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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.   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.   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:   <table cellspacing="0" cellpadding="0" width="68%" border="0" style="border-collapse:collapse; text-align: left" align="center">  <tr> <td width="58%"> </td> <td valign="bottom" width="4%"> </td> <td width="38%"> </td> </tr>   <tr bgcolor="#cceeff"> <td valign="top">Machinery and equipment</td> <td valign="bottom"> </td> <td valign="bottom">3 to 7 years</td> </tr> <tr> <td valign="top">Office furniture and equipment</td> <td valign="bottom"> </td> <td valign="bottom">3 to 7 years</td> </tr> <tr bgcolor="#cceeff"> <td valign="top">Software</td> <td valign="bottom"> </td> <td valign="bottom">3 years</td> </tr> <tr> <td valign="top">Leasehold improvements</td> <td valign="bottom"> </td> <td valign="bottom">Life of lease, or useful life if shorter</td> </tr>  </table> 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:   <table cellspacing="0" cellpadding="0" width="92%" border="0" style="border-collapse:collapse; text-align: left" align="center">  <tr> <td width="55%"> </td> <td valign="bottom" width="6%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="6%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="6%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="6%"> </td> <td> </td> <td> </td> <td> </td> </tr> <tr> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="6" align="center" style="border-bottom:1px solid #000000">Three months ended</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="6" align="center" style="border-bottom:1px solid #000000">Nine months ended</td> <td valign="bottom"> </td> </tr> <tr> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">September 30, 2012</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">September 30, 2011</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">September 30, 2012</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">September 30, 2011</td> <td valign="bottom"> </td> </tr>   <tr bgcolor="#cceeff"> <td valign="top"> Research and development </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">15,254</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">2,000</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">25,254</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">9,000</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr> <td valign="top"> Sales and marketing </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">15,000</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">6,000</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">35,000</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">23,000</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> General and administrative </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">50,023</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">13,000</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">100,818</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">40,000</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr> <tr> <td valign="top"> Total </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">80,277</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">21,000</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">161,072</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">72,000</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> Tax effect on stock-based compensation </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">0</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">0</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">0</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">0</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr> <tr> <td valign="top"> Net effect on net income (loss) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">80,277</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">21,000</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">161,072</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">72,000</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> Effect on earnings (loss) per share: </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> </tr> <tr> <td valign="top"> Basic </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.00</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.00</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.01</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.00</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> Diluted </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.00</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.00</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.01</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.00</td> <td nowrap="nowrap" valign="bottom"> </td> </tr>  </table> 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.   <table cellspacing="0" cellpadding="0" width="92%" border="0" style="border-collapse:collapse; text-align: left" align="center">  <tr> <td width="51%"> </td> <td valign="bottom" width="5%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="5%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="5%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="2%"> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> </tr> <tr> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="6" align="center" style="border-bottom:1px solid #000000">Three months ended</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="6" align="center" style="border-bottom:1px solid #000000">Nine months ended</td> <td valign="bottom"> </td> </tr> <tr> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">September 30, 2012</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">September 30, 2011</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">September 30, 2012</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">September 30, 2011</td> <td valign="bottom"> </td> </tr>   <tr bgcolor="#cceeff"> <td valign="top"> Numerator: </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> </tr> <tr> <td valign="top"> Net income attributable to common stockholders </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">2,122,396</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">1,306,663</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">3,490,175</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">80,616</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> Denominator: </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> </tr> <tr> <td valign="top"> Basic earnings per share—weighted average shares </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">24,084,939</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">23,683,482</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">23,928,446</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">23,683,482</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> Effect of dilutive securities: </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> </tr> <tr> <td valign="top"> Stock options and warrants </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">2,811,694</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">763,009</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">2,413,221</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">264,540</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> Diluted earnings per share—adjusted weighted average shares </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">26,896,633</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">24,446,491</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">26,341,667</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">23,948,022</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr> <tr> <td valign="top"> Basic earnings per share </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.09</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.06</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.15</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.00</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> Diluted earnings per share </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.08</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.05</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.13</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.00</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr>  </table> 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.

4. INVENTORIES Inventories consisted of the following:   <table cellspacing="0" cellpadding="0" width="76%" border="0" style="border-collapse:collapse; text-align: left" align="center">  <tr> <td width="72%"> </td> <td valign="bottom" width="7%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="7%"> </td> <td> </td> <td> </td> <td> </td> </tr> <tr> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">September 30, 2012</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">December 31, 2011</td> <td valign="bottom"> </td> </tr>   <tr bgcolor="#cceeff"> <td valign="top"> Raw materials </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">286,400</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">68,566</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr> <td valign="top"> Finished goods </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">306,600</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,375,434</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">593,000</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,444,000</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr> <td valign="top"> Reserves for excess and obsolete inventories </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(292,000</td> <td nowrap="nowrap" valign="bottom">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(910,000</td> <td nowrap="nowrap" valign="bottom">) </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">301,000</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">534,000</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr>  </table>

5. PREPAYMENTS AND OTHER CURRENT ASSETS Prepayments and other current assets consisted of the following:   <table cellspacing="0" cellpadding="0" width="76%" border="0" style="border-collapse:collapse; text-align: left" align="center">  <tr> <td width="72%"> </td> <td valign="bottom" width="7%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="7%"> </td> <td> </td> <td> </td> <td> </td> </tr> <tr> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">September 30, 2012</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">December 31, 2011</td> <td valign="bottom"> </td> </tr>   <tr bgcolor="#cceeff"> <td valign="top"> Prepaid taxes </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">41,810</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">24,810</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr> <td valign="top"> Prepaid insurance </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">129,495</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">99,885</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> Other </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">323,044</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">72,993</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr> <tr> <td valign="top"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">494,349</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">197,688</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr>  </table>

6. PROPERTY AND EQUIPMENT Property and equipment consisted of the following:   <table cellspacing="0" cellpadding="0" width="76%" border="0" style="border-collapse:collapse; text-align: left" align="center">  <tr> <td width="72%"> </td> <td valign="bottom" width="7%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="7%"> </td> <td> </td> <td> </td> <td> </td> </tr> <tr> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">September 30, 2012</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">December 31, 2011</td> <td valign="bottom"> </td> </tr>   <tr bgcolor="#cceeff"> <td valign="top"> Machinery and equipment </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">326,311</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">317,923</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr> <td valign="top"> Office furniture and equipment </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">281,425</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">249,004</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> Software </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">3,108,533</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">2,948,714</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr> <tr> <td valign="top"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">3,716,269</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">3,515,641</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> Accumulated depreciation and amortization </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(3,489,842</td> <td nowrap="nowrap" valign="bottom">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(3,454,063</td> <td nowrap="nowrap" valign="bottom">) </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr> <tr> <td valign="top"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">226,427</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">61,578</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr>  </table>

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 $52,500. All of our licenses have no fixed termination dates and we have assigned estimated lives ranging from two to ten years. The licenses consisted of the following:     <table cellspacing="0" cellpadding="0" width="76%" border="0" style="border-collapse:collapse; text-align: left" align="center">  <tr> <td width="72%"> </td> <td valign="bottom" width="6%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="6%"> </td> <td> </td> <td> </td> <td> </td> </tr> <tr> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">September 30, 2012</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">December 31, 2011</td> <td valign="bottom"> </td> </tr>   <tr bgcolor="#cceeff"> <td valign="top"> Licenses </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">3,552,500</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">3,540,000</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr> <td valign="top"> Accumulated amortization </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(3,543,647</td> <td nowrap="nowrap" valign="bottom">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(3,450,000</td> <td nowrap="nowrap" valign="bottom">) </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">8,853</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">90,000</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr>  </table>   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 $90,000 for the nine months ended September 30, 2012 and 2011, respectively. Estimated future amortization expense related to licenses at September 30, 2012 is as follows:   <table cellspacing="0" cellpadding="0" width="68%" border="0" style="border-collapse:collapse; text-align: left" align="center">  <tr> <td width="89%"> </td> <td valign="bottom" width="6%"> </td> <td> </td> <td> </td> <td> </td> </tr> <tr> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">Amount</td> <td valign="bottom"> </td> </tr>   <tr bgcolor="#cceeff"> <td valign="top"> 2012 </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">2,603</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr> <td valign="top"> 2013 </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">6,250</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> Total </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">8,853</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr>  </table>

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:   <table cellspacing="0" cellpadding="0" width="76%" border="0" style="border-collapse:collapse; text-align: left" align="center">  <tr> <td width="72%"> </td> <td valign="bottom" width="5%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="5%"> </td> <td> </td> <td> </td> <td> </td> </tr> <tr> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">September 30, 2012</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">December 31, 2011</td> <td valign="bottom"> </td> </tr>   <tr bgcolor="#cceeff"> <td valign="top"> Customer advances </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">123,681</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">149,860</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr> <td valign="top"> Accrued payroll, taxes and benefits </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,140,711</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">991,011</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> Accrued foreign sales tax </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">232,400</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">282,400</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr> <td valign="top"> Accrued income taxes </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">184,731</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">65,201</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> Accrued interest </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">19,000</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">66,660</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr> <td valign="top"> Accrued legal and professional fees </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">100,000</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">100,000</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> Accrued operating expenses </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">320,717</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">372,350</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr> <tr> <td valign="top"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">2,121,240</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">2,027,482</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr>  </table>

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 $791,000. The interest rate used to calculate the imputed interest is 6.25%. A summary of the calculation of the discount on the Note is as follows:   <table cellspacing="0" cellpadding="0" width="68%" border="0" style="border-collapse:collapse; text-align: left" align="center">  <tr> <td width="84%"> </td> <td valign="bottom" width="7%"> </td> <td> </td> <td> </td> <td> </td> </tr>   <tr bgcolor="#cceeff"> <td valign="top"> Note payable - face value </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">7,714,000</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr> <td valign="top"> Less: unamortized discount </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(791,000</td> <td nowrap="nowrap" valign="bottom">) </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> Note payable, net of discount </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">6,923,000</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr> <td valign="top"> Less: current portion </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(1,624,000</td> <td nowrap="nowrap" valign="bottom">) </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> Noncurrent portion </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">5,299,000</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr>  </table> Estimated future maturities of the note payable at September 30, 2012, including current portion, is as follows:   <table cellspacing="0" cellpadding="0" width="68%" border="0" style="border-collapse:collapse; text-align: left" align="center">  <tr> <td width="85%"> </td> <td valign="bottom" width="5%"> </td> <td> </td> <td> </td> <td> </td> </tr>   <tr bgcolor="#cceeff"> <td valign="top"> 2012 (3 months remaining) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">20,000</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr> <td valign="top"> 2013 </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,671,000</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> 2014 </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">2,068,000</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr> <td valign="top"> 2015 </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">3,164,000</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> Note payable, net of discount </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">6,923,000</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr>  </table>

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:   <table cellspacing="0" cellpadding="0" width="92%" border="0" style="border-collapse:collapse; text-align: left" align="center">  <tr> <td width="52%"> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="1%"> </td> <td> </td> <td> </td> <td valign="bottom" width="2%"> </td> </tr> <tr> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="6" align="center" style="border-bottom:1px solid #000000">Three months ended</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="6" align="center" style="border-bottom:1px solid #000000">Nine months ended</td> <td valign="bottom"> </td> </tr> <tr> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">September 30, 2012</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">September 30, 2011</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">September 30, 2012</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">September 30, 2011</td> <td valign="bottom"> </td> </tr>   <tr bgcolor="#cceeff"> <td valign="top"> Revenues </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> </tr> <tr> <td valign="top"> Europe </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">8,324,425</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">4,593,700</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">22,115,807</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">17,997,081</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> North America (United States and Canada) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">6,897,638</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">8,687,454</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">16,634,320</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">10,836,210</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr> <td valign="top"> MEA (Middle East and Africa) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">797,330</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">2,865,900</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">4,226,330</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">2,987,936</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> Latin America </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">308,250</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">914,810</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">780,550</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">5,224,565</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr> <td valign="top"> Asia </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">0</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">0</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">134,415</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">192,988</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> Total revenues </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">16,327,643</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">17,061,864</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">43,891,422</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">37,238,780</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr>  </table> 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:   <table cellspacing="0" cellpadding="0" width="92%" border="0" style="border-collapse:collapse; text-align: left" align="center">  <tr> <td width="52%"> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="1%"> </td> <td> </td> <td> </td> <td valign="bottom" width="2%"> </td> </tr> <tr> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="6" align="center" style="border-bottom:1px solid #000000">Three months ended</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="6" align="center" style="border-bottom:1px solid #000000">Nine months ended</td> <td valign="bottom"> </td> </tr> <tr> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">September 30, 2012</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">September 30, 2011</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">September 30, 2012</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">September 30, 2011</td> <td valign="bottom"> </td> </tr>   <tr bgcolor="#cceeff"> <td valign="top"> Revenues </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> </tr> <tr> <td valign="top"> Data Products </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">9,052,617</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">7,515,206</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">26,478,380</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">22,456,046</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> Voice Products </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">7,275,026</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">9,546,658</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">17,413,042</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">14,782,734</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr> <tr> <td valign="top"> Total revenues </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">16,327,643</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">17,061,864</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">43,891,422</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">37,238,780</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr>  </table>

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 $4,000 during the lease periods for both of these two facilities. Future estimated lease payments at September 30, 2012 are as follows:   <table cellspacing="0" cellpadding="0" width="68%" border="0" style="border-collapse:collapse; text-align: left" align="center">  <tr> <td width="87%"> </td> <td valign="bottom" width="5%"> </td> <td> </td> <td> </td> <td> </td> </tr> <tr> <td valign="bottom" nowrap="nowrap"> Year Ending December 31, </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">Total Amount</td> <td valign="bottom"> </td> </tr>   <tr bgcolor="#cceeff"> <td valign="top"> 2012 </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">37,000</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr> <td valign="top"> 2013 </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">136,000</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> 2014 </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">33,000</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr> <tr> <td valign="top"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">206,000</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr>  </table> 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.

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:   <table cellspacing="0" cellpadding="0" width="92%" border="0" style="border-collapse:collapse; text-align: left" align="center">  <tr> <td width="55%"> </td> <td valign="bottom" width="6%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="6%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="6%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="6%"> </td> <td> </td> <td> </td> <td> </td> </tr> <tr> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="6" align="center" style="border-bottom:1px solid #000000">Three months ended</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="6" align="center" style="border-bottom:1px solid #000000">Nine months ended</td> <td valign="bottom"> </td> </tr> <tr> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">September 30, 2012</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">September 30, 2011</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">September 30, 2012</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">September 30, 2011</td> <td valign="bottom"> </td> </tr>   <tr bgcolor="#cceeff"> <td valign="top"> Research and development </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">15,254</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">2,000</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">25,254</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">9,000</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr> <td valign="top"> Sales and marketing </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">15,000</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">6,000</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">35,000</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">23,000</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> General and administrative </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">50,023</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">13,000</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">100,818</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">40,000</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr> <tr> <td valign="top"> Total </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">80,277</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">21,000</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">161,072</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">72,000</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> Tax effect on stock-based compensation </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">0</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">0</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">0</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">0</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr> <tr> <td valign="top"> Net effect on net income (loss) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">80,277</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">21,000</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">161,072</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">72,000</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> Effect on earnings (loss) per share: </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> </tr> <tr> <td valign="top"> Basic </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.00</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.00</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.01</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.00</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> Diluted </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.00</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.00</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.01</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.00</td> <td nowrap="nowrap" valign="bottom"> </td> </tr>  </table> 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.

<table cellspacing="0" cellpadding="0" width="92%" border="0" style="border-collapse:collapse; text-align: left" align="center">  <tr> <td width="55%"> </td> <td valign="bottom" width="6%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="6%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="6%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="6%"> </td> <td> </td> <td> </td> <td> </td> </tr> <tr> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="6" align="center" style="border-bottom:1px solid #000000">Three months ended</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="6" align="center" style="border-bottom:1px solid #000000">Nine months ended</td> <td valign="bottom"> </td> </tr> <tr> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">September 30, 2012</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">September 30, 2011</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">September 30, 2012</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">September 30, 2011</td> <td valign="bottom"> </td> </tr>   <tr bgcolor="#cceeff"> <td valign="top"> Research and development </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">15,254</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">2,000</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">25,254</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">9,000</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr> <td valign="top"> Sales and marketing </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">15,000</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">6,000</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">35,000</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">23,000</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> General and administrative </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">50,023</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">13,000</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">100,818</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">40,000</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr> <tr> <td valign="top"> Total </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">80,277</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">21,000</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">161,072</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">72,000</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> Tax effect on stock-based compensation </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">0</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">0</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">0</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">0</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr> <tr> <td valign="top"> Net effect on net income (loss) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">80,277</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">21,000</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">161,072</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">72,000</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> Effect on earnings (loss) per share: </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> </tr> <tr> <td valign="top"> Basic </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.00</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.00</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.01</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.00</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> Diluted </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.00</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.00</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.01</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.00</td> <td nowrap="nowrap" valign="bottom"> </td> </tr>  </table>

<table cellspacing="0" cellpadding="0" width="92%" border="0" style="border-collapse:collapse; text-align: left" align="center">  <tr> <td width="51%"> </td> <td valign="bottom" width="5%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="5%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="5%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="2%"> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> </tr> <tr> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="6" align="center" style="border-bottom:1px solid #000000">Three months ended</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="6" align="center" style="border-bottom:1px solid #000000">Nine months ended</td> <td valign="bottom"> </td> </tr> <tr> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">September 30, 2012</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">September 30, 2011</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">September 30, 2012</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">September 30, 2011</td> <td valign="bottom"> </td> </tr>   <tr bgcolor="#cceeff"> <td valign="top"> Numerator: </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> </tr> <tr> <td valign="top"> Net income attributable to common stockholders </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">2,122,396</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">1,306,663</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">3,490,175</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">80,616</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> Denominator: </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> </tr> <tr> <td valign="top"> Basic earnings per share—weighted average shares </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">24,084,939</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">23,683,482</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">23,928,446</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">23,683,482</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> Effect of dilutive securities: </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> </tr> <tr> <td valign="top"> Stock options and warrants </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">2,811,694</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">763,009</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">2,413,221</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">264,540</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> Diluted earnings per share—adjusted weighted average shares </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">26,896,633</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">24,446,491</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">26,341,667</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">23,948,022</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr> <tr> <td valign="top"> Basic earnings per share </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.09</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.06</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.15</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.00</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> Diluted earnings per share </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.08</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.05</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.13</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.00</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr>  </table>

<table cellspacing="0" cellpadding="0" width="76%" border="0" style="border-collapse:collapse; text-align: left" align="center">  <tr> <td width="72%"> </td> <td valign="bottom" width="7%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="7%"> </td> <td> </td> <td> </td> <td> </td> </tr> <tr> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">September 30, 2012</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">December 31, 2011</td> <td valign="bottom"> </td> </tr>   <tr bgcolor="#cceeff"> <td valign="top"> Raw materials </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">286,400</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">68,566</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr> <td valign="top"> Finished goods </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">306,600</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,375,434</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">593,000</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,444,000</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr> <td valign="top"> Reserves for excess and obsolete inventories </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(292,000</td> <td nowrap="nowrap" valign="bottom">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(910,000</td> <td nowrap="nowrap" valign="bottom">) </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">301,000</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">534,000</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr>  </table>

<table cellspacing="0" cellpadding="0" width="76%" border="0" style="border-collapse:collapse; text-align: left" align="center">  <tr> <td width="72%"> </td> <td valign="bottom" width="7%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="7%"> </td> <td> </td> <td> </td> <td> </td> </tr> <tr> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">September 30, 2012</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">December 31, 2011</td> <td valign="bottom"> </td> </tr>   <tr bgcolor="#cceeff"> <td valign="top"> Prepaid taxes </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">41,810</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">24,810</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr> <td valign="top"> Prepaid insurance </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">129,495</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">99,885</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> Other </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">323,044</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">72,993</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr> <tr> <td valign="top"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">494,349</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">197,688</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr>  </table>

<table cellspacing="0" cellpadding="0" width="76%" border="0" style="border-collapse:collapse; text-align: left" align="center">  <tr> <td width="72%"> </td> <td valign="bottom" width="7%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="7%"> </td> <td> </td> <td> </td> <td> </td> </tr> <tr> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">September 30, 2012</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">December 31, 2011</td> <td valign="bottom"> </td> </tr>   <tr bgcolor="#cceeff"> <td valign="top"> Machinery and equipment </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">326,311</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">317,923</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr> <td valign="top"> Office furniture and equipment </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">281,425</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">249,004</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> Software </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">3,108,533</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">2,948,714</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr> <tr> <td valign="top"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">3,716,269</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">3,515,641</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> Accumulated depreciation and amortization </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(3,489,842</td> <td nowrap="nowrap" valign="bottom">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(3,454,063</td> <td nowrap="nowrap" valign="bottom">) </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr> <tr> <td valign="top"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">226,427</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">61,578</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr>  </table>

<table cellspacing="0" cellpadding="0" width="76%" border="0" style="border-collapse:collapse; text-align: left" align="center">  <tr> <td width="72%"> </td> <td valign="bottom" width="5%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="5%"> </td> <td> </td> <td> </td> <td> </td> </tr> <tr> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">September 30, 2012</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">December 31, 2011</td> <td valign="bottom"> </td> </tr>   <tr bgcolor="#cceeff"> <td valign="top"> Customer advances </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">123,681</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">149,860</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr> <td valign="top"> Accrued payroll, taxes and benefits </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,140,711</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">991,011</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> Accrued foreign sales tax </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">232,400</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">282,400</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr> <td valign="top"> Accrued income taxes </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">184,731</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">65,201</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> Accrued interest </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">19,000</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">66,660</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr> <td valign="top"> Accrued legal and professional fees </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">100,000</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">100,000</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> Accrued operating expenses </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">320,717</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">372,350</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr> <tr> <td valign="top"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">2,121,240</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">2,027,482</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr>  </table>

A summary of the calculation of the discount on the Note is as follows:   <table cellspacing="0" cellpadding="0" width="68%" border="0" style="border-collapse:collapse; text-align: left" align="center">  <tr> <td width="84%"> </td> <td valign="bottom" width="7%"> </td> <td> </td> <td> </td> <td> </td> </tr>   <tr bgcolor="#cceeff"> <td valign="top"> Note payable - face value </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">7,714,000</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr> <td valign="top"> Less: unamortized discount </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(791,000</td> <td nowrap="nowrap" valign="bottom">) </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> Note payable, net of discount </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">6,923,000</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr> <td valign="top"> Less: current portion </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(1,624,000</td> <td nowrap="nowrap" valign="bottom">) </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> Noncurrent portion </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">5,299,000</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr>  </table>

Estimated future maturities of the note payable at September 30, 2012, including current portion, is as follows:   <table cellspacing="0" cellpadding="0" width="68%" border="0" style="border-collapse:collapse; text-align: left" align="center">  <tr> <td width="85%"> </td> <td valign="bottom" width="5%"> </td> <td> </td> <td> </td> <td> </td> </tr>   <tr bgcolor="#cceeff"> <td valign="top"> 2012 (3 months remaining) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">20,000</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr> <td valign="top"> 2013 </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,671,000</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> 2014 </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">2,068,000</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr> <td valign="top"> 2015 </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">3,164,000</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> Note payable, net of discount </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">6,923,000</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr>  </table>

<table cellspacing="0" cellpadding="0" width="92%" border="0" style="border-collapse:collapse; text-align: left" align="center">  <tr> <td width="52%"> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="1%"> </td> <td> </td> <td> </td> <td valign="bottom" width="2%"> </td> </tr> <tr> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="6" align="center" style="border-bottom:1px solid #000000">Three months ended</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="6" align="center" style="border-bottom:1px solid #000000">Nine months ended</td> <td valign="bottom"> </td> </tr> <tr> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">September 30, 2012</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">September 30, 2011</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">September 30, 2012</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">September 30, 2011</td> <td valign="bottom"> </td> </tr>   <tr bgcolor="#cceeff"> <td valign="top"> Revenues </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> </tr> <tr> <td valign="top"> Europe </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">8,324,425</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">4,593,700</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">22,115,807</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">17,997,081</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> North America (United States and Canada) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">6,897,638</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">8,687,454</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">16,634,320</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">10,836,210</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr> <td valign="top"> MEA (Middle East and Africa) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">797,330</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">2,865,900</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">4,226,330</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">2,987,936</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> Latin America </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">308,250</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">914,810</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">780,550</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">5,224,565</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr> <td valign="top"> Asia </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">0</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">0</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">134,415</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">192,988</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> Total revenues </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">16,327,643</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">17,061,864</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">43,891,422</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">37,238,780</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr>  </table>

Future estimated lease payments at September 30, 2012 are as follows:   <table cellspacing="0" cellpadding="0" width="68%" border="0" style="border-collapse:collapse; text-align: left" align="center">  <tr> <td width="87%"> </td> <td valign="bottom" width="5%"> </td> <td> </td> <td> </td> <td> </td> </tr> <tr> <td valign="bottom" nowrap="nowrap"> Year Ending December 31, </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">Total Amount</td> <td valign="bottom"> </td> </tr>   <tr bgcolor="#cceeff"> <td valign="top"> 2012 </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">37,000</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr> <td valign="top"> 2013 </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">136,000</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> 2014 </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">33,000</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr> <tr> <td valign="top"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">206,000</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size:1px"> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr>  </table>

458000 5300000 P12M 6900000 7700000 20000 3164000 2068000 1671000 P1Y P1Y 1000000 11800000 2800000 P4Y 0.0625 7714000 4 3 0.80 0.030 0.030 0.032 0.032 0.50 0.010 0.014 P2Y P1Y 0 0 0.00 0.00 0.01 0.00 0.00 0.00 0.01 0.00 P10Y P2Y false --12-31 Q3 2012 2012-09-30 10-Q 0001092492 24145355 Smaller Reporting Company AXESSTEL INC

12466142

6198661

8200000

4700000

2600000

43000

1000000

8900508

11708930

3000000

2900000

2500000

65201

184731

474455

646000

100000

1424000

1425000

3454063

3489842

-117011

-131733

40079137

40414483

791517

-1394976

72000

40000

9000

23000

21000

13000

2000

6000

161072

100818

25254

35000

80277

50023

15254

15000

72000

21000

161072

80277

520000

320000

791000

90000

729000

30000

729000

94000

32000

3184267

2685798

1811362

1412888

5900

1600

11497312

14887193

11324782

14630961

110952

29805

0.24

0.16

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849510

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0.79

0.15

0.32

28650467

12887546

32559456

11802316

149860

123681

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50000

791000

173629

129426

264540

763009

2413221

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0.00

0.06

0.15

0.09

0.00

0.05

0.13

0.08

-65500

-14722

991011

1140711

3450000

3543647

2603

6250

3540000

3552500

90000

8853

P4Y

P10Y

P2Y

249004

281425

2893065

945316

3476110

1291721

8588313

4174318

11331966

4525327

80616

1306633

3674175

2234396

36757

64468

184000

112000

3898094

1446519

2793826

2688422

765328

-233000

-323843

42303

-124929

142653

-210882

-334779

3500000

52500

1115789

422090

929879

204333

1129479

977539

66660

19000

1375434

306600

1444000

593000

534000

301000

68566

286400

910000

292000

243750

8000

4000

2014-04-30

2013-11-30

11497312

14887193

23128514

17408562

3400000

0.06

0.07

10000000

7000000

1600000

5299000

317923

326311

120818

-1110974

-9345

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872133

2095199

80616

1100000

1306633

3490175

2122396

-1115789

-422090

-138879

586667

7714000

6923000

1624000

7391908

2445595

7518912

2877598

1196405

1728723

3813054

1647729

206000

37000

33000

136000

119000

28000

93000

36000

2027482

2121240

72993

323044

20952

65500

-1653

14722

-3647

301000

372350

320717

9345

200628

197688

494349

99885

129495

24810

41810

7800

120818

-1118774

636000

412000

326000

433000

Life of lease, or useful life if shorter

3515641

3716269

61578

226427

P3Y

P7Y

P3Y

P7Y

P3Y

-48770

-120000

1518241

512601

1777397

705563

-51595708

-48105533

37238780

192988

22456046

17997081

5224565

2987936

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17061864

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780550

4226330

16634320

17413042

16327643

9052617

8324425

308250

797330

6897638

7275026

282400

232400

2980602

987678

2265405

880314

17600000

72000

161072

P3Y

P1Y

480000

547500

0.14

0.67

0.07

0.66

897000

350000

636000

412000

-11631202

-7820369

1000000

843076

508297

23948022

23446491

26341667

26896633

23683482

23928446

24084939