depend to a significant extent on the market acceptance of its
products and its ability to enhance its existing products, to continue to
introduce new products successfully and on a timely basis, and to develop new or
enhance existing tools for its service offerings. The limited size of the
Company's engineering group may severely limit the Company's ability to enhance
its existing products.

THE COMPANY MAY BE UNABLE TO ATTRACT AND RETAIN HIGHLY QUALIFIED PERSONNEL.

The Company's future success is dependent on its ability to attract and retain
talented personnel. There is intense competition for qualified personnel, and
the Company may not be able to attract and retain qualified personnel necessary
for the development and introduction of new products or to replace qualified
personnel that may leave its employ. Part of the Company's compensation program
includes stock options and stock grants. If the Company's stock price continues
to perform poorly it may adversely affect its ability to retain or attract key
employees.

THE TELECOMMUNICATIONS MARKETS FLUCTUATE AND ARE IMPACTED BY MANY FACTORS,
INCLUDING DECISIONS BY SERVICE PROVIDERS REGARDING THEIR DEPLOYMENT OF
TECHNOLOGY AND THEIR TIMING OF PURCHASES, AS WELL AS DEMAND AND SPENDING FOR
COMMUNICATIONS SERVICES BY BUSINESSES AND CONSUMERS.

Although the Company believes the overall market for the its audio conferencing
solutions applications should grow in the future, the rate of growth could vary
geographically and across different technologies and is subject to substantial
fluctuations. The specific market segments in which the Company participates may
not experience the growth of other segments. As a result, revenues are difficult
to forecast and quarterly operating results can fluctuate significantly.

THE COMPANY MAY BE SUBJECT TO INTELLECTUAL PROPERTY LITIGATION AND INFRINGEMENT
CLAIMS, WHICH COULD CAUSE IT TO INCUR SIGNIFICANT EXPENSES OR PREVENT THE
COMPANY FROM SELLING ITS PRODUCTS.

Intellectual property litigation can be costly and time-consuming and can divert
the attention of management and key personnel from other business issues. The
complexity of the technology involved and the uncertainty of intellectual
property litigation increase these risks. A successful claim by a third party of
patent or other intellectual property infringement by the Company could compel
it to enter into costly royalty or license agreements or force it to pay
significant damages and could even require it to stop selling certain products.

CHANGES IN ACCOUNTING MAY AFFECT THE COMPANY'S REPORTED EARNINGS AND OPERATING
INCOME.

U. S. generally accepted accounting principles and accompanying accounting
pronouncements, implementation guidelines, and interpretations for many aspects
of the Company's business, such as revenue recognition for software, accounting
for investments, and treatment of goodwill or amortizable intangible assets, are
highly complex and involve subjective judgments. Changes in these rules or their
interpretation or changes in the Company's products or business could
significantly change the Company's reported earnings and operating income and
could add significant volatility to those measures, without a comparable
underlying change in cash flow from operations. See "Item 8. Financial
Statements and Supplementary Data", and "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Critical Accounting
Policies and Estimates" of this report.

THE COMPANY IS EXPOSED TO RISKS FROM RECENT LEGISLATION REQUIRING COMPANIES TO
EVALUATE INTERNAL CONTROL OVER FINANCIAL REPORTING.

Section 404 of the Sarbanes-Oxley Act of 2002 requires the Company's management
to report on the operating effectiveness of the Company's internal controls over
financial reporting as of December 31, 2007. Carlin, Charron & Rosen, LLP, our
independent registered public accounting firm, will be required to attest to the
effectiveness of the Company's internal control over financial reporting
beginning with the year ended December 31, 2009. The Company believes it has
established an ongoing program to perform the system and process evaluation and
testing necessary to comply with these requirements. The Company expects that
the cost of this program will require it to continue to incur expenses and to
devote resources to Section 404 compliance on an ongoing basis.

It is difficult for the Company to predict how long it will take to complete
management's assessment of the effectiveness of the Company's internal control
over financial reporting for each year and to remediate any deficiencies in our
internal control over financial reporting. As a result, we may not be able to
complete the assessment and process on a timely basis. In the event that the
Company's chief executive officer, chief financial officer or independent
registered public accounting firm determine that the Company's internal control
over financial reporting is not effective as defined under Section 404, the
Company cannot predict how regulators will react or how the market prices of the
Company's shares will be affected.

ACQUISITIONS AND JOINT VENTURES MAY HAVE AN ADVERSE EFFECT ON THE COMPANY'S
BUSINESS.

The Company may make acquisitions or enter into joint ventures as part of its
long-term business strategy. Any such transaction involves significant
challenges and risks including that the transaction does not advance the
Company's business strategy, that the Company doesn't realize a satisfactory
return on the investment it makes, or that the Company may experience difficulty
in the integration of new employees, business systems, and technology, or
diversion of management's attention from its other business activities. These
factors could adversely affect the Company's operating results or financial
condition.

THE COMPANY RELIES ON THIRD PARTY SUPPLIERS TO PRODUCE SUBASSEMBLIES AND CERTAIN
FINISHED PRODUCTS.

The Company outsources the production of certain subassemblies and finished
goods. If a contract manufacturer terminates its relationship with the Company
or is unable to fill the Company's orders on a timely basis, or if the Company
does not accurately forecast its requirements, the Company may be unable to
deliver the affected products to meet its customers' orders, which may adversely
impact our revenue and operating results in a quarter.

Item 1.B Unresolved Staff Comments
------------------------------------

None.

Item 2. Properties
---------------------

Our properties consist of the following leased facilities:
LEASE
SQUARE EXPIRATION
LOCATION DESCRIPTION FEET DATE
-------- ----------- ------ ----------
Danbury, Connecticut Sales, engineering, production 10,663 10/31/08
3 Corporate Drive and service facility

Marlborough, Massachusetts Corporate office, engineering 11,405 8/31/09
100 Nickerson Road and service facility

The Company considers each of these facilities to be in good condition and
adequate for the Company's requirements.

Item 3. Legal Proceedings
----------------------------

In the normal course of business, the Company periodically becomes involved in
litigation. As of December 31, 2007, in the opinion of management, the Company
had no pending litigation that would have a material adverse effect on the
Company's financial position, results of operations or cash flows.

Item 4. Submission of Matters to a Vote of Security Holders
--------------------------------------------------------------

None.

Executive Officers of the Registrant

The executive officers of the Registrant, their positions with the Company and
ages as of March 14, 2008 are as follows:

NAME POSITION(S) AND OFFICE(S) AGE
---- ------------------------- ---

Michael G. Mitchell President and Chief Executive Officer, Director 47

John E. Steinkrauss Vice President, Treasurer, Secretary and Chief Financial Officer 61

No family relationships exist between the executive officers of the Company.
Each of the executive officers was elected to serve until the next annual
meeting of the Board of Directors or until their successor shall have been
elected and qualified.

Mr. Mitchell has been President and Chief Executive Officer of the Company since
August 2006. Since 2001, he had been President and Chief Executive Officer for
ThinkEngine Networks, Inc. which was acquired by the Company in November 2005,
and he subsequently served as Executive Vice President of the Company's
ThinkEngine Networks subsidiary until April 2006.

Mr. Steinkrauss has been Vice President, Treasurer and Chief Financial Officer
of the Company since November 2006. He was elected Corporate Secretary in
February 2008. Prior to that, he provided financial consulting services to a
number of companies, or held senior financial management positions as follows:
from September 2006 to October 2006 Director of Finance at The Software MacKiev
Company; from September 2004 to July 2006 as Senior Vice President, Treasurer,
Secretary and Chief Financial Officer of IntelliReach Corporation; and from
April 2004 to July 2004, as Vice President, Treasurer, Secretary and Chief
Financial Officer of Stargus Communications, Inc.

PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters
-----------------------------------------------------------------------------
and Issuer Purchases of Equity Securities
-----------------------------------------

The Company's common stock (symbol: THNK) currently trades on the Pink Sheets.
The Company's common stock (former AMEX symbol: THN) was delisted by the
American Stock Exchange on March 18, 2008. Prior to January 4, 2007, it was
traded on the American Stock Exchange as Cognitronics Corporation under the
symbol CGN. On March 14, 2008, there were 500 stockholders of record; the
Company estimates that the total number of beneficial owners was approximately
1,500. Information on quarterly stock prices during the two most recent fiscal
years is set forth below.

2007 FIRST SECOND THIRD FOURTH
---- ----- ------ ----- ------
Common Stock price range
High $3.72 $2.74 $2.15 $1.88
Low $2.41 $2.00 $1.50 $0.15

2006 FIRST SECOND THIRD FOURTH
---- ----- ------ ----- ------
Common Stock price range
High $3.37 $3.15 $2.55 $3.09
Low $2.49 $2.20 $1.75 $1.90

The Company has never paid a cash dividend on its Common Stock and has used its
cash for the development of its business. The Company has no present intention
of paying a cash dividend. Payment of any future dividends will depend upon the
Company's earnings, financial condition and other relevant factors.

Item 6. Selected Financial Data
----------------------------------

The following table sets forth selected financial data of the Company for the
last five years, and has been derived from the Company's audited financial
statements. This selected financial data should be read in conjunction with the
financial statements and related notes included in Item 8 of this Form 10-K.

Year ended December 31,
(in thousands except per share data)
---------------------------------------------------------------------------------------------------------------------
2007 2006 2005 2004 2003
---------------------------------------------------------------------------------------------------------------------

Operating Results
Revenues $ 7,371 $ 9,633 $ 7,750 $ 8,699 $ 5,096
Loss from continuing operations (7,540) (5,631) (2,591) (341) (3,482)
Loss from discontinued operations -- -- (1,555) (213) (68)

Cumulative effect of change in accounting principle, net of tax -- 36 -- -- --
Net loss $(7,540) $(5,595) $(4,146) $ (554) $(3,550)
Loss per share - basic and diluted
Loss from operations $ (1.12) $ (0.82) $ (0.45) $ (0.06) $ (0.62)
Discontinued operations -- -- (0.26) (0.04) (0.01)
Cumulative effect of change in accounting principle,
net of tax -- 0.01 -- -- --
Net loss $ (1.12) $ (0.81) $ (0.71) $ (0.10) $ (0.63)
Weighted average number of common shares outstanding - basic
and diluted 6,732 6,899 5,879 5,781 5,615

---------------------------------------------------------------------------------------------------------------------
Financial Position:
---------------------------------------------------------------------------------------------------------------------
Working capital $ 334 $ 3,293 $ 7,251 $13,132 $12,851
Total assets $ 3,379 $10,646 $21,205 $18,956 $18,898
Stockholders' (deficit) equity $ (383) $ 7,148 $14,015 $15,015 $15,268
Stockholders' (deficit) equity per share - basic and diluted $ (0.06) $ 1.04 $ 2.38 $ 2.60 $ 2.72

Included in loss from operations were provisions for slow moving and obsolete
inventory of $317,000, $640,000, $666,000, and $434,000 for the years 2007,
2006, 2004, and 2003, respectively. In 2005 the provision was reduced due to the
sale of reserved items. Included in loss from operations in 2007 is a charge for
the impairment of intangible assets of $2,887,000.

Item 7. Management's Discussion and Analysis of Financial Condition and Results
--------------------------------------------------------------------------------
of Operation
------------

Executive Summary
-----------------

The Company designs, manufactures and sells voice processing equipment for use
primarily by audio conferencing, telecommunications and cable broadband service
providers. The Company's products include media servers and application servers.
These products facilitate the deployment of voice resources in service
providers' networks, such as traditional circuit-switched networks, as well as
the next generation of packet-based networks.

Established service providers are looking for ways to offer additional features
on their legacy networks while they transition to internet protocol based
multimedia services. To effectively compete, the Company must expand its
penetration in the market, and increase the applications available on its
products.

Capital spending in the markets the Company serves can vary over time and change
rapidly. In addition, the Company faces intense competition from larger and
better financed competitors, and a few customers account for a significant
portion of the Company's revenue. As a result, the Company's performance is
subject to large fluctuations. Because of these uncertainties, it is difficult
for the Company to make accurate short-term and long-term projections of results
of operations and cash flows.

Results of Operations
---------------------

The Company reported losses from operations of $7.5 million in 2007 and $5.6
million in 2006.

In 2007, total revenues were $7.4 million, a decrease of $2.2 million (23%) from
2006. Product sales decreased $4.6 million all of which was attributable to
decreased sales of the CX4000 product. Service revenues, which include
maintenance revenue, increased $2.4 million over the 2006 level as a result of
increased sales of spare parts for CX products, and increased maintenance
contract revenues.

Gross margin was 62% in 2007 and 53% in 2006. The 2007 increase from 2006 was
due to changes in product mix including higher service revenues and lower
personnel costs. Included in cost of revenues were inventory obsolescence
charges of $0.3 million in 2007, and $0.6 million in 2006.

Research and development expense decreased $0.7 million (13%) in 2007 from 2006.
The 2007 decrease was due to lower personnel costs than in 2006.

Selling, general and administrative expense decreased $0.6 million (10%) in 2007
primarily due to lower personnel costs.

In the fourth quarter of 2007, the Company, based upon a review of the history
of losses incurred and the projected future cash flows related to the intangible
assets which were recorded as part of the acquisition of TE Networks in November
2005, determined that the carrying amount exceeded the implied fair value and,
accordingly, recorded an impairment charge of $2.9 million for the full amount
of the remaining unamortized balance of the intangible assets.

Interest expense increased to $285,000 in 2007 compared to $10,000 in 2006, as a
result of borrowings under the term loan agreement entered into in January 2007.
Other income was $0.6 million in 2007 and $0.3 million in 2006. The 2007
increase was due to an increased gain on the recovery of notes receivable of
$0.3 million, and a gain of $0.1 million from settlement of deferred
compensation, which was offset by a decrease of $0.2 million in interest income
due to the lower level of 2007 investments.

The Company's effective tax rate was 0% for 2007 and 2006. Included in tax
expense are changes in the deferred tax valuation allowance of $3.5 million in
2007 and $1.2 million in 2006. It is difficult to form a conclusion that such an
allowance is not needed when there is evidence such as cumulative losses in
recent years. The provision for income taxes is discussed in Note K to the
financial statements.

The effect of inflation has not had a significant impact on the operating
results of the Company to date.

Total rental expense amounted to $355,000 in 2007 and $376,000 in 2006. Future
annual payments for long-term noncancellable leases for each of the five years
in the period ending December 31, 2012 are approximately $275,000, $128,000, $0,
$0 and $0, respectively.

Off-Balance Sheet Arrangements
------------------------------

The Company's off-balance sheet arrangements consist of facility and certain
machinery and equipment leases.

Liquidity and Sources of Capital
--------------------------------

Operations used net cash of $3.4 million in 2007, and $4.7 million in 2006. The
cash used by operations in 2007 and 2006 is primarily attributable to the losses
from continuing operations. Cash provided (used) by investing activities was
$(0.2) million in 2007, and $6.3 million in 2006. During 2006 the Company sold
all of its investments in marketable securities. There were purchases of
equipment and software of $0.2 million in 2007, and $0.3 million in 2006. Cash
provided by financing activities of $1.2 million in 2007 is primarily due to the
Company borrowing $1.5 million under a term loan agreement.

Working capital was $0.3 million at December 31, 2007 and $3.3 million at
December 31, 2006. The ratio of current assets to current liabilities was 1.1:1
at December 31, 2007 and 2.3:1 at December 31, 2006. The decrease in working
capital in 2007 from 2006 was primarily due to the net losses incurred in 2007.

The Company's contractual obligations at December 31, 2007 are as follows
(amounts in thousands):
Payments due by period
---------------------- Greater
Less than than
Total 1 Year 1-3 Years 3-5 Years 5 Years
-------- -------- -------- -------- --------
Term loans $ 1,980 $ 1,006 $ 974 $ 0 $ 0
Operating leases $ 403 $ 275 $ 128 $ 0 $ 0
Purchase commitments $ 291 $ 286 $ 5 $ 0 $ 0
-------- -------- -------- -------- --------
$ 2,674 $ 1,567 $ 1,107 $ 0 $ 0
-------- -------- -------- -------- --------

Term loan payments include principal, interest and financing fee. Payments made
under operating leases are treated as rent expense. Purchase commitments are
primarily inventory related.

In 2008, the Company anticipates making capital expenditures of less than $0.1
million.

The financial statements of the Company have been prepared on a "going concern"
basis, which assumes the realization of assets and the liquidation of
liabilities in the ordinary course of business. However, such realization of
assets and liquidation of liabilities are subject to a significant number of
uncertainties. There are a number of factors that have negatively impacted the
Company's liquidity, and may impact the Company's ability to function as a going
concern. The Company has sustained net losses of approximately $7.5 million and
$5.6 million for the years ended December 31, 2007 and 2006, respectively, and
has an accumulated deficit of approximately $14.4 million, a stockholders'
deficit of approximately $0.4 million and limited working capital at December
31, 2007. Additionally, the Company had a cash balance of $0.4 million at
December 31, 2007 and has limited available borrowings during fiscal 2008 under
its accounts receivable financing agreement. These factors raise substantial
doubt about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

require either significant improvement in operating results and/or the obtaining
of additional capital. There can be no assurance that the Company's plans to
achieve adequate liquidity will be successful. If the Company's operations
deteriorate due to increased competition, loss of a large customer or other
adverse events, it may be required to obtain additional sources of funds through
asset sales, capital market transactions or financing from third parties or a
combination thereof. The Company has not been able to obtain operating
profitability from continuing operations during the past seven years, and may
not be able to be profitable on a quarterly or annual basis in the future.
Management's initiatives over the last two years, including cost reductions and
securing additional debt financings in 2007 have been designed to improve
operating results and liquidity, and to better position the Company to compete
under current market conditions. However, the Company may in the future be
required to seek new sources of financing or future accommodations from its
existing lenders or other financial institutions, or it may seek equity
infusions from private investors. The Company's ability to fund its operations
is heavily dependent on the growth of its revenues over current levels to
achieve profitable operations. The Company may be required to further reduce
operating costs in order to meet its obligations. If the Company is unable to
achieve profitable operations or secure additional sources of capital, there
would be substantial doubt about its ability to fund future operations. No
assurance can be given that management's initiatives will be successful or that
any such additional sources of financing, lender accommodations or equity
infusions will be available.

Critical Accounting Policies and Estimates
------------------------------------------

In the preparation of financial statements in conformity with accounting
principles generally accepted in the United States, management must make
critical decisions regarding accounting policies and judgments regarding their
application. Materially different amounts could be reported under different
circumstances and conditions.

REVENUE

The Company generally recognizes product revenue, net of sales discounts and
allowances, when persuasive evidence of an arrangement exists, shipment or
delivery (dependent upon the terms of the sale) has occurred, all significant
contractual obligations have been satisfied, the amount is fixed or determinable
and collection is considered probable. Sales of services and system support are
deferred and recognized ratably over the contract period.

INVENTORIES - EXCESS AND OBSOLETE

Inventories are stated at the lower of cost (first-in, first-out method) or
market. Provisions for excess and obsolete inventories are established based on
historical experience and anticipated product demand.

DEFERRED TAX ASSETS

As of December 31, 2007, the Company has a valuation allowance for all $9.7
million of net deferred tax assets. In making such a determination, the Company
considers its current and past performance, the market environment in which it
operates, estimated future earnings, tax planning strategies and other factors.
In the future, as these factors change, a change in the valuation reserve may be
required. The Company will only recognize a deferred tax asset when, based upon
available evidence, realization is more likely than not and will provide a
valuation allowance as necessary.

PENSIONS

The Company's defined benefit pension plan is reported in accordance with SFAS
No. 158 "Employers' Accounting for Defined Benefit Pension and Other
Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106 and
132(R)" ("SFAS 158"). This statement requires balance sheet recognition of the
over-funded or under-funded status of defined benefit pension plans. Under SFAS
158, actuarial gains and losses, prior service costs or credits, and any
remaining transition assets or obligations that have not been recognized under
previous accounting standards must be recognized in accumulated other
comprehensive loss, net of tax effects, until they are amortized as a component
of net periodic benefit cost. In addition, the measurement date, the date at
which plan assets and the benefit obligation are measured, is required to be the
Company's fiscal year end. The Company adopted the recognition and measurement
provisions of SFAS 158 effective for the year ended December 31, 2006. The
adoption of SFAS 158 did not have a material effect on the financial statements
as all future benefit accruals under the Company's defined benefit plan were
curtailed in 1994.

STOCK-BASED COMPENSATION

The Company grants stock options for a fixed number of shares to employees and
directors with an exercise price equal to the fair value at the date of grant.
The Company also grants shares of restricted common stock for a fixed number of
shares to employees.

Effective January 1, 2006, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 123(R) "Share-Based Payment", ("SFAS No.
123(R)"), which establishes accounting for equity instruments exchanged for
employee services. Under the provisions of SFAS No. 123(R), share-based
compensation cost is measured at the grant date, based on the fair value of the
award, and is recognized as an expense over the employee's requisite service
period (generally the vesting period of the equity grant).

The Company has recognized compensation expense for its restricted stock grants.
Upon adoption of SFAS 123(R), using the modified prospective method, the Company
recognized a benefit of $36,000 as a cumulative effect of a change in accounting
principle resulting from the requirement to estimate forfeitures of the
Company's restricted stock grants at the date of grant instead of recognizing
them as incurred. The estimated forfeiture rate was applied to the previously
recorded compensation expense of the Company's unvested restricted stock in
determining the cumulative effect of a change in accounting principle. The
cumulative benefit, net of tax, decreased loss per share by $0.01 for the fiscal
year ended December 31, 2006.

The Company evaluates the recoverability of intangible assets periodically and
takes into account events or circumstances that warrant revised estimates of
useful lives or that indicate that impairment exists, and an impairment charge
is recognized if an asset's carrying amount exceeds its implied fair value. In
the fourth quarter of 2007, the Company, based upon a review of the history of
losses incurred and the projected future cash flows related to the intangible
assets which were recorded as part of the acquisition of TE Networks in November
2005, determined that the carrying amount exceeded the implied fair value and,
accordingly, recorded an impairment charge of $2.9 million for the full amount
of the remaining unamortized balance of the intangible assets.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk
-------------------------------------------------------------------

The Company does not use derivatives and has no financial instruments subject to
market risk. The Company has had no outstanding balances that are subject to
fluctuations in market rates. The base rate on advances under the accounts
receivable financing agreement fluctuates with the commercial prime rate.

Item 8. Financial Statements and Supplementary Data
----------------------------------------------------

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors of
ThinkEngine Networks, Inc.

We have audited the accompanying balance sheets of ThinkEngine Networks, Inc.
(the "Company") as of December 31, 2007 and 2006, and the related statements of
operations and comprehensive loss, stockholders' (deficit) equity, and cash
flows for the years then ended. 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 audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit 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 ThinkEngine Networks, Inc. as
of December 31, 2007 and 2006, and the results of its operations and its cash
flows for the years then ended 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 shown in the accompanying financial
statements, the Company has sustained net losses of approximately $7.5 million
and $5.6 million for the years ended December 31, 2007 and 2006, respectively,
and has an accumulated deficit of approximately $14.4 million, a stockholders'
deficit of approximately $0.4 million and limited working capital at December
31, 2007. These factors raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans regarding these matters are
described in Note B. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.

/s/ Carlin, Charron & Rosen, LLP

Glastonbury, Connecticut
March 19, 2008

BALANCE SHEETS
THINKENGINE NETWORKS, INC.
(dollars in thousands)

December 31,
--------------------
ASSETS 2007 2006
-------- --------

Current assets
Cash and cash equivalents $ 415 $ 2,764
Accounts receivable, net 990 1,354
Notes and interest receivable, net 392 38
Inventories, net 766 1,439
Other current assets 102 232
-------- --------
Total current assets 2,665 5,827

Loans to officers -- 444
Property, plant and equipment, net 591 970
Intangible assets, net -- 3,356
Other assets, net 123 49
-------- --------
Total assets $ 3,379 $ 10,646
======== ========

LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY

Current liabilities
Accounts payable $ 199 $ 114
Notes payable 850 --
Accrued compensation and benefits 543 1,003
Deferred service revenues 368 522
Other accrued expenses 371 895
-------- --------
Total current liabilities 2,331 2,534

Notes payable, less current portion 893 300
Other liabilities 538 664
-------- --------
Total liabilities 3,762 3,498
-------- --------

Commitments and contingencies (Note M) -- --

Stockholders' (deficit) equity
Common stock, par value $.001 per share; authorized 20,000,000 shares 7 7
Additional paid-in capital 15,330 14,938
Accumulated deficit (14,416) (6,876)
Accumulated other comprehensive loss (615) (529)
-------- --------
306 7,540
Less cost of 251,947 and 179,356 common shares in treasury (689) (392)
-------- --------
Total stockholders' (deficit) equity (383) 7,148
-------- --------
Total liabilities and stockholders' (deficit) equity $ 3,379 $ 10,646
======== ========

The accompanying notes to financial statements are an integral part of these
financial statements.

STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
THINKENGINE NETWORKS, INC.
(dollars in thousands except per share data)

Year ended December 31,
----------------------
2007 2006
-------- --------

Revenues
Product sales $ 3,277 $ 7,887
Service 4,094 1,746
-------- --------
7,371 9,633

Cost of revenues 2,783 4,557
-------- --------
Gross margin 4,588 5,076
Other costs and expenses
Research and development 4,778 5,506
Selling, general and administrative 4,945 5,497
Impairment of intangible assets 2,887 --
Interest expense 285 10
Other income (638) (306)
-------- --------
12,257 10,707
Pretax loss (7,669) (5,631)
Provision for (benefit from) income taxes (129) --
-------- --------
Loss from operations (7,540) (5,631)
Cumulative effect of change in accounting principle, net of tax -- 36
-------- --------
Net loss (7,540) (5,595)
Pension liability adjustment (86) 51
-------- --------
Comprehensive loss $ (7,626) $ (5,544)
======== ========

Weighted average common shares outstanding - basic and diluted 6,732 6,899
======== ========

Loss per share - basic and diluted:
Loss from operations $ (1.12) $ (0.82)
Cumulative effect of change in accounting principle -- 0.01
-------- --------
Net loss $ (1.12) $ (0.81)
======== ========

The accompanying notes to financial statements are an integral part of these
financial statements.

STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
THINKENGINE NETWORKS, INC.
Years ended December 31, 2007, and 2006
(dollars in thousands)

Common Stock Retained Accumulated Total
------------------------- Additional Earnings Compre- Treasury Stockholders'
Shares Paid-In (Accumulated hensive Shares (Deficit)
Issued Amount Capital Deficit) (Loss) Amount Equity
----------- ----------- ----------- ----------- ----------- ----------- -----------

Balance at January 1, 2006 6,957,183 $ 7 $ 16,609 $ (1,281) $ (580) $ (740) $ 14,015

Shares issued pursuant to
stock plans -- -- (2,221) -- -- 2,230 9
Shares issued to directors -- -- (149) -- -- 149 --
Repurchase of shares -- -- -- -- -- (2,031) (2,031)
Stock-based compensation -- -- 699 -- -- -- 699
Unfunded pension liability -- -- -- -- 51 -- 51
Net loss -- -- -- (5,595) -- -- (5,595)
----------- ----------- ----------- ----------- ----------- ----------- -----------

Balance at December 31, 2006 6,957,183 7 14,938 (6,876) (529) (392) 7,148

Shares issued pursuant to
stock plans -- -- (217) -- -- 401 184
Shares issued to directors -- -- (118) -- -- 118 --
Repurchase of shares -- -- 43 -- -- (816) (773)
Stock-based compensation -- -- 626 -- -- -- 626
Issuance of warrants in
connection with notes
payable -- -- 58 -- -- -- 58
Unfunded pension liability -- -- -- -- (86) -- (86)
Net loss -- -- -- (7,540) -- -- (7,540)
----------- ----------- ----------- ----------- ----------- ----------- -----------

Balance at December 31, 2007 6,957,183 $ 7 $ 15,330 $ (14,416) $ (615) $ (689) $ (383)
=========== =========== =========== =========== =========== =========== ===========

The accompanying notes to financial statements are an integral part of these
financial statements.

STATEMENTS OF CASH FLOWS
THINKENGINE NETWORKS, INC.
(dollars in thousands)

Year ended December 31,
------------------------
2007 2006
---------- ----------

Operating Activities
Loss from operations $ (7,540) $ (5,631)
Adjustments to reconcile loss from operations to net
cash used by operating activities:
Impairment of intangible assets 2,887 --
Depreciation and amortization 1,064 983
Stock-based compensation expense 626 699
Amortization of deferred financing costs 48 --
Amortization of debt discounts 25
Loss on disposition of assets -- 56
Cumulative effect of change in accounting principle -- (36)
Gain on settlement of deferred compensation (102) --
Deferred income taxes (129) --
Gain on recovery of notes receivable (392) (75)
Net (increase) decrease in:
Accounts receivable 364 2,211
Inventories 673 806
Other assets 134 (100)
Net increase (decrease) in:
Accounts payable 85 (700)
Accrued compensation and benefits (441) (544)
Deferred service revenues (154) (2,454)
Other accrued expenses (524) 57
---------- ----------
Net cash used by operating activities (3,376) (4,728)
---------- ----------

Investing Activities
Purchases of marketable securities -- (4,753)
Sale of marketable securities -- 11,123
Proceeds from recovery of notes receivable 38 37
Additions to property, plant and equipment (213) (265)
Repayment of officers' loans -- 124
---------- ----------
Net cash (used) provided by investing activities (175) 6,266
---------- ----------

Financing Activities
Payment for shares purchased for treasury (155) (531)
Proceeds from shares issued pursuant to stock plans 31 7
Payment of principal on term loan (174) --
Proceeds from term loan 1,500 --
---------- ----------
Net cash provided (used) by financing activities 1,202 (524)
---------- ----------

(Decrease) increase in cash and cash equivalents (2,349) 1,014
Cash and cash equivalents - beginning of year 2,764 1,750
---------- ----------
Cash and cash equivalents - end of year $ 415 $ 2,764
========== ==========

The accompanying notes to financial statements are an integral part of these
financial statements.

STATEMENTS OF CASH FLOWS (CONTINUED)
THINKENGINE NETWORKS, INC.
(dollars in thousands)

Year ended December 31,
------------------------
2007 2006
---------- ----------

Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Interest $ 160 $ 10
========== ==========
Income taxes, net $ 19 $ 5
========== ==========
Non-cash investing and financing activities:
Repayment of loans to officers and accumulated
interest with common stock $ 465 $ 1,500
========== ==========
Cashless exercise of stock options $ 153 $ 38
========== ==========
Increase in deferred financing fees in connection
with term loan financing $ 150 $ 0
========== ==========
Stock warrants issued in connection with term loan
and financing agreements $ 58 $ 0
========== ==========
Reduction in paid-in capital in connection with
issuance of treasury shares $ 335 $ 2,370
========== ==========
Repurchase of shares in connection with settlement
of employee receivables $ 153 $ 0
========== ==========

The accompanying notes to financial statements are an integral part of these
financial statements.

NOTES TO FINANCIAL STATEMENTS
THINKENGINE NETWORKS, INC.
(dollars in thousands except per share data)

NOTE A. ORGANIZATION/NATURE OF BUSINESS

ThinkEngine Networks, Inc. (the "Company") designs, manufactures and sells voice
processing systems, consisting of media servers and application servers, for use
in telephone networks, audio call conferencing networks, and cable and non-cable
VoIP networks. The Company's products are utilized in order to implement network
announcements, interactive voice response, intelligent peripherals, audio
conferencing, intelligent call routing, pre/post-paid calling cards and
automatic speech recognition. The accompanying financial statements present the
Company's financial position and results of operations as of and for the years
ended December 31, 2007 and 2006.

On November 18, 2005, the Company, then Cognitronics Corporation, acquired
ThinkEngine Networks, Inc. for consideration consisting of 1,149,705 shares of
the Company's common stock, $1.25 million in cash, and notes in the aggregate
amount of $0.3 million. In 2006, the acquired ThinkEngine Networks, Inc.
subsidiary was renamed TE Networks, Inc. ("TE Networks"). TE Networks was a
provider of time division multiplexer ("TDM") and Internet Protocol ("IP")
capable conferencing bridges and media servers to the telecommunications
industry.

On January 8, 2007, at the direction of its Board of Directors, the Company
merged its wholly-owned subsidiary TE Networks, Inc., with and into ThinkEngine
Networks, Inc. The purpose of the merger was to combine the operating entities
of the Company into one organization The effect of this merger was not material
to the financial position or results of operations for the periods presented,
and had no effect on previously reported net income, other comprehensive income
or related earnings-per-share information.

On March 14, 2007, at the direction of its Board of Directors, the Company
merged three inactive wholly-owned subsidiaries, American Computer Corporation,
a New York corporation, Reed Printing, Inc., a New York corporation, and
Stamford Crescent Corp., a Connecticut corporation, with and into ThinkEngine
Networks, Inc., thereby extinguishing the outstanding common shares of the
wholly-owned subsidiaries and transferring the assets and liabilities of the
subsidiaries to ThinkEngine Networks, Inc. The purpose of the merger was to
extinguish the inactive wholly-owned subsidiaries. The effect of these mergers
was not material to the financial position or results of operations for the
periods presented, and had no effect on previously reported net income, other
comprehensive income or related earnings-per-share information.

NOTE B. GOING CONCERN/MANAGEMENT'S PLAN

The Company has taken a number of actions during fiscal 2007 to reduce operating
expenses, and to improve the salability of the VSR1000 product. The Company's
2008 operating plan reflects additional efficiencies which the Company believes
can be realized, with the major objective being to increase the order volume for
the VSR1000. Short and long-term liquidity require either significant
improvement in operating results and/or the obtaining of additional capital.
There can be no assurance that the Company's plans to achieve adequate liquidity
will be successful.

NOTE C. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from those estimates.

REVENUE RECOGNITION. The Company generally recognizes product sales, net of
sales discounts and allowances, when persuasive evidence of an arrangement
exists, shipment or delivery (dependent upon the terms of the sale) has
occurred, all significant contractual obligations have been satisfied, the
amount is fixed or determinable and collection is considered probable. Sales of
services and system support are deferred and recognized ratably over the
contract period.

RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses include the
costs of engineering, design, feasibility studies, outside services, personnel,
amortization of intangible assets, stock-based compensation and other costs
incurred in development of the Company's products. All such costs are charged to
expense as incurred.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses include the payroll, employee benefits, stock-based
compensation, and other headcount-related costs associated with sales and
marketing personnel and promotions, tradeshows, and other marketing-related
programs, as well as expenses associated with administrative and accounting
personnel and general corporate related expenses.

FAIR VALUE OF FINANCIAL INSTRUMENTS. The carrying amounts of the Company's
financial instruments (trade receivables, accounts payable, and short-term and
long-term debt) approximate fair value due to their terms and maturities.

CASH AND CASH EQUIVALENTS. The Company considers financial instruments with a
maturity of three months or less from the date of purchase to be cash
equivalents. At December 31, 2007, all of the Company's cash and cash equivalent
balances were with one financial institution.

CONCENTRATION RISKS AND UNCERTAINTIES. A major portion of the Company's revenues
is generated by sales to a small number of customers, such that the Company had
56% of its net revenue from three customers in 2007, and 56% from two customers
in 2006. The Company's receivables are primarily from well-established companies
in the telecommunications and cable industries, and at December 31, 2007, two
such companies accounted for 67% of the Company's accounts receivable. The loss
of any of these customers would have a material adverse impact on the Company.
The Company's markets are subject to rapid technological change and frequent
introduction of new products. The Company's products are similar to those
manufactured, or capable of being manufactured, by a number of companies, some
of which are well established with financial, personnel and technical resources
substantially larger than those of the Company. The Company's ability to compete
in the future depends on its ability to maintain the technological and
performance advantages of its current products and to introduce new products and
applications that achieve market acceptance.

ALLOWANCE FOR DOUBTFUL ACCOUNTS. The allowance for doubtful accounts reflects
the Company's best estimate of probable losses inherent in the accounts
receivable balance. The Company determines the allowance based on known troubled
accounts, historical experience, and other currently available evidence.

INVENTORIES. Inventories are stated at the lower of cost (first-in, first-out
method) or market. Provisions for excess and obsolete inventories are
established based on historical experience and anticipated product demand.

PROPERTY AND EQUIPMENT. Property and equipment is carried at cost less
accumulated depreciation. Depreciation is computed using the straight-line
method based on estimated useful lives ranging from 3 to 5 years. Computer
software developed or obtained for internal use is depreciated using the
straight-line method over the estimated useful life of the software, generally
three years or less. Repairs and maintenance are expensed when incurred.

INTANGIBLE ASSETS. Intangible assets are amortized using the straight-line
method over their estimated period of benefit, ranging from four to ten years.
All of the Company's intangible assets are subject to amortization. The Company
evaluates the recoverability of intangible assets periodically and takes into
account events or circumstances that warrant revised estimates of useful lives
or that indicate that impairment exists, and an impairment charge is recognized
if an asset's carrying amount exceeds its implied fair value.

PENSIONS. The Company's defined benefit pension plan is reported in accordance
with SFAS No. 158 "Employers' Accounting for Defined Benefit Pension and Other
Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106 and
132(R)" ("SFAS 158"). This statement requires balance sheet recognition of the
over-funded or under-funded status of defined benefit pension plans. Under SFAS
158, actuarial gains and losses, prior service costs or credits, and any
remaining transition assets or obligations that have not been recognized under
previous accounting standards must be recognized in accumulated other
comprehensive loss, net of tax effects, until they are amortized as a component
of net periodic benefit cost. In addition, the measurement date, the date at
which plan assets and the benefit obligation are measured, is required to be the
Company's fiscal year end. The Company adopted the recognition and measurement
provisions of SFAS 158 effective for the year ended December 31, 2006. The
adoption of SFAS 158 did not have a material effect on the financial statements
as all future benefit accruals under the Company's defined benefit plan were
curtailed in 1994.

INCOME TAXES. Income taxes are provided on all revenue and expense items
included in the statement of operations, regardless of the period in which such
items are recognized for income tax purposes, adjusted for items representing
permanent differences between pretax accounting income and taxable income.
Deferred income taxes result from the future tax consequences associated with
temporary differences between the carrying amounts of assets and liabilities for
tax and financial reporting purposes. A valuation allowance is provided to the
extent the Company cannot determine that the ultimate realization of net
deferred tax assets is more likely than not.

On January 1, 2007 the Company adopted the provisions of FASB Interpretation No.
48, ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES - AN INTERPRETATION OF FASB
STATEMENT NO. 109, ("FIN 48"). The interpretation contains a two step approach
to recognizing and measuring uncertain tax positions accounted for in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 109, ACCOUNTING
FOR INCOME TAXES. The first step is to evaluate the tax position for recognition
by determining if the weight of available evidence indicates it is more likely
than not that the position will be sustained on audit, including resolution of
related appeals or litigation processes, if any. The second step is to measure
the tax benefit as the largest amount which is more than 50% likely of being
realized upon ultimate settlement. The Company does not have any uncertain tax
positions or unrecognized tax benefits, and there was no effect on its financial
condition or results of operations as a result of adopting FIN 48.

STOCK-BASED COMPENSATION. The Company grants stock options for a fixed number of
shares to employees and directors with an exercise price equal to the fair value
at the date of grant. The Company also grants shares of restricted common stock
for a fixed number of shares to employees.

Effective January 1, 2006, the Company adopted the provisions of SFAS No. 123(R)
SHARE-BASED PAYMENT, ("SFAS No. 123(R)"), which establishes accounting for
equity instruments exchanged for employee, director and third party services.
Under the provisions of SFAS No. 123(R), share-based compensation cost is
measured at the grant date, based on the fair value of the award, and is
recognized as an expense over the employee's requisite service period (generally
the vesting period of the equity grant).

The Company estimates the fair value of stock options using the Black-Scholes
valuation model. Key input assumptions used to estimate the fair value of stock
options include the exercise price of the award, the expected option term, the
expected volatility of the Company's stock over the option's expected term, the
risk-free interest rate over the option's expected term, and the Company's
expected annual dividend yield. The Company believes that the valuation
technique and the approach utilized to develop the underlying assumptions are
appropriate in calculating the fair values of the Company's stock options
granted during the year ended December 31, 2007. Estimates of fair value are not
intended to predict actual future events or the value ultimately realized by
persons who receive stock option awards.

Upon adoption of SFAS 123(R), using the modified prospective method, the Company
recognized a benefit of $36 as a cumulative effect of a change in accounting
principle resulting from the requirement to estimate forfeitures of the
Company's restricted stock grants at the date of grant instead of recognizing
them as incurred. The estimated forfeiture rate was applied to

the previously recorded compensation expense of the Company's unvested
restricted stock in determining the cumulative effect of a change in accounting
principle. The cumulative benefit, net of tax, decreased loss per share by $0.01
for the fiscal year ended December 31, 2006.

COMPREHENSIVE INCOME (LOSS). SFAS No. 130, REPORTING COMPREHENSIVE INCOME,
requires disclosure of all components of comprehensive income (loss) on an
annual and interim basis. Comprehensive income is defined as the change in
equity of a business enterprise during a period from transactions and other
events and circumstances involving non-owner sources.

INCOME (LOSS) PER SHARE. In computing basic earnings (loss) per share, the
dilutive effect of stock options and warrants are excluded, whereas for diluted
earnings per share they are included, except in those fiscal periods when the
Company has incurred a loss. The weighted average number of common shares used
in both the basic and diluted earnings per share calculations were 6,732,363 for
2007 and 6,899,399 for 2006.

ACCOUNTING STANDARDS NOT YET ADOPTED. In September 2006, the FASB issued SFAS
No. 157, "Fair Value Measurements" (SFAS No. 157) which provides a consistent
definition of fair value which focuses on exit price and prioritizes, within a
measurement of fair value, the use of market-based inputs over entity-specific
inputs. SFAS No. 157 requires expanded disclosures about fair value measurements
and establishes a three-level hierarchy for fair value measurements based on the
transparency of inputs to the valuation of an asset or liability as of the
measurement date. The standard also requires that a company use its own
nonperformance risk when measuring liabilities carried at fair value, including
derivatives. In February 2008, the FASB approved a FASB Staff Position (FSP)
that permits companies to partially defer the effective date of SFAS No. 157 for
one year for nonfinancial assets and nonfinancial liabilities that are
recognized or disclosed at fair value in the financial statements on a
nonrecurring basis. The FSP did not permit companies to defer recognition and
disclosure requirements for financial assets and financial liabilities or for
nonfinancial assets and nonfinancial liabilities that are remeasured at least
annually. SFAS No. 157 is effective for financial assets and financial
liabilities and for nonfinancial assets and nonfinancial liabilities that are
remeasured at least annually for financial statements issued for fiscal years
beginning after November 15, 2007 and interim periods within those fiscal years.
The provisions of SFAS No. 157 will be applied prospectively. We intend to defer
adoption of SFAS No. 157 for one year for nonfinancial assets and nonfinancial
liabilities that are recognized or disclosed at fair value in the financial
statements on a nonrecurring basis. We are currently evaluating the effects, if
any, that SFAS No. 157 may have on our financial condition and results of
operations.

In February 2007, the FASB issued SFAS No. 159 "The Fair Value Option for
Financial Assets and Financial Liabilities -- including an Amendment of SFAS No.
115" (SFAS No. 159), which permits an entity to measure certain financial assets
and financial liabilities at fair value that are not currently required to be
measured at fair value. Entities that elect the fair value option will report
unrealized gains and losses in earnings at each subsequent reporting date. The
fair value option may be elected on an instrument-by-instrument basis, with few
exceptions. SFAS No. 159 amends previous guidance to extend the use of the fair
value option to available-for-sale and held-to-maturity securities. The
Statement also establishes presentation and disclosure requirements to help
financial statement users understand the effect of the election. SFAS No. 159 is
effective as of the beginning of the first fiscal year beginning after November
15, 2007. The Company is currently evaluating the impact of this Statement.

In June 2007, the FASB ratified Emerging Issue Task Force (EITF) Issue No. 07-3,
"Accounting for Nonrefundable Payments for Goods or Services to Be Used in
Future Research and Development Activities" (EITF 07-3), requiring that
nonrefundable advance payments for future research and development activities be
deferred and capitalized. Such amounts should be expensed as the related goods
are delivered or the related services are performed. The Statement is effective
for fiscal years beginning after December 15, 2007. Management estimates that
upon adoption, this guidance will not have a material effect on our financial
condition and results of operations.

In June 2007, the FASB ratified EITF Issue No. 06-11, "Accounting for Income Tax
Benefits of Dividends on Share-Based Payment Awards" (EITF 06-11), which
requires entities to record to additional paid in capital the tax benefits on
dividends or dividend equivalents that are charged to retained earnings for
certain share-based awards. In a share-based payment arrangement, employees may
receive dividends or dividend equivalents on awards of nonvested equity shares,
nonvested equity share units during the vesting period, and share options until
the exercise date. Generally, the payment of such dividends can be treated as
deductible compensation for tax purposes. The amount of tax benefits recognized
in additional paid-in capital should be included in the pool of excess tax
benefits available to absorb tax deficiencies on share-based payment awards.
EITF 06-11 is effective for fiscal years beginning after December 15, 2007, and
interim periods within those

years. Management estimates that upon adoption, this guidance will not have a
material effect on our financial condition and results of operations.

In December 2007, the FASB issued SFAS No. 141(R), "Business Combinations" (SFAS
No. 141(R)) which retained the underlying concepts of SFAS No. 141 in that all
business combinations are still required to be accounted for at fair value under
the acquisition method of accounting but SFAS No. 141(R) changed the method of
applying the acquisition method in a number of significant aspects. SFAS No.
141(R) will require that: (1) for all business combinations, the acquirer
records all assets and liabilities of the acquired business, including goodwill,
generally at their fair values; (2) certain contingent assets and liabilities
acquired be recognized at their fair values on the acquisition date; (3)
contingent consideration be recognized at its fair value on the acquisition date
and, for certain arrangements, changes in fair value will be recognized in
earnings until settled; (4) acquisition-related transaction and restructuring
costs be expensed rather than treated as part of the cost of the acquisition and
included in the amount recorded for assets acquired; (5) in step acquisitions,
previous equity interests in an acquiree held prior to obtaining control be
re-measured to their acquisition-date fair values, with any gain or loss
recognized in earnings; and (6) when making adjustments to finalize initial
accounting, companies revise any previously issued post-acquisition financial
information in future financial statements to reflect any adjustments as if they
had been recorded on the acquisition date. SFAS No. 141(R) is effective on a
prospective basis for all business combinations for which the acquisition date
is on or after the beginning of the first annual period subsequent to December
15, 2008, with the exception of the accounting for valuation allowances on
deferred taxes and acquired tax contingencies. SFAS No. 141(R) amends SFAS No.
109 such that adjustments made to valuation allowances on deferred taxes and
acquired tax contingencies associated with acquisitions that closed prior to the
effective date of this statement should also apply the provisions of SFAS No.
141(R). This standard will be applied to all future business combinations.

RECLASSIFICATIONS. Certain prior year amounts have been reclassified to conform
to the current year presentation.

NOTE D. MARKETABLE SECURITIES

The Company's marketable securities were sold during 2006 and consisted of
corporate and municipal bonds, and auction rate preferred stock classified as
held-to-maturity.

NOTE E. ACCOUNTS RECEIVABLE, NET
Accounts receivable are presented net of an allowance for uncollectible accounts
of $50 and $20 at December 31, 2007 and 2006, respectively. The Company wrote
off uncollectible accounts, net of recoveries, of $0 in 2007 and $39 in 2006.
The Company determines the allowance based on known troubled accounts,
historical experience, and other available evidence.

NOTE F. INVENTORIES, NET
2007 2006
---------- ----------
Finished goods, net $ 551 $ 591
Raw materials, net 215 848
---------- ----------
$ 766 $ 1,439
========== ==========

Included in the above amounts is the Company's reserve for slow moving and
obsolete inventories totaling $3,387 and $3,337 at December 31, 2007 and 2006,
respectively. The reserve for slow moving and obsolete inventories increased by
$50 in 2007, and $283 in 2006.

NOTE G. PROPERTY, PLANT AND EQUIPMENT, NET
2007 2006
---------- ----------
Machinery and equipment $ 1,900 $ 2,914
Furniture and fixtures 885 885
---------- ----------
2,785 3,799
Less: accumulated depreciation 2,194 2,829
---------- ----------
$ 591 $ 970
========== ==========

The Company recorded depreciation expense of $595 in 2007 and $447 in 2006.

NOTE H. INTANGIBLE ASSETS, NET

The Company's intangible assets consist of acquired technology relating to
higher level applications, an operating system and a board design capitalized as
part of the November 2005 acquisition of TE Networks, Inc. Intangible assets
have an original cost of $3,883 and are presented net of accumulated
amortization of $527 at December 31, 2006. The Company had recorded amortization
expense of $469 in 2007 and $468 in 2006. In the fourth quarter of 2007, the
Company, based upon a review of the history of losses incurred and the projected
future cash flows related to the intangible assets, determined that the carrying
amount exceeded the implied fair value and, accordingly, recorded an impairment
charge for the full amount of the remaining unamortized balance of the
intangible assets totaling $2,887.

NOTE I. NOTES PAYABLE

In November 2005, as part of the consideration paid to Prism VentureWorks
("Prism") for the acquisition of TE Networks, Inc., the Company issued $300 in
interest-free notes (the "Prism Notes") payable in full in November 2006. In
November 2006, without penalty, the holders of the Prism Notes extended the
payment due date until April 2008.

On January 16, 2007, the Company borrowed $1,500 under a term loan agreement
(the "Term Loan"). The Term Loan bears interest at the rate of 13% per annum,
matures on February 10, 2010, and requires an additional $150 payment to the
lender on the maturity date. The Term Loan is to be repaid in six interest-only
monthly installments followed by thirty monthly installments of principal and
interest. In connection with the Term Loan agreement, the Company issued a
ten-year common stock warrant to the lender to purchase 35,000 shares of the
Company's common stock at an exercise price of $3.47 per share which was the
closing market price on January 16, 2007. The fair value of the warrant was
estimated at $49, using the Black-Scholes model and the assumptions shown in the
table below.

On September 28, 2007, the Company entered into a financing agreement (the
"Financing Agreement") in order to factor certain of the Company's accounts
receivables. Pursuant to the Financing Agreement, the lender may advance the
Company from time to time up to $1.0 million, based upon the sum of 80% of the
face value of accounts receivable. The sale of such accounts receivable is with
full recourse against the Company. Advances under the Financing Agreement bear
interest at a rate of 1.65% per month, subject to adjustment depending on
changes in the commercial prime rate. No receivables were factored under this
Financing Agreement as of December 31, 2007. The Financing Agreement has a term
of one year (with an evergreen annual renewal provision unless either party
provides notice of termination) and contains certain customary non-financial
covenants but does not contain any financial covenants. In connection with the
Financing Agreement, the Company issued a five-year common stock warrant to the
lender to purchase 21,276 shares of the Company's common stock at an exercise
price of $1.88 per share which was the closing market price on September 28,
2007. The fair value of the warrant was estimated to be $9, using the
Black-Scholes model and the assumptions shown in the table below.

With respect to the Term Loan and the Financing Agreement, the Company pledged
as collateral substantially all of its non-intellectual property business
assets. The two lenders and the Company have entered into an Intercreditor
Agreement wherein the seniority and order of priority with respect to access to
the collateral in the case of default is established.

The following table summarizes the assumptions used to calculate the fair value
of warrants issued in conjunction with notes payable:

Financing
Term Loan Agreement
--------- ---------
Dividend yield 0.0% 0.0%
Expected volatility 53.0% 59.5%
Risk free interest rate 4.79% 4.04%
Expected holding period 3 years 1 year

The following table summarizes notes payable at December 31:

2007 2006
---------- ----------
Prism notes $ 300 $ 300
Term loan 1,443 --
---------- ----------
1,743 300
Less: current portion 850 --
---------- ----------
$ 893 $ 300
========== ==========

Required payments related to the outstanding notes payable are $850 in 2008,
$629 in 2009, $264 in 2010, and zero thereafter.

NOTE J. OTHER LIABILITIES (SEE NOTE M)
2007 2006
---------- ----------
Officers' supplemental pension $ 196 $ 254
Deferred compensation -- 139
Defined benefit pension plan 473 634
---------- ----------
669 1,027
Less: current portion 131 363
---------- ----------
$ 538 $ 664
========== ==========

NOTE K. INCOME TAXES

The components of the provision for (benefit from) income taxes for the years
ended December 31 are as follows:

2007 2006
---------- ----------

Current $ -- $ --
Deferred (129) --
---------- ----------
Benefit from income taxes $ (129) $ 0
========== ==========

As a result of the Company's continued review of its tax positions, in 2007 it
reversed a tax provision previously booked in relation to its defined benefit
pension plan.

A reconciliation of the statutory federal income tax rate to the effective tax
rate on pretax loss for the years ended December 31, is as follows:

2007 2006
---------- ----------
Statutory federal income tax rate (34.0)% (34.0)%
State tax (net of federal benefit) (13.0) --
Write-off and amortization of intangibles 14.2 2.9
Stock-based compensation expense 0.8 3.0
Valuation allowance 42.8 28.0
R&D tax credit (5.3) --
Other (7.1) 0.1
---------- ----------
(1.6)% 0%
========== ==========

Deferred income taxes reflect the net tax effects of temporary differences
between carrying amounts of assets and liabilities and their tax bases, and are
stated at enacted tax rates expected to be in effect when taxes are actually
paid or recovered.

Significant components of the Company's deferred tax liabilities and assets as
of December 31, 2007 and 2006 are as follows:

2007 2006
---------- ----------
Deferred tax liabilities $ -- $ 77
Deferred tax assets:
Fixed assets 193 --
Inventory valuation 1,327 1,262
Accrued liabilities and employee benefits 326 526
Stock compensation 434 --
Accrued deferred compensation -- 134
Deferred revenue 142 --
Federal operating loss carryforward
expiring in 2027 5,922 3,853

Separate return federal operating loss
carry forwards expired -- 445
State NOL carry forwards 930 --
Research credit carry forwards 425 --
Other 42 148
---------- ----------
Total deferred tax assets 9,741 6,368
---------- ----------
Total net deferred tax assets 9,741 6,291
Valuation allowance (9,741) (6,291)
---------- ----------
Net deferred tax assets $ 0 $ 0
========== ==========

The Company has increased its valuation allowances by $3,450 in 2007 and $1,214
in 2006, as the Company cannot determine that the ultimate realization of its
net deferred tax asset is more likely than not.

As of December 31, 2007, the Company had net operating loss carry forwards for
federal income tax purposes of approximately $17,900 which are available to
offset future federal taxable income through 2027. A portion of the federal
amount totaling $4,100 is subject to an annual limitation of approximately $206,
as defined by federal income tax regulations (Section 382), as a result of an
acquisition in 2005. The Company has a tax benefit of approximately $434 related
to the exercise of stock options. Pursuant to SFAS No. 123 (R), the benefit will
be recognized and recorded to APIC when the benefit is realized through the
reduction of taxes payable.

The Company complies with the provisions of FASB Interpretation No. 48,
"ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES - AN INTERPRETATION OF FASB
STATEMENT NO. 109" ("FIN No. 48"). FIN No. 48 addresses the determination of
whether tax benefits claimed, or expected to be claimed, on a tax return should
be recorded in the financial statements. Under FIN No. 48, the Company may
recognize the tax benefit from an uncertain tax position only if it is more
likely than not that the tax position will be sustained on examination by the
taxing authorities, based on the technical merits of the position. The Company
has determined that it has no uncertain tax positions requiring recognition
under FIN No. 48.

The Company's policy is to recognize interest and penalties accrued on any
unrecognized tax benefits as a component of income tax expense. As of the date
of adoption of FIN 48, the Company did not have any accrued interest or
penalties associated with any unrecognized tax benefits.

The Company files income tax returns in the U.S. federal jurisdiction and
various state jurisdictions. The Company is no longer subject to U.S. federal
tax examinations for years before 2005. State jurisdictions that remain subject
to examination range from years before 2000 to 2007. The Company does not
believe there will be any material changes in its unrecognized tax positions
over the next twelve months.

NOTE L. OTHER (INCOME) EXPENSE, NET

The components of other (income) expense for the years ended December 31, are as
follows:
2007 2006
---------- ----------

Gain on recovery of notes receivable $ (392) $ (75)
Interest income (140) (306)
Gain on settlement of deferred compensation (102) --
Other (gain) loss (4) 19
Loss on disposal of fixed assets -- 56
---------- ----------
$ (638) $ (306)
========== ==========

On March 3, 2008, the Company received $392 as payment in full of the remaining
principal balances and interest due on two notes executed in 2005 as
consideration for the sale of its former UK subsidiary, Dacon Electronics, plc.
These notes were fully reserved at that time, and the related charge had been
included in the loss on sale of discontinued operations that was recognized in
the fiscal year ended December 31, 2005.

NOTE M. COMMITMENTS AND CONTINGENCIES

LEASES. The Company leases its facilities and certain machinery and equipment
under non-cancelable operating leases. Rent expense under operating leases
totaled $355 in 2007 and $376 in 2006. Future minimum annual payments under
operating leases for each of the five years in the period ending December 31,
2012 are approximately $275, $128, $0, $0, and $0 respectively.

PURCHASE COMMITMENTS. The Company has purchase commitments of $286 in 2008 and
$5 in 2009. These are primarily related to inventory purchases.

PENSION PLAN. The Company has a defined benefit pension plan covering certain
eligible employees. Employees that joined the Company after June 30, 1994 are
not eligible to participate. The benefits are based on years of service and the
employee's compensation. No additional service cost benefits were earned
subsequent to June 30, 1994. Because of this curtailment of the Plan in 1994, at
this time the Projected Benefit Obligation and Accumulated Benefit Obligation
are the same. The Company's funding policy is to contribute amounts to the plan
sufficient to meet the minimum funding requirements set forth in the Employee
Retirement Income Security Act of 1974, plus such additional amounts as the
Company may determine to be appropriate from time to time.

The following table sets forth the changes in benefit obligations and plan
assets, and reconciles amounts recognized in the accompanying balance sheets at
December 31:
2007 2006
---------- ----------
Projected and accumulated benefit obligation
for services rendered to date:
Beginning of year $ 1,817 $ 1,843
Loss due to change in estimates 27 58
Interest cost 82 44
Less: benefits paid (300) (128)
---------- ----------
End of year 1,626 1,817
---------- ----------
Plan assets at fair value
Beginning of year 1,183 1,068
Actual return on plan assets 51 78
Contribution 230 165
Less administrative expenses (11) 0
Less benefits paid (300) (128)
---------- ----------
End of year 1,153 1,183
---------- ----------
Plan assets less than benefit obligation $ (473) $ (634)
========== ==========

The components of net periodic pension cost of the plan for the years ended
December 31 are as follows:
2007 2006
---------- ----------
Interest cost on projected benefit obligation $ 82 $ 44
Actual (return)/loss on plan assets (51) (78)
SFAS 88 settlement 69 0
Net amortization of loss and other expenses 13 108
---------- ----------
Net periodic pension cost $ 113 $ 74
========== ==========

Other changes in plan assets and benefit obligations recognized in comprehensive
loss:
2007 2006
---------- ----------
SFAS 158 transition adjustment $ (658) $ (709)
New net loss 615 658
---------- ----------
Total recognized in other comprehensive loss $ (43) $ (51)
========== ==========
Total recognized in net periodic benefit cost
and other comprehensive loss $ 70 $ 23
========== ==========

Effects of transition to SFAS 158 as of December 31, 2006:

Before SFAS Effect of After SFAS
158 SFAS 158 158
----------- ----------- -----------
Prepaid cost/(accrued liability) $ 24 $(658) $(634)
Accumulated other comprehensive loss $(658) $ 0 $(658)

The estimated amount of net loss that will be amortized from accumulated other
comprehensive loss into net periodic pension benefit cost in 2008 is $41.

Assumptions: 2007 2006
------------ ---------- ----------
Weighted-average assumptions used to determine
benefit obligation as of year-end:
Discount rate 4.52% 4.69%
Rate of compensation increase 0.00% 0.00%
Weighted-average assumptions used to determine
net benefit cost:
Discount rate 4.69% 4.73%
Rate of compensation increase 0.00% 0.00%
Expected return on plan assets 6.50% 6.50%

The plan's weighted-average asset allocations
at December 31, 2007 and 2006, by asset
category, are as follows:

Asset Category 2007 2006
-------------- ---------- ----------
Equity Securities 0% 49%
Debt Securities 100% 20%
Cash and cash equivalents 0% 31%

The Company's accrual for its defined benefit pension plan included a current
liability of $80 and $245 at December 31, 2007 and 2006, respectively, which is
included in accrued compensation and benefits, and a long-term liability of $393
and $389 at December 31, 2007 and 2006, respectively, which is included in other
liabilities on the accompanying balance sheets.

The following benefit payments are expected to be paid: $94 in 2008, $92 in
2009, $97 in 2010, $125 in 2011, $126 in 2012 and $642 for the five year period
ending in 2017. The Company expects to contribute $80 to the plan in 2008.

401(K) RETIREMENT PLAN. The Company has a defined contribution plan covering
substantially all employees. The Company has not made any contributions to the
plan.

OFFICERS' SUPPLEMENTAL PENSION PLAN. The Company has an unfunded,
noncontributory defined benefit pension plan covering two retired officers. The
components of net pension cost of the plan for the years ended December 31 are
as follows:

2007 2006
---------- ----------
Interest cost on projected benefit obligation $ 9 $ 13
Amortization of actuarial gains (6) (2)
---------- ----------
Net periodic pension cost $ 3 $ 11
========== ==========

The following table sets forth the plan's status and the accrued pension
liability recognized in the accompanying balance sheets at December 31:

2007 2006
---------- ----------
Projected benefit obligations
Balance at beginning of period $ 211 $ 268
Interest expense 9 13
Less benefits paid (67) (70)
---------- ----------
Balance at end of period 153 211
Unrecognized net gain 43 43
---------- ----------
Accrued pension liability $ 196 $ 254
========== ==========

The discount rate used in determining the projected benefit obligation was 5.5%
in 2007 and 2006. All participants are retired and therefore future increases in
compensation are not applicable.

DEFERRED COMPENSATION. At December 31, 2007 and 2006, the liability relating to
a deferred compensation arrangement between the Company and a former director
and officer of the Company was $0 and $139, respectively, and is included in
other liabilities.

NOTE N. STOCK PLANS

The Company has, in certain circumstances, granted, at the fair market value on
the date of grant, nonqualified options as an inducement to enter into
employment with the Company ("Inducement Options"). These options generally
become vested in three equal annual installments on a cumulative basis generally
commencing six months after the date of grant and expire 10 years following the
grant date.

The 1990 Stock Option Plan provides for the grant, at fair market value on the
date of grant, of nonqualified stock options and incentive stock options.
Options generally expire ten years after the date granted.

The Directors' Stock Option Plan, as amended, provides for an annual grant of
options to non-employee directors. This plan provides for the automatic award of
options to purchase 6,000 shares of common stock at the fair market value at the
date of grant to each person who is a participant on August 1 of each year and
pro-rated awards in certain circumstances. Options become vested one year after
the date of grant. The awards expire ten years following the grant date.

Share information pertaining to the option plans is as follows:

Weighted 1990 Weighted Directors' Weighted
Average Stock Average Stock Average
Inducement Exercise Option Exercise Option Exercise
Options Price Plan Price Plan Price
------------- ------------- ------------- ------------- ------------- -------------

Outstanding at January 1, 2006 705,000 $ 2.55 1,089,470 $ 3.95 147,750 $ 2.94
Granted 140,000 2.92 657,500 3.54 31,000 2.08
Cancelled or expired (278,334) 2.58 (688,969) 4.30 (12,000) 2.05
Exercised -- (84,868) 1.69 --
------------- ------------- -------------
Outstanding at December 31, 2006 566,666 2.62 973,133 3.62 166,750 2.84
Granted -- 793,000 1.33 20,500 2.17
Cancelled or expired (166,666) 2.58 (256,761) 4.16 (50,500) 3.12
Exercised -- (58,166) 1.97 (35,000) 1.95
------------- ------------- -------------
Outstanding at December 31, 2007 400,000 2.64 1,451,206 2.34 101,750 2.88
============= ============= =============
Available for future grant 0 112,660 235,750
============= ============= =============
Average remaining term 8.0 yrs 7.0 yrs 4.4 yrs
Exercisable at December 31, 2007 263,327 2.64 672,326 3.10 81,250 3.06
============= ============= =============
Intrinsic Value:
Outstanding $ 0 $ 31 $ 0
============= ============= =============
Exercisable $ 0 $ 8 $ 0
============= ============= =============

The following table summarizes information relating to current outstanding and
exercisable stock options as of December 31, 2007:

Options Options Options
Outstanding Exercisable Exercisable
---------------------------------------------- ------------- -------------
Weighted
Average Weighted Weighted
Number of Remaining Average Average
Shares Contractual Exercise Number of Exercise
Exercise Price Outstanding Life (in years) Price Shares Price
-------------------- ------------- ------------- ------------- ------------- -------------

Inducement Options:
$2.30-2.55 290,000 7.8 $ 2.54 189,997 $ 2.55
2.59 - 3.05 110,000 8.3 2.89 73,330 2.89
------------- -------------
400,000 263,327
============= =============
1990 Option Plan:
$0.20 444,000 10.0 $ 0.20 111,000 $ 0.20
1.55 106,167 2.0 1.55 106,167 1.55
2.15-2.85 690,289 7.1 2.71 289,409 2.61
2.86-4.99 45,000 9.2 2.93 --
5.00 88,250 1.0 5.00 88,250 5.00
9.06 - 9.70 77,500 0.8 9.07 77,500 9.07
------------- -------------
1,451,206 672,326
============= =============
Directors Option Plan:
$1.45 6,000 2.5 $ 1.45 6,000 $ 1.45
2.00 - 2.11 47,000 6.1 2.06 29,000 2.06
2.81 - 6.10 48,750 2.9 3.85 46,250 3.89
------------- -------------
101,750 81,250
============= =============

The following table summarizes the status of the Company's non-vested stock
options for 2007 and 2006:

Non-Vested Options
--------------------------
Number Weighted
of Average
Shares Fair Value
---------- ----------
Non-vested at January 1, 2006 934,999 $ 2.57
Granted 486,000 2.81
Vested (386,823) 2.53
Forfeited (311,500) 2.57
----------
Non-vested at December 31, 2006 722,676 2.71
Granted 813,500 1.35
Vested (388,910) 2.00
Forfeited (211,213) 3.49
----------
Non-vested at December 31, 2007 936,053 1.83
==========

The Company also has a restricted stock plan ("Restricted Stock Plan") which
provides for the award of shares to key employees. The awards vest in five equal
annual installments commencing two years after the date of the award.

In 2006, as an inducement to enter into employment with the Company, a total of
275,000 restricted common shares were granted to two key executives which vest
four years after the date of grant. Such rights are subject to immediate vesting
in the event of change of control of the Company or involuntary termination of
employment for reasons other than cause. The total value of the restricted
common shares on the dates of grant was $564, and was based on the fair market
value of $2.05 per share on the grant dates. Compensation expense for these
grants totaled $141 in 2007 and $43 in 2006.

Information pertaining to restricted stock grants is as follows:

Restricted
Stock Plan Inducement
Shares Shares
---------- ----------
Outstanding at December 31, 2005 182,050 --
Granted -- 275,000
Cancelled or expired (71,900) --
Vested (87,650) --
---------- ----------
Outstanding at December 31, 2006 22,500 275,000
Granted -- --
Cancelled or expired (19,200) --
Vested (2,100) --
---------- ----------
Outstanding at December 31, 2007 1,200 275,000
========== ==========
Available for future grant 413,600 --
========== ==========
Average remaining term 1.3 years 2.7 years

In 2002, the Company granted to key executives the right to receive 395,000
common shares which vested on January 2, 2006. The total value of the rights at
the date of grant was $612 and was based on the market price of $1.55 per share.

The following table summarizes the components and classification of stock-based
compensation expense included in the statements of operations:

Year ended December 31, 2007 2006
---------- ----------
Stock options $ 491 $ 521
Stock grants 135 46
Stock options - severance -- 132
---------- ----------
Total stock-based compensation $ 626 $ 699
---------- ----------

Cost of revenues $ 48 $ 31
Research and development 46 240
Selling, general and administrative 532 428
---------- ----------
Total stock-based compensation $ 626 $ 699
========== ==========

As of December 31, 2007 and 2006, respectively, approximately $347 and $500 of
unrecognized stock compensation (net of estimated forfeitures) related to
unvested option awards and unvested stock grants, respectively, are expected to
be recognized over weighted-average periods of 5.0 and 2.8 years, respectively.

The Company estimates the fair value of stock options using the Black-Scholes
valuation model. The following table summarizes the assumptions used to compute
the weighted average fair value of stock option grants of $0.61 during the year
ended December 31, 2007:

Dividend yield 0.0%
Weighted average volatility 65.24%
Risk free interest rate 3.95%
Expected holding period 2.7 years

No dividend yield was assumed because the Company has never paid a cash
dividend.

The weighted average volatility for the current period was developed using
historical volatility.

The risk-free interest rate was developed using the U.S. Treasury yield for
periods equal to the expected life of the options on the grant date. An increase
in the risk-free interest rate will increase stock compensation expense.

The expected holding period was developed after considering vesting schedules,
life of the option, historical experience and estimates of future exercise
behavior patterns. An increase in this assumption would increase stock
compensation expense.

The Company recognizes stock-based compensation expense for the number of awards
that are ultimately expected to vest. As a result, for most awards, recognized
stock compensation was reduced for estimated forfeitures prior to vesting
primarily based on historical annual forfeiture rates of approximately 15%.
Estimated forfeitures will be reassessed in subsequent periods and may change
based on new facts and circumstances.

For the purpose of the statement of cash flows, the realization of tax benefits
in excess of amounts recognized for financial reporting purposes will be
recognized as a financing activity.

NOTE O. ACCUMULATED OTHER COMPREHENSIVE LOSS

Cumulative other comprehensive loss consists of the following at December 31:

2007 2006
---------- ----------
Unfunded pension liability, net of tax of
$0 in 2007 and $129 in 2006 $ (615) $ (529)
========== ==========

NOTE P. RELATED PARTY TRANSACTIONS

Prior to August 2002, the Company had advanced amounts to officers primarily for
personal income taxes related to various stock option grants. The amounts
outstanding at December 31, 2007 and 2006 were $0 and $444, respectively,
including interest accrued on the advances. This indebtedness bore interest at
rates approximating market rates and was payable upon

demand. During 2006, former officers of the Company repaid loans and accumulated
interest, aggregating approximately $1,630. Repayment consisted of $124 and
597,144 shares of the Company's common stock, valued at the closing market price
at the date of the repayment of the loans. During 2007, former officers repaid
loans and accumulated interest aggregating $465. Repayment consisted of 155,972
shares of the Company's common stock, valued at the closing market price at the
date of the repayment of the loans.

The Company paid $140 in 2007 and $40 in 2006 in consulting fees to Mr. Brian
Kelley, a former officer and director, in accordance with the terms of his
termination agreement.

Mr. Robert Fleming, Chairman of the Company's Board of Directors, is the
designated representative on the Board of Prism VentureWorks ("Prism") which
owns 1,149,705 shares of the Company's common stock. The contractual terms in
connection with the acquisition of ThinkEngine Networks, Inc. in November 2005
provide that, so long as Prism or one of its affiliated funds holds 400,000 or
more shares of the Company's common stock, the Company shall cause an individual
designated by Prism and acceptable to the Company's Board to be elected a
director.

NOTE Q. SUBSEQUENT EVENT

Following delisting, trading of the Company's common stock will be limited to
the OTC Bulletin Board, the Pink Sheets or similar quotation systems. Inclusion
of the Company's common stock on these quotation systems could adversely affect
the liquidity and price of the Company's common stock and make it more difficult
for us to raise additional capital on favorable terms, if at all. In addition,
this de-listing by the AMEX may negatively impact the Company's reputation and,
as a consequence, its business. Furthermore, the Pink Sheets and OTC Bulletin
Board are viewed by most investors as a less desirable, and less liquid,
marketplace. As a result, an investor may find it more difficult to purchase,
dispose of or obtain accurate quotations as to the value of the Company's common
stock.

Item 9. Changes in and Disagreements with Accountants on Accounting and
------------------------------------------------------------------------
Financial Disclosure
--------------------

Not applicable.

Item 9A(T). Controls and Procedures
------------------------------------

QUARTERLY EVALUATION. The Company's management carried out an evaluation as of
December 31, 2007 of the effectiveness of the design and operation of the
Company's "disclosure controls and procedures," which the Company refers to as
the Company's disclosure controls. This evaluation was done under the
supervision and with the participation of Company management, including the
Chief Executive Officer and Chief Financial Officer. Rules adopted by the
Commission require that the Company present the conclusions of the Chief
Executive Officer and Chief Financial Officer about the effectiveness of the
Company's disclosure controls as of the end of the period covered by this annual
report.

DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL
REPORTING. Disclosure controls and procedures are designed with the objective of
ensuring that information required to be disclosed in the Company's reports
filed or submitted under the Exchange Act, such as this Annual Report on Form
10-K, is recorded, processed, summarized and reported within the time periods
specified in the Commission's rules and forms. Disclosure controls and
procedures are also designed with the objective of ensuring that such
information is accumulated and communicated to Company management, including the
Company's Chief Executive Officer and Chief Financial Officer, as appropriate,
to allow timely decisions regarding required disclosure.

Internal control over financial reporting is a process designed by, or under the
supervision of, the Company's Chief Executive Officer and Chief Financial
Officer, and effected by the Company's Board of Directors, management and other
personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles and
includes those policies and procedures that:

o pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions of the
Company's assets;

o provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that the Company's
receipts and expenditures are being made only in accordance with
authorizations of management or the Company's Board of Directors; and

o provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of the Company's
assets that could have a material adverse effect on the Company's
financial statements.

LIMITATIONS ON THE EFFECTIVENESS OF CONTROLS. Management, including the
Company's Chief Executive Officer and its Chief Financial Officer, do not expect
that the Company's disclosure controls and procedures or internal control over
financial reporting will prevent all errors and all fraud. A control system, no
matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. Further,
the design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within the Company have been detected. These inherent
limitations include the realities that judgments in decision-making can be
faulty, and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management's override of the
control. The design of any system of controls also is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions; over time, controls may become inadequate because of changes
in conditions, or the degree of compliance with the policies or procedures may
deteriorate. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be detected.

SCOPE OF THE EVALUATION OF THE COMPANY'S DISCLOSURE CONTROLS AND PROCEDURES. An
evaluation of the Company's disclosure controls and procedures included a review
of the Company's internal control procedures, as well as discussions with
members of management and others in the Company, as appropriate. In the course
of the evaluation, the Company sought to identify data errors, control problems
or acts of fraud and to confirm that appropriate corrective action, including

process improvements were being undertaken. The overall goals of these various
evaluation activities are to monitor the Company's disclosure controls and
procedures and to make modifications as necessary. The Company's intent in this
regard is that the disclosure controls and procedures will be maintained as
systems that change (including with improvements and corrections) as conditions
warrant. Among other matters, the Company sought in this evaluation to determine
whether there were any "significant deficiencies" or "material weaknesses" in
the Company's internal control over financial reporting, or whether the Company
had identified any acts of fraud involving personnel who have a significant role
in the Company's internal control over financial reporting. The Company also
sought to deal with other control matters in the evaluation, and in any case in
which a problem was identified, management considered what revision, improvement
and/or correction was necessary to be made in accordance with the Company's
on-going procedures.

PERIODIC EVALUATION AND CONCLUSION OF DISCLOSURE CONTROLS AND PROCEDURES. As of
December 31, 2007, the Company carried out an evaluation, under the supervision
and with the participation of the Company's management, including its Chief
Executive Officer and its Chief Financial Officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures. Based
on that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that such controls and procedures were effective as of December 31,
2007.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING. During the year ended
December 31, 2007, the Company made changes to its internal controls, designed
to centralize financial reporting in light of recent changes to the
organizational structure of the Company. There were no other changes in the
Company's internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control for financial reporting.

MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING. The
Company's management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in Exchange
Act Rule 13a-15(f). Under the supervision and with the participation of the
Company's management, including its principal executive officer and principal
financial officer, the Company conducted an evaluation of the effectiveness of
its internal control over financial reporting based on the framework in INTERNAL
CONTROL - INTEGRATED FRAMEWORK issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on the evaluation under the
framework in INTERNAL CONTROL -- INTEGRATED FRAMEWORK, the Company's management
concluded that the Company's internal control over financial reporting was
effective as of December 31, 2007.

This annual report does not contain an attestation report of the Company's
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by the Company's
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit the Company to provide only management's
report in this annual report.

Item 9B. Other Information
--------------------------

Not applicable.

PART III

Item 10. Directors, Executive Officers and Corporate Governance
---------------------------------------------------------------

BOARD INFORMATION AND COMMITTEES

NAME, AGE, POSITIONS, PRINCIPAL OCCUPATION, DIRECTOR
DIRECTORSHIPS AND BUSINESS EXPERIENCE SINCE
--------------------------------------------------------------------------------
Robert C. Fleming, 51, is a co-founder of Prism VentureWorks 2005
("Prism"), a venture capital investment firm, and was a
partner of the firm from 1996 until March 1, 2006.

Michael G. Mitchell, 47, has been President and Chief Executive 2006
Officer of the Company since August 2006. Previously he had
been Executive Vice President, Business Development of
ThinkEngine Networks, Inc., from November 2005 to April 2006, and
President and Chief Executive Officer of ThinkEngine Networks,
Inc., prior to the merger with Cognitronics Corporation, from
2001 until November 2005.

Robert H. Scott, 53, has been President and Chief Executive 2006
Officer of Colubris Networks, Inc. since April 2007.
Previously he was President and Chief Executive Officer of Xelor
Software, Inc. from September 2004 to March 2007, and IPeria,
Inc. from 2003 to 2004, and Chairman of Octave Communications
Inc. from 1998 to 2003.

William J. Stuart, 56, has been Senior Vice President and Chief 2001
Financial Officer of Avici Systems Inc. since August 2006.
Previously he had been a general partner of Still River Funds
since September 2001.

John E. Sweeney, 50, has been President and Chief Executive 2006
Officer of Apparent Networks since July 2007. Previously he
was Vice President and General Manager of RSA, the Information
and Security Division of EMC Corp. from September 2006 to May
2007, and President and Chief Executive Officer of its
predecessor, Network Intelligence Corporation, since 2004.
Previously he was President and Chief Executive Officer of
Stargus Communications, Inc. during 2004 and a partner of Prism
Venture Partners from 2000 to 2003.

All directors are elected to annual terms. Mr. Robert Fleming, chairman of the
Company's Board of Directors, is the designated representative on the Board of
Prism VentureWorks which owns 1,149,705 shares of the Company's common stock.
The contractual terms in connection with the acquisition of ThinkEngine
Networks, Inc. in November 2005 provide that, so long as Prism or one of its
affiliated funds holds 400,000 or more shares of the Company's common stock, the
Company shall cause an individual designated by Prism and acceptable to the
Company's Board to be elected a director.

The board met six times in 2007 and acted four times by unanimous written
consent. Each incumbent director attended at least 75 percent of the total
number of board meetings and meetings held by the board committees on which he
served during 2007. The board has determined that each of our non-employee
directors currently serving on the board or who served on the board during 2007
are independent based upon the criteria provided by AMEX rules.

Members of the board serve on one or more of the three committees described
below, except for directors who are also employees of the Company, who do not
serve on any of these committees.

The Audit Committee, which met six times in 2007, monitors our financial
reporting standards and practices and our internal financial controls to ensure
compliance with the policies and objectives established by the board of
directors. The committee directly retains and recommends for stockholder
ratification an independent accounting firm to conduct the annual audit, and
discusses with our independent accountants the scope of their examinations, with
particular attention to

areas where either the committee or the independent accountants believe special
emphasis should be directed. The committee reviews the quarterly and annual
financial statements and the annual independent accountants' report, invites the
accountants' recommendations on internal controls and on other matters, and
reviews the evaluation given and corrective action taken by management. It
reviews the independence of the accountants and pre-approves audit and
permissible non-audit services. It also reviews our internal accounting controls
and the scope and results of our internal auditing activities. Members of the
Audit Committee are Messrs. Scott, Stuart (Chairman), and Sweeney. Mr. William
Merritt served on the Audit Committee until his board service terminated on May
10, 2007. Mr. Sweeney joined the Audit Committee on May 10, 2007.

Each member of the committee is independent under Rule 10A-3 of the Securities
and Exchange Commission and AMEX listing standards. The board of directors has
determined that Mr. Stuart, Chairman of the committee, qualifies as an "audit
committee financial expert" as that term is defined in Regulation S-K of the
Securities and Exchange Commission.

The Compensation Committee, which met three times in 2007, oversees our
executive and director compensation programs, including establishing our
executive and director compensation policies and annually reviewing all
components of compensation to ensure that our objectives are appropriately
achieved. These functions are not delegated to our officers or to third-party
professionals, although the committee may from time to time retain third-party
consultants to provide advice regarding compensation issues. No consultants were
utilized in 2007. The committee also considers input from our executive officers
although final decisions regarding executive compensation are made by the
committee. The committee is also responsible for certain administrative aspects
of our compensation plans and stock plans, and approves or recommends changes in
these plans. It also approves performance targets and grants under our incentive
plans and our stock plan for our executive officers. The committee also reviews
officers' potential for growth, and, with the chief executive officer, will be
responsible for succession planning and ensuring management continuity. Members
of the Compensation Committee are Messrs. Fleming, Stuart (Chairman), and
Sweeney. Mr. Fleming joined the Compensation Committee on May 10, 2007. Mr.
William Merritt served on the Compensation Committee until his board service
terminated on May 10, 2007.

The Nominating Committee, which met once in 2007, recommends nominees for
election to the board of directors. Members of the Nominating Committee are
Messrs. Fleming (Chairman), Scott, and Sweeney.

The three committees described above are each governed by a written charter.
Copies of each committee charter are available on our website at
www.thinkengine.com.

CODE OF ETHICS

Our board of directors has approved a Code of Business Conduct in accordance
with the rules of the Securities and Exchange Commission and the American Stock
Exchange that governs the conduct of each of our employees and directors,
including our principal executive officer, principal financial officer,
principal accounting officer and controller. Our Code of Business Conduct is
maintained on our website at www.thinkengine.com. Any amendments to or waivers
of the Code of Business Conduct that apply to our principal executive officer,
principal financial officer or principal accounting officer and that relates to
any element of the definition of the term "code of ethics," as the term is
defined by the Securities and Exchange Commission, will be posted on our website
at www.thinkengine.com. There are currently no such amendments or waivers.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Directors and persons who are considered "officers" of ThinkEngine for purposes
of Section 16(a) of the Securities Exchange Act of 1934 and greater than ten
percent stockholders (referred to as reporting persons) are required to file
reports with the Securities and Exchange Commission showing their holdings of
and transactions in ThinkEngine securities. It is generally our practice to file
the forms on behalf of our reporting persons who are directors or officers. We
believe that all such forms have been filed on a timely basis during 2007.

Item 11. Executive Compensation
--------------------------------

EXECUTIVE CONTRACTS AND SEVERANCE AND CHANGE OF CONTROL ARRANGEMENTS

On August 16, 2006, we entered into an Employment Agreement with Michael G.
Mitchell under which he serves as our President and Chief Executive Officer. The
terms of the agreement provide for (i) employment "at will", (ii) compensation
at a base salary at the annual rate of $250,000 payable in installments and
(iii) an "inducement" grant of 200,000 shares of ThinkEngine's common stock,
which will vest on the fourth anniversary of his employment or sooner, upon a
change of control of ThinkEngine. Further, if Mr. Mitchell's employment is
terminated (i) by ThinkEngine without Serious Cause or (ii) by him for Good
Reason, we will continue to pay his then-current base salary for a period of six
months from the date of such termination, and also for a period of twelve months
the company-paid portion of his medical and dental insurance coverages. The cost
to the Company would approximate $151,740 for a six-month period. Also, if his
employment is terminated without Serious Cause or by him for Good Reason within
two years following a change of control of ThinkEngine, he will be entitled to
receive his then-current base salary for a period of one year from the date of
such termination, and also the Company-paid portion of his medical and dental
insurance coverages. The cost to the Company would approximate $297,580 for a
twelve-month period.

On November 21, 2006, we entered into an Employment Agreement with John E.
Steinkrauss under which he serves as our Vice President, Chief Financial Officer
and Treasurer. The terms of the agreement provide for (i) employment "at will",
(ii) compensation at a base salary at the annual rate of $165,000 and
eligibility for an annual cash bonus as determined at the sole discretion of the
Compensation Committee of the board and (iii) an "inducement" grant of 75,000
shares of ThinkEngine common stock, which will vest on the fourth anniversary of
his employment or sooner, upon a change of control of ThinkEngine. Further, if
Mr. Steinkrauss' employment is terminated (i) by ThinkEngine without Serious
Cause or (ii) by him for Good Reason, we will continue to pay his then-current
base salary for a period of six months from the date of such termination, and
also the company-paid portion of his medical and dental insurance coverages. The
cost to the Company would approximate $99,960 for a six-month period. Also, if
his employment is terminated without Serious Cause or by him for Good Reason
within two years following a change of control of ThinkEngine, he will be
entitled to receive his then-current base salary for a period of one year from
the date of such termination, and also the company-paid portion of his medical
and dental insurance coverages. The cost to the Company would approximate
$206,280 for a twelve-month period.

COMPENSATION DISCLOSURE TABLES

SUMMARY COMPENSATION TABLE. The following table (Table I) shows all compensation
paid or granted, during or with respect to the 2006 and 2007 fiscal year to the
chief executive officer, and to the chief financial officer for services
rendered to the Company during 2006 and 2007. Persons in this group are referred
to individually as a "named executive officer" and collectively as the "named
executive officers," and, unless otherwise noted, the titles listed are the
titles held as of the end of the 2007 fiscal year.

TABLE I
2006 - 2007 SUMMARY COMPENSATION TABLE

CHANGE IN
PENSION VALUE
AND
NON-EQUITY NONQUALIFIED
INCENTIVE DEFERRED
NAME AND STOCK OPTION PLAN COMPENSATION ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS AWARDS AWARDS COMPENSATION EARNINGS COMPENSATION TOTAL
------------------ ---- ------- ------ ------ ------ ------------ ------------- ------------ -------
($) ($) ($)(1) ($)(2) ($) ($) ($)(3) ($)

Michael G. Mitchell ... 2007 275,000 13,749 102,500 64,935 -- -- 4,614 460,798
President and Chief 2006 278,522 25,000 38,437 -- -- -- -- 341,959
Executive Officer

John E. Steinkrauss ... 2007 185,000 6,938 38,437 16,234 -- -- -- 246,609
Vice President, 2006 18,602 5,000 4,164 -- -- -- -- 27,766
Treasurer, and
Chief Financial
Officer

(1) Dollar amounts set forth with regard to restricted stock grants for each
individual are those recognized for financial statement reporting purposes for
2006 and 2007 in accordance with FAS 123R disregarding the estimate of
forfeitures related to service-based vesting conditions. Share value utilized
for purposes of this determination is the applicable market value on the date of
grant. For a further discussion of the assumptions underlying these amounts,
reference is made to the footnotes to ThinkEngine's financial statements as set
forth in this Annual Report on Form 10-K for the fiscal year ended December 31,
2007.

(2) Dollar amounts with regard to 2007 option grants for each individual are
those recognized for financial statement reporting purposes in accordance with
FAS 123R disregarding the estimate of forfeitures related to service-based
vesting conditions. The amounts set forth herein are based on a Black-Scholes
calculation assuming a 4.5% risk free interest rate, volatility of 56.5%, an
expected holding period of 4 years and an annual dividend rate of 0.0%. For a
further discussion of the assumptions underlying these amounts, reference is
made to the footnotes to ThinkEngine's financial statements as set forth in this
Annual Report on Form 10-K for the fiscal year ended December 31, 2007.

(3) This amount represents compensation for a Company provided automobile.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE. Shown in Table II below is
information with respect to outstanding equity-based awards (consisting of
unexercised options to purchase ThinkEngine common stock and unvested restricted
ThinkEngine common stock) held by the named executive officers at December 31,
2007.

TABLE II
OUTSTANDING EQUITY AWARDS AT 2007 FISCAL YEAR END

OPTION AWARDS STOCK AWARDS

NUMBER OF NUMBER OF
SECURITIES SECURITIES NUMBER OF MARKET VALUE OF
UNDERLYING UNDERLYING OPTION OPTION SHARES OR UNITS SHARES OR UNITS
UNEXERCISED UNEXERCISED EXERCISE EXPIRATION OF STOCK THAT OF STOCK THAT
NAME OPTIONS OPTIONS PRICE DATE HAVE NOT VESTED HAVE NOT VESTED
---- --------------- ------------------- ----- ---------- --------------- ---------------
(#) EXERCISABLE (#) UNEXERCISABLE (1) ($) (#) ($)(2)

Michael G. Mitchell 29,166 70,834 $2.83 3/9/17 200,000 $54,000

John E. Steinkrauss 7,291 17,709 $2.83 3/9/17 75,000 $20,250

(1) Mr. Mitchell's and Mr. Steinkrauss' remaining unvested options become
exercisable in monthly installments through March 8, 2011.
(2) These values are based on $0.27 per share, the market price of a share
of the Company's common stock as of December 31, 2007 (the final
trading day of 2007).

DIRECTORS' COMPENSATION

DIRECTORS' FEES AND OTHER COMPENSATION. Directors who were not ThinkEngine
employees in 2007 were entitled to payment of (a) an annual fee of $8,000, (b)
$1,000 for each board meeting attended, of which there were five during 2007,
and for each meeting of a committee of the board not held in conjunction with a
board meeting, of which there were two in 2007, and (c) $1,000 for each
substantive part of a business day that a director is requested to assist
management in the future development of our business, of which there were no
such occasions in 2007. Directors were able to voluntarily defer the receipt of
such fees to a future year. Also, directors could elect to be paid in cash or in
shares of common stock. If a director elected to be paid in shares, that
director was entitled to 125% of the equivalent value in shares. In 2007, none
of the directors elected to defer receipt of such fees or to be paid in shares
of common stock. Directors are also entitled to reimbursement of reasonable
travel expenses.

Directors receive option grants pursuant to the Directors' Stock Option Plan.
The terms of the Directors' Plan provide for (1) an automatic award on August 1
of each year, to each person who is a participant, of options to purchase 6,000
shares of common stock and (2) a pro rata portion of the annual award sixty days
following the initial election of a director by the board of directors. The
option exercise price is 100% of the fair market value per share of common stock
on the date of the award, as defined in the Directors' Plan. Generally, the
options become exercisable one year after the date of award and expire ten years
after the date of award. During 2007, Messrs. Scott, Stuart and Sweeney were
each awarded options to purchase 6,000 shares of common stock on August 1, 2007
at an exercise price of $2.06 per share. Mr. Sweeney was also awarded an option
to purchase 2,500 shares of common stock on February 12, 2007 at an exercise
price of $3.00 per share.

Under the terms of the 1990 Stock Option Plan, Messrs. Merritt, Scott, Stuart
and Sweeney were each awarded an option to purchase 30,000 shares of common
stock on March 9, 2007 at an exercise price of $2.83 per share. These grants
vested 25% on the date of grant with the remainder vesting ratably monthly over
a two year period.

Under the terms of the 1990 Stock Option Plan, Mr. Scott was awarded an option
to purchase 2,500 shares of common stock on May 10, 2007 at an exercise price of
$2.15 per share. This grant vests 100% on the first anniversary of the date of
grant.

DIRECTOR COMPENSATION TABLE. The following table (Table III) shows all
compensation paid or granted, during or with respect to the 2007 fiscal year to
each of the non-employee directors for services rendered to ThinkEngine during
2007.

TABLE III
2007 DIRECTOR COMPENSATION

FEES EARNED OR
NAME (a) PAID IN CASH ($) OPTION AWARDS ($)(b) TOTAL ($)
----------------- ---------------- -------------------- ---------
Robert C. Fleming -- -- --

William A. Merritt $ 3,000 $ 2,643 $ 5,643

Robert H. Scott $ 15,000 $ 37,574 $ 52,574

William J. Stuart $ 16,000 $ 38,017 $ 54,017

John E. Sweeney $ 14,000 $ 37,990 $ 51,990

(a) As of December 31, 2007: Mr. Merritt held options to purchase 29,500
shares of ThinkEngine common stock, Mr. Scott held options to purchase
39,500 shares of ThinkEngine common stock; Mr. Stuart held options to
purchase 71,750 shares of ThinkEngine common stock; and Mr. Sweeney
held options to purchase 38,500 shares of ThinkEngine common stock.
Mr. Fleming did not hold any options to purchase our common stock.

(b) Dollar amounts with regard to option awards for each individual are
those recognized for financial statement reporting purposes for 2007
in accordance with FAS 123R.

Item 12. Security Ownership of Certain Beneficial Owners and Management and
----------------------------------------------------------------------------
Related Stockholder Matters
---------------------------

INFORMATION REGARDING BENEFICIAL OWNERSHIP OF PRINCIPAL SHAREHOLDERS, DIRECTORS,
AND MANAGEMENT

The only persons or groups known to us to be beneficial owners of more than five
percent of ThinkEngine's outstanding common stock are reflected as of March 14,
2008 in the chart. Except as otherwise noted, the following information is based
solely upon Schedules 13D and 13G, respectively, filed with the Securities and
Exchange Commission by the persons and entities shown as of the respective dates
appearing below.

NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNERS BENEFICIAL OWNERSHIP OF CLASS
----------------- -------------------- --------
Prism Venture Partners III, LLC 1,149,705 (a) 17.1%
117 Kendrick Street, Suite 200
Needham, MA 02494

Bruce Galloway and Gary Herman 691,593 (b) 10.3%
c/o Galloway Capital Management, LLC
720 Fifth Avenue, 10th Floor
New York, NY 10019

(a) Information set forth in a Schedule 13D filed with the SEC on November 25,
2005 by Prism Venture Partners III, L.P. ("PVP III"), which owns of record
1,116,134 shares of common stock and Prism Venture Partners III-A, L.P.
("PVP III-A"), which owns of record 33,571 shares of common stock, and
additional information provided by PVP III and PVP III-A on October 26,
2006. The 13D was also filed by Prism Venture Partners III, LLC ("PVP
LLC"), John L. Brooks, III, Robert C. Fleming and William M. Seifert.
Messrs. Brooks and Seifert have shared voting and dispositive power over
all of the shares. Messrs. Brooks and Seifert are members of PVP LLC which
is the sole general partner of PVP III and PVP III-A.

(b) Information set forth in a Schedule 13G, Amendment No. 5 filed with the SEC
on February 11, 2008 by Strategic Turnaround Equity Partners, LP (Cayman),
Galloway Capital Management, LLC, Bruce Galloway and Gary Herman. Reflects
(i) 2,500 shares of common stock owned by Mr. Herman, (ii) 1,000 shares of
common stock owned by FBR, Inc. for which Mr. Herman retains full
investment and voting discretion, (iii) 138,623 shares of common stock held
by Mr. Galloway's Individual Retirement Account, (iv) 120 shares of common
stock held by Mr. Galloway's children for which Mr. Galloway has the power
to vote and dispose, and (v) 549,350 shares of common stock held by
Strategic Turnaround Equity Partners, LP Cayman ("STEP"). Mr. Galloway is a
managing member and the majority equity holder of Galloway Capital
Management, LLC, the general partner of STEP. Mr. Galloway disclaims
beneficial ownership of the shares of common stock directly beneficially
owned by STEP (except for (a) indirect interests therein by virtue of being
a member of Galloway Capital Management LLC, and (b) the indirect interests
of Mr. Galloway by virtue of being a limited partner of STEP). Mr. Herman
is a managing member of Galloway Capital Management, LLC, the general
partner of STEP. Mr. Herman disclaims beneficial ownership of the shares of
common stock directly beneficially owned by STEP (except for (a) indirect
interests therein by virtue of being a member of Galloway Capital
Management LLC, and (b) the indirect interests of Mr. Herman by virtue of
being a limited partner of STEP).

STOCK OWNERSHIP BY DIRECTORS AND EXECUTIVE OFFICERS.

The following table shows beneficial ownership of ThinkEngine common stock by
directors and executive officers as of March 14, 2008. The named executive
officers are the chief executive officer and the chief financial officer.

SHARES DEEMED
TO BE
BENEFICIALLY PERCENT
NAME OF BENEFICIAL OWNER OWNED OF CLASS
------------------------ ------------ --------
Robert C. Fleming(a) 0 --
Michael G. Mitchell 229,166 (b) 3.4%
Robert H. Scott 24,125 (c) *
William J. Stuart 81,020 (d) 1.2%
John E. Sweeney 23,125 (c) *
John E. Steinkrauss 157,291 (e) 2.3%
All executive officers and
directors as a group,
consisting of six persons 514,727 7.7%

* less than one percent

(a) Mr. Fleming is the designated board representative of PVP III and PVP III-A.

(b) Consists of 200,000 shares of restricted stock and 29,166 shares which may
be acquired within 60 days upon exercise of stock options.

(d) Includes 56,375 shares which may be acquired within 60 days upon exercise of
stock options. Also includes 15,000 shares held in Mr. Stuart's IRA account,
1,000 shares held in his spouse's IRA account, 500 shares held by his son and
8,145 shares held jointly with his spouse.

(e) Consists of 150,000 shares of restricted stock and 7,291 shares which may be
acquired within 60 days upon exercise of stock options.

EQUITY COMPENSATION PLAN INFORMATION

The following table sets forth general information concerning our equity
compensation plans as of December 31, 2007.

NUMBER OF SECURITIES
WEIGHTED-AVERAGE EXERCISE REMAINING AVAILABLE FOR
NUMBER OF SECURITIES TO PRICE OF OUTSTANDING ISSUANCE UNDER EQUITY
BE ISSUED UPON EXERCISE OPTIONS, WARRANTS AND COMPENSATION PLANS
OF OUTSTANDING OPTIONS, RIGHTS (EXCLUDING SECURITIES
PLAN CATEGORY WARRANTS AND RIGHTS ($) REFLECTED IN COLUMN (B))
------------- ------------------- ------------------------ ------------------------
(COL. A) (COL. B) (COL. C) (COL. D)

Equity compensation plans 1,554,156 $2.37 762,010(1)
approved by security holders

Equity compensation plans not 675,000(2) $2.64 0
approved by security holders

Total 2,229,156 $2.13 762,010

(1) Consists of 112,660 shares available for grant of stock options under the
1990 Stock Option Plan, 235,750 shares available for grant under the Directors
Option Plan, and 413,600 shares for grant under the Restricted Stock Plan.

(2) Consists of shares available for issuance, as follows:

(a) Employment inducement stock options granted to newly hired employees
during 2005 and 2006 to purchase 400,000 shares of Common Stock at an
average exercise price of $2.64 per share; the exercise price is equal
to the fair market value of the common stock on the date of grant.

(b) Rights granted in 2006 to two executives to receive 275,000 shares of
Common Stock vesting during 2010. Such rights are subject to immediate
vesting in the event of a change in control of the Company. The total
value of the rights at the date of grant was $563,750 based on the
fair market value of the Common Stock ($2.05 per share) on the grant
dates; $140,937 and $42,601 related to these grants was charged to
expense in 2007 and 2006, respectively.

Item 13. Certain Relationships and Related Transactions, and Director
----------------------------------------------------------------------
Independence
------------

Prior to August 2002, we advanced amounts to officers primarily for personal
income taxes related to various stock awards. The amounts outstanding at
December 31, 2007 and 2006 were $0 and $444,000, respectively, including
interest accrued on the advances. This indebtedness bore interest based on
applicable Federal rates. In February 2007, a former officer repaid loans and
accumulated interest of $431,000; repayment consisted of 140,813 shares of
ThinkEngine common stock, valued at the closing market price at the date of the
repayment of the loans. In May 2007, another former officer repaid loans and
accumulated interest of $34,600; repayment consisted of 15,159 shares of
ThinkEngine common stock, valued at the closing market price at the date of the
repayment of the loans.

The Company paid $39,539 and $139,901 in consulting fees during 2006 and 2007,
respectively, to Brian Kelley, a former officer and director, in accordance with
the terms of his termination agreement.

Other than as set forth in our Code of Business Conduct, our board does not have
a specific policy regarding review of transactions involving directors,
management or other related parties. However, we discourage such transactions
and have historically limited the approval of any such transactions to specific
and rare instances with full disclosure to, and approval of, the disinterested
members of the board.

A description of the independence of the members of the Company's Board of
Directors is contained in Item 10 hereof.

Item 14. Principal Accounting Fees and Services
------------------------------------------------

AUDIT FEES
Aggregate fees billed by Carlin, Charron & Rosen, LLP for professional services
rendered for the audit of the Company's annual financial statements included in
the annual report on Form 10-K and the review of interim financial statements
included in quarterly reports on Form 10-Q, were $103,525 and $107,200 for the
years ended December 31, 2007 and 2006, respectively.

AUDIT-RELATED FEES
There were no fees billed by Carlin, Charron & Rosen, LLP for assurance and
related services that are reasonably related to the performance of the audit or
review of the Company's financial statements, and that are not disclosed above
for the years ended December 31, 2007 and 2006.

TAX FEES
Aggregate fees billed by Carlin, Charron & Rosen, LLP for professional services
rendered to the Company for tax compliance, tax advice and tax planning were
$44,000 and $0 for the years ended December 31, 2007 and 2006, respectively.

ALL OTHER FEES
There were no fees billed by Carlin, Charron & Rosen, LLP for professional
services rendered to the Company for any other products and services for the
years ended December 31, 2007 and 2006, respectively.

AUDIT COMMITTEE PRE-APPROVAL POLICY
Pursuant to its charter, the Audit Committee is responsible for selecting,
approving compensation and overseeing the independence, qualifications and
performance of the independent accountants. Also, the Audit Committee has
adopted a pre-approval policy pursuant to which certain permissible audit and
non-audit services may be provided by the independent accountants. Pre-approval
is generally provided for up to one year, is detailed as to the particular
service or category of services and may be subject to a specific budget. The
Audit Committee may also pre-approve particular services on a case-by-case
basis. In assessing requests for services by the independent accountants, the
Audit Committee considers whether: such services are consistent with the
auditor's independence; whether the independent accountants are likely to
provide the most effective and efficient service based upon their familiarity
with the Company; and whether the service could enhance our ability to manage or
control risk or improve audit quality.

PART IV

Item 15. Exhibits, Financial Statement Schedules
-------------------------------------------------

(a)(1) Financial Statements

The following financial statements of the Company are included in Item 8.

Financial Statements Covered by Report of Independent Registered Public
-----------------------------------------------------------------------
Accounting Firm: PAGE
---------------- ----

Report of Independent Registered Public Accounting Firm.......................15

Balance Sheets, December 31, 2007 and 2006....................................16

Statements of Operations and Comprehensive Loss for each of
the two years in the period ended December 31, 2007...........................17

Statements of Stockholders' (Deficit) Equity for each of the
two years in the period ended December 31, 2007...............................18

Statements of Cash Flows for each of the two years in the
period ended December 31, 2007................................................19

Notes to Financial Statements.................................................21

(a)(2) Financial Statement Schedule

The following financial statement schedule of the Company is required to be
filed by Item 8 hereof and paragraph (c) below:

Report of Independent Registered Public Accounting Firm on Financial
Statement Schedule Schedule II: Valuation and qualifying accounts
All other schedules for which provisions are made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are not applicable, and have
therefore been omitted.

(a)(3)(b) Exhibits

See Exhibit Index included as the last part of this report on Form 10-K,
which Index is incorporated herein by this reference.

Refer to Item 15 (a)(2) above for listing of financial statement
schedules.

SIGNATURES

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

THINKENGINE NETWORKS, INC.
Registrant

BY /s/ JOHN E. STEINKRAUSS
-------------------------
JOHN E. STEINKRAUSS
TREASURER AND CHIEF FINANCIAL OFFICER
MARCH 19, 2008

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

SIGNATURE TITLE DATE
-------------------------- ------------------------ ---------------

/s/ MICHAEL G. MITCHELL PRESIDENT AND CHIEF MARCH 19, 2008
-------------------------- EXECUTIVE OFFICER
MICHAEL G. MITCHELL AND A DIRECTOR

/s/ JOHN E. STEINKRAUSS TREASURER MARCH 19, 2008
-------------------------- (PRINCIPAL FINANCIAL
JOHN E. STEINKRAUSS AND ACCOUNTING OFFICER)

/s/ ROBERT C. FLEMING DIRECTOR MARCH 19, 2008
--------------------------
ROBERT C. FLEMING

/s/ ROBERT H. SCOTT DIRECTOR MARCH 19, 2008
--------------------------
ROBERT H. SCOTT

/s/ WILLIAM J. STUART DIRECTOR MARCH 19, 2008
--------------------------
WILLIAM J. STUART

/s/ JOHN E. SWEENEY DIRECTOR MARCH 19, 2008
--------------------------
JOHN E. SWEENEY

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM ON FINANCIAL STATEMENT SCHEDULE

To the Shareholders and Board of Directors of
ThinkEngine Networks, Inc.

We have audited the financial statements of ThinkEngine Networks, Inc. (the
"Company")as of December 31, 2007 and 2006, and for each of the years in the
two-year period ended December 31, 2007, and have issued our report thereon
dated March 19, 2008, which report contains an explanatory paragraph related to
the Company's ability to continue as a going concern. Such financial statements
and report are included elsewhere in this Form 10-K Our audit also included the
financial statement schedule of the Company, listed in item 15. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audit. In our opinion, such
financial statement schedule, when considered in relation to the basic financial
statements as of December 31, 2007 and 2006, and for each of the years in the
two-year period ended December 31, 2007, taken as a whole, presents fairly, in
all material respects, the information set forth therein.

/s/ CARLIN, CHARRON & ROSEN, LLP
GLASTONBURY, CONNECTICUT
MARCH 19, 2008

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
THINKENGINE NETWORKS, INC.

COL. A COL. B COL. C COL. C COL. D COL. E
Additions Additions

Balance at Charged to Charged to
Beginning Costs and Other Balance at
Description of Year Expenses Accounts Deductions End of Year

Year ended December 31, 2007:
Reserves and allowances deducted from asset accounts:
Allowance for doubtful accounts receivable $20,000 $ 30,000 $ 0 $ 0 $ 50,000
Allowance for losses on notes receivable 350,000 0 0 (4) (350,000) 0
Allowance for excess and obsolete inventories 3,337,000 317,000 0 (2) 267,000 3,387,000
Allowance for deferred tax assets 6,291,000 (3) 3,450,000 0 0 9,741,000

Year ended December 31, 2006:
Reserves and allowances deducted from asset accounts:
Allowance for doubtful accounts receivable 73,000 0 0 (1) 53,000 20,000
Allowance for losses on notes receivable 350,000 0 0 0 350,000
Allowance for excess and obsolete inventories 3,054,000 640,000 0 (2) 357,000 3,337,000
Allowance for deferred tax assets 5,077,000 (3) 1,214,000 0 0 6,291,000

(1) Write-off of specific accounts receivable, and $14,000 recovery of bad
debts.
(2) Disposition of inventory reserved against.
(3) Increases charged to income tax expense.
(4) Reversal of allowance due to recovery in full in March 2008.

INDEX TO EXHIBITS

Exhibit
-------
2.1 Agreement and Plan of Merger, dated as of October 28, 2005, among
Cognitronics Corporation, TN Acquisition Corporation, ThinkEngine
Networks, Inc. and its Principal Security holders (Exhibit 2.1 to Form
8-K filed with the Securities and Exchange Commission on November 1,
2005 and incorporated herein by reference). Exhibits and schedules to
the Agreement and Plan of Merger (Form of Note, Form of Escrow
Agreement, Form of Registration Rights Agreement, Form of Employment
Agreement, Schedule 1.2(b) Allocation of Merger Consideration and
Schedule 4.1 Available Employees) have been omitted pursuant to Item
601(b)(2) of Regulation S-K. The Company will furnish supplementally a
copy of any omitted exhibit, schedule or similar attachment to the
Commission upon request.

2.2 Share Sale Agreement, dated as of December 22, 2005, among Cognitronics
Corporation, Garrett Sullivan and Silbury 307 Limited (Exhibit 2.1 to
Form 8-K filed with the Securities and Exchange Commission on December
27, 2005 and incorporated herein by reference).

2.3 Agreement and Plan of Merger, dated as of December 18, 2006, between
the Company and Cognitronics Corporation, a New York corporation
(Exhibit 2.1 to Form 8-K filed with the Securities and Exchange
Commission on January 4, 2007 and incorporated herein by reference).

3.1 Certificate of Incorporation as filed on December 15, 2006 (Exhibit 3.1
to Form 8-K filed with the Securities and Exchange Commission on
January 4, 2007 and incorporated herein by reference).

3.2 Amended and Restated Bylaws of the Company (Exhibit 3.1 to Form 8-K
filed with the Securities and Exchange Commission on December 17, 2007
and incorporated herein by reference).

4. Specimen Certificate for Common Stock (Exhibit 1 to Form 8-A filed by
the Company with the Securities and Exchange Commission on January 8,
2007 and incorporated herein by reference).

10.1 1990 Stock Option Plan, as amended (Exhibit D to Proxy Statement filed
by the Company with the Securities and Exchange Commission on November
13, 2006 and incorporated herein by reference).

10.2 Form of Indemnity Agreement, dated October 27, 1986, between each
Director (with equivalent form for each Officer) and Cognitronics
Corporation (Exhibit 10.7 to Annual Report on Form 10-K for the year
ended December 31, 1986 and incorporated herein by reference).

10.3 Supplemental Pension Plan for Officers, as amended November 2, 1993
(Exhibit 10.6 to Annual Report on Form 10-K for the year ended December
31, 1993 and incorporated herein by reference).

10.4 Restricted Stock Plan, as amended (Exhibit E to Proxy Statement filed
by the Company with the Securities and Exchange Commission on November
13, 2006 and incorporated herein by reference).

10.5 Directors' Stock Option Plan, as amended (Exhibit F to the Proxy
Statement filed by the Company with the Securities and Exchange
Commission on November 13, 2006 and incorporated herein by reference).

10.6 Employment Agreement, dated August 16, 2006, between the Company and
Michael Mitchell (Exhibit 10.1 to Form 8-K filed with the Securities
and Exchange Commission on August 16, 2006 and incorporated herein by
reference).

10.7 Restricted Stock Agreement, dated August 16, 2006, between the Company
and Michael Mitchell (Exhibit 10.2 to Form 8-K filed with the
Securities and Exchange Commission on August 16, 2006 and incorporated
herein by reference).

Exhibit
-------
10.8 Separation and Release Agreement, dated August 16, 2006, between the
Company and Brian J. Kelley (Exhibit 10.3 to Form 8-K filed with the
Securities and Exchange Commission on August 16, 2006 and incorporated
herein by reference).

10.9 Employment Agreement, dated November 21, 2006, between the Company and
John Steinkrauss (Exhibit 10.1 to Form 8-K filed with the Securities
and Exchange Commission on November 27, 2006 and incorporated herein by
reference).

10.10 Restricted Stock Agreement, dated November 21, 2006, between the
Company and John Steinkrauss (Exhibit 10.2 to Form 8-K filed with the
Securities and Exchange Commission on November 27, 2006 and
incorporated herein by reference).

10.11 Loan and Security Agreement, dated as of January 16, 2007, between the
Company and VenCore Solutions LLC (Exhibit 10.1 to Form 8-K filed with
the Securities and Exchange Commission on January 22, 2007 and
incorporated herein by reference).

10.12 Negative Pledge Agreement, dated January 16, 2007, by the Company
(Exhibit 10.2 to Form 8-K filed with the Securities and Exchange
Commission on January 22, 2007 and incorporated herein by reference).

10.13 Common Stock Purchase Warrant, dated January 16, 2007 issued to VenCore
Solutions LLC (Exhibit 10.3 to Form 8-K filed with the Securities and
Exchange Commission on January 22, 2007 and incorporated herein by
reference).

10.14 Form of Director and Officer Indemnification Agreement, dated February
15, 2007, between each Director (with equivalent form for each Officer)
and the Company (Exhibit 10.1 to Form 8-K filed with the Securities and
Exchange Commission on February 16, 2007 and incorporated herein by
reference).

10.15 Financing Agreement, dated as of September 28, 2007, between the
Company and Sand Hill Finance, LLC (Exhibit 10.1 to Form 8-K filed with
the Securities and Exchange Commission on October 1, 2007 and
incorporated herein by reference).

10.16 Common Stock Purchase Warrant, dated September 28, 2007 issued to Sand
Hill Finance, LLC (Exhibit 10.2 to Form 8-K filed with the Securities
and Exchange Commission on October 1, 2007 and incorporated herein by
reference).

23. Consent of Independent Registered Public Accounting Firm.

31.1 Certification of Chief Executive Officer Pursuant to Rule 13a-15e and
15d-15e as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.

31.2 Certification of Chief Financial Officer Pursuant to Rule 13a-15e and
15d-15e as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.

32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section
1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.

32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section
1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.