10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2012

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 001-32160

AXESSTEL, INC.

(Exact name of registrant as specified in its charter)

Nevada	91-1982205
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
6815 Flanders Drive, Suite 210 San Diego, California	92121
(Address of principal executive offices)	(Zip Code)

(858) 625-2100

(Issuer’s telephone number, including area code)

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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

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	¨  (do not check if a smaller reporting company)	Smaller reporting company	x

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

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:

Class	Outstanding at November 1, 2012
Common Stock, $0.0001 per share	24,145,355 shares

Axesstel, Inc.

Quarterly Report on Form 10-Q

For the Quarterly Period Ended September 30, 2012

TABLE OF CONTENTS

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS			ii
PART I—FINANCIAL INFORMATION			1
	Item 1.	FINANCIAL STATEMENTS	1
	Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	14
	Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	21
	Item 4.	CONTROLS AND PROCEDURES	21
PART II—OTHER INFORMATION			22
	Item 1.	LEGAL PROCEEDINGS	22
	Item 1A.	RISK FACTORS	22
	Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	24
	Item 3.	DEFAULTS UPON SENIOR SECURITIES	24
	Item 4.	MINE SAFETY DISCLOSURES	24
	Item 5.	OTHER INFORMATION	24
	Item 6.	EXHIBITS	24
SIGNATURES			25
EXHIBIT INDEX			26

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EXPLANATORY NOTE

In this report, unless the context otherwise requires, the terms “Axesstel,” “Company,” “we,” “us,” and “our” refer to Axesstel, Inc., a Nevada corporation, and our wholly owned subsidiary Axesstel Shanghai, Ltd.

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

Certain statements in this report, including information incorporated by reference, are “forward-looking statements.” Forward-looking statements reflect current views about future events and financial performance based on certain assumptions. They include opinions, forecasts, intentions, plans, goals, projections, guidance, expectations, beliefs or other statements that are not statements of historical fact. Words such as “may,” “should,” “could,” “would,” “expects,” “plans,” “believes,” “anticipates,” “intends,” “estimates,” “approximates,” “predicts,” “targets,” or “projects,” or the negative or other variation of such words and similar expressions, may identify a statement as a forward-looking statement. Any statements that refer to projections of our future financial performance, anticipated trends in our business, our goals, strategies, focus and plans, and other characterizations of future events or circumstances, including statements expressing general optimism about future operating results and the development of our products, are forward-looking statements. Forward-looking statements in this report may include statements about:

• our expectations concerning the activities of our competitors or the entry of new competitors in the market;

• anticipated developments or trends in technology relating to the wireless communications industry;

• our anticipated future operating expenses;

• our ability to obtain future financing or funds when needed;

• the anticipated timing of new product releases;

• continuing market acceptance for our existing products and anticipated acceptance for new products;

• the expected receipt or timing of customer orders;

• expectations concerning our ability to secure new customers;

• the anticipated efficacy of efforts to protect our intellectual property rights;

• the timing or anticipated benefits of any acquisitions, business combinations, strategic partnerships, or divestures; and

• our ability to formulate, update and execute a successful business strategy.

The forward-looking statements in this report speak only as of the date of this report and caution should be taken not to place undue reliance on any such forward-looking statements. Forward-looking statements are subject to certain events, risks, and uncertainties that may be outside of our control. When considering forward-looking statements, you should carefully review the risks, uncertainties and other cautionary statements in this report as they identify certain important factors that could cause actual results to differ materially from those expressed in or implied by the forward-looking statements. These factors include, among others, the risks described under Item 1A and elsewhere in this report and in our 2011 Annual Report on Form 10-K, as well as in other reports and documents we file with the SEC.

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PART I—FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS.

Axesstel, Inc.

Condensed Consolidated Balance Sheets

	September 30, 2012			December 31, 2011
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	1,618,385		$	849,510
Accounts receivable, less allowance for doubtful accounts of $320,000 and $520,000 at September 30, 2012 and December 31, 2011, respectively		11,708,930			8,900,508
Inventories, net		301,000			534,000
Supplier advances		508,297			843,076
Prepayments and other current assets		494,349			197,688
Total current assets		14,630,961			11,324,782
Property and equipment, net		226,427			61,578
Other assets:
Licenses, net		8,853			90,000
Other, net		20,952			20,952
Total other assets		29,805			110,952
Total assets	$	14,887,193		$	11,497,312
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	6,198,661		$	12,466,142
Note payable—current, net of discount		1,624,000			0
Bank financings		4,981,661			6,100,435
Accrued commissions		646,000			474,455
Accrued royalties		1,425,000			1,424,000
Accrued warranties		412,000			636,000
Other accrued expenses and current liabilities		2,121,240			2,027,482
Total current liabilities		17,408,562			23,128,514
Long-term liabilities:
Note payable—long term, net of discount		5,299,000			0
Commitments and contingencies
Stockholders’ deficit:
Common stock, $0.0001 par value; 250,000,000 shares authorized; 24,145,355 and 23,799,731 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively		2,414			2,380
Additional paid-in capital		40,414,483			40,079,137
Accumulated other comprehensive loss		(131,733	)		(117,011	)
Accumulated deficit		(48,105,533	)		(51,595,708	)
Total stockholders’ deficit		(7,820,369	)		(11,631,202	)
Total liabilities and stockholders’ deficit	$	14,887,193		$	11,497,312

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

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Axesstel, Inc.

Condensed Consolidated Statements of Operations

And Comprehensive Income

(unaudited)

	For the three months ended						For the nine months ended
	September 30, 2012			September 30, 2011			September 30, 2012			September 30, 2011
Revenues	$	16,327,643		$	17,061,864		$	43,891,422		$	37,238,780
Cost of goods sold		11,802,316			12,887,546			32,559,456			28,650,467
Gross margin		4,525,327			4,174,318			11,331,966			8,588,313
Operating expenses
Research and development		705,563			512,601			1,777,397			1,518,241
Sales and marketing		880,314			987,678			2,265,405			2,980,602
General and administrative		1,291,721			945,316			3,476,110			2,893,065
Total operating expenses		2,877,598			2,445,595			7,518,912			7,391,908
Operating income		1,647,729			1,728,723			3,813,054			1,196,405
Other income (expense)
Interest expense, net		(204,333	)		(422,090	)		(929,879	)		(1,115,789	)
Note payable discount		791,000			0			791,000			0
Total other income (expense)		586,667			(422,090	)		(138,879	)		(1,115,789	)
Income before income tax provision		2,234,396			1,306,633			3,674,175			80,616
Income tax provision		112,000			0			184,000			0
Net income		2,122,396			1,306,633			3,490,175			80,616
Foreign currency translation adjustment		3,647			1,653			(14,722	)		(65,500	)
Comprehensive income	$	2,126,043		$	1,308,286		$	3,475,453		$	15,116
Earnings per share
Basic	$	0.09		$	0.06		$	0.15		$	0.00
Diluted	$	0.08		$	0.05		$	0.13		$	0.00
Weighted average shares outstanding
Basic		24,084,939			23,683,482			23,928,446			23,683,482
Diluted		26,896,633			23,446,491			26,341,667			23,948,022

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

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Axesstel, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

	For the nine months ended
	September 30, 2012			September 30, 2011
Cash flows from operating activities:
Net income	$	3,490,175		$	80,616
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		129,426			173,629
Stock-based compensation		161,072			72,000
Recoveries from losses on accounts receivable		(120,000	)		(48,770	)
Provision for inventory obsolescence		0			243,750
Note payable discount		(791,000	)		0
(Increase) decrease in:
Accounts receivable		(2,688,422	)		(2,793,826	)
Inventories		233,000			(765,328	)
Supplier advances		334,779			210,882
Other assets		(142,653	)		124,929
Increase (decrease) in:
Accounts payable		1,446,519			3,898,094
Accrued expenses and other liabilities		42,303			(323,843	)
Total adjustments		(1,394,976	)		791,517
Net cash provided by operating activities		2,095,199			872,133
Cash flows from investing activities:
Acquisition of property and equipment		(200,628	)		(9,345	)
Net cash used in investing activities		(200,628	)		(9,345	)
Cash flows from financing activities:
Proceeds from issuance of common stock		7,800			0
Net proceeds (repayments) of bank financings		(1,118,774	)		120,818
Net cash provided by (used in) financing activities		(1,110,974	)		120,818
Cumulative translation adjustment		(14,722	)		(65,500	)
Net increase in cash and cash equivalents		768,875			918,106
Cash and cash equivalents at beginning of period		849,510			77,099
Cash and cash equivalents at end of period	$	1,618,385		$	995,205
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	977,539		$	1,129,479
Income tax	$	64,468		$	36,757

Supplemental disclosure of non-cash financing activities:

During 2012, we converted a $7,714,000 accounts payable balance to a note payable (Note 10).

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

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AXESSTEL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of Axesstel, Inc., a Nevada corporation, and its wholly-owned subsidiary (“Axesstel,” “us,” “our,” “we,” or the “Company”), have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission for Form 10-Q. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations.

In the opinion of management, these financial statements reflect all normal recurring and other adjustments necessary for a fair presentation, and to make the financial statements not misleading. These financial statements should be read in conjunction with the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2011. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year or any other future periods.

2. LIQUIDITY AND GOING CONCERN

At September 30, 2012, we had cash and cash equivalents of $1.6 million, negative working capital of $2.8 million, and stockholders’ deficit of $7.8 million. Our financial position has improved from a cash and cash equivalent position of $850,000, negative working capital of $11.8 million, and a stockholder’s deficit of $11.6 million at December 31, 2011.

On September 7, 2012, we entered into a Payment Confirmation Agreement with Wistron Neweb Corporation (“WNC”), which settled all disputes with WNC arising out of our prior manufacturing relationship, including restructure of an $8.2 million account payable which was past due. In connection with the Payment Confirmation Agreement we paid WNC $458,000 in cash and issued WNC a non-interest bearing Promissory Note with a face value of $7.7 million and a discounted value of $6.9 million. The Promissory Note obligates us to make payments of $50,000 per month, plus an additional payment on or before March 31 each year in the amount, if any, that would make the total of all payments to WNC for the prior year equal to 50% of our net income for that year. The issuance of the Promissory Note had a $5.3 million positive impact on our working capital at September 30, 2012, as that amount was reclassified from a current liability to a long-term liability.

In addition to restructuring the accounts payable with WNC, our working capital has been improved as a result of profitable operations. We generated net income of $1.1 million in the year ended December 31, 2011 and $3.5 million for the nine months ended September 30, 2012. Despite these improvements in our working capital position, because of our limited cash position, any significant reduction in cash flow from operations could have an impact on our ability to fund operations.

In September 2012, we entered into a one year $7.0 million credit facility with Silicon Valley Bank (“SVB”). The facility is a working capital based revolving line of credit where SVB, in its discretion, will make advances in the amount of up to 80% of the value of (i) eligible accounts receivable and (ii) eligible purchase orders for inventory in transit to a customer. For each account receivable or purchase order financed, we pay interest based on SVB’s prime rate, plus a specified margin, multiplied by the face amount of the eligible account receivable or purchase order. For eligible accounts receivable, the specified margin is 1.0% and for eligible purchase orders the margin is 1.4%. However, if our EBITDA for any trailing six month period falls below $1.0 million, the specified margins increase to 3.0% and 3.2%, respectively. At September 30, 2012, we had borrowings of $3.4 million under this credit facility and the effective interest rate on the borrowed funds was 6% per annum.

In April 2012, we entered into a one year term loan with a commercial bank in China, totaling 10,000,000 Chinese Yuan (equivalent to $1.6 million at September 30, 2012). This loan bears interest based on the People’s Bank of China twelve month adjustable rate, which was 7% per annum at September 30, 2012.

In addition to credit facilities, we rely on open credit terms with our manufacturing partners to fund our working capital requirements. New manufacturers generally require partial or full payments on initial orders before extending substantial credit to us. Once we establish a payment history with a manufacturer, we request open credit terms. We rely on those open credit terms to support our working capital requirements and reduce our borrowing costs. If our contract manufacturers restrict their credit terms with us, we may need to identify alternative manufacturers or secure additional capital in order to finance the production of our products.

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If we can grow our business and secure products from our contract manufacturers in sufficient quantities, we believe that we will be able to generate cash from operations and will be able to secure accounts receivable and other financing to provide sufficient cash to finance our operations. However, if we fail to generate sufficient product sales, we will not generate sufficient cash to cover our operating expenses. If needed, we intend to secure additional working capital through the sale of debt or equity securities. No arrangements or commitments for any such financings are in place at this time, and we cannot give any assurances about the availability or terms of any future financing.

Because of our net losses prior to Q3 2011, and negative working capital position, our independent auditors, in their report on our financial statements for the year ended December 31, 2011, expressed substantial doubt about our ability to continue as a going concern. The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that could result from the outcome of this uncertainty.

3. SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The condensed consolidated financial statements include the assets, liabilities and operating results of Axesstel and its wholly-owned subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation.

Estimates

In preparing financial statements in conformity with generally accepted accounting principles, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Cash and Cash Equivalents

We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. We maintain cash and cash equivalents with various commercial banks. The deposits are made with reputable financial institutions and we do not anticipate realizing any losses from these deposits.

Accounts Receivable

We extend credit based on an evaluation of a customer’s financial condition and payment history. Obligations from our foreign customers are typically secured either by letters of credit or credit insurance. Significant management judgment is required to determine the allowance for doubtful accounts. Management determines the adequacy of the allowance based on information collected from individual customers. Accounts receivable are charged off against the allowance when collectability is determined to be permanently impaired. At September 30, 2012 and December 31, 2011, the allowance for doubtful accounts was $320,000 and $520,000, respectively.

Inventories

Inventories are stated at the lower of cost (first in, first out method), based on the actual cost charged by the supplier, or market. We review the components of inventory on a regular basis for excess or obsolete inventory based on estimated future usage and sales. At September 30, 2012 and December 31, 2011, the reserve for excess and obsolete inventory was $292,000 and $910,000, respectively.

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Property and Equipment

Property and equipment are recorded at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the respective assets, as follows:

Machinery and equipment	3 to 7 years
Office furniture and equipment	3 to 7 years
Software	3 years
Leasehold improvements	Life of lease, or useful life if shorter

Licenses

Licenses include the cost of non-exclusive software technology licenses which allow us to manufacture, sell and/or distribute certain telecom products worldwide. The licenses have no fixed termination date. License costs are amortized on a straight-line basis over the estimated economic lives of the licenses, which management has estimated range from two to ten years.

Patents and Trademarks

Patents and trademarks are recorded at cost. Amortization is provided using the straight-line method over the estimated useful lives of the assets, which is estimated at approximately four years. At September 30, 2012 and December 31, 2011, patent and trademark cost of $729,000 has been fully amortized.

Impairment of Long-Lived Assets

We account for the impairment of long-lived assets, such as fixed assets, licenses, patents and trademarks, under the provisions of Financial Accounting Standards Board Accounting Standards Codification, (“FASB ASC”) 360, “Property, Plant, and Equipment” which establishes the accounting for impairment of long-lived tangible and intangible assets other than goodwill and for the disposal of a business. Pursuant to FASB ASC 360, we review for impairment when facts or circumstances indicate that the carrying value of long-lived assets to be held and used may not be recoverable. If such facts or circumstances are determined to exist, an estimate of the undiscounted future cash flows produced by the long-lived asset, or the appropriate grouping of assets, is compared to the carrying value to determine whether impairment exists. If an asset is determined to be impaired, the loss is measured based on various valuation techniques, including a discounted value of estimated future cash flows. We report impairment cost as a charge to operations at the time it is identified.

FASB ASC 350-30, “General Intangibles Other Than Goodwill”, requires purchased intangible assets other than goodwill to be amortized over their useful lives unless these lives are determined to be indefinite. FASB ASC 350-30 requires other indefinite-lived assets to be tested for impairment at least on an annual basis and more often under certain circumstances, and written down by a charge to operations when impaired. An interim impairment test is required if an event occurs or conditions change that would indicate that the carrying value of the assets may not be recoverable.

During the nine months ended September 30, 2012 and 2011, we determined that there was no impairment.

Fair Value of Financial Instruments

We measure our financial assets and liabilities in accordance with the requirements of FASB ASC 825 “Financial Instruments”. The carrying values of our accounts receivable, accounts payable, bank financing, accrued expenses, and other current liabilities approximate fair value due to the short-term maturities of these instruments.

Revenue Recognition

Revenues from product sales are recognized when the risks of ownership and title pass to the customer, as specified in (1) the respective sales agreements and (2) other revenue recognition criteria as prescribed by Staff Accounting Bulletin (“SAB”) No. 101 (SAB 101), “Revenue Recognition in Financial Statements,” as amended by SAB No. 104. We generally sell our products either FCA (Free Carrier) shipping port, or DDU (Delivery Duty Unpaid). When we ship FCA shipping port, title and risk of loss pass to the customer when the product is received by the customer’s freight forwarder. When we ship DDU, title and risk of loss pass to the customer when the product is received at the customer’s warehouse. If and when defective products are returned, we normally exchange them or provide a credit to the customer. The returned products are shipped back to the supplier and we are issued a credit or exchange from the supplier. At September 30, 2012 and December 31, 2011, there was no allowance for sales returns.

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Warranty Costs

All products are inspected for quality prior to shipment and we have historically experienced a minimal level of defective units.

Our standard terms of sale provide a limited warranty, generally for a period of one to two years from date of purchase or initialization of the product. We establish warranty reserves based on management’s estimates of anticipated service and replacement costs over the term of outstanding warranties.

In some countries we contract with third parties to operate service centers providing after-market and warranty support to our customers. The costs that we incur related to these service centers are recorded to cost of goods sold when revenue is recognized.

During the nine months ended September 30, 2012 and 2011, warranty expense amounted to $433,000 and $326,000, respectively. At September 30, 2012 and December 31, 2011, we have established a warranty reserve of $412,000 and $636,000, respectively, to cover service costs over the remaining lives of the warranties.

Research and Development

Costs incurred in research and development activities are expensed as incurred.

Stock-Based Compensation

Compensation Costs

Results of operations include stock-based compensation costs. The following is a summary of stock-based compensation costs, by income statement classification:

	Three months ended				Nine months ended
	September 30, 2012		September 30, 2011		September 30, 2012		September 30, 2011
Research and development	$	15,254	$	2,000	$	25,254	$	9,000
Sales and marketing		15,000		6,000		35,000		23,000
General and administrative		50,023		13,000		100,818		40,000
Total		80,277		21,000		161,072		72,000
Tax effect on stock-based compensation		0		0		0		0
Net effect on net income (loss)	$	80,277	$	21,000	$	161,072	$	72,000
Effect on earnings (loss) per share:
Basic	$	0.00	$	0.00	$	0.01	$	0.00
Diluted	$	0.00	$	0.00	$	0.01	$	0.00

Valuation of Stock Option Awards

We have one stock option plan under which stock options are granted to our employees and directors. The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model. All options granted have a maximum term of ten years, and vest over one to three years. During the nine months ended September 30, 2012, we granted to certain of our employees options to purchase an aggregate of 547,500 shares of our common stock at exercise prices ranging from $0.66 to $0.67 per share based on the closing stock price on the date the options were issued. During the nine months ended September 30, 2011, we granted to certain of our employees and a non-executive director options to purchase an aggregate of 480,000 shares of our common stock at exercise prices ranging from $0.07 to $0.14 per share.

Valuation of Stock Grants

During the nine months ended September 30, 2012, we issued 285,624 shares of our common stock to certain of our employees and directors as part of their annual compensation package. The fair value of these grants ranged from $0.66 to $1.20 per share based on the market value on the date the grants were issued. These stock grants vest over one to three years. During the nine months ended September 30, 2011, there were no grants issued.

Income Taxes

We account for income taxes in accordance with FASB ASC 740 “Income Taxes”. Under FASB ASC 740, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial statement reported amounts at each period end, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established,

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when necessary, to reduce deferred tax assets to the amounts expected to be realized. The provision for income taxes represents the tax expense for the period, if any, and the change during the period in deferred tax assets and liabilities. FASB ASC 740 also provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax positions. Under FASB ASC 740, the impact of an uncertain tax position on the income tax return may only be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. At September 30, 2012 and 2011, we have no unrecognized tax benefits.

Earnings per Share

We utilize FASB ASC 260, “Earnings per Share.” Basic earnings per share is computed by dividing earnings attributable to common stockholders by the weighted-average number of common shares outstanding during the reporting period. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include additional common share equivalents available upon exercise of stock options and warrants using the treasury stock method. Dilutive common share equivalents include the dilutive effect of in-the-money share equivalents, which are calculated based on the average share price for each period using the treasury stock method, excluding any common share equivalents if their effect would be anti-dilutive. For the three months ended September 30, 2012 and 2011, 1,412,888 and 2,685,798 potentially dilutive securities were excluded from the computation because their effect was anti-dilutive. For the nine months ended September 30, 2012 and 2011, 1,811,362 and 3,184,267 potentially dilutive securities were excluded from the computation.

	Three months ended				Nine months ended
	September 30, 2012		September 30, 2011		September 30, 2012		September 30, 2011
Numerator:
Net income attributable to common stockholders	$	2,122,396	$	1,306,663	$	3,490,175	$	80,616
Denominator:
Basic earnings per share—weighted average shares		24,084,939		23,683,482		23,928,446		23,683,482
Effect of dilutive securities:
Stock options and warrants		2,811,694		763,009		2,413,221		264,540
Diluted earnings per share—adjusted weighted average shares		26,896,633		24,446,491		26,341,667		23,948,022
Basic earnings per share	$	0.09	$	0.06	$	0.15	$	0.00
Diluted earnings per share	$	0.08	$	0.05	$	0.13	$	0.00

Foreign Currency Exchange Gains and Losses

Our reporting currency is the U.S. dollar. The functional currency of our foreign subsidiary is the Chinese Yuan. Our subsidiary’s assets and liabilities are translated into United States dollars at the exchange rate in effect at the balance sheet date. Revenue and expenses are translated at the weighted average rate of exchange prevailing during the period. The resulting cumulative translation adjustments are disclosed as a component of cumulative other comprehensive income (loss) in stockholders’ deficit. Foreign currency transaction gains and losses are recorded in the statements of operations as a component of other income (expense).

Comprehensive Income

FASB ASC 220, “Comprehensive Income” establishes standards for reporting comprehensive income and its components in financial statements. Comprehensive income, as defined, includes all changes in equity (net assets) during a period from transactions and other events and circumstances from non-owner sources. Examples of items to be included in comprehensive income, which are excluded from net income, include foreign currency translation adjustments and unrealized gains and losses on available-for-sale securities.

Certain Risks and Concentrations

In order to minimize our collection risks, we attempt to sell to our international customers under guaranteed letters of credit or open terms secured by credit insurance. At times, we extend credit based on our evaluation of the customer’s financial condition and payment history. In order to minimize foreign exchange risk, we have made all sales to date in United States dollars. Significant management judgment is required to determine the allowances for sales returns and doubtful accounts.

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Our products include components that are subject to rapid technological change. Significant technological change could adversely affect our operating results and subject us to the risk of rapid product obsolescence. Under our supply agreements with our contract manufacturers we generally do not take product into inventory. We typically order product only when we have received a binding purchase order from a customer. Our contract manufacturers then manufacture the product, which is shipped directly to the customer. However, our contract manufacturers order certain parts with long lead times based on rolling sales forecasts that we provide. In the event that our forecasts are incorrect and our contract manufacturers do not use the long lead time parts, or if we have a customer notify us of their cancellation or inability to pay for a purchase order, our contract manufacturers have the right, after a specified period of time, to deliver the raw material or finished goods inventory to us and demand payment. To the extent that the products have become obsolete, we may not be able to use the raw materials or to sell the finished goods inventory at prices sufficient to cover our costs or at all.

During the nine months ended September 30, 2012, 79% of our revenues were from three customers, which accounted for 32%, 32% and 15% of revenues, respectively. These customers were located in the United States, Scandinavia and Poland, respectively. At September 30, 2012, the amounts due from such customers were $3.0 million, $2.5 million and $2.9 million, respectively, which were included in accounts receivable.

During the nine months ended September 30, 2011, 72% of our revenues were from four customers, which accounted for 22%, 21%, 19% and 10% of revenues, respectively. These customers were located in the United States, Scandinavia, Poland and Venezuela, respectively. At September 30, 2011, the amounts due from such customers were $4.7 million, $1.0 million, $2.6 million and $43,000, respectively, which were included in accounts receivable.

As of September 30, 2012, we maintained inventory of $301,000 in China. In addition, the majority of our $11.7 million of accounts receivable at September 30, 2012 are with customers in foreign countries. If any of these countries become politically or economically unstable, then our operations could be disrupted.

Shipping and handling expenses

We record all shipping and handling billings to a customer as revenue earned in accordance with FASB ASC 605-45-45-19, “Shipping and Handling Fees and Costs”. We include shipping and handling expenses in cost of goods sold. Shipping and handling fees amounted to $350,000 and $897,000 for the nine months ended September 30, 2012 and September 30, 2011, respectively.

Recently Adopted Accounting Pronouncements

In June 2011, the FASB issued Accounting Standards Update 2011-05, “Comprehensive Income” (Topic 220): Presentation of Comprehensive Income. This amended guidance eliminates the option for reporting entities to present components of other comprehensive income in the statement of stockholders’ equity. Instead, this amended guidance now requires reporting entities to present all non-owner changes in stockholders’ equity either as a single continuous statement of comprehensive income or as two separate but consecutive statements. The guidance became effective for the reporting period beginning December 15, 2011.

The Company adopted this accounting standard for the reporting period ending December 31, 2011 and it did not have a material impact on the Company’s financial statements. Subsequently in December 2011, the FASB issued Accounting Standards Update No. 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income” (“ASU No. 2011-12”), which indefinitely defers the requirement in ASU No. 2011-05 to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented. The amendments in these standards do not change the items that must be reported in other comprehensive income, when an item of other comprehensive income must be reclassified to net income, or change the option for an entity to present components of other comprehensive income gross or net of the effect of income taxes. The amendments in ASU No. 2011-12 are effective for interim and annual periods beginning after December 15, 2011 and are to be applied retrospectively. The adoption of the provisions of ASU No. 2011-12 does not have a material impact on the company’s financial position or results of operations.

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Reclassifications

Certain reclassifications have been made to the 2011 financial statements to conform to the 2012 presentation.

Recent Accounting Pronouncements

Management does not believe that any recently issued, but not yet effective, accounting standards, if adopted, will have a material effect on our financial statements.

4. INVENTORIES

Inventories consisted of the following:

	September 30, 2012			December 31, 2011
Raw materials	$	286,400		$	68,566
Finished goods		306,600			1,375,434
		593,000			1,444,000
Reserves for excess and obsolete inventories		(292,000	)		(910,000	)
	$	301,000		$	534,000

5. PREPAYMENTS AND OTHER CURRENT ASSETS

Prepayments and other current assets consisted of the following:

	September 30, 2012		December 31, 2011
Prepaid taxes	$	41,810	$	24,810
Prepaid insurance		129,495		99,885
Other		323,044		72,993
	$	494,349	$	197,688

6. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

	September 30, 2012			December 31, 2011
Machinery and equipment	$	326,311		$	317,923
Office furniture and equipment		281,425			249,004
Software		3,108,533			2,948,714
		3,716,269			3,515,641
Accumulated depreciation and amortization		(3,489,842	)		(3,454,063	)
	$	226,427		$	61,578

7. LICENSES

We have entered into Subscriber Unit License Agreements pursuant to which we obtained non-exclusive licenses of CDMA (Code Division Multiple Access) and WCDMA (Wideband Code Division Multiple Access) technologies, which have enabled us to manufacture and sell certain fixed wireless products and to purchase certain components and equipment from time to time. The license fees capitalized under these agreements were $3,500,000. We have additionally entered into a license agreement which has enabled us to incorporate VoIP (Voice over Internet Protocol) applications into certain products. The license fee capitalized under this agreement was $52,500.

All of our licenses have no fixed termination dates and we have assigned estimated lives ranging from two to ten years. The licenses consisted of the following:

	September 30, 2012			December 31, 2011
Licenses	$	3,552,500		$	3,540,000
Accumulated amortization		(3,543,647	)		(3,450,000	)
	$	8,853		$	90,000

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Amortization expense related to these licenses amounted to approximately $32,000 and $30,000 for the three months ended September 30, 2012, and 2011, respectively. Amortization expense related to these licenses amounted to approximately $94,000 and $90,000 for the nine months ended September 30, 2012 and 2011, respectively. Estimated future amortization expense related to licenses at September 30, 2012 is as follows:

	Amount
2012	$	2,603
2013		6,250
Total	$	8,853

8. BANK FINANCINGS

As of September 30, 2012 and December 31, 2011, we had outstanding bank loans of $5.0 million and $6.1 million, respectively. We currently have two active types of bank financing arrangements—accounts receivable financings and a term loan.

In September 2012, we entered into a one year $7.0 million credit facility with Silicon Valley Bank (“SVB”). The facility is a working capital based revolving line of credit where SVB, in its discretion, will make advances in the amount of up to 80% of the value of (i) eligible accounts receivable and (ii) eligible purchase orders for inventory in transit to a customer. For each account receivable or purchase order financed, we pay interest based on SVB’s prime rate, plus a specified margin, multiplied by the face amount of the eligible account receivable or purchase order. For eligible accounts receivable, the specified margin is 1.0% and for eligible purchase orders the margin is 1.4%. However, if our EBITDA for any trailing six month period falls below $1.0 million, the specified margins increase to 3.0% and 3.2%, respectively. At September 30, 2012, we had borrowings of $3.4 million under this credit facility and the effective interest rate on the borrowed funds was 6% per annum.

The new credit facility replaced a factoring arrangement for certain credit insured accounts receivable, collateralized by all of our accounts receivable. The factor charged us interest at rates ranging from 16% to 24% per annum on the amount advanced. Since the factor acquired the receivables with recourse, we recorded the gross receivables and recorded a liability to the factor for funds advanced to us. During the nine months ended September 30, 2012, the factor purchased $17.6 million of gross receivables. These receivables have since been repaid and we no longer use this facility.

In April 2012, we entered into a one year term loan with a commercial bank in China, totaling 10,000,000 Chinese Yuan (equivalent to $1.6 million at September 30, 2012). This loan bears interest based on the People’s Bank of China twelve month adjustable rate, which was 7% per annum at September 30, 2012.

9. OTHER ACCRUED EXPENSES AND CURRENT LIABILITIES

Other accrued expenses and current liabilities consisted of the following:

	September 30, 2012		December 31, 2011
Customer advances	$	123,681	$	149,860
Accrued payroll, taxes and benefits		1,140,711		991,011
Accrued foreign sales tax		232,400		282,400
Accrued income taxes		184,731		65,201
Accrued interest		19,000		66,660
Accrued legal and professional fees		100,000		100,000
Accrued operating expenses		320,717		372,350
	$	2,121,240	$	2,027,482

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10. NOTE PAYABLE

On September 7, 2012, we entered into a Payment Confirmation Agreement with Wistron Neweb Corporation (“WNC”), which settled all disputes with WNC arising out of our prior manufacturing relationship, including restructure of an $8.2 million account payable which was past due. In connection with the Payment Confirmation Agreement we paid WNC $458,000 in cash and issued WNC a Promissory Note (“Note”) with a face value of $7.7 million and a discounted value of $6.9 million. The Note obligates us to make payments of $50,000 per month, plus an additional payment on or before March 31 each year in the amount, if any, that would make the total of all payments to WNC for the prior year equal to 50% of our net income for that year. In the event we were to become delinquent on payments, the Note would become payable on demand. The Note does not accrue interest and has no prepayment penalty. Since the Note does not accrue interest, we have computed an imputed interest on the Note over an estimated repayment term of approximately four years and recorded a corresponding discount of $791,000. The interest rate used to calculate the imputed interest is 6.25%.

A summary of the calculation of the discount on the Note is as follows:

Note payable - face value	$	7,714,000
Less: unamortized discount		(791,000	)
Note payable, net of discount		6,923,000
Less: current portion		(1,624,000	)
Noncurrent portion	$	5,299,000

Estimated future maturities of the note payable at September 30, 2012, including current portion, is as follows:

2012 (3 months remaining)	$	20,000
2013		1,671,000
2014		2,068,000
2015		3,164,000
Note payable, net of discount	$	6,923,000

11. SEGMENT INFORMATION

We operate and track our results in one operating segment, wireless access products. We track revenues and assets by geographic region and by product line, but do not manage operations by region. Revenues by geographic region based on customer locations were as follows:

	Three months ended				Nine months ended
	September 30, 2012		September 30, 2011		September 30, 2012		September 30, 2011
Revenues
Europe	$	8,324,425	$	4,593,700	$	22,115,807	$	17,997,081
North America (United States and Canada)		6,897,638		8,687,454		16,634,320		10,836,210
MEA (Middle East and Africa)		797,330		2,865,900		4,226,330		2,987,936
Latin America		308,250		914,810		780,550		5,224,565
Asia		0		0		134,415		192,988
Total revenues	$	16,327,643	$	17,061,864	$	43,891,422	$	37,238,780

Our data product line consists of 3G and 4G broadband gateway devices. Our voice product line consists of fixed wireless phones and wire-line replacement terminals. Revenues by product line were as follows:

	Three months ended				Nine months ended
	September 30, 2012		September 30, 2011		September 30, 2012		September 30, 2011
Revenues
Data Products	$	9,052,617	$	7,515,206	$	26,478,380	$	22,456,046
Voice Products		7,275,026		9,546,658		17,413,042		14,782,734
Total revenues	$	16,327,643	$	17,061,864	$	43,891,422	$	37,238,780

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12. COMMITMENTS AND CONTINGENCIES

Operating Leases

Our corporate headquarters and U.S. operations are located at 6815 Flanders Drive, San Diego, California, where we lease approximately 5,900 square feet of office space. The lease agreement provides for average base monthly rent of approximately $8,000 and expires in April 2014.

We lease additional commercial properties in China and Korea for our operations and research and development teams. The China facility is approximately 1,600 square feet and the lease term is based on a two year agreement that expires in November 2013. The Korea facility is 1,600 square feet and the lease term is based on an annual agreement. The average basic monthly rent is approximately $4,000 during the lease periods for both of these two facilities.

Future estimated lease payments at September 30, 2012 are as follows:

Year Ending December 31,	Total Amount
2012	$	37,000
2013		136,000
2014		33,000
	$	206,000

Rent expense is charged ratably over the lives of the leases using the straight line method. In addition to long-term facility leases, we incur additional rent expense for equipment and other short-term operating leases. Rent expense incurred for short-term and long-term obligations for the three and nine months ended September 30, 2012 amounted to $36,000, and $93,000, respectively. Rent expense incurred for short-term and long-term obligations for the three and nine months ended September 30, 2011 amounted to $28,000, and $119,000, respectively.

Employment and Separation Agreements

We have entered into employment agreements with our executive management personnel that provide severance payments upon termination without cause. Consequently, if we had released our executive management personnel without cause as of September 30, 2012, the severance expense due would be $1.0 million, plus any pro-rated bonuses earned, plus payments equal to twelve months of continuing healthcare coverage under COBRA.

Legal Proceedings

From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business, including claims of alleged infringement, misuse or misappropriation of intellectual property rights of third parties. At September 30, 2012, we were not a party to any such litigation which management believes would have a material adverse effect on our financial position or results of operations.

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Forward-Looking Statements

Statements in the following discussion and throughout this report that are not historical in nature are “forward-looking statements”. You can identify forward-looking statements by the use of words such as “expect,” “anticipate,” “estimate,” “may,” “should,” “intend,” “believe,” and similar expressions. Although we believe the expectations reflected in these forward-looking statements are reasonable, such statements are inherently subject to risk and we can give no assurances that our expectations will prove to be correct. Actual results could differ from those described in this report because of numerous factors, many of which are beyond our control. These factors include, without limitation, those described under Item 1A “Risk Factors.” We undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this report or to reflect actual outcomes. Please see “Special Note Regarding Forward Looking Statements” at the beginning of this report.

The following discussion of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes and other financial information appearing elsewhere in this report.

Overview

We develop fixed wireless voice and broadband access solutions for the worldwide telecommunications market. Our product portfolio includes fixed wireless phones, wire-line replacement terminals, and 3G and 4G broadband gateway devices used to access voice calling and high-speed data services.

Our fixed wireless phones and 3G and 4G gateway products have similar functionality to phones and modems that use traditional landline telecommunications networks; however, our products are wireless and can be substituted for wired phones and modems. Our wire-line replacement terminals act as communication devices in homes where conventional handsets and wireless handsets can be plugged into our wireless terminals and serviced on a wireless network, as opposed to connecting to the fixed line provided by the local telephone or cable operator. Our products are based on CDMA (Code Division Multiple Access), GSM (Global System for Mobile Communications), GPRS (General Packet Radio Service), WCDMA (Wideband Code Division Multiple Access), and HSPA (High-Speed Packet Access) technologies.

We develop and manufacture our products with third party engineering and manufacturing suppliers, particularly in China. Our design team works with these manufacturers to develop and customize products to incorporate our design and functional requirements on their baseline designs. We strive to retain intellectual property rights in key areas, while outsourcing commoditized work. We use this approach to reduce research and development expenses, shorten time to market for new products, and leverage supply chains and economies of scale to reduce product costs.

We sell our products to telecommunications operators worldwide. In developing countries, where large segments of the population do not have telephone or internet service, telecommunications operators deploy wireless networks as a more cost effective alternative to traditional wired communications. In developed countries, telecommunications operators are using wireless networks to augment or supplant existing wire-line infrastructure. Currently, our largest customers are located in the United States, Scandinavia, and Poland.

Recent Developments

We have reshaped our business, designing a more competitive product portfolio, increasing sales in markets that support better margins, and aggressively reducing operating costs. These initiatives began producing results in the second half of 2011, and we have since recorded five consecutive quarters of profitability. During the quarter ended September 30, 2012, we took advantage of that improved operating performance to restructure a significant portion of our liabilities, reduce our cost of borrowing and improve our working capital position.

Sales of our 4G gateway with VoIP capability into the Europe region continued to be robust during the third quarter, making that device our number one selling product globally. Our gateways enable operators in this region to attract new subscribers and increase their revenue with broadband data and voice packages to both small office and residential users. We also continued to experience strong sales of our wireless terminal product in our North American region for the third quarter of 2012. Operators in the United States have initiated wire-line replacement efforts. Our wireless terminal is a communication hub in the home into which users can plug conventional handsets and wireless handsets, replacing traditional wire-line phone service.

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We work very closely with our customers in the development of our products. Our 2012 research and development initiatives are focused on three product areas. First, we will be introducing a line of self-sustained, affordable wireless alert products that allow wireless operators to enter the security market with another ‘cut the cord’ solution for residential and small business use. Second, we will be launching a new dual-mode gateway supporting both GSM and CDMA technologies in one device, making it easier for operators to meet customer needs while optimizing network usage. This gateway complements our 4G gateway, which is our number one selling product globally. Finally, we are working with customers on the design of the next generation of our wire-line replacement terminal. We expect to begin initial shipments of these products in the late 2012, early 2013 timeframe.

Revenues for the nine months ended September 30, 2012 were $43.9 million, an increase of 18% from the $37.2 million generated in the same period last year. The increased revenue was mainly attributable to increased revenue from Europe, North America and MEA offset by reduced revenue from Latin America. We saw strong sales of our gateway devices and our wire-line replacement terminals. We also had significant shipments to a new customer in MEA. Sales to Latin America declined compared to the same period last year, as a result of intense price competition from Chinese competitors. Revenues by geographic region based on customer locations were as follows:

	Three months ended				Nine months ended
	September 30, 2012		September 30, 2011		September 30, 2012		September 30, 2011
Revenues
Europe	$	8,324,425	$	4,593,700	$	22,115,807	$	17,997,081
North America (United States and Canada)		6,897,638		8,687,454		16,634,320		10,836,210
MEA (Middle East and Africa)		797,330		2,865,900		4,226,330		2,987,936
Latin America		308,250		914,810		780,550		5,224,565
Asia		0		0		134,415		192,988
Total revenues	$	16,327,643	$	17,061,864	$	43,891,422	$	37,238,780

Gross margin was 26% in the first nine months of 2012 compared to 23% in the first nine months of 2011. Gross margin improved principally as a result of the introduction of our new products and a change in product mix.

Operating expenses were $7.5 million for the nine months ended September 30, 2012, compared to $7.4 million in the same period last year.

We generated net income of $3.5 million for the nine months ended September 30, 2012, compared to $81,000 for the same period last year.

In addition to our continued profitable operations, we entered into two transactions during the quarter ended September 30, 2012, that resulted in a $5.3 million improvement in our working capital position and reduced the effective interest rates on advances under a new credit facility to 6% to 7% at current market rates, down from 16% to 24%.

On September 7, 2012, we entered into a Payment Confirmation Agreement with Wistron Neweb Corporation (“WNC”), which settled all disputes with WNC arising out of our prior manufacturing relationship, including restructure of an $8.2 million account payable which was past due. In connection with the Payment Confirmation Agreement, we paid WNC $458,000 in cash and issued WNC a Promissory Note with a face value of $7.7 million and a discounted value of $6.9 million. The Promissory Note obligates us to make payments of $50,000 per month, plus an additional payment on or before March 31 each year in the amount, if any, that would make the total of all payments to WNC for the prior year equal to 50% of our net income for that year. The issuance of the Promissory Note had a $5.3 million positive impact on our working capital at September 30, 2012, as that amount was reclassified from a current liability to a long-term liability. This Note does not bear interest, and we recognized a one-time note payable discount of $791,000 which boosted our net income for the three and nine months ended September 30, 2012. The restructuring of the WNC account payable combined with our continued profitable operations has improved our working capital position from a negative $11.8 million at December 31, 2012 to a negative $2.8 million at September 30, 2012.

On September 25, 2012, we entered into a one year $7.0 million credit facility with Silicon Valley Bank (“SVB”). The facility is a working capital based revolving line of credit where SVB, in its discretion, will make advances in the amount of up to 80% of the value of (i) eligible accounts receivable and (ii) eligible purchase orders for inventory in transit to a customer. For each account receivable or purchase order financed, we pay interest based on SVB’s prime rate, plus a specified margin, multiplied by the face amount of the eligible account receivable or purchase order. For eligible accounts receivable, the specified margin is 1.0% and for eligible purchase orders the margin is 1.4%. However, if our EBITDA for any trailing six month period falls below $1.0 million, the specified margins increase to 3.0% and 3.2%, respectively. At September 30, 2012, we had borrowings of $3.4 million under this credit facility and the effective interest rate on the borrowed funds was 6% per annum.

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Outlook

In order to maintain profitability under our current business model, we need to generate revenues of approximately $50 to $60 million annually with gross margins in the mid to low twenty percent range. Our primary goal for 2012 is to achieve consistent quarterly profitability and year over year revenue growth. The economic and competitive climate remains challenging and price competition in our markets remains intense. We anticipate continued erosion in the average selling prices for our products in 2012. This will require us to sell more units in order to achieve revenue growth or introduce new products with higher margins. For the full year, we are targeting gross margins in the mid twenty percent range. Any significant reduction of average selling prices could push gross margins to the low end of that range.

We expect our overall operating expenses to be consistent with the prior year, subject to fluctuating certification and test fees from the launch of new products and variable selling and operating expenses based on revenue levels and customer and product mix experienced during the year. We believe that our operations can support higher revenues, without significant increases to operating expenses and our goal is to scale our revenues and continue to reduce operating expenses as a percentage of revenue.

Critical Accounting Policies and Estimates

Management believes that the most critical accounting policies important to understanding our financial statements and financial condition are our policies concerning Revenue Recognition, Accounts Receivable, Inventories, and Warranty Costs.

Revenue Recognition

Our Revenue Recognition policy calls for us to recognize revenue on sales when ownership and title pass to the customer. We generally sell our products either FCA (Free Carrier) shipping port, or DDU (Delivery Duty Unpaid). When we ship FCA shipping port, title and risk of loss pass to the customer when the product is received by the customer’s freight forwarder. When we ship DDU, title and risk of loss pass when the product is received at the customer’s warehouse. Because our sales are characterized by large orders, the timing of when the revenue is recognized may have a significant impact on results of operations.

Accounts Receivable—Allowance for Doubtful Accounts

Under our Accounts Receivable policy, our management exercises judgment in establishing allowances for doubtful accounts based on information collected from individual customers. We have traditionally experienced high customer concentration, resulting in large accounts receivable from individual customers. The determination of the credit worthiness of these customers and whether or not an allowance is appropriate could have a significant impact on our results of operations.

Inventories—Provision for Excess and Obsolete

Inventories are stated at the lower of cost (first-in, first-out method) or market. We review the components of our inventory and our inventory purchase commitments on a regular basis for excess and obsolete inventory based on estimated future usage and sales. Write-downs in inventory value or losses on inventory purchase commitments depend on various items, including factors related to customer demand, economic and competitive conditions, and technological advances or new product introductions by us or our customers that vary from our current expectations. The determination of the provision for excess and obsolete inventories requires significant management judgment and can have a significant impact on our results of operations.

Warranty Costs

Our standard terms of sale provide a limited warranty, generally for a period of one to two years from purchase or initialization of the product. We establish a warranty reserve based on management’s estimates of anticipated service and replacement costs over the term of outstanding warranties. Management’s estimates are based on historical warranty experience. However, we frequently introduce new products to the market. In addition, our products are purchased from third party design and manufacturing firms, or are comprised of components acquired from third party suppliers, which are manufactured and assembled to our specifications by contract manufacturers. As a result, we may have limited experience from which to establish an estimate for an applicable warranty reserve for a specific product. Any significant change in warranty expense may have a substantial impact on our results of operations.

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Accounting Policies and Estimates

Please see “Note 3—Significant Accounting Policies” to our financial statements for a more complete discussion of the accounting policies we have identified as the most important to an understanding of our current financial condition and results of operations.

The preparation of financial statements in conformity with United States generally accepted accounting principles, or “GAAP,” requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Management routinely makes judgments and estimates about the effects of matters that are inherently uncertain. As the number of variables and assumptions affecting the probable future resolution of the uncertainties increase, these judgments become even more subjective and complex.

Quarterly Results of Operations

The following table sets forth, for the periods indicated, the unaudited consolidated statements of operations data (in thousands) and the percentages of total revenues thereto.

($ in thousands)	Three months  ended September 30, 2012					Three months  ended September 30, 2011					Nine months ended September 30, 2012					Nine months ended September 30, 2011
Revenues	$	16,327		100.00	%	$	17,062		100.00	%	$	43,891		100.00	%	$	37,239		100.00	%
Cost of goods sold		11,802		72.28			12,888		75.53			32,559		74.18			28,650		76.94
Gross margin		4,525		27.72			4,174		24.47			11,332		25.82			8,589		23.06
Operating expenses:
Research and development		706		4.32			513		3.00			1,777		4.05			1,518		4.08
Sales and marketing		880		5.39			987		5.79			2,266		5.16			2,981		8.00
General and administrative		1,292		7.91			945		5.54			3,476		7.92			2,893		7.77
Total operating expenses		2,878		17.62			2,445		14.33			7,519		17.13			7,392		19.85
Operating income		1,647		10.10			1,729		10.14			3,813		8.69			1,197		3.21
Other income (expense):
Interest expense, net		(204	)	(1.25	)		(422	)	(2.48	)		(930	)	(2.12	)		(1,116	)	(2.99	)
Note payable discount		791		4.84			0		0.00			791		1.80			0		0.00
Total other income (expense)		587		3.59			(422	)	(2.48	)		(139	)	(0.32	)		(1,116	)	(2.99	)
Income before income tax provision		2,234		13.69			1,307		7.66			3,674		8.37			81		0.22
Income tax provision		112		0.69			0		0.00			184		0.42			0		0.00
Net income	$	2,122		13.00	%	$	1,307		7.66	%	$	3,490		7.95	%	$	81		0.22	%

Comparison of the Three and Nine months Ended September 30, 2012 to the Three and Nine months Ended September 30, 2011

Revenues

We sell our products directly and through third party distributors to telecommunications operators worldwide. Revenues are recorded at the prices charged to the telecommunications operators or, in the case of sales to distributors, at the prices to the distributors. Our products are sold on a fixed price-per-unit basis.

All of our sales are based on purchase orders or other short-term arrangements. We negotiate the pricing of our products based on the quantity and the length of the time for which deliveries are to be made. For orders involving a significant number of units, or which involve deliveries over a long period of time, we typically receive rolling forecasts or a predetermined quantity for a fixed period of time from our customers, which in turn allows us to forecast internal volume and component requirements for manufacturing. In order to minimize our collection risks, we attempt to sell to our international customers under guaranteed letters of credit or open terms secured by credit insurance. At times, we extend credit based on our evaluation of the customer’s financial condition and payment history. In order to minimize foreign exchange risk, we have made all sales to date in United States dollars.

For the three months ended September 30, 2012, which we refer to as Q3 2012, revenues were $16.3 million compared to $17.1 million for the three months ended September 30, 2011, which we refer to as Q3 2011, representing a 4% decrease. This decrease is mainly attributable to the general nature of quarterly revenue activity in our business, as revenue can often fluctuate from quarter to quarter based on our current reliance on large-volume orders from only a few customers.

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For the nine months ended September 30, 2012, revenues were $43.9 million compared to $37.2 million for the nine months ended September 30, 2011, representing an 18% increase. The year over year increase is mainly attributable to overall strong demand for our gateway products and wire-line replacement terminals in our Europe, North America, and MEA markets. These increases were partially offset by a decrease in sales from our Latin America region where we have lost market share due to intense price competition from larger Chinese competitors.

In Q3 2012, our revenues were derived principally from three customers, which together represented 86% of revenues, and individually represented 39%, 37% and 10% of revenues. In Q3 2011, our revenues were derived principally from four customers, which together represented 90% of revenues, and individually represented 47%,16%,16% and 11% of revenues. Our revenues for Q3 2012 consisted of 45% for voice products and 55% for data products. For Q3 2011, our revenues consisted of 56% for voice products and 44% for data products.

For the nine months ended September 30, 2012, our revenues were derived principally from three customers, which together represented 79% of revenues, and individually represented 32%, 32% and 15% of revenues. For the nine months ended September 30, 2011, our revenues were derived principally from four customers, which together represented 72% of revenues, and individually represented 22%, 21%, 19% and 10% of revenues. Our revenues for the nine months ended September 30, 2012, consisted of 40% for voice products and 60% for data products. For the nine months ended September 30, 2011, our revenues consisted of 40% for voice products and 60% for data products.

Our objective is to increase revenues through maintaining close relationships with our core customers and helping them expand their markets. At the same time, we are actively seeking new customer opportunities where we have the ability to deliver products that address unique customer requirements with the potential to lead to significant sales.

Cost of Goods Sold

Cost of goods sold consists of direct materials, manufacturing expense, freight expense, warranty expense, royalty fees, and the cost of obsolete inventory. The wireless communications industry has been characterized by declining average selling prices. We expect this trend to continue. We actively manage our costs of goods sold through the following initiatives: outsourcing manufacturing to larger contract manufacturers who can achieve economies of scale; increasing our purchasing power through increased volume; using standardized parts across our product lines; contracting with manufacturing partners in low cost regions; engineering our products with new technologies and expertise to decrease the number of components; and increasing reliance on software based applications rather than hardware.

For Q3 2012, cost of goods sold was $11.8 million compared to $12.9 million for Q3 2011, a decrease of 8%. The decrease is primarily attributable to the 4% revenue decrease from the comparative period and improved gross margins.

For the nine months ended September 30, 2012, cost of goods sold was $32.6 million compared to $28.7 million for the nine months ended September 30, 2011, an increase of 14%. The increase is primarily attributable to the 18% revenue increase from the comparative period partially offset by improved gross margins.

Gross Margin

For Q3 2012, gross margin as a percentage of revenues was 28% compared to 24% for Q3 2011. For the nine months ended September 30, 2012, gross margin as a percentage of revenues was 26% compared to 23% for the nine months ended September 30, 2011. These margin differences are mainly reflective of product and customer mix in the comparable periods.

We are targeting gross margins in the mid-twenties for the full year 2012. However, intense price competition and aggressive new product releases by our competitors could put additional pressure on gross margins.

Research and Development

Research and development expenses consist primarily of salaries and related payroll expenses for engineering personnel, facility expenses, employee travel, contract engineering fees, prototype development costs, test fees and depreciation of developmental test equipment for software, mechanical and hardware product development. We expense research and development costs as they are incurred.

We conduct our research and development activities through a combination of internal and external development initiatives. Our third party development agreements generally provide for one of two types of payments. In some agreements we pay a non-recurring engineering fee for the development services against performance of specified milestones. Under these agreements, we expense the non-recurring engineering fee to research and development expense as it is incurred. In other agreements, we pay a royalty to the third party developer in connection with product sales. This may be in addition to, or in lieu of, any non-recurring engineering fee. In these cases, the royalty payments are charged to cost of goods sold in the period in which the revenue from the sale of the product is recognized.

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For Q3 2012, research and development was $706,000 compared to $513,000 for Q3 2011, an increase of 38%. As a percentage of revenues, research and development for Q3 2012 increased to 4% from 3% in Q3 2011. For the nine months ended September 30, 2012, research and development was $1.8 million compared to $1.5 million for the nine months ended September 30, 2011, an increase of 17%. As a percentage of revenues, research and development was 4% for the nine months ended September 30, 2012 and 2011. The increases from both periods were mainly attributable to increased bonus expense. For the three and nine months ended September 31, 2012, we accrued bonus expense of $121,000 and $252,000, respectively. For the three and nine months ended September 31, 2011, we did not accrue any bonus expense since we had not achieved our internal milestone goals on profitability.

We anticipate that 2012 research and development expenses will remain at current levels, with the exception of fluctuating certification and test fees from the launch of new products. For 2012, we are developing a new product line of security alert devices, a dual-mode gateway product for our Europe market, and the next generation of our wire-line replacement terminals.

Sales and Marketing

Sales and marketing expenses consist primarily of salaries and related payroll expenses for sales, marketing, and technical sales personnel. Other costs include facility expenses, employee travel, internal and external commissions, and trade show expense.

For Q3 2012, sales and marketing expenses were $880,000 compared to $987,000 for Q3 2011, a decrease of 11%. As a percentage of revenue, sales and marketing expenses were 5% in Q3 2012 compared to 6% in Q3 2011. For the nine months ended September 30, 2012, sales and marketing expenses were $2.3 million compared to $3.0 million for the nine months ended September 30, 2011, a decrease of 24%. As a percentage of revenue, sales and marketing expenses were 5% for the nine months ended September 30, 2012 compared to 8% for the nine months ended September 30, 2011. These decreases were mainly attributable to decreased revenues from our Latin America region where we paid third party sales commissions on our sales in Venezuela in 2011.

We expect sales and marketing expenses to remain stable in 2012, with the exception of fluctuating selling expenses based on the revenue levels and the customer mix experienced during the year.

General and Administrative

General and administrative expenses consist primarily of salaries and related payroll expenses for executive and operational management, finance, human resources, information technology, and administrative personnel. Other costs include facility expenses, employee travel, bank and financing fees, insurance, legal expense, collection fees, accounting, consulting and professional service providers, board of director expense, stockholder relations, amortization of intangible assets, depreciation expense of software and other fixed assets, and bad debt expense.

For Q3 2012, general and administration expenses were $1.3 million compared to $1.0 million for Q3 2011, an increase of 37%. For the nine months ended September 30, 2012, general and administration expenses were $3.5 million compared to $2.9 million for the nine months ended September 30, 2011, an increase of 20%. The increases from both periods were mainly attributable to increased bonus expense. For the three and nine months ended September 31, 2012, we accrued bonus expense of $235,000 and $602,000, respectively. For the three and nine months ended September 31, 2011, we did not accrue any bonus expenses since we had not achieved our internal milestone goals on profitability. As a percentage of revenue, general and administration expenses for Q3 2012 were 8% compared to 6% for Q3 2011. As a percentage of revenue, general and administration expenses for the nine months ended September 30, 2012 were 8% compared to 8% for the nine months ended September 30, 2011.

We expect selling, general and administrative expenses to remain stable at the current 2012 levels.

Interest Expense, net

For Q3 2012, net interest expense was $204,000 compared to $422,000 for Q3 2011. For the nine months ended September 30, 2012, net interest expense was $930,000 compared to $1.1 million for the nine months ended September 30, 2011. Substantially all of the expense resulted from interest expense associated with borrowings under our credit facilities and financing activities.

We expect our outstanding loan balances to fluctuate over the next several quarters based on volume and timing of customer orders, but at greatly reduced interest rates. Under our new credit facility, effective interest rates on borrowed funds are 6% to 7% at current market rates, a substantial reduction from the 16% to 24% we were paying under our prior factoring arrangement.

Note Payable Discount

On September 7, 2012, we issued a $7,714,000 Promissory Note to Wistron Neweb Corporation (WNC) in connection with a payment and settlement agreement. This Note does not bear interest, and we have discounted the Note based on an imputed interest rate of 6.25% over an estimated repayment term of approximately four years resulting in a note payable discount of $791,000.

For the three and nine months ended September 30, 2012, we recorded a gain of $791,000 to other income. For the three or nine months ended September 30, 2011, there was no activity in other income.

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Provision for Income Taxes

For the three and nine months ended September 30, 2012, we recorded income tax provisions of $112,000 and $184,000, respectively. No income tax provisions were recorded for the three or nine months ended September 30, 2011. Currently, we have established a full reserve against all deferred tax assets.

Net Income

For Q3 2012, net income was $2.1 million compared to net income of $1.3 million for Q3 2011. For the nine months ended September 30, 2012, net income was $3.5 million compared to net income of $81,000 for the nine months ended September 30, 2011.

Liquidity and Capital Resources

Liquidity

At September 30, 2012, cash and cash equivalents was $1.6 million compared to $850,000 at December 31, 2011. In addition, at September 30, 2012, accounts receivable were $11.7 million compared to $8.9 million at December 31, 2011. At September 30, 2012, we had negative working capital of $2.8 million compared to negative working capital of $11.8 million at December 31, 2011. At September 30, 2012, we had bank financings of $5.0 million compared to $6.1 million at December 31, 2011. At September 30, 2012, we had a note payable with a face value of $7.7 million and a discounted value of $6.9 million compared to no note payable at December 31, 2011.

For the nine month period ended September 30, 2012, we generated $2.1 million of cash from operations which was derived from the cash net income of $2.9 million (net income adjusted for depreciation and amortization expense, stock based compensation, recoveries from losses on accounts receivable, and gain from note discount based on imputed interest) less changes in operating assets and liabilities of $774,000. During the nine months ended September 30, 2012, we consumed $201,000 of cash from investing activities, and as of September 30, 2012, we did not have any significant commitments for capital expenditures. Financing activities consumed $1.1 million of cash during the nine months ended September 30, 2012, from the net financings of accounts receivable.

Bank Financing

We have two bank financing arrangements.

In September 2012, we entered into a one year $7.0 million credit facility with Silicon Valley Bank (“SVB”). The facility is a working capital based revolving line of credit where SVB, in its discretion, will make advances in the amount of up to 80% of the value of (i) eligible accounts receivable and (ii) eligible purchase orders for inventory in transit to a customer. For each account receivable or purchase order financed, we pay interest based on SVB’s prime rate, plus a specified margin, multiplied by the face amount of the eligible account receivable or purchase order. For eligible accounts receivable, the specified margin is 1.0% and for eligible purchase orders the margin is 1.4%. However, if our EBITDA for any trailing six month period falls below $1.0 million, the specified margins increase to 3.0% and 3.2%, respectively. At September 30, 2012, we had borrowings of $3.4 million under this credit facility and the effective interest rate on the borrowed funds was 6% per annum.

In April 2012, we entered into a one year term loan with a commercial bank in China, totaling 10,000,000 Chinese Yuan (equivalent to $1.6 million at September 30, 2012). This loan bears interest based on the People’s Bank of China twelve month adjustable rate, which was 7% per annum at September 30, 2012.

Credit Terms with Manufacturers

In addition to credit facilities, we rely on open credit terms with our manufacturing partners to help fund our working capital requirements. Generally, we order products from our contract manufacturers only upon receipt of a purchase order from a customer. Often, we can finance our accounts receivable and use the proceeds from that borrowing to pay our manufacturers. However, our contract manufacturers order certain parts with long lead times based on rolling sales forecasts that we provide. If our forecasts are inaccurate and our contract manufacturers do not use the long lead time parts, or if we have a customer notify us of their cancellation or inability to pay for a purchase order, our contract manufacturers have the right, after a specified period of time, to deliver the parts or finished goods inventory to us and demand payment.

New manufacturers generally require partial or full payments on initial orders before extending substantial credit to us. Once we establish a payment history with a manufacturer, we request open credit terms. We rely on those open credit terms to support our working capital requirements and reduce our borrowing costs. If our contract manufacturers restrict their credit terms with us, we may need to identify alternative manufacturers or secure additional capital in order to finance the production of our products.

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Recent Accounting Pronouncements

Please see the section entitled “Recent Accounting Pronouncements” contained in “Note 3 – Significant Accounting Policies” to our financial statements included in Part I—Item 1. Financial Statements of this report

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Our investment portfolio is maintained in accordance with our investment policy that defines allowable investments, specifies credit quality standards and limits our credit exposure to any single issuer. The fair value of our cash equivalents is subject to change as a result of changes in market interest rates and investment risk related to the issuers’ creditworthiness. At September 30, 2012, we had $1.6 million in cash and cash equivalents, all of which are stated at fair value. Changes in market interest rates would not be expected to have a material impact on the fair value of our cash and cash equivalents at September 30, 2012, as these consisted of securities with maturities of less than three months.

Interest rates for our bank debt agreements are variable and at current market rates range from 6% to 7% per annum. We do not use financial contracts to manage our exposure to changes in interest rates. A hypothetical one percent increase in the interest rates that we pay under our bank debt would have resulted in additional interest expense of $13,000 for the three-month period ended September 30, 2012.

Foreign Currency Exchange Rate Risk

During the nine months ended September 30, 2012, the majority of our revenue was generated outside the United States. In addition, most of our products were purchased from manufacturers in China. To mitigate the effects of currency fluctuations on our results of operations, all revenue from our international transactions and all products purchased from our contract manufacturers were denominated in United States dollars.

We maintain operations in China and Korea for which expenses are paid in the Chinese Yuan and Korean Won, respectively. Accordingly, we have currency risk resulting from fluctuations between the Chinese Yuan and the Korean Won and the United States Dollar. At the present time, we do not have any foreign exchange currency contracts to mitigate this risk. Fluctuations in foreign exchange rates could impact future operating results. A hypothetical one percent improvement in the exchange rate for the Chinese Yuan and the Korean Won versus the United States Dollar would have resulted in additional expense of $21,000 for the three-month period ended September 30, 2012.

Item 4. CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures.

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that material information is: (1) gathered and communicated to our management, including our principal executive and financial officers, on a timely basis; and (2) recorded, processed, summarized, reported and filed with the SEC as required under the Securities Exchange Act of 1934, as amended.

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2012. Based on such evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective for their intended purposes described above.

Changes In Internal Controls Over Financial Reporting.

No changes were made in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations On Disclosure Controls And Procedures.

Our management, including our chief executive officer and chief financial officer, does not expect that our disclosure controls or internal controls over financial reporting will prevent all errors or all instances of fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the

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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 our 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. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and any design may not succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitation of a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

PART II—OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS.

From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business, including claims of alleged infringement, misuse or misappropriation of intellectual property rights of third parties. As of the date of this report, we are not a party to any litigation which we believe would have a material adverse effect on our business operations or financial condition.

Item 1A. RISK FACTORS.

The risk factors set forth below update the risk factors in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2011. In addition to the risk factors below, you should carefully consider the other risk factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2011, which could materially affect our business, financial position and results of operations.

If we cannot sustain profitable operations, we will need to raise additional capital to continue our operations, which may not be available on commercially reasonable terms, or at all, and which may dilute your investment.

We have generated net income in each of the past five quarters. However, before that period we had incurred substantial losses since inception. At September 30, 2012, we had a stockholders’ deficit of $7.8 million and a working capital deficit of $2.8 million. We cannot guarantee that we will be successful in maintaining profitability and improving our working capital position.

If we are unable to generate sufficient revenues to pay our expenses and our existing sources of cash and cash flows are otherwise insufficient to fund our activities, we will need to raise additional funds to continue our operations. We currently do not have any arrangements in place for additional funds. If needed, those funds may not be available on favorable terms, or at all. Furthermore, if we issue equity or debt securities to raise additional funds, our existing stockholders may experience dilution, and the new equity or debt securities may have rights, preferences and privileges senior to those of our existing stockholders. If we are unsuccessful in maintaining profitability and reducing our accumulated deficit, and we cannot obtain additional funds on commercially reasonable terms or at all, we may be required to curtail significantly or cease our operations, which could result in the loss of all of your investment in our stock.

We rely on a small number of customers for substantially all of our revenues and the loss of one or more of these customers would seriously harm our business.

For the year ended December 31, 2011, four of our customers and their affiliates accounted for approximately 76% of our revenues; orders from these customers comprised approximately 27%, 20%, 19% and 10% of revenues, respectively. For the first nine months of 2012, three customers accounted for 79% of our revenues, and individually accounted for 32%, 32% and 15%, respectively.

If we lose one or more of our significant customers or if one or more of our significant customers materially scales back its orders and we are unable to replace the sales of our products to other customers, our revenues may decline significantly and our results of operations may be negatively impacted.

We are attempting to expand our customer base within our geographic markets for our products and services, including regions in North America, Europe and MEA, while still maintaining and expanding our volume of sales to our existing significant customers. Our goal is to develop additional significant customers. We can make no assurance, however, that we will succeed in diversifying our customer base, developing other geographic markets or becoming less reliant on a small number of significant customers. Failure to diversify our customer base subjects us to more risk in the event that one or more of our significant customers stops or reduces it purchases of our products.

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If we do not compete effectively in the fixed wireless telecommunications market, our revenues and market share will decline.

The markets for fixed wireless voice and broadband access devices are highly competitive. We face competition from larger and better capitalized competitors such as Huawei Technologies Co., Ltd. and ZTE Corporation out of China, each of which has significantly greater penetration in key markets than we do. These companies offer products that compete with our fixed wireless phones, gateway devices and wire-line replacement terminals. Economies of scale allow these competitors to offer product pricing and related incentives that we may be unable to match. We also face competition from a number of smaller competitors. These competitors may be able to:

• more accurately predict the new or emerging technologies desired by the market;

• respond more rapidly than we can to new or emerging technologies;

• respond more rapidly than we can to changes in customer requirements;

• devote greater resources than we do to sales or research and development efforts;

• offer vendor financing for their products;

• sell products at lower prices as a result of efficiencies of scale or purchasing power, thereby rendering our products non-competitive or forcing us to sell our products at reduced gross margins; and

• promote their products more effectively, including selling their products at a loss in order to obtain market share or bundling their products with other products that we do not offer in order to promote an end-to-end solution for their customers that we cannot match;

• use dominance in certain key markets to subsidize expansion efforts in geographic areas in which we operate and in which we are substantially dependent for a significant portion of our revenue.

If we are not successful in continuing to win competitive bids, in enhancing our products and customer relationships and in managing our cost structure so that we can provide competitive prices, we may experience reduced sales and our market share may decline.

We purchase products from our manufacturers on a purchase order basis and they are not obligated to accept any purchase order on the terms we request or at all.

We currently purchase all of our products from third party manufacturers on a purchase order basis. The manufacturers are not obligated to accept any purchase order that we submit, and may elect not to supply products to us on the terms we request, including terms related to open credit terms, specific quantities, pricing or timing of deliveries. If a manufacturer were to refuse to fulfill our purchase orders on terms that we request or on terms that would enable us to recover our expenses and make a profit, we could lose sales or experience reduced margins, either of which would adversely affect our results of operations. Further, if a manufacturer were to cease manufacturing our products on acceptable terms, we might not be able to identify and secure the services of a new third-party manufacturer in a timely manner or on commercially reasonable terms.

We have relied on open credit terms with our manufacturing partners to help fund our operating requirements. Any change in open credit terms from our other contract manufacturers, could disrupt our ability to accept and fulfill purchase orders and negatively impact our results of operations.

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Our auditors have expressed substantial doubt regarding our ability to continue as a going concern. If we are unable to continue as a going concern, we may be required to substantially revise our business plan or cease operations.

As of December 31, 2011, we had cash and cash equivalents of $850,000 and a working capital deficit of $11.8 million. We incurred net losses in three out of the past five years of operation. As a result, our auditors have expressed substantial doubt about our ability to continue as a going concern. While our operations have been consistently profitable since the beginning of the third quarter of 2011, we cannot assure you that we will be able to maintain profitability or obtain sufficient funds from our operating or financing activities to support our continued operations. If we cannot continue as a going concern, we may need to substantially revise our business plan or cease operations, which may reduce or negate the value of your investment.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

Item 3. DEFAULTS UPON SENIOR SECURITIES.

None.

Item 4. MINE SAFETY DISCLOSURES.

Not Applicable.

Item 5. OTHER INFORMATION.

None.

Item 6. EXHIBITS.

See the Exhibit Index immediately following the signature page of this report.

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SIGNATURES

Pursuant to the requirements 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.

	AXESSTEL, INC.
Date: November 6, 2012	/s/ Patrick Gray
	Patrick Gray, Chief Financial Officer
	(Principal Accounting Officer)

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Exhibit Index

Exhibit Number	Description of Exhibit
4.1	Promissory Note dated September 7, 2012 issued to Wistron Neweb Corporation (incorporated by reference to Exhibit 4.1 of the registrant’s Current Report on Form 8-K filed on September 13, 2012).
10.1	Payment Confirmation Agreement dated September 7, 2012 between the registrant and Wistron Neweb Corporation (incorporated by reference to Exhibit 10.1 of the registrant’s Current Report on Form 8-K filed on September 13, 2012).
10.2	Loan and Security Agreement dated September 25, 2012 between the registrant and Silicon Valley Bank (incorporated by reference to Exhibit 10.1 of the registrant’s Current Report on Form 8-K filed on October 1, 2012).
31.1*	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C, Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1	Press release issued by Axesstel on November 6, 2012 (incorporated by reference to Exhibit 99.1 of the registrant’s Current Report on Form 8-K filed on November 6, 2012).
101.INS**	XBRL Instance Document
101.SCH**	XBRL Taxonomy Extension Schema Document
101.CAL**	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF**	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB**	XBRL Taxonomy Extension Label Linkbase Document
101.PRE**	XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith.

** Furnished herewith.

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EX-31.1

Exhibit 31.1

CERTIFICATION

I, H. Clark Hickock, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Axesstel, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date: November 6, 2012	/s/ H. Clark Hickock
	H. Clark Hickock, Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Patrick Gray, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Axesstel, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date: November 6, 2012	/s/ Patrick Gray
	Patrick Gray, Chief Financial Officer
	(Principal Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the filing of the Quarterly Report on Form 10-Q for the period ended September 30, 2012 (the “Report”) by Axesstel, Inc., (“Registrant”), each of the undersigned hereby certifies that, to his knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Registrant as of and for the periods presented in the Report.

Date: November 6, 2012	/s/ H. Clark Hickock
	H. Clark Hickock, Chief Executive Officer
	(Principal Executive Officer)
	/s/ Patrick Gray
	Patrick Gray, Chief Financial Officer
	(Principal Accounting Officer)

XML

Licenses (Details Textual) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Licenses [Member]
Licenses (Textual) [Abstract]
Amortization expense	$ 32,000	$ 30,000	$ 94,000	$ 90,000
Licenses [Member] | Minimum [Member]
Licenses (Textual) [Abstract]
Finite-lived intangible assets			2 years
Licenses [Member] | Maximum [Member]
Licenses (Textual) [Abstract]
Finite-lived intangible assets			10 years
CDMA and WCDMA [Member]
Licenses (Textual) [Abstract]
License fee capitalized	3,500,000		3,500,000
VoIP [Member]
Licenses (Textual) [Abstract]
License fee capitalized	$ 52,500		$ 52,500

XML

Commitments and Contingencies (Details Textual) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012 sqft	Sep. 30, 2011	Sep. 30, 2012 sqft	Sep. 30, 2011
Commitments and Contingencies (Textual) [Abstract]
Square footage of facility	5,900		5,900
Average base monthly rent under lease agreement			$ 8,000
Lease agreement expiration			Apr. 30, 2014
Commitments and Contingencies (Additional Textual) [Abstract]
Rent expense	36,000	28,000	93,000	119,000
Severance expense	1,000,000		1,000,000
China Facility [Member]
Commitments and Contingencies (Textual) [Abstract]
Square footage of facility	1,600		1,600
Average base monthly rent under lease agreement			4,000
Lease agreement expiration			Nov. 30, 2013
Term of agreement	2 years		2 years
Korea Facility [Member]
Commitments and Contingencies (Textual) [Abstract]
Square footage of facility	1,600		1,600
Average base monthly rent under lease agreement			$ 4,000

XML

Segment Information (Details 1) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Schedule of revenues by product line
Total revenues	$ 16,327,643	$ 17,061,864	$ 43,891,422	$ 37,238,780
Data Products [Member]
Schedule of revenues by product line
Total revenues	9,052,617	7,515,206	26,478,380	22,456,046
Voice Products [Member]
Schedule of revenues by product line
Total revenues	$ 7,275,026	$ 9,546,658	$ 17,413,042	$ 14,782,734

XML

Significant Accounting Policies (Details Textual) (USD $)	3 Months Ended		9 Months Ended			9 Months Ended				3 Months Ended		9 Months Ended					24 Months Ended						9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012 Customer	Sep. 30, 2011 Customer	Dec. 31, 2011	Sep. 30, 2011 Non-Executive Director [Member]	Sep. 30, 2012 Employees [Member]	Sep. 30, 2012 Minimum [Member]	Sep. 30, 2012 Maximum [Member]	Sep. 30, 2012 Licenses [Member]	Sep. 30, 2011 Licenses [Member]	Sep. 30, 2012 Licenses [Member]	Sep. 30, 2011 Licenses [Member]	Sep. 30, 2012 Licenses [Member] Minimum [Member]	Sep. 30, 2012 Licenses [Member] Maximum [Member]	Sep. 30, 2012 Patents and Trademarks [Member]	Dec. 31, 2012 Patents and Trademarks [Member]	Sep. 30, 2012 Poland [Member]	Sep. 30, 2011 Poland [Member]	Sep. 30, 2012 Scandinavia[Member]	Sep. 30, 2011 Scandinavia[Member]	Sep. 30, 2011 Venezuela [Member]	Sep. 30, 2012 United States [Member]	Sep. 30, 2011 United States [Member]	Sep. 30, 2012 Customer Concentration Risk [Member]	Sep. 30, 2011 Customer Concentration Risk [Member]	Sep. 30, 2012 Customer Concentration Risk [Member] Poland [Member]	Sep. 30, 2011 Customer Concentration Risk [Member] Poland [Member]	Sep. 30, 2012 Customer Concentration Risk [Member] Scandinavia[Member]	Sep. 30, 2011 Customer Concentration Risk [Member] Scandinavia[Member]	Sep. 30, 2011 Customer Concentration Risk [Member] Venezuela [Member]
Significant Accounting Policies (Textual) [Abstract]
Finite-lived intangible assets														2 years	10 years	4 years
Amortization of Intangible Assets										$ 32,000	$ 30,000	$ 94,000	$ 90,000			$ 729,000	$ 729,000
Warranty replacement period								1 year	2 years
Stock vesting period								1 year	3 years
Grants to employees and directors						480,000	547,500
Exercise price range, lower limit						$ 0.07	$ 0.66
Exercise price range, upper limit						$ 0.14	$ 0.67
Concentration risk, percentage																							32.00%	22.00%	79.00%	72.00%	15.00%	19.00%	32.00%	21.00%	10.00%
Amount due from customer	11,708,930		11,708,930		8,900,508													2,900,000	2,600,000	2,500,000	1,000,000	43,000	3,000,000	4,700,000
Significant Accounting Policies (Additional Textual) [Abstract]
Allowance for doubtful accounts	320,000		320,000		520,000
Reserve for excess and obsolete inventory	292,000		292,000		910,000
Impairment cost of Long lived Intangible asset			0	0
Allowance for sales returns	0		0		0
Warranty costs			433,000	326,000
Warranty reserve	412,000		412,000		636,000
Stock option maximum granted period			10 years
Grants issued during period			0
Unrecognized Tax benefits	0	0	0	0
Anti-dilutive securities excluded from the computation	1,412,888	2,685,798	1,811,362	3,184,267
Inventory maintained in China	301,000		301,000
Shipping and handling fees			$ 350,000	$ 897,000
Number of Customers			3	4

XML

Other Accrued Expenses and Current Liabilities (Tables)

9 Months Ended

Sep. 30, 2012

Other Accrued Expenses and Current Liabilities [Abstract]

Schedule of other accrued expenses and current liabilities

	September 30, 2012		December 31, 2011
Customer advances	$	123,681	$	149,860
Accrued payroll, taxes and benefits		1,140,711		991,011
Accrued foreign sales tax		232,400		282,400
Accrued income taxes		184,731		65,201
Accrued interest		19,000		66,660
Accrued legal and professional fees		100,000		100,000
Accrued operating expenses		320,717		372,350
	$	2,121,240	$	2,027,482

XML

Note Payable (Details) (USD $)	Sep. 30, 2012	Dec. 31, 2011
Summary of scheduled payments
Note payable-face value	$ 7,714,000
Less: unamortized discount	(791,000)
Note payable, net of discount	6,923,000
Less: current portion	(1,624,000)	0
Noncurrent portion	$ 5,299,000	$ 0

XML

Licenses (Details) (USD $)	Sep. 30, 2012	Dec. 31, 2011
Schedule of Licenses
Licenses, net	$ 8,853	$ 90,000
Licenses [Member]
Schedule of Licenses
Licenses	3,552,500	3,540,000
Accumulated amortization	(3,543,647)	(3,450,000)
Licenses, net	$ 8,853	$ 90,000

XML

Commitments and Contingencies (Details) (USD $)	Sep. 30, 2012
Schedule of future estimated lease payments
2012	$ 37,000
2013	136,000
2014	33,000
Total	$ 206,000

XML

Significant Accounting Policies

9 Months Ended

Sep. 30, 2012

Significant Accounting Policies [Abstract]

SIGNIFICANT ACCOUNTING POLICIES

3. SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The condensed consolidated financial statements include the assets, liabilities and operating results of Axesstel and its wholly-owned subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation.

Estimates

In preparing financial statements in conformity with generally accepted accounting principles, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Cash and Cash Equivalents

We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. We maintain cash and cash equivalents with various commercial banks. The deposits are made with reputable financial institutions and we do not anticipate realizing any losses from these deposits.

Accounts Receivable

We extend credit based on an evaluation of a customer’s financial condition and payment history. Obligations from our foreign customers are typically secured either by letters of credit or credit insurance. Significant management judgment is required to determine the allowance for doubtful accounts. Management determines the adequacy of the allowance based on information collected from individual customers. Accounts receivable are charged off against the allowance when collectability is determined to be permanently impaired. At September 30, 2012 and December 31, 2011, the allowance for doubtful accounts was $320,000 and $520,000, respectively.

Inventories

Inventories are stated at the lower of cost (first in, first out method), based on the actual cost charged by the supplier, or market. We review the components of inventory on a regular basis for excess or obsolete inventory based on estimated future usage and sales. At September 30, 2012 and December 31, 2011, the reserve for excess and obsolete inventory was $292,000 and $910,000, respectively.

Property and Equipment

Property and equipment are recorded at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the respective assets, as follows:

Machinery and equipment	3 to 7 years
Office furniture and equipment	3 to 7 years
Software	3 years
Leasehold improvements	Life of lease, or useful life if shorter

Licenses

Licenses include the cost of non-exclusive software technology licenses which allow us to manufacture, sell and/or distribute certain telecom products worldwide. The licenses have no fixed termination date. License costs are amortized on a straight-line basis over the estimated economic lives of the licenses, which management has estimated range from two to ten years.

Patents and Trademarks

Patents and trademarks are recorded at cost. Amortization is provided using the straight-line method over the estimated useful lives of the assets, which is estimated at approximately four years. At September 30, 2012 and December 31, 2011, patent and trademark cost of $729,000 has been fully amortized.

Impairment of Long-Lived Assets

We account for the impairment of long-lived assets, such as fixed assets, licenses, patents and trademarks, under the provisions of Financial Accounting Standards Board Accounting Standards Codification, (“FASB ASC”) 360, “Property, Plant, and Equipment” which establishes the accounting for impairment of long-lived tangible and intangible assets other than goodwill and for the disposal of a business. Pursuant to FASB ASC 360, we review for impairment when facts or circumstances indicate that the carrying value of long-lived assets to be held and used may not be recoverable. If such facts or circumstances are determined to exist, an estimate of the undiscounted future cash flows produced by the long-lived asset, or the appropriate grouping of assets, is compared to the carrying value to determine whether impairment exists. If an asset is determined to be impaired, the loss is measured based on various valuation techniques, including a discounted value of estimated future cash flows. We report impairment cost as a charge to operations at the time it is identified.

FASB ASC 350-30, “General Intangibles Other Than Goodwill”, requires purchased intangible assets other than goodwill to be amortized over their useful lives unless these lives are determined to be indefinite. FASB ASC 350-30 requires other indefinite-lived assets to be tested for impairment at least on an annual basis and more often under certain circumstances, and written down by a charge to operations when impaired. An interim impairment test is required if an event occurs or conditions change that would indicate that the carrying value of the assets may not be recoverable.

During the nine months ended September 30, 2012 and 2011, we determined that there was no impairment.

Fair Value of Financial Instruments

We measure our financial assets and liabilities in accordance with the requirements of FASB ASC 825 “Financial Instruments”. The carrying values of our accounts receivable, accounts payable, bank financing, accrued expenses, and other current liabilities approximate fair value due to the short-term maturities of these instruments.

Revenue Recognition

Revenues from product sales are recognized when the risks of ownership and title pass to the customer, as specified in (1) the respective sales agreements and (2) other revenue recognition criteria as prescribed by Staff Accounting Bulletin (“SAB”) No. 101 (SAB 101), “Revenue Recognition in Financial Statements,” as amended by SAB No. 104. We generally sell our products either FCA (Free Carrier) shipping port, or DDU (Delivery Duty Unpaid). When we ship FCA shipping port, title and risk of loss pass to the customer when the product is received by the customer’s freight forwarder. When we ship DDU, title and risk of loss pass to the customer when the product is received at the customer’s warehouse. If and when defective products are returned, we normally exchange them or provide a credit to the customer. The returned products are shipped back to the supplier and we are issued a credit or exchange from the supplier. At September 30, 2012 and December 31, 2011, there was no allowance for sales returns.

Warranty Costs

All products are inspected for quality prior to shipment and we have historically experienced a minimal level of defective units.

Our standard terms of sale provide a limited warranty, generally for a period of one to two years from date of purchase or initialization of the product. We establish warranty reserves based on management’s estimates of anticipated service and replacement costs over the term of outstanding warranties.

In some countries we contract with third parties to operate service centers providing after-market and warranty support to our customers. The costs that we incur related to these service centers are recorded to cost of goods sold when revenue is recognized.

During the nine months ended September 30, 2012 and 2011, warranty expense amounted to $433,000 and $326,000, respectively. At September 30, 2012 and December 31, 2011, we have established a warranty reserve of $412,000 and $636,000, respectively, to cover service costs over the remaining lives of the warranties.

Research and Development

Costs incurred in research and development activities are expensed as incurred.

Stock-Based Compensation

Compensation Costs

Results of operations include stock-based compensation costs. The following is a summary of stock-based compensation costs, by income statement classification:

	Three months ended				Nine months ended
	September 30, 2012		September 30, 2011		September 30, 2012		September 30, 2011
Research and development	$	15,254	$	2,000	$	25,254	$	9,000
Sales and marketing		15,000		6,000		35,000		23,000
General and administrative		50,023		13,000		100,818		40,000
Total		80,277		21,000		161,072		72,000
Tax effect on stock-based compensation		0		0		0		0
Net effect on net income (loss)	$	80,277	$	21,000	$	161,072	$	72,000
Effect on earnings (loss) per share:
Basic	$	0.00	$	0.00	$	0.01	$	0.00
Diluted	$	0.00	$	0.00	$	0.01	$	0.00

Valuation of Stock Option Awards

We have one stock option plan under which stock options are granted to our employees and directors. The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model. All options granted have a maximum term of ten years, and vest over one to three years. During the nine months ended September 30, 2012, we granted to certain of our employees options to purchase an aggregate of 547,500 shares of our common stock at exercise prices ranging from $0.66 to $0.67 per share based on the closing stock price on the date the options were issued. During the nine months ended September 30, 2011, we granted to certain of our employees and a non-executive director options to purchase an aggregate of 480,000 shares of our common stock at exercise prices ranging from $0.07 to $0.14 per share.

Valuation of Stock Grants

During the nine months ended September 30, 2012, we issued 285,624 shares of our common stock to certain of our employees and directors as part of their annual compensation package. The fair value of these grants ranged from $0.66 to $1.20 per share based on the market value on the date the grants were issued. These stock grants vest over one to three years. During the nine months ended September 30, 2011, there were no grants issued.

Income Taxes

We account for income taxes in accordance with FASB ASC 740 “Income Taxes”. Under FASB ASC 740, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial statement reported amounts at each period end, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts expected to be realized. The provision for income taxes represents the tax expense for the period, if any, and the change during the period in deferred tax assets and liabilities. FASB ASC 740 also provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax positions. Under FASB ASC 740, the impact of an uncertain tax position on the income tax return may only be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. At September 30, 2012 and 2011, we have no unrecognized tax benefits.

Earnings per Share

We utilize FASB ASC 260, “Earnings per Share.” Basic earnings per share is computed by dividing earnings attributable to common stockholders by the weighted-average number of common shares outstanding during the reporting period. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include additional common share equivalents available upon exercise of stock options and warrants using the treasury stock method. Dilutive common share equivalents include the dilutive effect of in-the-money share equivalents, which are calculated based on the average share price for each period using the treasury stock method, excluding any common share equivalents if their effect would be anti-dilutive. For the three months ended September 30, 2012 and 2011, 1,412,888 and 2,685,798 potentially dilutive securities were excluded from the computation because their effect was anti-dilutive. For the nine months ended September 30, 2012 and 2011, 1,811,362 and 3,184,267 potentially dilutive securities were excluded from the computation.

	Three months ended				Nine months ended
	September 30, 2012		September 30, 2011		September 30, 2012		September 30, 2011
Numerator:
Net income attributable to common stockholders	$	2,122,396	$	1,306,663	$	3,490,175	$	80,616
Denominator:
Basic earnings per share—weighted average shares		24,084,939		23,683,482		23,928,446		23,683,482
Effect of dilutive securities:
Stock options and warrants		2,811,694		763,009		2,413,221		264,540
Diluted earnings per share—adjusted weighted average shares		26,896,633		24,446,491		26,341,667		23,948,022
Basic earnings per share	$	0.09	$	0.06	$	0.15	$	0.00
Diluted earnings per share	$	0.08	$	0.05	$	0.13	$	0.00

Foreign Currency Exchange Gains and Losses

Our reporting currency is the U.S. dollar. The functional currency of our foreign subsidiary is the Chinese Yuan. Our subsidiary’s assets and liabilities are translated into United States dollars at the exchange rate in effect at the balance sheet date. Revenue and expenses are translated at the weighted average rate of exchange prevailing during the period. The resulting cumulative translation adjustments are disclosed as a component of cumulative other comprehensive income (loss) in stockholders’ deficit. Foreign currency transaction gains and losses are recorded in the statements of operations as a component of other income (expense).

Comprehensive Income

FASB ASC 220, “Comprehensive Income” establishes standards for reporting comprehensive income and its components in financial statements. Comprehensive income, as defined, includes all changes in equity (net assets) during a period from transactions and other events and circumstances from non-owner sources. Examples of items to be included in comprehensive income, which are excluded from net income, include foreign currency translation adjustments and unrealized gains and losses on available-for-sale securities.

Certain Risks and Concentrations

In order to minimize our collection risks, we attempt to sell to our international customers under guaranteed letters of credit or open terms secured by credit insurance. At times, we extend credit based on our evaluation of the customer’s financial condition and payment history. In order to minimize foreign exchange risk, we have made all sales to date in United States dollars. Significant management judgment is required to determine the allowances for sales returns and doubtful accounts.

Our products include components that are subject to rapid technological change. Significant technological change could adversely affect our operating results and subject us to the risk of rapid product obsolescence. Under our supply agreements with our contract manufacturers we generally do not take product into inventory. We typically order product only when we have received a binding purchase order from a customer. Our contract manufacturers then manufacture the product, which is shipped directly to the customer. However, our contract manufacturers order certain parts with long lead times based on rolling sales forecasts that we provide. In the event that our forecasts are incorrect and our contract manufacturers do not use the long lead time parts, or if we have a customer notify us of their cancellation or inability to pay for a purchase order, our contract manufacturers have the right, after a specified period of time, to deliver the raw material or finished goods inventory to us and demand payment. To the extent that the products have become obsolete, we may not be able to use the raw materials or to sell the finished goods inventory at prices sufficient to cover our costs or at all.

During the nine months ended September 30, 2012, 79% of our revenues were from three customers, which accounted for 32%, 32% and 15% of revenues, respectively. These customers were located in the United States, Scandinavia and Poland, respectively. At September 30, 2012, the amounts due from such customers were $3.0 million, $2.5 million and $2.9 million, respectively, which were included in accounts receivable.

During the nine months ended September 30, 2011, 72% of our revenues were from four customers, which accounted for 22%, 21%, 19% and 10% of revenues, respectively. These customers were located in the United States, Scandinavia, Poland and Venezuela, respectively. At September 30, 2011, the amounts due from such customers were $4.7 million, $1.0 million, $2.6 million and $43,000, respectively, which were included in accounts receivable.

As of September 30, 2012, we maintained inventory of $301,000 in China. In addition, the majority of our $11.7 million of accounts receivable at September 30, 2012 are with customers in foreign countries. If any of these countries become politically or economically unstable, then our operations could be disrupted.

Shipping and handling expenses

We record all shipping and handling billings to a customer as revenue earned in accordance with FASB ASC 605-45-45-19, “Shipping and Handling Fees and Costs”. We include shipping and handling expenses in cost of goods sold. Shipping and handling fees amounted to $350,000 and $897,000 for the nine months ended September 30, 2012 and September 30, 2011, respectively.

Recently Adopted Accounting Pronouncements

In June 2011, the FASB issued Accounting Standards Update 2011-05, “Comprehensive Income” (Topic 220): Presentation of Comprehensive Income. This amended guidance eliminates the option for reporting entities to present components of other comprehensive income in the statement of stockholders’ equity. Instead, this amended guidance now requires reporting entities to present all non-owner changes in stockholders’ equity either as a single continuous statement of comprehensive income or as two separate but consecutive statements. The guidance became effective for the reporting period beginning December 15, 2011.

The Company adopted this accounting standard for the reporting period ending December 31, 2011 and it did not have a material impact on the Company’s financial statements. Subsequently in December 2011, the FASB issued Accounting Standards Update No. 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income” (“ASU No. 2011-12”), which indefinitely defers the requirement in ASU No. 2011-05 to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented. The amendments in these standards do not change the items that must be reported in other comprehensive income, when an item of other comprehensive income must be reclassified to net income, or change the option for an entity to present components of other comprehensive income gross or net of the effect of income taxes. The amendments in ASU No. 2011-12 are effective for interim and annual periods beginning after December 15, 2011 and are to be applied retrospectively. The adoption of the provisions of ASU No. 2011-12 does not have a material impact on the company’s financial position or results of operations.

Reclassifications

Certain reclassifications have been made to the 2011 financial statements to conform to the 2012 presentation.

Recent Accounting Pronouncements

Management does not believe that any recently issued, but not yet effective, accounting standards, if adopted, will have a material effect on our financial statements.

XML

Note Payable (Details 1) (USD $)	Sep. 30, 2012
Summary of estimated future amortization charged to imputed interest expense
2012 (3 months remaining)	$ 20,000
2013	1,671,000
2014	2,068,000
2015	3,164,000
Note payable, net of discount	$ 6,923,000

XML

Liquidity and Going Concern (Details)	3 Months Ended		9 Months Ended		12 Months Ended		9 Months Ended				1 Months Ended		1 Months Ended	9 Months Ended
	Sep. 30, 2012 USD ($)	Sep. 30, 2011 USD ($)	Sep. 30, 2012 USD ($)	Sep. 30, 2011 USD ($)	Dec. 31, 2011 USD ($)	Dec. 31, 2010 USD ($)	Sep. 30, 2012 Wistron Neweb Corporation [Member] USD ($)	Sep. 30, 2012 Commercial Bank in China [Member] USD ($)	Sep. 30, 2012 Commercial Bank in China [Member] CNY	Apr. 30, 2012 Commercial Bank in China [Member] CNY	Apr. 30, 2012 Commercial Bank China [Member]	Sep. 30, 2012 Principal Contract Manufacturer, Amount Past Due [Member] USD ($)	Sep. 30, 2012 Silicon Valley Bank [Member] USD ($)	Sep. 30, 2012 Silicon Valley Bank [Member] USD ($)
Liquidity and Going Concern (Textual) [Abstract]
Cash and cash equivalents	$ 1,618,385	$ 995,205	$ 1,618,385	$ 995,205	$ 849,510	$ 77,099
Working capital position	2,800,000		2,800,000		11,800,000
Stockholders' deficit	(7,820,369)		(7,820,369)		(11,631,202)
Accounts payable	6,198,661		6,198,661		12,466,142		8,200,000					8,200,000
Cash paid to WNC							458,000
Non-interest bearing promissory Note issued to WNC, face value							7,700,000
Non-interest promissory Note issued to WNC, discounted value							6,900,000
Monthly payment obligation of promissory note			50,000
Additional payments equal to net income			50.00%
Impact of issuance of the Promissory Note on working capital	5,300,000		5,300,000
Net income	2,122,396	1,306,633	3,490,175	80,616	1,100,000
Term loan duration											1 year		1 year
Credit facility with Silicon Valley Bank (SVB)								1,600,000	1,600,000	10,000,000			7,000,000	7,000,000
Maximum percentage of advance based on eligible accounts receivable and eligible purchase orders													80.00%
Specified margin for eligible accounts receivable													1.00%
For eligible purchase orders the specified margin													1.40%
Maximum EBITDA for any trailing six month													1,000,000
For eligible accounts receivable, the specified margin increase to													3.00%	3.00%
For eligible purchase orders the specified margin increase to													3.20%	3.20%
Actual borrowings under this credit facility	$ 3,400,000		$ 3,400,000										$ 3,400,000	$ 3,400,000

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Commitments and Contingencies (Tables)

9 Months Ended

Sep. 30, 2012

Commitments and Contingencies [Abstract]

Schedule of future estimated lease payments

Future estimated lease payments at September 30, 2012 are as follows:

Year Ending December 31,	Total Amount
2012	$	37,000
2013		136,000
2014		33,000
	$	206,000

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Note Payable (Details Textual) (USD $)	9 Months Ended
	Sep. 30, 2012	Dec. 31, 2011
Note Payable (Textual) [Abstract]
Accounts payable	$ 6,198,661	$ 12,466,142
Note Payable (Additional Textual) [Abstract]
Total payments as percentage of net income	50.00%
Imputed interest rate on promissory note	6.25%
Repayment term of Note	4 years
Payment obligation per month	50,000
Discount on notes payable	791,000
Wistron Neweb Corporation [Member]
Note Payable (Textual) [Abstract]
Accounts payable	8,200,000
Cash paid to WNC	458,000
Face Value of Promissory Note Issued	7,700,000
Discounted Face Value of Promissory Note Issued	$ 6,900,000

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Significant Accounting Policies (Details)	9 Months Ended
	Sep. 30, 2012
Machinery and Equipment [Member] | Minimum [Member]
Schedule of estimated useful lives of property and equipment
Property and Equipment	3 years
Machinery and Equipment [Member] | Maximum [Member]
Schedule of estimated useful lives of property and equipment
Property and Equipment	7 years
Office Furniture and Equipment [Member] | Minimum [Member]
Schedule of estimated useful lives of property and equipment
Property and Equipment	3 years
Office Furniture and Equipment [Member] | Maximum [Member]
Schedule of estimated useful lives of property and equipment
Property and Equipment	7 years
Software [Member]
Schedule of estimated useful lives of property and equipment
Property and Equipment	3 years
Leasehold Improvements [Member]
Schedule of estimated useful lives of property and equipment
Property and Equipment, useful life	Life of lease, or useful life if shorter

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Significant Accounting Policies (Details 1) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Schedule of stock-based compensation costs by income statement classification
Total	$ 80,277	$ 21,000	$ 161,072	$ 72,000
Tax effect on stock-based compensation	0	0	0	0
Net effect on net income (loss)	80,277	21,000	161,072	72,000
Effect on earnings (loss) per share:
Basic	$ 0.00	$ 0.00	$ 0.01	$ 0.00
Diluted	$ 0.00	$ 0.00	$ 0.01	$ 0.00
Research and development [Member]
Schedule of stock-based compensation costs by income statement classification
Total	15,254	2,000	25,254	9,000
Sales and marketing [Member]
Schedule of stock-based compensation costs by income statement classification
Total	15,000	6,000	35,000	23,000
General and administrative [Member]
Schedule of stock-based compensation costs by income statement classification
Total	$ 50,023	$ 13,000	$ 100,818	$ 40,000

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Liquidity and Going Concern

9 Months Ended

Sep. 30, 2012

Liquidity and Going Concern [Abstract]

LIQUIDITY AND GOING CONCERN

2. LIQUIDITY AND GOING CONCERN

At September 30, 2012, we had cash and cash equivalents of $1.6 million, negative working capital of $2.8 million, and stockholders’ deficit of $7.8 million. Our financial position has improved from a cash and cash equivalent position of $850,000, negative working capital of $11.8 million, and a stockholder’s deficit of $11.6 million at December 31, 2011.

On September 7, 2012, we entered into a Payment Confirmation Agreement with Wistron Neweb Corporation (“WNC”), which settled all disputes with WNC arising out of our prior manufacturing relationship, including restructure of an $8.2 million account payable which was past due. In connection with the Payment Confirmation Agreement we paid WNC $458,000 in cash and issued WNC a non-interest bearing Promissory Note with a face value of $7.7 million and a discounted value of $6.9 million. The Promissory Note obligates us to make payments of $50,000 per month, plus an additional payment on or before March 31 each year in the amount, if any, that would make the total of all payments to WNC for the prior year equal to 50% of our net income for that year. The issuance of the Promissory Note had a $5.3 million positive impact on our working capital at September 30, 2012, as that amount was reclassified from a current liability to a long-term liability.

In addition to restructuring the accounts payable with WNC, our working capital has been improved as a result of profitable operations. We generated net income of $1.1 million in the year ended December 31, 2011 and $3.5 million for the nine months ended September 30, 2012. Despite these improvements in our working capital position, because of our limited cash position, any significant reduction in cash flow from operations could have an impact on our ability to fund operations.

In September 2012, we entered into a one year $7.0 million credit facility with Silicon Valley Bank (“SVB”). The facility is a working capital based revolving line of credit where SVB, in its discretion, will make advances in the amount of up to 80% of the value of (i) eligible accounts receivable and (ii) eligible purchase orders for inventory in transit to a customer. For each account receivable or purchase order financed, we pay interest based on SVB’s prime rate, plus a specified margin, multiplied by the face amount of the eligible account receivable or purchase order. For eligible accounts receivable, the specified margin is 1.0% and for eligible purchase orders the margin is 1.4%. However, if our EBITDA for any trailing six month period falls below $1.0 million, the specified margins increase to 3.0% and 3.2%, respectively. At September 30, 2012, we had borrowings of $3.4 million under this credit facility and the effective interest rate on the borrowed funds was 6% per annum.

In April 2012, we entered into a one year term loan with a commercial bank in China, totaling 10,000,000 Chinese Yuan (equivalent to $1.6 million at September 30, 2012). This loan bears interest based on the People’s Bank of China twelve month adjustable rate, which was 7% per annum at September 30, 2012.

In addition to credit facilities, we rely on open credit terms with our manufacturing partners to fund our working capital requirements. New manufacturers generally require partial or full payments on initial orders before extending substantial credit to us. Once we establish a payment history with a manufacturer, we request open credit terms. We rely on those open credit terms to support our working capital requirements and reduce our borrowing costs. If our contract manufacturers restrict their credit terms with us, we may need to identify alternative manufacturers or secure additional capital in order to finance the production of our products.

If we can grow our business and secure products from our contract manufacturers in sufficient quantities, we believe that we will be able to generate cash from operations and will be able to secure accounts receivable and other financing to provide sufficient cash to finance our operations. However, if we fail to generate sufficient product sales, we will not generate sufficient cash to cover our operating expenses. If needed, we intend to secure additional working capital through the sale of debt or equity securities. No arrangements or commitments for any such financings are in place at this time, and we cannot give any assurances about the availability or terms of any future financing.

Because of our net losses prior to Q3 2011, and negative working capital position, our independent auditors, in their report on our financial statements for the year ended December 31, 2011, expressed substantial doubt about our ability to continue as a going concern. The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that could result from the outcome of this uncertainty.

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Significant Accounting Policies (Details 2) (USD $)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Numerator:
Net income attributable to common stockholders	$ 2,122,396	$ 1,306,633	$ 3,490,175	$ 80,616	$ 1,100,000
Denominator:
Basic earnings per share - weighted average shares	24,084,939	23,683,482	23,928,446	23,683,482
Effect of dilutive securities:
Stock options and warrants	$ 2,811,694	$ 763,009	$ 2,413,221	$ 264,540
Diluted earnings per share - adjusted weighted average shares	26,896,633	23,446,491	26,341,667	23,948,022
Basic earnings per share	$ 0.09	$ 0.06	$ 0.15	$ 0.00
Diluted earnings per share	$ 0.08	$ 0.05	$ 0.13	$ 0.00

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Bank Financings (Details)	9 Months Ended		9 Months Ended			1 Months Ended	9 Months Ended
	Sep. 30, 2012 USD ($)	Dec. 31, 2011 USD ($)	Sep. 30, 2012 Commercial Bank in China [Member] USD ($)	Sep. 30, 2012 Commercial Bank in China [Member] CNY	Apr. 30, 2012 Commercial Bank in China [Member] CNY	Sep. 30, 2012 Silicon Valley Bank [Member] USD ($)	Sep. 30, 2012 Silicon Valley Bank [Member] USD ($)	Sep. 30, 2012 Minimum [Member] Factoring Agreement [Member]	Sep. 30, 2011 Maximum [Member] Factoring Agreement [Member]
Bank Financings (Textual) [Abstract]
Term of credit facility						1 year
Maximum borrowing capacity			$ 1,600,000	1,600,000	10,000,000	$ 7,000,000	$ 7,000,000
Advances as percentage of eligible accounts receivable and purchase orders						80.00%
Specified margin for eligible accounts receivable						1.00%
Specified margin for eligible purchase orders						1.40%
Maximum EBITDA for any trailing six month						1,000,000
Increased specified margin of eligible accounts receivable						3.00%	3.00%
Increased specified margin of eligible purchase orders						3.20%	3.20%
Factoring agreement, interest rate								16.00%	24.00%
Debt instrument repayment term			12 months	12 months
Interest rate under credit facility	6.00%		7.00%	7.00%		6.00%	6.00%
Bank Financings (Additional Textual) [Abstract]
Outstanding loans	4,981,661	6,100,435
Borrowings under credit facility	3,400,000					3,400,000	3,400,000
Interest rate under credit facility	6.00%		7.00%	7.00%		6.00%	6.00%
Gross receivables purchased	$ 17,600,000
Adjustable rate	7.00%

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Condensed Consolidated Balance Sheets (USD $)	Sep. 30, 2012	Dec. 31, 2011
Current assets:
Cash and cash equivalents	$ 1,618,385	$ 849,510
Accounts receivable, less allowance for doubtful accounts of $320,000 and $520,000 at September 30, 2012 and December 31, 2011, respectively	11,708,930	8,900,508
Inventories, net	301,000	534,000
Supplier advances	508,297	843,076
Prepayments and other current assets	494,349	197,688
Total current assets	14,630,961	11,324,782
Property and equipment, net	226,427	61,578
Other assets:
Licenses, net	8,853	90,000
Other, net	20,952	20,952
Total other assets	29,805	110,952
Total assets	14,887,193	11,497,312
Current liabilities:
Accounts payable	6,198,661	12,466,142
Note payable-current, net of discount	1,624,000	0
Bank financings	4,981,661	6,100,435
Accrued commissions	646,000	474,455
Accrued royalties	1,425,000	1,424,000
Accrued warranties	412,000	636,000
Other accrued expenses and current liabilities	2,121,240	2,027,482
Total current liabilities	17,408,562	23,128,514
Long-term liabilities:
Note payable-long term, net of discount	5,299,000	0
Commitments and contingencies
Stockholders' deficit:
Common stock, $0.0001 par value; 250,000,000 shares authorized; 24,145,355 and 23,799,731 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively	2,414	2,380
Additional paid-in capital	40,414,483	40,079,137
Accumulated other comprehensive loss	(131,733)	(117,011)
Accumulated deficit	(48,105,533)	(51,595,708)
Total stockholders' deficit	(7,820,369)	(11,631,202)
Total liabilities and stockholders' deficit	$ 14,887,193	$ 11,497,312

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Segment Information (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Schedule of revenues by geographic region based on customer locations
Total revenues	$ 16,327,643	$ 17,061,864	$ 43,891,422	$ 37,238,780
Europe [Member]
Schedule of revenues by geographic region based on customer locations
Total revenues	8,324,425	4,593,700	22,115,807	17,997,081
North America (United States and Canada) [Member]
Schedule of revenues by geographic region based on customer locations
Total revenues	6,897,638	8,687,454	16,634,320	10,836,210
MEA (Middle East and Africa) [Member]
Schedule of revenues by geographic region based on customer locations
Total revenues	797,330	2,865,900	4,226,330	2,987,936
Latin America [Member]
Schedule of revenues by geographic region based on customer locations
Total revenues	308,250	914,810	780,550	5,224,565
Asia [Member]
Schedule of revenues by geographic region based on customer locations
Total revenues	$ 0	$ 0	$ 134,415	$ 192,988

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Consolidated Statements of Cash Flows (Unaudited) (Parenthetical) (USD $)	9 Months Ended
	Sep. 30, 2012
Condensed Consolidated Statements of Cash Flows [Abstract]
Accounts payable balance converted to notes payable	$ 7,714,000

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Prepayments and Other Current Assets (Details) (USD $)	Sep. 30, 2012	Dec. 31, 2011
Schedule of prepayments and other current assets
Prepaid taxes	$ 41,810	$ 24,810
Prepaid insurance	129,495	99,885
Other	323,044	72,993
Prepayments and other current assets	$ 494,349	$ 197,688

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Prepayments and Other Current Assets (Tables)

9 Months Ended

Sep. 30, 2012

Prepayments and Other Current Assets [Abstract]

Schedule of prepayments and other current assets

	September 30, 2012		December 31, 2011
Prepaid taxes	$	41,810	$	24,810
Prepaid insurance		129,495		99,885
Other		323,044		72,993
	$	494,349	$	197,688

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Property and Equipment (Details) (USD $)	Sep. 30, 2012	Dec. 31, 2011
Schedule of property and equipment
Machinery and equipment	$ 326,311	$ 317,923
Office furniture and equipment	281,425	249,004
Software	3,108,533	2,948,714
Property and equipment, gross	3,716,269	3,515,641
Accumulated depreciation and amortization	(3,489,842)	(3,454,063)
Property and equipment, net	$ 226,427	$ 61,578

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Licenses (Tables)

9 Months Ended

Sep. 30, 2012

Licenses [Abstract]

Schedule of Licenses

	September 30, 2012			December 31, 2011
Licenses	$	3,552,500		$	3,540,000
Accumulated amortization		(3,543,647	)		(3,450,000	)
	$	8,853		$	90,000

Schedule of estimated future amortization expense related to Licenses

	Amount
2012	$	2,603
2013		6,250
Total	$	8,853

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Basis of Presentation

9 Months Ended

Sep. 30, 2012

Basis of Presentation [Abstract]

BASIS OF PRESENTATION

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of Axesstel, Inc., a Nevada corporation, and its wholly-owned subsidiary (“Axesstel,” “us,” “our,” “we,” or the “Company”), have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission for Form 10-Q. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations.

In the opinion of management, these financial statements reflect all normal recurring and other adjustments necessary for a fair presentation, and to make the financial statements not misleading. These financial statements should be read in conjunction with the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2011. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year or any other future periods.

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Condensed Consolidated Balance Sheets (Parenthetical) (USD $)	Sep. 30, 2012	Dec. 31, 2011
Condensed Consolidated Balance Sheets [Abstract]
Allowance for doubtful accounts	$ 320,000	$ 520,000
Common stock, par value	$ 0.0001	$ 0.0001
Common stock, shares authorized	250,000,000	250,000,000
Common stock, shares issued	24,145,355	24,145,355
Common stock, shares outstanding	23,799,731	23,799,731

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Segment Information

9 Months Ended

Sep. 30, 2012

Segment Information [Abstract]

SEGMENT INFORMATION

11. SEGMENT INFORMATION

We operate and track our results in one operating segment, wireless access products. We track revenues and assets by geographic region and by product line, but do not manage operations by region. Revenues by geographic region based on customer locations were as follows:

	Three months ended				Nine months ended
	September 30, 2012		September 30, 2011		September 30, 2012		September 30, 2011
Revenues
Europe	$	8,324,425	$	4,593,700	$	22,115,807	$	17,997,081
North America (United States and Canada)		6,897,638		8,687,454		16,634,320		10,836,210
MEA (Middle East and Africa)		797,330		2,865,900		4,226,330		2,987,936
Latin America		308,250		914,810		780,550		5,224,565
Asia		0		0		134,415		192,988
Total revenues	$	16,327,643	$	17,061,864	$	43,891,422	$	37,238,780

Our data product line consists of 3G and 4G broadband gateway devices. Our voice product line consists of fixed wireless phones and wire-line replacement terminals. Revenues by product line were as follows:

	Three months ended				Nine months ended
	September 30, 2012		September 30, 2011		September 30, 2012		September 30, 2011
Revenues
Data Products	$	9,052,617	$	7,515,206	$	26,478,380	$	22,456,046
Voice Products		7,275,026		9,546,658		17,413,042		14,782,734
Total revenues	$	16,327,643	$	17,061,864	$	43,891,422	$	37,238,780

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Document and Entity Information	9 Months Ended
	Sep. 30, 2012	Nov. 01, 2012
Document and Entity Information [Abstract]
Entity Registrant Name	AXESSTEL INC
Entity Central Index Key	0001092492
Document Type	10-Q
Document Period End Date	Sep. 30, 2012
Amendment Flag	false
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q3
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		24,145,355

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2012

Commitments and Contingencies [Abstract]

COMMITMENTS AND CONTINGENCIES

12. COMMITMENTS AND CONTINGENCIES

Operating Leases

Our corporate headquarters and U.S. operations are located at 6815 Flanders Drive, San Diego, California, where we lease approximately 5,900 square feet of office space. The lease agreement provides for average base monthly rent of approximately $8,000 and expires in April 2014.

We lease additional commercial properties in China and Korea for our operations and research and development teams. The China facility is approximately 1,600 square feet and the lease term is based on a two year agreement that expires in November 2013. The Korea facility is 1,600 square feet and the lease term is based on an annual agreement. The average basic monthly rent is approximately $4,000 during the lease periods for both of these two facilities.

Future estimated lease payments at September 30, 2012 are as follows:

Year Ending December 31,	Total Amount
2012	$	37,000
2013		136,000
2014		33,000
	$	206,000

Rent expense is charged ratably over the lives of the leases using the straight line method. In addition to long-term facility leases, we incur additional rent expense for equipment and other short-term operating leases. Rent expense incurred for short-term and long-term obligations for the three and nine months ended September 30, 2012 amounted to $36,000, and $93,000, respectively. Rent expense incurred for short-term and long-term obligations for the three and nine months ended September 30, 2011 amounted to $28,000, and $119,000, respectively.

Employment and Separation Agreements

We have entered into employment agreements with our executive management personnel that provide severance payments upon termination without cause. Consequently, if we had released our executive management personnel without cause as of September 30, 2012, the severance expense due would be $1.0 million, plus any pro-rated bonuses earned, plus payments equal to twelve months of continuing healthcare coverage under COBRA.

Legal Proceedings

From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business, including claims of alleged infringement, misuse or misappropriation of intellectual property rights of third parties. At September 30, 2012, we were not a party to any such litigation which management believes would have a material adverse effect on our financial position or results of operations.

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Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Condensed Consolidated Statements of Operations and Comprehensive Income [Abstract]
Revenues	$ 16,327,643	$ 17,061,864	$ 43,891,422	$ 37,238,780
Cost of goods sold	11,802,316	12,887,546	32,559,456	28,650,467
Gross margin	4,525,327	4,174,318	11,331,966	8,588,313
Operating expenses
Research and development	705,563	512,601	1,777,397	1,518,241
Sales and marketing	880,314	987,678	2,265,405	2,980,602
General and administrative	1,291,721	945,316	3,476,110	2,893,065
Total operating expenses	2,877,598	2,445,595	7,518,912	7,391,908
Operating income	1,647,729	1,728,723	3,813,054	1,196,405
Other income (expense)
Interest expense, net	(204,333)	(422,090)	(929,879)	(1,115,789)
Note payable discount	791,000	0	791,000	0
Total other income (expense)	586,667	(422,090)	(138,879)	(1,115,789)
Income before income tax provision	2,234,396	1,306,633	3,674,175	80,616
Income tax provision	112,000	0	184,000	0
Net income	2,122,396	1,306,633	3,490,175	80,616
Foreign currency translation adjustment	3,647	1,653	(14,722)	(65,500)
Comprehensive income	$ 2,126,043	$ 1,308,286	$ 3,475,453	$ 15,116
Earnings per share
Basic	$ 0.09	$ 0.06	$ 0.15	$ 0.00
Diluted	$ 0.08	$ 0.05	$ 0.13	$ 0.00
Weighted average shares outstanding
Basic	24,084,939	23,683,482	23,928,446	23,683,482
Diluted	26,896,633	23,446,491	26,341,667	23,948,022

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Property and Equipment

9 Months Ended

Sep. 30, 2012

Property and Equipment [Abstract]

PROPERTY AND EQUIPMENT

6. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

	September 30, 2012			December 31, 2011
Machinery and equipment	$	326,311		$	317,923
Office furniture and equipment		281,425			249,004
Software		3,108,533			2,948,714
		3,716,269			3,515,641
Accumulated depreciation and amortization		(3,489,842	)		(3,454,063	)
	$	226,427		$	61,578

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Prepayments and Other Current Assets

9 Months Ended

Sep. 30, 2012

Prepayments and Other Current Assets [Abstract]

PREPAYMENTS AND OTHER CURRENT ASSETS

5. PREPAYMENTS AND OTHER CURRENT ASSETS

Prepayments and other current assets consisted of the following:

	September 30, 2012		December 31, 2011
Prepaid taxes	$	41,810	$	24,810
Prepaid insurance		129,495		99,885
Other		323,044		72,993
	$	494,349	$	197,688

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Property and Equipment (Tables)

9 Months Ended

Sep. 30, 2012

Property and Equipment [Abstract]

Schedule of Property and Equipment

	September 30, 2012			December 31, 2011
Machinery and equipment	$	326,311		$	317,923
Office furniture and equipment		281,425			249,004
Software		3,108,533			2,948,714
		3,716,269			3,515,641
Accumulated depreciation and amortization		(3,489,842	)		(3,454,063	)
	$	226,427		$	61,578

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Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2012

Significant Accounting Policies [Abstract]

Principles of Consolidation

Principles of Consolidation

The condensed consolidated financial statements include the assets, liabilities and operating results of Axesstel and its wholly-owned subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation.

Estimates

Estimates

In preparing financial statements in conformity with generally accepted accounting principles, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and Cash Equivalents

We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. We maintain cash and cash equivalents with various commercial banks. The deposits are made with reputable financial institutions and we do not anticipate realizing any losses from these deposits.

Accounts Receivable

Accounts Receivable

We extend credit based on an evaluation of a customer’s financial condition and payment history. Obligations from our foreign customers are typically secured either by letters of credit or credit insurance. Significant management judgment is required to determine the allowance for doubtful accounts. Management determines the adequacy of the allowance based on information collected from individual customers. Accounts receivable are charged off against the allowance when collectability is determined to be permanently impaired. At September 30, 2012 and December 31, 2011, the allowance for doubtful accounts was $320,000 and $520,000, respectively.

Inventories

Inventories

Inventories are stated at the lower of cost (first in, first out method), based on the actual cost charged by the supplier, or market. We review the components of inventory on a regular basis for excess or obsolete inventory based on estimated future usage and sales. At September 30, 2012 and December 31, 2011, the reserve for excess and obsolete inventory was $292,000 and $910,000, respectively.

Property and Equipment

Property and Equipment

Property and equipment are recorded at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the respective assets, as follows:

Machinery and equipment	3 to 7 years
Office furniture and equipment	3 to 7 years
Software	3 years
Leasehold improvements	Life of lease, or useful life if shorter

Licenses

Licenses

Licenses include the cost of non-exclusive software technology licenses which allow us to manufacture, sell and/or distribute certain telecom products worldwide. The licenses have no fixed termination date. License costs are amortized on a straight-line basis over the estimated economic lives of the licenses, which management has estimated range from two to ten years.

Patents and Trademarks

Patents and Trademarks

Patents and trademarks are recorded at cost. Amortization is provided using the straight-line method over the estimated useful lives of the assets, which is estimated at approximately four years. At September 30, 2012 and December 31, 2011, patent and trademark cost of $729,000 has been fully amortized.

Impairment of Long-Lived Assets

Impairment of Long-Lived Assets

We account for the impairment of long-lived assets, such as fixed assets, licenses, patents and trademarks, under the provisions of Financial Accounting Standards Board Accounting Standards Codification, (“FASB ASC”) 360, “Property, Plant, and Equipment” which establishes the accounting for impairment of long-lived tangible and intangible assets other than goodwill and for the disposal of a business. Pursuant to FASB ASC 360, we review for impairment when facts or circumstances indicate that the carrying value of long-lived assets to be held and used may not be recoverable. If such facts or circumstances are determined to exist, an estimate of the undiscounted future cash flows produced by the long-lived asset, or the appropriate grouping of assets, is compared to the carrying value to determine whether impairment exists. If an asset is determined to be impaired, the loss is measured based on various valuation techniques, including a discounted value of estimated future cash flows. We report impairment cost as a charge to operations at the time it is identified.

FASB ASC 350-30, “General Intangibles Other Than Goodwill”, requires purchased intangible assets other than goodwill to be amortized over their useful lives unless these lives are determined to be indefinite. FASB ASC 350-30 requires other indefinite-lived assets to be tested for impairment at least on an annual basis and more often under certain circumstances, and written down by a charge to operations when impaired. An interim impairment test is required if an event occurs or conditions change that would indicate that the carrying value of the assets may not be recoverable.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

We measure our financial assets and liabilities in accordance with the requirements of FASB ASC 825 “Financial Instruments”. The carrying values of our accounts receivable, accounts payable, bank financing, accrued expenses, and other current liabilities approximate fair value due to the short-term maturities of these instruments.

Revenue Recognition

Revenue Recognition

Revenues from product sales are recognized when the risks of ownership and title pass to the customer, as specified in (1) the respective sales agreements and (2) other revenue recognition criteria as prescribed by Staff Accounting Bulletin (“SAB”) No. 101 (SAB 101), “Revenue Recognition in Financial Statements,” as amended by SAB No. 104. We generally sell our products either FCA (Free Carrier) shipping port, or DDU (Delivery Duty Unpaid). When we ship FCA shipping port, title and risk of loss pass to the customer when the product is received by the customer’s freight forwarder. When we ship DDU, title and risk of loss pass to the customer when the product is received at the customer’s warehouse. If and when defective products are returned, we normally exchange them or provide a credit to the customer. The returned products are shipped back to the supplier and we are issued a credit or exchange from the supplier. At September 30, 2012 and December 31, 2011, there was no allowance for sales returns.

Warranty Costs

Warranty Costs

All products are inspected for quality prior to shipment and we have historically experienced a minimal level of defective units.

Our standard terms of sale provide a limited warranty, generally for a period of one to two years from date of purchase or initialization of the product. We establish warranty reserves based on management’s estimates of anticipated service and replacement costs over the term of outstanding warranties.

In some countries we contract with third parties to operate service centers providing after-market and warranty support to our customers. The costs that we incur related to these service centers are recorded to cost of goods sold when revenue is recognized.

Research and Development

Research and Development

Costs incurred in research and development activities are expensed as incurred.

Stock-Based Compensation

Stock-Based Compensation

Compensation Costs

Results of operations include stock-based compensation costs. The following is a summary of stock-based compensation costs, by income statement classification:

	Three months ended				Nine months ended
	September 30, 2012		September 30, 2011		September 30, 2012		September 30, 2011
Research and development	$	15,254	$	2,000	$	25,254	$	9,000
Sales and marketing		15,000		6,000		35,000		23,000
General and administrative		50,023		13,000		100,818		40,000
Total		80,277		21,000		161,072		72,000
Tax effect on stock-based compensation		0		0		0		0
Net effect on net income (loss)	$	80,277	$	21,000	$	161,072	$	72,000
Effect on earnings (loss) per share:
Basic	$	0.00	$	0.00	$	0.01	$	0.00
Diluted	$	0.00	$	0.00	$	0.01	$	0.00

Valuation of Stock Option Awards

We have one stock option plan under which stock options are granted to our employees and directors. The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model. All options granted have a maximum term of ten years, and vest over one to three years. During the nine months ended September 30, 2012, we granted to certain of our employees options to purchase an aggregate of 547,500 shares of our common stock at exercise prices ranging from $0.66 to $0.67 per share based on the closing stock price on the date the options were issued. During the nine months ended September 30, 2011, we granted to certain of our employees and a non-executive director options to purchase an aggregate of 480,000 shares of our common stock at exercise prices ranging from $0.07 to $0.14 per share.

Valuation of Stock Grants

During the nine months ended September 30, 2012, we issued 285,624 shares of our common stock to certain of our employees and directors as part of their annual compensation package. The fair value of these grants ranged from $0.66 to $1.20 per share based on the market value on the date the grants were issued. These stock grants vest over one to three years. During the nine months ended September 30, 2011, there were no grants issued.

Income Taxes

Income Taxes

We account for income taxes in accordance with FASB ASC 740 “Income Taxes”. Under FASB ASC 740, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial statement reported amounts at each period end, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts expected to be realized. The provision for income taxes represents the tax expense for the period, if any, and the change during the period in deferred tax assets and liabilities. FASB ASC 740 also provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax positions. Under FASB ASC 740, the impact of an uncertain tax position on the income tax return may only be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. At September 30, 2012 and 2011, we have no unrecognized tax benefits.

Earnings per Share

Earnings per Share

We utilize FASB ASC 260, “Earnings per Share.” Basic earnings per share is computed by dividing earnings attributable to common stockholders by the weighted-average number of common shares outstanding during the reporting period. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include additional common share equivalents available upon exercise of stock options and warrants using the treasury stock method. Dilutive common share equivalents include the dilutive effect of in-the-money share equivalents, which are calculated based on the average share price for each period using the treasury stock method, excluding any common share equivalents if their effect would be anti-dilutive. For the three months ended September 30, 2012 and 2011, 1,412,888 and 2,685,798 potentially dilutive securities were excluded from the computation because their effect was anti-dilutive. For the nine months ended September 30, 2012 and 2011, 1,811,362 and 3,184,267 potentially dilutive securities were excluded from the computation.

Foreign Currency Exchange Gains and Losses

Foreign Currency Exchange Gains and Losses

Our reporting currency is the U.S. dollar. The functional currency of our foreign subsidiary is the Chinese Yuan. Our subsidiary’s assets and liabilities are translated into United States dollars at the exchange rate in effect at the balance sheet date. Revenue and expenses are translated at the weighted average rate of exchange prevailing during the period. The resulting cumulative translation adjustments are disclosed as a component of cumulative other comprehensive income (loss) in stockholders’ deficit. Foreign currency transaction gains and losses are recorded in the statements of operations as a component of other income (expense).

Comprehensive Income

Comprehensive Income

FASB ASC 220, “Comprehensive Income” establishes standards for reporting comprehensive income and its components in financial statements. Comprehensive income, as defined, includes all changes in equity (net assets) during a period from transactions and other events and circumstances from non-owner sources. Examples of items to be included in comprehensive income, which are excluded from net income, include foreign currency translation adjustments and unrealized gains and losses on available-for-sale securities.

Certain Risks and Concentrations

Certain Risks and Concentrations

In order to minimize our collection risks, we attempt to sell to our international customers under guaranteed letters of credit or open terms secured by credit insurance. At times, we extend credit based on our evaluation of the customer’s financial condition and payment history. In order to minimize foreign exchange risk, we have made all sales to date in United States dollars. Significant management judgment is required to determine the allowances for sales returns and doubtful accounts.

Our products include components that are subject to rapid technological change. Significant technological change could adversely affect our operating results and subject us to the risk of rapid product obsolescence. Under our supply agreements with our contract manufacturers we generally do not take product into inventory. We typically order product only when we have received a binding purchase order from a customer. Our contract manufacturers then manufacture the product, which is shipped directly to the customer. However, our contract manufacturers order certain parts with long lead times based on rolling sales forecasts that we provide. In the event that our forecasts are incorrect and our contract manufacturers do not use the long lead time parts, or if we have a customer notify us of their cancellation or inability to pay for a purchase order, our contract manufacturers have the right, after a specified period of time, to deliver the raw material or finished goods inventory to us and demand payment. To the extent that the products have become obsolete, we may not be able to use the raw materials or to sell the finished goods inventory at prices sufficient to cover our costs or at all.

Shipping and handling expenses

Shipping and handling expenses

We record all shipping and handling billings to a customer as revenue earned in accordance with FASB ASC 605-45-45-19, “Shipping and Handling Fees and Costs”. We include shipping and handling expenses in cost of goods sold. Shipping and handling fees amounted to $350,000 and $897,000 for the nine months ended September 30, 2012 and September 30, 2011, respectively.

Recently Adopted Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In June 2011, the FASB issued Accounting Standards Update 2011-05, “Comprehensive Income” (Topic 220): Presentation of Comprehensive Income. This amended guidance eliminates the option for reporting entities to present components of other comprehensive income in the statement of stockholders’ equity. Instead, this amended guidance now requires reporting entities to present all non-owner changes in stockholders’ equity either as a single continuous statement of comprehensive income or as two separate but consecutive statements. The guidance became effective for the reporting period beginning December 15, 2011.

The Company adopted this accounting standard for the reporting period ending December 31, 2011 and it did not have a material impact on the Company’s financial statements. Subsequently in December 2011, the FASB issued Accounting Standards Update No. 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income” (“ASU No. 2011-12”), which indefinitely defers the requirement in ASU No. 2011-05 to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented. The amendments in these standards do not change the items that must be reported in other comprehensive income, when an item of other comprehensive income must be reclassified to net income, or change the option for an entity to present components of other comprehensive income gross or net of the effect of income taxes. The amendments in ASU No. 2011-12 are effective for interim and annual periods beginning after December 15, 2011 and are to be applied retrospectively. The adoption of the provisions of ASU No. 2011-12 does not have a material impact on the company’s financial position or results of operations.

Reclassifications

Reclassifications

Certain reclassifications have been made to the 2011 financial statements to conform to the 2012 presentation.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

Management does not believe that any recently issued, but not yet effective, accounting standards, if adopted, will have a material effect on our financial statements.

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Other Accrued Expenses and Current Liabilities

9 Months Ended

Sep. 30, 2012

Other Accrued Expenses and Current Liabilities [Abstract]

OTHER ACCRUED EXPENSES AND CURRENT LIABILITIES

9. OTHER ACCRUED EXPENSES AND CURRENT LIABILITIES

Other accrued expenses and current liabilities consisted of the following:

	September 30, 2012		December 31, 2011
Customer advances	$	123,681	$	149,860
Accrued payroll, taxes and benefits		1,140,711		991,011
Accrued foreign sales tax		232,400		282,400
Accrued income taxes		184,731		65,201
Accrued interest		19,000		66,660
Accrued legal and professional fees		100,000		100,000
Accrued operating expenses		320,717		372,350
	$	2,121,240	$	2,027,482

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Licenses

9 Months Ended

Sep. 30, 2012

Licenses [Abstract]

LICENSES

7. LICENSES

We have entered into Subscriber Unit License Agreements pursuant to which we obtained non-exclusive licenses of CDMA (Code Division Multiple Access) and WCDMA (Wideband Code Division Multiple Access) technologies, which have enabled us to manufacture and sell certain fixed wireless products and to purchase certain components and equipment from time to time. The license fees capitalized under these agreements were $3,500,000. We have additionally entered into a license agreement which has enabled us to incorporate VoIP (Voice over Internet Protocol) applications into certain products. The license fee capitalized under this agreement was $52,500.

All of our licenses have no fixed termination dates and we have assigned estimated lives ranging from two to ten years. The licenses consisted of the following:

	September 30, 2012			December 31, 2011
Licenses	$	3,552,500		$	3,540,000
Accumulated amortization		(3,543,647	)		(3,450,000	)
	$	8,853		$	90,000

Amortization expense related to these licenses amounted to approximately $32,000 and $30,000 for the three months ended September 30, 2012, and 2011, respectively. Amortization expense related to these licenses amounted to approximately $94,000 and $90,000 for the nine months ended September 30, 2012 and 2011, respectively. Estimated future amortization expense related to licenses at September 30, 2012 is as follows:

	Amount
2012	$	2,603
2013		6,250
Total	$	8,853

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Bank Financings

9 Months Ended

Sep. 30, 2012

Bank Financings [Abstract]

BANK FINANCINGS

8. BANK FINANCINGS

As of September 30, 2012 and December 31, 2011, we had outstanding bank loans of $5.0 million and $6.1 million, respectively. We currently have two active types of bank financing arrangements—accounts receivable financings and a term loan.

In September 2012, we entered into a one year $7.0 million credit facility with Silicon Valley Bank (“SVB”). The facility is a working capital based revolving line of credit where SVB, in its discretion, will make advances in the amount of up to 80% of the value of (i) eligible accounts receivable and (ii) eligible purchase orders for inventory in transit to a customer. For each account receivable or purchase order financed, we pay interest based on SVB’s prime rate, plus a specified margin, multiplied by the face amount of the eligible account receivable or purchase order. For eligible accounts receivable, the specified margin is 1.0% and for eligible purchase orders the margin is 1.4%. However, if our EBITDA for any trailing six month period falls below $1.0 million, the specified margins increase to 3.0% and 3.2%, respectively. At September 30, 2012, we had borrowings of $3.4 million under this credit facility and the effective interest rate on the borrowed funds was 6% per annum.

The new credit facility replaced a factoring arrangement for certain credit insured accounts receivable, collateralized by all of our accounts receivable. The factor charged us interest at rates ranging from 16% to 24% per annum on the amount advanced. Since the factor acquired the receivables with recourse, we recorded the gross receivables and recorded a liability to the factor for funds advanced to us. During the nine months ended September 30, 2012, the factor purchased $17.6 million of gross receivables. These receivables have since been repaid and we no longer use this facility.

In April 2012, we entered into a one year term loan with a commercial bank in China, totaling 10,000,000 Chinese Yuan (equivalent to $1.6 million at September 30, 2012). This loan bears interest based on the People’s Bank of China twelve month adjustable rate, which was 7% per annum at September 30, 2012.

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Note Payable

9 Months Ended

Sep. 30, 2012

Note Payable [Abstract]

Note Payable

10. NOTE PAYABLE

On September 7, 2012, we entered into a Payment Confirmation Agreement with Wistron Neweb Corporation (“WNC”), which settled all disputes with WNC arising out of our prior manufacturing relationship, including restructure of an $8.2 million account payable which was past due. In connection with the Payment Confirmation Agreement we paid WNC $458,000 in cash and issued WNC a Promissory Note (“Note”) with a face value of $7.7 million and a discounted value of $6.9 million. The Note obligates us to make payments of $50,000 per month, plus an additional payment on or before March 31 each year in the amount, if any, that would make the total of all payments to WNC for the prior year equal to 50% of our net income for that year. In the event we were to become delinquent on payments, the Note would become payable on demand. The Note does not accrue interest and has no prepayment penalty. Since the Note does not accrue interest, we have computed an imputed interest on the Note over an estimated repayment term of approximately four years and recorded a corresponding discount of $791,000. The interest rate used to calculate the imputed interest is 6.25%.

A summary of the calculation of the discount on the Note is as follows:

Note payable - face value	$	7,714,000
Less: unamortized discount		(791,000	)
Note payable, net of discount		6,923,000
Less: current portion		(1,624,000	)
Noncurrent portion	$	5,299,000

Estimated future maturities of the note payable at September 30, 2012, including current portion, is as follows:

2012 (3 months remaining)	$	20,000
2013		1,671,000
2014		2,068,000
2015		3,164,000
Note payable, net of discount	$	6,923,000

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Inventories (Details) (USD $)	Sep. 30, 2012	Dec. 31, 2011
Schedule of Inventories
Raw materials	$ 286,400	$ 68,566
Finished goods	306,600	1,375,434
Inventories, gross	593,000	1,444,000
Reserves for excess and obsolete inventories	(292,000)	(910,000)
Inventories, net	$ 301,000	$ 534,000

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Inventories (Tables)

9 Months Ended

Sep. 30, 2012

Inventories [Abstract]

Schedule of Inventories

	September 30, 2012			December 31, 2011
Raw materials	$	286,400		$	68,566
Finished goods		306,600			1,375,434
		593,000			1,444,000
Reserves for excess and obsolete inventories		(292,000	)		(910,000	)
	$	301,000		$	534,000

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Note Payable (Tables)

9 Months Ended

Sep. 30, 2012

Note Payable [Abstract]

Summary of scheduled payments

A summary of the calculation of the discount on the Note is as follows:

Note payable - face value	$	7,714,000
Less: unamortized discount		(791,000	)
Note payable, net of discount		6,923,000
Less: current portion		(1,624,000	)
Noncurrent portion	$	5,299,000

Summary of estimated future amortization charged to imputed interest expense

Estimated future maturities of the note payable at September 30, 2012, including current portion, is as follows:

2012 (3 months remaining)	$	20,000
2013		1,671,000
2014		2,068,000
2015		3,164,000
Note payable, net of discount	$	6,923,000

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Other Accrued Expenses and Current Liabilities (Details) (USD $)	Sep. 30, 2012	Dec. 31, 2011
Schedule of other accrued expenses and current liabilities
Customer advances	$ 123,681	$ 149,860
Accrued payroll, taxes and benefits	1,140,711	991,011
Accrued foreign sales tax	232,400	282,400
Accrued income taxes	184,731	65,201
Accrued interest	19,000	66,660
Accrued legal and professional fees	100,000	100,000
Accrued operating expenses	320,717	372,350
Other accrued expenses and current liabilities	$ 2,121,240	$ 2,027,482

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Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $)	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Cash flows from operating activities:
Net income	$ 3,490,175	$ 80,616
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	129,426	173,629
Stock-based compensation	161,072	72,000
Recoveries from losses on accounts receivables	(120,000)	(48,770)
Provision for inventory obsolescence	0	243,750
Note payable discount	791,000	0
(Increase) decrease in:
Accounts receivable	(2,688,422)	(2,793,826)
Inventories	233,000	(765,328)
Supplier advances	334,779	210,882
Other assets	(142,653)	124,929
Increase (decrease) in:
Accounts payable	1,446,519	3,898,094
Accrued expenses and other liabilities	42,303	(323,843)
Total adjustments	(1,394,976)	791,517
Net cash provided by operating activities	2,095,199	872,133
Cash flows from investing activities:
Acquisition of property and equipment	(200,628)	(9,345)
Net cash used in investing activities	(200,628)	(9,345)
Cash flows from financing activities:
Proceeds from issuance of common stock	7,800	0
Net proceeds (repayments) of bank financings	(1,118,774)	120,818
Net cash provided by (used in) financing activities	(1,110,974)	120,818
Cumulative translation adjustment	(14,722)	(65,500)
Net increase in cash and cash equivalents	768,875	918,106
Cash and cash equivalents at beginning of period	849,510	77,099
Cash and cash equivalents at end of period	1,618,385	995,205
Cash paid during the period for:
Interest	977,539	1,129,479
Income tax	$ 64,468	$ 36,757

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Inventories

9 Months Ended

Sep. 30, 2012

Inventories [Abstract]

INVENTORIES

4. INVENTORIES

Inventories consisted of the following:

	September 30, 2012			December 31, 2011
Raw materials	$	286,400		$	68,566
Finished goods		306,600			1,375,434
		593,000			1,444,000
Reserves for excess and obsolete inventories		(292,000	)		(910,000	)
	$	301,000		$	534,000

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Segment Information (Tables)

9 Months Ended

Sep. 30, 2012

Segment Information [Abstract]

Schedule of revenues by geographic region based on customer locations

	Three months ended				Nine months ended
	September 30, 2012		September 30, 2011		September 30, 2012		September 30, 2011
Revenues
Europe	$	8,324,425	$	4,593,700	$	22,115,807	$	17,997,081
North America (United States and Canada)		6,897,638		8,687,454		16,634,320		10,836,210
MEA (Middle East and Africa)		797,330		2,865,900		4,226,330		2,987,936
Latin America		308,250		914,810		780,550		5,224,565
Asia		0		0		134,415		192,988
Total revenues	$	16,327,643	$	17,061,864	$	43,891,422	$	37,238,780

Schedule of revenues by product line

	Three months ended				Nine months ended
	September 30, 2012		September 30, 2011		September 30, 2012		September 30, 2011
Revenues
Data Products	$	9,052,617	$	7,515,206	$	26,478,380	$	22,456,046
Voice Products		7,275,026		9,546,658		17,413,042		14,782,734
Total revenues	$	16,327,643	$	17,061,864	$	43,891,422	$	37,238,780

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Licenses (Details 1) (USD $)	Sep. 30, 2012	Dec. 31, 2011
Schedule of estimated future amortization expense related to Licenses
Licenses, net	$ 8,853	$ 90,000
Licenses [Member]
Schedule of estimated future amortization expense related to Licenses
2012	2,603
2013	6,250
Licenses, net	$ 8,853	$ 90,000

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Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2012

Significant Accounting Policies [Abstract]

Schedule of estimated useful lives of property and equipment

Machinery and equipment	3 to 7 years
Office furniture and equipment	3 to 7 years
Software	3 years
Leasehold improvements	Life of lease, or useful life if shorter

Schedule of stock-based compensation costs by income statement classification

	Three months ended				Nine months ended
	September 30, 2012		September 30, 2011		September 30, 2012		September 30, 2011
Research and development	$	15,254	$	2,000	$	25,254	$	9,000
Sales and marketing		15,000		6,000		35,000		23,000
General and administrative		50,023		13,000		100,818		40,000
Total		80,277		21,000		161,072		72,000
Tax effect on stock-based compensation		0		0		0		0
Net effect on net income (loss)	$	80,277	$	21,000	$	161,072	$	72,000
Effect on earnings (loss) per share:
Basic	$	0.00	$	0.00	$	0.01	$	0.00
Diluted	$	0.00	$	0.00	$	0.01	$	0.00

Schedule of calculation of numerator and denominator in earnings per share

	Three months ended				Nine months ended
	September 30, 2012		September 30, 2011		September 30, 2012		September 30, 2011
Numerator:
Net income attributable to common stockholders	$	2,122,396	$	1,306,663	$	3,490,175	$	80,616
Denominator:
Basic earnings per share—weighted average shares		24,084,939		23,683,482		23,928,446		23,683,482
Effect of dilutive securities:
Stock options and warrants		2,811,694		763,009		2,413,221		264,540
Diluted earnings per share—adjusted weighted average shares		26,896,633		24,446,491		26,341,667		23,948,022
Basic earnings per share	$	0.09	$	0.06	$	0.15	$	0.00
Diluted earnings per share	$	0.08	$	0.05	$	0.13	$	0.00